2012 Drug Channels Year in Review

Dear Drug Channels reader,

This is my 145th (and final) post for 2012. Thank you for welcoming me into your inboxes and browsers this year. I also appreciate the many people who took time to engage in often-spirited discussions below the articles.

Below are 2012’s top 10 most viewed articles. Looking over the list, you can see what an eventful 12 months it's been. There's been no shortage of important drug channel developments!

Drug Channels will return in 2013. In the meantime, please enjoy the video greeting below from my sombrero-sporting alter ego. As you can see, I’ve learned a few new dance moves since last year!

All the best to you and your family,
Adam

Drug Channels News Roundup: December 2012 (Gangnam Style)

The holidays are here. Before you hit the mall, check out this hand-picked selection of notable news stories from around the Drug Channels universe.

• A Lump of Coal—Should plan sponsors be saving even more money when brands lose exclusivity?
• Anti-Stocking Stuffer—90-days supplies can be wasteful, but mail is no better (or worse) than retail
• The Ghost of Health Reform Future—A look at EHB benchmarks show skimpy coverage in some states
• Reindeer Games—Walgreen sells a small wholesale business

Plus, the inevitable pharmacy-themed "Gangnam Style" video has arrived, courtesy of some UCSF pharmacy students with waaaaaay too much time on their hands. Enjoy?

Specialty Pharmaceuticals: A Forum for Payers

Today, we welcome back CBI’s 10th Annual Specialty Pharmaceuticals, Oral Therapies and Injectables - A Forum for Payers conference as a Drug Channels sponsor. The event is being held at Planet Hollywood in Las Vegas on January 30 and 31, 2012.

The agenda includes a mix of payers and specialty pharmacies, so I expect lively conversations and lots of learning. There will be speakers from Acorda Therapeutics, Artemetrx Excellus Health Plan, Dean Health Plan, Diplomat Specialty Pharmacy, Kaiser Permanente, Medical Health Plans of America, PriorityHealth, RegenceRx, Travelers Insurance, and WellPoint.

Read more in the official description below or view the website http://www.cbinet.com/conference/fc13120.

Pharmacy Profits Over the Generic Life Cycle: Explaining the NARP-NADAC Data

Tuesday’s article—Surprise? CMS Computes and Publishes Pharmacy Prescription Profit Margins—generated a lot of email about the new National Average Retail Prices (NARP) and National Drug Acquisition Cost (NADAC) data sets. In particular, the data table showed average gross profit dollars (NARP minus NADAC) that were lower for generic prescriptions ($9.27) vs. brand-name prescriptions ($11.98). This result seems counter to everything that we all think we know about pharmacy margins.

The apparent discrepancy is resolved by comparing profit levels of  newly-launched generics vs. more-common older generics. Below, I discuss the following:

• Pharmacy profitability from a generic drug varies over the drug’s lifecycle.
• As shown using the examples of Lipitor and Plavix, a new generic provides pharmacies with gross profits that are 2-3 times larger than an equivalent brand prescription.
• 7 of the 10 most widely-dispensed generic drugs have average prescription prices below $10, so potential gross profits are correspondingly low.

The generic lifecycle profit framework also highlights the generic wave’s importance for pharmacies. As long as new generics are launching, life is grand. Once the wave peters out in 2016, margin pressure will be brutal for the retail pharmacy industry.

Surprise? CMS Computes and Publishes Pharmacy Prescription Profit Margins

Last week, Myers and Stauffer, the contractors collecting pharmacy acquisition costs and revenue data for the Center for Medicare and Medicaid Services (CMS), unexpectedly presented average per-prescription pharmacy profit margins, by payer and prescription type. Click here to view the slide deck. (See pages 64-67.)

Nobody expected this CMS inquisition. They didn't wait very long to follow through on the implied visibility to pharmacies’ prescription economics, as I predicted in Transparency is Here! CMS Exposes Pharmacy Prescription Profit Margins.

Below, I summarize the new gross profit and margin computations based on NADAC and NARP data, along with adjusted numbers that account for the acquisition cost survey’s flaws. Highlights:

• A pharmacy’s average gross profit per prescription is $12.50.
• Gross margins on brand prescriptions average about 10%, while gross margins on generic prescriptions average about 50%.
• Pharmacies continue to earn more from Medicaid than other third-party payers.
• Cash pay prescriptions, most of which are generic, yield higher margins than third party prescriptions.
• The response rate for the acquisition cost survey is surprisingly high, especially among independent pharmacy owners.

Perhaps we shouldn't be surprised. After all, CMS’ chief weapon is surprise and fear. No, wait, their two weapons are fear, surprise, and ruthless efficiency. No, no, their *three* weapons are...Wait, I'll start again...

Join me at the PCMA Specialty Pharmacy Business Forum

I am pleased to welcome PCMA’s Specialty Pharmacy Business Forum (SPBF) as a Drug Channels sponsor. The event will be held at the wonderful Wynn Las Vegas on March 26-28, 2013.

