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CIGNA Corporation (NYSE:CI)

June 10, 2013 5:00 pm ET

Executives

Edwin J. Detrick - Vice President of Investor Relations

David M. Cordani - Chief Executive Officer, President, Director and Member of Executive Committee

Thomas A. McCarthy - Vice President of Finance

Analysts

Ralph Giacobbe - Crédit Suisse AG, Research Division

Justin Lake - JP Morgan Chase & Co, Research Division

Ana Gupte - Dowling & Partners Securities, LLC

Christine Arnold - Cowen and Company, LLC, Research Division

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Brian Wright - Monness, Crespi, Hardt & Co., Inc., Research Division

David H. Windley - Jefferies & Company, Inc., Research Division

Operator

Ladies and gentlemen, thank you for standing by for Cigna's call to discuss the agreement to enhance pharmacy solutions for our Pharmacy Benefits Management business. [Operator Instructions] As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We'll begin by turning the conference over to Mr. Ted Detrick. Please go ahead, Mr. Detrick.

Edwin J. Detrick

Good afternoon, everyone, and thank you for joining us on short notice. I am Ted Detrick, Vice President of Investor Relations, and with me this afternoon are David Cordani, our President and Chief Executive Officer; Ralph Nicoletti, Cigna's current Chief Financial Officer; and Tom McCarthy, Cigna's incoming CFO. Today, we are pleased to announce that Cigna has entered into a strategic PBM partnering agreement with Catamaran to optimize our Pharmacy Benefits business. The purpose of this call is to discuss the business and financial aspects of this arrangement. In our remarks, David will discuss the strategic significance of this arrangement and how it drives value for our customers and clients. He will also review the financial aspects of this arrangement. We will then open the lines for your questions. And following our question-and-answer session, David will provide some brief closing remarks before we end the call.

Now as noted in the press release, Cigna uses certain financial measures, which are not determined in accordance with generally accepted accounting principles, or GAAP, when describing its financial results. Specifically, we use the term labeled adjusted income from operations and earnings per share on the same basis as the principal measures of performance for Cigna and our operating segments.

In our remarks today, we will be making some forward-looking comments. We would remind you that there are risk factors that could cause actual results to differ materially from our current expectations and those risk factors are discussed in today's new release.

Now before turning the call over to David, I will cover a few of the financial and reporting aspects of this agreement. First, Cigna expects to record a onetime -- to record onetime transaction costs associated with this agreement as a special item in the second quarter of 2013, resulting in an after-tax charge of approximately $25 million or $0.09 per share. Excluding the impact of the special item, Cigna expects no changes in the full year 2013 outlook for adjusted income from operations or capital available for deployment as a result of this agreement. Regarding the impacts for 2014 and beyond, David will comment on those in a few minutes. I do remind you that the purpose of this call is limited to our discussion of our strategic partnering arrangement with Catamaran. We are scheduled to release our second quarter 2013 financial results on August 1, and we look forward to discussing our results, as well as discuss the specifics of our outlook for full year 2013 with you at that time.

And with that, I will turn it over to David.

David M. Cordani

Thanks, Ted, and thanks to everyone for joining us this afternoon. As reported earlier today, we will maintain and expand our pharmacy business, building on our differentiated programs and success. In conjunction with that plan, we are pleased to announce that Cigna has entered into a long-term strategic PBM partnering agreement with Catamaran to optimize our PBM business. The agreement with Catamaran has strategic significance and results in the completion of our assessment of several options we considered to further leverage our PBM capabilities to create additional value for our customers, clients and shareholders. As many of you know, we believe and have demonstrated that having an integrated medical and pharmacy capability optimizes benefits for clients and customers. Today's announcement reflects a further improvement in our competitively attractive PBM, one that is highly aligned with our strategy and one which we believe will maximize value for our Cigna stakeholders.

Cigna's pharmacy services are an important part of our integrated value proposition. To date, our team has delivered solid growth in pharmacy customers, outstanding clinical outcomes and value for our customers, as well as attractive returns for our shareholders. This agreement will enable us to build on that momentum by combining Cigna's innovative PBM with the leading capabilities of Catamaran to deliver even greater value through more customized solutions.

