A Holiday Greeting

Dear Drug Channels reader,

Wow. Hard to believe that 2011 is almost over!

Thank you for welcoming me into your inboxes and browsers this year. It's been an eventful 12 months, with no shortage of interesting topics and controversial news. I appreciate the many people who took time to engage in often-spirited discussions below the articles.

I want to give a special thank you to my consulting clients. I'm very grateful for the opportunity to work with you. I learn so much from our interactions and hope I offered as much value in return.

Drug Channels will be back in 2012. In the meantime, please enjoy the video greeting below from my disco dancin' alter ego!

All the best,
Adam

New York's Anti-Mail Bill and the Coming Generic Price War

Yesterday, Governor Andrew Cuomo signed New York’s controversial Anti-Mandatory Mail Order Pharmacy Bill (New York Assembly Bill 5502‐B). See New Law Bans Mail-Order Drug Mandates from The New York Times.

This law may appear to be a big victory for pharmacies, but they shouldn't pop the champagne yet. Governor Cuomo stipulated that “a retail pharmacy must agree in advance to accept the same reimbursement rate and applicable terms and conditions established for mail order pharmacies.”

Put another way, Cuomo called the pharmacy lobby’s bluff by requiring retail pharmacies to compete directly with mail, even though a retail pharmacy's costs and service model is different.

This bill is one more step towards an inevitable race-to-the bottom generic price war. If other states pass similar bills, expect to see profits drop even faster at pharmacies, PBMs, and wholesalers. The generic wave may turn out to be less profitable than everyone is expecting.

Generic Drug Prices are Rising, according to latest AMP data

In case you haven’t been paying attention, the Center for Medicare and Medicaid Services (CMS) continues to pump out monthly Average Manufacturer Price (AMP) data. The September 2011 data was just released.

The data confirm that generic drugs remain very inexpensive. More than half of generic drugs are sold by the manufacturer for less than 15 cents per unit. Remember, these are actual transactional prices, not list prices.

For fun, I created an index of generic prices. Based on the first three months of AMP data, this Index of Generic Weighted Average AMPs (IGWAAMPS, pronounced “igg-whamps”) rose by 4.9% from July to September.

Read on for the surprising details.

Government Programs Summit (sponsor)

I am pleased to welcome back IIR as a Drug Channels sponsor for its 4th Annual Government Programs Summit. The event will be held March 14-16, 2012, in Baltimore.

IIR bills the Summit as "the nation's largest gathering of government programs, compliance experts, and drug pricing executives." In addition to industry speakers, you'll also hear first-hand from 25 Government officials from CMS, OIG, OPA, PVP, PSSC, VA, DoD, and State pharmacy boards.

IIR is offering a special 25% discount to Drug Channels readers. Just register with your VIP code: XP1751DRUG. Thanks, IIR!

Full details from IIR below.

The Shootin' Pharmacists

In Young Scientists Take Aim, the Wall Street Journal profiles one of the country's top NCAA rifle teams—the pharmacy students at Philadelphia's University of the Sciences.

Yes, you read that correctly. Last season, the USciences pharmacy team was ranked equal to the Virginia Military Institute. Yikes!

In the video below, an intrepid reporter probes the burning question: "Should the armed forces be recruiting marksmen from pharmacy schools?" (Uh, no?)

Hmmm, I wonder if CMS employees will think twice before implementing the new AMP-based FULs...

Drug Channels News Roundup: December 2011

Time for my monthly look at noteworthy news stories from the Drug Channels universe. Perfect reading before you head to the mall. In this issue:

• The Battle for Control of Specialty Drugs: An article by yours truly
• No Go for ACO? So Says an FTC head honcho
• Cash-n-carry: The generic drugs price war gains momentum
• Pfizer’s Plan: My NPR interview on the generic market 

Plus, an amusing and informative video explaining why we should get rid of the penny. Hmm, I wonder how this will affect 340B penny-pricing?

Pharmacy Market Share for Specialty Drugs, 2010

In early January, Pembroke Consulting will release the updated 2011-12 Economic Report on Retail and Specialty Pharmacies.

I want to give you a sneak peek at the updated market share computations for specialty pharmaceuticals.

• In 2010, $39.2 billion of specialty drugs were dispensed by retail, mail, and specialty pharmacies.
• Pharmacy dispensing revenues from specialty drugs grew by 15.3% from 2009 to 2010.
• Pharmacy dispensing of specialty drugs remains more concentrated than the overall pharmacy industry.

The company revenues, market shares, and rankings (shown below) have changed since our previous estimates. Below, I explain what's behind these differences.

Ranbaxy Makes Three: The Battle for Generic Lipitor Profits

The generic Lipitor story got even more interesting yesterday with the news that Ranbaxy would enter the US market after all. See Ranbaxy’s Lipitor Copy in U.S. Stores Threatens Pfizer Sales.

Atorvastatin now becomes a three horse race between Pfizer’s heavily-discounted brand-name product, an authorized generic from Watson, and the first-to-file generic Ranbaxy.

