The Cigna Group (CI) Earnings Call Transcript & Summary

Hi. My name is Justin Lake. I cover healthcare services here at Wolfe Research. Thank you for joining our second annual virtual Wolfe Research Healthcare Conference. Really very pleased to have the Cigna management here. We've got CEO of the company's Evernorth business, Tim Wentworth with us; as well as the new IR, congratulations to Alexis, new head of IR, Alexis Jones. Unfortunately, our GoToWebinar is kind of treating Tim very fairly. So we won't have him on the screen here, but he is with us. And we started a few minutes late, we'll go a few minutes over. We'll make sure we get through everything today. So Tim, thanks for joining us. Maybe you could give us a couple of minutes kind of refresh state of the union on what's going on with Evernorth and Cigna, and then we'll jump into questions?

Sure. I'm going to be really brief because I know you've got a lot of questions. I mean, I can do a long fill about us here, but I won't. But thanks for having me and us, first of all, pleased to be here. I want to thank everyone that's dialed in. I apologize that we couldn't get the technology up, but I have a face for radio anyway. So this is better. In any event, just -- here's what I'd say. The bottom line for Evernorth, which we launched this year, after 2 years of working on merging the company's, driving synergies, driving core business results, execute on every promise that we've made to you and performing. We clearly could see that the market was thirsty for what we had and the opportunity to give it, a personality to create an executional platform of services that had its own identity. 90% of our revenue, which is from outside of Cigna's 4 walls, unlike our competitors, so we're driven to work externally, driven to work in novel and creative ways. And I think this year, you've seen that and the bottom line in the results are what really matters. And we've got 98% retention in our core book of business, higher than that in eviCore. All of our engines ESI, eviCore, Accredo, mail are growing this year in line with our expectations or better, and we are positioned to do a whole lot more in the future. We are driving great drug trends again. I think that will come out -- we'll again probably lead the industry as we have the last 5 years. We have record employee engagement scores. And we have powered Cigna's growth in the government business. The pharmacy part of that has been meaningful in terms of driving the top end of the range growth in the government business that we have. And what I finally say is this at the end of the year, it's sort of a cherry on the cake, and we'll talk about it, but Justin, I'm going to give you a hug if you're going to publish for this, which is primed for success. Because if you take a look at the year, we started out less than a year ago, signing the first deal with Prime Therapeutics that a lot of folks didn't think we'd get done, and we built off of that. That deal alone, we expanded our footprint beyond the initial deal to our SafeGuard programs, for example. Then round 2, we were again selected by Prime in a very competitive process to be their specialty pharmacy preferred provider as well as their mail service provider. And so you see us continuing to deepen our relationship with Prime. And from that standpoint, if you go out to Linkedin, I'm really, really proud of the fact that when we launched Evernorth, Ken Paulus, the CEO of Prime wrote and I quote, David, thank you for the engagement with your -- with my organization Prime Therapeutics. Your team led by Tim Wentworth has been not only professional, but highly effective as we worked through several complicated implementations. We appreciate the partnership with Cigna. You don't see the CEOs of customers do that very often. But the Prime relationship demonstrates that we are executing on what we are built to do. And then the Amazon Prime relationship shows that we are, again, able to be creative, able to be disruptive, able to lean in and leverage our assets, and I think the final thing I would point out and then turn it over to you, Justin, is this is done in a massively capital-efficient way. I think I'm proudest of and I'm an EVA guy from way, way back is that what we do leverages ability to coordinate and integrate and work with others in ways that don't require us to invest massive amounts of capital in bricks-and-mortar or other things. And enables us to be nimble, enables us to be a partner of choice, and I think portends to a very strong future. With that, I'm happy to open it up. I know you got a bunch of questions.

That's a great overview, Tim. And certainly, you talked about the innovation, the ability to partner. And obviously, the company made a lot of news a couple of days ago with your partnership with Amazon. I want to make sure I give you an opportunity to explain to us what that is today and what it isn't and maybe give us some background on the process there?

