Cigna Corp (NYSE: CI), which owns pharmacy benefit manager Express Scripts, stock surged 9.24% on July 11th, 2019 and continued its bullish momentum rising over 1.1% on July 12th, 2019 (as of 11:30 am GMT-4; Source: Google finance). The Trump administration abandoned a push to end rebates in government drug plans. President Donald Trump had earlier made lowering prescription drug costs a priority and halting rebates was seen as a key part of that effort. His proposal would have prohibited drug makers from paying rebates to pharmacy benefit managers in government programs such as Medicare. It could have brought significant change to a system that influences tens of billions of dollars of pharmaceutical spending..
The plan was part of an effort, underpinned by embattled Health and Human Services secretary Alex Azar, for reducing the prices at the pharmacy counter. But opponents within the Trump administration worried about its costs, and industry officials said it would scramble the drug industry. Its withdrawal is positive news for companies in the drug channel with economics tied to higher gross list prices. On the other hand, Rebates had become a popular target of criticism in Washington after drug companies lobbied aggressively to cast them as the reason for high prices. Pharmacy-benefit managers negotiate drug discounts in the form of rebates, often keeping some of that money for themselves.
Meanwhile, this do not mean the Trump administration is giving up on its bid to cut drug prices, even in the face of two recent defeats. Giving up the rebates could mean that the president and his staff will be looking more aggressively at other proposals still on the table, including one that would seek to bring drug prices paid my Medicare and Medicaid closer to the prices paid by other countries, the so-called international price index plan.
Additionally, the company has raised its adjusted-earnings projection for 2019, which is now expected to be between $16.25 and $16.65 a share, up from a previous projection of $16 to $16.50. Cigna now expects $6.24 billion to $6.4 billion in earnings for 2019. The company also expects to add another $1 billion in revenues, raising its previous forecast to $132.5 billion to $134.5 billion. For the first quarter, Cigna had reported earnings of $1.37 billion, or $3.56 a share, compared with $915 million, or $3.72 a share, a year earlier. Total revenue had more than tripled from a year ago to $37.95 billion, again reflecting the absorption of Express Scripts.