The claims and counterclaims about savings are hard to sort out. But Ranbaxy’s presence in the market will most likely boost profits for pharmacies, PBM, and wholesalers.

Wholesaler Profits in the Generic Wave

Tomorrow, Lipitor loses exclusivity and faces generic competition. For an overview of Pfizer’s strategy, see Pfizer Uses Coupons, PBM Deals, Possible OTC Conversion to Head Off Generic Lipitor from Drug Benefit News.

Tomorrow also marks the kick-off of a five year period when $80+ billion of branded revenues will face generic competition, as shown in Medco’s Latest Update on the Generic Wave.

What will this mean for the big three pharmaceutical wholesalers—AmerisourceBergen (NYSE:ABC), Cardinal Health (NYSE:CAH), and McKesson (NYSE:MCK)? My take:

• The substitution of brand-name drugs for generic drugs will reduce drug wholesalers’ revenue growth. 
• Wholesalers, however, will benefit significantly from this wave since a majority of their profits come from generic drugs. 

In this article, I describe a simple metric—Operating Profit as a Percentage of Gross Profit—that highlights wholesalers' changing financial economics. For each company, I illustrate this metric for 2008, 2011, and 2014 (projected).

So, the next time a wholesale executive whines about “low profit margins,” you can whip out this article for a more fact-based discussion.

Pfizer's Despondex: A Thanksgiving Treat

Will you be spending your Thanksgiving with the extended family this week? Do any of them suffer from annoying cheerfulness? 

Then make sure you pick up a prescription for Pfizer's Despondex—the first-ever prescription depressant for the annoyingly cheerful. Watch the video below to learn more about this amazing medical breakthrough.

Just a little something from ONN to get your holiday week off to a fun start. Happy Thanksgiving!

Pharmacy Invoices Show Flaws in Drug Pricing Benchmarks

A new Office of Inspector General (OIG) report provides pretty compelling evidence that pharmaceutical reimbursement models need to change. 

In Review of Drug Costs to Medicaid Pharmacies and Their Relation to Benchmark Prices, OIG compared three drug pricing benchmarks—Average Wholesale Price (AWP), Wholesale Acquisition Cost (WAC), and Average Manufacturer Price (AMP)—to pharmacy invoice prices for Medicaid-reimbursed drugs.

So, are the benchmarks consistently related to pharmacy invoice costs? Nope, especially for generics. Here’s what OIG found:

• From single-source drugs, the benchmarks were reasonably correlated to pharmacy invoice costs. 
• For multi-source (generic) drugs, all three benchmarks were extremely poor proxies of pharmacy invoice cost.
• Pharmacies receive mega-discounts vs. benchmarks on these drugs. (See my summary chart below.). 
• The AMP benchmark had the least consistent relationship to invoice prices for both single-source and multi-source drugs. 

 The OIG’s analysis didn’t include off-invoice discounts or rebates, so it can’t tell us much about underlying pharmacy margins. But the negative results for AWP/WAC/AMP make alternate methods (hello, average acquisition cost!) look more reasonable.

Drug Shortages and Our Fragile Supply Chain

The IMS Institute for Healthcare Informatics has joined the drug shortage debate with a valuable new report: Drug Shortages: A Closer Look at Products, Suppliers and Volume Volatility (free download with registration).

The IMS report has lots of interesting data for you to ponder, including an excellent illustration of just how fragile the supply chain has become for many generic injectable drugs. Four out of ten products with shortages have one or zero (!) suppliers. See the chart below.

Alas, IMS falls back on a better/faster/quicker warning system as the solution. But as I discuss in What’s Behind the Drug Shortage Epidemic, this solution ignores the lack of economic incentives that creates such a narrow supply base. Knowing this fact sooner will not solve the underlying incentive problem.

Drug Channels News Roundup: November 2011

It’s time for my monthly look at noteworthy news stories from the Drug Channels universe. In this issue:

• Money: A scathing editorial on why McKesson's CEO's is "insanely overpaid"

• One of These Days: Pfizer goes from first to fourth by 2016, while Sanofi rises

• Comfortably Numb: Fortune profiles Purdue Pharma and OxyContin

• Wish You Buy Here: Consumers Reports finally admits the danger of importation from Canada

Plus, I help get you ready for Nigel Tufnel Day tomorrow, when we all go to 11!

P.S. From the list above, you probably guessed that I went to an Aussie Pink Floyd concert last week. (Yes, really. And I’m only mildly embarrassed to tell you about it!)

PBMs Launch a New Attack on Copay Cards

In Wake-Up Call for Copay Cards, I point out that pharmaceutical brand managers should pay attention to the growing controversy over co-pay offset programs (coupons or cards).

Guess what? The Pharmaceutical Care Management Association (PCMA), which represents pharmacy benefit managers (PBMs), just released a blistering report that adds fuel to the fire. The title unambiguously sums up the report’s tone: How Copay Coupons Could Raise Prescription Drug Costs By $32 Billion Over the Next Decade.

