The Cigna Group (CI) Earnings Call Transcript & Summary

Good morning, everybody. Thanks for joining us. My apologies. We're late because it's my fault. Time zone confusion. But it's my pleasure to welcome Cigna Corporation to our conference and Northwell, CEO, Eric Palmer, who's going to make a few introductory comments, and then we'll move into Q&A.

Thanks, Gary, and good morning, everyone. I'm going to thank -- appreciate the opportunity here today. Just a couple of comments on keeping short given our abbreviated time here. First of all, I am proud of our organization for what we delivered in 2021. 2021 was Evernorth's first full year as a brand, as disciplined, as a unified kind of business unit. And we had an outstanding year. Evernorth delivered 14% revenue growth in 2021, 9% earnings growth over the kind of collection of businesses that made up Evernorth in the prior year. And set a really nice foundation for us as we launch into the future. More -- in aggregate, Cigna Corporation delivered on its earnings per share commitments last year as well, which was certainly fulfilling for me, having been involved in setting our long-term targets a number of years ago when we first proposed to that combination of Cigna and Express Scripts. Now as we turn to 2022, we entered this year with momentum and with strength. We continue to see really strong demand for our services as we continue to build on the depth of our client relationships and we continue to add wins on the board. We have strong retention, with 90% retention within Evernorth, and that's inclusive of a couple of losses that decisions that were made that literally, in some cases, more than a year ago. We're going to continue to leverage Evernorth's capabilities to respond to the 3 forces that we think are fundamentally changing the future of health care, and that is: Pharmacological innovation; the link between mental and physical health; and the movement toward care being in lots of different places, specifically home and virtual. I expect 2022 to be a strong year for Evernorth. We've already guided to driving topline and at least 4% revenue growth for the segment, bottom line at 5%, that's in line with our long-term targets. As we look longer term, I'm really encouraged by our growth opportunities. Express Scripts continues to deliver. Accredo, our specialty pharmacy continues to be a leader, I'd argue a thought leader, thought in the specialty pharmacy space. That's 1/3 of Evernorth's revenues, provides differentiated contributions, differentiated value proposition in specialty pharmacy care. And this is an area that's growing rapidly. Biosimilars present a really exciting opportunity for us, and accept capabilities that we've got to bring together clinical expertise, especially pharmacy expertise, supply chain expertise and match those with the needs of our patients and our clients. Evernorth is going to continue to grow and thrive with the significant increase in demand of behavioral care, and we're going to continue to build on our capabilities in our MDLIVE platform. So in closing, from an opening remarks perspective, I think we're well positioned for future growth. 2022 is going to be another strong year for Evernorth and for the broader Cigna enterprise. With that, Gary, I think we can go to your questions.

Great. And sorry to rush you. The Zoom session before we were talking about Northwell, so then I said Northwell -- and said at Evernorth. So I'm just compounding my errors this morning. So let's see if I can recover and ask something that will be helpful for our clients. And I'm sorry to rush you, Eric. Can we talk about Evernorth. Talk about competitive landscape? Like I've had a number of questions from folks that felt like CVS had a really strong selling season. And just wondering if there's any changes there. You mentioned Evernorth's retention. But is there anything to point to around health systems that have switched or anything or even just sort of coming out of pandemic, should we be anticipating like higher, switching and a little more turnover. What are your thoughts on competitive environment?

Yes. I think -- so I appreciate that and no worries on the dynamics of the name and that sort of thing. I think at a macro level, I would not call out any particular changes or things that would be particularly unusual from a kind build cycle or from things along those lines. I think we continue to be positioned really well from a competitive perspective. We've got new wins already lined up for the future or right in the throes of the kind of the selling season for 2023 on -- say, the smaller to mid size health plans and the commercial accounts. We're already talking to some of the larger plans for '24 and beyond. So again, continue to feel positive and optimistic there. I would not call out and we not doing pent-up switching or things along those lines.