Based on last year's inaugural event, I consider the SBPF to be a must-attend meeting for anyone connected to the specialty channel—manufacturers, pharmacies, payers, PBMs, wholesalers, and others. Full details from PCMA below.

Hope to see you in Las Vegas!

CVS is going to Brazil!

According to press reports, CVS plans to samba to Brazil by acquiring Onofre, the eight-largest pharmacy chain in Brazil. See CVS said in talks to buy Brazil Onofre for $313M. If you can read Portuguese, see Grupo CVS negocia a compra da Onofre.

According to IMS Health, Brazil's market (as measured by manufacturers' revenues) was $29.9 billion in 2011, and is projected to grow by 12-15% through 2016.

As far as I know, this would be CVS' first major international expansion. It's a sensible expansion of their strong core pharmacy business and provides a clear contrast to Walgreen's approach. The deal is tightly focused on retail pharmacy (without any distracting wholesale assets). Onofre can be readily acquired without any complex financial arrangements and provides a manageable platform to learn about this fast-growing market.

Full story below. Que gostoso!

Growing Pains: The Trouble with Being an Emerging Pharma Player Today

Today’s guest post is from Becky Holloway, Product Marketing Manager at Revitas, a Drug Channels sponsor. In this post, Becky describes the compliance and contract management challenges facing mid-sized pharmaceutical manufacturers.

On December 13, Revitas will be sponsoring a live webinar entitled “A Survival Guide for Emerging Growth Pharmaceutical Companies”. Becky will be joined by Eric Newmark of IDC Health Insights to discuss the state of the pharmaceutical mid-market today. Becky will also talk with Stephanie Kupski of Cangene Corporation, an emerging pharmaceutical manufacturer. Check it out!

A New Peek at HMO-PBM Relationships

The Sanofi Managed Care Digest Series just released its 2012-13 HMO-PPO Digest, a great compendium of facts and data about the world of Health Maintenance Organizations (HMOs). The report is free with site registration.

The 2012-13 Digest provides interesting— and as far as I know, unique—how HMOs work with Pharmacy Benefit Managers (PBMs). A few highlights:

• HMOs are more than one-quarter of the total insurance market. Medicare and Medicaid HMOs are the fastest-growing part of the HMO business.
• HMOs increasingly outsource benefit management services to PBMs.
• HMOs rarely adopt a PBM’s national formulary.

Hopefully, this post will give the wonks among us (ahem) useful publicly-available insights on PBM’s relationships with their clients. Let me offer a hearty Drug Channels "Thank You" to sanofi-aventis for again sponsoring this research.

Does the CBO now support co-pay cards for Medicare Part D?

Last week, the Congressional Budget Office (CBO) released an important new memo: Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Services.

After reviewing the evidence, the CBO concluded that prescription drugs can reduce overall healthcare costs—at least in Medicare. The CBO can now officially account for prescription drugs’ beneficial effects in budget forecasts. For example, the cost of closing the Medicare Part D coverage gap just dropped by 41%!

But by supporting the economic benefits of prescription drugs, the CBO may have inadvertently provided an argument to reverse the long-standing federal program ban on co-pay offset programs, a.k.a., co-pay cards, co-pay coupons. Two-thirds of Medicare Part D prescription drug plans (PDPs) have five-tier designs with high out-of-pocket co-insurance. Does the CBO’s change of heart mean co-pay offset programs should be encouraged, not banned, from federal programs?

Read on and let me know if you agree.

Two Useful New Data Reports on Drug Distribution

Need stocking stuffers for the channel economics nerds on your holiday shopping list? Good news! The Center for Healthcare Supply Chain Research, the research arm of the Healthcare Distribution Management Association (HDMA), just released two useful new reports: the 2012-2013 HDMA Factbook and the 2012 Specialty Pharmaceuticals: Facts, Figures and Trends.

These reports combine surveys of wholesalers and distributors with compilations of external research. Both are valuable data resources on the economics of full-line pharmaceutical wholesaling and specialty distribution. You’ll have to work to extract meaning from the data avalanche in these reports, but there is gold to be mined. I highlight one such interesting nugget about specialty distributor sales below.

If you like this sort of stuff, then be sure to join me at the 8th Annual Trade and Channel Strategies Conference next week. It’s a great networking opportunity for trade and channel executives. I’m delivering the keynote address and moderating a panel of Wall Street analysts. Use promo code ESX239 for a $300 discount!

Prescription Drugs in CMS' New Essential Health Benefits Proposed Rule

While you were brining your turkey last week, the Center for Medicare and Medicaid Services (CMS) published a flock of proposed rules for implementing the Patient Protection and Affordable Care Act (PPACA), including new proposed rules for Essential Health Benefits (EHB): Patient Protection and Affordable Care Act; Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation. It’s a sprightly 119 pages.

In this article, I look at the proposed EHB regulations for prescription drugs. These requirements will apply to plans within health insurance exchanges as well as non-grandfathered private health insurance options in the individual and small group markets. Here are a few highlights:

• States have some flexibility in defining the “typical employer plan” chosen as the EHB benchmark for pharmacy benefit design.
• Unlike Medicare Part D, there will be no protected drug classes.
• Plans can cover as few as one drug per therapeutic category, but will probably end up covering more.

