Cardinal Gets to China First

This morning, Cardinal Health (NYSE:CAH) continued its growth-by-acquisition strategy by entering the Chinese distribution market. See Cardinal Health Acquires Leading Pharmaceutical Distributor in China. Click here to view Cardinal's slide deck describing the deal.

The era of global wholesale is dawning. The acquisition represents the first major distribution investment outside of North America by one of the Big Three U.S. wholesalers. I've long pointed to China as a logical growth platform for U.S. wholesalers as in my January 2007 post 3 Ways for Drug Wholesalers to Grow. See below for my initial thoughts on this deal and what it means.

The 2010-11 Economic Report on Pharmaceutical Wholesalers has details on Cardinal's economics and strategy. As always, Pembroke Consulting and Gerson Lehrman Group clients can schedule phone calls with me for additional insights.

Giving Thanks for the Cherpumple and the TSA

Perhaps you’ll get to spend some time off with your family this week. And perhaps one of them will serve you the latest contribution to America's Type II diabetes epidemic—the cherpumple!

What is the cherpumple, you may ask? Well, dear reader, it’s nothing more than a three-layer cake with an entire pie baked into each layer—a cherry pie baked inside a white cake, a pumpkin pie baked inside a yellow cake and an apple pie baked inside a spice cake. Just stack the layers and seal them with cream-cheese frosting.

Yup, it's the turducken of desserts. To my amazement, the cherpumple was recently featured in a Wall Street Journal cover story along with its inventor, Charles Phoenix. Genius or loony? Watch the video below and decide.

As for the TSA? Watch the second video and decide. 'nuff said.

Drug Channels News Roundup: November 2010

Time to get ready for Thanksgiving with these noteworthy news stories from the Drug Channels universe. In this edition:

• Say what?!? Kinray sells to Cardinal Health
  
• The Perils of Discount Generics: Big Brother can’t watch!
• Pedigree Referee: Will wholesalers control your pedigree strategy?
• Waiting for Pigs to Fly: A plea for rational debate about health care policy
• Dirty Deeds: The Onion examines GSK’s manufacturing problems

Enjoy!

New Study Finds Small AMP Impact, But Trouble in Six States

Regular readers know the unofficial motto of Drug Channels: "Everyone is entitled to their own opinion, but not their own facts."

Last Thursday, I posited that the forthcoming Average Manufacturer Price (AMP)-based Federal Upper Limits (FULs) for Medicaid reimbursement of multisource (generic) drugs would have only a moderate impact on the pharmacy industry’s profits. See What’s Happening with AMP and Pharmacy Profits.

I'm now pleased to bring you the results of a new study that confirms my opinions with actual facts. Ricky Goldwasser and her colleagues at Morgan Stanley conducted a valuable and original analysis computing how the new AMP-based FULs will affect pharmacy profits. Their methodology is much more rigorous and quantitative than my more informal explanation, but the conclusion is the same: "New AMP based reimbursement for generic drugs will have only limited impact on supply chain participants."

The Morgan Stanley research also makes an important contribution by showing that the impact of the new AMP-based FULs will vary based on geography. As the chart below shows, AMP-based FULs will be a non-event in most states, but pharmacies will face a painful adjustment in six key states that still rely on inflated FULs. Pharmacies in California and Connecticut will be hit the hardest.

When the facts change, I change my mind. What will the pharmacy industry's lobbyists do?

Finished Product Supply Chain Summit (sponsor)

I am pleased to welcome back CBI as a Drug Channels sponsor for the upcoming Life Science Finished Product Supply Chain Summit. The event will be held January 20-21, 2011, in Lake Buena Vista, FL. CBI is offering an exclusive discount for Drug Channels of $400 off the registration fee, Just use promo code AMC996 when you sign up. Thanks, CBI!

This promises to be another worthwhile event with appeal to many Drug Channels readers. The conference speakers include executives from both pharmaceutical manufacturers and wholesalers. Topics include pedigree, brand protection, cargo theft, anti-counterfeiting, and other related topics. These subjects are especially timely given the news that Bristol-Myers Squibb suffered a major in-transit cargo theft last Thursday.

As always, CBI provides a valuable forum for networking and sharing of best practices, so I encourage you to check out this event.

What’s Happening with AMP and Pharmacy Profits!!

The Center for Medicare & Medicaid Services (CMS) just took another baby step toward implementing new Federal Upper Limits (FULs) for pharmacy reimbursement of multi-source (generic) drugs in the Medicaid program. Yesterday, CMS filed a Final Rule implementing its previously proposed withdrawal of now-obsolete provisions related to Average Manufacturer Price (AMP). Click here to read this Final Rule.

It’s really quite extraordinary that CMS takes 39 pages to say almost nothing. CMS dodged most of the key unresolved questions about AMP except to note that a formal rule-making process will occur at an unspecified future date. Gee, thanks.

Meanwhile, the battle over AMP/FUL will continue. The pharmacy industry has spewed so much nonsense out there about AMP that you're right to be confused about the ultimate impact of the new FULs on the industry’s profits from Medicaid prescriptions. But as I explain below, the new FULs will have only a moderate impact on the pharmacy industry’s profits because states have moved faster than CMS. Who woulda thunk it?

