Cigna Stock Falls After EPS, MLR Misses; Firm Unveils PBM Changes

In its latest earnings release, The Cigna Group reported that it recorded a 27% year-over-year increase in revenue 2024. But the insurer’s stock took an 11% tumble on news that it missed its fourth-quarter adjusted earnings per share (EPS) and medical loss ratio (MLR) targets due to unexpected pressures faced by its stop-loss product. Overall, “Cigna reported very weak 4Q24 results,” Leerink Partners’ Whit Mayo concluded. Cigna’s fourth-quarter adjusted EPS was $6.64, which was 15% below the consensus estimate of $7.82. And the company’s MLR for the fourth quarter was 87.9%, which was considerably higher (worse) than the 84.4% consensus. These misses were driven by higher-than-expected medical costs from the company’s stop-loss product. Stop-loss insurance is available to self-insured employers and works by transferring risk to Cigna when a company’s costs reach a certain threshold due to catastrophic or unexpected medical claims. Stop-loss medical costs soared in the fourth quarter because of “an increase in the number of high-cost claimants related to cost pressures from the continued acceleration in the prescribing and use of specialty medications as well as elevated high-acuity surgical activity,” said Brian Evanko, Cigna chief financial officer and CEO of Cigna Healthcare, during a Jan. 30 conference call to discuss the earnings release. In particular, cost trends were driven by specialty medications such as Keytruda (pembrolizumab) for cancer and oncology- and cardiac-related surgeries, Evanko added. “We are taking corrective actions on this near-term pressure and expect to recapture margin over the next two years,” said CEO David Cordani. Evanko said Cigna expects to recapture around 100 basis points of margin in its overall Cigna Healthcare segment over the next two years, with most in 2026 and the remainder in 2027. “We will do this by balancing pricing action, affordability initiatives, operating cost efficiency and continued investments,” he explained. Because the stop-loss pressures were not identified until the end of 2024, “we were not able to fully recognize this in our January 2025 renewal pricing, as much of that pricing work was completed in the fall,” Evanko explained. “Some of the later 2025 renewals will reflect the updated estimates, with the majority of the 2025 stop-loss pricing will not capture that elevated cost structure.” Even so, relationships with clients who choose Cigna’s stop-loss coverage remain strong, Evanko added. “So, the shortfall in our 2024 results offers a substantial embedded earnings opportunity for the company, and we’re confident in our ability to execute against this, balancing the timing of margin recovery with client persistency,” he said. Evernorth Debuts PBM Transparency Moves Cigna’s Evernorth business, which includes specialty pharmacy assets and its Express Scripts PBM, reported more positive results. Adjusted revenues for the fourth quarter of 2024 increased 33% to $53.7 billion in that segment, and pretax adjusted earnings increased 14% to $2.1 billion, which Evanko said was in line with expectations. Specialty and care services saw adjusted revenue of $23.5 billion, an 18% increase driven largely by the insurer’s Humira (adalimumab) biosimilar. Half of eligible patients have been moved from Humira to the biosimilar, Evanko noted. Express Scripts’ pretax earnings were $1.2 billion. The executives also announced new initiatives for Express Scripts that they say will save customers money and increase transparency around pricing, citing increased scrutiny around insurer practices following the murder of UnitedHealthcare CEO Brian Thompson in December. “The past several weeks have further challenged us to even more intensely listen to the public narrative about our industry,” Cordani said. The PBM will reduce out-of-pocket costs for consumers by allowing them to “fully benefit from our lower net negotiated prices,” Cordani said. “Next, patients will also have improved predictability, especially and importantly, in their deductible phase by receiving the benefit of Express Scripts negotiated savings like their employer does.” Patients will also receive personalized end-of-year summaries of their total drug costs, the amount paid by the plan and the savings from Express Scripts. The move for more PBM transparency also comes as regulators have ramped up scrutiny of the industry. In September, the Federal Trade Commission (FTC) filed an administrative complaint against Express Scripts, UnitedHealth Group’s Optum Rx and CVS Health Corp.’s Caremark, accusing them of creating “a perverse drug rebate system that prioritizes high rebates from drug manufacturers, leading to artificially inflated insulin list prices.” In November, the PBMs countersued, claiming the FTC’s lawsuit is unconstitutional. And in December, Sens. Elizabeth Warren (D-Mass.) and Josh Hawley (R-Mo.) sponsored legislation to force companies that own PBMs or health insurers to sell their pharmacy businesses. Cigna’s planned divestiture of its Medicare Advantage business to Health Care Service Corp. is on track to close during the first quarter, Cordani said, pending approval of regulators in one more state. The company’s 2025 EPS guidance is $29.55, with a long-term growth target of 10% to 15%. Cigna also is aiming for an 83.2% to 84.2% MLR, which “reflects the expectation that our stop-loss [MLR] continues to be above target levels for full year 2025,” Evanko said. Wall Street estimates seem to jibe with Cigna’s outlook. The EPS target “of at least $29.50 compares to consensus of $251.8B and $31.48, respectively,” BTIG analyst David Larsen wrote in a Jan. 30 research note.