Noteworthy News Stories

Here are some worthwhile articles for your reading pleasure. As always, I welcome story links from Drug Channels readers.

As a special treat, I am including a picture of my Halloween costume at the bottom of the post. Happy Halloween!

Should pharmacies be liable for stupid patients?

Yesterday’s Wall Street Journal had a scary cover story titled Case Spurs Pharmacies' Fears of Lawsuits Over Drug Abuse. (Click here for a free summary if you can't access the article.)

The article describes a lawsuit against a group of pharmacies for dispensing prescription painkillers to a woman who killed someone while driving high on hydrocodone.

Just my $0.02, but I think it’s ludicrous to pin the blame on a pharmacy for the deranged behavior of one consumer. The pharmacy chains are being dragged into this case because they have deep pockets, not because they should be responsible for the tragedies described in this article.

Best Of

There are almost 400 posts on Drug Channels. New readers often ask me for a list of the "best" ones.

Here is my periodically updated selections. Unfortunately, some of my best posts were very timely and/or humorous analyses of news events, which means those posts now sound quite dated and sort of lame.

I am listing the best posts for answering the top questions that people ask me. As far as I know, these posts are still valid although some of the information may have been superseded by new developments.

I wrote the U.S. Pharmacy Industry: Economic Report and Outlook to provide an integrated analysis of these (and other) questions. You should check it out for more details.

Who are the biggest pharmacies?

• 2008 Pharmacy Market Share Data

How much money do pharmacies make?

• Pharmacy Profits and Wal-Mart
  
  
• Two Great New Resources on Pharmacy Economics
  
  
• Drug Channel Profits in 2009's Fortune 500 list
  
  
• Pharmacy Profits & Part D

Who does (and will) pay for prescription drugs in the U.S.?

• Who Will Pay for Prescription Drugs?

What are the economics of mail-order pharmacy?

• A Phony Mail Order Controversy
  
  
• Pharmacists Can't Get No Satisfaction from Mail
  
  
• Reality Check on Mail Economics

What is Wal-Mart's strategy in the pharmacy industry?

• Wal-Mart Explains Its Healthcare Strategy
  
  
• The Impact of Walmart's National Mail Pharmacy
  
  
• Wal-Mart Aims at PBM Mail Profits
  
  
• New details on WMT-CAT Pharmacy Deal
  
  
• Wal-Mart's PBM Game Plan

What's going on with Average Wholesaler Price and First Databank?

• AWP Goes Boom
  
  
• What Happens When AWP Goes Boom?
  
  
• Farewell, AWP
  

What is the controversy about CVS Caremark's Maintenance Choice program?

• The Odd Economics of Maintenance Choice
  
  
• A Glimmer of Synergy at CVS Caremark
  
  
• Debate Over CVS Caremark's Tactics Heats Up

Please let me know if I missed one your favorites.

Adam

Drug Channels Earnings Calendar

In an unusual confluence of the calendar, the big 3 drug wholesalers and big 3 pharmacy benefit managers (PBMs) will all be reporting their latest financial results on 4 of the next 9 days. These financial reports and accompanying conference calls provide invaluable insights into the strategies and economics of companies within U.S. drug channels.

As a service to Drug Channels readers, I'm providing a brief rundown of the upcoming calendar along with links to the earnings conference call webcasts for each company. If you don’t have time to listen to the calls, free transcripts show up on Seeking Alpha within a few days.

Pembroke Consulting retainer clients should feel free to contact me for post-game analysis on any of these reports. Gerson Lehrman Group customers can make a request via their GLG client representative.

Medco Takes on Eli Lilly

Yesterday, Medco Health Solutions (NYSE:MHS) announced its intention to launch a comparative effectiveness study of Bristol-Myers Squibb’s Plavix® versus Eli Lilly’s Effient®. See the press release.

Why, you may ask, would a Pharmacy Benefit Manager (PBM) want to conduct a clinical trial?

Big hint: Effient was approved in July 2009. Plavix will be subject to generic competition in 2011.

Now, can you guess which of the two products will be simultaneously less expensive for payers and more profitable for Medco?

Healthcare Reform: Bullish for PBMs, but Not Pharmacies

"a brand-new market for Medco to serve”

That’s the view on the Senate’s health reform proposal from David Snow, CEO of Medco Health Solutions (NYSE:MHS) as reported yesterday in CEOs Tally Health-Bill Score.

Right now, it looks like healthcare reform will benefit Pharmacy Benefit Managers (PBMs) by expanding coverage. Retail pharmacies would benefit from increased prescription volume but will likely see gross margins drop as the uninsured get the advantage of third-party bargaining power.

Provider Pain in the Healthcare Supply Chain

The State of Healthcare Logistics: Cost and Quality Improvement Opportunities is a worthy new study highlighting successes and challenges for the healthcare supply chain. Download it for free here.

