The Drug Channels blog delivers timely analysis and provocative opinions on pharmaceutical economics and the drug distribution system. It is written by Adam J. Fein, Ph.D., one of the country's foremost experts on pharmaceutical economics and channel strategy. Learn more...

Friday, September 30, 2011

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?

Wednesday, September 28, 2011

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.

Tuesday, September 27, 2011

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.

Friday, September 23, 2011

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.

Thursday, September 22, 2011

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.

Tuesday, September 20, 2011

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!

Friday, September 16, 2011

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...

Thursday, September 15, 2011

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.

Tuesday, September 13, 2011

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.

Friday, September 09, 2011

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.

Thursday, September 08, 2011

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!

Wednesday, September 07, 2011

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!

Tuesday, September 06, 2011

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.

Thursday, September 01, 2011

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.