I know most investors still view Evernorth through the PBM lens. And obviously, that's a large part of what you do at Evernorth. But maybe could you talk a little bit about the contribution that some of the other services that you've started to bring into the segment are contributing to its total revenue profile? And then maybe if we sort of -- is there a way to think about, here's sort of legacy PBM profile, but then here's growth profile of specialty pharma and pharmacy services and behavioral and some of the other stuff that you've brought into the division?

Yes, sure. So kind of looking at it mathematically, there certainly is a meaningfully scaled business in the form of pharmacy services that sit within Evernorth. So there's no escaping that. Actually, I think that's our real strength. Now when we talk about the components of kind of what drives the revenues and the like there. I think important to think about a couple of different dimensions. First of all to touch, Accredo our specialty pharmacy is up there something like 1/3 of the Evernorth revenue overall. So that's continued to grow. I touched on it in my opening remarks. That continues to be something where we've got a leading set of capabilities and it's growing out of this rate. Within the "PBM", kind of the legacy of the PBM, and again, this is an area that's continued to evolve as well. It's got clinical solutions. We've got our home delivery operations. We've got our administrative programs where we're administering benefits and we got value for managing the supply chain. Each of those is modular contributors as well. So I want to make sure that we didn't walk past that Janssen has touched on those. So the specialty pharmacy and those elements are the biggest components of the kind of revenue model as we sit here today. As we look ahead, though, Virtual Care, so building on the rapid growth, we've continued to drive out of [ epi line ] behavioral care, building on the behavioral growth that we've had in terms of service, the Cigna book of business for other clients as well, building on our eviCore programs, building on the use of our data and our intelligence as an enabler of business model. Those are all the higher growth areas, but smaller elements of the total Evernorth picture right now. You should expect we'll have more disclosure around some of those items as we get later in the year. We've announced via the Investor Day and expect we'll provide some more specificity on some of those items as we get later into the year.

Talk a little bit about behavioral and what do you think the long-term importance of that is within the scope of both Cigna and Evernorth. We've seen some announcements about your relationships with Ginger and Meru, if I'm pronouncing that properly. So what's sort of the vision for behavioral? And how do you see that growing within Evernorth?

I think behavioral has been an important element of the Cigna historical value proposition for some time. And I think there's just now over the last couple of years starting to be much more of an appreciation for the importance of the kind of the mind-body connection, just to say it that way. On top of that, COVID has kind of further accelerated some of the stresses and the dynamics that have kind of maybe the needs -- even more apparent from a behavioral perspective. So it's again, that sets the stage for a huge behavioral demand. I think for Evernorth going forward, there's a real opportunity for us to be -- we'll have to be positioned to serve in a more digital way. Again, even leveraging a new life as an example, as a way to engage and connect individuals with the type of care that doesn't have the Cigna go to see someone, can be done from the privacy of your home or your car or whatever. One of the things I think is just fascinating is we saw a huge shift in behavioral services to virtual settings back in few years ago now. And it stayed that way by and large. Medical services are things that open back up and come back down somewhat to all the way to the levels that they were pre pandemic because it's a staying power of virtual care. Behavioral stayed there. The usage of the connectivity of behavioral care in that setting has been significant as well. And I think the -- Evernorth's position to not just address the behavioral visit, but then actually connect with the right dimensions of what other type of care does an individual need or vice versa, have a medical visit and recognize that someone is in need of behavioral care and we can turn around and provide that. We know that when we've got the right types of interventions and the sustained engagement on behavioral or mental health type diagnosis, you can get to lower total cost outcomes, higher productivity and a better positioning for employers, and particularly, overall, by having less absenteeism or presenteeism et cetera. So anyway, the opportunity set for even more deeply connecting behavioral care into the health care ecosystem is significant. We've got a lot of the right part to do and bring it live.

Am I right though that, that component of the business resides in the Evernorth's sort of health care services side, okay? Want to make sure...

That's true. And I mentioned the historical connection is just to the point out that, that's side of capabilities that was part of legacy Cigna that's now a part of Evernorth. But this part of Evernorth is important in growing part of our business.

