Shares of Cigna (CI) are in focus on Wednesday following an announcement over potential "surprise billing" legislation, as well as news yesterday from Blue Cross Blue Shield of Massachusetts over the integration of Amazon's (AMZN) PillPack into its MyBlue member app and website. Additionally, reports surfaced yesterday that New York Life Insurance is in talks to buy the company's nonmedical benefits unit. While a Mizuho analyst said the Cigna selloff on Tuesday was "overdone," a Citi analyst noted that the potential unit sale is "more substantive" than the PillPack news. Meanwhile, a Wells Fargo analyst downgraded shares of Cigna, along with others in the Pharmacy/Ancillary Benefits space.
'SURPRISE BILLING' LEGISLATION: Leaders of key Senate and House committees have reached a consensus on how to eliminate "surprise" medical bills, they announced on Sunday. The proposal would prevent doctors from sending unexpected bills to patients when they are treated in a hospital that accepts their insurance, and would establish a system for resolving related billing disputes between those doctors and insurance companies.
PILLPACK NEWS: On Tuesday, Blue Cross Blue Shield of Massachusetts announced a new pharmacy integration in its MyBlue member app and website that enables members to "seamlessly manage" and fill their prescriptions with PillPack by Amazon Pharmacy. Blue Cross has worked with PillPack to create a digital option for eligible members to switch to PillPack directly from their Blue Cross MyBlue member app or website. "We know many of our members are managing multiple daily medications, which can cause confusion and stress," said Andrew Dreyfus, president and CEO of Blue Cross Blue Shield of Massachusetts, a not-for-profit health plan. "By making it easy to use PillPack, we are giving our members easy access to a simpler, more personalized experience that removes the guesswork from managing multiple medications. Members will receive automatic, reliable, clearly labeled prescriptions at their homes when they need them." In November, CNN Business reported that Amazon had re-named its PillPack business to "Pillpack by Amazon Pharmacy" from its original title of "PillPack, an Amazon company," signaling the ecommerce giant's dedication to healthcare services.
CIGNA COULD SELL UNIT TO NEW YORK LIFE: The Wall Street Journal on Tuesday reported that New York Life Insurance is in talks to buy Cigna's nonmedical benefits unit in a deal that could be valued at up to $6B. According to people familiar with the matter, Cigna has been seeking a buyer for the business that sells life, accident and disability-income insurance to employers for their workers. Other potential buyers of the unit may include MetLife (MET) and Sun Life (SLF), though the people say New York life recently emerged as the leading contender.
WHAT'S NOTABLE: Cigna has been working to cut debt since it acquired Express Scripts for $54B in 2018. Additionally, the company is locked in a legal battle with Anthem (ANTM) after a planned combination of the companies was blocked over antitrust concerns.
STREET FIGHT: Shares of Cigna fell on Tuesday on headline risks from the potential for "surprise billing" legislation and, to a lesser extent, Amazon's PillPack becoming an in-network pharmacy provider with Express Scripts client, BCBS of Massachusetts, Mizuho analyst Ann Hynes told investors in a research note. She views the selloff in the stock as overdone, adding that the report that Cigna is in talks to sell its non-health insurance business is a "positive." Based on her Washington checks, the analyst believes Senate Majority Leader Mitch McConnell is not supportive of the billing legislation. As such, Hynes believes the risk of the elimination of spread pricing is low. And while she continues to expect PillPack to pick up pharmacy market share, she expects its market share gains to be slow until Amazon buys a payer.
Meanwhile, Citi analyst Ralph Giacobbe told investors in a research note of his own that headlines around Blue Cross Blue Shield's PillPack announcement and potential policy changes related to pharmacy benefit management spread pricing and rebates weighed on Cigna shares yesterday, but The Wall Street Journal report suggesting New York Life is a leading bidder to acquire the company's group disability and life business for upwards of $6B is potentially more substantive. The analyst said he continues to believe Cigna doesn't get much credit for the GD&L segment, "making a sale easier at the right price," and said the proceeds from a sale could provide financial flexibility for debt pay down or share repurchase over the near-term.
Wells Fargo analyst Peter Costa downgraded Cigna to Underperform from Market Perform with an unchanged price target of $181. The analyst said he believes Cigna's "large" debt load could impede its growth and upside earnings surprises. Further, he contended that its benefits business is poorly positioned relative to the growth areas of Medicare and Medicaid, and has risk from commercial market cycles/competition and currency. Costa also thinks the company's pharmacy benefits management business has risk from potential drug price legislation and increased competition. In addition, Wells Fargo's new rating parameters focus on relative performance compared to the group, while previously it focused on comparison to the market as a whole, Costa tells investors in a research note. The Wells Fargo analyst downgraded a total of five names in the Pharmacy/Ancillary Benefits space: Cigna, Walgreens (WBA), Acadia Healthcare (ACHC), WellsCare (WCG) and Encompass Health (EHC).
PRICE ACTION: In morning trading, shares of Cigna are down 0.5% to $190.83.
Cigna
-0.6 (-0.31%)
MetLife
-0.04 (-0.08%)
Sun Life Financial
+0.04 (+0.09%)
Walgreens Boots Alliance
-0.48 (-0.82%)
WCG
+
Acadia Healthcare
-0.37 (-1.15%)
Encompass Health
-0.88 (-1.23%)
Ticker changed to ELV
-2.45 (-0.86%)