Cigna Group ($CI) Q3 2025 Earnings Call

Thanks, Ralph. Good morning, everyone, and thank you for joining our call. In a highly disrupted market at the Sigma Group, we continue our track record of sustained growth in 2025. And I'm pleased to report that in the third quarter, the Sigma Group delivered strong results and continued in a continued dynamic environment. Today, I'll briefly walk through how we will sustain our growth by accelerating innovation to meet the needs of our customers, clients, and partners. We're also introducing new solutions to create meaningful value and impact, including our announcement earlier this week of a new rebate-free model for pharmacy benefits. Then Brian will provide an update on our performance on our growth platforms as well as provide some perspective on 2026. Then Anne will share some more details on our financial results for the quarter and we'll open up for your questions. Now let's get started. During the quarter we delivered revenue of $69.7 billion and adjusted earnings of $7.83 per share. All while continuing to strategically invest in our business to drive growth and innovation. We've also taken further strategic actions to expand our addressable markets and position the company for future growth. One example is our recent investment in Shields Health Solutions completed earlier in September. Brian will share more details on this shortly. Our performance this quarter also underscores that we continue to deliver for those we serve, consistently navigating through dynamic and challenging environments. For example, this year alone, we publicly committed in February to a series of actions to further ease access to care in a coordinated way for patients and their physicians. Then we stepped forward to partner with HHS Secretary Kennedy and CMS administrator Oz along with others on a broad set of initiatives that will create a more seamless access to care environment and care continuity for Americans, for example, when they switch health plans. Additionally, earlier this month, Evernorth Fertility worked with the Trump administration and EMD Serrano to make fertility treatments more accessible for Americans struggling to start or expand their families. And just this week, we announced our transformative new rebate-free D-Link model. Our pharmacy benefit services here are designed to improve healthcare affordability and the experience for tens of millions of Americans. Our durable business model is designed to evolve, flex, and thrive through a variety of changes, whether economic, regulatory, legislative, or evolving technologies. Today, the powerful forces of change across healthcare are accelerating and converging around long-standing challenges, particularly balancing access and affordability for consumers and patients. Drug pricing continues to create a significant affordability challenge and has become an even more intense part of the public dialogue in 2025. One area where we've helped address affordability relates to generic drugs with Americans today enjoying the lowest prices in the world for these medications. In fact, generic drugs now account for 90% of all prescriptions. And on average, they are one-third cheaper in the United States than in other countries. And pharmacy benefit managers and the industry as a whole have played a key role in contributing to these lower costs by leveraging a competitive environment for clinically equivalent drugs. Now, on the other hand, prices for brand-name medications continue to skyrocket with those drugs that do not have a generic equivalent costing four times as much as the same drug in European markets. And in 2025, it's estimated that the median price set by drug companies for new FDA approved drugs is projected to be approximately $390,000 per treatment course. As a result of these marketplace dynamics, even though brand-name drug medications comprise only 10% of overall pharmaceutical volumes in the United States, they account for 88% of the spend. In recent weeks, President Trump announced a series of initiatives aimed at lowering the cost of brand-name medications, bringing the US prices in line with those paid in other developed countries. We're aligned with these efforts and seek to expand access for all our clients from employers to health plans and governmental plans so that even more Americans can benefit from fair pricing on their prescriptions. Additionally, similar to our work to reduce pricing in generics, we continue to advocate for necessary changes to accelerate and broaden access to biosimilars, which boosts competition and lowers prices further. For example, the list price of Humira is approximately $7,000 a month and approaches $85,000 a year for this single medication. Thanks to our innovative offering, we provide customers with Humira at a biosimilar level at no cost to the individual consumer. From a consumer point of view, that's real value and that's innovation that matters. Even with these efforts, we continue to advance change for the benefit of our customers, clients, and patients. We've deliberately shaped our well-balanced portfolio of businesses across two growth platforms at the Sigma Group, Sigma Healthcare and Evernorth Health Services. As a reminder, Sigma Healthcare is approximately 40% of our enterprise earnings. And in Evernorth, specialty and care and pharmacy benefit services are approximately 30% each. So 70% of our portfolio, Sigma Healthcare, and Specialty and Care Services remain well positioned for growth in 2026 and beyond. And to future-proof our company within our pharmacy benefit services, we continue to take significant actions. First, we proactively secured a number of long-term large client renewals and extensions, including the US Department of Defense, Prime Therapeutics, and Centene. We're pleased to be able to serve them and their customers and patients now and through the end of the decade and beyond. Second, we've stepped forward with our new simple and transparent model for pharmacy benefit services, which will replace the complex post-purchase rebate process with a simple upfront discount, which will enable customers and patients to automatically pay the lowest price at the counter, whether through their benefit or on a cash pay basis, and apply their payments with the deductible. And importantly, continue to provide approximately 18,000 clinical safety checks as well as care coordination programs which are essential for Americans who are taking multiple prescription medications that may have dangerous interactions. To make the benefits of this model even more evident, consider this. For Americans and health plans where they pay the full cost of medications, including, for example, high deductible plans, our new model will reduce the cost for a brand-name drug prescription on average 30%. This will be real savings for the consumers, and they'll see it right at the counter. Sigma Healthcare will adopt this model 100% for fully insured lives beginning in 2027, and it will become our standard offering broadly for the Sigma Group to the marketplace starting in January of 2028. And we expect to transition at least 50% of our book of business into this new model by the end of 2028. Consistent with this direction, we're also creating a more sustainable economic model for independent pharmacists we contract with. We understand the critical role these clinicians play in healthcare, particularly in rural at-risk communities and commit to continuing to support them with fair competitive pricing reimbursements for dispensing medications as well as clinical services they provide for customers and patients. Further, the combination of market forces and our capabilities position us to proactively drive these long-term strategic renewals, extensions, and program transformations to positively impact the marketplace for years to come. Now, over the next two years, we will invest to support these renewals, extensions, and innovations. These investments will support recontracting efforts across many clients and supply chain partners, technology improvements, process re-engineering, as well as building and further enhancing data and analytical capabilities. Additionally, given the significant financial and affordability pressures for partners operating heavily in government programs, we have proactively improved the economic terms of the contracts for the benefit of these long-term strategic clients. As a result of these factors, we expect margin pressure within our pharmacy benefit service segment over the next two years. To be clear, we expect a sustained and durable growth trajectory over the long term for the business. I also want to be clear, even with these significant investments, we expect to grow EPS in 2026. Brian will discuss this further in a few minutes when he addresses our tailwinds and headwinds. All these actions demonstrate the commitment and resolve from the Sigma Group to build a better future and sustain our growth and impact. Now to wrap up, against a backdrop of a dynamic and challenging environment, our third quarter results and our reaffirmed EPS outlook of at least $29.60 underscores the strength of our diverse portfolio of businesses and sustained disciplined execution and focus. With that, I'll turn the call over to Brian.

