Pharmaceutical Company – Catamaran

Team: Tracy, Paul, Mike, Anne, Taryn, Carol

Background History

• provides pharmacy benefit management (PBM) services and healthcare information technology (HCIT) solutions to the healthcare benefits management industry in North America– electronic point-of-sale pharmacy claims management,– retail pharmacy network management, – mail and specialty pharmacy claims management, – Medicare Part D services, – benefit design consultation, – preferred drug management programs, – drug review and analysis, – consulting services, – data access, and reporting and information analysis

Background• formerly known as SXC Health Solutions Corp• changed its name to Catamaran Corporation in July 2012• Catamaran Corporation was founded in 1993 and is

headquartered in Schaumburg, Illinois• July 23, 2015, Catamaran Corporation operates as a

subsidiary of OptumRx, Inc.

• CEO: Mark A. Thierer

What's changing

• We will not migrate any additional commercial pharmacy claims processing to RxClaim (Catamaran's claims processing system).

• We will transition a limited number of clients currently on RxClaim to our existing claims processing platform.

• We are continuing to work with Catamaran to transition home delivery pharmacy back-end fulfillment services for base medications; Cigna retains all aspects of our Specialty pharmacy business

What’s not changing?

• 1) Our commitment to own and operate our own integrated PBM

• 2) Our ongoing relationship with Catamaran • 3) Catamaran continues to manage the majority of Cigna’s

retail pharmacy network. • 4) Our plan to transition back-end fulfillment services for

base medications in support of our home delivery pharmacy; Cigna will continue to handle ALL aspects of our Specialty pharmacy business

• 5) Our relationship with Catamaran on behalf of our Government business, which was fully transitioned to their RxClaim claims processing platform on 1/1/15

5 Leading PBMs - SWOT

Core Strategies

Value proposition:– brings market leading economics coupled with the

most flexible operating platform in the business– Helps clients capitalize on the growth of the ACA

due to dominant market share– Helps clients manage trend and contain costs

CVS, Express Scripts, and Catamaran Operating Margin

CVS is clearly the leader, with a margin twice as high as Catamaran's. That advantage likely owes to leveraging CVS's retail footprint across Caremark's plan sponsors, giving the company pricing power and opportunities to reduce overlapping costs.

Quarterly Comparison of CVS, Express Scripts, and Catamaran Operating Margin

Catamaran has been the biggest surprise, outpacing analyst estimates by an average 7.8% over the last four quarters as analysts have failed to adequately model cost savings associated with its Catalyst acquisition.

EPS Trends for CVS, Express Scripts, and Catamaran Operating Margin

Diluted Earnings per Share (EPS)

Debating Valuation of CVS, Express Scripts, and Catamaran

While shareholders of Express Scripts and Catamaran are paying less than peak valuation for each dollar of sales, investors are paying the most in five years for CVS's sales, on hopes that the company's expansion of its MinuteClinic health clinics will capture more post-reform patient prescriptions.

Impact on Cigna

• Role in Healthcare Environment–Offers an alternative to other PBMs by combining

scale & purchasing power with flexibility & agility– connect pharmacists, doctors and caregivers with

prescription data to improve health outcomes– clinical intelligence, technology and scale to

lower payer costs and offer high level client service

Impact on Cigna

Cigna expects to record one-time transaction costs, primarily for advisory fees associated with this agreement in the second quarter of 2013, resulting in an after-tax charge of approximately $25 million that will be reported as a special item. Cigna expects this transaction will have an immaterial impact to adjusted income from operations1 in 2013. The Company estimates that this agreement will begin making a positive contribution to earnings in 2014 and will create annualized earnings per share accretion of approximately $0.50 per share2 in 2015 through improved clinical management, purchasing and administrative efficiencies.

Relationship with Cigna• Cigna will retain formulary management, clinical and

product development, sales and marketing, and will manage “all day-to-day customer- and client-facing functions.”

• Catamaran will provide prescription drug procurement and inventory management, order fulfillment for Cigna's home-delivery pharmacy, retail network contracting, and claims processing.

• Catamaran will remain behind the scenes, because the mail pharmacy and all pharmacy-related customer interactions will still have the Cigna brand.

• Cigna will lead the medical-pharmacy benefit integration activities

Key Insights