Sure. And again, I'll try to be brief because I'm sure there's unanswered questions that I won't hit. So the short answer is, we've been talking with Amazon for quite some time. They've obviously been looking at how to expand their relationship in pharmacy. Some folks thought Whole Foods would be the answer and of course, so far, it hasn't. Some folks thought PillPack would be the answer, and so far it really hasn't -- I'll leave it to Amazon to talk about PillPack's growth, but you don't see -- you see PillPack in a lot of networks, but it comes in the network as a retail choice and folks that are looking for affordability and very often PillPack may not be the most affordable choice, but it's a choice nonetheless. And so we have certainly worked with Amazon to put in PillPack in various networks for patients where that was appropriate. By the way, I would step back and remind you that we have had a meaningful relationship with Amazon as a client for a long period of time. And therefore, we've enjoyed the growth that they've enjoyed this year in terms of adding -- folks. But more importantly, we've worked really collaborative -- collaboratively with them to execute for their members, the kind of expectations they have for their consumers. And in the end, the relationship we now have announced with them is one where if you take -- the first thing they launched was basically just kind of a rebranding -- relaunching of PillPack inside of retail networks, but also now for the front end on the Amazon website. But the second piece was disrupting the cash market. And the cash market is not gigantic, but it is important. It's been underserved. And if you think about Amazon's core strategy, as I understand it, it is to go after markets that are not well serving consumers. And they clearly looked at the existing opportunities in the space, whether that was the cash cards of retailers or GoodRx and others blank and they saw an opportunity to bring better value and better service. And they came to us. We spent meaningful time helping them understand what we could do, and they're using our Inside Rx chassis that we built 4 or 5 years ago for our cash program. They're using our unique, still-only-in-market ability to get rebates on brand drugs and cash programs to meaningfully lower the cost of brand drugs for cash-paying customers. And so they're executing that. We are adjudicating all of the claims that they're getting. We also are -- obviously, we built the retail network for them that their members can go into the Walgreen, CVS, et cetera, to access the Prime pricing at the retail counter in retail pharmacies. And so we've essentially did the entire private label back end for them as they, again, launch this cash program.

That's really helpful. So let's start with the cash program. Can you maybe compare and contrast it to, for instance, what you're doing GoodRx in terms of how the economics are split. My understanding is GoodRx gets the bulk of the economics from some of their slides versus the PDM. How does that work with you and Amazon? And I assume with GoodRx you're getting a percentage of the volume there because it's getting spread out among multiple PDMs in terms of adjudication? Whereas with Amazon, you'll be getting 100%. So maybe you could tell us or give us some ballpark number on how your penetration with GoodRx versus aiming for that 100% number with Amazon?

Sure. I appreciate. And you pointed out the point that I would have made, which is that we have an exclusive with Amazon, which is fundamentally different than the relationship with GoodRx. And listen, we've been working with GoodRx for a number of years. They enabled us to launch more broadly than we could ourselves because we launched Inside Rx at the same time that we launched with GoodRx. I actually was on the CBS morning show with Dave Ricks from Lilly's kind of announcing the program a number of years ago. But Good obviously works with all the PBMs, leverages their databases and so forth. There is, as you say, an underlying profit model for Good that I don't want to speak for Amazon, but I think Amazon saw an opportunity to create additional value for consumers. We -- what I would say is this, as it relates to the economics. Obviously, it's incremental economics for us, which is good. I mean to the extent, Good folks go to Amazon, then we've got the same patient in a different chassis. We like the Amazon chassis a lot. I'm not going to compare and contrast to Good other than to say that it's good economics for us with Amazon and it was very appealing to, again, especially given that we don't have to really invest any capital here. To work with them as an exclusive partner with an eye toward, again, empowering their strategy. And I think that over time, folks want to know what that's going to be, and they need to ask Amazon that question. But I think that to the extent they want to take their cash program, and leverage the data from it. They're certainly going to be well positioned to do that right out of the chute. To the extent that, again, from our standpoint, we are their partner here. We think there are any number of things that depending on which way they go, we can support and help them with.

That's interesting. So in addition to 100% of the share, it sounds like the economics to you on a per script basis might be similar. So as I look at it, you're talking about Amazon bringing more value to the marketplace versus what's out there today. Would it be, on a relative basis, the things that, again, I've thought out here are one, the -- maybe Amazon is willing to take a more customer-friendly posture of what they're -- on the slice that they're taking for each script relative to what's out there. They certainly lead on prices in a lot of other markets. And then how much is that offset by using your model relative to having best pricing above 3, 4, 5 PDMs. How do you see that playing out in terms of paying that stuff?

Yes. I mean first of all, in terms of who they think they're going to kind of capture and for what reasons, that's really I don't want to comment on their strategy. They obviously have the ability to price however they want to, and we just are able to administer it really effectively for them. But the starting point, to your point, is discounts. And the point is, is they don't need to work with multiple PBMs to have a retail network of 50,000 stores and access that lowest price that the retailer is offering and then decide if they want to subsidize that incrementally or reduce fees compared to what others are offering and so forth. And so we're able to again enable based on how they want to dynamically evolve their positioning in that market and the value in that market. We're able to, a, adapt; but b, we've constructed a very powerful piece. The difference is for others working on multiple PBMs, those are -- that's a good way to get additional eyeballs and additional data and information, but we've got plenty of data to give Amazon what they need to plot their path here.

