The Power of Formulary Non-Exclusion: Express Scripts Adds PCSK9 drugs

This week, pharmacy benefit manager (PBM) Express Scripts announced that both of the new PCSK9 inhibitors—Repatha (from Amgen) and Praluent (from Sanofi/Regeneron)—will be on its National Preferred Formulary. Both products will be subject to extensive prior authorization and step therapy. Read the press release.

This formulary approach contrasts sharply with the approach used for the Hepatitis C products. As I explain below, perhaps Express Scripts has learned an important lesson about the business risks of formulary exclusion. AmerisourceBergen, however, may find that it was dealt a losing hand.

As Canadian philosopher Gary Lee Weinrib once opined: "If you choose not to decide, you still have made a choice." Read on and see if you agree.

ALL PREORDAINED

Last December, Express Scripts made AbbVie’s Viekira Pak the exclusive option for genotype 1 hepatitis C patients who were covered by its national preferred formulary. (The formulary—with a coverage review—may cover Gilead’s Sovaldi for chronic hepatitis C genotypes 2, 3, 5, or 6.) Most of the other major PBMs—CVS Caremark, UnitedHealthcare, Aetna, and Catamaran—aligned with Gilead Sciences’ Sovaldi and Harvoni products. PBM Prime Therapeutics doesn’t favor either company’s products.

Gilead subsequently disclosed that its payer discounts were much larger than many people had assumed—more than 50% off list in some cases. These unexpectedly large price cuts provided more evidence that competition gives payers enormous power, even when purchasing differentiated, highly valuable therapies. Check out What Gilead’s Big Hepatitis C Discounts Mean for Biosimilar Pricing.

Anticipating similar discount dynamics, Express Scripts has been complaining that the stars aren't aligned for PCSK9 inhibitors. In July, it wrote that “PCSK9 inhibitors are on a path to become the costliest therapy class this country has ever seen.” (source)

Express Scripts’ latest PCSK9 press release stated that its “National Preferred Formulary clients collectively will spend approximately $750 million on PCSK9 inhibitors in 2016.” That figure appears ot have been puffed up to make actual spending look better. See Matthew Harper in Forbes: Express Scripts Says It Will Save America Money On New Cholesterol Drugs, But Its Math Doesn't Check Out.

KINDNESS THAT CAN KILL

Express Scripts claimed full credit for the industry’s big Hepatitis C discounts, as seen in Chief Medical Officer Dr. Steve Miller’s article The $4 Billion Return on a Promise Kept. Express Scripts shareholders, however, didn’t necessarily benefit from its aggressive formulary exclusion approach.

As I note in How PBMs Profit From the Hepatitis C Formulary Wars...And What It Means for Specialty's Future, PBMs make money from specialty drugs in two ways: (1) specialty pharmacy dispensing margins, and (2) share of Rebates.

Right now, the number of Solvaldi and Harvoni prescriptions is about 15 to 20 times larger than that of Viekira Pak. Since Express Scripts aligned with a very low market share product, Viekira Pak’s marketplace performance translated into fewer rebate dollars and less specialty dispensing revenue. Oh, well. Blame is better to give than receive.

Express Scripts’ decision to include both PCSK9 products therefore makes more sense. Perhaps that also explains why Express Scripts didn’t expand its overall 2016 formulary exclusion list. See Here Come the 2016 PBM Formulary Exclusion Lists!

ABC: A VICTIM OF VENOMOUS FATE?

The PCSK9 news is bad news for AmerisourceBergen. The mail and specialty pharmacies of Express Scripts account for about 17% of AmerisourceBergen’s U.S. drug distribution revenues. In its press release on the PCSK9 decision, Express Scripts states that “Praluent and Repatha will be available to patients through the Accredo Specialty Pharmacy.”

This is a common approach. PBMs and health plans often limit the number of pharmacies available to a beneficiary taking a specialty drug.

Such payer strategies, however, create profitability risks for the pharmacy-dispensed specialty drugs that wholesalers sell. That’s because these specialty product sales are being shifted into the largest specialty pharmacies (and wholesalers’ largest customers) with the smallest margins for wholesalers. For more, see section 6.1.5. in our new 2015–16 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.

In response, some wholesalers have instituted “net pricing” terms, which reduce the discount available to smaller pharmacies. The largest pharmacies, however, have negotiating power against wholesalers and have been able to push back against such demands. Expect smaller pharmacies to complain that the cards are stacked against them.

AmerisourceBergen just announced its pricey acquisition of PharMEDium Healthcare Holdings, a higher-margin compounding business. The acquired company will become part of AmerisourceBergen Distribution Company and be reported in ABC’s highly aggregated Pharmaceutical Distribution segment. Thus, year-over-year profit comparisons will become difficult, and the impact of PCSK9 formulary decisions will become hard to detect. Perhaps ABC doesn’t want a repatha that's clear.

A READY GUIDE

Here is our exclusive video of the Express Scripts Pharmacy & Therapeutics (P&T) Committee meeting that decided to place both PCSK9 inhibitors on the National Preferred Formulary. Click here if you can’t see the video.