Health insurer Cigna's cautious annual forecast spooks investors, shares fall
New throughout, adds details, background, analyst comments, updates share price
By Amina Niasse and Sriparna Roy
Aug 1 (Reuters) -Cigna CI.N took a cautious stance on its full-year profit outlook on Thursday despite reporting lower-than-feared medical costs in the second quarter and beating Wall Street's profit estimates, and the health insurer's shares fell more than 4%.
Cigna, which also operates a pharmacy benefit manager, stuck to its full-year profit forecast of at least $28.40 per share.
At least two Wall Street analysts said the maintained outlook was "prudent", given that medical costs have been elevated for insurers providing government plans.
Investors were questioning if the maintain guidance resulted from a more "prudent posturing" or reflects a guide-down in the second half of the year, Leerink Partners analyst Whit Mayo said.
Cigna, like other insurers, said costs related to Medicare Advantage plans for adults aged 65 and over or those with disabilities are expected to stay elevated in the quarter, driven by high demand for medical services.
However, Cigna said the increase should be in-line with its prior expectations, contrasting with rival Humana's warning on Wednesday that demand for medical care was higher than it had anticipated in the second quarter.
For the quarter, the company's medical care ratio - the percentage of premiums spent on medical care - came in at 82.3% better than analysts expectations of 82.43%.
Compared to UnitedHealth UNH.N and Humana HUM.N, Cigna has a much smaller presence in the Medicare Advantage (MA) market and is in the process of selling its MA business to Health Care Service Corp. It primarily deals with employer-sponsored healthcare plans.
The company maintained its annual profit forecast and said it continues to expect a medical care ratio between 81.7% and 82.5% for the year.
For 2024, analysts expect a profit of $28.51 per share and a medical care ratio of 82.08%.
It reported second quarter adjusted profit of $6.72 per share, ahead of LSEG estimates of $6.41.
WEIGHT LOSS DRUGS, BIOSIMILARS LIFT PHARMACY BENEFIT UNIT
The quarterly beat was helped by strength in its pharmacy benefit management unit, which helps negotiates drug prices and coverage as middlemen, due to adding a major new client.
Pharmacy benefit services revenue jumped 41% to $26.6 billion helping push Cigna's revenue excluding a $53 million negative effect from investments to $60.5 billion, beating estimates of $58.3 billion.
Cigna said in June it had began distributing close copies of Abbvie's ABBV.N arthritis drug Humira at no out-of-pocket cost to patients using its specialty pharmacy Accredo.
"The biosimilar opportunity goes well beyond Humira. By 2030 we expect an additional $100 billion of annual specialty drug spend in the US will be subject to biosimilar and generic competition," said Chief Executive David Cordani on a conference call.
The company also expects growth in its PBM business driven by GLP-1 weight loss drugs from Eli Lilly LLY.N and Novo Nordisk <NOVOb.CO>.
Cigna's medical costs compared to peers https://reut.rs/4c8FMvS
Reporting by Sriparna Roy in Bengaluru and Amina Niasse in New York City; Editing by Shinjini Ganguli, David Evans and David Gregorio
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