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Following the news on July 11 that the Trump administration dropped their proposal to eliminate rebates for drug manufacturers and pharmacy benefit managers (PBM), Cigna Corp (CI) surged 9%. The company’s profits would have taken a major hit had the ban gone into effect. While the stock is down 6% year-to-date, analysts believe a rebound is coming.
With its August 1 earnings release date quickly approaching, we enlisted the help of TipRanks to find out if Cigna really is on the road to recovery.
Cigna Relies on PBM Segment
Cigna is a health insurance company based in Philadelphia, Pennsylvania offering a wide variety of medical, supplemental, dental and Medicare plans.
The proposed rule would have prevented drug makers from giving discounts and rebates to insurers or PBMs for putting a particular drug on a list of drugs covered by health plans.
PBMs were first used to help insurance companies manage prescription claims for patients with Medicare Part D plans. Now they are responsible for drug utilization review, formulary management, determining which pharmacies are in network as well as reimbursements given to pharmacies.
Had the President been able to ban drug rebates, the effects would have been catastrophic for insurance providers. Cigna along with several others shifted focus towards making PBMs a key component of their business models.
The company recently increased their exposure to the PBM sector after acquiring Express Scripts for $67 billion in December. The goal of the acquisition was to lower costs and improve the quality of treatments by providing access medical care and pharmacy benefits in one single place.
Even with the decline caused by the threat of rebate cuts, sentiment regarding the company and its ability to make a comeback is positive.
A Strong Q1
The company had a strong first quarter, with total revenue reaching $38 billion up from $11 billion in Q1 2018. Shareholder net income grew to $1.4 billion from $0.9 billion over the same time period. EPS increased to $3.90 per share, surpassing the Street’s prediction of $3.73 per share. Cigna also exceeded the $33.1 billion estimate for adjusted revenue, with the actual result being $33.4 billion.
Management attributed this growth to the Express Scripts acquisition as well as its health coverage plans for medium and large-sized companies. President and CEO, David Cordani said, “Cigna's first quarter performance reflects focused execution of our proven growth strategy and positions us well to achieve our increased outlook for 2019.”
Going Forward Into Q2
Ahead of the Q2 earnings release, management is confident more gains are on the way. The company updated its guidance on May 2, saying 2019 adjusted revenue should fall within the range of $133 billion to $135 billion. This is up from the original estimate of $132 billion to $134 billion.