The Cigna Group Q3 FY2024 earnings call

Management Statement and Operational Highlights

• The Cigna Group delivered total revenue of $63.7 billion and adjusted earnings per share of $7.51 in the third quarter.
• Evernorth anchored results with strong top and bottom line contributions from specialty and care services, and pharmacy benefit services. Cigna Healthcare continued momentum, particularly in the U.S. employer business and select customer segment.
• Plan to sell Medicare business to HCSC in Q1 2025, with proceeds mostly for share repurchase. Medicare business performing in line with expectations, nationwide enrollment weighted average will be four stars in 2025.
• Biosimilar initiatives: Humira biosimilar had ~one-third of eligible accredited patients in the quarter, and will offer an interchangeable to Stelara Biosimilar in 2025.
• EnCircle Rx solution for GLP-1 drugs has grown to almost 8 million lives enrolled.
• Addressed industry disruptions, emphasizing PBMs lower drug prices and facilitate access to generics, and discussed investments in behavioral health services and telehealth innovations.

Segment Performance

• Evernorth: Total revenues for third quarter 2024 grew to $52.5 billion, pre-tax adjusted earnings grew 9% to $1.9 billion. Specialty and care services revenue was $23.8 billion, adjusted earnings $825 million, both grew 23% in the quarter. Pharmacy benefit services posted robust revenue growth with pre-tax adjusted earnings increasing to $1 billion.
• Cigna Healthcare: Third quarter 2024 revenues were $13.3 billion, pre-tax adjusted earnings were $1.2 billion, and the medical care ratio was 82.8%.

Guidance

• Reaffirmed full-year 2024 adjusted earnings per share outlook of at least $28.40.
• For 2025, tailwinds include continued biosimilar ramp-up, new client relationships, and EPS accretion from Medicare sale. Headwinds include lower net investment income from VillageMD, stranded overhead from Medicare divestiture, and strategic investments. Expect 2025 EPS growth of at least 10%.

Risks

• Industry disruption, including elevated medical costs, changes in SARS ratings, and reset of risk-adjusted revenue streams affecting the Medicare Advantage market.
• Potential legislative impacts on the pharmacy benefit service industry, though no mature proposed legislation seen currently.
• Stranded overhead from Medicare divestiture and potential impact of lower net investment income.

Question and Answer Q: About trend pricing in 2025 and VillageMD strategy A: Brian Evanko discussed that Cigna Healthcare is pricing for 2025 rate increases greater than 2024 due to elevated cost trends. David Cordani spoke about VillageMD strategy, noting timing issues due to market disruptions but continuing to deepen relationships with healthcare professionals via Evernorth's capabilities.

Q: On capital deployment and Specialty business A: David Cordani mentioned no detailed 2025 guidance yet but emphasized disciplined capital deployment. Eric Palmer talked about the Specialty market being a $400 billion growing market, with strong growth in therapies for inflammatory conditions, oncology, and neurology in the quarter, and biosimilar Humira adoption growing.

Q: On EnCircle Rx program growth A: Eric Palmer stated EnCircle Rx has grown to almost 8 million lives enrolled, driven by client need for managing GLP-1 affordability, and the program's value proposition of clinical support and savings.

Q: On 2025 selling season and FTC report A: Eric Palmer discussed a good 2025 selling season for PBM with high retention rates. David Cordani addressed the FTC report, stating Dr. Carlton's research contradicts FTC's report, and emphasized the durability of their model and ongoing innovation.

Q: On investments in 2025 and specialty cadence A: Brian Evanko mentioned ~$1.5 billion of discretionary CapEx for 2025, mostly for technology. Eric Palmer talked about biosimilar adoption trends, with Humira biosimilar reaching ~33% of eligible patients in the third quarter and expected continued growth.