Proxy advisor Institutional Shareholder Services recommends shareholders approve Cigna's acquisition of Express Scripts, days after famed activist investor Carl Icahn called the deal a "folly."

ISS acknowledged potential regulatory and competitive risks to Express Scripts, but said the potential benefits of the $54 billion deal outweigh them. The proxy advisor called the combination financially compelling, and one that would give the combined company immediate scale with strong cash flow generation.

Primary, ISS said, Cigna's "credible management team" has laid out "sound strategic rationale."

Shares of Cigna slid about 1 percent Friday. The stock has now shed nearly 10 percent this year. Meanwhile, shares of Express Scripts rose more than 2 percent, and are up more than 12 percent since January.

Cigna says it and Express Scripts are complementary businesses that when combined can improve care for patients and lower health-care costs. The deal has come under attack from Icahn, who published a searing letter titled "Cigna's $60 billion folly," in which Icahn said buying the company "may well become one of the worst blunders in corporate history."

ISS disputed Icahn's concerns that Cigna is overpaying for Express Scripts. It said the price tag "seems to reflect a reasonable premium to the company's historical multiples and a discount relative to previous transactions in the sector, which appears to be in line with the higher perceived risks faced by PBMs in the current market environment."

Pharmacy benefit managers, or PBMs, have come under scrutiny for their role in high drug prices. These firms control which drugs are covered and negotiate discounts, known as rebates, on branded drugs with manufacturers. Drugmakers say these middlemen want higher drug prices so they can squeeze higher profits from rebates.

The Trump administration has vowed to re-examine this system. President spent a large chunk of his speech to lower drug prices attacking middlemen, who he said "won't be so rich anymore." CEO Ian Read last week told Wall Street analysts he believes the Trump administration may eliminate rebates altogether.

In its analysis, ISS said Health and Human Services is "clearly fixated on rebates" and acknowledged investors' "inability to sufficiently assess the resilience of the black box" has weighed on Cigna shares. Express Scripts tried to quell concerns this week, revealing rebates are applicable to less than 10 percent of its claims and the company plans to retain about $400 million in rebates this year.

Icahn argues looming regulatory risk combined with the possibility of disrupting the industry pose "existential threats to the PBM business model."

Icahn called the looming threat of Amazon "an existential threat to PBMs like Express Scripts, possibly challenging their very existence." Amazon does not currently operate in the prescription drug benefit space, though earlier this year it said it online pharmacy start-up PillPack.

ISS called Amazon's threat "somewhat amorphous." It cited the barriers to entry in the industry, including the ability to deliver controlled substances.

"While it is impossible to entirely dismiss the disruptive potential of the online behemoth, this is a risk that appears limited at present," the proxy advisor said.

Meanwhile, Cigna's rival health insurer is in the process of being acquired by . The roughly $69 billion deal would create a health-care powerhouse, combining insurance, prescription drug benefits and drugstores. Shareholders from both companies have already approved the deal, and CVS it expects it to close in the late third quarter or early fourth quarter.

Glenview Capital's Larry Robbins came out in defense of the deal Thursday.

A majority of shareholders on both sides of the deal must approve it. Votes are scheduled for Aug. 24.