Catamaran Gains Cigna’s Prescription Drug Business

Catamaran Corp. (CTRX) rose the most in 14 months after beating out rivals for a 10-year contract to manage prescription drug benefits for Cigna Corp. (CI)’s clients.

Catamaran gained 11 percent to $53.99 at the close in New York, the biggest single-day increase since April 18, 2012. Cigna, the fourth-largest U.S. health insurer by market value, rose 1.4 percent to $69.95.

Catamaran, which acts as a middleman among employers, drugmakers and pharmacies by negotiating prices and managing medicine use by workers, defeated larger competitors CVS Caremark Corp. (CVS) and Express Scripts Holding Co. (ESRX) to win Cigna’s business, Chief Executive Officer Mark Thierer said. The deal announced late yesterday with Bloomfield, Connecticut-based Cigna will be “very accretive” to Catamaran’s earnings, Thierer said.

Cigna’s decision “validates our model and says we can compete at the highest level in this marketplace, delivering a flexible, customizable solution that competes economically and, most important, helps large health plans like Cigna deliver on their core strategy,” Thierer said in a telephone interview, declining to elaborate on the terms.

Cigna said in a statement that the agreement is expected to add 50 cents a share to its earnings in 2015. CEO David Cordani had said the insurer was considering a variety of options for its pharmacy-benefits business, including a sale of the unit.

Unbundled Services

Catamaran had a contract expiring this year to manage drug benefits for Healthspring Inc., which Cigna acquired in January 2012. The deal extends and expands that contract to cover all 8 million of Cigna’s customers, the companies said.

Catamaran will replace DST Systems Inc. (DST)’s Argus Health unit, which has been managing prescription benefits for Cigna’s commercial customers, said Brooks O’Neil, a Minneapolis-based analyst for Dougherty & Co. who follows Catamaran.

“I can’t see how this is going to be a positive for them,” O’Neil said in a phone interview.

DST, based in Kansas City, Missouri, fell 1.9 percent to $66.56.

Catamaran prides itself on being willing to “unbundle” services such as mail-order delivery and claims processing, and sell them to clients a la carte, Thierer said. Cigna will handle formulary management and customer service itself, and the pharmacy benefits will carry Cigna’s brand name. Catamaran will perform the “behind the scenes, back office” work, he said.

“This strategic PBM partnering agreement will complement Cigna’s strengths of partnering with physicians to engage customers in their overall health and wellness,” Cordani said in the statement.

The deal “represents the most logical and optimal decision” by Cigna about how to manage its pharmacy benefit services, Thomas Gallucci, an analyst with Lazard Capital Markets in New York, said in a note to clients.

“We believe efficiencies can be maximized taking an approach like” Cigna’s, he wrote.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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