Icahn warns against Cigna-Express Scripts merger

Billionaire Trump ally Carl Icahn is urging Cigna investors to vote against the insurer’s multibillion dollar purchase of Express Scripts.

In an open letter posted Tuesday, Icahn said Cigna is “dramatically overpaying” for a “highly challenged” Express Scripts. He warned the company could be facing major regulatory challenges, including opposition to a “highly flawed” rebate system.

“I have seen first-hand the significant problem of prescription drug pricing in America today. This is a critical issue that must be addressed and eliminating conflicting reward systems and over-earning middlemen is the logical first step,” Icahn wrote.

Cigna in March said it would pay $52 billion for Express Scripts, a deal on which shareholders will vote Aug. 24. The deal includes $15 billion in debt, bringing the total cost to $67 billion.

Express Scripts is the largest independent pharmacy benefit manager (PBM) in the country. PBMs act as intermediaries between drug manufacturers and health insurance plans and their beneficiaries. They negotiate drug rebates and pass the savings on to patients.

PBMs have come under fire from both the drug industry and President Trump, and the administration is considering completely eliminating the current rebate system as a way to bring down the cost of prescription drugs.

“Obviously, neither we nor Cigna can know where the ultimate legislation may end up, but the recent moves by the Trump administration have raised the risk level and, by definition, further impaired the value of Express Scripts since the deal was announced,” Icahn wrote.

The drug price wars are currently beset by intra-industry finger-pointing. Pharmaceuticals blame PBMs and insurers, and insurers and PBMs both blame drugmakers.

Icahn also warned of increased competition from Amazon, which in June bought online pharmacy PillPack. The PBM model is “ripe for disruption,” Icahn said, and Amazon “will be an existential threat to PBMs like Express Scripts, possibly challenging their very existence.”

Icahn is not a neutral observer. According to The Wall Street Journal, he has built up a stake in Cigna and is betting its price will rise. In his letter Tuesday, Icahn acknowledged he is also betting shares of Express Scripts will fall.