ISS in favor of Cigna’s acquisition of Express Scripts

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Proxy advisor Institutional Shareholder Companies recommends shareholders approve Cigna’s acquisition of Specific Scripts, days after famed activist investor Carl Icahn referred to as the deal a “folly.”

ISS acknowledged potential regulatory and aggressive dangers to Specific Scripts, however stated the potential advantages of the $54 billion deal outweigh them. The proxy advisor referred to as the mix financially compelling, and one that will give the mixed firm speedy scale with sturdy money move era.

Major, ISS stated, Cigna’s “credible administration workforce” has laid out “sound strategic rationale.”

Shares of Cigna slid about 1 p.c Friday. The inventory has now shed almost 10 p.c this yr. In the meantime, shares of Specific Scripts rose greater than 2 p.c, and are up greater than 12 p.c since January.

Cigna says it and Specific Scripts are complementary companies that when mixed can enhance take care of sufferers and decrease health-care prices. The deal has come beneath assault from Icahn, who printed a searing letter titled “Cigna’s $60 billion folly,” by which Icahn stated shopping for the corporate “might effectively turn out to be one of many worst blunders in company historical past.”

ISS disputed Icahn’s issues that Cigna is overpaying for Specific Scripts. It stated the value tag “appears to mirror an affordable premium to the corporate’s historic multiples and a reduction relative to earlier transactions within the sector, which seems to be in keeping with the upper perceived dangers confronted by PBMs within the present market surroundings.”

Pharmacy profit managers, or PBMs, have come beneath scrutiny for his or her position in excessive drug costs. These corporations management which medication are lined and negotiate reductions, often known as rebates, on branded medication with producers. Drugmakers say these middlemen need larger drug costs to allow them to squeeze larger earnings from rebates.

The Trump administration has vowed to re-examine this technique. President Donald Trump spent a big chunk of his speech asserting his blueprint to decrease drug costs attacking middlemen, who he stated “will not be so wealthy anymore.” Pfizer CEO Ian Learn final week instructed Wall Road analysts he believes the Trump administration might eradicate rebates altogether.

In its evaluation, ISS stated Well being and Human Companies is “clearly fixated on rebates” and acknowledged buyers’ “lack of ability to sufficiently assess the resilience of the black field” has weighed on Cigna shares. Specific Scripts tried to quell issues this week, revealing rebates are relevant to lower than 10 p.c of its claims and the corporate plans to retain about $400 million in rebates this yr.

Icahn argues looming regulatory threat mixed with the potential for Amazon disrupting the trade pose “existential threats to the PBM enterprise mannequin.”

Icahn referred to as the looming menace of Amazon “an existential menace to PBMs like Specific Scripts, presumably difficult their very existence.” Amazon doesn’t presently function within the prescription drug profit area, although earlier this yr it stated it could purchase on-line pharmacy start-up PillPack.

ISS referred to as Amazon’s menace “considerably amorphous.” It cited the limitations to entry within the trade, together with the power to ship managed substances.

“Whereas it’s not possible to completely dismiss the disruptive potential of the web behemoth, this can be a threat that seems restricted at current,” the proxy advisor stated.

In the meantime, Cigna’s rival well being insurer Aetna is within the strategy of being acquired by CVS Well being. The roughly $69 billion deal would create a health-care powerhouse, combining insurance coverage, prescription drug advantages and drugstores. Shareholders from each firms have already authorized the deal, and CVS stated Wednesday it expects it to shut within the late third quarter or early fourth quarter.

Glenview Capital’s Larry Robbins got here out in protection of the deal Thursday.

A majority of shareholders on either side of the deal should approve it. Votes are scheduled for Aug. 24.

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