Compared with Medicare Part D, this proposal gives pharmacy benefit managers (PBMs) and health plans greater negotiating leverage over brand-name pharmaceutical manufacturers. Depending on each state’s benchmark plan, the downside could be a loss of patient and prescriber choice.

Read on for a brief review of EHB, the proposed rule, and a few discussion questions for the managed markets team at a pharmaceutical manufacturer.

A New Look

I’m pleased to announce Drug Channels’ new site redesign!

We’ve updated the blog’s graphic design, streamlined the layout, improved loading speed, and added new information about the site’s traffic and readers. You’ll also notice the announcement of Drug Channels Institute, our new e-learning subsidiary. Look for more details on DCI soon.

Our look may be new, but I remain committed to in-depth analysis, pop culture mastery, and top-quality snark. Just check out the music video below, which I made with a few friends to celebrate Hanukkah. Enjoy!

Drug Channels News Roundup: November 2012

Here's a pre-Thanksgiving news roundup, to stretch your mind before stretching your stomach later this week. In this issue:

• Debunking ACOs: A must-read article
• Attacking ASP: Blaming shortages on reimbursement economics
• Fearing the DEA: Now attacking shipping companies. Seriously!?!
• Reviewing Track & Trace: A holiday wish for a national system

Plus, the bizarre-but-true story of how former Kinray owner Stewart Rahr just got banned from upscale sushi chain Nobu. Absolutely hilarious!

New Medicaid Rebate Summit Announced for Early 2013

I am pleased to welcome The Conference Forum as a new Drug Channels sponsor for its Medicaid Rebates Summit (MRS). The event will be held February 14-15, 2013, at the Park Hyatt in Washington DC.

Speakers include representation from: Acorda Therapeutics, APEXUS/ 340B Prime Vendor Program, Bayer HealthCare , BIO, Boehringer Ingelheim, CIS, CMS, Daiichi Sankyo, District of Maryland, Eastern District of PA, Eli Lilly, Express Scripts, HP, Hogan Lovells, Genentech, HRSA Office of Pharmacy Affairs, Janssen, Mylan Pharmaceuticals, National Association of Chain Drug Stores, National Community Pharmacists Association, National Governors Association, PhRMA and Purdue Pharma.

The Conference Forum is offering a special 20% discount to Drug Channels readers. Just register with code DCH20. Thanks Conference Forum!

Kroger Makes a Big Specialty Pharmacy Play

In reviewing the 13 Fastest-Growing, Private Specialty Pharmacies, I predicted: “Given the eye-popping growth, I suspect that many of these companies will not remain independent for much longer.”

Well, it didn't take long. Yesterday, supermarket chain Kroger (NYSE: KR) announced a merger with Axium Pharmacy, the third-largest company on my list. Read the press release.

In 2011, we estimate that Kroger was the seventh largest U.S. pharmacy, with prescription revenues equal to about $7.0 billion. (See 2011 Market Share of Top Pharmacies.) While Axium’s 2011 revenues were only $155 million, this deal places Kroger firmly ahead of many retail rivals struggling to take advantage of the coming specialty dispensing boom.

Checking in with CVS Caremark

CVS Caremark (NYSE: CVS) posted some impressive financial results last week. Today, I highlight three noteworthy developments:

• CVS now expects to retain 60% of the scripts picked up from the Walgreen-Express Scripts imbroglio.
• The now-stabilized PBM business has significant—and growing—synergy for the retail pharmacy business, although the reverse synergy is not as strong.
• With its latest formulary exclusions, the PBM business is pressuring manufacturers even more.

Has CVS Caremark been smart or lucky? A bit of both, actually. And as I explain below, you won’t hear Wall Street clamoring for a break-up anytime soon.

Post-Election AMP Analysis: Generic Prices Are Falling

OK, the election is finally over. And President Obama’s re-election pretty much guarantees that price transparency will continue to ripple through the pharmaceutical industry. See Transparency is Here! CMS Exposes Pharmacy Prescription Profit Margins for a look at the first batch of pharmacy acquisition costs and revenue data, from the Center for Medicare and Medicaid Services (CMS).

The Patient Protection and Affordable Care Act (PPACA) also requires CMS to publish weighted average Average Manufacturer Price (AMP) data, which (sort of) show the average multisource (generic) drug prices paid by wholesalers and large pharmacies. With healthcare reform repeal off the table, I expect the AMP figures to be finalized within a few months.

In the meantime, we can draw some firmer conclusions from the 14 months of draft AMP data. Here are two observations from my number crunching, detailed below:

• Generic manufacturers still sell most of their products for less than 10 cents per pill.
• Over the past five months, the Drug Channels Index of Generic Weighted Average AMPs (IGWAAMPS) dropped by 9.9%.

Don’t forget that these AMP data pose a mega-compliance threat for manufacturers, which have to deal with murky and undefined rules. Gee, healthcare reform will be fun!