Got it. How do we think about -- you talked about sort of 3 significant macro trends. And one of the things I was curious about is -- how do you think you -- or do you need to invest in sort of the trend of site of care. So you've seen other companies, other health insurance companies that either have ambulatory physician, surgery centers, home health, urgent care, sort of different things. I think you guys would agree there's a pretty significant opportunity around site of care. Is that something you still intend to drive contractually? Do you think there's an opportunity to invest in that opportunity? How are you looking at it?

Yes, I think there's an opportunity to build on what we already have in terms of owned assets in this space, which we do have a number in terms of provider care in the home. To home, I think, is a really key part of being the element. And of course, partnership is going to be important as well. Partnerships are an important kind of foundational element of how we do business, we even touched on a couple of our behavioral partnerships where the specific expertise that we've gone out and partnered with. So we continue to expect there to be partnerships, but would also continue to expect to grow on our capabilities. And here, again, as an examples I point to, the likes of MDLIVE. I would point to the likes of what we already view today in patients' homes through the specialty pharmacies, right? We have clinicians that can cover something over 90% of the country now and to date that's been deployed on a pharmacy way, but that's a nice things to build off of. And then we've got programs that are helping individuals be in receive care in the home, whether that's something -- providing physician or kind of primary care in the home or other types of post acute sort of outside and inside. Those are more limited geographies, but we can see that as an opportunity to continue to build on that from an ownership perspective as well as part of the care portion of Evernorth.

Let me talk about value-based care a little bit. And I was going to ask you about CareAllies which I think resides inside of Evernorth and I think it's a consulting business that helps physicians transition to risk, but it popped up on my radar because I saw it on a list or ranking the other day of top 20 consultants, physician consultants, and it was ranked very highly. I imagine in the scope of Evernorth, it's a pretty small piece. But do you want to talk a little bit about what CareAllies does? And sort of the broader value-based care strategies inside of Evernorth?

Sure. So CareAllies where -- what it is, is it a service that scales to drive value-based care solutions on physician, right, helps to enable the physician to move to value-based care, highlight the right metrics, drive the right actions before the best clinical and financial outcomes. And so again, that's kind of the what it is. That's another element of business that's been at the core of that how are those deeply rooted, value-based, collaborative. We've talked a lot over time about company's collaborative account for care organizations. CareAllies has been at the core of enabling those, again, highlighting the right -- the right measures, the right actions, et cetera today. So again, that's how you should think about kind of what CareAllies is. In terms of it as an activity or it as a P&L, you're right, it's very modest. In terms of the outcomes it can create though in helping to get CareAllies for driving to better outcomes in terms of payment and the like from a physician perspective, it's pretty powerful, and it's a key part of how we line up the support that we provide for the Cigna Health Plan as well as for some of the other non-Cigna health plans that work with technology.

Does the Cigna Ventures fall under Evernorth in your umbrella or is that separate? I want to ask about that, but I wanted to make sure I understood.

So Cigna Ventures is a capability that it stands as part of the -- as part of the enterprise holding company. I have a board seat on it, I'm very involved in it. I think of it as -- it's a real innovation driver for the enterprise. A number of the areas the enterprises growth are focused around Evernorth. And as a result, the Ventures team is highly aligned with that as well. But just to be clear, it is separate and distinct from Evernorth as a specific kind of entity?

So there was an announcement of some additional funding into Cigna Ventures last week. It sounds like you guys are in alignment. Anything to call out? Like you talked about the 3 sort of significant macro factors and opportunity set that Cigna as a corporation is trying to execute against. Anything that Cigna Ventures is doing that is unique or different or worth calling out or really just aligned with big picture, what your opportunity set?