Got it. How do you see the cash market evolving over time in -- from a pricing perspective, from a penetration perspective, do you have any visibility to how often when a customer uses one of these apps, they're eventually choosing, right? Is this a specialty insured company or a customer given your customer base or client base itself. How long an insured customer is going and moving over to cash pay when they use this?

Yes. I think the question lies in wondering what's going to happen with 2 things. One is the Affordable Care Act and other things that have sort of created insurance for those that didn't have it before. And 2 is plan designs. As you think about the fact that one of the things that opened up the cash market beyond its sort of natural size, which isn't terribly large, by the way, in the grand scheme of prescriptions. You have 6-point-some billion scripts and probably under -- I think it's well under 500 million cash scripts. And so if I think about plan designs, the high deductible plans opened up in many cases, for certain patients, roughly 5% to 7% of patients -- or sorry, 5% to 7% of prescriptions where you'd say that the cash price mostly in generics, by the way, that the cash price for a member who is in a funded plan could be better from GoodRx or now Amazon or Blink or others, than it was through their funded benefit. And so members would opt out while in donut holes, deductibles, out-of-pocket maxes, et cetera, and use it. And I will tell you that I'm not predicting you're going to see plan designs that are massively more consumer unfriendly, for lack of a better member, unfriendly, for lack of a better term than they are now. I think folks realize we've probably hit a point with co-pays and so forth that that's not going to be the way to manage cost in the future. There's just not enough leverage in all of that, particularly in the generic drugs. And so I think the market will grow, but I don't think the market is going to be the exploding. I don't think you're going to see a large cash market in specialty, for example, on the medical side, for example. And so it's a niche market. It's one we didn't participate in 5 years ago, and we said we were going to participate in it. We were going to do it in a clever way. We did that, and now Amazon is taking advantage of that, as we've also benefited from our Inside Rx program. And so I think that's going to be the long-term question. I don't see the cash market evolving massively, but if it does, we're really well positioned.

Got it. I appreciate all that. So then let's take a step further. And you talk -- you said you've been talking to Amazon about multiple things over a fairly long period of time. Amazon announced Prime, a 2-day shipping for their Prime members. Clearly, that seems like a first step. How -- are you involved in -- just to make sure I understand, are you involved in that at all from a back-office perspective? Are you -- beyond the cash pay part are you doing anything else with Amazon at this moment?

No. We're not on the back end. We certainly -- again, as we do with all relationships, we look at where could we potentially help. I think, depending on what kind of volumes Amazon experiences and what their capacities are and so forth, we think we're well positioned to help them if they were to have meaningful expansion in volume there. And what I would point out is, again, the back end dispensing, which we do really well, 100 million plus 90-day scripts every year, robotic, 99.999% accuracy, et cetera, et cetera, by far and away the industry standard and that is growing for us. But if Amazon were to want to hook into our back end, that's certainly something that we would talk to them about. And what I would point out, if you think about all of this is -- again, Amazon is about disrupting the member experience. Now 2-day shipping for Prime is great. The challenge in doing that and Amazon is well aware of that this is a new prescription coming into a funded benefit may have multiple checks that need to be done, including potentially speaking with a physician, and it's almost never going to be the case that, that script will come in and go out in 2 days. And so what we've learned, because we did some 2-day shipping, is that you've got to be really thoughtful about how you communicate with members around their expectations, depending on what kind of prescription it is. If it's a renewing one, if it's a refill, et cetera, clean refills, you can definitely get done in 2 days. We do. Yes, I think 60-some percent of our scripts are more -- are out in the member's hands before 3 days if they're clean. And so I think Amazon will -- they're going to learn, they're going to experiment. They have that capability at PillPack to manage benefits administration inside of the piece. But certainly, if they were to meaningfully become a large retailer at scale, which hey, listen, I would welcome that from a standpoint of being able to do what -- the end of the day, it's not the end of the PBM the Amazon gets in, it's a result of it, and we will benefit from it by creating, again, competition amongst the retailers for access to our members. And to the extent that Amazon can define that access not just through unit cost parity or better, but through other service elements or clinical elements, then they're going to have a really good shot. And I think that's what they've got to think about over time as they now step into pharmacy more completely.

