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Cigna sinks on investor worries about Trump drug rebate rule change

Cigna CEO David Cordani doesn’t see the Trump administration’s new proposal to cut Medicare pharmacy benefit rebates as a threat to its growth, as it embarks on integrating its newly acquired PBM firm Express Scripts.

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“The proposed rebate rule will not have a meaningful impact on our growth or earnings trajectory,” Cordani told analysts, on the company’s fourth-quarter earnings call Friday, adding that its Medicare plans are already designed to pass through discounts to members.

“So, we don’t see a major implication to that business portfolio. And … it does not apply to the commercial marketplace,” he said. “We do see some opportunities in the proposed rule … to even further accelerate value based care programs with the pharmaceutical manufacturers.”

Late Thursday, the Trump administration proposed ending the rebate system for Medicare and other government health plans, which officials argue provide a “perverse incentive” for pharmaceutical makers to set artificially high list prices on drugs.

The news sent shares of companies in the drug supply chain lower after hours, and the losses continued in early trading Friday.

Cigna’s Express Scripts is the nation’s largest pharmacy benefit manager, with more than 80 million members; its shares fell as much as 5 percent. Shares of rivals CVS Health fell nearly 2 percent and UnitedHealth Group was down just over 1 percent in early trade.

Cigna shares were also under pressure after the health insurer forecast earnings and revenues for the firm’s first year as a combined firm that were below Wall Street estimates.

Cigna is now expecting 2019 adjusted profits of $16 to $16.50 per share, well below the analyst consensus estimate of $16.74 per share, according to average estimates compiled by Refinitiv IBES. The insurer says it expects full-year revenues in the range of $131.5 billion to $133.5 billion, compared to the analyst estimate of $133.6 billion.

Analysts say management is likely being conservative because of a number of competitive shifts in the PBM’s business. Rival Anthem will be transitioning its members from Express Scripts to its own in-house pharmacy benefits unit earlier than expected, while Cigna will be transitioning away from its contract with UnitedHealth’s PBM OptumRx.

“Cigna may be setting a conservative 2019 bar against which it has confidence it can execute a ‘beat and raise’ pattern over the course of this year,” noted BMO Capital Market analyst Matt Borsch in a research report.

Cigna reported fourth-quarter adjusted profits of $2.46 per share, which were 4 cents above the Refinitiv analyst estimate, as it reined in medical costs. The results for the quarter included 11 days of earnings as a combined company.

—By Bertha Coombs. Follow her on Twitter: