Tuesday, August 16, 2016

Catching Up with Valeant and Walgreens—and Their New Best Friend

Attention, trainers! Time for an update on Valeant and its relationship with Walgreens Boots Alliance (WBA), the biggest and most difficult to catch Pokémon.

Last week, Valeant revealed that in the first six months of 2016, its sales via Walgreens were about $150 million. That’s almost half of Valeant’s entire dermatology business.

Valeant also stated that prescriptions dispensed by Walgreens are now profitable. This evolution is due largely to the company’s new relationship with CoverMyMeds, which will try to catch all of the scripts that require prior authorization.

Grab your Poké Ball and battle with my analysis and commentary below. Let’s go!


Here are direct links to the information about Valeant’s earnings for the second quarter of 2016. As always, I encourage you to read the original source material for yourself.

Valeant has struggled to profit from its complicated relationship with WBA’s U.S. retail pharmacy business. As I explain in Valeant Reveals the Bad News about Its Money-Losing Walgreens Relationship, Walgreens faces no inventory or reimbursement risk when dispensing prescriptions for certain Valeant products. Consequently, a typical Walgreens pharmacist has little incentive to overcome a PBM’s utilization management or prior authorization hurdles.

Valeant therefore lost money on many prescriptions that Walgreens has dispensed. In June, Valeant CEO Joseph Papa said: “Every time a prescription goes out the door, we’re taping dollar bills to that prescription … That’s something that we have to get fixed.” Well, that’s what happens when you dance with Wailord, the biggest Pokémon in the Pokédex.

Meanwhile, Walgreens has continued to earn fees on every Valeant prescription, whether the script has received third-party reimbursement or Valeant has lost money on it. WBA co-COO Alex Gourlay graciously offered that WBA would be “very willing to help them in a positive way.” Read his comments in Walgreens to Valeant: You’ve Got a Friend in Me (PLUS: A Rite Aid Deal Update).

After Valeant’s last earnings call, I mused:
“Valeant also announced that it had contracted with a ‘qualified’ third party-vendor that will take over prior authorization support for products dispensed by Walgreens. I presume this means that it will hire a Philidor-like entity to provide hub services that can climb the PA paperwork mountain when Walgreens won’t do it.”
Apparently, this is precisely what Valeant has done.


Last week, Valeant’s Papa stated that the company had “restored net profitability to new dermatology prescriptions.” See the slide below, which comes from Valeant’s earnings call presentation.

[Click to Enlarge]

Valeant triggered the evolution by saying “I choose you” to CoverMyMeds:
“On the commercial front, we have now launched a prior authorization program on August 4 with CoverMyMeds for the dermatology projects, which should improve the adjudication process for our Walgreens portfolio.”
In other words, Valeant is paying yet another fee to get its Walgreens prescriptions processed. I presume that “net” profitability includes fees paid to Walgreens and CoverMyMeds, but I’m not really sure.

In response to an analyst’s question about the Walgreens program, Papa expanded on his comments about CoverMyMeds:
“We did launch the program that we refer to as a prior authorization process with CoverMyMeds. They're an independent company that helps the patients through the prior authorization process to try to make it easier for patients, easier for physicians to receive the medications that their patients want to receive. So indeed, we have launched that program. That program kicked off August 4, so that is the program I was referencing on the call.
He revealed that Valeant is tinkering with copayment levels, too.
“And indeed, we did look at – as we moved to improve the net profitability of our dermatology prescriptions, we did look at copay levels, and that was part of the program that we instituted in August, so that did occur.”
Papa even went out of his way to butter up Walgreens: “[W]e've been very pleased with the cooperation we've received from Walgreens, so the teams are working together very well.”

Yes, I’m sure Walgreens is quite happy that Valeant is paying CoverMyMeds to facilitate the third-party payment of more prescriptions! Remember, Walgreens gets the highest fee for a third-party paid prescription with prior authorization. I presume that Walgreens compromised on its fee now that CoverMyMeds is part of the money flow.


Valeant’s earnings release also called out “higher managed care rebates. Put another way, Valeant's new management and its new managed care team have realized that PBMs are the power players in the channel. For a primer on PBMs' influence and tools, see Chapter 5 of our 2016 Economic Report on Retail, Mail, and Specialty Pharmacies.

Valeant is moving away from complicated schemes that do an end run around formularies. (Philidor, anyone?) Instead, it’s capitulating to the PBMs and other payers.

To put it in terms that your average millennial might understand: A PBM that encounters a wild drug maker is able to capture that manufacturer by throwing a specially designed, mass-producible spherical tool called a Poké Ball, er, formulary at it. If the manufacturer is unable to escape the confines of the Poké Ball formulary, it is officially considered to be under the ownership of that PBM.

For more, see point 5 in Seven Takeaways from the New 2017 CVS Health and Express Scripts Formulary Exclusion Lists.


Last week, The Wall Street Journal revealed that Valeant is under criminal investigation by the U.S. attorney’s office in Manhattan.

I guess the prosecutors hope to ... catch 'em all.

P.S. Hat tip to Ted F. for research assistance!

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