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Cigna Buys Express Scripts – The Details

Dear Rundown Reader,

This week health insurance giant Cigna announced plans to buy pharmacy benefit manager Express Scripts for $54 billion.

The headlines say this could make for a huge upheaval in the prescription drug industry.

The question is will this upheaval be good for all, some, or none in the long run.

Today’s Rundown examines what it all means for you. But first, your letters:

“The Seven Figure Formula is really [expletive].”

You think so? Let’s take a look. To date, the Seven Figure Formula has closed one half-sell position, ION Geophysical (NYSE: IO), for a 112% gain in 70 days.

The other half of that position is up 200% as we write. The losses in the portfolio are small, the upside for all positions is good, and time is on your side.

Several letters also this week on the upcoming Spotify IPO. One, from a reader who sounds like he has connections:

“I get letters from a retired music industry executive who is very critical of the industry. I trust his opinion when he says Spotify has it going on. Spotify has a better platform than Pandora or Apple.”

Spotify’s direct IPO plans will be interesting to watch. We’ll follow along and keep you updated.

Your Rundown for Friday, March 9, 2018…

Cigna Goes All In On Vertical Healthcare

Cigna’s (NYSE: CI) announcement of plans to acquire pharmacy benefits manager (PBM) Express Scripts (Nasdaq: ESRX) for $54 billion marks a move many experts hail as a precursor to a grand upheaval in the prescription drug industry.

Express Scripts is one of America’s largest PBMs, administering drug plans for more than 266 million Americans, according CNBC.

Terms of the agreement, as reported by The Wall Street Journal, are as follows:

“Express Scripts shareholders will receive $48.75 in cash and 0.2434 shares in the combined company for each Express Scripts share. The consideration amounts to about $96.03 for each Express Scripts share, a 31% premium over Wednesday’s closing price of $73.42.”

Most insurance companies rely on PBMs to decide what drugs to cover, which portion of a drug’s cost they will pass on to consumers, and also negotiates the prices of these drugs.”

The deal represents a growing trend by companies to rein in medical expenses, much of which is associated with the high costs of drugs.

But the high cost of drugs isn’t just because of drugmakers.

Criticism of drug prices also lands on the middlemen in the supply chain, the PBMs, as reported by Bloomberg.

The million dollar question then is, how do consumers benefit from Cigna’s move?

Traditionally PBMs functioned as a major proponent for low cost prescriptions. But that was when they operated independently.

Now the three largest PBMs are all owned or set to be owned by a major insurer or pharmacy.

A Forbes report notes this acquisitions makes, “The pharmacy counter the tip of an iceberg of supply chain skunk works.”

The market has not reacted kindly to the news either.

CI stock tanked in after hours trading Wednesday, falling from its close of $194.25 to $172.00 as of its close Thursday. A decrease of over 12%. Check out the chart:

Cigna

The last time we wrote about health insurance / prescription / healthcare consolidation, your consensus was bigger companies with even more bureaucracy would be bad for patients.

Is this another step in that direction? Or do you trust Cigna to look out for you?

Write in and tell us. Now, turning to the markets this morning…

Market Rundown for Fri., March 9

S&P 500 futures are up 1.00 at 2,740 this morning.

Oil’s up $0.44 at $60.56.

Gold’s down just a few ticks at $1,320.

Bitcoin’s had an interesting few days. “Increasing regulatory scrutiny,” says Fortune. In both the U.S. and Japan.

Plus, problems at some major exchanges. “Growing pains,” say the experts.

One bitcoin goes for $8,920 this morning according to CoinDesk.

We’ll talk again on Monday.

For the Rundown,

Aaron Gentzler

Aaron Gentzler

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Aaron Gentzler

Aaron Gentzler is the publisher of Seven Figure Publishing. He is also the editor of The Rundown. Aaron’s been with Agora Financial/Seven Figure Publishing for 13 years. He's been covering technology and markets for over a decade.

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