We believe the strategic PBM partnership agreement will enable us to deliver on 3 critical objectives: first, further improving value and affordability for both customers and clients, as well as economic benefits for our shareholders; second, improving our go-to-market positioning to ensure our long-term growth; and third, enhancing structural flexibility for ongoing innovation. We believe that with Catamaran's recognized technology leadership and the combined purchasing power of Cigna and Catamaran, this agreement will enable us to further improve total cost while further strengthening our market position for ongoing growth. The structure will allow us to either lead and manage the business while keeping our focus on key differentiators such as integrated plan design and clinical innovation, all supported by a more flexible technology and service infrastructure. Together, Cigna and Catamaran will leverage their capabilities to create ongoing innovative solutions. Additionally, this approach ensures that we will also maintain and enhance our valued relationships with preferred health care professionals as the key partner to helping our customers maximize their personal health.

From a customer's point of view, Cigna will continue to be the brand for all pharmacy-related interactions. Catamaran will bring a leading technology platform and broad network to enhance affordability and value for Cigna's existing and future pharmacy customers.

Stepping back now in thinking in terms of our strategic direction when we first communicated our Go Deep, Go Global and Go Individual growth strategy in May 2009, we stated 3 foundational goals for evolving our business model: first was to reposition our portfolio around our strength and capabilities; second, to create financial flexibility; and third, to pursue additional growth opportunities. Relative to repositioning of our portfolio, we have delivered a strong track record of results and achieved industry-leading earnings and EPS growth, as well as competitively differentiated medical cost trend. Relative to creating financial flexibility and pursuing additional growth opportunities, we've added HealthSpring, FirstAssist and Great American to our portfolio. We've also executed strategic joint ventures in Asia, Europe and the Middle East to pursue additional growth opportunities. And we've successfully exited our Run-off Reinsurance business through our strategic transaction with Berkshire Hathaway.

Relative to our PBM, as a result of our success, we now have a much larger pharmacy platform due to the acquisition of HealthSpring. We have a proven PBM that has delivered innovative clinical programs and differentiated total medical cost trends, and we have been successful in our focus on the health care professional as our key partner to deliver value to our customers.

With that as a backdrop, today, we have announced another step forward in Cigna's strategic path and a continued focus on our PBM and its integrated value proposition. With this action, we have secured the right partner and the right platform to continue our path in providing quality, affordable customer solutions to improve health and well-being and to enable sustained growth.

I'll now discuss the financial impact that we expect to deliver as a result of this agreement. The arrangement will generate some earnings for Cigna in 2014. However, these incremental earnings will be offset by integration costs. We expect the transition of our customers to the Catamaran platform will take place over the next 2 to 3 years to balance clients' needs. Over that time, we expect to see attractive benefits for our customers, clients and shareholders. While we have not yet provided our financial outlook beyond 2013, we estimate that this agreement will create annualized accretion of approximately $0.50 per share when fully implemented with a meaningful contribution to earnings in 2014. This accretion is driven by improved medical costs, as well as operating efficiency.

So in summary, we are excited to announce this strategic arrangement and we believe will lead to sustained success for our PBM program to improve clinical integrations between medical care and pharmacy services, enhanced affordability and more innovative, customized solutions. And finally, the overall structure of our approach will enable Cigna to deliver sustained, competitively attractive medical cost trend while retaining and increasing the earnings stream associated with our PBM business.

I will now turn the call over to the operator for our Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Ralph Giacobbe with Crédit Suisse.

Ralph Giacobbe - Crédit Suisse AG, Research Division

Just want to go back to the $0.50 number in 2015. Can you share with us at all some of the details? Any assumptions that sort of get you there or how you view the conservatism around that number? And then in terms of 2014, I think you had said, just to clarify meaningfully, accretive in that year versus sort of the press release just talked about positive, so anything you could help on that front as well?

David M. Cordani

David. Maybe to frame it. First, I'd ask you to think about the years '13, '14 and '15. Maybe with just the basic convention of the remainder of '13 is more startup, '14 is transition and '15 begins to get us a bit more toward a run rate framework. Relative to the accretion piece, clearly, we're talking about the shareholder accretion and to put it into context, that with a meaningful version of our book of business that is ASO, there is also very attractive returns over time for our clients and customers as we transition to new programs and services. For 2014, the rate and pace of our transition will dictate what the level of contribution is. But it's reasonable for you to think about if the run rate on an annualized basis is that $0.50, 2014 will be a transition period. You could put a range of around half that number for 2014 for your consideration.

Ralph Giacobbe - Crédit Suisse AG, Research Division

And then in terms of some of the assumptions around getting there, just if you could frame -- I know you talked about the clinical management, purchasing and administrative efficiencies. Is there any way to break out sort of where the bulk of that comes from and if there could be sort of incremental upside to even the $0.50 number?

David M. Cordani

So while some -- Thinking about it first, it's based off of our current scale and current book of business, so we're not projecting forward scaled growth to be able to achieve that objective. Secondly, think about 3 major contributors to the earnings contribution: one, the -- those that can continue to deliver the total medical cost value proposition and for the medical cost trend through innovation, clinical engagement, et cetera. Second is through harnessing the combined leverage of the network and procurement capability of the Cigna scale along with Catamaran scale. And third is operating efficiency. We're not breaking down the components into discrete parts. To the latter part of your question, to your notion is there upside to it? We believe the $0.50 is an appropriate estimate at this point in time. We're quite excited about the overall framework of value creation here.

Ralph Giacobbe - Crédit Suisse AG, Research Division

Okay. And then just my follow-up. Can you help us along the terms of the -- how far with the current EPS contribution is from the PBM and maybe just how that flows through the P&L today versus how we should expect it to flow through in '14?

David M. Cordani

Yes, Ralph, again, it's David. Just -- again, at a macro level, important to note, our go-to-market value proposition, as you very well know, is an integrated value proposition and we work with our clients, employer-facing clients, to get the right set of solutions, framework for them, et cetera. As such, we don't break out individual, discrete specialty line of business profitability. We look at the aggregate level of profitability. The underlying earnings from that business are captured in our employer-facing health care business that we have, but we don't break it out into a discrete chunk.

Operator

Our next question comes from Justin Lake with JPMorgan.

Justin Lake - JP Morgan Chase & Co, Research Division

First question would just be around -- David, as you think about the longer-term impact of this contract, what's -- what kind of terms or conditions are put in there to make sure that this contract is reflective of the market realities around pricing, et cetera, as you get through into the later years of the contract?

David M. Cordani

Well, as you might expect, ensuring that you have the right structure of the relationship over a 10-year period of time is quite important. And as you very well know, we took our time in this process to ensure that we got what we believe is the right value creation for our customers, clients and shareholders. Second point I would just reinforce is that there's a very strong philosophical alignment in terms of the orientation around creating value for clients and customers here, and on the individual customer to harnessing technology and information to close gaps in care and drive clinical improvement. And three, viewing that the partnership with the physician is quite important. We're not going to go through individual components of the contractual terms, but suffice it to say, we believe we have secured appropriate and quite thorough protections to ensure that through a variety of transparency checks to sustain highly attractive, highly competitive offering is enabled there.

Justin Lake - JP Morgan Chase & Co, Research Division

Okay. Great. And then my follow-up is just around the fact that you've now got the VADBe behind you, the runoff businesses. PBM is done. I'm curious as to whether there are any other areas of the business that are ripe for optimization, maybe the pension obligation, maybe there are some other things on top of mind that you can share with us.

David M. Cordani

Justin, I won't highlight an individual component. Clearly, as I referenced in the prepared remarks, through Phase 1 of executing our strategy, there were some important components. You referenced a few of those that were front and center for us, and we're pleased in terms of successfully executing those in a very positive way from a shareholder standpoint. Secondly, our portfolio, as configured today, is performing well, both top line and bottom line, both producing very strong earnings through top line growth and good free cash flow. The last comment I'll make here is the component you made reference to relative to the pension obligation. As you know, some time ago, that was frozen and we have continued to fund that and have been moving that forward, and we'll continue to reevaluate whether or not an alternative path makes sense. But to date, no modification of that path right now.

Operator

Our next question comes from Ana Gupte with Dowling & Partners.

Ana Gupte - Dowling & Partners Securities, LLC

So David, this is a 10-year contract and I just wanted to get a sense strategically of how you all thought about the various options that you have out there. The world is, obviously, changing quite a bit and for a 10-year contract, does your thinking about this and the potential move to public and private exchanges, is the back play into it the mix shift to government business and potential carve-in of pharmacy plan to it? And then do you have any aspirations to be an Optum-like entity with independent third-party generation of revenue servicing other health plans potentially?

David M. Cordani

As is typically the case, you incorporate many important questions there, so let me see if I can be responsive. First and foremost, to the macro point, yes, our thought process here is very consistent with what we talked about with our strategy, and that is to ensure that we have the capabilities in place to deliver differentiated services to our clients and customers. I would anchor that and the fact that we've delivered leading total medical cost trends over the last 3 years and that's something we're quite proud of, coupled up against outstanding clinical quality. So frame 1 is, how could we further advance our PBM capabilities and ensure that we're in position to deliver differentiated value to our clients and customers? Secondly, ensuring that we coordinated and continue to manage and maintain the customer touch points. And third, ensure that we have the information flow and continuity to continue to work with physicians because that's where the coordination of care takes place. The flexibility we're able to secure off of Catamaran's leading technology platform puts us in a very good position relative to ongoing acceleration -- innovation. And lastly, we're very cognizant of the fact that this space continues to evolve and structural flexibility around innovation was paramount relative to ensuring that we are positioned to continue to be innovative either for existing clients, individual customers, public exchanges, private exchanges or beyond. To the last part of your question, the focus of the corporation is around making sure we harness the PBM and clinical capabilities for our customers and clients today and those we will grow on a go-forward basis, and that's indeed what we're focus on.

Ana Gupte - Dowling & Partners Securities, LLC

So I'm understanding it's not about third party to other health -- to competing health plans, potentially, on the medical side?

David M. Cordani

To date, that's correct. And if we were to take -- make change to the strategic course there, we would talk to the marketplace about that. Now as we bolster and further expand capabilities, we have a broad portfolio of clinical engagement, clinical service capabilities that we are quite proud of. We have a lot of technological and infrastructural flexibility, but it's all been focused on winning in the markets that we've chosen. And to the extent we make a change in course relative to that, we'll have a separate discussion.

Ana Gupte - Dowling & Partners Securities, LLC

And now you said, David, the transition would occur over 2 to 3 years and meaningful accretion in '14. Should Catamaran fail to meet the service targets, are you building in any downside protection on that?

David M. Cordani

Yes, Ana, the way the arrangement is secured, first and foremost, we wanted to ensure that we had adequate time and flexibility for our clients and customers because we believe in choice and being consultative in our selling approach. And we do not want to have a forced transition by any stretch of imagination. So they're in line to that 2- to 3-year time horizon. Secondly, we're highly aligned with our partner here in terms of financial goals, objectives, et cetera. And third, I would just underscore, we have firsthand lived experience that has been very positive in the way in which legacy HealthSpring has been able to work with Catamaran and the way in which we have been able to work with Catamaran over the last year plus since we've owned HealthSpring. So we feel as though we're both tightly aligned, as well as well protected from a contractual standpoint.

Operator

Our next question comes from Christine Arnold with Cowen.

Christine Arnold - Cowen and Company, LLC, Research Division

Do the terms of the $0.50 and getting to the $0.50 depend on you delivering certain volume to Catamaran in terms of scripts from customers?

Thomas A. McCarthy

Christine, it's Tom. There really aren't any volume thresholds of significant share. It really is just about executing on the basic business.

