By Tamara Mathias and Saumya Joseph
(Reuters) - Anthem Inc surprised Wall Street by moving ahead the launch of its in-house pharmacy benefits management business, as the company seeks to firm up its position against leading health insurers that have signed billion dollar deals to cut costs.
The company also forecast a higher-than-expected profit for the year and beat quarterly earnings estimates, sending its shares up 7.1 percent to $292 before the bell on Wednesday.
Top U.S. health insurers such Aetna Inc and Cigna Corp closed deals last year to bolster profits and help manage patient prescriptions. Anthem had planned to launch its pharmacy benefits in-house under a unit called IngenioRx in 2020.
The latest move to launch it in the second quarter of this year likely indicates a possible shift in management thinking after the sector witnessed its biggest shakeup in years.
Also Read
"This will allow us to go to market with better economics earlier, and also accelerate our whole person health strategy, which is proven to reduce total cost of care," Chief Executive Gail Boudreau said.
With Anthem reaffirming its expectation of IngenioRx resulting in over $4 billion in annual cost savings, with 20 percent to the bottom line, critics will be quelled on transition fears, Leerink analyst Ana Gupte said.
In its results statement, Anthem said it had given notice for an early termination of its contract with Express Scripts that was set to expire on Dec. 31, 2019, due to the pharmacy benefit manager's recent acquisition by Cigna Corp.
Anthem said its agreement with Express Scripts would now terminate on March 1, and the twelve-month transition period to migrate the business would begin the next day.
Separately, Cigna said in a regulatory filing it was aware of Anthem's early termination right and plans to exclude revenue and earnings from Anthem's contract with Express Scripts when providing its forecast for 2019 on February 1.
"While there is some impact to free cash flow generation over the next two years, this outcome has been contemplated ... and as such, our capital deployment strategy and timetable for deleveraging remain on track," Cigna said.
Excluding items, Anthem posted a quarterly profit of $2.44 per share, beating the average analyst estimate of $2.20 per share, according to IBES data from Refinitiv.
Anthem forecast 2019 adjusted earnings per share of over $19, ahead of Wall Street estimates of $17.61. The forecast reflects a benefit from the accelerated launch of IngenioRx.
(Reporting by Saumya Sibi Joseph and Tamara Mathias in Bengaluru; Editing by Shounak Dasgupta and Shinjini Ganguli)
Disclaimer: No Business Standard Journalist was involved in creation of this content
