Featured in Health Business Daily, March 12, 2018

Cigna To Buy Express Scripts Amid Vertical-Integration Trend

A longer version of this article was published in the March 9, 2018, issue of RADAR on Drug Benefits. Subscribe today for biweekly business strategies and analysis for health plans, employers, PBMs and pharma companies.

March 12, 2018

Cigna Corp. on March 8 said it will buy Express Scripts in a $67 billion deal, a transaction that furthers the trend of payers and PBMs joining together in a single diversified entity.

Under the deal, Cigna would pay $48.75 in cash and 0.2434 shares of stock of the combined company for each Express Scripts share. Cigna President and CEO David Cordani will remain in his current role, while Express Scripts President and CEO Tim Wentworth serving as president of the Express Scripts unit.

Such a deal makes it clear that the industry is moving away from the stand-alone PBM model, says Ashraf Shehata at KPMG’s Global Healthcare Center of Excellence.

“[Express Scripts], of course, was the remaining pure play,” he says. “I think what’s kind of prevailing right now is this notion that the PBMs are really starting to kind of attach their value to a larger ecosystem.”

For Express Scripts, the deal is “clearly a positive turn of event,” according to Evercore analysts Ross Muken and Michael Newshel. However, it could cause UnitedHealth Group to lose the portion of Cigna’s PBM business that is currently outsourced to OptumRx, but the earnings impact might be limited.

The challenge to the combining company will be to maintain their respective clients and convert them to the new entity, Shehata says.

Furthermore, the trend of payers and PBMs joining together requires pharmaceutical manufacturers to make a “big switch in thinking,” William DeMarco at Pendulum HealthCare Development Corp. says.

“Most of big pharma is just waking up to this fact that managed care can control the formulary, and if they are left out of the formulary, [a drug’s] growth success is compromised,” he says.

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