Dr. Adam Fein PhD

GLG News by Dr. Adam Fein PhD, Founder & President

No Visible Revenue Synergies in CVS Caremark's Latest Numbers

February 23, 2009

Analysis of:CVS Net Rises; Finance Chief Plans to Retire | online.wsj.com

CVS Caremark’s PBM businesses are not becoming a larger share of prescriptions filled at CVS retail pharmacies. Put another way, the flagship Maintenance Choice program may be appealing to payers and consumers, but there is not yet a quantitatively visible shift in CVS' retail activity. If CVS pharmacies are taking retail pharmacy market share, then it’s not yet as a result of corporate co-ownership with a PBM.

Pharmacy Profits and Wal-Mart

January 16, 2009

Analysis of:Health-Care Outlays Climb at Slowest Rate in Years | online.wsj.com

U.S. spending on outpatient prescription drugs grew by only 4.9 percent in 2007, which was below overall health care spending growth  of 6.1 percent. Public funds (primarily Medicare and Medicaid) paid for 36 percent of total retail prescription drug spending in 2007. So, how much money do pharmacies make from Medicare and Medicaid? The answers may surprise you. Here’s what I found: (1)  Medicaid remains the most profitable third-party payer for independent pharmacies. (2) Despite what you may have heard, gross margins on third-party insurance business are growing at independent pharmacies. (3) The generic price war that was triggered by Wal-Mart is squeezing pharmacy margins on cash-pay consumers. While $4 generics may be good news for uninsured/underinsured patients, they are bad news for pharmacy owners.

An Unfortunate Victory for EU Repackagers

December 9, 2008

Analysis of:EU Exec Drops Drug Repackaging Ban Plan | www.reuters.com

Reuters reported on Friday that the EU plans to drop a proposed ban on repackaging of pharmaceuticals. In my opinion, dropping the ban is a very bad decision. Repackaging eliminates the benefit of just about every practical anti-counterfeit tracking technology, including the emerging serialization requirements in some EU countries. Apparently, tablets can even beremoved from blister packs under EU law. It’s hard to see how this will benefit consumers.

Cardinal Health Rebuilds Reputation with DEA Compliance Efforts

December 8, 2008

Analysis of:Cardinal Health Builds Out its 'Suspicious Order Monitoring Program' | pharmaceuticalcommerce.com

Now that Cardinal Health (CAH) has finally resolved its long-standing DEA issues, the company has quietly launched a series of intriguing Medication Safety web pages. I’m impressed by these initial public efforts at education and greater transparency, although it’s obviously a work-in-progress. Cardinal needs to more clearly describe how a more secure supply chain will translate into sales growth among its now highly monitored pharmacy customers. I’d also like to see the initiative evolve into anti-counterfeit education aimed at changing behavior by pharmacy buyers and consumers.

Pharmacy Groups Oppose First Databank AWP Settlement

December 3, 2008

Analysis of:NACDS, FMI Urge Court to Oppose Proposed AWP Settlements that Would Penalize Retail Pharmacy and the Patients They Serve | nacds.org

NACDS and FMI filed another brief in opposition to the controversial proposed First Databank settlement, although they overstate their arguments in a few places. I expect this battle to heat up over the next month as we get closer to the late December hearing about First Databank’s settlement. This hearing represents another blow to the use of Average Wholesale Price (AWP) as a reimbursement benchmark for pharmaceuticals.

McKesson settlement is next step in the demise of AWP

December 2, 2008

Analysis of:McKesson Agrees To Settlement In Pricing Suits | online.wsj.com

McKesson Corp (MCK) settled its pending class action suit for $351 million and set aside a further $143 million reserve for certain future claims. The settlement removes a source of uncertainty for McKesson, but also signals the beginning of the end for the Average Wholesale Price (AWP) benchmark. Average Wholesale Price (AWP) data for pharmaceuticals is still being published, but will continue to lose appeal as a reimbursement benchmark for pharmacies and Pharmacy benefit managers (PBMs).

CVS Escalates the Generic Price War

November 13, 2008

Analysis of:CVS joins generic drug price war | www.upi.com

CVS Caremark (CVS) launched its new Health Savings Pass, which allows customers to buy 90 day supplies of over 400 generics for $9.99 (after paying an enrollment fee of $10). The new program sounds like a logical pre-emptive strike against anticipated share losses. Translation: an old-fashioned, race-to-the-bottom price war! A barrier has been breached with CVS’ entry into the discount retail generics game. It seems inevitable that this war will suck a lot of margin from the pharmacy and PBM industry over the next few years. I’m also puzzled by the fit between the new generic program and the legacy Caremark mail order business.

