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Aetna's shares drop, earnings report eclipsed by news of Amazon's venture into healthcare IT

Aetna posts strong fourth quarter, but a 16 percent decrease for the year.

Susan Morse, Senior Editor

Aetna's fourth-quarter earnings report Tuesday was overshadowed by the news that Amazon, Berkshire Hathaway and JP Morgan were joining forces to start a healthcare company focused on reducing cost in the industry through technological solutions.

Aetna shares dropped by 3 percent while CVS shares dropped by 7.6 percent, according to The Wall Street Journal. Shares of other healthcare companies such as pharmacy-benefit managers, insurers and drugmakers also dropped sharply, according to the report.

The industry has been awaiting news of Amazon's next move, with widespread speculation that it would enter the pharmacy services business.

[Also: Amazon's missed deadline sparks pharma speculation]

The proposed $69 billion merger between CVS Health and Aetna has been seen as a proactive strike to stay competitive against the online giant. 

On Dec. 3, 2017, Aetna and CVS Health Corporation entered into a definitive merger agreement for CVS Health to acquire all outstanding shares of Aetna. The transaction needs shareholder approvals and awaits expiration of the federal Hart-Scott-Rodino antitrust waiting period and approvals of certain state departments of insurance and other regulators, Aetna said. The transaction is expected to close in the second half of 2018.

[Also: CVS Health to acquire Aetna for $69 billion]

Aetna did not have its usual conference call on its earnings report Tuesday, saying by statement that given the pending transaction with CVS Health, Aetna would not host one on this earnings release and it expected to have the same policy in future quarters. Without a call, analysts were unable to ask questions in a public forum where they most likely would have addressed the Amazon venture and its projected impact on the company. Aetna instead directed questions to its investor relations or communications departments.

Aetna posted fourth-quarter 2017 net income of $244 million, compared to $139 million for the fourth quarter of 2016.

Full year income was $1.9 billion, compared to full year 2016 of $2.27 billion, a 16 percent decreases.

The increase in net income during the fourth-quarter is primarily due to lower restructuring and transaction and integration-related costs in 2017 compared to 2016, Aetna said.

On Nov. 1, 2017, Aetna completed the sale of a substantial portion of its group insurance segment consisting of its domestic group life insurance, group disability insurance and absence management businesses.

[Also: Aetna sells its group life and disability business to The Hartford Group for $1.45 billion]

The decrease in net income during the full-year 2017 was primarily due to costs associated with the termination of the Humana merger agreement during first-quarter 2017. Aetna owed Humana a $1 billion breakup fee after federal regulators successfully opposed the proposed $37 billion merger.

The January passage of the Tax Cuts and Jobs Act has an unfavorable impact on earnings, Aetna said. Aetna projected that the bill's suspension of the health insurance fee for 2019 would decrease 2018 adjusted earnings by approximately $30 to $50 million due to reduced premiums for 2018 that have member months in 2019.

"Aetna's strong 2017 results demonstrate the power and versatility of our core businesses," CEO Mark Bertolini said. "As we progress toward completing our pending transaction with CVS Health, we remain focused on serving our members and delivering on our strategic and financial objectives. We are confident that the combined entity will deliver a better health care experience by improving access to affordable health care and coordination of health services in communities across the country."

Aetna CFO Shawn Guertin added that the company finished 2017 with strong performance in the fourth quarter.

"Continued strength within our government business and moderate medical cost trend drove our better than projected total company results in the period," Guertin said. "This momentum, combined with our targeted investments position Aetna for another year of operational success in 2018."

Twitter: @SusanJMorse
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