Lisa, good morning. It's David. It is a lot and clearly there's a lot going on in the space. Let me come to a couple headlines for you. First and foremost, the new model that we just walked through is a model that we're extremely excited about. I'm personally proud of our team's ability to step back and architect the new model of the future that is fee-based, transparent, and has the mechanism to have lowest available price for the consumer at the counter on each transaction and it's highly aligned with the regulatory priorities of the day. So that's frame one. To the core of your question, there's a few pieces in there. Our long-term algorithm for the Evernorth portfolio stays intact. Number one. Two, for 2026, Evernorth will not be on that long-term growth algorithm. Specialty and care will be and it will be at the high end of its growth algorithm. The segment as a whole, Evernorth as a whole will not be, specifically focused on the PBS segment of our portfolio for the two reasons we talked about: significant investments in building these new sets of capabilities and the proactive actions we've taken around renewals and strategic extension of contracts acknowledging the significant challenges of those that are serving the government-sponsored marketplace. We believe that the combination of those two actions materially future-proof that business for many years to come and are highly responsive to where the market needs to go. To the last part of your question and I'll ask Brian to add any go-to-market comments specifically around value propositions for some of our stakeholders. The initial part of your question was around guarantees. Yes, there are instances where different dimensions of offerings have guarantees. We've not spent time with you all talking about guarantee volatility because by and large the aggregate relationships we've had with our clients over many years and the value we've delivered for our clients has performed in a dynamic and volatile environment. So but it's never been a headline that we've needed to bring to you on a regular basis. Importantly, ending where I started, the new model that we're building takes all that out of the equation. Rebates no longer exist. Reimbursements are no longer linked. They're transparent and fee-based. And they're highly aligned to the consumer low cost at the counter, which is why we're so passionate about it. Brian, maybe I'll ask you just highlight a few more of the benefits for our stakeholders of the new model.

