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ANTM

Anthem

$196.72

9.46 (5.05%)

, ESRX

Express Scripts

$57.21

0.4 (0.70%)

10:20
10/18/17
10/18
10:20
10/18/17
10:20

Anthem breaks with Express Scripts, turns to CVS for help with new PBM

This morning, Anthem (ANTM) announced that it is launching its own pharmacy benefits manager, to be named IngenioRX, which will start in 2020 when its Express Scripts (ESRX) contract ends. CVS Health (CVS) also announced that it will provide services to support the new PBM under a five-year agreement with Anthem. INGENIORX LAUNCH: Anthem has announced it is establishing a new pharmacy benefits manager to be named IngenioRx, which will begin offering a full suite of PBM solutions starting in 2020. This coincides with the conclusion of the company's current PBM contract with Express Scripts. Additionally, Anthem announced a five-year agreement with CVS Health, which will provide services to support IngenioRx. As part of the agreement, CVS Caremark will manage certain services for IngenioRx, including claims processing and prescription fulfillment. The new agreement goes into effect on January 1, 2020, and runs through December 31, 2024. PBMs are the middlemen that handle prescription drug benefits for self-insured employers and health insurers, processing drug claims and negotiating drug discounts with pharmaceutical companies. DEAL 'DISAPPOINTING': Express Scripts current long-term PBM contract with Anthem is set to expire on December 31, 2019, and back in April the former had said that was unlikely it would be extended. In an emailed statement today, Express Scripts' spokesman Brian Henry told Bloomberg that, "While it is disappointing that Anthem has decided to work with another PBM, we know that no other PBM will offer Anthem the combination of savings, member and client stability, and clinical expertise that Express Scripts represents." POSITIVE FOR CVS: Commenting on the news, Leerink analyst David Larsen noted that Anthem's announcement effectively terminates the company's relationship with Express Scripts. While it had been widely speculated that Anthem and Express Scripts would not renew their relationship, the announcement is a positive for CVS, the analyst pointed out, adding that while the latter will incur implementation costs, they are not expected to be material to 2017 results. Acknowledging that the full scope of the deal is still uncertain for CVS, Larsen highlighted that Anthem has more than 40 million members in affiliated health plans and serves over 74 million lives that will now be relying on CVS' claims adjudication and in-pharmacy services. PRICE ACTION: In morning trading, shares of Anthem have gained almost 5% to $195.88, while CVS has risen about 1% to $73.08. Meanwhile, Express Script has shed its early session losses and is now up about 3% to $58.86.

ANTM

Anthem

$196.72

9.46 (5.05%)

ESRX

Express Scripts

$57.21

0.4 (0.70%)

CVS

CVS Health

$73.14

0.51 (0.70%)

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ANTM Anthem
$196.72

9.46 (5.05%)

10/13/17
LEER
10/13/17
NO CHANGE
LEER
Ending of ACA subsidies most negative for Centene, says Leerink
Leerink analyst Ana Gupte says the shutting off of the cost sharing subsidies on Affordable Care Act exchanges is most negative for Centene (CNC). The company is "highly profitable" on the exchanges at 15% of earnings, Gupte tells investors in a research note. Molina Healthcare (MOH) and Anthem (ANTM) are exposed on the top line but are losing money, the analyst adds. She notes that UnitedHealth (UNH), Humana (HUM) and Aetna (AET) have exited the exchanges while WellCare (WCG) has not been on them. Centene in premarket trading is down 6% to $88.00 while Molina is down 3% to $61.50.
10/16/17
LEER
10/16/17
NO CHANGE
LEER
Facilities, Centene most structurally impacted to downside in 2019, says Leerink
Leerink analyst Ana Gupte sees the Facilities and Centene (CNC) most structurally impacted to the downside in 2019 and beyond at 15% of earnings, if there is no legislative or other budgetary compromise to restore the Cost Sharing Subsidies after President Trump's executive action to stop funding them. The analyst also notes that Healthcare Facilities also face a structural headwind in 2019 and beyond with Exchanges contributing 1%-5% of EBITDA. In the near-term in 2017, Gupte says Molina Healthcare (MOH) faces transient balance sheet pressure with the Q4 unfunding placing pressure of $135M and wiping excess parent cash possibly necessitating an equity raise, while other HIX plans Anthem (ANTM), Centene and Cigna (CI) can offset with their excess capitalization at the subsidiaries and at the parent.
10/16/17
BMOC
10/16/17
INITIATION
Target $210
BMOC
Market Perform
Anthem initiated with a Market Perform at BMO Capital
BMO Capital analyst Matt Borsch initiated Anthem with an Market Perform and $210 price target.
10/18/17
LEER
10/18/17
NO CHANGE
LEER
Anthem PBM announcement a positive for CVS, says Leerink
Leerink analyst David Larsen notes that Anthem (ANTM) has announced that the company will create its own PBM named IngenioRx and will begin offering full PBM capabilities for its members in 2020. The announcement effectively terminates the company's relationship with Express Scripts (ESRX), which expires in 2020, he adds, noting that it is a positive for CVS (CVS). Larsen points out that Anthem has signed a five-year deal with CVS, which begins on January 1st of 2020 and utilizes "CVS' expertise in point-of-sale engagement" and relies on CVS for prescription fulfillment and claims processing services.
ESRX Express Scripts
$57.21