My manufacturer clients recognize that it's becoming a payer-driven world, which is why the PBM/pharmaceutical manufacturer relationships can often be described as: The best of frenemies!

Below are four questions to help you think about the future of copay cards for manufacturers, PBMs, and pharmacies.

2012 Distribution Management Conference and Technology Expo (sponsor)

I am pleased to welcome the Healthcare Distribution Management Association's (HDMA) 2012 Distribution Management Conference (DMC) and Technology Expo as a Drug Channels sponsor. The conference will be will held March 11-14, 2012, at the JW Marriott Orlando Grande Lakes in Orlando, FL. It is co-hosted with the International Federation of Pharmaceutical Wholesalers (IFPW).

The DMC brings together a diverse set of pharmacuetical supply chain participants—distributors, manufacturers, service providers, and many others. You can see the full demographics of last year's attendees on The Corner Booth, the new HDMA blog focused on the DMC.

FYI, the meeting is open to both members and non-members of HDMA and IFPW. Early bird registration ends on 12/19/11, so you should sign up soon.

What’s Behind the Drug Shortage Epidemic

On Monday, President Obama “took action” and issued an Executive Order called Reducing Prescription Drug Shortages. Whew! Glad he fixed that problem!

OK, not really. I'm glad the President is focusing attention on this public health catastrophe. Alas, this PR-friendly move will have only a limited direct effect on shortages. The President basically told the FDA to work harder, but didn’t provide any new enforcement tools or authority.

On the bright side, Monday’s flurry of activity did provide two useful background reports on the supply chain dynamics behind shortages. Together, these reports provide a compelling, but in my opinion incomplete, explanation for why the supply chain for generic injectable drugs is so fragile. Most notably, the Obama administration's prescription ignores the fact that the reduced return on investment from generic injectable manufacturing has quite predictably reduced the level of investment.

Read on and see if you agree.

Pharmacy Benefit Trends and Data (sponsor)

I am pleased to welcome AIS Health as a Drug Channels sponsor.

AIS is now offering the 2000-2011 Survey Results: Pharmacy Benefit Trends and Data, its latest comprehensive compilation of PBM industry data. The new report includes AIS' quarterly survey data from Q1-2000 through Q2-2011 on membership, market share, drug spend, costs, utilization, and a whole lot more. Check out the Table of Contents for a list of all data fields in the book and accompanying CD.

As a bonus, you'll save $250 off the regular price if you order now.

FYI, AIS also publishes many outstanding newsletters, including Specialty Pharmacy News and Drug Benefit News (where I am on the Editorial Advisory Board).

Boo! Catalyst Says Walgreens is Cheaper

Here’s a Halloween scare for the pharmacy industry.

Last Friday, Catalyst RX (NASDAQ:CHSI) placed a full-page Wall Street Journal ad touting the value of having Walgreens (NYSE:WAG) in its pharmacy network. Catalyst simultaneously released a case study explaining the “value of Walgreens to a large client.” Download the case study here.

One spooky disclosure: Walgreens receives lower average reimbursement rates vs. other pharmacies. The case study attributes the gap to superior generic utilization.

Catalyst is clearly trying to give goosebumps to plan sponsors looking at Walgreens’ still-unresolved dispute with Express Scripts (NASDAQ:ESRX). But the data will surely spark more shrieking about the economics of preferred vs. open networks.

Retail and Mail Pharmacy Economics Start Converging

Let’s dig into PBMI’s 2011-12 Prescription Drug Benefit Cost and Plan Design Survey again to look at the drug channel management in employer-sponsored plans.

Here’s what I found:

• For employers and consumers, a 30-day brand-name prescription is still cheaper at a mail pharmacy than a retail community pharmacy.

• However, mail's economic advantage is vanishing because six out of ten employers allow community pharmacies to fill 90-day prescriptions for maintenance medications. These programs reduce retail reimbursement and shrink the mail-retail gap.

• For generic prescriptions, mail appears to have an ingredient cost advantage vs. retail, although employers are less likely to use Maximum Allowable Cost (MAC) limits for mail pharmacies.

The PBMI data demonstrate that plan sponsors are paying attention to drug channel margins. The embrace of channel-neutral benefit designs will pressure profits at both retail pharmacies and PBM-owned mail pharmacies. Retail pharmacies must accept lower reimbursements to compete with mail order, while mail pharmacies must compete more directly on service with retail community pharmacies.

Oh, by the way, manufacturers: who do you think is going to be asked to subsidize the system as profits get sucked out of the pharmacy distribution?

More Formulary Exclusions for Many Drug Therapies

The Pharmacy Benefit Management Institute (PBMI) just released its 2011-12 Prescription Drug Benefit Cost and Plan Design Survey, a detailed and highly informative report on employer-sponsored pharmacy benefits that you can download for free. A hearty Drug Channels “Thank You” to Takeda Pharmaceuticals North America for again sponsoring the research.

