Cigna at Barclays Conference: Strategic Moves Amid Challenges

On Wednesday, 12 March 2025, Cigna Corp (NYSE: CI) presented at the Barclays 27th Annual Global Healthcare Conference. The company’s CFO, Brian Evanko, outlined both the challenges and strategic initiatives facing Cigna. While the company grapples with rising specialty drug costs and stop loss product issues, it remains optimistic about growth opportunities in specialty pharmacy and pharmacy benefit services.

Key Takeaways

• Cigna aims for over $10 billion in cash flow from operations in 2025.
• The company has repurchased over $1 billion in stock year-to-date.
• Cigna is investing $150 million in technology and workforce to improve healthcare services.
• Challenges remain with specialty drug costs and stop loss products.
• Strategic focus includes M&A and share repurchases post-Medicare divestiture.

Financial Results

• Cigna reaffirmed its enterprise EPS for 2025.
• The company anticipates a cash flow of over $10 billion from operations in 2025.
• More than $1 billion in stock repurchases have been completed this year.
• The ACA exchange is expected to see a customer decrease of around 20% by the end of 2024, with anticipated growth of 10% to 15% annually thereafter.

Operational Updates

• Stop loss products faced pressure, particularly the individual stop loss segment, which constitutes 75% of the $6.7 billion portfolio.
• Cigna’s EncircleRX program for GLP-1 management has seen over 9 million participants.
• The specialty drug market is valued at $400 billion, with Cigna converting nearly 50% of eligibles to biosimilar HUMIRA.
• The Medicare divestiture is expected to conclude this month.
• A $150 million investment is being made across Cigna Healthcare and Evernorth, focusing on technology and headcount.

Future Outlook

• Specialty drugs are expected to grow at high single digits, with pricing adjustments capturing market shifts by 2026.
• The individual ACA exchange is projected to decline by 20% from the end of 2024, aligning with Cigna’s growth strategy.
• Proceeds from the Medicare divestiture will primarily fund share repurchases.

Q&A Highlights

• The stop loss pricing for 2025 did not fully account for the uptick in the latter half of 2024.
• Cigna anticipates fewer ACA exchange customers in 2025 compared to 2024 but aims for a margin of 4% to 6%.
• The company’s M&A strategy remains focused on strategic, financially sound acquisitions with high closure probability.

Readers are encouraged to refer to the full transcript for a detailed understanding of Cigna’s strategic plans and financial outlook.

Full transcript - Barclays 27th Annual Global Healthcare Conference:

Andrew Mok, Facilities and Managed Care Analyst, Barclays: Hi, good afternoon and welcome back to the Barclays Global Healthcare Conference. My name is Andrew Mok. I’m the Facilities and Managed Care Analyst here at Barclays. And I’m pleased to be joined on screen with CFO, Brian Ovanko from Cigna Group. Brian, welcome.

Brian Evanko, CFO, Cigna Group: Thanks for hosting us, Andrew, virtually.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: Absolutely. Let’s any prepared or opening remarks you have today or should we dive right into Q and A?

Brian Evanko, CFO, Cigna Group: If you give me just a minute or two, maybe just a few thoughts to get us kicked off and then I’ll turn it back over to you. For those of you that saw our fourth quarter earnings report would have realized we had a difficult fourth quarter and that was driven by our Cigna Healthcare business, specifically our stop loss products. Now on the bright side, this business is something we’re very familiar with. We’ve been in it for decades. We’ve taken the corrective actions that we need to take to get the business onto the right track.

And we put forth the 2025 outlook that reflects the best set of information that we had at the time of our fourth quarter earnings release. And we continue to be really excited about the future of the company, not only in our specialty pharmacy, which has been growing leaps and bounds, but also in our pharmacy benefit services businesses in Ever North as well as our Cigna Healthcare portfolio. So our three high performing growth engines continue to deliver. As it relates to the rest of ’25, we’ll continue to generate a lot of cash. As you all know, that’s one of the things we’re fortunate to have here at the Cigna Group is a strong cash generating business.