New Details on WMT-CAT Pharmacy Deal

November 6, 2008

Analysis of:Caterpillar/Wal-Mart Rx Drug Pilot Scraps Use of Average Wholesale Price, Uses Drug Cost-Plus Pricing | www.aishealth.com

A just-published article in Drug Benefit News provides new details about the Wal-Mart’s (WMT) $0 generic co-pay program with Caterpillar (CAT). Anyone involved in the pharmacy channel – pharmacies, pharmacy benefit managers (PBMs), insurers, payers, drug wholesalers – should be paying attention to the Wal-Mart/Caterpillar arrangement. Pharmacy channel margins on generic drugs will be increasingly seen as a mechanism to control total drug spending. As a result, I expect even more adoption of cost-plus reimbursement models as Wal-Mart continues to challenge the pharmacy industry's traditional economic model.

Walgreens buys McKesson Specialty Pharmacy: A Win-Win Deal

November 4, 2008

Analysis of:Walgreen Co. to Acquire Specialty Pharmacy Business from McKesson Corporation | news.walgreens.com

Walgreens (WAG) announced the acquisition of McKesson’s (MCK) specialty pharmacy business in a win-win transaction for both companies. The deal makes sense for both parties as long you understand that specialty distributors sell products to physicians, providers and pharmacies, while specialty pharmacies dispense products to individual patients. It also makes a lot more sense for Walgreens than its now-abandoned plan to buy Longs Drug Stores (LDG).

Prescriptions and the Economy: Perhaps Not So Bad

November 4, 2008

Analysis of:In Sour Economy, Some Scale Back on Medications | www.nytimes.com

The New York Times ran a story on the impact of the economy on prescriptions. The article provided many compelling personal stories to illustrate data from IMS Health showing a decline in the total number of prescriptions dispensed in the United States. However, I have some concerns about the ability of IMS Health to measure a changing retail marketplace with incomplete data, so perhaps the news is not quite as bad as reported. I’m sure the folks at IMS Health try hard to fill in the gaps, but there’s simply no way for them to do anything but guesstimate when they lack actual data for a significant and fast-changing part of the pharmacy market.

Dangers of Rogue Online Pharmacies

October 14, 2008

Analysis of:Online Overdose | columbusdispatch.com

The Columbus Dispatch published a six-part expose/overview about the diversion and sale of controlled substances. Mike Pramik, the reporter who wrote all six parts, has pulled together a must-read series. Since the Dispatch is also Cardinal Health’s (CAH) hometown paper, there are some good insights into the ways that Cardinal has dealt with the challenges of selling to potential rogue Internet pharmacies.

Cardinal Health Finally Resolves DEA Issue

October 9, 2008

Analysis of:Cardinal Health Resolves Controlled Substance License Suspensions | ir.cardinalhealth.com

Last week, Cardinal Health (CAH) announced agreements with the Drug Enforcement Adminstration (DEA) regarding its license suspensions for controlled substances. These suspensions had a negative impact on the company's sales and market position. The company even publicly apologized for its actions during the suspensions. (See Cardinal Health Apologizes to Customers - Council Site). With the formal agreement, it can now get back to business and focus on the core problems with its pharmaceutical distribution business.

Cardinal Health Invests in China

October 6, 2008

Analysis of:Pharmaceutical distribution at the heart of Cardinal Health's China strategy | www.interfax.com

Cardinal Health (CAH) is rapidly growing its Chinese drug distribution business, while expanding manufacturing in India (but not China). This strategy is especially interesting given Cardinal’s planned separation of its supply chain division from clinical & medical products. The era of global wholesalers is coming, with or without a U.S. importation law.

Wal-Mart + Caterpillar: The Future of PBM & Pharmacy?

October 2, 2008

Analysis of:Caterpillar in prescription drug trial with Wal-Mart | in.reuters.com

Wal-Mart Stores (WMT) announced an innovative new program with Caterpillar (CAT) that provides $0 co-pays on 2,500 generic drugs for 70,000 beneficiaries (employees, retirees, spouses, dependents). As I see it, the deal does not represent a direct frontal assault on PBMs such as Express Scripts (ESRX) or Medco Health Solutions (MHS). Instead, Wal-Mart is subtly undermining the PBM’s economic model, which is overly dependent on margins from generic drugs by mail. Wal-Mart’s program highlights these “excess” margins by offering an alternative channel choice. I’m also intrigued by the competitive comparison with CVS Caremark (CVS). Many of CVS Caremark's new benefit options try to create channel neutral choices (my terminology) within a restricted retail network. For example, Maintenance Choice is their drug benefit option that lets patients choose a 90-day supply from mail order or a local CVS retail outlet at the same cost or co-pay.

