Pharmaceutical Commerce - November/December 2016 - 14


Business/Finance
developed world. Pharma should focus on the things that
create value, and outsource to providers like us, CROs and
other world-class suppliers for the rest.
A second vector is what is happening in the developing
world, where most of the market need is filled by products
that we would consider to be generics here in the US. In
those markets, pharma looks more like a consumer-goods
industry, where brand is most important. For example, GSK

is doing a great job in India today; many people there think
of GSK as a domestic company. People there and elsewhere
don't look for product brands like, say, Tylenol or Advil;
they look for the J&J or GSK corporate brand, and make
their purchasing decisions accordingly. Here in the US, the
opposite is true; the product brand is more important than
the corporate brand. A third vector is the pricing pressure
being experienced in most of the developed world. Really,

the only free-pricing market left is the US, and I don't know
how long that's going to last. New pricing models, based
mostly on outcomes and value to payers and providers, are
going to evolve. The availability of big data on the payer
and provider side from data collection systems will drive
this. That's the route for pharma to get paid for innovation.
We don't need more fiascos like what's been seen recently
over price hikes for longstanding products.

Turning up the heat on PBM's role in drug pricing
Will employer benefit plans lose their enthusiasm for PBMs?
It's a forgone conclusion that most of
the consumer public doesn't like pharma
companies' pricing policies, as headlines
were grabbed last year by the dust-up over
Valeant and Turing Pharma, and then the
Mylan EpiPen controversy that played
out recently. Surrounding these were the
shock to healthcare payers over the original
$84,000 cost of Sovaldi, the Gilead Sciences
hep C drug; the forestalled blow-up over
PCSK9 anti-cholesterol drugs and, most
recently, Express Scripts' announced plan to
corral pricing (and market share) of a variety
of anti-inflammatories, led by Amgen's
Enbrel and AbbVie's Humira. In an election
year, all this is playing out at a louder-thannormal volume.
Now, however, the spotlight is shining
brighter on another part of the drug
pricing battleground: the pharmacy benefit
managers (PBMs). That target was hinted
at when Heather Bresch, CEO of Mylan,
said that the company would supply an
authorized generic of its own branded
EpiPen product "because of the complexity
and opaqueness of to day's br anded
pharmaceutical supply chain." A recent
news article* from Business Insider laid out
a compelling, if one-sided, critique of PBM
practices. In particular (and something that
is not a new finding), the leading PBMs
are able to both negotiate drug prices with
manufacturers, dictate reimbursement
prices to dispending pharmacies, and
manage the patient-support programs that
manufacturers fund to protect patients
from high copays and coinsurance-all
without disclosing their actual costs (or
reimbursements) to their client health plans
and to dispensing pharmacies. This article is
just the latest expose; there was some airing
out of these issues when Anthem Health
sued Express Scripts earlier this year; the
latter has been handling the health plan's
drug benefit, and Anthem is claiming that
it should recoup billions of dollars in lower
costs from Express Scripts.
Mark Merritt, president of a PBM trade
group, Pharmaceutical Care Management
Assn., responded to the Mylan fingerpointing with some fun-with-numbers
claims of its own. While stating that "For
EpiPens, price concessions negotiated by
PBMs have significantly reduced costs to
the system while overall average patient
cost share-including both copays and
coinsurance-has decreased from 26% of list
price in 2009 to 11% in 2016," PCMA didn't

point out that 26% of the approximately
$100 cost of EpiPen back then was less than
the 11% cost of a $600 prescription today.
In early October, only two days after
CMS Ac t ing Administ r ator Andrew
Slavitt delivered a letter to Congressmen
agreeing that Mylan's now-controversial
EpiPen was misclassified as a generic,
improperly entitling it to a lower discount
under a Medicaid program, the company
has reached a preliminary settlement with
HHS and the Dept. of Justice to pay a fine
of $465 million, resolving "all potential
rebate liability claims by federal and state
governments" while admitting no guilt,
according to a Mylan announcement. Terms
of a corporate integrity agreement with the
Office of Inspector General of HHS are yet
to be finalized.
The penalty is a stiff one, even given the
highly criticized price hikes the company
has imposed in recent years, and the efforts
it has made to expand the market for the
drug. Slavitt's letter detailed some $960
million in gross sales between 2011 and 2015
under the Medicaid Drug Rebate Program,
which was discounted by $163 million
during that span. Mylan had expected to
gross around $1.2 billion this year with the
drug; a reasonable guess at the fraction that
would fall under Medicaid is around $400
million. So, for six-year sales of about $1.5
billion, Mylan is disgorging $465 million, or
31% of sales, on top of the 13% rebate that it
had been providing to states and the federal
government. On the other hand, the hit
that Mylan is taking on earnings is relatively
minor-it projects a drop from predicted
2016 earnings per share from $4.85-5.15 to
$4.70-4.90, and the majority of that is due to
the company beginning to sell a lower-cost
generic version of EpiPen.
Heather Bresch, Mylan CEO, said that
the settlement is "another important step
in Mylan's efforts to move forward and
bring resolution to all EpiPen Auto-Injector
related matters," and investors seem to
agree: in after-hours trading, Mylan's stock
price jumped 10%.
Senator Amy Klobuchar (D-MN), one
of the first members of Congress to call
Mylan's pricing practices into question this
summer, issued a statement applauding the
settlement and declaring that "[T]his must
be the tip of the iceberg. If other drugs are
misclassified, and surely EpiPen isn't the
only one, the public deserves to know it, the
taxpayers need to get their money back, and