Healthcare Reform and Drug Prices

The Congressional Budget Office (CBO) just released a new analysis of the impact of the Patient Protection and Affordable Care Act (PPACA) on pharmaceutical pricing. Click here to download this dense but thought-provoking analysis.

The memo does two things well. One, the CBO succinctly explains key provisions of the law that could affect drug prices. Two, the CBO describes how the PPACA could influence manufacturers' pricing strategies and the net prices paid by pharmacies or payers.

The memo reminds me of a favorite quote attributed to Laurence J. Peter: “An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.” Many of the conclusions are highly speculative, but it’s impossible to challenge the quantitative forecasts because the CBO does not describe any methodology.

So, ask me in 10 years (or in the year 3000?) whether the CBO’s predictions came true. I’ll be able to explain the answer no matter what happens.

Specialty Pharmaceuticals: A Forum for Payers (sponsor)

I am pleased to welcome back CBI as a Drug Channels sponsor for its very interesting conference 8th Annual Specialty Pharmaceuticals, Biotech Therapies and Injectables - A Forum for Payers. The event will be held January 26-27, 2011, in Las Vegas. Register by Nov 19, 2010 and save $300.

This conference focuses on one of the most dynamic aspects of the Drug Channels universe. Just think about some of the big announcements in just the past two weeks: UnitedHealthcare's cost-plus model for physician-administered cancer drugs and McKesson acquisition of U.S. Oncology.

The agenda includes payers and specialty pharmacies, so I expect very lively conversations and lots of learning.

Is Track-and-Trace a priority for the FDA?

The U.S. Food and Drug Administration (FDA) recently released its draft Strategic Priorities for 2011-2015. I recommend that you read the document for a useful glimpse into the FDA’s perspectives and the breadth of its responsibilities. You can also submit a public comment at www.regulations.gov.

But there’s a notable omission from these priorities. I searched and searched through the document, but was unable to find any mention of perennial supply-chain security topics such as pedigree, track-and-trace, RFID, or serialization.

True, there is a section called "Strengthen the Safety and Integrity of the Global Supply Chain", but it deals primarily with globalization and imports.

Some Drug Channels readers may be attending the Healthcare Distribution Management Association’s (HDMA) Track-and-Trace Technology Seminar next week. If so, please ask Ilisa Bernstein, who has been on the forefront of the FDA’s efforts on supply chain security over the years, about this unexpected omission.

Medco's Generics Outlook: Party On, Dudes!

Medco Health Solutions (NYSE:MHS) stock jumped 10% yesterday on an upbeat forecast for generics and better-than-expected earnings yesterday. See Medco's Net Rises 11% from The Wall Street Journal.

Looks like Medco’s Excellent Adventure will just keep getting better. Medco raised its forecast of generic introductions through 2015. CEO David Snow referred to 2012 as the "monster" and noted that 2018 is projected to be the third biggest year in the decade. As the chart below shows, $28.3 billion of brand-name drugs sales will be lost to generic introduction in 2012. Whoa.

This news will either makes you ecstatic or depressed, depending on what type of company you work for. PBMs, pharmacies, and (to a lesser extent) drug wholesalers will benefit from this tidal wave. Brand-name manufacturers...not so much.

McKesson Snags US Oncology

This morning, McKesson (NYSE:MCK) announced the acquisition of U.S. Oncology. See McKesson to Purchase US Oncology in a Transaction Valued at $2.16 Billion.

This deal is a big win for McKesson. The company now solidifies its position as the #2 specialty products distributor. McKesson also picks up the services and Group Purchasing Organization (GPOs) businesses of US Oncology.

On the other hand, Cardinal Health (NYSE:CAH) now has an even bigger challenge in rebuilding its specialty business and diversifying away from its two mega-customers, CVS Caremark (NYSE:CVS) and Walgreen (NYSE:WAG). See Double Trouble for Cardinal Health. Time to go shopping?

Manufacturers of specialty oncology products should be paying close attention. Two drug wholesalers—McKesson and AmerisourceBergen (NYSE:ABC)—are simultaneously the largest distributors of specialty drugs as well as the owners of the largest community oncology Group Purchasing Organizations (GPOs). Today's acquisition signals even tighter vertical integration between oncology care and the distribution channel. Combined distributor-GPO entities gain leverage as the channel to the physician gets narrower, requiring a more strategic view of the customer and improved account management.

Government Programs Summit (sponsor)

I am pleased to welcome back IIR as a Drug Channels sponsor for its Government Programs Summit. The event will be held March 7-9, 2011, in Baltimore. IIR is offering Drug Channels readers a 25% discount off the standard registration rate with VIP code XP1651DRUGCH—up to $700 in savings. Thanks, IIR!

As the GP Summit website correctly notes, government program pricing methodologies, calculations, and enforcement actions have changed significantly since the Patient Protection and Affordable Care Act (PPACA) was passed in March 2010. Just consider the complexities and controversy surrounding the new definition of Average Manufacturer Price (AMP)! (See Secret AMP Letter Emerges; FUL Delay Likely.) Even before the Act's passage, the Center for Medicare and Medicaid Services (CMS) was projecting that government funds will be almost half of outpatient retail prescription spending by 2019. See CMS' New Drug Spending Projections for my analysis of the most recent forecast.

Read more from IIR below.