And so where I would follow with that is, we've seen it with your Prime relationship, right, where it started with purchasing, now has moved to specialty, and I want to talk to you about where you think that goes next. But to kind of follow-up on Amazon for a minute, the -- I think, I'm certainly not an expert on Amazon, but the distribution logistics seems to be what they're really good at, obviously, purchasing and kind of the administration part behind the scenes is what Express Scripts and PBMs are really good at. The thought process being that probably the biggest gate that Amazon getting bigger is their purchasing power. Is that something that you think down the road you'd be open to?

We'd be open to working with Amazon in any number of ways as they evolve the strategy. And yes, I mean the reason we built Ascent this is a good transition to Prime Therapeutics. The reason we built Ascent was strategically 2 reasons. One, we saw that rebates were getting more and more challenging because pharma was just more and more resistant in today's environment, particularly with COVID, feeling kind of good about themselves. And so we needed to make sure that we continued to be able to have a meaningful chassis to get and protect rebates. And secondly, because we could build something that would be strategically interesting to potentially large others that we could work with in more durable ways than just a PBM or a rebate contracting relationship. And so Prime saw that is obviously valuable and evaluated and differentiated. And to the extent that, again, Amazon wants to move further down that path. If PillPack wants to look at how they purchase products and potentially look at differing ways to do that, we have a number of GPOs that are very successful, not just Ascent. We have a generic purchasing GPO as well that we're more than interested in talking to potential members, including Amazon about.

That's really helpful. So that leads us to the next question that I get a lot from investors, which is Amazon certainly been disruptive in a lot of the markets that they've gotten into. They haven't always been successful. But in some of them, they've been disruptive to the pain of their competitors. You've got a big network of business, for instance, right, that is very profitable. How do you kind of weigh the potential of letting the fox into the hen house, so to speak, with enabling Amazon from a purchasing perspective to be competitive when they're already very good at logistics and distribution versus the potential disruption in your mail order business, versus the other opportunities that it is to work in a company that's their best scale and size and potential?

Sure. I appreciate that question and I got asked that once. So I'm going to apologize, somebody may have heard me say this 3 years ago because I'm incredibly consistent when I was on CNBC. I think one of the times, I said when I was asked about the fox in the hen house. if we were to work with them, my answer was we have a lot of hen houses. And as you've seen over the last several years, we have meaningfully diversified and managed to ensure that our patients and our payers could direct the scripts to the places they wanted based on their particular strategies. And so for example, you've seen us push Retail90 to very high levels in our book of business, and that was viewed by -- let's call it, 10 years ago, when Kmart bought -- with CVS bought Kmart for example was hugely threatening to us. What we've seen is our mail members are very sticky. They're very happy, but so are our Retail90 members, and we're able to surround them with clinical programs as well. And from our standpoint, the real question is how we underwrite the relationship we have with our B2B clients is determined by how much mix of business comes through different channels, what kind of specialty relationship we have. There are -- it's a very sophisticated underwriting model that would allow for and has allowed for, are managing clients that have no mail and are being profitable in an appropriate way. And our clients who have a lot of mail and our clients who have grown their mail. And so we're not at all concerned about where we start? And this is, I think, the most important thing to understand, Justin, is my thinking and our thinking is real simple here. Amazon is going to go into pharmacy. If they're going to go into pharmacy, I would much rather be working with them than not. I would much rather harness what they do and create value for my book of business rather than view it as some threat that I have to stop. I will use mail, I will use my mail that, in part, drive Amazon to lower prices, right? I mean, in other words, we've been a very, very cost-efficient, high-service, great-outcomes organization. And the final point I'd make is, we get paid by and large -- and I know you spoke with Stuart Peltz yesterday, you had him on the panel, and Stuart would tell you this with the large employer coalition he works with, what they're interested in, isn't our shipping scripts out the back door. That's nice, and they have a lot of mail service. What they pay us for is the clinical front end is the risk that we take on overall adherence and outcomes across a series of comorbidities. That's the value that we add. Our mail capability is terrific. It's a differentiator. It does force others to price more aggressively because they know that we've got that competitive threat. We love taking care of the DoD through our mail service operations and that continues to be a very strong relationship that, as you may know, is now we've completed the RFP for hopefully being selected for another 7 years. I think we will be based on service and based on our competitiveness and our efficiencies, but the real magic of what we do and we'll be doing in the future is how we integrate with others and how we drive clinical and overall outcomes and continue to innovate, mail is just one hen house of many.