Cigna Group Q3 2024 Earnings Call Transcript

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

Question: A.J. Rice - UBS Investment - Analyst : Thanks. Hi, everybody. Maybe I'll just ask about two things here. One, you obviously had a little bit of elevated commercial trend this year, but you said all year long that you were able to price for it and anticipate it. I wonder at this early date, as you look out to '25, are you assuming more of the same? Are you getting any pushback from employers on taking that approach if you are, again? And then on the VillageMD, I know you laid out a strategy for working with them is one of the ways that Evernorth could address the primary care market. Obviously, that situation is in flux. I wonder if there's any pivots the company is considering and how important putting something in place with respect to physician groups, particularly primary care it is for the overall Evernorth strategy.

Question: A.J. Rice - UBS Investment - Analyst : Thanks.

Question: Justin Lake - Wolfe Research, LLC - Analyst : Thanks, good morning. First, I want to follow up on, David, your comments around capital deployment and some of the rumors out there in the market. Just to be clear, you talked a lot about the share repurchase in 2024, which has been significant. The fourth quarter, the proceeds.the last time we had this discussion, you also talked about a forward year and where you kind of saw the predominance of capital going as well. Are you also saying -- or did I miss that you were going to talk about that you are going to deploy capital to share repurchase for the vast majority of the share repurchase in 2025 as well? And then just on the business, can you give us some more color on what's going on in specialty? There have been a few companies talking about that. What do you think is driving that? And any other specifics you can give us, we'd appreciate. Thanks.

Question: Ryan Langston - TD Cowen - Analyst : Hi, thank you. I think in the prepared remarks, you said you had 8 million lives now on the EncircleRx program. My understanding is that was only -- I say only about 3 million to 5 million only just a couple of months ago. That seems like incredibly strong growth and demand. I guess, what's driving that? And I guess, where do we see that pick up moving over the next couple of years, just given it seems in the past couple of months, that's risen pretty dramatically? Thanks. Eric Palmer - The Cigna Group - Executive Vice President - Enterprise Strategy, President and Chief Executive Officer, Evernorth Health Services Ryan, it's Eric. Thanks for the question. As you can imagine, there's real interest and need from our clients as they're looking for help with managing the affordability of GLP-1s and these conditions overall. We're really excited about the opportunity to bring this first of its kind solution to the market. And as David noted, I think you said we're almost at 8 million lives. So not quite there yet but approaching it rapidly. We launched this program just a handful of months ago. And as we've talked about previously, it targets the right patient population, working to bring the relevant clinical markers and engage patients with the support they need to help make changes that make the impact last, provides a guaranteed clinical comes to our clients and provides a strong overall return for the investment in the program. Performance so far is that the solution is working well. The early results, our clients are enrolled. They're seeing significant savings and reductions in trends compared to those who are not enrolled as we mature the process or mature the data, we'll have more to report here. David, maybe any other perspective you want to share? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 12:30PM, CI.N - Q3 2024 Cigna Group Earnings Call

Question: Ryan Langston - TD Cowen - Analyst : All right, thank you.

Question: Lisa Gill - JPMorgan Chase & Co - Analyst : Thanks very much. Good morning. Can you maybe talk about the 2025 selling season on the PBM side? I'm just really curious around a few things. One, as we have more biosimilars, are we seeing a change in the economics of how contracts are formulated going into 2025? And then just as a follow-up, David, you highlighted the FTC report and the report that the University of Chicago professors looked at. Is there any update on potential legislation or anything you're seeing from a state perspective that potentially is using some of this information when they're thinking about legislation?

Question: Lisa Gill - JPMorgan Chase & Co - Analyst : Great. Thanks for the comments, David.

Question: Andrew Mok - Barclays - Analyst : Hi, good morning. You called out planned investments across both core PBM and specialty in the release, and it sounds like that will continue into 2025. Can you give us a little bit more detail on the nature and magnitude of those investments? Thanks. Brian Evanko - The Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Good morning, Andrew, it's Brian. So as we intend to do in any year, we have a fair amount of our discretionary capital that goes back into internal reinvestments. So when we talk about the continued investment in the business, not just in the Evernorth platform, but also in Cigna Healthcare, that's a core part of our capital deployment framework before we start talking about capital being returned to shareholders. So this year, we're tracking to, call it, $1.5 billion or so of discretionary CapEx, and that's kind of over and above the core administrative expenses, which are round numbers about $20 billion that we spend in the year. So most of that will go toward technology going forward, so that some of REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 12:30PM, CI.N - Q3 2024 Cigna Group Earnings Call that customer patient-facing technology. Some of that is provider-facing technology, and some of that is a broker or field-facing technology as well. So the majority of when you think about our discretionary CapEx is headed in that direction. And as we think about the long-term growth opportunity we have, for example, in the specialty space, which is already a $400 billion addressable market growing at the high single-digit type rate. We see opportunities to continue strengthening our capabilities there to make ourselves even more relevant. So think of it as primarily technology, and we gear that up or down in any given year.

