UPDATE: Cigna's $67 billion acquisition of Express Scripts will change the way drug prices get calculated
By Emma Court
Stand-alone pharmacy-benefit managers like Express Scripts 'had no future,' one Wall Street analyst said
Cigna Corp.'s $67 billion acquisition of middleman pharmacy-benefit manager Express Scripts Holding Company, announced Thursday, marks the veritable end of independent drug price negotiation in the health-care industry.
Express Scripts (ESRX) is the largest stand-alone pharmacy-benefit manager, one of a group of middlemen that represent health insurers and employers in deal making with drug manufacturers.
Though they push in these talks for lower prices, pharmacy-benefit managers have also been accused of helping drive drug prices up and profiting off it, even as consumers and employers get squeezed by expensive health costs.
The latest Cigna (CI) -Express Scripts deal represents the tail end of independent drug price negotiations, with pharmacy-benefit managers now largely having merged into health insurers. Cigna shares dropped 11.5% in Thursday morning trade while Express Scripts shares surged 8.6%.
See: Cigna to buy Express Scripts in deal worth $67 billion (http://www.marketwatch.com/story/cigna-to-buy-express-scripts-in-deal-worth-67-billion-2018-03-08)
Late last year, for example, pharmacy chain and pharmacy-benefit manager CVS Health Corp. (CVS) announced a $69 billion acquisition (http://www.marketwatch.com/story/us-health-care-is-changing-in-a-big-way-the-cvs-aetna-deal-shows-how-2017-12-04) of health insurer Aetna Inc.
"It has been our long-held belief that stand-alone PBMs had no future," said Leerink Partners analyst Ana Gupte, because drug spending has become a key component of rising health-care costs, and networks are increasingly seen a way to control the cost of expensive specialty drugs.
Whether such deals will raise or lower prices (http://www.marketwatch.com/story/cvs-aetna-deal-wont-necessarily-make-drugs-cheaper-and-could-even-raise-prices-2017-10-30)for consumers is still unclear.
But they do mark a fundamental shift in how drug prices are determined, bearing implications for the health-care industry as a whole.
Read more: U.S. health care is changing in a big way. The CVS-Aetna deal shows how (http://www.marketwatch.com/story/us-health-care-is-changing-in-a-big-way-the-cvs-aetna-deal-shows-how-2017-12-04)
Express Scripts itself has been facing trouble for some time (http://www.marketwatch.com/story/3-reasons-anthems-latest-move-could-signal-long-term-trouble-for-express-scripts-2017-10-19).
The pharmacy-benefit manager lost its longtime client, health insurer Anthem Inc. (ANTM) , in an unusually public way last year.
After claiming that Express Scripts had been overcharging it, Anthem announced plans to create its own pharmacy-benefit manager (http://www.marketwatch.com/story/anthem-dumps-express-scripts-in-favor-of-starting-its-own-pharmacy-benefit-manager-2017-10-18) in partnership with CVS Health.
That fed into a long-term trend of health insurers having in-house pharmacy-benefit managers, which translated to fewer potential clients and more pressure on Express Scripts.
See: 3 reasons Express Scripts could be headed for trouble (http://www.marketwatch.com/story/3-reasons-anthems-latest-move-could-signal-long-term-trouble-for-express-scripts-2017-10-19)
There are still lingering questions about whether health insurer-pharmacy-benefit manager deals will go through, with the clear possibility of antitrust scrutiny.
But if successful, the deals could result in some changes. Saving on health costs is a clear goal, which companies believe they can achieve by bringing medical and pharmaceutical treatments closer together for better outcomes (http://www.marketwatch.com/story/us-health-care-is-changing-in-a-big-way-the-cvs-aetna-deal-shows-how-2017-12-04).
Dysfunctions in the drug industry could also be more in the hands of health insurers to address, redrawing battle lines more directly between drugmakers and health insurers.
The first such signal came this week, when UnitedHealth Group Inc. (UNH) -- which has an in-house pharmacy-benefit manager -- said it would pass some rebates from drugmakers on to consumers, The Wall Street Journal reported (https://www.wsj.com/articles/unitedhealth-will-pass-drug-rebates-directly-to-some-consumers-1520337601), which could serve to make drug prices more affordable.
Cigna has so far contracted pharmacy-benefit management services with UnitedHealth's in-house Optum Rx. UnitedHealth shares dipped 0.1% in Thursday trade, and shares of other health insurers -- including Anthem, Aetna Inc. (AET) and Humana Inc. (HUM) -- also dipped slightly.
Shares of other players in the drug supply chain rose, including McKesson Corp. (MCK) , AmerisourceBergen Corp. (ABC) , Cardinal Health Inc. (CAH) , CVS Health Corp. (CVS) and Walgreens Boots Alliance Inc. (WBA) .
The Health Care Select Sector SPDR (XLV) rose 0.7% on Thursday. Shares of the ETF have surged 2.7% over the last three months, compared with a 3.3% rise in the S&P 500 .
-Emma Court; 415-439-6400; AskNewswires@dowjones.com
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03-10-18 0825ETCopyright (c) 2018 Dow Jones & Company, Inc.