Why Pennsylvania's New Anti-Mail Law Will Hurt Pharmacy and PBM Profits

Last Thursday, Pennsylvania joined the anti-mail pharmacy movement when Governor Corbett signed into law SB 201, a bill requiring consumers to receive equivalent terms at retail vs. mail pharmacies. The law takes effect on March 1, 2013.

At first glance, the PA law may appear to be a big victory for retail pharmacies, because mail pharmacies can no longer have a copayment advantage with consumers. But pharmacy owners should curb their enthusiasm. The law has strong language requiring retail pharmacies to accept “the same pricing, terms, conditions or requirements” as a mail pharmacy. Congratulations, pharmacy owners! You won the legal right to reduce your margins in a frantic, race-to-the-bottom price war!

The law also provides another headwind for mail pharmacy, and therefore is likely to reduce pharmacy benefit manager (PBM) profits. Last night, Express Scripts gave a downbeat assessment of 2013. The anti-mail legislative movement may come up in this morning's 9:30 AM earnings call.

Read on and then post a comment with your opinion.

5th Annual Government Programs Summit

I am pleased to welcome back IIR as a Drug Channels sponsor for its 5th Annual Government Programs Summit. The event will be held March 11-13, 2013 at the Hyatt Regency in Baltimore.

IIR bills the Summit as "the largest and most comprehensive program in the Northeast – where pharmaceutical drug pricing, contracting and compliance executives go to get informed, be prepared and stay compliant."

Speakers include government officials from HHS, OIG, OPA, VA, the Office of Pharmacy Affairs, and many State pharmacy boards. There are also lots of industry speakers from such companies as Acorda Therapeutics, AmerisourceBergen, Argus Health Systems, Daiichi Sankyo, Eli Lilly, Express Scripts, Genentech, Horizon Pharma, Johnson and Johnson, Leo Pharma, McKesson, Morton Grove Pharmaceuticals, Mylan Pharmaceuticals, Novartis, Pfizer, Reckitt Benckiser Pharmaceuticals, Upsher Smith, Vertex Pharmaceuticals, and West-Ward Pharmaceuticals.

IIR is offering a special 25% discount to Drug Channels readers. Just register with your VIP code: XP1851DRUG. Thanks, IIR!

Predictive Acquisition Cost Bulletin: Retail Pharmacy Benefits

Here's some updated info on Predictive Acquisition Cost (PAC), the new drug pricing measure developed by Glass Box Analytics and distributed by Elsevier/Gold Standard. Elsevier/Gold Standard is a Drug Channels sponsor.

In addition the PAC price benchmark, Elsevier/Gold Standard is also publishing new data on the minimum and maximum PAC for a particular drug. Check out the recent PAC bulletin for details.

Anyone interested in pharmacy reimbursement and economics should also download their white paper: Drug Price Types and Options For A Future Standard. (Free with registration.)

Drug Channels News Roundup: October 2012

It’s time for my Halloween roundup of spooky Drug Channels news. Here are today’s terrifying stories:

• Dawn of the DEA: The never-ending battle against wholesalers
• No Fangs: Pharmacy lawsuit against preferred Part D networks is dismissed
• Stake through the Heart: People trust the Internet more than pharmacists
• Frankenbill: New potential legislation on distribution security

Plus, a funny video trick-or-treating lesson … for pharmaceutical sales reps!

McKesson Buys PSS: Channel Consolidation Carries On

Yesterday, McKesson (NYSE: MCK) announced plans to acquire PSS World Medical (NASDAQ: PSSI), paying a 34% premium over Wednesday’s closing stock price. Read the press release.

This acquisition is another solid deal for McKesson. The combined companies will have about 28-30% of the ambulatory (non-acute care) medical-surgical distribution business. Cardinal Health will be distant second, with less than 10% of this business. As with US Oncology, the acquisition once again allows McKesson to snatch another likely target from Cardinal. At a more than-12X multiple of EBITDA, the deal is pricey. [NOTE: EBITDA multiple corrected from earlier version.]

For manufacturers, distributor consolidation once again blurs competitive boundaries between business partners. Companies with both pharmaceutical and vaccine portfolios will feel the most pressure. Read on for a quick look at the med-surg market and the transaction.

Book Review: The Business of Healthcare Innovation

The Business of Healthcare Innovation, a new book edited by my friend Lawton Burns of the Wharton School, is a highly-recommended examination of four major business sectors developing innovative healthcare products—pharmaceuticals, biotechnology, medical devices, and information technology.

The second edition brings the analyses (mostly) up-to-date, so it’s a worthwhile and cost-effective purchase, even if you already own the 2005 edition. The chapter on mergers and acquisition is particularly useful. Experienced executives will appreciate the book’s focus on the big picture ideas, while everyone else will benefit from the broad strategic perspectives on each sector.

Read on for my review.

Pharmacy Ownership: Getting Less Profitable

Time for my always-controversial annual look at independent pharmacy owners’ true economics, courtesy of the just-released 2012 NCPA Digest, Sponsored by Cardinal Health. Here's the press release: NCPA Digest Finds Independent Community Pharmacists Cut Costs Through Generic Drugs; Boosting Patient Adherence.

