Bright Health raising $750 million, including Cigna investment

Within weeks of reporting a significant loss during the third quarter, Bright Health Group announced it is raising another $750 million, including a large strategic investment from a subsidiary of health insurance giant Cigna Corp.

Shares of the Bloomington-based health insurance company improved by about 9% on the news Tuesday.

It was a welcome jump for Bright Health investors. The company's stock has traded down substantially since Bright Health went public in June, the largest-ever initial public offering by a Minnesota company.

Cigna Ventures, the insurer's venture capital unit, will invest $550 million as part of a deal first announced Monday evening by Bright Health. The remainder is coming from Maryland-based New Enterprise Associates (NEA), the largest current shareholder at Bright Health Group.

In general, the new funding will support continued growth, although Bright Health chief executive Mike Mikan said Cigna might collaborate on expanding NeueHealth, Bright's business that runs medical clinics.

"We're really interested in relationships with national payers," Mikan said Tuesday during an investor conference. "It's capital-efficient for us, it's where the throughput with our providers is an advantage and we want consumers to have a common experience."

Cigna backed and partially funded the investment, the Connecticut-based company said in a news release. Tom Richards, the head of Cigna Ventures, said in a statement that his company looks forward to exploring how NeueHealth could work cooperatively with Evernorth, Cigna's division for health services that includes a large pharmaceutical benefits management (PBM) business.

The capital raise is expected to close in early January next year, Mikan said.

Stephen Parente, a health economist at the University of Minnesota, said Cigna's investment could signal its interest in eventually acquiring Bright Health. "Companies don't put money like that in unless they're thinking about it," he said.

More immediately, the deal resolves liquidity needs at Bright Health, said Kevin Fischbeck, an analyst with Bank of America, in a research note. He estimated the health insurer would have run out of cash by the end of 2022.

Money from a large competitor like Cigna provides "a stamp of approval," said Fischbeck, who noted the national health insurer also recently partnered with New York-based Oscar Health Inc., another smaller competitor.

"A similar partnership ... could help drive sustainable profitability since it would allow [Bright Health Group] to leverage [Cigna's] cost structure and scale," Fischbeck wrote.

In June, Bright Health's IPO raised $924 million, but the company's share price has fallen significantly in subsequent months. Shares dropped about one-third in early November when the company announced third-quarter earnings short of expectations due in part to a premium hit from risk-adjustment scoring.

Founded by former executives at Minnetonka-based UnitedHealth Group, Bright Health sells health insurance coverage to individuals under age 65 and seniors buying Medicare Advantage health plans.

Under the terms of the investment, Cigna and NEA will purchase $750 million of convertible perpetual preferred stock at a purchase price of $1,000 per share. The preferred stock carries a 5% dividend that will be convertible into shares of common stock at an initial conversion price of approximately $4.55 per share, representing a 25% premium to the recent average trading price.

Also on Tuesday, Bright Health Group re-affirmed 2021 revenue guidance of of $4.1 to $4.2 billion and offered the company's first outlook for next year. In 2022, Bright Health expects revenue to grow by about 50% to between $6.3 and $6.5 billion.

Bright Health is part of an industry trend where health insurers and health care providers are connected more closely in hopes of better controlling expenses through "alignment" of incentives between insurers and clinics.

As of this past summer, the company division called NeueHealth owned all or part of 44 primary clinics and had affiliation agreements with 87 others. Last month, Bright Health announced plans to open at least 25 new clinics, an expansion that will bring its total owned clinics to more than 70 in early 2022.

At its IPO, Bright Health's stock initially priced at $18, but shares fell to $8.49 by early August following disappointing financial results from its first quarter as a public company.

On Tuesday, the stock closed at $4.13, up 35 cents for the day.