Christine Arnold - Cowen and Company, LLC, Research Division

Okay. So you've retained flexibility if, for example, you don't like what a certain segment looks like over the future?

Thomas A. McCarthy

Yes.

David M. Cordani

That's correct.

Christine Arnold - Cowen and Company, LLC, Research Division

Okay. And then can you give us some sense for how much we think that when fully implemented, drug costs might come down? Is it 10% off what you're paying for drugs, 15%, 20%? Is there any way you could size that for us?

Thomas A. McCarthy

We'd really rather not get into the specifics of that. Obviously, you can see there's a material impact and our customers will benefit, as well as our shareholders, but more details on that, we're not ready to get into just now.

Christine Arnold - Cowen and Company, LLC, Research Division

Okay. And then in some cases where there's some partnership arrangements, some of the parties over time have concluded that, "Gee, maybe it makes sense for the PDP business to be run by the -- some of the outsourced functions, external PBM." Does this arrangement make you think any differently about that line of business and kind of retaining versus letting Catamaran do it?

David M. Cordani

Christine, it's David. We -- this arrangement does not contemplate that. This arrangement enables us to further enhance our value proposition. So whether it's NA PBM or PDP capabilities then our objective is to ensure that, that value proposition is positioned to win in the marketplace. But this arrangement does not contemplate that, that would be a separable decision to the extent that will be considered. This arrangement does meaningfully enhance the value proposition there for PDP lies on a go-forward basis.

Christine Arnold - Cowen and Company, LLC, Research Division

Okay. And last question, can you give us -- I don't know Catamaran that well. I just don't follow the PBMs. Can you give us some examples of their flexible technology and what it enables you to do for your customers that you're not able to do?

David M. Cordani

Sure, Christine. Just at the macro level, Catamaran is viewed as a leader in technology as it relates to the PBM space. In fact, they will frequently operate the technology or source of technology under other PBMs. So the technology platform is a highly attractive market, highly validated, leading scaled platform, et cetera. Maybe at the most macro level, you can think about the technology and our approach to allow a significant amount of modularity or mass customization of programs and services as you offer choice to clients and customers, or pulling off of a continuous service environment and constant clinical quality but allowing more choice in modularity for clients and customers, which plays very well to our consultative selling approach in the marketplace.

Operator

Our next question comes from Peter Costa with Wells Fargo Securities.

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

Can you break down the $0.50 a little bit more for us, just so we have a better understanding of whether this is drug cost that you're assuming you're going to get cost savings on or is it really operating efficiencies more? And if it is drug costs, which side are you getting it from? Is it from the senior side and the Medicare side or more from the commercial side?

David M. Cordani

Peter, it's David. We -- on a prior comment, we indicated that we're not going to break it down in components. The 3 major drivers are continued advancement in terms of clinical integration, the ability to deliver an overall favorable medical cost trend around the clinical innovation. Second is called procurement, sourcing and network leverage, and third is operating efficiency. To your second part of your question, it is designed and configured so all of our lines of business benefit. So there are appropriate benefits through the Medicare line of businesses. There are through the commercial line of business.

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

Okay. And you said before you don't break down your -- by segment, but you do actually show the mail order business separately. Can you just -- at least on the revenue side, can you talk about that? Is that going to grow under this contract? Or is that all going to be gone when we see this accounted for down the road? How's that going to work?

Thomas A. McCarthy

Peter, it's Tom. I really wouldn't expect you'll see much change in the geography on our financial statements. We'll still have a home delivery pharmacy and will just be using the tools and capabilities from Catamaran.

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

So that's not -- neither going to grow nor shrink on your accounting?

Thomas A. McCarthy

Well, we have a business plan to grow that business and that really wouldn't change.

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

But as a result of this contract, that doesn't change?

Thomas A. McCarthy

Correct.

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

Okay. And then just last question, if you don't mind. How are we going to coordinate the formulary between the 2 of you? And like is it going to be one formulary that you're going to try to use? Or how are you going to work through the formulary? I understand that you're going to, under Cigna, going to manage that, but how will you get the cost savings from the Catamaran side?