Wholesaler Impact of a Longs Drug Deal

September 16, 2008

Analysis of:Walgreen Jumps In With Rival Bid for Longs Drug | online.wsj.com

Walgreens (NYSE:WAG) and CVS Caremark (NYSE:CVS) are now in a bidding war for Longs Drug Stores (NYSE:LDG). No matter which company wins, the long-term outcome will probably be negative for AmerisourceBergen (NYSE:ABC), which is Longs’ primary wholesale supplier.  The sale of Longs Drug Stores will be one more step in the ongoing consolidation of the pharmacy supply chain.

Drug Importation and Global Wholesalers

September 12, 2008

Analysis of:Biotech industry not seeing much difference between McCain, Obama | thehill.com

Both Barack Obama and John McCain have made negative statements about the pharmaceutical industry. Both also favor drug importation into the U.S. from countries with price controls. The emergence of global wholesalers makes it more likely for an importation law to pass, despite the dangers to supply chain security.

Generic Drug Profits: Too High or Appropriate Incentive?

September 11, 2008

Analysis of:Medicare overpaid on drugs with new generics, report says | www.latimes.com

A new OIG report highlights supposed “excess” payments by Medicare’s cost-plus drug reimbursement model, giving us a peek at the time path of generic margins in the Part B program. However, OIG overstates their case by ignoring the powerful incentives for rapid generic substitution that are created by higher profits early in the generic life cycle. Pay attention to this report because it illustrates the generic drug profit dynamics that exist elsewhere in healthcare – retail pharmacies, providers, wholesalers, and PBM mail order. And as generic utilization rates will move toward 75 percent over the next few years, I expect that pharmacy channel margins on generic drugs will be increasingly seen as a mechanism by which payors can manage their drug trend.

Progress on Federal Pedigree Will be Slow

September 5, 2008

Analysis of:Drug Stores Don’t See Progress for Electronic Drug-Pedigree Bill | fdanews.com

Representatives Steve Buyer (R-IN), Gene Green (D-TX), Jim Matheson (D-UT), and Mike Rogers (R-MI) co-sponsored H.R. 5839 Safeguarding America’s Pharmaceuticals Act of 2008. H.R. 5839 was going to be incorporated into other related FDA legislation, but intense behind-the scenes lobbying by the pharmacy industry against the bill has now stopped that option. However, I believe that it would be best for the FDA to implement national serialized e-pedigree in sync with a new California timeline. Although the FDA has not decided on its next step, I presume that nothing will happen until after the Presidential election and a possible new FDA commissioner.

CA E-Pedigree Delayed to 2015

September 4, 2008

Analysis of:Bill to track medicines is praised | www.signonsandiego.com

Implementation of California’s e-pedigree law has (probably) been pushed back to 2015. The widespread industry support for the bill makes me believe that the 2015 date might actually stick. The more realistic timeline should encourage pharmaceutical manufacturers to get serious about mass serialization for their products – a necessary first step for California’s vision of serialized e-pedigree. I expect that “mass serialization” will become increasingly important for supply chain security efforts at multinational drug makers, especially given the new serialization requirements in countries such as Belgium, Italy, and Turkey. The new California legislation also clears the way for a Federal approach to serialized e-pedigree by setting strong federal pre-emption language.

California Debates a Tougher Drug Supply Chain Law

July 9, 2008

Analysis of:Time To Protect The Pharmaceutical Supply Chain | www.capitolweekly.net

State Senator Mark Ridley-Thomas’ editorial argues California needs its own pharmaceutical supply chain security laws because the Federal government has failed to implement the Prescription Drug Marketing Act (PDMA). However, it does not necessarily follow that every individual state pharmacy board should establish unique documentation requirements for manufacturers, wholesalers and pharmacies operating within each state. This approach has already created a disparate patchwork of inconsistent regulations for tracking pharmaceuticals in the U.S. supply chain. In the absence of federal standards, ambitious local politicians around the country are establishing their own incompatible systems, raising costs, reducing product availability, and lowering patient safety. 

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