Today I am going to look at trends in formularies and utilization management. Key highlights (discussed in detail below):

• Four-tier plans keep growing.
• More employers are excluding entire therapy classes from the formulary. (Manufacturers, take note!)
• Utilization management tools are being applied in many therapy categories.
  

I’ll examine the pharmacy reimbursement data later this week.

Take this AMP and Shove it

Looks like the Average Manufacturer Price (AMP) battle ain’t over yet.

The National Community Pharmacists Association (NCPA) kicked off the latest round with a letter to CMS complaining about the new AMPs and asking for another fix. Here's the press release: Pharmacists to Federal Medicaid Officials: Revamp Proposed Generic Drug Federal Upper Limits to Preserve Pharmacy Access for Patients.

I have some sympathy for pharmacies because the new Federal Upper Limits (FULs) were lower than almost anyone (including me) expected—primarily because generic drugs are even cheaper than anyone believed!

Sigh. It was only a year ago that NCPA and NACDS patted themselves on the back for “reducing what would have been major cuts to pharmacy reimbursement.” I guess healthcare reforms are like the squeaky door to my daughter's bedroom. No matter how many times you try, some things just won’t stay fixed.

Read on for my analysis of the letter.

The True Economics of Pharmacy Ownership

Hooray! It’s time for my annual disambiguation of independent pharmacy owners’ true economics, courtesy of the new 2011 NCPA Digest sponsored by Cardinal Health.

You may believe that independent pharmacies are unprofitable and pharmacy ownership is a bad deal. However, data from the NCPA’s latest Digest show otherwise. Here are four fun economic observations about pharmacy ownership:

• Pharmacy profit margins remain stable.

• An independent pharmacy’s profits from prescriptions are increasing, not decreasing.

• The average pharmacist owning a single pharmacy earned over $250,000 in 2010, but 7% less than 2009.

• The average pharmacist owning multiple pharmacies earned over $1 million, up 17% vs. 2009.

These data have some limitations, but are certainly fair game for analysis.

Curiously, the NCPA Digest no longer reports profitability by payer. Those data have historically shown extraordinarily high margins for uninsured, cash-pay consumers at independent pharmacies. Hmmm...

Forum on Emerging Care Delivery Models (sponsor)

I am pleased to welcome CBI's Forum on Emerging Care Delivery Models as a Drug Channels sponsor. The conference will be held at the Doubletree Hotel in Philadelphia on November 17 and 18. Read more in the official description below or view the website.

This is a must-attend meeting if you have any involvement with hospitals or healthcare delivery. Topics include Accountable Care Organizations (ACOs), group purchasing, new payment models, manufacturer contracts, and much more.

CBI is offering a special $400 discount to Drug Channels readers. Just register with Promo code ZRQ783. Thanks, CBI!

A Look at Drug Benefit Tiers in 2011

The Employer Health Benefits 2011 Annual Survey, the annual study by the Kaiser Family Foundation and the Health Research and Educational Trust, made the news recently with the finding that employer-based premiums for families rose by 9% to more than $15,000 annually. See, for example, Kaiser Finds Huge Rise in Employee Premiums, but Can’t Pinpoint Why.

The report contains a wealth of data about prescription drug benefits at about 2,000 employers. Below, I discuss the following highlights related to formulary tiers:

• Co-payments for brand-name drugs are growing more slowly than overall prescription prices.

• Tier spreads are widening.

• Four-Tier plans keep expanding.

• High-deductible plans are less likely to use formulary tiers.

The full report is 225 pages long, which may make you want to shout and let it all out. I, of course, go head over heels for this sort of stuff.

Drug Channels News Roundup: October 2011

Here is my monthly look at noteworthy news stories from the Drug Channels universe, hand-selected and cold-pressed for your edification. In this issue:

• Et Tu, New York Times? A surprising voice against the NY mail order bill

• Still hungry: Cardinal plans more Chinese acquisitions

• Eight is Enough: An excellent overview of 8 specialty pharmacy trends

Plus, The Onion continues their healthcare series with a look at the latest insurance premium data.

7th Annual Bio/Pharma Trade and Channel Strategies (sponsor)

I am pleased to welcome back CBI's 7th Annual Bio/Pharma Trade and Channel Strategies conference as a Drug Channels sponsor. The conference will be held at the Doubletree Hotel in Philadelphia on December 6 and 7. Read more in the official description below or view the website.

I expect this to be another worthwhile event. Participating companies include Eli Lilly & Co, Express Scripts, Genzyme Corporation, Millennium Laboratories, Ortho-McNeil Pharmaceuticals, Santarus, Sunovian Pharmaceuticals, plus a set of industry experts. In fact, I'll be delivering the opening address on Tuesday.

CBI is offering a special $400 discount to Drug Channels readers. Just register with Promo code XGF737. Thanks, CBI!

