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Cigna Stock Gains Near 9% on Drug Rebate Proposal Pullback

On Jul 11, Cigna Corp. CI shares witnessed a rise, following the announcement made by the Trump administration about dropping its proposal to curb drug rebates to pharmacy benefit managers (PBM).

Cigna’s acquisition of Express Scripts for $67 billion helped it gain a huge exposure to the PBM business. However, its shares had been under pressure for some time since the administration had plans to ban the rebate on drugs in the hands of PBM. This proposal, if executed, would have dented the company’s profitability.

While Cigna was up 9.24%, other health insurers having PBM business such as UnitedHealth Group Inc. UNH, Anthem Inc. ANTM and Humana Inc. HUM soared on the heels of the news.

PBMs basic role was to help manage prescription claims for insurers for Medicare Part D plans. But over time, they have evolved to play an extended role in drug supply chain by helping with formulary management, drug utilization review, determining which pharmacies are in-network and how much those pharmacies will receive in reimbursement. Thus, they became more important carriers for insurers.

In recent years, health insurers like Cigna and others have integrated PBM functionality into their businesses. While some of them acquired PBM companies, others have developed their in-house PBMs.

Cigna’s acquisition of Express Scripts has been successful and its first-quarter results post the buyout witnessed revenue growth of 192% and earnings beat of 4.3%. The company also saw an increase in membership in its Medicare Part D segment due to the acquisition.

Following the strong first-quarter earnings, Cigna raised its earnings projection for the year 2019 on the back of strong performance in its health-insurance and pharmacy-benefits businesses. The company expects the deal to increase earnings per share from $18 to $20-$21 in 2021. The combined company will generate free cash flow of at least $6 billion in 2021.

Barring yesterday’s gain, the company has declined 15.5% year to date, compared with the industry’s gain of 15%.


Now, with the lifting of the proposed rebate ban, the company's share price should bounce back. Cigna’s solid business positioning, good cost control is expected to place it in a good position going forward. 

Cigna carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Cigna Corporation (CI): Free Stock Analysis Report
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