Hey AJ, good morning. It's David. Two different questions. Let me give you some color on the first. First, as you walk through it, the big box cars I would ask you to think about it in terms of the earnings profile and my comments will separate the EPS profile here in a moment. You have the big box cars, CHC, the 40% of the company on algorithm toward the higher end of the range. Specialty and care on algorithm toward the higher end of the range offset by the PBS downturn in 2026 driven by the two items that we drove ourselves relative to the strategic positioning of the franchise go-forward basis. We're not guiding DPS for 2026. I appreciate the desire relative to that. So, we gave you the components how to think about the earnings. The last piece I would encourage you to think about in Anne's prepared comments, she profiled our cash flow profile for 2025 as largely being back-half weighted. The capital profile for 2026 will follow a similar pattern to be back-end loaded. So you may want to think about that in the context of how you're considering your own buildup and projections. Additionally, we've noted that we will balance share repurchase and deleveraging priorities over the near term. So, I just would give you those components. So, the last part of your question, which is a very important part of the question, in terms of framing, in terms of go-to-market, yes, pass-through has been available for a long period of time. By the way, as have point-of-service rebates in the marketplace and we offer both. This goes beyond it. And just to reiterate your points, no rebates, Dell economics, and importantly, a capability that validates for the consumer lowest available price at the counter regardless of the mechanism that generates that. And in 95 plus percent of the situations, it's the benefits program that yields it. But in low single-digit percentage, which is meaningful given the number of scripts in America, it could be an alternative mechanism. We have the ability to facilitate it. We indicated this will be our standard offering. As we look to the future, we will carry Cigna Healthcare's guaranteed cost portfolio across to it on January 1 of 2027. It'll be our standard offering out of Evernorth for the 2028 cycle. And employers, let's say, for example, as you infer, maybe a collective bargaining union employer, state employer, if they still want a different program or they want to transition over a multi-year period of time, we have the broad suite of capabilities. And lastly and importantly, we have the consultative approach to work one employer, one buyer at a time to come up with the transitional strategies that work best for them based on how they designed the program. Ending with we believe this is the future of where the market is going. We're proud to lead it and we need to have the capabilities to be able to serve the consumer, the employer, and the independent pharmacist with the model. AJ, thanks for the question.

Andrew. I'll start. We don't comment on individual contract profitability. Number one. Two, I think if you take the bigger picture, typically in business of all shapes and sizes, very large relationships have lower earnings profiles than a portfolio as a whole. So directional comment going with you. I'd ask you to consider we proactively extended, we proactively worked to restructure and we engaged in energized renewals for these contracts. Said otherwise, we're pleased to have these relationships and we're proud to be able to support and service the DoD, be a differentiated partner for Prime, and be a strategic partner for Centene. So we proactively collaborated to generate this. I'm not answering your numbers. I'm coming back to lower margin profile. Yes, on $90 billion as you would expect. You should assume we would not have proactively engaged in these relationships if we didn't deem them to be strategically important. And maybe Brian comment a little bit relative to the relationship and the evolved relationship we have with the parties as well.