14 Visit our website at www.PharmaceuticalCommerce.com November | December 2016

the process needs to be changed to stop this
from happening again." Indeed, one of the
puzzles of the Mylan misclassification issue is
why CMS did not go beyond simply warning
Mylan that its drug was misclassified and to
initiate its own investigation.
Formulary management
The anti-inflammatory program of
Express Scripts, "Inflammatory Conditions
Care Value Program," involves close
management of patients needing this therapy
through its Accredo Specialty Pharmacy.
Express Scripts contends that the category
is dominated by "the two major nonspecific
anti-inflammatory medications, which
together currently represent 73% of the US
market share for this therapy class" (i.e.,
Humira and Enbrel), while other "niche,
single-indication products will be able to
compete head-to-head with the nonspecific
products, and this more precise approach
to formulary management will enable
Express Scripts to leverage the additional
competition to make this therapy class more
affordable for participating plans." Patients
currently on the market-leading drugs will
be able to stay with them, and patients put
on one of these other drugs but who stop
using them will generate a rebate to health
plans and, presumably, the patient.
In mid-September, an analyst from
Leerink Swann, an investment bank, noted
that Humira's price has been increasing on
average by 6% every three months for the
past three-and-a-half years, while Enbrel has
been averaging a 3.5% price increase over
that span. In the Forbes article** about this
analysis, Leerink noted that Humira could
become the first $15-billion/yr. pharma
product, given the current trend.
PCMA is fighting a many-front battle
over its position in the drug-pricing battles.
The association published a survey-not of
its clients, many of whom are health plans
or large employers, but of 400 owners and
executives of companies of all sizes. By a 3:1
margin, these businesspeople believe that
the private sector is a more effective way
to address drug pricing than government;
and that nine out of 10 are "satisfied" with
the PBM resources they employ or use.
Specifically, when asked to choose their
top two objectives, 54% of respondents
said reducing overall costs, and 45% said
reducing premiums and other out-of-pocket
costs for consumers. Also, "very few" cited
issues such as "transparency" of payments to

drugstores, or rebates to pharmacy benefit
managers.
"Employers' concerns about high drug
prices are real but so are their fears that
new government mandates-however well
intended-would make things worse,"
said Mark Merritt, PCMA president, in a
statement. PCMA, and its members, have
a long track record of demonstrating better
health outcomes and cost savings through
their programs, but the question is growing,
"At what cost?"
However, the options are not either
government pricing mandates or sticking
with PBMs; the Business Insider article
points to an effort among a group of large
employers, the Healthcare Transformation
Alliance, as something of a rebellion against
healthcare intermediaries like PBMs. The
Washington, DC-based group, still forming
up, doesn't call out PBMs directly, but
does state that "employers rely on a broad
range of organizations to procure health
care services, and often these organizations
serve interests not aligned with the interests
of employers and the people they employ,"
and that "Patients, along with the health
care system, too often pay for prescription
drugs that are not the most cost effective for
their care ... This happens in part because
incentives currently built into the delivery
system have made it habitual to pass costs
along."
Another confrontation is a closely
w a tch e d re f e re n d u m i n C a l i f o r n i a ,
Proposition 61, the Drug Price Standards
Initiative, which calls for state agencies
to pay the same prices as the US Dept.
of Veterans Affairs. VA pricing is usually
negotiated directly between manufacturers
and VA-so this would bring the vaunted
"single payer" system closer to fruition. VA
drug costs are generally regarded as some
of the lowest available; the catch is that not
all drugs are on the VA formulary. Prop 61
will be one of many initiatives California
voters will be deciding on Election Day in
November.
As with drug products themselves, there
isn't a one-size-fits-all solution to rising
drug prices; pharma executives will need to
monitor ongoing developments closely in
the months ahead.
* h
 ttp://www.businessinsider.com/scrutiny-expressscripts-pbms-drug-price-fury-2016-9
**h t t p : / / w w w . f o r b e s . c o m / s i t e s / m a t t h e w
herper/2016/09/14/price-increases-to-help-createworlds-first-15-billion-medicine


http://www.businessinsider.com/scrutiny-express-scripts-pbms-drug-price-fury-2016-9 http://www.forbes.com/sites/mattheherper/2016/09/14/price-increases-to-help-create-worlds-first-15-billion-medicine http://pharmaceuticalcommerce.com/

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