Sept. 17, 2018
Dive
Brief:
- The
Department of Justice on Monday said it will not challenge Cigna's $67
billion acquisition of Express Scripts because the deal "is unlikely
to result in harm to competition or consumers."
- While the
federal antitrust division will not seek to block the merger, the deal is
still subject to state regulators and various departments of insurance.
- The deal, which has already secured shareholder approval, is
expected to close at the end of the year.
Dive
Insight:
Industry
watchers now turn their eyes more squarely to the DOJ's verdict on the $69
billion proposed Aetna-CVS merger. The two mega-mergers highlight the growing
trend of healthcare companies vertically integrating to combat headwinds
including softening patient admissions and ever-rising healthcare costs.
Leerink
analyst David Larsen is among those predicting a green light for the Aetna deal
as well, noting that overlap in Medicare Part D coverage could explain the
longer approval process.
The
DOJ clearance moves Cigna one step closer to putting its medical benefit
services and Express Scripts expertise in pharmacy benefit management under one
roof. Analysts have said this is crucial as payers try to rein in spending on
costly specialty drugs.
Both
Express Scripts and Cigna shares closed higher Monday from the previous close
following the DOJ clearance. Express Scripts shares closed at $95.23 and
Cigna's closed at $197.84. Cigna's stock was trading upward at $199 by
mid-morning Tuesday, and Express Scripts' was trading at $95.59.
Regulators
spent six months on the investigation, reviewed more than 2 million documents
and interviewed more than 100 people from within the industry before reaching
their conclusion, DOJ said.
Brian
Tanquilut, an analyst with Jefferies, said DOJ's decision not to intervene is
not surprising "given the lack of overlap between Cigna's business versus
Express Scripts."
Cigna
overcame a last-minute effort by activist investor Carl Icahn to nix the
deal, warning fellow shareholders in an early-August open letter that the
deal was among the "worst acquisitions in corporate history."
Icahn backed down after
major shareholder advisory firms Institutional Shareholder Services Inc. and
Glass Lewis & Co. came out in support of the deal.
Company
officials promised the tie-up would yield savings for consumers, though some
consumer groups and experts are skeptical. Studies
of some horizontal healthcare mergers in general don't find cost savings are
passed onto consumers.
"If
Cigna is allowed to become the latest in the trend to take PBM needs in-house,
it is more likely that consumers could end up at the mercy of a handful of
giants — each with its own siloed services — and the choices they now
enjoy for medical care and pharmacy needs becoming a thing of the past,"
Consumers Union senior policy counsel told U.S. lawmakers earlier this year.
California's
Attorney General in particular has blasted the proposed Aetna-CVS union, citing
anti-competitive impacts, and asked the Justice Department to block it. That
seems unlikely given the Democratic leadership in the state and the current
administration.
Still,
backers say combining various aspects of the healthcare ecosystem will create
efficiencies.
"We
are pleased that the Department of Justice has cleared our transaction and that
we are another step closer to completing our merger and delivering greater
affordability, choice and predictability to our customers and clients as a
combined company," Cigna CEO David Cordani said in a statement.
On
its first quarter earnings call with investors earlier this year, Cigna
executives said they expect the deal to result in earnings per share increasing
from $18 to $20-21 by 2021 and a long-term annual growth rate of 6% to
8%. Cigna shareholders will own about 64% of the combined company and
Express Scripts shareholders will own about 36%.
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