We’re on track to have $10,000,000,000 plus of cash flow from operations this year, which gives us quite a bit of flexibility to deploy that cash between internal reinvestment, shareholder dividend, as well as the flexibility to have strategic bolt on M and A coupled with share repurchase. And we’ve already repurchased over $1,000,000,000 of our stock year to date. And finally, while it’s early in the year through the first couple of months, the first quarter is tracking in line with expectations. That’s both at the Evernorth platform level, the Cigna Healthcare platform level, as well as our all in EPS. And you would have seen we recently reaffirmed our enterprise EPS in an eight ks that we issued.

So just a few things I thought I’d kick off with Andrew, but back over to you to wherever you’d like to take the conversation.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: Great. Let’s start with the stop loss. You had a 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, CFO, Cigna Group: 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 $400,000,000,000 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. Part of it’s also a broader set of indications for the existing drugs that you referenced, ETRUDA, Krievs, etcetera. 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 greater level of comfort by the prescribers with using specialty drugs as maybe the first place to go as opposed to traditionally starting with a non specialty brand or a different alternative.

So all those forces are leading to this wave of specialty drug innovation that’s transpiring across the healthcare 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. Those 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, the 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 does 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.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: Great. And when I think about just kind of broader acceleration of specialty, it looks like at least from our viewpoint, it started to pick up meaningfully in the back half of twenty twenty four. If I think about a twelve month accumulation of specialty drugs and spend, I think it’s reasonable to assume that it might peak in the second quarter of twenty twenty five. So I guess, given that, what gives you confidence that the updated guidance fully captures the accelerating specialty trend and we’re talking about pricing and the stop loss business for instance?

Brian Evanko, CFO, Cigna Group: Sure. Within our stop loss business and within the Cigna Health portfolio more broadly, we have assumed that our 2025 pricing does not catch all of the uptick that transpired most notably in the back half of twenty twenty four. And specialty drugs weren’t the only source of upward pressure in stop loss. We also saw higher cost surgical procedures, some of that being cardiac, some of that being oncological. So there was a bit of a few different forces that led to some of the pressure we saw in the stop loss business.

But our outlook for 2025 assumes that our early twenty twenty five pricing did not catch all of that. Our later 2025 pricing, which we believe is now prudent and appropriate, does capture that. And then 2026 pricing will more fully capture the updated assumptions that we’ve made going forward. So again, our view here is there has been a structural shift for these higher cost claimants, partly driven by specialty drugs and we think the ’25 outlook properly reflects that.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: 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, CFO, Cigna Group: 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 increases for the commercial employer portfolio. So elevated cost trends in 2024, the expectations of continued elevated cost trends in 2025, our pricing yields are higher in 2025 than they were in 2024.

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 loss. 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’s individual stop loss for an individual climate level.

Some of that is aggregate stop loss. So it’s a little bit difficult to do a direct comparison of that to other stop loss carriers who might be standalone in nature. But similar to my comments on the first dollar side, we’re seeing what I would characterize as firm rational pricing in the stop loss market as opposed to anyone coming in with irrational pricing. And the yields we’ve been able to get on the later 25 renewals reflect the most recent updated assumptions that I made reference to. But again, these are integrated overall client relationships where often the employers are making trade offs between pulling points, deductible levels and premium contributions as part of their benefit strategies.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: 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 in the individual side versus the aggregate stop loss book?

Brian Evanko, CFO, Cigna Group: Yes. So for 2024, the full year we have we had about $6,700,000,000 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% is an individual stop loss. So these would be employers who buy protection for individual claimants above a certain threshold.

Some might buy very low cooling points like $25,000 or $50,000 larger employers might buy much larger cooling points maybe $300,000 or $500,000 And then there’s the minority of the $6,700,000,000 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 three quarters, one quarter individual versus the aggregate within the $6,700,000,000

Andrew Mok, Facilities and Managed Care Analyst, Barclays: Got it. Okay. And despite that stop loss pressure, I think you’ve noted that your broader commercial trends, both aggregate fully insured have been relatively in line. Yeah, I think you’re expecting growth in your select and middle markets again in 2025. Can you give more color on the group risk competitive landscape and where your products are gaining traction on the select and middle markets?

