Weeks before a shareholder vote on Cigna’s takeover of Express Scripts, activist Carl Icahn is urging the insurer’s investors to block the $60 billion transaction.
In an open letter on Tuesday, Icahn said Cigna is “dramatically overpaying for a highly challenged Express Scripts that is facing existential risks on several fronts.” The business model employed by the pharmacy benefit manager and its peers — which act as middlemen between drug companies and insurers during negotiations on treatment prices — has become a focal point in the Trump administration’s quest to reduce medication costs.
Health and Human Services Secretary Alex Azar and others have voiced support for ending the lucrative drug rebate program, a system under which benefit managers often receive a sizable percentage of the subsidy they are negotiating. The industry argues that drug rebates ultimately lower drug costs for consumers.
Icahn told Cigna shareholders that opposition to the current system is likely to lower Express Scripts’ profitability. He also highlighted Amazon’s acquisition of online pharmacy PillPack as another obstacle.
“Competitive risk from Amazon, arguably the strongest competitor in the world, will be an existential threat to PBMs like Express Scripts, possibly challenging their very existence,” Icahn wrote.
“When Amazon starts to compete as we believe they will, with their 100 million Prime users and scale distribution system, they will have no trouble breaking into the so called ‘ecosystem,’” he added. “With lower prices, the beneficiary will be the American consumer, not the owners of Express Scripts.”
Instead of an acquisition, Icahn urged Cigna to purse a multiyear partnership with a pharmacy benefit manager until questions over the future of the regulatory regime are resolved.
“During this time, management can further develop or acquire their own PBM capabilities optimized for the rapidly changing regulatory and competitive environment,” he wrote. Cigna should also reward investors by repurchasing company stock, which typically buoys prices, he said.
The insurer’s top manager, however, defended the merger earlier this month. “Our strong second-quarter results once again reflect the consistent effective execution of our global strategy, which will be further enhanced through our pending combination with Express Scripts,” Chief Executive Officer David Cordani said in a statement.
[More: Cigna CEO promises Express Scripts merger will curb rising drug costs]
The insurer expects to comply with a second request for information from the Department of justice, whose antitrust regulators are reviewing the merger, by the end of august, he said. After that, the government would have 90 days to complete its analysis.
Cigna and Express Scripts shareholders are slated to vote on the merger on Aug. 24.
