ABC Wins Express Scripts Contract from Cardinal

Missy Franklin isn't the only one celebrating a first place finish today.

This morning, AmerisourceBergen (NYSE: ABC) announced it won the combined Express Scripts contract from Cardinal Health (NYSE: CAH). Here's the press release: AmerisourceBergen Signs Three Year Pharmaceutical Supply Agreement with Express Scripts.

The contract is worth $18.5 billion in revenues to ABC, although it will be minimally profitable. My first-pass, back-of-the-envelope computation suggests that ABC's operating profit from the contract will be 0.15% to  0.20%. That's one reason why the win has "no impact" on the company's financial expectations for fiscal 2013 (starting on October 1, 2012).

CEO Steve Collis has now proven that he can lead his team to victory in a good old fashioned, race-to-the-bottom bid business. Congratulations?

Strategic Distribution Planning for Specialty Products

I am pleased to welcome CBI’s 3rd Annual Forum on Strategic Distribution Planning for Specialty Products as a Drug Channels sponsor. The conference will be held at the Hilton Hotel in East Brunswick, NJ, on September 20-21, 2012.

Many Drug Channels readers will be interested in this event. Speakers come from such companies as Bristol-Meyers Squibb, Eli Lilly, Eisai, EMD Serono, Occam Health, Otsuka America Pharmaceuticals, UCB, and Walgreen. 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 QZN287. Thanks, CBI!

New Senate Report IDs Gray Market Players, Including Some Surprising Names

On Wednesday, the Senate Committee on Commerce, Science and Transportation held an eye-opening hearing titled Short-Supply Prescription Drugs: Shining a Light on the Gray Market. 

The Committee simultaneously released a report documenting gray market activity by some well-known companies. Briefly:

• Most drugs enter the gray market through pharmacies.
• These pharmacies usually buy drugs from legitimate Authorized Distributors of Record (ADR), including AmerisourceBergen, Cardinal Health, McKesson, and H.D. Smith.
• While some buyers are “fake pharmacies,” others appear to be legitimate purchasers, such as Walgreens Infusion Services and a Medicine Shoppe franchisee.
• Multiple secondary wholesalers handle gray market products, adding huge mark-ups along the supply chain.

Check out the diversion maps below for a peek at how these companies participate—perhaps inadvertently—in the gray market. There was conflicting witness testimony about who should be blamed. (Links below.) I’ll let you make up your own mind on those competing arguments.

Gray Market Drug Recycling for Fraud and Profit

Remember the hubbub about the gray market and drug shortages? Well, the gray market is even worse than we thought.

Last week, the Manhattan U.S. Attorney unveiled a massive $500 million (alleged) fraud involving Medicaid patients who sold their prescription drugs to aggregators and resellers, who subsequently resold the drugs to pharmacies via “Corrupt Distribution Companies.” (Read the press release)

Kudos to the Department of Justice for catching the crooks, but … Yikes! Anyone interested in pharmaceutical supply chain security should check out the DOJ’s diversion map (reproduced below).

Alas, we once again observe diverted products finding their way back into the legitimate supply chain, when a pharmacy purchases from a shady vendor. Perhaps you won’t be surprised to find out that New York is one of many states without pedigree requirements.

MDRP Summit: The Event for Professionals Working in Medicaid Rebates

I want to remind you about IIR's 17th Annual Medicaid Drug Rebate Program (MDRP) Summit. The event will be held from September 10 to 12 at the Swissotel Chicago.

Below, Program Director Heather King highlights key items on this year's large and impressive agenda, including sessions on AMP, 340B, the post-AWP world, healthcare reform, and much more. The event is already more than 75% full, so be sure to register soon because the event will probably sell out.

Don’t forget IIR is offering a special 25% discount to Drug Channels readers—up to $850 in savings off the standard rate. Register with VIP code: XP1758DRJL. Thanks, IIR!

Walgreen Cuts a Deal with Express Scripts

Today's inevitable surprise: Express Scripts and Walgreens Announce New Pharmacy Network Agreement.

Did Walgreen cave? Few people know the truth since (also as expected): "The companies are not disclosing the terms of the new contract."

I suspect that Walgreen bowed to the economic realities outlined in Walgreens is Losing Its Battle with Express Scripts and shareholder disappointment with the questionable Alliance Boots deal. Nonetheless, expect Walgreen's shareholders to breathe a sigh of relief.

Note that "Walgreens will participate in the broadest Express Scripts retail pharmacy network available to new and existing clients." Translation: Express Scripts will still be marketing Express Advantage Network, its tiered network option.

I posted the full text of today's happy talk press release after the jump. Stay tuned for more pharmacy network disruption.

ABC’s Steve Collis on the Tangled Web of PBM-Wholesaler Relations

The Philadelphia Inquirer’s PhillyPharma blog just posted a fascinating—and unexpectedly revealing—Q&A with AmerisourceBergen CEO Steve Collis.

Collis does a nice job explaining the diverse—and sometimes little-known—services that drug wholesalers now perform within the pharmaceutical industry. He also offers some helpful insights into the recently-acquired World Courier business.

