Decoding the Clues to Express Scripts' Strategy

As a follow-up to Insights from the 2011 Express Scripts Drug Trend Report, let's delve into what’s said—and unsaid—in the report about Express Scripts' strategy.

Going beyond the numbers, the report tells us a lot about the company's industry view and the now-biggest PBM’s future business model. Below, I consider four key topics:

• The post-2015 showdown in generic launches
• The specialty boom
• Pharmacy network design
• Personalized medicine

I picked these topics because they spotlight emerging opportunities for Express Scripts along with the risks associated with the PBM business model evolution. See if you agree.

Cancer Care and the Future of PBMs

In addition to TRON: Legacy, Medco Health Solution’s (NYSE:MHS) big theme in its 2011 Drug Trend report is “Cancer Care 2020.” Medco illustrates a plausible and compelling roadmap for how PBMs will be reinventing their business model.

Here’s a summary of the non-Medco-specific story, as I see it.

• The old world of brand-name formulary access and rebate negotiations is rapidly fading as generics come to dominate traditional drugs. In a world of low-cost generics, the quality of care—adherence, compliance, appropriate utilization—becomes much more important than the unit price per pill.

• Generic introductions will slow sharply after 2015, putting enormous pressure on PBM profits. The mail-pricing-at-retail trend adds further risk to the PBM profit model.

• Until biosimilars appear and the formulary game restarts, PBMs will use the cash river from the near-term generic wave to develop new services for plan sponsors. These clinical and health care services will (theoretically) improve patient outcomes and lower a plan sponsor’s total health care costs.
  

• Cancer care is the area of specialty drug spending with the greatest patient care component and the biggest share of spending under a medical benefit.

Hop on your light cycle as your favorite sentient isomorphic algorithm walks through the details below.

PBMs, Not Physicians, Stepping Up for Genomics

Check out Docs Falling Behind In Race To Help Patients With Genetics, a physician's thought-provoking perspective on the beneficial role of Pharmacy Benefit Managers (PBMs) in accelerating pharmacogenomics—using a patient’s genetic information to optimize drug therapy.

While I can't speak as a medical professional, I'm not surprised to hear this viewpoint from a leading physician. PBMs have powerful incentives to invest in personalized medicine tools that will improve clinical outcomes and manage utilization for their clients. As I see it, successful implementation of these services will be one way for PBMs to maintain spreads within the PBM economic model.

You can complement this article with Genomics: What Lies Within for a good discussion of the DNA sequencing market from The Economist.

Is Medco Overreaching with United BioSource?

Medco Health Solutions (NYSE:MHS) continued its expansion into fee-based clinical services with the acquisition of United BioSource Corporation (UBC). Press Release

The high-level logic of the deal seems logical given Pharmacy Benefit Manager (PBM) industry dynamics and Medco's pharmacogenomic investments.

However, I'm a little puzzled by the strategic fit because United’s customers are manufacturers. PBMs have grown by aligning with the interests of plans sponsors (employers and health plans) rather than with brand-name or generic drug manufacturers.

Is an innovative PBM succumbing to business model creep and management hubris?

Medco's Pharmacogenomic Future

The 2010 Drug Trend Report from Medco Health Solutions (NYSE:MHS) is now available. Like Express Scripts’ drug trend report, I recommend you download this valuable free resource.

Medco’s report provides loads of data from its top 201 clients (65% of total spend). But the most interesting part of the report for me deals with Medco’s future strategy.

Pharmacogenomics—using genetic variations to improve drug response—is the foundation of Medco’s Making Medicine Smarter™ message. I think it provides a powerful platform for the company in a post-2014 world with few generic launches. If this revolution turns out to be real, then Medco will win big in the personalized medicine future.