Medco's Pharmacogenomic Future

The 2010 Drug Trend Report from Medco Health Solutions (NYSE:MHS) is now available. Like Express Scripts’ drug trend report, I recommend you download this valuable free resource.

Medco’s report provides loads of data from its top 201 clients (65% of total spend). But the most interesting part of the report for me deals with Medco’s future strategy.

Pharmacogenomics—using genetic variations to improve drug response—is the foundation of Medco’s Making Medicine Smarter™ message. I think it provides a powerful platform for the company in a post-2014 world with few generic launches. If this revolution turns out to be real, then Medco will win big in the personalized medicine future.

Walmart Starts Another Pharmacy Price War

Walmart has been conspicuously silent in recent months about its Health and Wellness initiatives. Where are the cost-plus direct-to-payer deals a la Caterpillar? Why not include more drugs in the $4 generic program? Where's the follow-through on "making price matter" for "commoditized" services?

Curiously, Walmart’s UK subsidiary ASDA just launched a new direct-to-consumer program for cancer drugs: 'Not for profit' pricing on all cancer treatment drugs.

The approach echoes Walmart’s U.S. direct-to-consumer $4 generic drug program, which set off a price war over here. So, will this move motivate Walmart’s U.S. colleagues to start shaking up the industry again?

Happy Birthday, Pac-Man!

Today is my birthday. Those of us at a certain age may feel a twinge of nostalgia to learn that Pac-Man just turned 30 years old. See Chomp! Pac-Man, the arcade classic, turns 30. Mr. Man is just a wee bit younger than your friendly neighborhood blogger.

Go to this special Google home page and click "Insert Coin" for a trip down memory lane. Make sure your computer speakers are turned up to 11!

Alas, Hollywood is once again plundering my youth with "PAC-MAN: The Movie." The main character? Michael Pacman, a pharmaceutical company executive. See the preview below.

Best of Drug Channels

Whew! I just crossed 450 posts on Drug Channels, so it’s time for a round-up of the classics.

Below are my selections to help you quickly find data and analysis of key industry issues. Since you may not want to spend the rest of your day reading my musings, you’ll be able to find this post again at the “Best Of” tab in the menu bar.

I grouped the posts into the following categories:

• Industry Data and Forecasts
• Pharmacy Economics and Prescription Profits
• Specialty Drugs
• Analysis of Key Market Participants
• Reports and Resources
• Fun Stuff

As far as I know, these posts are still valid although some of the information may have been superseded by new developments. Alas, I’ve been forced to omit some personal favorites. While still hilarious (to me), they are unfortunately dated. Yes, I’m talking to you, Spinal Tap and California e-pedigree fans!

Thanks for tuning in to Drug Channels. As always, feel free to email me if you have specific questions. I also accept all LinkedIn requests if you’d like to e-connect.

ASP Lessons for Pharmacy’s AMP Future

The Centers for Medicare & Medicaid Services (CMS) recently released the results of a major study on the move to cost-plus reimbursement for Medicare Part B drugs. Here’s the link: Part B Drug Payment Reform: Lower Expenditures without Signs of Adverse Effects

Did the world end once Average Wholesale Price (AWP) reimbursement stopped? Nope. Using claims data associated with more than 45,000 physicians, the wonky researchers from Mathematica found that the switch to cost-plus reimbursement for Part B pharmaceuticals:

• Slowed the growth of Medicare Part B expenditures
• Lowered physician payments (and probably income) for certain specialties
• Reduced beneficiaries’ out-of-pocket liabilities
• Did not significantly affect the site of drug administration for patients

Pay attention to these lessons if you are interested in the future of the pharmacy industry. I’m hearing the publication of the newly-defined Average Manufacturer Price (AMP) data could occur as early as the fourth quarter of 2010. Expect renewed margin pressure on generic drugs once we have a credible, public transactional benchmark for pharmacy reimbursement.

One more thing. Expect anyone affected by this margin pressure to oppose publication of these data.

A Rebuttal re:CVS Caremark's Future

George Van Antwerp, who blogs at Enabling Health Decisions, posted a thoughtful rebuttal to When will CVS and Caremark split up?

In CVS Caremark Split Up?, George answers my three questions about CVS Caremark but comes to very different conclusions. Check it out.

Here's my re-rebuttal:

1. In theory, theory and practice are the same.
2. In practice, they are different.

Now, let me ask Drug Channels readers to weigh in on the topic. Vote below and tell us what you think.

Poll Question: Will CVS Caremark split up?