Brian Evanko, CFO, Cigna Group: Sure, sure. Happy to. Important here, our select and middle market is actually mostly self funded, mostly ASO. I know inherent in your question were some comments about the group risk market, but the majority of the middle market business is ASO self funded. And then as you go to the smaller employers, the select segment, which is under $500,000,000 you get more of a mix, more of a balance between the self funded and the fully insured.

So when you think about our expectation of growth in both middle market and select segment, it’s a combination of self funded and full risk business. And generally speaking, if a self funded employer, particularly at the larger end is making a choice, it’s usually not going to be a price driven choice. Price is a consideration and usually more of a knockout criteria, but typically it’s other factors and other variables that are driving the final decision on particular middle market and larger self funded business. Now on the risk side to the core of the question, it continues to be a rational and firm market. So those rate increases I made a reference to, which for us are higher in 2025 than they were in 2024, we’re still seeing good persistency as it relates to the retention of those employers even with the more elevated rate increase environment we’re seeing here in 2025.

And the select segment growth we expect this year, you can think of it as broadly directionally in line with what we’ve been putting up the last few years as opposed to outsized growth in 2025 or anything along the lines of that. So I just I wouldn’t draw any conclusions here about pricing adequacy or anything along the lines of that. We feel good about the prices that we have in the market and the employers are choosing us for a wide variety of reasons, which generally prices more of a knockout criteria than the sole factor for why people are choosing us.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: 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, CFO, Cigna Group: Yes. To 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 U. S. In order for the entire healthcare system to work. And so we’ve 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, ’2 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. So we did that from 2023 to 2024.

The book shrunk pretty meaningfully from 2023 to 2024. And then as we stepped 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 2025 than we had in 2024.

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, they’ll 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 and our Investor Day outlook from a year ago, we would expect 10% to 15% average annual growth on a go forward basis of that new base.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: Great. And are you able to share anything you’re seeing as it relates to effectuated enrollment for the exchange population? Is that playing out relatively in line with expectations? Or are there anything any observations to call out there?

Brian Evanko, CFO, Cigna Group: So far for us, I’d say it’s in line with expectations. There’s a little bit more dust to settle because April, I think, is when the final eligibility verifications will be completed. Also when you think about our mix, we have a little bit less subsidized silver, we have a little bit less of the CSR silver plans than the market. And so we feel we’ll be a little bit less exposed to whatever transpires there. But the outlook we put forth here for 2025 contemplates all those moving pieces.

Great.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: Let’s move on to the Ever North side of the business. It sounds like you and the rest of the industry are making a concerted effort to pass 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, CFO, Cigna Group: Yes. So our pharmacy benefit services business, which the brand is Express Scripts that people tend to relate to us, high performing business. It’s been delivering strong results for many years in a row, had another good and we’re off to a good start as I said in 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 been 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 But we currently pass through over 95% of the rebate dollars. 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 that 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. 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.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: Great. Shifting to biosimilars, since the launch of the interchangeable biosimilar HUMIRA in July, I think you’ve converted nearly 50% of eligibles onto the biosimilar. Can you talk about your learnings from that and compare that to your strategy for STOLARRA in 2025?

Brian Evanko, CFO, Cigna Group: Sure. Biosimilars are a very important part of the broader drug innovation that I made reference to earlier in your question about specialty drugs, but more generally they’re a good example of something that is a win win win from the standpoint of patient gets a better net cost, a plan sponsor, whether it’s an employer health plan, has a lower price point. And then we as the essentially the facilitator of all that are able to capture an appropriate return on all that. So it’s a win win win across all those stakeholders when someone moves from a high cost brand drug over into a biosimilar. And HUMIRA is a great example of that, where we introduced a $0 patient out of pocket through our Accredo subsidiary in the middle of the year.

