Cigna Group at Goldman Sachs Global Healthcare Conference Transcript

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

Question: Nathan Rich - Goldman Sachs - Analyst : Brian, I maybe wanted to start, last week you gave out reaffirm guidance for the year. I guess as you see in the second quarter play out. Was there anything different relative to your expectations within the quarter positively or negatively? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yeah. Thanks, Nate, for you and Goldman Sachs for hosting us here this week. Enjoying the conversation so far with investors. So if you can see, we had an 8-K last week where we essentially reaffirmed our full-year EPS outlook of at least $28.40, which was a $0.15 raise from where our guidance was. We entered the year, so after the strong first quarter, we raised full year outlook and reaffirm that in the quarter. Also, if you didn't see the details of that, we also described some of our capital deployment plans for the year, specifically the share repurchase activity that we have underway, where we recently completed the accelerated share repurchase program we had in place, which was $3.2 billion and indicated that we've done year to date, $4.4 billion repurchase, which includes some open market share repurchase subsequent to the ASR being completed. And we intend to complete at least $5 billion in first half of the year in terms of share repurchase and have the majority of our full year capital available for deployment go to repurchase. So just wanted to provide a little bit clarity to investors of our capital deployment plans to augment the strong EPS performance. As it relates to the second quarter and specifically your point about what we're seeing there, so far things are broadly in line with expectations. So we would expect, as we talked about with Cigna Health (technical difficulty) where we had intended stepping in the quarter, our second quarter MLR guide is to be within the full year range, which is 81.7% to 82.5%. And so far, what we're seeing is tracking to that expectation. And if you rewind the clock back in 2023, we had expected elevated utilization in '23 and '24, which we priced for -- guided for. And so we are seeing elevated cost trends across the portfolio, but in line with what we had price than expected. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 11, 2024 / 2:00PM, CI.N - Cigna Group at Goldman Sachs Global Healthcare Conference

Question: Nathan Rich - Goldman Sachs - Analyst : Okay. And I guess with a little more distance from the change disruption, I think you had kind of put some conservatism into the guidance for [DAB] and I think specifically may be $200 million funds you can maybe expected to receive that you haven't received yet at the time of the first quarter call. Can you talk about how those have maybe developed relative to expectations? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yeah. So at the end of the first quarter, we had about $650 million of total reserve associated with the change disruption. To your point, only about $200 million of that was incurred, but not reported estimates that we had prepared the other $450 million or so was essentially claims that we receive, but just hadn't paid out yet. That $450 million you can think of as essentially fully paid at this point. The $200 million, which is our estimate of the incurred, but not reported, is gradually working its way through in the second quarter. And we would expect that we'll have a full picture on that by the end of the second quarter, but no real surprises so far in terms of how that's trended on the first couple of months into the quarter. I'd also note our operations as a practical matter, essentially back to normal now in terms of provider claim submissions and provider claims payments. So that was a disruptive event in the first quarter, but we've really worked through that from an operational standpoint now.