David M. Cordani

Sure, Peter, it's David. You're correct. We retain responsibility for that, which is quite important. Maybe taking a step back for a moment, you should view this as though Cigna is building on our existing PBM capabilities and the 10-year arrangement with Catamaran is going to be used on a targeted basis to improve and accelerate our capabilities from that standpoint. The formulary will be managed on a very dynamic basis, and that is some of the structural flexibility where I referenced back to Christine's question before, we'll have a lot of structural flexibility through the clinical programs, through the technology, working off the Catamaran platform to ensure we have to accomplish what we need to accomplish. But from a clinical efficacy and an overall management, that will retain a core part of what Cigna does day in, day out.

Operator

Our next question comes from Kevin Fischbeck with Bank of America Merrill Lynch.

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

It sounds like the savings that you're talking about mostly come out on the cost side. But I wasn't sure if there was any kind of revenue synergies as far as I thought about an ability to sell more Part D business or increase health plan membership. I wasn't sure if your comment about delivering cost trend meant some -- that there was some revenue synergy contemplated in this.

David M. Cordani

It's David. The economic framework we talked about was on current state block of business. So to the extent we have revenue synergies and/or outpaced growth on a go-forward basis, that will be additive to what we talked through. The $0.50 of EPS is on current as is state.

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Okay. And then that $0.50 number for 2015 account -- you sound like you're talking about a 2- to 3-year saving. Is 2015 the run rate number? Or is that number even kind of ramp up as the year goes on and so there might be a more full number in 2016?

Thomas A. McCarthy

Kevin, it's Tom. The $0.50 is an annualized run rate number for '15, so it's kind of the ramped up number.

Operator

Our next question comes from Brian Wright with Monness, Crespi and Hardt.

Brian Wright - Monness, Crespi, Hardt & Co., Inc., Research Division

You've given us revenue levels for your PBM business. Could you give us the annual script volumes?

Thomas A. McCarthy

[indiscernible] 70 million adjusted scripts, converting them via mail order to retail basis.

Brian Wright - Monness, Crespi, Hardt & Co., Inc., Research Division

I'm sorry, it broke up on me. Could you repeat that?

Thomas A. McCarthy

We've got 170 million adjusted scripts annually.

Brian Wright - Monness, Crespi, Hardt & Co., Inc., Research Division

Great. And then do you have any -- is there any pricing differentiation based on the size of the network offering?

David M. Cordani

It's David. Are you referencing an opportunity to have what may we refer to as preferred or select networks on a go-forward basis?

Brian Wright - Monness, Crespi, Hardt & Co., Inc., Research Division

Yes.

David M. Cordani

That is additional opportunity as we configure additional product offerings to the marketplace as we go forward. And they'll be, on your important point as I referenced before, having a lot of structural technology flexibility. This arrangement presents more and more dynamic opportunity for us to do that on a go-forward basis with this positive. And again, not factored into an impact to what we've highlighted here in the $0.50.

Brian Wright - Monness, Crespi, Hardt & Co., Inc., Research Division

Great. And then just lastly, is part of this process, did you ever solicit proposals to monetize the asset?

David M. Cordani

Brian, again, it's David. We've had conversations around our PBM over multiple years, and as we've articulated previously, when we stepped back to a thorough evaluation of the value of the asset, we would get a whole variety of alternatives. The -- we've concluded that the best alternative for our customers, clients to create sustained value on a go-forward basis and as a result for our shareholders is to retain the PBM, enhance the PBM and ensure that we're able to drive sustained results on a go-forward basis. But dating back multiple years ago, we've looked at a thorough set of alternatives and we're really focused on building sustained shareholder value on a go-forward basis and making sure we have the right clinical and service programs for our clients and customers.

Operator

Our next question comes from Dave Windley with Jefferies.

David H. Windley - Jefferies & Company, Inc., Research Division

David, you mentioned to Peter's earlier question that formulary was very important. Could you, in addition to formulary, could you talk about what you viewed as the essential PBM services that you needed to retain to maintain the integrity of your total cost management go-to-market strategy?

