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Cigna Sees Choice on Drug-Benefits Unit by First Half ’13

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Cigna Sees Drug-Benefits Unit Choice by First Half of 2013
Cigna Corp. , the third-biggest U.S. health insurer, expects to decide the future of its pharmacy-benefits unit by the first half of 2013, Chief Executive Officer David Cordani said. Photographer: Scott Eells/Bloomberg

Cigna Corp., the third-biggest U.S. health insurer, expects to decide the future of its pharmacy-benefits unit by the first half of 2013, Chief Executive Officer David Cordani said.

Cigna is exploring “a variety of options” for the division that manages prescription benefits, Cordani said today in an interview in New York. The Bloomfield, Connecticut-based company’s choices range from an outright sale to extending its existing contract with Catamaran Corp., the CEO said.

The insurer said in March that it was considering a sale, after its purchase last year of Medicare carrier Healthspring Inc. increased the division’s value. The unit may be worth $1.5 billion, Ana Gupte, a Sanford C. Bernstein & Co. analyst in New York, said at the time. Catamaran’s contract with Cigna expires at the end of next year, Cordani said.

“If you think about that time frame, I have to have a decision by first half of 2013 and some clarity about the value proposition for my customers,” the CEO said.

Cigna shares fell less than 1 percent to $50.47 at the close in New York. At a presentation for analysts earlier in the day, Chief Financial Officer Ralph Nicoletti said the company expected 2013 earnings of $5.80 to $6.25 a share, below the average analyst estimate of $6.33. Catamaran rose 1.1 percent to $47.48.

Benefit Managers

Benefit managers serve governments, unions and private employers. A purchase by Catamaran would continue a wave of consolidation in the industry, including Express Scripts Holding Co. $29.1 billion acquisition in March of Medco Health Solutions Inc. Catamaran, the fourth-biggest manager, is looking to keep pace after it was formed in April when SXC Health Solutions Corp. agreed to buy rival Catalyst Health Solutions Inc. for about $4.4 billion.

Catamaran is interested in Cigna’s unit, though so far the insurer hasn’t been willing to deal, said Jeff Park, chief financial officer for the Lisle, Illinois-based drug benefits manager.

“They’ve said it’s not in cards for them,” Park said during an interview yesterday at an investor conference in New York. “We love them as clients. We’d love to do more if they want to do more.”

Healthspring was SXC’s largest customer, accounting for 40 percent of the company’s $5 billion in revenue last year, SXC said in a regulatory filing Feb. 24.

Cigna Forecast

Cigna shares initially fell after the 2013 earnings projection was below analyst expectations. While the company expects enrollment to grow 1 percent to 2 percent next year, it also is projecting “gradually” higher medical costs and didn’t factor in any share repurchases, Nicoletti said.

“We believe our near- and longer-term outlooks are attractive,” the CFO said.

UnitedHealth Group Inc., based in Minnetonka, Minnesota, is the biggest health plan by market value.

Health insurers generally have predicted higher medical costs and lower profit, and then beaten their projections in recent years, said Sarah James, a Wedbush Securities Inc. analyst, in an interview.

“It’s very typical in the sector for people to guide low on earnings and raise throughout the year,” she said. “There may be some upside there.”

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