Question: Nathan Rich - Goldman Sachs - Analyst : Okay. That's helpful. Maybe wanted to talk about the Cigna Health Care segment, is maybe from a selling season standpoint, you're talking about like an uptick in RFPs expected this year. I guess, are there any areas of -- you think will be of greater importance to employers as you go into the selling season and you talked about for '24, kind of, not chasing price in a few instances. Can you just talk about, you know, where pricing is today in the market? How you feel like Cigna is positioned relative to competitors in the commercial space? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yeah. There's a lot in that question. So maybe I'll start with the last piece, and then I'll bifurcate the different buying groups within Cigna Health Care. So I'd say pricing is rational, it's very competitive market, but it's rational. So we're seeing carriers price for the elevated cost trends. I was talking about earlier across the different segments, so in that sense, a firm market, if you will, relative to the pricing environment. Now importantly for Cigna Health Care, we have different size employers who have different needs. So we tend to talk about it in national accounts. We call our middle market and then we call our Select segment. And each of those have different buying dynamics, so when we talk about our fees being up. It's really national accounts [comme] because we're talking about January 2025 activity, the smaller employers really haven't started their 2025 purchasing yet at this point in the year. But the RFPs being up is a function of national accounts, specifically to your point on what our employers looking for, there's few themes that have tended to persist across the national accounts buyers as we enter the 2025 cycle. One would be, there's continued interest in more personalized solutions, whether that's networks or whether that's plan design, so things were introducing with the, for example our Pathwell Specialty and our Pathwell Bone & Joint, which are site of care oriented network solutions, specifically for different types of conditions in that case, specialty pharmacy injectables or musculoskeletal conditions. We're also seeing more and more demand for mental health oriented capability. So we're fortunately situated very well with our capabilities there, whether that's virtual mental health or face-to-face mental health engagements. We're seeing a lot of interest from employers and care navigation capabilities, so often digitally enabled through a mobile phone. So there's interest there from employers. And then we're seeing a lot of larger employers looking to consolidate down from their point solutions that they've been testing over the years. So a lot of them will use that terminology point solution fatigue with us or maybe they're not getting the ROI on some of the vended solutions. And so they're looking for carriers like us and some of our competitors who have a more fulsome suite, more we can integrate capabilities across the board. So all of that points to opportunity for us in the larger end of the market. Now over the long term, we expect to be maintaining our share in the larger end of the market, both national accounts and middle market. And we expect the select segment to be where we get the outsized growth in the Cigna Healthcare portfolio. And for us, the Select segment is 50 to 500 size employers where we would expect that business to be growing similar to what it's done historically in the high-single digits annually, and that's less concentrated on January first. So we see more intra year growth. We'll see growth within 2024 as we get July first, October first. And then as we head into '25 with that business as well.

Question: Nathan Rich - Goldman Sachs - Analyst : And I guess we've heard some payers talk about working maybe more closely with the adoption of [Ikra]. I mean, do you feel like there's much overlap with the Select segment and the type of employer that may be interested in that type of arrangement, as you think about the future competitiveness of that space? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare So our view of the Ikra market is that there is some interest from some employers, but likely in more of a niche context. So we think that the Ikra market will develop into more of a niche market. And the reason we say that is the nature of Ikra -- well, enables an employer to you see that they're offering health benefits, it's a little bit of an outsourcing of the health benefit because it's going to the individual exchange carriers ultimately. And so the employers we serve, which again, are predominantly 51 and up, employee size, more often than that [new] health benefits is a talent attraction and retention tool as well as something to enable productivity, absence management and the ongoing health and well-being of employees and their dependents. So most of the employers that are attracted to us, we don't expect we'll be interested in exploring Ikra. We do think through the under 50 size employers, there's likely to be some interest from some employers who want to be able to say, I had health benefits available to you, but don't necessarily feel invested in the health and well-being of the employees.

Question: Nathan Rich - Goldman Sachs - Analyst : And I guess maybe kind of a higher level, do you talk about your outlook for just kind of US employment? You know, there's been a lot of focus on maybe a little bit of softness in the more recent payroll data. How do you think that plays out over the balance of '24 and into 2025? I feel like your expectations for this year, were for pretty modest, you know, assumptions for the employment environment, previously you talk about what you see going forward. Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare So far in our book of business, we're not seeing any signs of fracturing in the employment base across the US. That said, we're respectful of the fact that interest rates have been elevated for some time, and the cumulative effect of that could eventually create some cracks in the US employment market. And so our outlook for the balance of the year, for example, embeds a little bit of softness in the overall enrollment levels under the expectation that the -- again, the cumulative effect of interest rates and physical activity will lead to some level of disruption in employment markets. So we've expected a little bit of enrollment pressure in the back half of the year from that dynamic. But that remains to be seen whether the economy as a soft landing or there's something that's more significant.

Question: Nathan Rich - Goldman Sachs - Analyst : I guess, would you expect to see -- it sounds like you differ to see growth in membership next year. You think you're kind of pricing to achieve that as well as kind of further margin expansion to kind of get into your target range. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 11, 2024 / 2:00PM, CI.N - Cigna Group at Goldman Sachs Global Healthcare Conference Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare This year, we expect to be slightly below our target margin. Our target margins there 4% to 6%. So we expect to be slightly below that. Next year, at the portfolio level, we would we expect to be in that target margin range. Now we're not done with all the pricing yet. They're different deadlines for different states, so the next two months we'll be finalizing all the pricing, but we would expect to be in that range next year based on what we see now.

