Cigna Group at Barclays Global Healthcare Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Andrew Mok - Barclays - Analyst : Great. Let's start with the stop loss. As you just mentioned, you had a bit of a setback on that product in 4Q, attributed some of the pressure to specialty and higher acuity surgeries I think if any company was ahead of the curve on the acceleration of specialty drugs, it was probably Cigna. So taking a step back, why do you think specialty pharmacy has emerged as such a pressure point across the industry now when many of the drugs seemingly causing the pressure drugs like KEYTRUDA, OCREVUS have been around for a number of years. Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yes. So broadly speaking, the specialty drug wave that we're seeing is right in its infancy actually in terms of where we see the next decade going and it's already a $400 billion addressable market. As we've talked about, for example, at our Investor Day last year, right around this time, and it's been growing high single digits. We expect it to continue growing at that rate from the standpoint of secular growth moving forward. And part of that is drug innovation as you're seeing more and more drugs being approved by the FDA and part of it is also a broader set of indications for the existing drugs. So you referenced KEYTRUDA, OCREVUS, et cetera. Some of those are being now prescribed for additional indications or additional conditions. And on top of that, we're also seeing a dynamic where there are -- there's a greater level of comfort by the prescribers with using specialty drugs as maybe the first place they go as opposed to traditionally starting with a nonspecialty brand. or a different alternative. So all those forces are leading to this wave of specialty drug innovation that's transpiring across the health care system. We benefit from that in our Accredo specialty pharmacy in the specialty and care services platform within Evernorth. Now to the core of your question, this was a pressure point for us within Cigna Healthcare in 2024. So specialty drugs, particularly specialty injectables and infused specialty drugs were a source of pressure for us in 2024. And we view that as a structural shift that's transpired for some of the reasons I made reference to earlier, in terms of the new drugs coming to market, a broader range of indications and the greater level of comfort with prescribers using those as the first-line medication. So for all those reasons, we think there's a structural shift transpiring. Our 2025 outlook reflects that as those our most recent set of pricing assumptions that we put in place for our later renewals in 2025 and 2026. So when you put all those pieces together, difficult 2024 driven by that '25 will also be weighed down a bit as our 2025 outlook reflects. And then we're confident in the ability to recover that margin shortfall over the course of the next two sales cycles.

Question: Andrew Mok - Barclays - Analyst : Right. And this isn't just an issue for Cigna that you're dealing with. This is clearly an issue across the industry. I guess, what are you seeing from a competitive standpoint? What level of prices, price increases, are you able to pass through? And how does that compare to what you might see from your competitors? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare There's a couple of things here as it relates to the pricing environment. So if you take -- we'll take the commercial employer space broadly. It's a pretty firm market. So we were able to get our 2025 all-in rate increases at a higher level than our 2024 all-in rate increase. for the commercial employer portfolio. So elevated cost trends in '24. The expectations of continued elevated cost trends to 25%, our pricing yields are higher in '25 than they were in '24. Now that's the overall commercial employer portfolio. Then you move to stop-loss specifically, which I think is where your question was headed, Important to keep in mind, our stop-loss portfolio is all integrated clients. So we don't write any stand-alone stop-offs. It's all first dollar relationships self-funded, better than wrapped with a stop loss coverage over the top. Some of that -- most of that is individual stop-loss for an individual climate level. Some of that is aggregate stop-loss. So it's a little bit difficult to

Question: Andrew Mok - Barclays - Analyst : Right. And it sounds like the individual stop-loss book was the primary source of the pressure. Can you share with us the premiums -- what level of premiums you have on the individual side versus the aggregate stop-loss book? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yes. So for 2024, the full year, we had about $6.7 billion of premium across the entire stop-loss portfolio. And so that represents about 15% of the Cigna Healthcare premium in 2024. Most of the $6.7 million is an individual stop-loss. So these would be employers who buy protection for individual claimants above a certain threshold. Some might but very low pooling points like $25,000 or $50,000 larger employers might buy much larger pooling points maybe $300,000 or $500,000. And then there's -- the minority of the $6.7 billion is an aggregate stop-loss, where the employer just wants protection against their all-in budget. So they might buy 110% or 120% aggregate stop-loss. But the majority, think of it as maybe one-third quarters, one-fourth individual versus the aggregate within the $6.7 billion. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 12, 2025 / 6:00PM, CI.N - Cigna Group at Barclays Global Healthcare Conference

Question: Andrew Mok - Barclays - Analyst : Great. And going down further down the commercial segment to your ACA exchange business, you've reduced your footprint there for a number of years as you've prioritized margin over membership. How are you thinking about your competitive positioning now in that market? And do you view that as an area of growth from here? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yes. So the ACA market for us, important when we kind of step back from this because we think you need a functioning individual market in the US in order for the entire health care system to work. So we been participating in this market for a decade plus and continue to refine our footprint over the course of this. But there is a need here when you think about all the people who don't have access to employer-sponsored plans or government-sponsored plans. So we've been active in this space as a participant to help make sure that the market is functioning and working effectively. Started small, we gradually expanded our footprint over the years. And coming off of 2023, two years ago now, which was a difficult year for our individual business, we needed to do some reconfiguration of the geographic footprint and also the pricing strategy. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 12, 2025 / 6:00PM, CI.N - Cigna Group at Barclays Global Healthcare Conference So we did that from '23 to '24. The book shrunk pretty meaningfully from '23 to '24. And then as we step into '25, we did some further adjustments to the geographic footprint and took pricing actions to get our target margins for this business, which are meant to be 4% to 6%. We took pricing actions to get ourselves into that zone here in 2025. So we're tracking to that. We do expect to have fewer customers in '25 than we had in '24 that's been reflected in the 2025 customer outlook that we put forth alongside of our fourth quarter earnings release. So you can think of the individual exchange will probably be down 20% or so from where they were at year-end '24, in line with where we expected. And from here, we would expect to grow off this base and over the long term, consistent with our growth algorithm in our Investor Day outlook from a year ago, we would expect 10% to 15% average annual growth on a go-forward basis off that new base.