The news is not as good as previous years. Here are five observations from the new report:

• Overall pharmacy profit margins remain stable.
• An independent pharmacy’s profits per prescription are decreasing. In 2011, gross profit dollars per prescription were $12.40, vs. 2010's $13.43.
• The average pharmacist owning a single pharmacy earned about $234,000 in 2011—8% less than 2009.
• The average pharmacist owning multiple pharmacies earned about $982,000, down 12% vs. 2010.
• Despite the sad economic news, the total number of independent pharmacies increased in 2011.

As always, I welcome your comments on this peek at pharmacy economics. To keep things civil, I include a few helpful ground rules below.

How Hospitals Inflate Specialty Drug Prices

Many people blame pharmaceutical manufacturers for high specialty drug prices. Yet channel intermediaries also add to drug prices, via mark-ups that account for the costs, profits, and value of the channel's services. But sometimes these mark-ups are eye-poppingly outrageous, as appears to be the case for North Carolina hospitals.

According to N.C. nonprofit hospitals make big money on cancer drug markups, hospitals are routinely marking up specialty drugs far above Average Sales Price (ASP). For example, the table reproduced below shows that Duke University Hospital received nearly $23,000 for Avastin, versus an ASP of about $6,000. And as reported in Prices soar as hospitals dominate cancer market, hospitals are buying independent oncology practices and then able to charge more “for the same chemotherapy in the same office,” due to differences in payment methods.

For payers, these examples highlight the appeal of channel management strategies such as white bagging and medical benefit management. For manufacturers, the stories illustrate what happens to drug prices as providers consolidate and traditional classes of trade blur.

Read on and be outraged.

For 2013, Preferred Pharmacy Networks Propagate in Part D

Yesterday, Medicare Part D kicked off its open enrollment period. Between now and December 7, America’s seniors will have the opportunity to keep their existing plan or switch to a new one. In 2010, Medicare Part D paid for about 20% of all retail prescription drugs.

In 2013, preferred networks will make a big splash in Part D. Listed below are the 16 prescription drug plans (PDPs) with preferred pharmacy networks, including five new 2013 plans. In this post, I look at these plans and provide some observations on the plans, the participants, and the economics.

We’ll have to wait until 2013 to know how successful these plans will be, but I stand by my earlier prediction that at least 40% of beneficiaries will be in a PDP with a preferred network. I’ll check back with these plans once CMS publishes the 2013 enrollment data.

NADAC/NARP data are back!

The mystery deepens.

In contrast to my comments in this morning's post, CMS just republished the NADAC and NARP data on its Survey of Retail Prices web page.

Here are direct links to the data files:

• Draft NARP File [ZIP]

• Draft NADAC File [ZIP]

• NADAC Data Field Definitions [PDF]

I have not checked whether the data have changed since my download over the weekend.

Enjoy! You may want to download quickly, just in case they disappear again.

CMS Pulls NADAC/NARP Data; Plus, Pharmacy Economics 101

Yesterday's article (Transparency is Here! CMS Exposes Pharmacy Prescription Profit Margins) was one of the most viewed articles in Drug Channels's 6 year history. Thank you, faithful readers!

Alas, pharmacy data nerds got a rude surprise when they looked for the data, because CMS PULLED THE NADAC AND NARP DATA FROM THEIR WEB SITE! CMS also removed the June and July FUL/AMP data, along with the 3-month rolling averages. (UPDATE: Data are back online. See this post.)

I have no idea what what happened. A quick injunction? Big Bird blowback? Government goof-up? I'll let you know when (if?) the data reappear.

In the meantime, many pharmacy owners wrote to me with a similar lament: "My average cost of dispensing is about $10 per prescription. If my gross profit is less than $10, then I lose money." While this sounds logical, it is actually not true. Below, I explain why.

Transparency is Here! CMS Exposes Pharmacy Prescription Profit Margins

Pharmacy economics nerds: Your day has arrived!

Late Friday evening, the Center for Medicare and Medicaid Services (CMS) released its first batch of detailed data on pharmacy acquisition costs and pharmacy revenues (by payer type). These data allow anyone to compute average per-prescription pharmacy profit margins for more than 3,000 drugs at the 11-digit National Drug Code (NDC) level.

Wow.

To illustrate how easy it is, below I compute the per-prescription profit margins for three brand-name and three generic prescriptions. I also discuss profit patterns for the 3,230 drugs with both acquisition cost and revenue data.

The era of transparency has arrived. Expect violent and strenuous protests about these data from the pharmacy industry. Download the data now, before the inevitable injunction.

VA•DoD•PHS—Federal Pricing and Contracts Forum

Today, I welcome CBI’s 4th Annual VA • DoD • PHS — Federal Pricing and Contracts for Bio/Pharmaceutical Companies Forum as a Drug Channels sponsor. The event is being held at the Radisson Plaza-Warwick Hotel in Philadelphia, PA on November 28 and 29, 2012.