Question: Erin Wright - Morgan Stanley - Analyst : Great. Thanks so much. I wanted to dig into specialty a bit more. It just sounds like you're seeing the traction with the HUMIRA biosimilar strategy. Just how would you compare that to the strategy around products like STELARA and the ramp you expect with STELARA relative to what you saw with HUMIRA and other biosimilars that are coming down the pipe? I guess, how do you think about the cadence of that opportunity over the next several years but also just in terms of 2025 from an LOE perspective. Thanks. Eric Palmer - The Cigna Group - Executive Vice President - Enterprise Strategy, President and Chief Executive Officer, Evernorth Health Services Erin, it's Eric. I appreciate the question. Stepping back, I think the model that we've built here and that we've deployed around our biosimilar HUMIRA has provided another good choice in the market, and it's one that we think we're well positioned to replicate in the appropriate situations going forward. As David mentioned in his prepared remarks, we will be launching a no out-of-pocket cost alternative to STELARA in 2025. And I could envision us using this playbook and approach for additional biosimilars as we look ahead into the coming years. We've noted at our Investor Day earlier this year that we see nearly half of the specialty market having biosimilar alternatives choice available in terms of bringing new affordability to the market. And this is one example of a strategy that will help to improve the affordability and the accessibility of these medicines for the patients that need them and for the plan sponsors that are funding them. So every different therapy will have a different alternatives, they will have different kind of adoption of paths based off of the clinical needs of the patients being served based off of the break and pace of availability of products and such. But at a macro level, we're really well positioned to continue to lead in this market and bring new solutions to market just like we did with the biosimilar HUMIRA, like we are in the process of doing with STELARA and like we'll do with other drugs coming after that. David?

Question: Scott Fidel - Stephens Inc. - Analyst : Hi, thanks, good morning. Question if I could try to do a two-parter would be one, just on the cost trend side, maybe if you could just drill in a little bit, give us an update on the inpatient side as well in terms of what you've been seeing there relative to expectations recently. And then I did want to get your perspective just on the competitive environment for the exchanges in 2025. It looks like from our analysis of the CMS landscape data for the federal exchange is that we do see a number of the major carriers with actually negative rates in their same-store plans for 2025. So it does seem like the competitive framework has intensified quite a bit. And so I'm certainly interested in your perspective right now on that market category as well. Thanks. Brian Evanko - The Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Good morning, Scott, it's Brian. I'll take both of your questions here. So first off, we're pleased to have delivered another solid quarter of MCR performance within Cigna Healthcare with the overall performance in line with expectations, as I noted earlier. And just as a reminder, we had planned and price for the overall elevated utilization levels that began in 2023 to continue throughout 2024. And within the quarter specifically, we had a range of affordability initiatives that proved to be beneficial to the MCR, and it had some offset to the uptick I mentioned in specialty drug utilization in the quarter. And where we saw that most notably was we saw some deceleration in cost trends in surgical activity in particular. You asked about inpatient. Inpatient was broadly in line with our expectations in the quarter. So I wouldn't flag that as a particular hotspot or an area of favorability. And as David said, we're fortunate to have the natural hedge at the enterprise level where the elevated customer demand for specialty drugs resulted in the favorable performance we saw in our Evernorth business, specifically within the Specialty and Care Services platform. As it relates to the individual exchanges, so we continue to see this market as being an important subsegment of the US health care system for those who don't have access to employer or government-sponsored coverages. We've been a consistent player in this market over the past decade since the ACA went into effect. And for us, 2024 has been a year focused on margin expansion in our individual exchange business. And that approach is playing out largely as we expected here with fewer customers in 2024, but carrying a higher profit margin profile compared to our 2023 experience. As it relates to 2025, specifically, as you noted, the weighted average rate increase for our customer base is in the low double digits, which based on the publicly available information is on the higher end of the competitive set. That said, there's a considerable variation by geography when you dig into that. And for us, the exact margin profile and customer volumes will be a function of geographic mix and competitor behavior in each of those different geographies. But taken all together, we continue to invest in this business, see it as a growth engine for the company and over time, look forward to 10% to 15% annualized growth here.