Charles, thank you for the question. I guess I'll come at it through a few frames as you paint the picture. One, we've long as a company believed that sustained public-private partnership collaboration is critical in the United States. If you step back and look at the way in which programs are designed in the United States, having good alignment of public-private partnership is quite important and the interdependencies of the programs be they employer, Medicaid, Medicare, exchange or otherwise there are interdependencies between the way the programs function. Point two is if you paint the last year and you reference some of the components, you can think about actions we've driven in a few categories. One, further extending public-private partnership. Example of that I cited in my prepared remarks and pleased to see the industry more broadly stepping forward with Secretary Kennedy and Administrator Oz relative to changing and transforming the way prior authorizations work and changing and transforming continuity of care between health plans for an individual that in no action of their own results in a pre-approved event in December, their health plan changes over in January, they today have to go through a new event. We took that off the table. That's a good example. Or as you referenced the fertility outcome on an expedited basis, taking our capabilities, understanding the need statement and through public-private partnership evolving a capability with EMD Serono, ourself, the administration going forward that falls into public-private partnership. Bucket two is sustained relentless innovation and you use the go-it-alone phraseology while I won't put it uniquely in the go-it-alone if you just look back at the GLP-1 space over the recent past, we led the industry with our encircle program that acknowledged and recognized the need to have broader programs wrapped around GLP-1s for employers around lifestyle management, behavior modification, titration of medication programs on an individual by-individual basis. We're pleased to have over 10 million individuals benefiting from that program today or an expansion of a program that didn't have one drug had both leading drugs with a different program for employers that cap the out-of-pocket up to $200. So those are examples of continued innovation like our Pathwell programs or otherwise. And the third category are step-function transformations. This is a step-function transformation. We should be very blunt about it. It is a reframing of the marketplace to where the marketplace needs to go. Whether you look at it through the consumer's lens, the consumer, even on 5% of the pharmaceuticals in America, if there's 6 billion prescriptions, if 5% or 3% of them have some dislocation at the counter, that's too many. That's too many for Americans. And while benefit programs have been designed comprehensively and responsibly by employers, by health plans, by governmental agencies, there is increasing friction for the consumer. This takes that out of the equation. There is increasing complexity for the employer. As Brian referenced, this takes that out of the equation. And there is more support for the independent pharmacist. All of that is to say that we're driving public-private partnership, we're driving innovation, and we're driving step-function growth and there is good collaborative engagement in Washington relative to the direction, the importance and the need. And we will continue to lean into a nonpartisan, fact-based, patient and customer-centric engagement in Washington going forward. So this is an important moment for us and I appreciate your question. Good progress through all fronts of the three categories I referenced. Thanks for your question.

Scott. Good morning. It's David. Good to hear from you. It sounds like you may have a little bit of a cold. So hopefully you're doing okay. I'm going to ask Brian to provide some color relative to the components you articulated because there's several pieces I hear in your question. One is the building blocks that support the outlook for 2026 and there's a couple important ones you called out and as he talks for example through the stop-loss component, maybe I'll invite Anne in to talk a little bit about what we've seen on a year-to-date basis and the results and Brian will talk a little bit about what we're seeing in terms of the go-to-market component and then I'll punctuate on the back end the individual or the exchange-based programs. Before I hand it over to Brian, in a nutshell, we're on track in 2026 for our growth outlook and algorithm and by and large our 2025 performance is in line with our expectations with the exception of as called out in advance some of the pressure we saw in the individual exchange business. Brian, could I ask you to talk a little bit about the Cigna Healthcare tailwinds and headwinds for 2026?

Kevin? Just maybe to give you a summary, I think where you're going with your question. And I'm going to give you a directional comment as opposed to a financial comment. As you think about the building blocks for the capabilities, CHC were on algorithm in '26, specialty and care on algorithm in '26, PBS off algorithm in '26. As you play that forward another year where you're going in terms of the moving points Brian indicated, the greater than 50% in the PBS part of our capabilities that is large client related will run-rate going forward. So you have a different basis but new run-rate going forward. And when you wrap it together, while there's investments that would carry into 2027, at this point it'd be reasonable to assume we would expect to be back on at the enterprise level on algorithm for 2027 with the strength of the franchise.

I just want to briefly wrap up our call today. First and foremost, thank you for joining and thank you for your questions during our call. As I wrap up, I want to say how much I appreciate and how proud I am of our co-workers across the globe. It's their continued focus and dedication that support our ability to deliver on our commitments for those we serve and generate the net benefits for our shareholders. And this is all in an environment that is dynamic as we both deliver on our existing promises and enable ourselves to design and deliver these new solutions and these transformative solutions for the benefit of our customers for years to come. We're proud of what we've achieved. We're jumping off a strong base in 2025 and 2026 will mark another strong year for the organization in our Cigna Healthcare portfolio and in our specialty and care portfolio as we invest significantly in our PBS portfolio to future-proof it for years to come. Thanks again and have a good day.