When will CVS and Caremark split up?

CVS Caremark announced yesterday that Larry Merlo will take over as President and COO of CVS Caremark and then succeed Tom Ryan as CEO in 2011. The company is also creating an Office of the Chairman that will include Merlo, Ryan, and Per Lofberg, President of Caremark Pharmacy Services. Here’s the official press release: CVS Caremark Announces CEO Succession Plan

My $0.02? The stage is now set for CVS to spin off Caremark in 2011 or 2012. Once Ryan retires in 2011, all of the primary architects of the original deal and most of their lieutenants will be gone. Assuming the Caremark business gets stabilized, there’s limited reason to keep the companies together.

Here are some thoughts for your reading pleasure, organized around three questions:

• Where's the strategic synergy for Caremark?
• Is the “Office of the Chairman” positive or negative for the PBM business?
• Will CVS sell the PBM business?

Drug Channel Profits: 2010 Edition

It's time for my annual review of the Fortune 500 list. These annual reviews give you perspective on the relative profitability of the largest drug wholesalers, chain pharmacies, and pharmacy benefit managers (PBMs). I also compare this group to independent pharmacies and pharmaceutical manufacturers.

Key observations:

• The biggest drug channel companies are substantially larger (in revenues) than pharmaceutical manufacturers. Revenues at the 9 largest companies were up almost 8% in 2009 versus total industry growth of 5.1% (per IMS).
  
• Median profitability of drug channels companies was down slightly in 2009. Profitability compares favorably to manufacturers when using an appropriate metric such as Return on Assets (rather than Return on Sales).
• The profitability of a typical independent pharmacy is well above the median profitability of the nine largest drug channels companies—and even exceeds average PBM profitability.
• Investors earned higher returns from the drug channel group in 2009 as well as over the past 10 years.

Please post any questions or reactions as comments and I'll try to respond. The technical notes are at the bottom.

Healthcare Reform and the Mid-Term Elections

Who says health care reform can't make us laugh?

Senate Majority Leader Harry Reid (D-NV) is facing a tough re-election challenge from Sue Lowden, former Chairwoman of the Nevada Republican Party and a former Nevada state senator.

Ms. Lowden has criticized the recently-passed Patient Protection and Affordable Care Act, suggesting instead that patients could barter with their doctors for payment in order to reduce costs.

Dr. Stephen T. Colbert, D.F.A., explains her plan for replacing mandates and confusing plans with chickens. Really.

A very funny clip.

CVS Grows While Legal Storm Clouds Gather

CVS Caremark (NYSE:CVS) reported its latest quarterly results on Tuesday, once again reinforcing the retail market share benefits of Maintenance Choice. Keep in mind that some of these retail gains come from cannibalizing its own mail-order pharmacy. Management seems confident about the upcoming Pharmacy Benefit Managers (PBM) selling season, but see my comments below for some important open issues.

The company also formally disclosed the growing breadth of investigations by state and Federal agencies. There’s probably more smoke than fire as I note in Pepsi, CVS Caremark, and the FTC, but who knows what can happen once the subpoenas start flying?

You can get the details yourself if you listen to the earnings call or read the transcript. As always, Pembroke Consulting retainer clients and Gerson Lehrman Group clients can schedule phone calls with me for additional comments beyond what I discuss in this post.

Insights from new ESRX Drug Trend Report

The 2009 Drug Trend Report from Express Scripts (NASDAQ:ESRX) is now available. Drug trend reports such as this one provide a unique window into the interactions of patient behavior, pricing, utilization, and competition. I strongly recommend you download this free resource.

This report provides lots of data-based insight about drug spending by Express Script’s clients, a.k.a. "drug trend":

• Specialty trend was 19.5%—more than 4X the 4.8% trend of traditional drugs. By comparison, the non-specialty trend in 2008 was 1.5% while 2008 specialty trend was 15.4%. See Specialty Spending Soars (for now) for the 2008 numbers.
  
  
• Express Scripts forecasts that trend for traditional drugs will grow between 2% to 5% over the next three years (page 89), while specialty trend is forecast to grow an eye-popping 20% to 23.5% (page 95).

I found the five Key Behavior Types to be an interesting tool for bringing the dry stats to life.

Drug trend reports are essential for understanding the dynamics within the pharmaceutical market. Reports from CVS Caremark (NYSE:CVS), Medco Health Solutions (NYSE:MHS), Walgreen (NYSE:WAG), and Prime Therapeutics should be released over the next two months.