The top-notch speaking faculty includes government perspectives from the Department of Veterans Affairs (VA), Department of Defense (DoD), U.S. Public Health Service (PHS) and 340B Prime Vendor Program, and industry perspectives from Amneal, Boehringer Ingelheim, Cornerstone Therapeutics, Horizon Pharma, Johnson and Johnson, Lilly, Pfizer, and Teva. Read more in the official description below or visit the event website.

CBI is offering a special $300 discount to Drug Channels readers. Just register with promo code VADDC3. Thanks, CBI!

McKesson/Rite Aid: The Early Bid Catches the Contract

On Wednesday, Rite Aid (NYSE: RAD) unexpectedly announced an early renewal of its supply agreement with McKesson (NYSE: MCK). The agreement, which wasn’t due to expire until April 2013, will now run until March 31, 2016. See Rite Aid’s 8-K filing.

Investors must have been relieved, because McKesson's stock price jumped 3% yesterday. 2012 has already seen multiple large contract renewals with terms of three years or more. Examples include Cardinal’s agreements with Kmart and Kroger or AmerisourceBergen’s discount deal with Express Scripts. Given uncertainty about the supply intentions of large chains, I expect we’ll continue to see wholesalers offering incentives for early contract renewal.

Below, I quantify the McKesson/Rite Aid relationship and explain a bit about the deal’s economics, which are probably not as unfavorable to McKesson as you might expect.

Walgreen's September Sales Leave Us Shaken, Not Stirred

Yesterday, Walgreen reported its first monthly sales since rejoining the Express Scripts network on September 16. See Walgreens September Sales Decrease 7.8 Percent.

While the sky is not falling yet, the early data are not very promising. Same store pharmacy revenues were down by 16% compared to analysts’ expectations of an 11% drop. Shares were down 1.6% during a positive day for the market.

The next few months should look better, but Walgreen faces significant challenges in regaining lost customers. Below, I look at the detailed results, recent comments from Walgreen’s management, and offer some thoughts on Alliance Boots.

The 13 Fastest-Growing, Private Specialty Pharmacies

Time to check in with the recently-released Inc. 5000 list of fastest-growing private companies. The 2012 list nicely highlights the boom in specialty drug dispensing.

There are 13 companies on the 2012 list, compared to only 10 on the 2011 list. The pharmacies and their key stats are listed below. With revenues of $772 million, Diplomat Pharmacy again topped the list. The other 12 pharmacies had total revenues of $1.1 billion.

Given the eye-popping growth, I suspect that many of these companies will not remain independent for much longer.

MEDAlternatives: A Drug Alternatives Search Tool

I am pleased to welcome MEDAlternatives, a new product from Elsevier/Gold Standard, as a Drug Channels sponsor.

MEDAlternatives is an integrated database of medication alternatives and their costs, designed to help consumers learn about available alternate therapies. The system helps consumers understand their medication options, using only evidence-based alternatives that have comparable or better efficacy and safety compared to current prescriptions. Check out the fact sheet.

Many Drug Channels readers will also be interested in MEDAlternatives free, downloadable cost savings spreadsheet. It allows plan sponsors to plug-in data on member lives, average number of prescriptions, average costs, and estimated conversion rates to estimate savings.

Nice Article on the Specialty Pharmacy Outlook

If you're looking for some weekend reading, I highly recommend Connecting Patients With Specialty Products: The Future of Specialty Drug Distribution, from the latest Biotechnology Healthcare journal. (Free download)

Jack McCain, the reporter at BH, did a really nice job of explaining future trends in specialty pharmacy, including such topics as specialty-at-retail and buy-and-bill. As you'll see, I contributed to the article, along with some other consultants.

And in case you're curious to learn more, I provide a few related resources below.

Drug Channels News Roundup: September 2012

Hard to believe that autumn is upon us already. Time to pack away your golf shirts and bust out the sweaters. But before you start raking the leaves, check out these news stories from the Drug Channels universe.

In this issue:

• Global Pharmacy—A lightweight article on Walgreen and Alliance Boots
• Catching the Bad Guys—How stolen drugs ended up in retail pharmacies
• Bona Fide Service Fees—Challenges for generic manufacturers
• Meet Mr. Collis—A humanizing profile of AmerisourceBergen’s South African CEO

Plus, the Onion looks at popular autumn activities.

NEW: The 2012-13 Economic Report on Pharmaceutical Wholesalers

I am pleased to announce the availability of my new report: the 2012-13 Economic Report on Pharmaceutical Wholesalers. We’re offering 10% off the regular price if you order before October 12, 2012.

I worked hard to make the 2012-13 Economic Report on Pharmaceutical Wholesalers into an essential resource for pharmaceutical manufacturers, wholesalers, pharmacy buyers, benefit managers, managed care executives, healthcare policy analysts, investors—anyone who wants to understand and benefit from the forces reshaping the highly competitive U.S. drug wholesaling industry.

This completely updated, revised, and expanded report gives you a comprehensive overview and analysis of the latest financial and industry data, including 62 data-packed exhibits. There are many new sections and topics covered in this year's edition. As always, the report provides detailed analyses of the Big Three public wholesalers: AmerisourceBergen, McKesson, and Cardinal Health.