Question: Andrew Mok - Barclays - Analyst : Great. Let's move on to the Evernorth side of the business. It sounds like you and the rest of the industry are making a concerted effort to pass an along close to, if not 100% of rebates. What's driving that decision? And if that's the case, what do you think is misunderstood about the PBM model with respect to rebates and potential reform? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yes. So our pharmacy benefit services business, which the brand is Express Scripts. The people tend to relate to us, high-performing business. It's been delivering strong results for many years in a row, have another good '24, and we're off to a good start, as I said, in '25. Now the PBM market more generally has been moving toward more of a pass-through rebate model anyway, kind of regardless of regulatory forces, that's just the direction of travel, if you will, relative to client choice. So we believe it's important to have a variety of ways in which employers or health plans can contract with us as opposed to having just one vehicle. So some employers prefer that 100% of the rebates are passed through to them. Others prefer that we retain a portion of the rebates because they view it as driving better economic alignment. But we currently pass through over 95% of the rebate dollars for us at any given point in time might be higher than that. But the industry has been heading in that direction for some time already. And some 75% of our clients are in a full pass-through rebate situation already. So I think the industry, ourselves, some of our competitors have been also trying to gradually nudge employers in that direction because we know it's such a lightning rod from a regulatory standpoint. And there's receptivity to moving in that direction anyway because at the end of the day, our role here is to keep net prices as low as possible and retained rebates are just one mechanism through which we capture the value that we create through our mission here of driving net prices as low as possible. So that's broadly how we think of the picture. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 12, 2025 / 6:00PM, CI.N - Cigna Group at Barclays Global Healthcare Conference

Question: Andrew Mok - Barclays - Analyst : Great. Sticking with some of the high cost of drugs, you've made a lot of inroads with employers on the GLP-1 cost guarantees. What's the latest feedback from the market? And what guardrails do you put in place on the usage of these drugs to deliver on those cost outcomes? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yes. So we introduced the program last year called in Circle Rx, which was meant to be a GLP-1 for weight management program that an employer can adopt, have all their employees and their family members that move into, which allows for what we view as a more controlled environment for purposes of using GLP-1s. And what do I mean by that? It's only the FDA-approved GLP-1s that are part of the program. So employers and their employees independents don't have to worry about things like safety concerns or quality concerns because of the FDA approved versions. Secondly, there is a lifestyle modification component to this, where an eligible person will use our Omada digital app to make sure that they're staying on track with the treatment regimen and the associated components that are attached to that. And then, of course, there are clinical guidelines relative to BMI and such to qualify for the program. So employers like this program because it gives them a greater degree of budget certainty with the financial guarantees that we've embedded in it. They also like the fact that they know it's safe for their employees and family members who are using the drug. They don't have to worry about compounded versions or others maybe off-label where there's some risk. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 12, 2025 / 6:00PM, CI.N - Cigna Group at Barclays Global Healthcare Conference And we currently have over 9 million eligibles that have opted in here to the InCircle Rx program. That number is higher than it was even earlier this year. So there's been good demand for this program, and we see GLP-1s continuing to grow in the future as well.

Question: Andrew Mok - Barclays - Analyst : When we think about the Evernorth business more broadly, there's been a number of big customer wins over the years. Centene was one of the biggest wins, I think, for the business, probably as big of a client as it gets. You onboarded that contract in 2024 and previously cited expectations to breakeven in 2024 run rate target margins in 2025. Are you still on track to be at those target margins with this contract for this year? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare You could think of the broad kind of multiyear arrangement with them is tracking to what we expected. So to your point, '23 was an investment year, '24 was onboarding the first year of a breakeven type of the year and the '25 we're hitting our stride more at the run rate. There'll be a little bit of a growth in the contribution over the course of '25 as you think about how to model the quarterly pattern. But overall, the relationship is tracking to expectations. Our '25 outlook reflects those dynamics when you think about the full year Evernorth outlook as well as the seasonal pattern that we described in our fourth quarter call. So overall, good relationship. To your point, it's the largest client we have at this point, and we're working constructively with them.

Question: Andrew Mok - Barclays - Analyst : Great. And last question here as we're coming up on time. the new administration has brought forth a lot of potential change for the health care industry, including potential regulatory change for M&A. How does that backdrop impact your appetite for M&A going forward? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Our framework for M&A really is unchanged from what we've talked about in prior quarterly reports and prior conferences, meaning any asset that we consider needs to be strategically attractive, it needs to make financial sense for us and it needs to have a high probability to close. So that criteria is unchanged. New administration or not, those three things need to be true. And for '25, as I indicated earlier, and we talked about in our fourth quarter call, we'll focus on the potential for strategic bolt-on transactions. So think of those as up to single-digit billion type price tags. But each time we evaluate any of those, it competes up against share repurchase. And with our shares trading where they are, we continue to view that as a very attractive lever. The pending Medicare divestiture, which we still expect to complete this month, we expect to use the majority of those proceeds for share repurchase. So we would anticipate a balanced capital deployment framework for the balance of 2025.