Question: Nathan Rich - Goldman Sachs - Analyst : And I guess with biosimilars, how does that come fit into the growth and even more importantly profit algorithm. And you've introduced for biosimilar HUMIRA is here, dollar out of pocket cost option. Your kind of why we've chosen kind of that approach. I think you're still kind of offering choice some of your competitors and maybe pushing more aggressively to drive conversion, just what the law level of uptake you've seen since you launched that as an option? And want to ask maybe on the right approach to take for the Company. Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yeah. So one of the things that as a company we're very passionate about is the drug innovation that's transpiring and the opportunity to create value for our clients, for patients and ultimately our shareholders as well. So over the next decade, we see a wave of drug innovation transpiring. So we're feeling it right now with GLP-1s and everything that's happening there. We're feeling it right now with cell and gene therapies, we're feeling it with Alzheimer's drugs, we're feeling it with some tier point biosimilars. Finally, the US starting to open the door to more biosimilar adoption. So the HUMIRA biosimilar, which I think was the core of your question, we're introducing in the next few weeks. We'll have a $0 patient out-of-pocket available through Accredo, which is essentially us working directly with without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 11, 2024 / 2:00PM, CI.N - Cigna Group at Goldman Sachs Global Healthcare Conference biosimilar manufacturers under our qualant distribution arm, which we launched in 2021. And this is important because it allows us to have some predictability of supply over the biosimilars over time. It allows us to drive greater affordability outcomes with $0 patient out of pocket, a lower net cost than what the plan sponsor will get from the reference drug, HUMIRA, as well as for us on a per-scrip basis, a greater income contribution since we'll capture a piece of that shared savings that the plan sponsors able to deliver. So over the back half of this year, we would expect to some degree of share shift for the biosimilars given the $0 patient out-of-pocket that I was just making the reference to, that's embedded in our guidance for the year. That's not a 100% adoption but some degree of shift to the biosimilars in the back half.

Question: Nathan Rich - Goldman Sachs - Analyst : And I guess one of the other growth opportunities you highlighted at the Analyst Day was maybe growth into the drugs in the medical benefit space and how Accredo maybe seeing especially business overall with [CuraScript] could play a bigger role. Could you maybe talk -- It's not an area where kind of the traditional PBM, has been involved historically, what you see is opportunity to maybe penetrate that space more deeply? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yeah. We see great opportunities here, and I'll tried to be concise with my answer because it's complicated. But the $400 billion specialty pharmacy market I made reference to, think of that is about 60% pharmacy and about 40% medical. So the 60%, meaning, it's under the pharmacy benefit, 40%, typically under the medical benefit. So could be an injectable that a physician administered in their office, that would be under the 40%, that's the Medical, which is where your question was geared toward. So we have a distribution business called CuraScript, which is essentially taking specialty pharmaceuticals and distributing them directly to physicians or it's hospital systems, this has been a double-digit grower for us in recent years -- it's an over $10 billion business. Then we see tremendous future growth opportunity there in terms of distribution to physicians as well as to hospital systems. And so we're investing in this space. We made investment CarepathRx last year to facilitate growth in the Health System Services business specifically. But we see an opportunity there to increase our share because we only have about 5% market share on that 40% of the $400 billion that's under the medical benefit today. So significant growth opportunity for us, and that's part of the 8% to 12% all in specialty and care services income growth we expect over time.

