Centene to Cut Costs with New Pharmacy Benefits Manager, Stocks Jump

  • Centene Selects Cigna Corp’s Express Scripts Unit as New PBM
  • Savings from new contract to partially offset 2024 revenue drop – analyst
  • Co raises profit forecast after best estimates for third-quarter results

Oct 25 (Reuters) – Centene Corp (CNC.N) said on Tuesday it would save costs following the selection of a new head of pharmaceutical benefits after a competitive bidding process, boosting shares of the health insurer by nearly 10% in morning trading.

The insurer has chosen Express Scripts, a unit of Cigna Corp (CI.N), replacing CVS Health Corp’s Caremark (CVS.N), to manage its approximately $40 billion annual pharmaceutical spend. The transition is expected to take place in 2024.

“We were able to deliver savings that exceeded expectations without feeling like we were sacrificing quality and execution,” chief executive Sarah London said on a conference call with analysts.

Stephens analyst Scott Fidel said the savings from the new contract would “at least partially” offset some of the hit to lower revenue in 2024 due to the company’s lower performance rating for Medicare Advantage insurance plans in 2023.

Pharmacy benefit managers serve as intermediaries between drug manufacturers, health insurance plans and pharmacies, and help negotiate prescription drug prices.

Shares of CVS Health Corp fell nearly 3% while those of Cigna, which owns Express Scripts through health services provider Evernorth, rose 1.2%.

“While this is disappointing news for CVS, we believe the company had anticipated that, even with the contract maintained, it would have had a reduced contribution in 2024,” JP Morgan analyst Lisa Gill said in a note.

Earlier in the day, Centene joined its peers in raising its full-year profit forecast after its quarterly results beat estimates, helped by strength in its government-backed Medicare and Medicaid health insurance business.

The company raised the lower bound of its adjusted annual earnings forecast by 5 cents to $5.65 per share, while maintaining the upper bound at $5.75. Elevance Health (ELV.N) and UnitedHealth (UNH.N) also raised their forecasts earlier this month.

Centene’s third-quarter adjusted earnings of $1.30 per share beat estimates of $1.24 per share, according to Refinitiv data.

Reporting by Raghav Maobe and Leroy Leo in Bengaluru; Editing by Sriraj Kalluvila and Vinay Dwivedi

Our standards: The Thomson Reuters Trust Principles.

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