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A robot at a pharmacy benefit manager sorts drugs. Photo: Stan Honda/AFP via Getty Images

The specter of banishing back-end drug rebates and more aggressive state action has unnerved pharmacy benefit managers heading into 2019.

The big picture: This uncertainty has PBMs on the defensive and appears to be chipping away at their profitable businesses.

Driving the news: It has not been a fun few weeks for the drug pricing middlemen.

  • CVS Health rolled out profit estimates for 2019 that were well below what Wall Street had expected, due in part to its PBM proactively passing more rebate dollars to employers and insurers. Executives also said CVS won't keep as much money on some generic drugs through a practice known as "spread pricing."
  • Cigna CEO David Cordani recently said the Trump administration's proposed rebate rule would "not have a meaningful impact on our growth or earnings trajectory," even now that the company has acquired Express Scripts. But analysts are not convinced.
  • Diplomat Pharmacy lost a lot of employer customers within its recently acquired PBM business, and it anticipates writing down a "significant portion" of the PBM's $630 million value.
  • Activist investor Starboard Value is breathing down the neck of Magellan Health, which owns a PBM with $2.5 billion of annual revenue, and is encouraging a sale due to the company's "poor performance."

That's not all: States continue to be the most aggressive force challenging PBMs.

The bottom line: The rebate rule and general scrutiny on PBMs "poses meaningful risk to [their] profit models," analysts at Robert W. Baird & Co. wrote in an investor note last week.

Yes, but: The rebate rule likely won't go into effect for a while, and these companies are not going to sit on their hands.

  • If the rebate rule is implemented, UnitedHealthGroup, which owns OptumRx, "would adjust accordingly," and it helps that Medicare Part D — which the rule would affect — is "a relatively small part" of UnitedHealth, Cantor Fitzgerald analyst Steven Halper wrote to investors after meeting with the company's top executives.

Go deeper

Dion Rabouin, author of Markets
51 mins ago - Economy & Business

The European Central Bank and the market's moment of truth

ECB president Christine Lagarde; Photo: Chip Somodevilla/Getty Images

The biggest event for markets this week will be Thursday's meeting of the European Central Bank's governing council and the press conference following it from ECB president Christine Lagarde.

Why it matters: With interest rates jumping around the globe, investors are looking to central bank heads to see if they will follow the lead of Fed chair Jerome Powell, who says rising rates are nothing to worry about, or Bank of Japan governor Haruhiko Kuroda, who has drawn a line in the sand on rates.

Mike Allen, author of AM
2 hours ago - Politics & Policy

Manchin's next power play

Photo: "Axios on HBO"

Sen. Joe Manchin (D-W.Va.), America's ultimate swing voter, told me on "Axios on HBO" that he'll insist Republicans have more of a voice on President Biden's next big package than they did on the COVID stimulus.

The big picture: Manchin said he'll push for tax hikes to pay for Biden's upcoming infrastructure and climate proposal, and will use his Energy Committee chairmanship to force the GOP to confront climate reality.

Why picking a jury for the Derek Chauvin trial is so hard

Illustration: Eniola Odetunde/Axios

The tough task of selecting a jury for former MPD officer Derek Chauvin's trial for the killing of George Floyd is set to begin Monday.

The state of play: "This case may be the most highly publicized criminal trial in a long time. ... That means that it's harder to find people who really have an open mind," Richard Frase, University of Minnesota Law School professor of criminal law, told Axios.