Congress Asks Where Gray Market Drugs Come From

Rep. Elijah E. Cummings of Maryland, the ranking Democrat on the House Oversight and Government Reform Committee, just launched an investigation into the gray market with a “document request” to five distributors regarding five drugs. See Cummings Investigates “Drug Speculation” and “Gray Market” Sales of Drugs in Critically Short Supply, complete with anonymous Tip Line.

In Drug Shortages and Gray Market Profiteering, I wondered: “How do these mysterious vendors get access to drugs in short supply?” This led to some very entertaining back-and-forth in the comments below my article with (anonymous) secondary distributors. I hope Rep. Cummings learns something more useful from his official inquiries.

Aetna and Coventry Join the Part D Preferred Network Party

Preferred pharmacy networks—one of my top pharmacy trends for 2011—show no sign of slowing down.

Coventry, one of the largest Prescription Drug Plan (PDP) sponsors, joined the Part D party with its First Health Value Plus Plan. See Coventry Health Care Joins Forces with Walgreens, Walmart on New 2012 Medicare Part D Plan Available Across the Continental U.S. Aetna is launching a plan with CVS Caremark (NYSE:CVS). See Aetna and CVS/pharmacy Team up to Offer Co-Branded Medicare Prescription Drug Plan.

These PDPs join Humana (NYSE:HUM) and Walmart (NYSE:WMT) in offering Part D beneficiaries lower-cost generic drugs in exchange for using a preferred pharmacy network. Comparatively high generic prescription margins create the opportunity for pharmacies seeking volume and market share. The Coventry network includes the pharmacy locations of Walgreen (NYSE:WAG), Walmart, and Target (NYSE:TGT), while Aetna only includes CVS retail pharmacies.

Medicare Part D is a clear success for seniors. The program’s flexibility and innovation will continue to contain costs, as evidenced by pharmacies’ price competition to be part of a preferred pharmacy network. So I guess that’s why some of our nation’s oh-so-brilliant legislators want to change Part D? Yeah, whatever.

PCMA’s 2012 PBM and Specialty Pharmacy Conferences

I am pleased to welcome back the Pharmaceutical Care Management Association (PCMA) as a Drug Channels sponsor.

PCMA has just released their 2012 conference lineup. Here's the rundown:

• February 7–9: Managed Markets Educational Forum in Ft. Lauderdale, FL

• April 2 & 3: PBM Summit in Las Vegas, NV

• April 3–5: Specialty Pharmacy Business Forum in Las Vegas, NV (NEW!)

• October 15–17: Annual Meeting in Rancho Palos Verdes, CA

You should check out these conferences because PCMA always has exceptionally well-run events. I expect these conferences to be valuable in both networking and informational aspects for anyone connected to pharma managed markets, PBMs, specialty pharmacy and payer organizations. Full details below.

See You at the PCMA Annual Meeting Next Week

FYI, I'll be at the PCMA Annual Meeting next week on October 3 and 4 in Rancho Palos Verdes, CA.

I won't be speaking at the event, but please email me if you’d like to arrange a one-on-one meeting. Or, just say hello if you see me.

As a special Friday treat, below you can watch Dr. Stephen T. Colbert's Drug Health segment looking at brand-name manufacturer strategies for competing with generic drugs. Reese's Peanut Butter Plavix, anyone?

Why ABC Grabbed Caremark’s Reimbursement Hub

AmerisourceBergen (NYSE:ABC) continued its specialty acquisition splurge with the acquisition of Theracom, CVS Caremark’s (NYSE:CVS) specialty services (reimbursement hub) business. See AmerisourceBergen to Acquire TheraCom, LLC.

The deal marks ABC’s third specialty services acquisition in four weeks, playing to CEO Steve Collis’ strengths in the market. The deal doesn’t solve the core revenue problems facing ABC, but is a logical add-on to its small, but profitable, consulting business.

Is the sale a precursor to a CVS Caremark break-up? I don’t think so. As I explain below, the transaction reflects (1) the relative strategic value of hubs to each party, and (2) the inherent tension between specialty services for manufacturers vs. those for payers.

The Pharmacy Reimbursement Hit from AMP-Based FULs

Last Friday in Hello, Transparency: CMS Publishes its First AMP Data, I broke the news about the draft Average Manufacturer Price (AMP) data and associated Federal Upper Limits (FULs).

I’m sorry to report that my initial guess was correct. Based on number-crunching by two top Wall Street analysts, the draft FULs are about 40% below current state maximums for generic drugs. Reimbursement to pharmacies will fall when the AMP-based payment limits are officially launched. The blow will be cushioned by dispensing fees because generic drugs are so cheap anyway.

We still don’t know when CMS will implement the new limits given their rather bizarre data release process. But expect the pharmacy industry to punch back any day now.

Hello, Transparency: CMS Publishes its First AMP Data

With little fanfare, the Center for Medicare and Medicaid Services (CMS) snuck out the first draft of monthly Average Manufacturer Price (AMP) data and the new Federal Upper Limits (FULs). See Draft Affordable Care Act Federal Upper Limits.

