ISS in favor of Cigna’s acquisition of Express Scripts

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

ISS acknowledged potential regulatory as well as competitive risks to Express Scripts, however said the potential benefits of the $54 billion deal outweigh them. The proxy advisor called the combination financially compelling, as well as one that will would certainly give the combined company immediate scale with strong cash flow generation.

Primary, ISS said, Cigna’s “credible management team” has laid out “sound strategic rationale.”

Shares of Cigna slid about 1 percent Friday. The stock has today shed nearly 10 percent This specific year. Meanwhile, shares of Express Scripts rose more than 2 percent, as well as are up more than 12 percent since January.

Cigna says the item as well as Express Scripts are complementary businesses that will when combined can improve care for patients as well as lower health-care costs. The deal has come under attack through Icahn, who published a searing letter titled “Cigna’s $60 billion folly,” in which Icahn said buying the company “may well become one of the worst blunders in corporate history.”

ISS disputed Icahn’s concerns that will Cigna can be overpaying for Express Scripts. the item said the cost tag “seems to reflect a reasonable premium to the company’s historical multiples as well as a discount relative to previous transactions within the sector, which appears to be in line with the higher perceived risks faced by PBMs within the current market environment.”

Pharmacy benefit managers, or PBMs, have come under scrutiny for their role in high drug prices. These firms control which drugs are covered as well as negotiate discounts, known as rebates, on branded drugs with manufacturers. Drugmakers say these middlemen want higher drug prices so they can squeeze higher profits through rebates.

The Trump administration has vowed to re-examine This specific system. President Donald Trump spent a large chunk of his speech announcing his blueprint to lower drug prices attacking middlemen, who he said “won’t be so rich anymore.” Pfizer CEO Ian Read last week told Wall Street analysts he believes the Trump administration may eliminate rebates altogether.

In its analysis, ISS said Health as well as Human Services can be “clearly fixated on rebates” as well as acknowledged investors’ “inability to sufficiently assess the resilience of the black box” has weighed on Cigna shares. Express Scripts tried to quell concerns This specific week, revealing rebates are applicable to less than 10 percent of its claims as well as the company plans to retain about $400 million in rebates This specific year.

Icahn argues looming regulatory risk combined with the possibility of Amazon disrupting the industry pose “existential threats to the PBM business style.”

Icahn called the looming threat of Amazon “an existential threat to PBMs like Express Scripts, possibly challenging their very existence.” Amazon does not currently operate within the prescription drug benefit space, though earlier This specific year the item said the item would certainly acquire online pharmacy start-up PillPack.

ISS called Amazon’s threat “somewhat amorphous.” the item cited the barriers to entry within the industry, including the ability to deliver controlled substances.

“While the item can be impossible to entirely dismiss the disruptive potential of the online behemoth, This specific can be a risk that will appears limited at present,” the proxy advisor said.

Meanwhile, Cigna’s rival health insurer Aetna can be within the process of being acquired by CVS Health. The roughly $69 billion deal would certainly create a health-care powerhouse, combining insurance, prescription drug benefits as well as drugstores. Shareholders through both companies have already approved the deal, as well as CVS said Wednesday the item expects the item to close within the late third quarter or early fourth quarter.

Glenview Capital’s Larry Robbins arrived on the scene in defense of the deal Thursday.

A majority of shareholders on both sides of the deal must approve the item. Votes are scheduled for Aug. 24.

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