The operator begins the conference call for the Cigna Group's first quarter 2024 results review. The call is being recorded and a Q&A session will follow. Ralph Giacobbe, Senior Vice President of Investor Relations, introduces the speakers, including David Cordani, Chairman and CEO, Brian Evanko, CFO and President of Cigna Healthcare, and Eric Palmer, President and CEO of Evernorth Health Services. They will discuss the company's financial results and updated outlook for 2024. The company uses adjusted measures of financial performance, which are reconciled with GAAP measures in the earnings release.

The speaker will be discussing forward-looking statements and potential risks and uncertainties for the company. They also mention the company's financial results and special items, and note that future comments on financial performance will include potential impact of share repurchases and dividends. The speaker then turns the call over to the company's CEO, who will discuss the company's strong performance and strategic drivers of growth.

The speaker discusses the company's focus on biosimilars and driving affordability in the market, followed by the CFO's review of financial results and increased outlook for the year. The company's diverse portfolio and investments in high-growth businesses are highlighted, with a specific example of EncircleRx and its success in providing predictability and reducing costs for clients and patients. The company's strong track record and expertise in data-driven solutions are credited for the success of EncircleRx.

In the Specialty Care and Services businesses, the company has seen strong double-digit growth. They are investing in areas such as accountable care, virtual and home-based care, and behavioral care. The Evernorth Behavioral Care Group has expanded access and convenience for patients. In the Cigna Healthcare platform, the company achieved strong medical cost performance and is on pace for another good year. The Pathwell suite of solutions has shown strong results, including the Pathwell Specialty and Pathwell Bone & Joint solutions, which aim to reduce costs and improve care for patients with musculoskeletal conditions.

The company has seen strong results and high patient satisfaction with their personalized concierge experience. They are also focused on providing localized health solutions for the globally mobile population. The sale of their Medicare businesses to HCSC is expected to close in the first quarter of 2025. The company's Specialty businesses within Evernorth are also performing well, with double-digit revenue growth in the first quarter.

Evernorth, a combination of Accredo, CuraScript Specialty Distribution, and CarePath, offers unique capabilities in the market with a focus on innovation and expanding reach. They recently announced an interchangeable Humira biosimilar available at no cost for eligible Accredo patients and have agreements in place with multiple manufacturers to produce biosimilars for their private label pharmaceutical distributor, Quallent Pharmaceuticals. This will result in significant savings for patients and their health plans, with an estimated average of $3,500 per year. This opportunity goes beyond Humira, with an expected introduction of biosimilars or generics for almost half of the top 25 specialty drugs in the US by 2030, representing over $100 billion in annual spend.

In the first quarter, Cigna reported strong financial performance, with revenue of $57.3 billion and adjusted earnings per share of $6.47, which represents 23% and 20% year-over-year growth, respectively. This was driven by contributions from their two growth platforms, Evernorth and Cigna Healthcare. The company remains focused on meeting their commitments and driving value for their clients, customers, patients, and partners.

Despite the disruption caused by Change Healthcare in the first quarter, our strong fundamentals give us confidence to increase our full-year 2024 adjusted earnings per share outlook. Evernorth had a strong start to the year, with revenue and pre-tax adjusted earnings in line with expectations. Cigna Healthcare also performed well, with better-than-expected results driven by a favorable medical care ratio.

In the first quarter, Cigna Healthcare had a medical care ratio of 79.9%, which was due to their focus on affordability initiatives and effective pricing strategies. The Change Healthcare incident caused some disruption, resulting in a $650 million reserve being booked. Cigna Healthcare ended the quarter with 19.2 million medical customers, including a reduction in individual exchange enrollment. The company remains committed to value-based care and recognized a non-cash impairment charge related to VillageMD during the quarter.

In summary, the accounting item does not affect the company's value-based care strategy and they will continue to work with VillageMD. For the full year 2024, they expect strong growth in Evernorth and Cigna Healthcare, with adjusted income from operations projected to be at least $8.065 billion. They also expect a 45% increase in adjusted earnings per share in the first half and a 55% increase in the second half. For Evernorth, they expect adjusted earnings of at least $7 billion, and for Cigna Healthcare, they expect adjusted earnings of at least $4.775 billion. The Medical Care ratio is expected to improve by 20 basis points from the prior range, and the debt-to-capitalization ratio has increased due to the timing of debt issuance and accelerated share repurchase agreements.