Well, we have a couple of things I would call. So one, it's been -- so we've just announced that we were committing another $450 million into our ventures up on -- this is on top of 4 or 5 years ago now, we had deployed $250 million into the first kind of tranche of ventures. That's been tremendously successful for us, both in terms of the financial returns, but I'd say even more importantly, on the strategic insights and the connection with new innovative partners and [ patents ] things along those lines. So that the recapitalization or the increase of the $450 million is intended to continue and build on the success that we've got there. Again, in terms of areas of focus, think about it as aligned with those forces that we talked about, think about it as aligned with finding partners potential opportunities to make health care work better. The ventures is actually where we first got introduced to MDLIVE and that turned into both an effective partnership and ultimately, overly consummated with the acquisition that we acquired the entirety of the company a year ago. The other thing, I guess, I would note with the Ventures work overall is, presents a really interesting -- I think we are differentiated in terms of how we can work with a partner and that we don't show up just with the checkbook, but we show up with opportunities to test and evaluate and advance their business models as well with either your clients that we've got that are -- have are of interest or pilot program and things along those lines. And so that's been particularly valuable from our counterparty's perspective as well rather than just us kind of having a checkbook to deploy.

And our last couple of minutes here. I want to talk about biosimilars a little bit. And -- you've cited, you think there's a pretty significant long-term opportunity for -- certainly for clients to save money but opportunity for Evernorth as well. I guess when we think about HUMIRA coming off or having biosimilar competition, next year, our first thought is, man, that's a drug that's generated a lot of rebate. It's been a big part of the rebate ecosystem. So is there just a lot of rebate going away. So how do you think about biosimilars creating earnings opportunity for Cigna, sort of how does that flow through contractually. And I think an observation from our pharma team, biotech team has been so far that biosimilars have kind of acted like branded. They've been a little bit cheaper than -- but they haven't really acted like generic, but I know one of the HUMIRA biosimilars has interchangeability designation. And so the thought is, does that mean it's really going to behave more like generics. So 4, 5 questions there. But one, just the biosimilar opportunity, how do we think about rebate going away, but how your sort of historic opportunity make margin on generics plays out? And walk us kind of through how you're thinking about that?

Yes. That's great. So at the most macro level, we're really excited about the opportunities that are presented with biosimilars. If we've been talking about biosimilars as being on the horizon for a long time, and it feels like though we were getting close to the horizon here, which I think is a great thing. So the opportunities set there is the one we're excited about, first of all. Second of all, I think the dynamics at an aggregate sort of a level that are exciting to us are around having more competition, right? So think of this as just another vector of competition. And that's, in a lot of way, what we do with our work in the supply chain is work that leverage the power of competition to get to better outcomes for our health plan clients, for our employer clients and ultimately, the best products for our patients. So that's really valuable. Now exactly how that gets monetized, depends on the types of arrangements we have from a client perspective, even the types of dynamics that play through for clients where we've got -- full pass-through types of rebate arrangements versus where we don't or we just have a dollar amount of a guarantee I think along those lines, means that exactly how they get monetized. It will vary by the terms of that contract. But rest assured, we're in a position to have our incentives aligned with our clients' incentives which means we'll do better when we can deliver lower cost to our clients and whether that shows up in the form of additional rebate dollars and then shows up in the form of things that we can earn or that shows up in the form of us being able to even more effectively manage double cost guarantees, those are all things that will be a value for us and things that we work through. The other dimension I would just call out is, important to understand that this is going to be a more complicated set of transitions than going from brand to a generic on a small molecule. And we're really well positioned to drive it. We've got the clinical depth to drive it. We've got scale of expertise and relationships throughout the ecosystem to navigate through that, whether that's specific pharmacists that we've got or our specialty pharmacy or the depth of the supply chain or the ability to drive campaigns at the individual level or to drive the right kind of engagement and communication with the prescribers. So I think we've got a lot of the needed kind of elements to really maximize the opportunity set like here, and we're excited about that.

Great. We're at time. Eric, thanks very much. Ralph, good to see you on the other side of the screen as well. And we'll leave it there. Thanks for joining us, everybody.

Thanks, Gary. Take care.