Cigna Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Innovation and Solutions: Introduced a new rebate-free pharmacy benefits model, invested in Shields Health Solutions, and collaborated on initiatives to enhance access to care, such as with HHS/CMS and on fertility treatments.
• Business Performance: Evernorth's Specialty & Care Services achieved 11% adjusted earnings growth. Cigna Healthcare delivered solid results despite elevated medical costs, and proactive renewals/extensions of large client contracts were noted.
• Clinical and Affordability: Focused on biosimilars, GLP-1 offerings, and efforts to make fertility treatments more affordable, along with initiatives to control medical care costs.

Segment Performance

• Evernorth: Third quarter 2025 revenues reached $60.4 billion, with pretax adjusted earnings climbing to $1.9 billion. Specialty & Care Services saw revenues surge 10% to $26.3 billion and pretax adjusted earnings rise 11% to $928 million, driven by strong specialty volume growth and increased biosimilar adoption. Pharmacy Benefit Services had revenues of $34.1 billion and pretax adjusted earnings of $1 billion, in line with expectations.
• Cigna Healthcare: Third quarter 2025 revenues were $10.9 billion, with pretax adjusted earnings at $1 billion. The medical care ratio was 84.8% due to an updated view of risk adjustment, but operating cost efficiencies offset some pressure.

Guidance

• Full Year 2025: Reaffirmed adjusted earnings per share outlook of at least $29.60.
• 2026 Outlook: Anticipates EPS growth, with Cigna Healthcare expected to grow operating income toward the upper end of its long-term target, Evernorth's Specialty & Care Services to grow income toward its target, but Pharmacy Benefit Services to decline due to renewals, extensions, and transition costs for the new rebate-free model.

Risks

• Margin Pressure: Pharmacy Benefit Services segment faces margin pressure over the next 2 years due to investments, renewals, and economic pressures for government program partners.
• Regulatory/Market Dynamics: Uncertainties related to changing regulations, economic conditions, and market forces affecting health care affordability and access.

Question and Answer

Q: Clarification on pharmacy rebate guarantees and new model economics A: David and Brian discussed that the new rebate-free model is fee-based, delinked, and transparent, with benefits for patients, pharmacists, and clients. Margin compression in 2026 due to large client renewals and transition costs, but long-term durability is expected.

Q: Magnitude of 2026 decline in Pharmacy Benefit Services A: Brian explained that decline is due to large client renewals (more than half the impact) and transition costs for the new model (less than half), with Specialty & Care Services growing towards its target to offset some decline.

Q: Cigna Healthcare growth and membership A: Brian noted Cigna Healthcare expected to grow income at the higher end of long-term target, with stop-loss business tracking as expected and Select segment showing growth, while Individual exchange expected to decline.

Q: Long-term margin profile of Pharmacy Benefit Services A: Brian stated the new rebate-free model's earnings contribution is expected to be comparable to existing solutions, supporting a durable long-term margin profile around 4%