David M. Cordani

David, it's David. The -- as you step back, we have basic beliefs. The basic beliefs are the ability to, your word, control and influence and drive the customer touch points. Secondly is to ensure that you have the right information and alignment with the physicians on a go-forward basis. Those are the 2 most critical parts. Information fuels both of those pieces of the equation. Conversely, there are some other parts of an ongoing operation within a PBM that are a bit more fungible. So long as you could have the preservation of that customer touch point, the customer knowledge and the customer service set and then the interaction with the physician on a go-forward basis. Typically, then, if you put a little circle around that clinical program and clinical program development and execution, it's going to have a high amount of interaction with the individual and a high amount of interaction with the physician. So we start with the individual and then immediately go to the physician is integral and work our way backward from that.

David H. Windley - Jefferies & Company, Inc., Research Division

Okay. Very helpful. And a twist on Brian's question just now, as opposed to entertaining monetizing the asset, did you entertain potential structures like this one but with other independent PBM providers that arguably could have had greater purchasing power? And what would have caused Catamaran to win out in that comparison?

David M. Cordani

Sure, Dave. Again, we went through a pretty -- not a pretty, an extremely thorough process that if you and your peers know, some folks reminded us we were taking our time. We're taking our time because we went through such a thorough process. We looked at multiple paths and multiple parties. We had a dedicated internal business team, appropriate advisers, and we worked through a series of alternatives. Ultimately, we concluded on what we believe is a very exciting and the best path forward, partnering with Catamaran, in this case, to leverage our leading technology platform to take advantage of demonstrable, positive customer and clinical service experience and we've been able to see through the HealthSpring arrangement, as well as very importantly to capitalize on our aligned philosophy, which is to focus on the customer and partner with the physician. So yes, we looked at a variety of potential partners in the framework and we have concluded that this is the preferred approach and highest value creator on a sustained basis for us.

Operator

Our last question is from Justin Lake with JPMorgan.

Justin Lake - JP Morgan Chase & Co, Research Division

I just had a follow-up on the P&L impact, but it sounds like you guys are saying that there's not much changing here on the P&L other than costs going lower.

David M. Cordani

Justin, I think the base message here is if you think about -- what we're attempting to communicate is, this arrangement helps us enhance the overall value proposition to our clients and customers, and there'll be value delivery to our clients and customers over this 2- to 3-year transitional window. As a result of that, it will also add value to the shareholder through an annualized run rate in 2015 of $0.50 on an EPS basis. That is based on current state volumes. That is not making any assumption to growth rates and growth trajectory. That is not making assumptions to preferred clinical networks and further enhancement. It's kind of as is current state portfolio of businesses and line of sight, economic and value creation for our clients and customers on a go-forward basis.

Justin Lake - JP Morgan Chase & Co, Research Division

I was actually just referring to the structural impact of the P&L on the model.

David M. Cordani

Yes, we will not report in a different way, or to Tom's prior points, you should not expect to see a meaningful geography change relative to the P&L.

Operator

I would now like to turn the call back over to David Cordani for closing remarks.

David M. Cordani

Thank you, everyone, for participating in our call today on such short notice. Just a few messages. One, we are pleased with the further advancement of PBM capabilities and the strategic partnering agreement we're able to enter in with Catamaran. Our enhanced PBM capabilities will further improve value and affordability for both our customers and clients, and as a result, economic benefit for our shareholders. It will improve our go-to-market positioning to ensure our long-term growth, and third, will enhance our structural flexibility for ongoing innovation. The agreement with Catamaran represents a key step forward as we continue to build on our success in delivering differentiated value for the benefit of our customers, clients and shareholders. We thank you again for joining us on our call, and we look forward to talking to you in the near future. Have a good day.

Operator

Ladies and gentlemen, this concludes Cigna's call to discuss the agreement to enhance pharmacy solutions for our Pharmacy Benefits Management business. Cigna Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing (888) 568-0868 or (203) 369-3782. Thank you for participating. We will now disconnect.

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Source: Cigna Corp. - Special Call
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