Question: Nathan Rich - Goldman Sachs - Analyst : Okay. Maybe moving over to capital deployment. I think you maybe talking more so at the Analyst Day about sort of a capital light approach, then you have in the past, I guess, you know, can you maybe talk about, does that change the type of deals that the company kind of prefers to do in this environment? And, you know, has your thinking changed around kind of the type of assets that are are attractive to you? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yeah, just one slight added, -- We were not intending to signal a different posture around asset light with our Investor Day. So for some time, we said we don't think we're necessarily good owners of physical care delivery. And going forward, we continue to believe that's the case. So we are not intending to signal a change in strategic direction in regards asset light in the Investor Day. Now broadly speaking, when it comes to capital deployment, as I started this conversation, we continue to view the repurchase of our shares as a great use of our available capital because as long as we have a depressed multiple, we continue to see that as a very valuable way to deploy capital to shareholders. And so as I said, we intend to do at least $5 billion share repurchase in the first half. The majority of the full year cash flow will go to -- the discretionary cash flow will go to repurchase, and we expect to use the majority of the proceeds from our pending Medicare divestiture in 2025 also for share repurchase. Now broadly, when you asked about inorganic activity, we've seen either view inorganic activity through the lens of these strategically attractive for the Company. It needs to be financially attractive from the standpoint of accretive EPS over time and exceeding return on capital hurdles. And I need to have a high probability of close. And if all three of those criteria are not met, we will not pursue inorganic activity and we don't need to do M&A either. So when we talk about our EPS growth algorithm of 10% to 14% over time, we're fully confident in our ability to do that with the way the company's comprised right now. [] So M&A would be an accelerant and the right circumstance or the right instance.

Question: Nathan Rich - Goldman Sachs - Analyst : Okay, great. I guess I wanted to go back to the comments on utilization. And I think for the second quarter, you kind of said you're tracking in line with the annual guidance, which is what you had guided to. I think if we kind of look at history, it seems like, you know, it would see the typical seasonality there kind of put you towards the lower end of that annual range in the second quarter. Do you have any commentary at this point, just like where in the kind of annual range you would expect to land in the second quarter, just based on that seasonality, like I said I think the midpoint is little bit higher than we typically we see. Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yeah, the last couple of years, the seasonality for our medical care ratio has been less. It's been a little flatter. So the first quarter, the second quarter have been flatter. But if you go back to pre-pandemic norms, we had more seasonality in the medical care ratio, and that's more of what we expect this year. So the step-up from 1Q, 2Q is partly a function of -- we expect the seasonality of the more like pre-pandemic norms. But we also talked about in the first quarter release, our individual exchange book has more bronze, which tends to have a steeper pattern of seasonality. We had the benefit in the first quarter also have some net prior-year development favorability, which kind of artificially lowers the first quarter. So all those factors taken together result in a little bit greater step up on the slope in the MCR this year.

Question: Nathan Rich - Goldman Sachs - Analyst : And is there any meaningful difference in that 20% between the different lines of business like commercial, Tricare, DoD and the other government businesses? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare It's lower in the government lines. That percentage is lower in the government lines, it's a little bit higher in the commercial lines.

Question: Nathan Rich - Goldman Sachs - Analyst : Okay, great. And then maybe just lastly on the GLP-1 cost guarantee that you announced at the analyst day, maybe -- what's been the general feedback from clients since you've launched that product and just to kind of what you feel like kind of the uptake or interest will be there? Brian Evanko - Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Yeah. I mean, as I was saying earlier, there's this pharmaceutical wave happening right now and GLP-1s are right in the midst of that. So there's a lot of interest from our employers in covering GLP-1s, but in a manner that is controlled and that they have confidence that there's not going to be off label or compounded usage of it. They want to understand what indications be used for because GLP-1s were hatched for diabetes. Now they've moved into weight management. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 11, 2024 / 2:00PM, CI.N - Cigna Group at Goldman Sachs Global Healthcare Conference Now obviously, there's other indications that are being explored. So employers want a bit of a controlled environment for all this. So the good thing, EncircleRX, is that it gives them the controlled environment around weight management because we're only covering the FDA approved drug, they happened clinical thresholds. We have behavior modification programs to our mode of digital tools that wrap around this. And the appetite has been there so far for discussions, we haven't had a seismic uptick in (inaudible) program, but we have right now over 1.5 million enrolled lives. We had over 1 million at the time we rolled the program out at Investor Day. So we've already seen some growth in the number of covered lives. And we expect over time, the percentage of employers that are covering weight management likely ticks up enabled by programs such as EncircleRX.