Question: Adam Ron - BofA Global Research - Analyst : Hey, thanks for the question. I also wanted to dig into the specialty comments. But from the managed care side, you mentioned that it was the reason that you're increasing your MLR guidance. And I know that you still do currently own the Medicare Advantage company. That also has the Part D business. And so wondering if you could delineate like the pressure that you're seeing in specialty between the Medicare side and the commercial side. And on the Medicare side, if you think it's being driven by the IRA at all? Thanks. Brian Evanko - The Cigna Group - Chief Financial Officer, Executive Vice President, President and Chief Executive Office - Cigna Healthcare Good morning Adam, it's Brian. I'll start. If my colleagues want to pile on, you're welcome to. So as it relates to what we saw in Cigna Healthcare on the specialty drug side, really, the uptick in the utilization was broad-based across most of our Accredo therapeutic resource centers in the third quarter. In particular, we saw it in inflammatory conditions, oncology and neurology. And really this transpired across all the Cigna Healthcare product lines, Commercial Employer, Medicare and the individual exchanges. The Medicare volumes were slightly more elevated than Commercial, but not enough that we would flag it as having a different root cause, and we do not see the IRA is having driven a meaningful amount of the third quarter experience. And as I said earlier, I'm pleased to have the natural hedge with the Evernorth specialty business benefiting from those increased volumes in the quarter.

Question: George Hill - Deutsche Securities Inc. - Analyst : Yeah. Good morning guys. David, I kind of want to come back to the -- your comments on the Medicare Advantage market that you opened up the call with, which is in the past, you kind of said that MA is a strategically important market with a lot of long-term value. And on this call, you're saying it's a challenged market. So first, I guess, number one is kind of can you help me bridge the gap between those two lines of thought? And then as you look at the market from where you sit, given that you guys still participate, do you see its challenges as cyclical or structural?

Question: George Hill - Deutsche Securities Inc. - Analyst : I appreciate the color. Thank you.

Question: Josh Raskin - Nephron Research LLC - Analyst : So I'll harp on those. I'll sort of keep on the topic here. But just in terms of the cadence of buybacks, I want to understand you guys were relatively strong in the first quarter, particularly strong in the second quarter. A noticeable pause in 3Q, and I heard David, your response to Justin's question around this disruption in the space and wanting to get as much clarity as possible. Should we assume that you now have the clarity that you need to understand the Medicare Advantage business and that is what's leading to this reacceleration in the buybacks and into 2025? And then just a smaller one, just on favorable development, it was a little larger in 3Q. Could you talk were there any specific drivers of that or areas where development came in better?

Question: Lance Wilkes - Bernstein - Analyst : Thanks so much. Just a couple of cleanup questions and one broad strategic question. On the strategic level, as you're looking at deployment of capital as you're thinking about inorganic moves, how do you look at things from a management and board level with respect to management stability, stability and volatility of a business model, et cetera? And are there other important criteria we should be aware of? And the little items are just over in the employer market, given high premium inflation, are you seeing different behaviors from employers whether that's faster shift to ASO or certain types of cost containment features that they're looking for? Thanks.

Question: Lance Wilkes - Bernstein - Analyst : Great.

Question: Michael Ha - Baird - Analyst : Alright, thank you. Firstly, on '25 headwinds and tailwinds, thank you for providing that list in your prepared remarks. I was just wondering if you could maybe flesh that out a bit more specifically, which of those building blocks perhaps are you most confident about in terms of helping you on your path to 10% or at least 10% EPS growth next year? And then following up on Erin's question, maybe a different approach to it. I know biosimilar quickly rose to a 20% share of your specialty book last quarter. Where has that trended in third quarter? Where do you see both HUMIRA biosimilar adoption, which I believe is now one third of eligible, and that biosimilar's share, especially by trending into year-end and over the next year. And then as I think about Evernorth's earnings growth, I think you mentioned last quarter that biosimilars is going to help drive it to high single-digit growth in third quarter, which you did. So I wanted to get your thoughts on how are we now in a spot where it can sustainably grow high single digits going forward, are we officially now in that sort of new paradigm of earnings contribution Evernorth from biosimilars? Thank you.