Medicaid Drug Rebate Program Summit (sponsor)

I am pleased to welcome IIR's 17th Annual Medicaid Drug Rebate Program (MDRP) Summit as a Drug Channels sponsor. The event will be held from September 10 to 12 in Chicago, IL, at the Swissotel Chicago.

The 2012 agenda looks great, so I expect this year's event to be extremely popular. The agenda is filled with CMS, OPA, OIG, DOJ and VA officials. Plus, where else will you find hundreds of other people who want to chat about the proposed Average Manufacturer Price (AMP) rule or play "GP Geek Family Feud"?

IIR is offering a special 25% discount to Drug Channels readers—up to $850 in savings off the standard rate. Register with VIP code: XP1658DRUG. Thanks, IIR!

FYI, the 2011 MDRP Summit sold out, so you should register as soon as possible. Full details from IIR below. You can also sign up for the event's LinkedIn group.

Decoding the Clues to Express Scripts' Strategy

As a follow-up to Insights from the 2011 Express Scripts Drug Trend Report, let's delve into what’s said—and unsaid—in the report about Express Scripts' strategy.

Going beyond the numbers, the report tells us a lot about the company's industry view and the now-biggest PBM’s future business model. Below, I consider four key topics:

• The post-2015 showdown in generic launches
• The specialty boom
• Pharmacy network design
• Personalized medicine

I picked these topics because they spotlight emerging opportunities for Express Scripts along with the risks associated with the PBM business model evolution. See if you agree.

Insights from the 2011 Express Scripts Drug Trend Report

Express Scripts just released its 2011 Drug Trend Report. (Free with registration.) I find PBM drug trend reports to be incredibly useful for understanding patient behavior, pricing, utilization, and therapeutic competition.

The divergence between traditional and specialty drugs was bigger than ever. In 2011, spending on traditional drugs was essentially flat (up only 0.1%), while spending on specialty drugs grew by 17.1%. Below, I discuss the factors behind these figures and look at the new forecasts.

As always, the Express Scripts report also reveals a lot about the future strategic directions of the biggest PBMs. Tune in tomorrow for my thoughts.

Meet me at the Armada Specialty Pharmacy Summit

Next week, I’ll be attending the Armada Specialty Pharmacy Summit at the wonderful Wynn Las Vegas. I always enjoy meeting Drug Channels readers, so please introduce yourself if you see me during the meeting. (Click here if you don't know what I look like. Hint: I'm taller than I appear on the interwebs.)

I expect another well-attended and valuable networking event for the specialty industry. To help you get ready, there are links below to four useful articles on the specialty market. You can also read my comments about the 2011 summit in Post-Armada Reflections on the Specialty Market.

Please email me if you’d like to schedule a one-on-one meeting to chat about my consulting work helping pharmaceutical manufacturers with commercial and channel strategies for specialty drugs. Perhaps I'll even share my secret for never losing money at blackjack... ;)

Ending Drug Shortages by Fixing Reimbursement

When drug shortages were in the news last fall, I (among others) cited the perverse economic incentives from Average Sales Price (ASP) as a key factor behind our very fragile generic injectable supply chain. See What’s Behind the Drug Shortage Epidemic.

To my surprise, politicians have heard the message. Senator Orrin Hatch (R-UT) is now drafting the “Patient Access to Drugs in Shortage Act,” which will change reimbursement for generic injectables from ASP + 6% to Wholesale Acquisition Cost (WAC) for injectable generics with 4 or less manufacturers. See Senator Hatch Releases Discussion Draft on Drug Shortages Legislation.

Meanwhile, a new working paper from a Stanford business school professor provides some intriguing empirical evidence that the introduction of ASP is a factor behind drug shortages.

Read on for the details. Let’s hope this important legislation makes progress in the current Congressional climate. I know patients would be glad if it becomes law.

The SXC-Catalyst Merger: Initial Thoughts On the Deal

Well, that didn't take long!

This morning, SXC Health Solutions (NASDAQ:SXCI) announced its acquisition of Catalyst Health Solutions (NASDAQ:CHSI), bringing together the two largest, fastest-growing mid-market PBMs. Read the press release or view this morning's presentation.

File this deal under "inevitable surprise," given that the ink is barely dry on Express Scripts’ (NASDAQ: ESRX) acquisition of Medco Health Solutions. An SXC-Catalyst combination will be well-positioned to compete with the larger PBMs.

