Cigna writes off $1.8B of its investment in Walgreens' VillageMD

UPDATED on May 2 at 2:30 p.m. ET

In late 2022, Cigna's Evernorth unit made a $2.5 billion investment in VillageMD, and gained a minority stake in the primary care business that was primarily owned by Walgreens.

In the first quarter of 2024, the company conducted a write-down of more than half of its investment in the provider, writing off about $1.8 billion of its stake in the company. Executives said that VillageMD has underwhelmed in growth as Walgreens shuts down large numbers of clinics.

CEO David Cordani told investors on the company's earnings call Thursday that the choice to write off those funds has multiple factors, including "broader market dislocation that is hitting the space." Retail health providers have struggled of late, which led Walmart to pull the plug on its clinics earlier this week, shortly after the retail giant announced plans to continue expansion through early 2025.

VillageMD specifically has elected to "pull the supply lines and constrain some of the growth in some of the new clinics they were establishing," Cordani said. He said, though, that Evernorth's broader focus in partnership with Village is to continue to build on its value-based care work in the markets where the primary care provider is seeing the most success.

"In a nutshell, while we don't like a write-down of an asset, the strategic direction hasn't changed because our focus has been on the highly established go-deep markets where Village continues to grow and perform well, and we're helping to accelerate some of that performance," Cordani said.

Chief Financial Officer Brian Evanko added that the new carrying value of the investment is just above $900 million.

The Cigna Group posted a $277 million loss in the first quarter on the back of investment losses, according to its earnings report released Thursday.

The company said it posted a $1.8 billion after-tax investment loss in the quarter that was "related to the impairment of VillageMD equity securities." By comparison, Cigna reported $1.3 billion in profit in the first quarter of 2023.

The results surpassed Wall Street analysts' predictions, as, after adjusting for investments and amortization, earnings came in at $6.47 cents. That beats the $6.17 consensus compiled by Zacks Investment Research.

Cigna reported $57.3 billion in revenue for the quarter, which also beat the Street. The company brought in $46.5 billion in revenue in the prior-year quarter, according to the report.

"Our strong first quarter results reflect the performance of our Evernorth and Cigna Healthcare businesses, as well as our leadership in addressing the evolving needs of those we serve with the breadth of our differentiated capabilities," said David Cordani, chairman and CEO of The Cigna Group, in the press release.

Despite the loss, Cigna is boosting its outlook for 2024 and now expects to bring in at least $235 billion in revenue as well as at least $28.40 in earnings per share.

The company had nearly 19.2 million members as of the first quarter, down from 19.8 million at the end of 2023, according to the report. It says these membership declines were largely in the individual and family plan space, "driven by targeted pricing actions in certain geographies."

The number of pharmacy benefit members, meanwhile, grew to 122.8 million in the first quarter. Cigna boasted about 98.6 million pharmacy members at the end of 2023. A major factor in the jump was the onboarding of Centene members, which also dinged CVS' earnings on Wednesday as the massive client officially made the switch at the beginning of this year from Caremark to Express Scripts.

The Evernorth Health Services division, which houses Express Scripts, brought in $46.2 billion in revenue, up from $36.2 billion in the first quarter of 2023. Cigna noted that this reflected the addition of new, large clients as well as growth in specialty and care services.

Cigna Healthcare, the medical benefits segment, brought in $13.3 billion in revenue for the first quarter, up from $12.7 billion in the prior-year quarter. Cigna had a notably lower medical loss ratio than some of its peers this quarter, reporting a 79.9% MLR. The insurer, however, has far less exposure in the Medicare Advantage space.