Enjoy!

Join me at the 8th Annual Trade and Channel Strategies Conference

I am pleased to welcome CBI’s 8th Annual Trade and Channel Strategies Conference as a Drug Channels sponsor. The conference will be held at the DoubleTree hotel in Philadelphia, Pennsylvania, on December 5 and 6, 2012.

Over the years, this meeting has proven to be a great networking event for anyone with channel strategy and trade responsibilities. CBI has arranged a solid lineup of speakers from such companies as Acorda Therapeutics, AmerisourceBergen, Amylin Pharmaceuticals, Bracco Diagnostics, Covidien, Depomed, Express Scripts, the FDA, Insys Therapeutics, Integrichain, Pfizer, Purdue Pharma, and Walgreens. I will be kicking things off with a keynote address on "The Evolving Drug Channel."

Read more in the official description below or visit the event website. CBI is offering a special $500 discount to Drug Channels readers. Just register with promo code DCC500. Thanks, CBI!

Tinkham Veale II, 1914-2012

Today, I want to acknowledge Tinkham Veale II, who built the predecessor to AmerisourceBergen. Mr. Teale passed away this week at age 97. Read the Wall Street Journal obituary.

Along with Cardinal Health’s founder Bob Walter, today’s pharmaceutical distribution industry can be traced directly to Mr. Veale, who built and ran consolidator Alco Standard for many years.

Here’s a brief history.

A Look at Drug Benefit Design in 2012

The just-released 2012 Kaiser/HRET Employer Health Benefits Survey (EHBS) delves into employer-sponsored health coverage at more than 2,000 companies. As you might expect nearly all (99%) covered workers in these plans have a prescription drug benefit.

In today's article, I review the latest findings on benefit design and consumer cost-sharing amounts. Some highlights:

• Three-tier plans remain the most common benefit design, although 1 in 7 employees now have a plan with four or more tiers.
• Most plans use copayments rather than coinsurance. Dollars spreads between copayment tiers have widened over time.
• Coinsurance is much more common for the higher-tier drugs. About half of employees face unrealistic coinsurance burdens for higher-tier specialty drugs.

Summary charts below. Don't let my brief lesson give you the wrong impression. The full report is a whopping 242 pages.

The DEA Nabs CVS and Walgreen

The Drug Enforcement Administration (DEA) continues its aggressive attack on the pharmacy supply chain with new penalties for CVS Caremark (NYSE: CVS) and Walgreen (NYSE: WAG).

Full details below. Here are the headlines:

• Two Sanford, FL, CVS pharmacies will no longer be able to dispense controlled substances. Unless I’m mistaken, “revoke” means “never again.”
• A Walgreens distribution center was hit with a suspension order for shipments to six of its own pharmacies.

We only have access to the government’s facts, so no outsider can know what truly happened. However, I do believe that targeting pharmacies is a step in the right direction, because it moves closer to the patient and prescriber.

Does misery love company? Ask Cardinal Health and AmerisourceBergen.

A New Reality Check on Co- Pay Offset Programs

The Zitter Group recently released the Co-Pay Offset Monitor (COM), an intriguing mid-2012 snapshot of co-pay offset programs.

The research identified 419 co-pay offset programs from 440 unique brands and 131 pharmaceutical manufacturers. In addition to a boatload of benchmarking data, the report challenges some widely-held beliefs about these controversial programs:

• Only 3% of the 440 brands with co-pay offset programs had a generic equivalent, undercutting a major criticism of these programs.
• Seven out of ten biologics have a co-pay offset program, compared to only 44% of traditional brand-name drugs.
• Twenty-four manufacturers sponsored 5 or more programs for their promoted brands.

Read on for the details. Anyone interested in understanding the topic or benchmarking current programs should get access to this research. Indubitably.

No regrets? TRICARE Shuts Out Walgreen

Despite the fact that Walgreen and Express have kissed and made up, the Department of Defense’s TRICARE program decided not to add Walgreen back into their network. Read the official announcement.

Whoa. This is bad news for Walgreen, which is battling to win back the 22 million consumers whose prescription benefits are managed by Express Scripts. (Details below.) Last fall, the company even made an extra effort to retain the TRICARE business, so the rejection must be doubly humiliating.

Walgreen didn’t even bother to spin the news, declining comment to the Wall Street Journal and ignoring the issue in its newsroom. I wonder if Walgreen's executives have a twinge of regret for how this whole situation has played out.

And no matter how you view the Walgreen/TRICARE news, it’s clearly another compelling data point for preferred and limited pharmacy networks.

Cardinal Health's Big Customers: Mo Money, Mo Problems

Cardinal Health (NYSE: CAH) recently filed its 2012 10-K annual report, for the fiscal year ending June 30, 2012. Here are some enlightening disclosures buried within this always-revealing document:

• Cardinal’s top 3 customers—CVS Caremark, Walgreen, and Express Scripts—accounted for about 57% of core U.S. drug distribution revenues. One of those three is definitely going.
• Deliveries to big customers' warehouses were about one-seventh as profitable for Cardinal as deliveries to individual pharmacy locations.
• In addition to warehouse deliveries, Cardinal delivered about $15 billion of drugs directly to CVS and Walgreens retail pharmacies.
• Cardinal’s contract with CVS Caremark expires in June 2013, and its contract with Walgreens expires in August 2013. 
• Despite what you may have heard, Cardinal unceremoniously disclosed that Walgreen has indeed issued a Request for Proposal (RFP) to Cardinal.