Read on for my first-take observations on the deal.

Drugstore Margins Remain Stable in Latest Gov’t Data

The U.S. Census Bureau just released its 2010 Annual Retail Trade Report. These government-collected data provide the most complete picture of revenues at all store-based retail drugstores, not just the larger public companies.

Contrary to what you may have heard, the financial position of retail drugstores has not deteriorated in recent years. Here are some surprising facts from the government’s latest official data:

• In 2010, total gross profits of drugstores and pharmacies were $53.3 billion, up $1.8 billion (+3.5%) vs. 2009. Gross profits have increased every year since 2000.
• Gross margins (gross profits as a % of sales) averaged about 26% from 1993 through 2006, and averaged about 24% from 2007 through 2010. Gross margins were stable from 2007 to 2010.

Below, I speculate on what happened in 2006 that changed the trend. Feel free to add your own guesses in the comments.

The Great Mail Pharmacy Slowdown

As a follow up to How the Pharmacy Industry Changed in 2011, here’s a deeper dive into the surprisingly weak mail pharmacy numbers.

The 2011 downturn in mail pharmacy prescriptions is part of a multi-year trend. As I show below, the slowdown is also reflected in the mail penetration rates at the big 3 (2?) Pharmacy Benefits Managers (PBMs).

Following the FTC’s approval for the Express Scripts/Medco merger, the Wall Street Journal wrote: Merger to Mean More Rx by Mail. I’m not so sure. And if I'm right, it will have big implications for pharmacy competition, PBM profits, and manufacturer trade strategies.

Hopefully, today's analysis will mollify your paraskevidekatriaphobia!

McKesson Wins the VA…at Cost minus 8.65%!

Last night, the Department of Veterans Affairs announced that McKesson had retained the much-delayed pharmaceutical prime vendor (PPV) contract. Here’s the press release: McKesson Selected By Department Of Veterans Affairs As Prime Pharmaceutical Supplier To VA Healthcare System.

Based on the pricing (details below), McKesson REALLY wanted to win the contract, which will now contribute about 40% less in earnings per share.

While the VA contract is unique, McKesson’s biggest customers—CVS Caremark (mail), Rite Aid, Walmart, and Omnicare—will surely be curious to know more about this wacky math. Manufacturers, however, should feel a sudden urge to hold onto their wallets.

How the Pharmacy Industry Changed in 2011

Last week, IMS Health released its official 2011 data in The Use of Medicines in the United States: Review of 2011. The report has lots of useful data. Just be aware that the so-called "spending" figures represent neither actual expenditures nor pharmacy revenues.

My annual slice-and-dice of the prescription data highlights industry trends both familiar and new:

• The total number of retail prescriptions dispensed grew by a paltry 0.3%, even slower than 2010’s depressing 1.2% rate.
• Chains won big again, growing six times faster than the overall industry.
• All other retail formats—independents, supermarkets with pharmacies, and mail-order pharmacies—shrank in both absolute size and market share.
• Mail pharmacies lost more market share and scripts than did independent pharmacies.

Read on for a detailed summary of 2011 along with a five-year view. Tune in Thursday for a deeper dive into the surprisingly weak mail pharmacy numbers.

8th Annual Commercial Contract and Chargeback Management Conference (sponsor)

I am pleased to welcome CBI's 8th Annual Commercial and Chargeback Management Conference as a Drug Channels sponsor. The conference will be held at Doubletree Hotel in Philadelphia, PA, on June 19-20, 2012.

I expect this to be another worthwhile event. Participating speakers come from such companies as Sanofi U.S., Express Scripts, Johnson & Johnson, Daiichi-Sankyo, Teva Pharmaceuticals, Medco Health Solutions, McKesson, Cardinal Health, Revitas, and Walgreens. Read more in the official description below or visit the event website.

CBI is offering a special $400 discount to Drug Channels readers. Just register with promo code DSC400. Thanks, CBI!

FDA Approves Stoogesta :)

"Ever dropped a bell on a nun, ripped the armpit hair off an old man or stuffed a live lobster down a loved one’s pants?”

If so, then you'll be glad to hear about Stoogesta (nimbiscus dumbphondenol). See the "Ask your Doctor" video below for details.

I wonder if there are any drug-drug interactions with Despondex?

Paging Dr. Howard, Dr. Fein, Dr. Howard!

ESRX-MHS: Analysis of the FTC Decision

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.