The company is targeting a long-term debt-to-capitalization ratio of 40% and expects $11 billion in cash flow from operations. They plan to use the majority of their discretionary cash flow for share repurchase and anticipate a weighted average share count of 282 million to 286 million shares. The first quarter results were better than expected, driven by the strength of the medical care ratio in Cigna Healthcare. The company is confident in their ability to deliver on their updated full-year 2024 adjusted earnings of at least $28.40 per share. The company expects a strong membership growth in 2025, with good activity in the selling season for Evernorth and Cigna Healthcare's national accounts.

The company operates in a competitive market and is confident in its solutions. They have had strong retention rates and expect them to remain in the mid-90s for 2025. The company's book of business for 2025 is smaller compared to previous years, but they are still feeling positive about their positioning. For Cigna Healthcare, they have seen an increase in RFP volumes and have a similar amount of existing clients out for bid compared to last year. Many large employers are looking to consolidate vendors or point solutions.

The speaker discusses the increasing demand for mental health and substance abuse benefits due to the pandemic, as well as the demand for digitally-enabled care navigation and consumer empowerment. They also mention feeling positive about their position for 2025. The speaker then answers a question about the profitability of the Specialty business and the biosimilar opportunity, stating that it will be an evolutionary and accelerating phase, not a sudden switch. They highlight the size and growth of the Specialty marketplace and the company's above-average growth rate.

The paragraph discusses the innovations and opportunities in the specialty and biosimilar market for Evernorth, a company that provides healthcare services. The company's CEO, David, mentions that these innovations require a combination of data, supply-chain relationships, and clinical expertise. He also highlights the potential for profitability and the company's capabilities in this area. The company's CFO, Eric, adds that Evernorth is well-positioned to create value for clients in the rare and high-cost conditions market due to their capabilities in handling complex therapies.

The speaker discusses the company's strong performance in the quarter, with a focus on medical care ratio (MLR) trends. They mention that the MLR was better than expected, leading to income outperformance. Despite disruptions, the company delivered good results in Cigna Healthcare. The speaker also highlights utilization patterns across product lines as a contributing factor to the company's success.

In the first quarter, the US employer book of business saw elevated inpatient facility claims, but also saw some modest favorability in outpatient and surgical categories. The individual exchange book had a mix-related timing benefit, resulting in a greater degree of seasonality, but the underlying performance was in line with expectations. The Medicare and International businesses were also in line with expectations. In 2023, the individual exchange business had $5 billion in premium and ran below the target profit margins, but corrective pricing actions have been taken to improve margins, which may result in some customer loss.

Cigna's membership is down sequentially, but they are still on track for margin improvement in 2024, although margins may be slightly below their target range. The VillageMD situation has not changed their strategic direction, despite the write-down of the asset. The write-down was largely due to market dislocation and Village's decision to constrain growth in new clinics. The dividend stream may be impacted by the write-down, but the exact amount is not specified.

The speaker explains that their company has a "thin footprint" compared to their competitors in the value-based care market, but they have a strategy to use data and care extenders to improve quality and affordability. They are currently working with Village in four markets and plan to bring their capabilities to other partners in the future. The company had to write down the value of their investment in Village, but their strategic direction remains the same. The CFO also mentions the new carrying value and the collectibility of the dividend from the investment. A question is asked about the availability of different dosages for a Humira biosimilar.

David Cordani, CEO of Cigna, responds to a question about the company's new venture and the use of data and AI in their Specialty business. He clarifies that their capabilities in this area are not new, but the opportunities they are pursuing are. He also highlights the importance of their ability to support patients at all dosage levels. Lastly, he discusses the three-tier dimension of AI, which presents the opportunity for them to do their work better, faster, and more efficiently.

The company is focusing on three main areas to improve personalization in healthcare: reducing variability, increasing precision, and improving clinical intervention. They are furthest along in reducing variability, entering the second area, and cautiously testing the third. They believe Evernorth is well-positioned to make a direct impact in these areas. The recent introduction of a solution for interchangeable biosimilar Adalimumab is a promising opportunity, as it offers the maximum number of available dosages and utilizes their robust supply chain, data, and technology. The company is excited about the potential for precision in healthcare and is working towards this goal.

The company has many new drugs in the pipeline, including Neulasta, Stelara, Prolia, Soliris, and Eylea. They expect biosimilar options to become available for 50% of the top 25 specialty drugs within the next five to six years. The company also mentioned extra costs related to Change and a decrease in margins for Specialty Care and Services, which may be due to new implementation costs. The disruption caused by Change was felt across the industry.