We have 50% uptake on that by the end of the year to your point and that number will continue to track higher here in 2025 and our guidance contemplates that. Now to your point on STELARA, that’s another example of a new drug or a drug that will have a new biosimilar available in 2025. And so we plan to broadly use the same recipe as we did with HUMIRA, where we’ll have a $0 patient out of pocket available. We would expect penetration of that to gradually uptick over the course of the year. Important to keep in mind here, things like the interchangeability of the drug matters, having different dosage levels can matter and whether someone is a new patient or an existing patient can matter.

All those things influence the rate and pace of the adoption of the biosimilars. But this is an important lever for The U. S. Healthcare system and it’s a driver of our long term 5% to 8% average annual growth rate of income in Everdorf.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: Great. Sticking with some of the high cost drugs, you’ve made a lot of inroads with employers on the GLP-one 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, CFO, Cigna Group: Yes. So we introduced a program last year called EncircleRx, which was meant to be a GLP-one 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 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 drugs. They don’t have to worry about compounded versions or others maybe off label where there’s some risk.

And we currently have over 9,000,000 eligibles that have opted in here to the Encircle 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.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: When we think about the guardrails that you mentioned, things like maybe BMI, do you find yourself needing to revise those higher to combat the high usage and adoption of the drugs as we look at ’24 to ’25 to twenty six?

Brian Evanko, CFO, Cigna Group: Percent? We have not because we’ve let the clinical guidelines dictate what’s appropriate here. So there has been high growth rates in GLP-1s for the past few years. When you think about ’23 was a high trend year, ’24 was a high trend year, ’25 we expect to be another high trend year, albeit at a decelerating rate, but still at a high rate of growth in GLP-one scripts. But ultimately, we let clinical guidelines dictate that as opposed to financial considerations.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: 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 a 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, CFO, Cigna Group: You can think of the broad kind of multi year arrangement with them as 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 a year and then ’25 were hitting our stride more at the run rate. There’ll be a little bit of a growth in the contribution over the course of 2025 as you think about how to model the quarterly pattern. But overall, the relationship is tracking to expectations. Our 2025 outlook reflects those dynamics when you think about the full year Ever North 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.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: Great. And with the fourth quarter earnings, you guys also announced an incremental $150,000,000 of investments across the healthcare segment and Evernorth. What exactly do those investments entail? And is that a recurring expense item or kind of a one time investment?

Brian Evanko, CFO, Cigna Group: Yes. So as we teed this up alongside our fourth quarter, I think it’s really importantly, we felt like we had an obligation here to step into a little bit of the void in the healthcare system in terms of consumers, patients that are asking for the healthcare system to work better. We decided as a company to step into that with these commitments that we outlined as well as putting our money where our mouth is, which led to the $150,000,000 of initiative investment that we earmarked here for $25,000,000 You can think of that as divided between Cigna Healthcare and Evernorth and you can think of that as patient facing and provider facing. Some of that will be kind of run ratable from the standpoint of some of its headcount. So as an example, we’re adding advocates and navigators to help with some of the most clinically complex customers and patients that we serve.

So that type of thing will be in our baseline. There are other things that are more one time in nature as it relates to technology investments. So for example, in Cigna Healthcare, we’re developing a prior authorization tracker, so that as a customer you can understand where your prior authorization is in process. If you think about package delivery or pizza deliveries as an analog to that. So that’s the type of thing that will be more one off spend.

And then in Everdorf, there’s investments that we’re making in our patient level drug reporting. So you’ll get a personalized statement at the end of the year, which will be available digitally. That’s the type of thing that will be mostly non recurring in nature. But you can think of a blend of some recurring and some non recurring spend in that $150,000,000

Andrew Mok, Facilities and Managed Care Analyst, Barclays: 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 healthcare industry, including potential regulatory change for M and A. How does that backdrop impact your appetite for M and A going forward?

Brian Evanko, CFO, Cigna Group: Our framework for M and 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 of 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 will anticipate a balanced capital deployment framework for the balance of 2025.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: Great. With that, we’re out of time. Brian, thank you so much for joining us today and please enjoy the rest of the conference.

Brian Evanko, CFO, Cigna Group: Thank you, Andrew. Appreciate it.

Andrew Mok, Facilities and Managed Care Analyst, Barclays: Thank you.

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