Aug. 7, 2018
Dive
Brief:
·
Activist
investor Carl Icahn on Tuesday urged Cigna shareholders to reject the
insurer's $67 billion proposed deal to
acquire Express Scripts, which he said "may well rival the worst
acquisitions in corporate history." His letter states it would be "a
travesty to complete this deal," which is "dramatically overpaying
for a highly challenged Express Scripts that is facing existential risks
on several fronts."
·
The
investor, who owns 0.56%, or
approximately $256 million in share value, of Cigna, says that competition from
Amazon and the threat of the elimination of the existing pharmacy benefit
manager rebate system "is a potentially massive destruction of Cigna
shareholder value."
·
Cigna
CEO David Cordani said on a call with investors last
week he is confident shareholders will approve the deal during the company's
Aug. 24 shareholder vote. He pointed to the transaction's "very
strong accretion profile, the exceptional free cash flow generation, and the
significant strategic and financial flexibility" as reasons to support the
deal.
Dive
Insight:
Icahn
argued that instead of acquiring Express Scripts, Cigna should engage in a
multi-year partnership with the company or another PBM while regulatory
and competitive risks to the PBM industry are worked out.
"Cigna
has done very well on its own and there may well not be a need for PBM
capabilities once the landscape changes and/or Amazon and other competitors
materialize. Additionally, we would like to see Cigna use the cash portion of
the Express Scripts consideration and free cash flow to aggressively repurchase
its own shares. We believe this could result in a Cigna target price of over
$250 in a reasonable time frame," Icahn wrote.
HHS Secretary
Alex Azar has targeted PBMs this year, including potential
elimination of the safe harbor for rebates and moving to a system where drug
companies and PBMs negotiate fixed-price contracts.
"Such
a system’s incentives, detached from these artificial list prices would likely
serve patients far better, as would a system where PBMs receive no compensation
from the very pharma companies they’re supposed to be negotiating
against," Azar testified to the Senate HELP Committee last month.
Amazon,
which recently acquired online pharmacy
PillPack, is "arguably the strongest competitor in the
world," and will not have trouble breaking into the drug distribution
ecosystem, according to Icahn. "Express Scripts is not like Apple or
other companies with brand loyalty. It is just the opposite," he
said. "With lower prices, the beneficiary will be American consumer, not
the owners of Express Scripts."
Icahn
also argues that the loss of Express Scripts' Anthem business foreshadows
future customer retention challenges. "If Express Scripts is part of
Cigna, a number of customers that Express Scripts now has might well not be
willing to deal with a company that is owned by one of their competitors,"
the investor said.
But
Express Scripts touted its strong client retention during the release of its Q2
earnings Aug. 1, boosting its expected 2019 client
retention rate for the 2018 selling season from a range of 96% to 98% to a
range of 97.5% to 98.5%.
In
a research note Friday, Jefferies analysts suggested that Icahn's opposition to
the deal "adds an interesting wrinkle, but likely too little too
late." But that is not stopping the investor from trying.
"Both
the pharmaceutical rebate and mail order pharmacy businesses are facing
regulatory and competitive challenges that could change both forever. Despite
this, Cigna management is offering to pay an all-time high price for a company
that, as a result of secular changes, is currently standing on very dangerous
ground," Icahn said.
https://www.healthcaredive.com/news/icahn-blasts-cigna-express-scripts-deal-as-among-worst-acquisitions-in-cor/529521/
No comments:
Post a Comment