The speaker expresses pride in the team's focus on access to care, member service, and healthcare professional support. They had to adapt and utilize various programs and vendors to continue their work and increase staffing levels. The cost dimension is addressed by Brian, who discusses the disruption in claims submissions and payments, as well as the additional reserves of $650 million due to the Change Healthcare dynamic. He explains that about two-thirds of the reserves are due to timing issues, while the remaining one-third is due to claims that were incurred but not yet reported due to disrupted provider workflows.

Cigna's CEO discusses the company's outlook for the full year and the performance of their clinical programs and protocols during the quarter. They are proud of how the team rallied during disruptions and delivered a good quarter. The Specialty and Care Services segment within Evernorth had strong performance with 8-12% annual growth. However, income within Evernorth may show quarter-to-quarter variability. The next question is about capital deployment.

David Cordani and Brian discuss the company's capital priorities and plans for the remainder of 2024. They reiterate the importance of investing in the business, pursuing strategic and financially attractive M&A opportunities, and returning excess capital to shareholders through share repurchases and dividends. The company's strong organic growth model and projected cash flow production of $60 billion over the next five years are expected to drive continued growth.

The company's growth strategy is focused on its strong organic portfolio, but it remains open to M&A opportunities. The capital deployment priorities include internal reinvestment, dividends, debt repayment, and strategic M&A or share repurchase. The company expects to complete at least $5 billion in share repurchase by the end of June and the majority of its discretionary cash flow in 2024 will be used for share repurchase. A question is asked about the specialty opportunity, specifically regarding Humira.

The company's strategy for the specialty market is to provide maximum choice and flexibility for clients, while also avoiding dependence on a single supplier. They have a strong value proposition for the biosimilar Humira, with a $0 patient cost-share and savings of $3,500 per patient per year. In regards to GLP-1s, the company is seeing positive traction and is meeting expectations in terms of economics.

Eric Palmer, speaking on behalf of Express Scripts and Evernorth, discusses the potential opportunities in managing the affordability of GLP-1s, a type of medication used to treat diabetes, for their clients. Their EncircleRx solution combines supply chain and procurement expertise with clinical capabilities to guarantee outcomes for clients and has a long history of successful value-based outcomes programs. Express Scripts and Evernorth believe that pharmacological innovation will be a defining factor in the next decade.

The speaker discusses the importance of a data-driven, patient-centric model in the healthcare industry, using examples such as GLP-1s and biosimilars. They also mention the large number of gene therapies in the market and the company's investments in this area. In response to a question about Medicare, the speaker clarifies that it will continue to be included in the P&L until it is divested. They also address the potential impact of a stop-loss true-up and the seasonality of the specialty business.

The paragraph discusses the impact of Cigna Healthcare's performance on the company's overall results. The international business represents about 20% of the premium and is performing as expected. The stop loss book of business had favorable claims experience in the fourth quarter, but is expected to normalize back to target profitability levels. The Specialty and Care Services business tends to see a ramp in income over the course of the year, while the pharmacy benefit services business shows sequential growth in income every quarter. The company expects an average annual income growth rate of 8-12% in the Specialty and Care Services business.

David Cordani from Bernstein asks a question about the go-to-market strategy and insights for value-based care and the GLP-1 guaranteed product. He asks about the characteristics of employers interested in these solutions and for an update on coverage trends for GLP-1s. David Cordani explains that their VBC strategy has been in place for 15 years and focuses on aligning incentives, data flows, and care extenders to improve quality outcomes and affordability. Eric will provide more information on the GLP-1 questions. This approach is not restrictive and resonates with most employers.

The speaker discusses the Pathwell program, which is a value-based care program that focuses on redesigning care for specific conditions and using data to improve outcomes. This program is initially targeted toward larger employers but is being expanded to smaller and mid-sized employers. The speaker also mentions the high patient satisfaction rate for the musculoskeletal program. They then address the question of coverage for GLP-1s for weight loss, stating that larger clients tend to cover them more but coverage also depends on the employer's approach to benefits and the clinical needs of their employee base.

In the paragraph, the speaker discusses the decision-making process for employers when it comes to providing coverage for GLP-1s for weight loss. They mention that about 50% of their employer relationships cover this treatment, which has increased from the previous year. They also mention the success of their Encircle program in providing access for patients. The speaker wraps up by thanking their team for their hard work and discussing their continued momentum and positive impact on people's lives.

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This summary was generated with AI and may contain some inaccuracies.