Whoa. In an easily-downloaded spreadsheet, you can now see average manufacturer selling prices for 719 multi-source generic drugs. More groups are on the way.

One fun fact: generic drugs are pretty cheap. About one-quarter of the AMPs are less than 5 cents per unit (pill, capsule, etc.). More than two-thirds of the AMPs are less than 25 cents per unit. The full distribution of AMPs is shown below.

And for one commonly prescribed drug, the new FULs are lower than expected and below average acquisition cost (at least in Alabama). Uh oh.

The future is here, everyone. CMS is providing a readily-available benchmark for cost-plus retail pharmacy reimbursement, just as Average Sales Price (ASP) became the standard for outpatient injectables. Pressure on channel profits from generic drugs will rise, posing risks to the entire channel—pharmacies, pharmacy benefit managers (PBMs), and wholesalers. Check out my computation of drug wholesaler margin for a hint of what's ahead.

Pharmacy Profits from Authorized Generics

The Federal Trade Commission (FTC) recently released its long-gestating report Authorized Generic Drugs: Short-Term Effects and Long-Term Impact. It’s a follow-up to the 2009 “interim report” that I wrote about in Authorized Generics: Money Saver or Evil Strategy?

Buried in the report’s 270 pages are some interesting data nuggets about prescription prices and pharmacy acquisition costs during the first 180 days of generic competition. Dig out the FTC’s numbers, as I do below, and we see that:

• A pharmacy’s gross profit per prescription jumps when the first-to-file generic enters the market.
• A pharmacy’s gross profit per prescription is even higher when an authorized generic competes during the first 180-days.

These profit dynamics illustrate why a brand-name manufacturer can do little to slow rapid generic substitution. However, pharmacies should give a big “thank you” to brand-name manufacturers that launch an authorized generic.

The 2011-12 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors

I am pleased to announce the availability of my new report The 2011-12 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors. We’re offering 10% off the regular price if you order before October 9, 2011.

This new report will help you and/or your team build deep business acumen about the channels for traditional and specialty drugs. I packed enough into the report to make it valuable whether you’re new to the industry or a grizzled veteran.

This year’s report is 126 pages—49 pages longer than the 2010-11 report. It includes expanded coverage of the specialty pharmaceutical channels (hence the new title), a new chapter on wholesaler profitability, and more detailed company analysis of the Big Three public wholesalers—AmerisourceBergen, McKesson, and Cardinal Health. All information is updated through mid-2011, including 55 data-packed exhibits (vs. only 31 exhibits in the 2010-11 edition).

I worked hard to make The 2011-12 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors into a comprehensive, forward-looking reference. I hope you enjoy reading it as much as I enjoyed writing it!

ICD-10? More like ICD-FUN!

As you may or may not know, the International Classification of Diseases (ICD) will expand the number of medical service codes from 18,000 in the ICD-9 to around 140,000 in the ICD-10. The Wall Street Journal highlighted some of the more amusing codes last Wednesday in Walked Into a Lamppost? Hurt While Crocheting? Help Is on the Way.

The WSJ article turned me onto my new favorite Youtube video series: “Yeah…there’s a code for that” at the Find A Code channel.

You'll find 77 semi-wacky short video clips illustrating legitimate ICD-10 codes. I picked out a few choice ones below, including my personal favorite V95.44 ("Spacecraft accident injuring occupant”). Feel free to suggest your own favorites.

Alas, I couldn’t find any moose-related videos. A moose once bit my sister. Mynd you, møøse bites Kan be pretty nasti...

Drug Channels News Roundup: September 2011

Autumn is just around the corner. So, put down that acorn and check out these noteworthy news stories from the Drug Channels universe, hand-selected for your reading pleasure. In this issue:

• Hospitals criticize Bristol-Myers Squibb’s limited distribution model for Yervoy
  

• A whistleblower tattles on Walgreen’s alleged attempt to reap millions in extra generic profits from Par Pharma products
  

• Prime Therapeutics starts to compete harder for PBM business

Plus, The Onion profiles two nostalgic medical researchers.

The Pharmacy Industry's Evolution: 2000 to 2010

I thought it would be fun—well, my kind of fun—to dig back into The 2011-12 Chain Pharmacy Industry Profile and see how the pharmacy industry has changed this millennium.

Here’s the big picture summary:

• Chain drugstores captured almost 40% of the pharmacy industry’s $121 billion growth since 2000. Mail-order pharmacies captured about one-third of the growth.
• The average chain drugstore now dispenses about $4.7 million in prescriptions, more than any other pharmacy format. Outlet size have grown twice as quickly for chains vs. other formats.
• Independent drugstores did pretty well over the past ten years, too.
• Total industry gross profit dollars have increased along with revenue growth.

File this post under "Fancy factoids for pharmacy fans" (and then say that phrase four times, fast). Pretty pictures and more details below.

2011 Update on Traffic, Readers, and Sponsors

Time for my annual update on Drug Channels readership and sponsorship activity! I also want to let you know about a few improvements in site functionality.

