Catamaran’s deal with Cigna is “transformational” says Cantor Fitzgerald

Cantor Fitzgerald analysts Tom Liston and Justin Kew say Catamaran’s (Catamaran Stock Quote, Chart, News: TSX:CCT) ten-year contract with Cigna is “transformational”.

Yesterday, after market, Catamaran announced that Cigna will build out its pharmacy benefits business by entering into a decade-long PBM partnering agreement with Catamaran. Under the arrangement Cigna will continue to manage all day-to-day customer and client-facing functions, and Catamaran will buttress that with its technology and service platform.

This expanded relationship includes retail network contracting, claims processing, prescription drug procurement, inventory management, and order fulfillment for Cigna’s home-delivery pharmacy.

The announcement sent shares of Catamaran, which is listed on both the TSX and Nasdaq, soaring. In Toronto, the stock closed up nearly 11% today, to $54.91.

CEO Mark Thierer says the deal represent an ideal pairing.

“We are excited to be Cigna’s partner of choice,” he said. “The Catamaran Center of Excellence, combined with our flexible technology and client-centred 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.”

Liston and Kew point out that this new agreement nearly triples its current contract with Healthspring/Bravo from about $3-billion to between $8-8.5-billion. Cigna bought Healthspring in 2011 and there was recent concern that its contract with Catamaran would not be renewed. The analysts say they expected that it would, in fact, be renewed, and perhaps even expanded. But the breadth and length of this deal is well above their expectations, they say.

In a research update to clients this morning, Liston and Kew raised their target on Catamaran from $65 to $70. The analysts have a BUY rating on the stock, and regard it as a TOP PICK.

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