0.4 (0.70%)

10/09/17
10/09/17
DOWNGRADE

Underperform
Express Scripts downgraded to Underperform increasing headwinds at Raymond James
As previously reported, Raymond James downgraded Express Scripts to Underperform from Market Perform. Analyst Michael Baker believes the company is vulnerable to increasing competitive pressures given its "pure play" diversified model and relatively high margin profile. Baker said the 2019 selling season is shaping up to be more competitive than 2018 and commentary indicates some have been pushed to 2019 from 2018, putting approximately $1.5B scripts "in play" and assumes Anthem will not re-sign with Express. Baker believes Prime will aggressively pursue Express Scripts' Blues clients and notes four Blues are up for bid in 2019 representing approximately $8.5B in drug spend. The analyst trimmed his 2018 adjusted earnings estimate to $7.55 from $7.60 and cut his 2019 estimate to $8.33, below consensus of $8.56.
10/09/17
RAJA
10/09/17
DOWNGRADE
RAJA
Underperform
Express Scripts downgraded to Underperform from Market Perform at Raymond James
10/10/17
MAXM
10/10/17
NO CHANGE
Target $78
MAXM
Buy
Express Scripts risks balanced from Amazon entry into drug business, says Maxim
Maxim analyst Anthony Vendetti says that if Amazon (AMZN) decides to enter into the prescription drug business as its own pharmacy benefit manager, it would represent a long-term threat to Express Scripts (ESRX). However, Vendetti contends that Amazon would be better served to partner with an existing industry player or acquire one and believes that Express Scripts would be an attractive choice in either scenario. The analyst, who has already modeled a potential loss of the Anthem business in FY20 and beyond, maintains a Buy rating and a $78 price target on Express Scripts.
CVS CVS Health
$73.14

0.51 (0.70%)

10/06/17
LEER
10/06/17
NO CHANGE
LEER
Leerink convinced Amazon entering drug distribution within two years
After calls with pharmacy benefit managers and retail pharmacy specialists, Leerink analyst Ana Gupte says she's convinced that Amazon.com (AMZN) "will almost certainly" enter the drug distribution value chain within two years, evolving into a more disruptive offering over time. Amazon's move is most threatening for retail pharmacies Walgreens Boots Alliance (WAB), CVS Health (CVS) and Wal-Mart (WMT), Gupte tells investors in a research note. The analyst calls Amazon both an opportunity and threat for Express Scripts (ESRX) and views UnitedHealth (UNH) and Humana (HUM) as "largely buffered." Gupte's conversations with specialists indicate Amazon is hiring relevant talent and is in active discussions with mid-market pharmacy benefit managers and possibly even with large players such as Prime Therapeutics. It is believed Amazon will start by capturing share in both the cash paying and third party mail order and possibly specialty pharmacy segments, Gupte notes. She expects Anthem (ANTM), Aetna (AET) and Cigna (CI) will likely to contemplate Amazon's entry in their upcoming PBM contract decisions.
10/09/17
OPCO
10/09/17
NO CHANGE
Target $95
OPCO
Outperform
Amazon impact on CVS Health overblown in near-term, says Oppenheimer
Oppenheimer analyst Mohan Naidu notes his firm hosted a CVS Health (CVS) team for investor meetings, with Amazon's (AMZN') speculated entry as a key subject of the discussion. The analyst notes that the team believed that the new entrant needs to develop or acquire significant capabilities in prescription management, distribution, reimbursement and regulatory requirements, which requires time. While not overlooking the Amazon threat, Naidu believes the immediacy of its entry and the impact on CVS near-term appear to be overblown. The analyst reiterates an Outperform rating and $95 price target on CVS shares.
09/19/17
09/19/17
INITIATION

On The Fly: Top five analyst initiations
Catch up on today's top five analyst initiations with this list compiled by The Fly: 1. Tesla (TSLA) initiated with an Underperform at Jefferies. 2. DowDuPont (DWDP) initiated with a Buy at Argus. 3. Intuit (INTU) initiated with an Outperform at William Blair. 4. CVS Health (CVS) initiated with an Outperform at RBC Capital. 5. athenahealth (ATHN) initiated with a Sector Perform at RBC Capital. This list is just a portion of The Fly's analyst coverage. To see The Fly's full Street Research coverage, click here.

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