The Cigna Group reported Q1 2024 total revenue of $57.3 billion and adjusted earnings per share (EPS) of $6.47.
Raised full-year 2024 adjusted EPS guidance to at least $28.40.
Q1 pretax adjusted earnings exceeded expectations, with a revenue increase of 23% year-over-year and adjusted EPS growth of 20%.
Reported a shareholders’ net loss of $277 million or $0.97 per share, primarily due to a noncash after-tax net realized investment loss of $1.8 billion related to a VillageMD impairment charge.
Cash flow from operations in Q1 was $4.8 billion.
Business Segments Performance
Evernorth Health Services
Q1 2024 Evernorth revenues were $46.2 billion with pretax adjusted earnings of $1.4 billion.
Pharmacy Benefit Services revenue increased 43% due to new business wins.
Specialty and Care Services displayed strong double-digit adjusted revenue growth.
Cigna Healthcare
Q1 2024 adjusted revenues for Cigna Healthcare were $13.3 billion, with pretax adjusted earnings of $1.3 billion.
The medical care ratio was favorable at 79.9%, reflecting strong medical cost performance.
Ended the quarter with 19.2 million total medical customers.
Strategic Initiatives and Outlook
Launched innovative solutions like EnCircleRx to drive greater affordability and access in the pharmaceutical landscape.
Focused on specialty business within Evernorth as a key driver for growth, with emphasis on biosimilars to enhance market affordability.
Continued to invest in Care Services across various domains including virtual, home base, and behavioral care.
Progressing towards the sale of Medicare businesses to HCSC, expected to close in Q1 2025.
Updated full-year 2024 outlook with consolidated adjusted income from operations to be at least $8.065 billion or at least $28.40 per share.
Capital Management and Future Expectations
Debt-to-capitalization ratio was 44.3% at the end of Q1, with a long-term target of approximately 40%.
Anticipate at least $11 billion of cash flow from operations for 2024, with the majority of discretionary cash flow directed towards share repurchases.
Full-year weighted average shares outstanding expected to be in the range of 282 million to 286 million shares.
Question and Answer
Membership and RFP Outlook for 2025
Question
What is the early view on membership and the pharmacy benefit manager (PBM) request for proposal (RFP) cycle for 2025, considering the current strength and any notable wins or losses?
Answer
The selling season for 2025 is off to a good start, with a competitive market but Cigna’s solutions resonating well.
The company is confident in retaining existing clients, with strong retention rates expected to be in the mid-90s or better for 2025.
No major headwinds or tailwinds are anticipated, and a strong retention result is expected for the upcoming year.
National Accounts RFP Cycle and Market Trends
Question
Can you provide more details on the 2025 RFP cycle for Cigna Healthcare, particularly for national accounts, and highlight any emerging market trends?
Answer
The RFP volume for national accounts is slightly higher than last year at this time, indicating a positive trend.
Large employers are showing interest in consolidating vendors or point solutions, addressing “point solution fatigue.”
There is increasing demand for mental health and substance use benefits, as well as digitally enabled care navigation and consumer empowerment.
Overall, the company feels good about its position and the opportunities for 2025.
Specialty Business and Biosimilar Opportunity
Question
Can you elaborate on the profitability of the biosimilar opportunity, particularly for HUMIRA, and clarify the margin progression and potential for market share gains?
Answer
The biosimilar opportunity is expected to be evolutionary and accelerating, with a focus on creating differentiated value for clients and patients.
The specialty marketplace is large and growing, providing significant growth opportunities for Cigna.
The company’s capabilities in data, supply chain, and clinical expertise position it well to drive attractive margins and create value in the specialty and biosimilar space.
Membership and MLR Trends, Individual ACA Margins
Question
Can you share insights into medical loss ratio (MLR) trends by segment and discuss how individual ACA margins are tracking relative to the target range of 4% to 6%?
Answer
Cigna delivered a strong quarter of medical care ratio performance, exceeding expectations and leading to income outperformance.
Utilization patterns in the U.S. employer book of business were broadly in line with expectations and pricing assumptions, with some modest favorability in outpatient and surgical categories.
The individual exchange book saw a mix-related timing benefit in the first quarter, but underlying performance was in line with expectations.
The company is on track for margin improvement in the individual exchange book for 2024, with margins expected to end slightly below the target range of 4% to 6%.
VillageMD Investment and Priorities
Question
Can you provide more details on the VillageMD situation post-impairment, including key priorities and the updated carrying value of the investment and dividend stream?
Answer
The strategic direction for the VillageMD investment remains unchanged, focusing on value-based care and accelerating performance in established markets.
