By Ankur Banerjee
(Reuters) - Activist investor Carl Icahn on Tuesday urged Cigna Corp (N:CI) shareholders to vote against the health insurer's $52 billion purchase of Express Scripts Holding Co (O:ESRX), citing regulatory hurdles and the growing threat of Amazon.
The Cigna-Express Scripts deal has drawn investor skepticism over concerns that Amazon.com Inc's (O:AMZN) entry into healthcare will upend the sector at a time when President Donald Trump has made a push to lower drug prices.
The Trump administration has proposed a rule that will scale back protections currently in place that allow rebates between drug manufacturers and insurers and pharmacy benefits managers (PBMs).
Icahn said the proposed rule, which came after the Cigna-Express Scripts deal agreement, is a clear shot across the bow for the PBM industry.
"We believe this is the start of a concentrated effort to reform drug pricing and eliminate the highly flawed rebate system," Icahn wrote in a letter to Cigna shareholders, adding that the industry will likely move to an entirely fee-based model over time.
Icahn also highlighted the rising threat of Amazon, which in June bought small online pharmacy PillPack, putting the world's biggest online retailer in direct competition with drugstore chains, drug distributors and PBMs.
"When Amazon starts to compete as we believe they will, with their 100 million Prime users and scale distribution system, they will have no trouble breaking into the so-called ecosystem," Icahn said.
The billionaire investor, who has a long position on Cigna and a short position on Express Scripts, said in the letter titled "Cigna's $60 billion folly https://carlicahn.com/open-letter-to-cigna-stockholders" that the insurer was overpaying for Express Scripts.
Icahn said Cigna should instead repurchase its shares and pursue partnership with existing pharmacy benefit managers, including Express Scripts.
Icahn owns 1.36 million shares, representing about 0.56 percent of the outstanding shares of Cigna.
Express Scripts' shares fell last week after the news of Icahn's stake and his opposition to the deal first emerged. Cigna on Thursday said it was confident of winning shareholder approval for its Express Scripts deal. The shareholder vote is due on Aug. 24.
Express Scripts' shares were up 1 percent in early trading, while Cigna shares were up 0.34 percent.
"We believe we are well positioned for growth and remain confident in the deal," Express Scripts spokesman Brian Henry said. Cigna was not immediately available for comment.
Analysts do not expect shareholders to support Icahn, noting that few shareholders have questioned the strategic rationale of the deal.
Leerink analyst Ana Gupte said a majority of current shareholders are likely to vote in favor of the deal, given a large shareholder overlap between the two companies.