Here are the headlines. (Details below.)

• Site traffic is up 28% vs. last year.
  
• We now have more than 3,500 subscribers (via email, twitter, or RSS). Thanks to the magic of social media and email forwarding, Drug Channels gets read by about 8,000 people every month.
• Readers come from a diverse set of organizations throughout the pharmaceutical, pharmacy, and managed care industries. See below for a list of visiting companies.
• Site improvements in the past year include a mobile-optimized version, a better commenting system, and faster load times.
• We have had many successful sponsorship campaigns.(Hint: Just ask and you can be a sponsor, too.)
  

As always, I thank you for reading Drug Channels. I enjoy hearing from readers, so please feel free to email me with comments, complaints, or kudos.

Medco’s Latest Update on the Generic Wave

We all know about the generic wave—the unprecedented volume of brand-name drugs that will be losing exclusivity and facing generic competition over the next five years. But you may not know that Medco Health Solutions (NYSE:MHS) regularly updates and publishes its best guess about the timing of these launches.

Below, I take a look at the latest projections through 2021, which show a slightly longer generic wave versus previous forecasts. I estimate that the generic dispensing rate (GDR)—the percentage of prescriptions dispensed with a generic drug instead of a branded drug—will be approximately 85% by 2016.

The pharmaceutical industry’s nightmare is just beginning, while the drug channel gets ready for the profit deluge. Surf’s up!

Specialty Sales Excellence (sponsor)

I am pleased to welcome eyeforpharma’s 2nd Annual Specialty Sales Excellence 2011 conference as a Drug Channels sponsor. The conference will be held at the Radisson Warwick in Philadelphia on November 15 and 16. Read more in the official description below or view the agenda.

I encourage you to check out this event. eyeforpharma has lined up an impressive roster of speakers from companies including Bayer, Celgene, Cephalon Oncology, Curascript, Ferring Pharmaceuticals, GlaxoSmithKline, Inspire Pharmaceuticals, IMS, Novartis Oncology, Optimer Pharmaceuticals, Santarus Pharmaceuticals, Shire. View the complete list of speakers.

eyeforpharma is offering a special $400 discount to Drug Channels readers. Just register with discount code DCSP11. Thanks, eyeforpharma!

2010: A Good Year for Independent Pharmacies

The NACDS just released The 2011-12 Chain Pharmacy Industry Profile. (Free to members; $375 for everyone else, including me). As always, it’s chock full o’ useful facts about the pharmacy industry.

The data for 2010 show that independent pharmacies are doing better than you might think. Here’s what I found while rummaging around this year’s profile:

• Independents are not vanishing. For the second year in a row, more new independent drugstores opened than closed.
• Revenues at independent drugstores were up by $1.1 billion last year.
• Average revenues at independent pharmacy outlets were the highest they have been in the past five years. I suspect the data are starting to reflect entrepreneurial pharmacy owners going after the specialty market.
• Despite this growth, independents are a shrinking part of the prescription pie. But the biggest threat comes from large chain pharmacies, not from mail-order pharmacies.

Read on for more details. As always, I welcome your feedback in the comments below.

Rerun: Are You Saving from Wholesaler Efficiencies?

I’m taking a break from blogging this week and rerunning some of my favorite posts from 2010. Click here to visit the original post and comments from December 2010. This one caused some controversy! Stay tuned for details on my own 2011-11 Economic Report on Pharmaceutical Wholesalers, coming in September.

The Center for Healthcare Supply Chain Research, the research arm of the Healthcare Distribution Management Association (HDMA), recently released its 2010-2011 HDMA Factbook.

IMHO, the Factbook is an invaluable guide to the economics of the pharmaceutical wholesale industry. The report will be particularly useful if you sell to or buy from pharmaceutical wholesalers because it reveals a lot about wholesaler economics—perhaps more than the participating wholesalers may realize.

As I highlight below, you could credibly use the data in the new Factbook as a rebuttal whenever a wholesaler complains that “their costs have gone up.” You may also question the basis-point economics of your fee-for-service agreement.

The report’s price is lower this year, but I can only give it a qualified recommendation because HDMA stubbornly refuses to make the report available in a convenient downloadable format. More on this subject below, too.

The Counterfeit Counterfeit Drug Count (rerun)

I’m taking a break from blogging this week and rerunning some of my favorite posts from 2010. Click here to see the original post and comments from September 2010.

Have you ever wondered about the statement that "10% of all drugs worldwide are counterfeit"?

The 10% figure has been cited by the World Health Organization (WHO), which has become the de facto source for the statistic. Just about every technology vendor involved in pharmaceutical supply chain security still touts the 10% figure as often as possible.

Alas, it turns out that the 10% figure has no factual basis in reality. Carl Bialik, the Wall Street Journal's Numbers Guy, published a fantastic piece of journalism this weekend entitled Counterfeit Drug Count Is Tough to Swallow. You should also read Dubious Origins for Drugs, and Stats About Them from The Number Guy's blog for some additional background.