As I summarize below, the findings highlight how providers struggle with missing data standards and stubbornly high inventory costs.

The report got me thinking about the future of the specialty pharmaceuticals distribution channel. I see an emerging opportunity for manufacturers to use their supply chains as a new source of competitive advantage, especially as payers limit provider’s profitability for injection/infusion therapies under traditional buy-and-bill systems.

Interpreting IMS’ Shiny Happy New Forecast

IMS Health raised its 2009 U.S. growth forecast last week to a range of +4.5% to +5.5% and its 2010 forecast to a range of +3% to +5%. See IMS Health Forecasts Global Pharmaceutical Market Growth. Recall that IMS was forecasting a 2009 decline of -1% to -2% just 6 months ago, although the upgrade is no surprise given recent sales trends.

I want to clarify precisely what IMS is projecting and speculate on how it relates to the margins and revenues of drugstores, wholesalers, and Pharmacy Benefit Managers (PBMs). I’m also curious to hear what you think about this new, more optimistic outlook.

Scoring the CBO

Must-read editorial in the Wall Street Journal this morning on the flaws in the CBO’s scoring of the Baucus health care bill. Check out The Greatest Show on Earth.

“Behold: a new $829 billion entitlement that will subsidize insurance for tens of millions of people—and reduce deficits by $81 billion at the same time. In the next tent, see the mermaid and a two-headed cow.”

Perhaps this article will distract you from the, um, unexpected WTF news that President Obama won the Nobel Peace Prize. This is not a joke. See the video below.

A Phony Mail Order Controversy

Are consumers satisfied with mail-order pharmacies?

The J.D. Power and Associates 2009 National Pharmacy Study shows high average satisfaction at mail-order pharmacies. Yet the National Community Pharmacists Association (NCPA) issued a press release immediately after the J.D. Power results claiming Patient Survey Finds Widespread Problems With Mail Order Pharmacies.

Drug Topics magazine duly reported on the “controversy” of these supposedly “conflicting results.”

Now, I don't want to get off on a rant here, but it’s inaccurate and intellectually dishonest to compare the NCPA’s aggregation of “just over 400” independent pharmacy customers' viewpoints with J.D. Power’s statistically sound survey of 12,215 pharmacy customers. And I will gladly debate any pharmacy school professor who wants to defend the statistical reliability of NCPA’s methodology.

A Peek at Drug Wholesalers' Economics

If you sell to (or buy from) drug wholesalers, you should consider buying the new 2009-2010 HDMA Factbook, just released by the research arm of the drug wholesaler’s trade association.

This report is valuable for anyone who negotiates with or analyzes drug wholesalers, although you’ll need to be careful when interpreting the reported statistics. I note a few highlights about drug wholesalers' profitability below and suggest two creative uses of the data.

Unfortunately, I must qualify my purchase recommendation because HDMA has decided not to make the report available as an electronic PDF document. Huh?

CVS' Losses in 2010 Part D Enrollment

Last week, the Centers for Medicare & Medicaid Services (CMS) released information about Medicare Part D stand-alone prescription drug plans (PDPs) available in 2010. Click here to view the raw CMS plan data.

The surprising news comes from CVS Caremark's (NYSE:CVS) loss of 30 to 35% of its Low income Subsidy (LIS) Part D members. This drop will reduce earnings per share for the company. See CVS Caremark Statement Regarding Results of 2010 Medicare Part D Bidding Process.

Here’s a quick look at what happened last week. I’ll save my speculations on the status of CVS Caremark’s PBM business for another day.

CVS Gets Ahead of Walgreens...with Chia Obama!

CVS Caremark (NYSE:CVS) has made a bold strategic move that puts it head and shoulders above rival Walgreen (NYSE:WAG) in the all-important Presidential Decorative Planter Category (PDPC).

Yes, you guessed right. CVS stores will soon begin stocking the Obama Chia.

This is not a joke. See the video below.

Walgreen's Future Profit Potential

Walgreen (NYSE:WAG) posted better than expected sales and announced major progress in its cost-cutting efforts, leading its stock to pop about 10% on Tuesday. Here’s the official release: Walgreen Co. Reports Fourth Quarter 2009 Earnings of 44 Cents Per Diluted Share

Walgreen’s strategic moves are in sync with two important industry trends that I analyze in my (hint, hint) new U.S. Pharmacy Industry: 2009 Economic Report and Outlook:

• The growing advantage of low-cost prescription fulfillment
• The expansion of channel-neutral dispensing models

Both factors—dispensing efficiency and integrated models–also position Walgreen's for more cost-plus deals a la Caterpillar/Walgreens/Wal-Mart.