Analyst: Sale of Cigna’s PBM could bring $1.3B

Cigna Corp.'s pharmacy benefit unit could fetch $1.3 billion in a sale, an industry analyst said today, as the health insurer's top executive reiterated the company is evaluating the business, Reuters reports.

Wall Street has been abuzz in recent weeks that Cigna would be the next health insurer to sell off its pharmacy benefit management unit (PBM), following the April announcement of WellPoint Inc.'s $4.68 billion sale of its PBM to Express Scripts Inc.

Oppenheimer & Co. analyst Carl McDonald based his projected pretax sale price for Cigna's unit -- which is smaller than WellPoint's -- on the terms of the WellPoint sale.

"The market would like this deal, we believe, primarily because the chief concern with Cigna these days continues to be that any one of its balance sheet issues ... will require the company to raise capital," McDonald said in his research report.

Pharmacy benefit managers administer prescription drug benefits for employers and health plans and often operate large mail-order pharmacies. The companies leverage their size to drive down drug-purchasing costs.

A sale price for Cigna's PBM will come at a discount to WellPoint's, McDonald said, in part because Cigna's book of business is smaller so a buyer would gain less scale.

Also, Cigna already has a higher level of more profitable mail-delivery prescriptions -- 25 percent to 30 percent compared with 10 percent for WellPoint -- leaving an acquirer less room for improvement, McDonald said.

Another Oppenheimer analyst who covers PBMs tapped Medco Health Solutions Inc as the logical suitor for Cigna's unit. Analysts at JP Morgan also recently named Medco as the front-runner for a Cigna deal.

Speaking at a Goldman Sachs investor conference today, Cigna CEO H. Edward Hanway said: "We are clearly looking at the PBM."

The comments at the conference, which was broadcast over the Internet, echoed Hanway's statement at another investor meeting last month that the company was "actively" evaluating the drug benefit business.

Even before the WellPoint deal, many analysts and investors had speculated that health insurers would divest their PBM units.

Independent PBMs such as Medco and Express Scripts carry far higher market valuations than health insurers, so the sale of in-house PBMs could allow stockholders to realize that value.

Cigna shares were up 40 cents, or 2 percent, at $20.81 in morning trading on the New York Stock Exchange.