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SXC Health Plunges on Cigna Plan to Acquire Healthspring

SXC Health Solutions Corp., the pharmacy benefits manager for Healthspring Inc.’s customers, fell the most in more than four years after Cigna Corp. announced plans to buy Healthspring.

The acquisition may cause SXC to lose the Healthspring business because Cigna has its own pharmacy-benefits management division, Steven Halper, an analyst at Stifel Nicolaus & Co. in New York, said today in a note to clients.

SXC, based in Lisle, Illinois, announced in March 2010 that it won the Healthspring contract valued at about $1 billion in annual drug spending. The contract had an initial term of three years with provisions for two one-year extensions. The companies said in May that starting Jan. 1, SXC would provide pharmacy-benefits services to Healthspring’s newly acquired Bravo Health Inc. for an additional $1 billion in annual drug spending.

Healthspring accounts for about a quarter of SXC’s revenue this year and “is likely to be close to 35 percent next year,” Halper said. He reiterated a “Hold” rating on the shares.

Nashville-based Healthspring covers more than 1 million Medicare recipients, Healthspring and Cigna said today in a statement.

“While SXC has a five-year contract with Healthspring, it remains to be seen what Cigna plans to do with its PBM function,” Halper said. “Cigna has an in-house PBM. This issue will likely remain an overhang on SXC shares for some time.”

SXC fell 23 percent to $43.37 at the close in New York for the biggest single-day decline since Aug. 2, 2007.

“We believe the shares are adequately reflecting the potential loss of the Healthspring business,” Halper said.

The loss of the Healthspring business may cost SXC $2 billion a year starting in 2013, said Brian Tanquilut, an analyst at Jefferies & Co. in Nashville, in a note to investors.

“Given the relatively small earnings impact,” Tanquilut said, “We believe this morning’s stock reaction is overdone.” He reiterated his “Buy” rating on the stock.

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