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...

Tuesday, November 29, 2011

Wholesaler Profits in the Generic Wave

Tomorrow, Lipitor loses exclusivity and faces generic competition. For an overview of Pfizer’s strategy, see Pfizer Uses Coupons, PBM Deals, Possible OTC Conversion to Head Off Generic Lipitor from Drug Benefit News.

Tomorrow also marks the kick-off of a five year period when $80+ billion of branded revenues will face generic competition, as shown in Medco’s Latest Update on the Generic Wave.

What will this mean for the big three pharmaceutical wholesalers—AmerisourceBergen (NYSE:ABC), Cardinal Health (NYSE:CAH), and McKesson (NYSE:MCK)? My take:

  • The substitution of brand-name drugs for generic drugs will reduce drug wholesalers’ revenue growth. 
  • Wholesalers, however, will benefit significantly from this wave since a majority of their profits come from generic drugs. 
In this article, I describe a simple metric—Operating Profit as a Percentage of Gross Profit—that highlights wholesalers' changing financial economics. For each company, I illustrate this metric for 2008, 2011, and 2014 (projected).

So, the next time a wholesale executive whines about “low profit margins,” you can whip out this article for a more fact-based discussion.

Monday, November 21, 2011

Pfizer's Despondex: A Thanksgiving Treat

Will you be spending your Thanksgiving with the extended family this week? Do any of them suffer from annoying cheerfulness? 

Then make sure you pick up a prescription for Pfizer's Despondex—the first-ever prescription depressant for the annoyingly cheerful. Watch the video below to learn more about this amazing medical breakthrough.

Just a little something from ONN to get your holiday week off to a fun start. Happy Thanksgiving!

Thursday, November 17, 2011

Pharmacy Invoices Show Flaws in Drug Pricing Benchmarks

A new Office of Inspector General (OIG) report provides pretty compelling evidence that pharmaceutical reimbursement models need to change. 

In Review of Drug Costs to Medicaid Pharmacies and Their Relation to Benchmark Prices, OIG compared three drug pricing benchmarks—Average Wholesale Price (AWP), Wholesale Acquisition Cost (WAC), and Average Manufacturer Price (AMP)—to pharmacy invoice prices for Medicaid-reimbursed drugs.

So, are the benchmarks consistently related to pharmacy invoice costs? Nope, especially for generics. Here’s what OIG found:

  • From single-source drugs, the benchmarks were reasonably correlated to pharmacy invoice costs. 
  • For multi-source (generic) drugs, all three benchmarks were extremely poor proxies of pharmacy invoice cost.
  • Pharmacies receive mega-discounts vs. benchmarks on these drugs. (See my summary chart below.). 
  • The AMP benchmark had the least consistent relationship to invoice prices for both single-source and multi-source drugs. 
 The OIG’s analysis didn’t include off-invoice discounts or rebates, so it can’t tell us much about underlying pharmacy margins. But the negative results for AWP/WAC/AMP make alternate methods (hello, average acquisition cost!) look more reasonable.

Tuesday, November 15, 2011

Drug Shortages and Our Fragile Supply Chain

The IMS Institute for Healthcare Informatics has joined the drug shortage debate with a valuable new report: Drug Shortages: A Closer Look at Products, Suppliers and Volume Volatility (free download with registration).

The IMS report has lots of interesting data for you to ponder, including an excellent illustration of just how fragile the supply chain has become for many generic injectable drugs. Four out of ten products with shortages have one or zero (!) suppliers. See the chart below.

Alas, IMS falls back on a better/faster/quicker warning system as the solution. But as I discuss in What’s Behind the Drug Shortage Epidemic, this solution ignores the lack of economic incentives that creates such a narrow supply base. Knowing this fact sooner will not solve the underlying incentive problem.

Thursday, November 10, 2011

Drug Channels News Roundup: November 2011

It’s time for my monthly look at noteworthy news stories from the Drug Channels universe. In this issue:
  • Money: A scathing editorial on why McKesson's CEO's is "insanely overpaid"
  • One of These Days: Pfizer goes from first to fourth by 2016, while Sanofi rises
  • Comfortably Numb: Fortune profiles Purdue Pharma and OxyContin
  • Wish You Buy Here: Consumers Reports finally admits the danger of importation from Canada
Plus, I help get you ready for Nigel Tufnel Day tomorrow, when we all go to 11!

P.S. From the list above, you probably guessed that I went to an Aussie Pink Floyd concert last week. (Yes, really. And I’m only mildly embarrassed to tell you about it!)

Tuesday, November 08, 2011

PBMs Launch a New Attack on Copay Cards

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.

Monday, November 07, 2011

2012 Distribution Management Conference and Technology Expo (sponsor)

I am pleased to welcome the Healthcare Distribution Management Association's (HDMA) 2012 Distribution Management Conference (DMC) and Technology Expo as a Drug Channels sponsor. The conference will be will held March 11-14, 2012, at the JW Marriott Orlando Grande Lakes in Orlando, FL. It is co-hosted with the International Federation of Pharmaceutical Wholesalers (IFPW).

The DMC brings together a diverse set of pharmacuetical supply chain participants—distributors, manufacturers, service providers, and many others. You can see the full demographics of last year's attendees on The Corner Booth, the new HDMA blog focused on the DMC.

FYI, the meeting is open to both members and non-members of HDMA and IFPW. Early bird registration ends on 12/19/11, so you should sign up soon.

Thursday, November 03, 2011

What’s Behind the Drug Shortage Epidemic

On Monday, President Obama “took action” and issued an Executive Order called Reducing Prescription Drug Shortages. Whew! Glad he fixed that problem!

OK, not really. I'm glad the President is focusing attention on this public health catastrophe. Alas, this PR-friendly move will have only a limited direct effect on shortages. The President basically told the FDA to work harder, but didn’t provide any new enforcement tools or authority.

On the bright side, Monday’s flurry of activity did provide two useful background reports on the supply chain dynamics behind shortages. Together, these reports provide a compelling, but in my opinion incomplete, explanation for why the supply chain for generic injectable drugs is so fragile. Most notably, the Obama administration's prescription ignores the fact that the reduced return on investment from generic injectable manufacturing has quite predictably reduced the level of investment.

Read on and see if you agree.

Tuesday, November 01, 2011

Pharmacy Benefit Trends and Data (sponsor)

I am pleased to welcome AIS Health as a Drug Channels sponsor.

AIS is now offering the 2000-2011 Survey Results: Pharmacy Benefit Trends and Data, its latest comprehensive compilation of PBM industry data. The new report includes AIS' quarterly survey data from Q1-2000 through Q2-2011 on membership, market share, drug spend, costs, utilization, and a whole lot more. Check out the Table of Contents for a list of all data fields in the book and accompanying CD.

As a bonus, you'll save $250 off the regular price if you order now.

FYI, AIS also publishes many outstanding newsletters, including Specialty Pharmacy News and Drug Benefit News (where I am on the Editorial Advisory Board).