Cigna and Express Scripts Seal $54 Billion Merger

By Anna Wilde Mathews 

Cigna Corp. completed its $54 billion acquisition of Express Scripts Holding Co., setting up a battle among giant health companies to try to cut health-care costs by managing both medical and drug benefits.

The Cigna deal, which won an antitrust nod from the Justice Department without requiring divestitures, brings together a health insurer with a strong focus on employers with a major pharmacy-benefit manager.

In an interview, Cigna Chief Executive David Cordani said an initial focus of the combined company will be on ensuring continued smooth business-as-usual operations, but it will begin rolling out new initiatives next year that seek to take advantage of the tie-up between medical and pharmacy oversight, including efforts focused on specialty pharmaceuticals and mental health.

"It's all with the intense focus on making sure the service promise and the support promise...remain rock solid," he said, adding that going forward, "we as a company will have more tools and capabilities to drive accelerated transformation."

The announcement follows the closing last month of CVS Health Corp.'s takeover of Aetna Inc., which melds an insurer, a PBM and retail drugstores. Both will face off against UnitedHealth Group Inc., the parent of the biggest U.S. health insurer, a PBM and an array of doctor groups and clinics. Another big insurer, Anthem Inc., is rebuilding its own PBM, which will launch in 2020.

"They're all going after the combined pharmacy and medical offering as the value proposition," said Ana Gupte, an analyst with Leerink Partners LLC. "That's the big story. The question is, what will they be able to do, and what can they offer to employers?" With the deal, Cigna also takes on greater scale and heft, she said, to help it compete against behemoths like UnitedHealth and CVS.

Cigna has said that its takeover of Express Scripts will help it squeeze out costs for clients as well as create smoothly integrated products aimed at improving customers' experience. Among other goals, it hopes to hold clients' health-cost growth to the rate of general inflation.

Mr. Cordani said in the interview that Cigna's combination of assets -- which doesn't include bricks-and-mortar drugstores or an extensive network of owned clinics and surgery centers -- give it flexibility to offer clients and other partners options. "We think a choice and open-architected model is more beneficial," he said.

In the short term, investors will be watching for Cigna's early financial projections, analysts said. The insurer has promised more than $600 million in administrative savings tied to its Express Scripts takeover, and projected that it will have earnings per share of $20 to $21 in 2021. Cigna has laid out the earnings goal, but "that doesn't tell us what exactly the path is to get there," said Matthew Borsch, an analyst with BMO Capital Markets.

Mr. Cordani didn't confirm a date for when Cigna will offer 2019 financial guidance, but said the company has in the past done so during its fourth-quarter earnings call.

The takeover happens as the traditional PBM business model is under scrutiny, from state health officials and some employers, which have complained about a lack of transparency on pricing.

A survey earlier this year by the National Business Group on Health found that only 26% of employers were optimistic about mergers between PBMs and insurers, while 56% were skeptical they would lead to improvements and 18% actually felt they would raise costs.

Cigna has previously highlighted one example of where it might be going. In October, Express Scripts unveiled a new deal with an employer coalition that involved passing through all rebates and other payments from drug companies to employers. Express Scripts could get extra payment -- or potentially have to give back some money -- based on whether it hits goals for patient outcomes and financial savings. Mr. Cordani, during an analyst call in November, said the arrangement was "indicative of what we'll be doing more together" once the insurer and PBM are under the same roof.

In the interview, Mr. Cordani said the new combined company is focused on transparency and alignment with customers and other partners.

Write to Anna Wilde Mathews at [e-mail]

(END) Dow Jones Newswires

December 20, 2018 13:01 ET (18:01 GMT)

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