Perhaps inadvertently, his interview also highlights the fascinating conflicts and complexities embedded within today’s drug wholesaling business model. For wholesalers like AmerisourceBergen (NYSE: ABC), pharmacy benefit managers (PBMs) like Express Scripts (NASDAQ: ESRX) are simultaneously:

• Customers
• Negotiating adversaries
• Vendors
• Competitors

Read on as your friendly neighborhood blogger unravels these sticky situations.

Join Me at the Pharmaceutical Retail Strategy Summit

I am pleased to welcome CBI’s Pharmaceutical Retail Strategy Summit as a Drug Channels sponsor. The conference will be held at the Hilton Hotel in New Brunswick, New Jersey on September 19 and 20. Read more in the official description below or view the website.

I will be delivering the keynote address on "Innovations and Trends in the Retail Channel." CBI has also arranged a solid lineup of speakers from such companies as Amylin Pharmaceuticals, Boehringer Ingelheim, Covidien, Eli Lilly & Co, Horizon Pharma, Walgreens, and more.

CBI is offering a special $400 discount to Drug Channels readers. Just register with Promo code DRC400.* Thanks, CBI!

Useful Overview of Specialty Distribution Models

I suggest that you check out Connecting Patients With Specialty Products: Distribution models for biologics and other specialty pharmaceutical products, an article in the latest Biotechnology Healthcare journal.

Jack McCain, the reporter at BH, did a super job of boiling down the complex specialty distribution market into a succinct summary of current trends and product models.

See below for a chart illustrating the complexity of specialty drugs’ product flow under the pharmacy benefit. I helped out with the article, so you'll see some quotes from me, along with comments from consultants such as Elan Rubinstein and Ron Krawczyk.

Part 2, focusing on emerging trends, will appear later this year.

How Health Plans Manage Specialty Drugs

I’m a bit tardy is writing about the 2012 edition of the EMD Serono Specialty Digest, a valuable report on payer and managed care strategies for specialty drugs. (Free with registration. Warning: the site is kludgy and doesn’t play nicely with all browsers.)

The report is chock full o’ data, so below I pluck out a few interesting factoids about benefit coverage and health plan tactics. To manage specialty drugs, plans are focusing on both utilization management and channel management.

I encourage you to read the whole report because it shows how benefit coverage, patient out-of-pocket costs, and reimbursement methods for specialty drugs vary dramatically among plans. These differences, along with health plan tactics, highlight contracting and channel strategy challenges that I encounter in my consulting work with biopharm manufacturers.

2012 Update on Traffic, Readers, and Sponsors

Time for my annual update on Drug Channels readership and sponsorship activity. Here are the headlines. (Details below.)

• Drug Channels traffic averages about 40,000 page views per month, which is another year of 30%+ growth.
• We have more than 5,440 subscribers (via email, twitter, or RSS). Thanks to social media, email forwarding, and search engine traffic, many more people read the site each month.
• We continue to draw readers from throughout the industry.
• In the past 12 months, Drug Channels ran many successful campaigns and generated significant ROI for our sponsors. Email me if you want details on reaching the Drug Channels audience.
• Our reader survey provided a lot of positive feedback and some constructive advice. A few highlights below.

Stay tuned in October for a site redesign and the official launch of an exciting new educational offering from Drug Channels. In the meantime, please keep emailing me your comments, complaints, topic suggestions, or kudos.

Shopping Spree! Walgreen Snaps Up USA Drugs

Hot on the heels of its Alliance Boots deal, Walgreen just picked up regional chain USA Drugs for a cool $438 million. The deal includes 144 retail stores (operated under various names) located in Arkansas, Kansas, Mississippi, Missouri, New Jersey, Oklahoma and Tennessee—plus a generic drug wholesale business. Details in the official press release.

This is a logical, tuck-in acquisition that builds regional scale à la Duane Reade. The deal won’t be enough to stop the narrow network trend or force Express Scripts back to bargaining table, but it does add heft to an already big player and fit with broader pharmacy industry trends. Investors were comforted to know that management still has some sensible ideas about capital allocation. See below for details.

BTW, the deal implies a small customer loss for McKesson (NYSE:MCK), while Cardinal Health (NYSE:CAH) picks up a bit more incremental volume at lower profits.

And here's a drug channel puzzler: Will Walgreen—now the biggest non-US wholesaler—continue to operate USA Drug's SAJ Distributors subsidiary, a $100 million+ drug wholesaler serving about 1,000 independent pharmacies?

Drug Channels News Roundup: July 2012

Happy 236th birthday, America! After a week in which many of us became amateur constitutional scholars, stay cool and enjoy these noteworthy news stories from the Drug Channels universe.

• Meet Mr. Wasson—A humanizing profile of Walgreen’s CEO
• Meet Mr. Barrett—A humanizing profile of Cardinal Health’s CEO
• Meet Some Criminals—A behind-the-scenes of a Florida pill mill

Plus, Dr. Stephen T. Colbert, DFA, provides FDA-mandated laughs on side effects labeling.