Cigna’s Evernorth invests $3.5B in ex-Walgreens specialty pharmacy

 

• Cigna’s health services division Evernorth has invested $3.5 billion in Shields Health Solutions as the company continues to build out its lucrative specialty pharmacy business.

• Shields, which helps hospitals and other providers create and manage their own specialty pharmacies, is one of five standalone businesses created from pharmacy behemoth Walgreens, which was acquired and chopped up by private equity firm Sycamore Partners last week.

• Evernorth’s investment in the form of preferred stock does not give Evernorth a controlling stake in Shields and is not expected to materially impact Cigna’s earnings guidance for 2025. The deal does give the company the option to invest more in Shields in the future.

Specialty drugs are expensive prescription medicines for complex and chronic conditions that are only dispensed through specialized pharmacies like Shields. Less than 5% of the U.S. population takes specialty drugs, according to industry estimates, but the prescriptions account for more than 50% of total U.S. pharmacy spend.

Margins on specialty drugs can be equivalent to or lower than those of non-specialty medicines. But since their list price is significantly higher, specialty drugs can result in profits of hundreds or even thousands of dollars per prescription.

As such, specialty pharmacy is a major driver of revenue and profit for pharmacy benefit managers like Cigna’s Express Scripts — a business housed under its Evernorth division — and for their parent companies. On a recent earnings call, Cigna executives attributed higher-than-expected Evernorth earnings in part to strong momentum in its specialty and care services platform.

Similarly, Shields was one of Walgreens’ most lucrative business lines before the beleaguered retailer sold to Sycamore in a $10 billion deal that closed last week.

Shields brought in slightly below $700 million in revenue over the last twelve months, up from $212 million in 2021, according to estimates from J.P. Morgan analyst Lisa Gill. Moreover, the specialty pharmacy also boasts strong profit margins, with adjusted operating income estimated at more than $200 million for the 2024 fiscal year.

The numbers are fueled by rising demand for specialty drugs. Employers say the trend is a major driver of spiking healthcare costs as conditions like cancer become more prevalent, driving higher prescribing of complicated and expensive medications to treat them.

https://finance.yahoo.com/news/cigna-evernorth-invests-3-5b-084916317.html