The lesson? Always check the references. And don't believe everything you hear from technology vendors.

Pharmacy's MTM Challenge (rerun)

I’m taking a break from blogging this week and rerunning some of my favorite posts from 2010. Click here to see the original post and comments from March 2010. Sorry that I couldn't get to NACDS in Boston due to Irene!

President Obama signed the Patient Protection and Affordable Care Act into law on Tuesday. Section 3503 describes new programs for Medication Therapy Management (MTM) services provided by licensed pharmacists. I’m a fan of the MTM concept because it should improve health care outcomes and reduce costs.

But many pharmacies will have to rethink their businesses to allow store-based pharmacists to take full advantage of MTM opportunities. The latest National Pharmacist Workforce Survey (NPWS) shows pharmacists perceive themselves as overworked and not able to spend enough time on patient care services.

MTM money will presumably provide the financial incentives to fix this misalignment, but money won’t be enough. The pharmacy industry will have to rethink its business model while simultaneously navigating an increasingly competitive environment focused on low-cost prescription fulfillment, pharmacy automation, and call-center counseling from mail-order pharmacies.

The big 3 Pharmacy Benefit Managers (PBMs) with mail pharmacies have already figured this out. Manufacturers should be thinking about how to support pharmacy-based MTM services that will benefit adherence and compliance.

Walmart’s Booming Preferred Network Models

Remember Walmart’s (NYSE:WMT) quest to dominate the pharmacy industry using price as a competitive weapon? Well, it’s gaining momentum based on an industry presentation made this week.

Walmart now claims to be working on preferred network models with 400 employers directly as well as with 20 Pharmacy Benefit Managers (PBMs). These network design models encourage or require consumers to use Walmart pharmacies and narrower pharmacy networks in exchange for lower costs to the plan sponsor.

Walmart states that employers see average savings in the 13-18% range, but savings "can be as high as 45%." As far as I know, this is Walmart’s most detailed public statement on its success with these models. Read on for more on these newly-released details.

Omnicare Bids for PharMerica to Surf the Generic Wave

Omnicare (NYSE:OCR) made a surprise hostile bid for competitor PharMerica (NYSE:PMC) yesterday. See Omnicare Proposes to Acquire PharMerica for $15.00 Per Share in Cash.

The combined companies would have more than half of the long-term care pharmacy market IF the deal happens. (PharMerica rejected the bid.) Wall Street signaled initial comfort with the antitrust risk when PMC’s stock price jumped 27% yesterday.

The real juice behind the deal is generic drugs. Once again, we see two major players combining to get more scale ahead of the coming generic wave.

Pity poor AmerisourceBergen (NYSE:ABC), which finds itself on the losing side of yet another big pharmacy market share shift.

Drug Shortages and Gray Market Profiteering

Premier Healthcare Alliance just released Buyer beware: Drug shortages and the gray market, a fascinating but disheartening report on the secondary market for drugs facing shortage.

The report gathers innovative data about the financial underbelly of the gray market. The results aren’t pretty, with mark-ups on key generic oncology and critical care drugs averaging 650%.

It’s really depressing to see the illegitimate secondary market thriving. Someone out there must be buying drugs with questionable heritages and sky-high price tags. Otherwise, the gray market would vanish.

Fans of irony will appreciate the FDA’s July 14 decision to back away from full pedigree information due in part to a lawsuit by secondary wholesalers. Really?!?

Read on for some reflections on this crisis.

The Pharmacy Industry's Future in an AAC World

Yesterday, I looked at the momentum behind the collection and publication of Average Acquisition Cost (AAC) data for brand and generic drugs. See Coming Soon: Average Acquisition Costs for Pharmacies.

What will happen to the pharmacy industry as these data get adopted by public and private payers? My $0.02:

• Average cost reimbursement will accelerate consolidation in the pharmacy industry.

• Bigger and/or more efficient pharmacies will get a natural advantage that doesn’t exist (or is very weak) with list-price models.

• Payers will need to evaluate the potential negative impact on generic dispensing incentives, especially as we enter the coming generic wave.

Portions of the text below are excerpted from The 2010-11 Economic Report on Retail and Specialty Pharmacies.

Coming Soon: Average Acquisition Costs for Pharmacies

The Average Acquisition Cost (AAC) revolution in pharmacy reimbursement is evolving rapidly. Today, I take a look at three recent developments:

• The Center for Medicare and Medicaid Services (CMS) recently held a public meeting to describe how it will conduct its survey of pharmacy price and acquisition costs. CMS may publish its first data file by the end of 2011.

• The Office of Inspector General (OIG) released a survey on how state Medicaid programs are planning to replace First DataBank’s the Average Wholesale Price (AWP) data. Most want to use AAC.
  

• California reversed course (again) on AAC in Medi-Cal in its latest budget.

Go bananas and read on for details.

Tomorrow, I’ll discuss the potential impacts of AAC on the pharmacy industry.