Think of this post as an early look at the 2012-13 Economic Report on Pharmaceutical Wholesalers, which will be arriving in a few weeks.

A New Generic Wave Update, Courtesy of Express Scripts

As we all know, an unprecedented volume of brand-name drugs will lose exclusivity and face generic competition over the next four years. Below, I take a look at the latest projections for brand-name drugs that will be facing generic competition, courtesy of newly-published data from Express Scripts.

A few interesting tidbits based on the latest estimates:

• 2013 generic launches will be only one-quarter as big as the 2012 generic monster.
• Generic launches will rebound and remain high throughout 2014-2016.
• From 2012 to 2016, just 10 blockbusters will account for half of total brand-name revenues lost.
• The generic cliff is now projected to be steeper, with an 84% drop in 2017.

While brand-name manufacturers may feel like they're barking up the wrong tree, drug channel participants—pharmacies, Pharmacy Benefit Managers (PBMs), and wholesalers—will be surfing in true canine style.

PBMs Launch a New Attack on Copay Cards (rerun)

I’m taking a break from blogging this week and rerunning some popular posts from the past 12 months. Click here to see the original post and comments from November 2011.

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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.

Humana-Walmart Preferred Network Plan Wins Big in Part D (rerun)

Here's a look at 2012's preferred network boom. In the upcoming 2013 Medicare Part D open enrollment period, I expect more than 40% of beneficiaries will choose a plan with a preferred pharmacy network. Click here to see the original post and comments from February 2012.

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The Centers for Medicare and Medicaid Services (CMS) just released the 2012 enrollment data for Medicare Part D Prescription Drug Plans (PDPs). These new data dispel any doubts about preferred pharmacy networks’ consumer appeal.

There are seven Part D PDPs with preferred pharmacy networks in 2012. (See table below.) Highlights from my data crunching:

• Enrollment in preferred network plans grew twice as quickly as overall PDP enrollment.
• Almost one-third of all PDP enrollees are now in a plan with a preferred pharmacy network design.
• The Humana Walmart-Preferred Rx Plan, the preferred pharmacy network PDP launched in October 2010, is now the third-largest PDP.
• Two of the three new preferred network plans in 2012 attracted more than 680,000 enrollees.
• The PDP with Rite Aid as the preferred pharmacy was a bust.

Once again, we see how the power of competition is lowering drug costs for seniors. Needless to say, pharmacy owners who neglected to join a preferred network are complaining.

ESRX-MHS: Analysis of the FTC Decision (rerun)

Yesterday, a U.S. District Court judge dismissed most (but not all) of the antitrust claims from a lawsuit against Express Scripts filed by NACDS, NCPA, and a group of independent pharmacies. See Split Decision: Express Scripts, Pharmacies & Antitrust. You can read the ruling here.

So, today's rerun look backs at the FTC's decision to approve the Express Scripts/Medco Health Solutions merger. As you can see below, my original post includes comments about the then just-filed NACDS/NCPA lawsuit. Click here to see the original post and comments from April.

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By a 3-1 vote, the Federal Trade Commission (FTC) approved Express Scripts’ (NASDAQ: ESRX) acquisition of Medco Health Solutions (NYSE: MHS). The FTC did not impose any conditions on the deal for antitrust approval, so there are no divestitures or conditions. Here’s the Wall Street Journal’s coverage: Express Scripts Closes Medco Acquisition.

Today, I review the FTC’s statement to explain the antitrust reasoning behind their decision. My predictions from last July (in ESRX-MHS: Antitrust Issues) turned out to be a pretty accurate guide to the FTC’s thinking. Pembroke Consulting clients and Gerson Lehrman Group clients can schedule phone calls with me for additional comments beyond what I discuss below.

And, no, this is not an April Fool’s post.

New Data on Specialty Pharmacy’s Challenge to Buy-and-Bill (rerun)

I’m taking a break from blogging this week and rerunning some popular posts from the past 12 months. Click here to see the original post and comments from January 2012.

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You should check out the new 2011 ICORE Medical Pharmacy and Oncology Trend Report (free download with registration). This 60-page report provides a wealth of interesting data on the specialty drug benefit management.

The ICORE payer data confirms that the specialty pharmacy channel is displacing buy-and-bill in the physician office market. As I discuss below, this shift is occurring via white bagging of specialty drugs.

Buy-and-bill will not end for all physician-infused drugs, but there are substantial pressures for certain therapies. White bagging has important implications for specialty distributors, pharmacy benefit managers (PBMs), and providers.

And if you're a manufacturer planning for a new specialty drug's commercial launch, then you need to be the "channel steward" and design a strategy to ensure patient access supported by appropriately motivated partners.