The new carrying value of the investment is slightly above $900 million, and the 5.5% dividend stream is still accruing within the net investment income line.
Biosimilar Dosage Efficiency and Next Drug Categories
Question
Can you discuss the potential for using data or AI to optimize dosage efficiency in the biosimilar venture and highlight the next couple of big drug categories after HUMIRA?
Answer
Cigna’s Evernorth Specialty business has well-established capabilities and a proven track record in the biosimilar space.
The company’s solution for interchangeable biosimilar adalimumab offers the maximum number of available dosages in the market, demonstrating its commitment to supporting patients at all need levels.
Cigna sees significant promise in AI for improving precision and personalization in care navigation and clinical interventions.
Change Healthcare Disruption and Specialty Care and Services Margins
Question
Can you quantify the extra costs related to the Change Healthcare disruption and provide an update on the visibility of claim submissions? Additionally, can you explain the factors driving the year-over-year margin decline in the Specialty Care and Services segment?
Answer
The company successfully managed the disruption and incurred some incremental operating expenses, which are reflected in the results.
A significant portion of the $650 million in additional reserves associated with Change Healthcare was due to timing issues, and the company feels good about its full-year outlook, cost trend expectations, and reserving posture.
The year-over-year margin decline in the Specialty and Care Services segment was primarily due to timing-related impacts and quarter-to-quarter variability.
Capital Deployment, Share Repurchases, and M&A
Question
Can you provide an updated estimate for share repurchases in 2024 and share any updated thoughts on capital priorities or potential M&A opportunities?
Answer
The company’s capital deployment priorities remain focused on internal reinvestment, an attractive shareholder dividend, debt repayment, and strategic M&A or share repurchase.
Cigna’s growth strategy is grounded in organic growth, but the company remains open to M&A opportunities that are strategically and financially attractive.
The company is on track to complete at least $5 billion in share repurchases by the end of June and expects the majority of discretionary cash flow in 2024 to be used for share repurchase.
Specialty Opportunity and Biosimilar Strategies
Question
Can you discuss the different strategies in the specialty market, particularly for HUMIRA, and whether Cigna sees a better opportunity in aligning with a limited number of manufacturers or pursuing a sole-source strategy?
Answer
Cigna’s approach in the specialty market is grounded in providing choice and assembling a robust set of suppliers, rather than pursuing a sole-source strategy.
The company believes its current approach, which offers maximum choice, clinical effectiveness, and flexibility, positions it well to navigate the evolving specialty and biosimilar landscape.
GLP-1 Program and Opportunities in Other Therapeutic Categories
Question
Can you provide an update on the traction and economics of the GLP-1 program and discuss the potential for similar opportunities in other therapeutic categories?
Answer
The EnCircleRx GLP-1 program is a first-of-its-kind solution that guarantees outcomes for clients based on the fees they pay, demonstrating Cigna’s expertise in value-based care and outcomes-oriented programs.
The company’s investment in data-driven, clinically precise, and patient-centric models positions it well to capitalize on pharmacological innovation and drive value for clients across various therapeutic categories.
Medicare Advantage, Stop-Loss MLR, and Specialty Margin Seasonality
Question
Was there a significant Medicare Advantage (MA) MLR headwind in the quarter, and will MA results continue to be included in the adjusted and unadjusted P&L for the rest of the year? Additionally, can you discuss the potential impact of a stop-loss true-up on fourth-quarter MLR and the seasonality of margins in the Specialty and Care Services segment?
Answer
Medicare Advantage results will continue to be included in the Cigna Healthcare segment until the business is divested to HCSC, with performance in line with expectations.
The stop-loss book of business is expected to normalize back to target profit margin levels after experiencing favorable claims experience in the fourth quarter of 2023.
The Specialty and Care Services segment may exhibit quarter-to-quarter variability in income, unlike the pharmacy benefit services segment, which tends to see sequential growth throughout the year.
Employer Characteristics for Value-Based Care and GLP-1 Programs, GLP-1 Coverage Trends
Question
What are the characteristics of employers who are interested in value-based care solutions and the GLP-1 guaranteed product? Additionally, can you provide an update on GLP-1 coverage trends for 2025?
Answer
Employers interested in value-based care solutions are typically larger and more focused on precision benefit design, while those interested in the GLP-1 guaranteed product tend to be larger employers with lower employee turnover and higher spend.
Coverage for GLP-1s for weight loss is increasing, with approximately 50% of employer relationships now providing coverage, up from 40% to 50% in the previous year.
