ISS in favor of Cigna’s acquisition of Specific Scripts

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Proxy advisor Institutional Shareholder Companies recommends shareholders approve Cigna’s acquisition of Specific Scripts, days after famed activist investor Carl Icahn known as the deal a “folly.”

ISS acknowledged potential regulatory and aggressive dangers to Specific Scripts, however stated the potential advantages of the $54 billion deal outweigh them. The proxy advisor known as the mix financially compelling, and one that may give the mixed firm fast scale with robust money movement technology.

Main, ISS stated, Cigna’s “credible administration crew” has laid out “sound strategic rationale.”

Shares of Cigna slid about 1 p.c Friday. The inventory has now shed practically 10 p.c this 12 months. In the meantime, shares of Specific Scripts rose greater than 2 p.c, and are up greater than 12 p.c since January.

Cigna says it and Specific Scripts are complementary companies that when mixed can enhance look after sufferers and decrease health-care prices. The deal has come below assault from Icahn, who printed a searing letter titled “Cigna’s $60 billion folly,” during which Icahn stated shopping for the corporate “might effectively turn out to be one of many worst blunders in company historical past.”

ISS disputed Icahn’s issues that Cigna is overpaying for Specific Scripts. It stated the value tag “appears to replicate an inexpensive premium to the corporate’s historic multiples and a reduction relative to earlier transactions within the sector, which seems to be according to the upper perceived dangers confronted by PBMs within the present market atmosphere.”

Pharmacy profit managers, or PBMs, have come below scrutiny for his or her position in excessive drug costs. These corporations management which medicine are lined and negotiate reductions, referred to as rebates, on branded medicine with producers. Drugmakers say these middlemen need greater drug costs to allow them to squeeze greater income from rebates.

The Trump administration has vowed to re-examine this method. President Donald Trump spent a big chunk of his speech saying his blueprint to decrease drug costs attacking middlemen, who he stated “will not be so wealthy anymore.” Pfizer CEO Ian Learn final week informed Wall Road analysts he believes the Trump administration might eradicate rebates altogether.

In its evaluation, ISS stated Well being and Human Companies is “clearly fixated on rebates” and acknowledged buyers’ “incapability to sufficiently assess the resilience of the black field” has weighed on Cigna shares. Specific Scripts tried to quell issues this week, revealing rebates are relevant to lower than 10 p.c of its claims and the corporate plans to retain about $400 million in rebates this 12 months.

Icahn argues looming regulatory threat mixed with the potential of Amazon disrupting the business pose “existential threats to the PBM enterprise mannequin.”

Icahn known as the looming menace of Amazon “an existential menace to PBMs like Specific Scripts, probably difficult their very existence.” Amazon doesn’t presently function within the prescription drug profit area, although earlier this 12 months it stated it will purchase on-line pharmacy start-up PillPack.

ISS known as Amazon’s menace “considerably amorphous.” It cited the limitations to entry within the business, together with the flexibility to ship managed substances.

“Whereas it’s unattainable to completely dismiss the disruptive potential of the web behemoth, it is a threat that seems restricted at current,” the proxy advisor stated.

In the meantime, Cigna’s rival well being insurer Aetna is within the means of being acquired by CVS Well being. The roughly $69 billion deal would create a health-care powerhouse, combining insurance coverage, prescription drug advantages and drugstores. Shareholders from each corporations have already authorized the deal, and CVS stated Wednesday it expects it to shut within the late third quarter or early fourth quarter.

Glenview Capital’s Larry Robbins got here out in protection of the deal Thursday.

A majority of shareholders on each side of the deal should approve it. Votes are scheduled for Aug. 24.

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