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Cigna Signs 10-year Deal With Pharmacy-benefit Manager Catamaran

Health insurer Cigna Corp. (CI) said Monday that it has entered into a ten-year deal with pharmacy benefit manager Catamaran Corp. (CTRX, CCT.TO). Under the deal, Catamaran will manage prescription drug benefits for Cigna's clients, expanding its previous deal with HealthSpring that was acquired by Cigna in 2012. Shares of Catamaran gained 14 percent in extended trades following the announcement.

Lisle, Illinois-based Catamaran currently has a contract with Medicare provider HealthSpring, which was acquired by Bloomfield, Connecticut-based Cigna in January 2012.

Catamaran competes with Express Scripts Holding Co. (ESRX) and CVS Caremark Corp. (CVS). These PBMs act as middlemen for drug makers, pharmacies and health-plan sponsors. They are responsible for processing and paying the prescription-drug benefits and claims.

Under the terms of the deal, Cigna will continue to lead formulary management, clinical and product development, and sales and marketing, while also managing all day-to-day customer- and client-facing functions. In addition, Cigna will continue to provide differentiated clinical services to over eight million customers and integration of medical care and disability management with clinical and pharmacy programs.

Catamaran will bring a technology and service platform to better serve Cigna's existing and future pharmacy customers. Catamaran will also provide prescription drug procurement and inventory management, order fulfilment for Cigna's home-delivery pharmacy, retail network contracting, and claims processing.

Cigna said it will continue to be the brand for all pharmacy-related customer interactions. All home delivery prescription drugs and refills will be dispensed and distributed under the Cigna name and label.

The two companies will partner on sourcing, fulfilment and clinical services. Cigna noted that clients and customers will realize greater value through enhanced affordability from combined scale and clinical care.

David Cordani, President and CEO of Cigna said, "This strategic PBM partnering agreement will complement Cigna's strengths of partnering with physicians to engage customers in their overall health and wellness. Connected to Catamaran's industry-leading health care information technology and service solutions, we will deliver differentiated options for clients and more affordable customer solutions in a rapidly evolving market."

Mark Thierer, Chairman and CEO of Catamaran said, "The Catamaran Center of Excellence, combined with our flexible technology and client-centered delivery model, will add great value to Cigna's offering by augmenting Cigna's core service capabilities and providing a tailored service to meet the needs of its clients and members. We will unite the two companies' skill and scale to deliver a best-in-class pharmacy solution."

Cigna expects to incur one-time transaction costs in the second quarter of 2013, primarily for advisory fees associated with the deal. This will result in after-tax charge of about $25 million that will be reported as a special item in the second quarter.

However, Cigna expects the deal will have an immaterial impact to its fiscal 2013 adjusted income from operations.

The company estimates that the deal will begin making a positive contribution to earnings in 2014 and will create annualized earnings per share accretion of about $0.50 per share in 2015 through improved clinical management, purchasing and administrative efficiencies.

CI closed Monday's trading at $69.00, up $0.55 or 0.80 percent on a volume of 1.13 million shares. In after-hours, the stock declined $0.04 or 0.05 percent to $68.96.

CTRX closed Monday's trading at $48.66, down $1.63 or 3.24 percent on a volume of 1.59 million shares. However, in after-hours, the stock gained $6.84 or 14.06 percent to $55.50.

by RTTNews Staff Writer

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