Bloomberg reported that Cigna Corp’s $54 Billion acquisition of Express Scripts Hold Co. is being seen as a best care scenario for pharma middlemen – the pharmacy benefits managers (PBMs).
Evercore ISI’s Ross Muken, in a note to clients, wrote that this deal was a big gain for Express Scripts. Express Scripts is one of the PBMs that has been under fire for its role as a middleman that is hired by insurance companies as well as employers to negotiate discounts from pharma companies.
He said that overall, this deal was not a surprise and comes in the wake of a string of industry consolidations in the pharma supply-chain. Such deals as recently seen, including the latest Albertsons-Rite Aid deal, is a sign of the industry’s need to gain scale and also provide solutions to pharma as well as medical costs.
According to Jeffries analysts, David Windley and Brian Tanquilut, investors were getting rather impatient with Cigna’s slow capital deployment. So this acquisition of Express Scripts definitely allays investors’ concerns.
This deal will probably put pressure on other publically traded managed care organizations such as UnitedHealth. This is because with this acquisition, Cigna will most probably move its PBM business (which is currently contracted to UnitedHealth’s OptumRx division) to Express Scripts.
Analysts expect Humana Inc. shares to also fall in the wake of this deal as Cigna is planning to expand into Medicare Advantage.
While the acquisition of Express Scripts did not come as a surprise, who bought it was definitely surprising. The bet was that Amazon.com Inc. would probably buy the PBM.
Gary Taylor from JP Morgan Securities said that while the deal had value, he wondered whether it was worth the price of increased debt that Cigna had to incur to buy the company. This deal was going to leave Anthem alone among the big 5 health insurance companies without an integrated or owned PBM.
Veda’s Washington policy specialist Spencer Perlman wrote that the days when PBMs were independent are gone. He was quite scathing about the role of PBMs, saying that the entire concept of a PBM was now exposed for what it was – a profit enhancing scheme meant to keep the price of drugs as high as possible.
Perlman stated that the first nail in the coffin of PBMs’ independence was in 2014, when Gilead Science Inc. charged an exorbitant amount for its hepatitis C drug and then blamed PBMs like Express Scripts for their high fees. The (probably) final nail in the coffin came this week, with the FDA Commissioner coming down hard on PBMs.
The Food and Drug Administration (FDA) Commissioner Scott Gottlieb was scathing in his criticism of PBMs. The Commissioner called the network of drug plans, insurers and pharma companies a rigged system which was blocking access to less expensive generic versions of the more expensive medications in the country.
According to Perlman, the consolidation of drug as well as medical benefits under one umbrella will probably change the dynamic of drug rebates by lowering their value to channel partners.
A lot of the PBMs’ shares have dropped in the wake of this deal as well as the FDA Commissioner’s comments about the role that middlemen play in increasing drug prices for end consumers.
Humana Inc. saw its share prices drop as much as 3% after the deal’s announcement. WellCare Health Plans Inc. also saw a drop in its share prices. WellCare had been seen as one of Cigna’s possible acquisitions prior to this announcement.
Express Scripts saw a 12% hike in its share prices after the announcement of this deal.