Generic, specialty drugs responsible for lion’s share of prescription growth
The world is turning generic. That’s the takeaway from the latest trends in the drug industry, according to IMS Health. In 2012, according to the healthcare industry analytics firm, dollar sales of drugs fell by 1% to $325.7 billion, but prescriptions grew by 1.2% as generic drugs’ share of total drugs dispensed grew to nearly 83%.
For the 12-month period that ended in March 2013, dollar growth fell by 4% overall, including a 6.2% fall in dollar growth for branded drugs, while generic dollar growth increased by 5%. Prescription volume grew almost 3% overall, but branded prescriptions fell by 16%, and generic prescriptions grew by nearly 8%, according to IMS.
In addition to the growth of generics and the decline of branded drugs overall, specialty drugs — those used to treat complex, chronic health conditions — have seen significant growth as well, a trend that is likely to continue as the population ages and more treatments become available for difficult-to-treat diseases.
Generics and biosimilars
While the use of generic drugs is clearly on the rise, the number of branded drugs coming off patent and creating new opportunities for generic makers to profit is dwindling. Between 2008 and 2012, branded drugs with sales of $101 billion lost patent protection, but between 2013 and 2017, that figure is set to drop to $86 billion due to the drop in patent expiries as part of the patent cliff, according to IMS.
One big opportunity for generic companies lies in biosimilars, knock-off versions of biotech drugs. According to a report last month by pharmacy benefit manager Express Scripts, patients and payers in the United States stood to save $250 billion between 2014 and 2024 "if just a handful of biosimilars were to enter the market." Earlier this year, biosimilars hit a setback as many states considered laws that would make it harder for pharmacists to substitute biosimilars for branded biologics, but many states have rejected those laws.
Though the Food and Drug Administration is bound under the Patient Protection and Affordable Care Act to create an abbreviated approval pathway for biosimilars similar to the one for generic drugs, it has not yet done so. In the meantime, some drug makers are seeking approval for biosimilars using the standard approval process. In July, Sandoz, the generics subsidiary of Novartis and a major supplier of biosimilars in Europe, announced the start of a phase-3 trial of a biosimilar version of Amgen’s Enbrel (etanercept), used to treat psoriasis and arthritis.
According to IMS, of the top 20 drug therapy classes as measured by spending in 2012, six of them were in specialty; but cancer drugs were the largest, accounting for $25.9 billion in spending. Specialty drugs are used to treat complex, chronic and serious health conditions, including cancers, chronic viral infections, autoimmune disorders and such rare illnesses as cystic fibrosis and lysosomal storage diseases. Many specialty drugs are biologics and very expensive, costing tens of thousands per year, and often available only through limited-distribution networks.
Specialty drugs still counted for a little more than a quarter of drug spending in 2012: Of the $325.8 billion spent on drugs, $89 billion, or 27.3%, went to specialty drugs. Non-specialty drugs still dwarf specialty in terms of overall spending, but the kicker is that specialty spending grew by 8.7%, while non-specialty spending fell by 4.2%.
The dramatic rise in the use of generic drugs is happening because many branded drugs are losing patent protection and facing generic competition. Most notable of these in recent years was Pfizer’s cholesterol drug Lipitor (atorvastatin), which lost patent protection in November 2011 and faced competition from Ranbaxy Labs’ generic after years of being the world’s top-selling drug. Now, six drug makers have generic versions, according to the FDA.
But the rise in generics doesn’t mean branded drugs will go away. In fact, approvals of new drugs have reached levels not seen in more than a decade. In 2012, according to IMS, the FDA approved 39 new drugs, including nine primary-care drugs and 30 specialist drugs, meaning those prescribed by specialist doctors. In 2011, 34 drugs received approval, including 22 specialist drugs and 12 primary-care drugs. Such a large number of new drugs hasn’t been seen since 1998 and 1999, when the FDA approved 38 and 40 new drugs, respectively, notwithstanding a spike in 2004, when 36 were approved.
Gaining entry in a limited-distribution world
For traditional retail pharmacies, one of the biggest roadblocks to entry into the specialty arena is the limited availability of many complex medicines. More and more of these high-ticket, high-touch drugs are entering the market via very restricted and exclusive networks as pharmaceutical manufacturers increasingly demand that the pharmacies dispensing those medicines demonstrate advanced clinical, documentation and patient-support capabilities, including the ability to improve adherence rates, conduct risk evaluation and mitigation strategies, and manage and monitor patient outcomes.
"We’ve seen significant growth in limited-distribution drugs," noted Atheer Kaddis, Diplomat’s SVP sales and business development. What’s more, he said, "pharmaceutical companies also are taking some products that were available through an open channel and now driving them into a limited-distribution channel" in search of a higher-touch service model.
Kaddis called the move to limit distribution "a significant threat to retailers, and even to the hospital outpatient pharmacies working with us."
Thus, one of the serious challenges faced by retail pharmacies, said CEO Phil Hagerman, is that "even if they [have] a specialty pharmacy [of] their own, they’re not going to have access to these limited-distribution drugs. In order to get access … you have to get there early and often."
That was a lesson driven home for Diplomat some five years ago. Hagerman said: "We were talking to pharmaceutical companies at drug launch time. We’d say, ‘We’re a big partner for you, and we’ll manage some of this [distribution] for you and be part of your network.’ But we [found] it was often too late. By then, they had decisions made already."
Diplomat now works with pharmaceutical companies very early in the development process to gain full access to some limited-distribution networks for promising specialty medications, often by the time those products are in "late phase 2 or early phase 3" of a new drug’s clinical trials, said the company’s chief executive.
"We focus a lot on the pipeline," agreed Cheryl Allen, VP business development and industry relations. Working closely with the clinical services team headed by VP clinical services Gary Rice, she said, "we … look [out at the pharmaceutical pipeline] about 18 months out."
"We also work with pharmaceutical partners for products already on the market," Allen added. In that capacity, Diplomat provides expertise to a drug company that’s considering moving one of its products from an open-to a limited-distribution network or learn more about "the patient’s needs as they work through the journey" of specialty care, Allen explained.
The need for that expertise is particularly acute among smaller, start-up companies, Hagerman added. "Big pharmaceutical companies have their processes and plans pretty well in place, but a lot of these new drugs are coming to market from the small biotech sector, and some of these companies have never commercialized a product before."
Said Jennifer Cretu, VP information technology and marketing: "Diseases are more complex; costs are rising; regulations are increasing. So the management of our inventory is of absolute importance."
RSN: Enabling specialty at retail
The urgency behind Diplomat’s launch of its Retail Specialty Network isn’t hard to fathom. As the growth momentum in pharmaceuticals shifts from traditionally developed drugs to more complex and expensive specialty and biotech products, traditional pharmacies without access to these specialized medicines — and the patients who depend on them — find themselves stranded in a receding market like boats at low tide. And the loss of patent protection and market exclusivity for many of the biggest-selling blockbuster drugs that used to drive top-line sales has accelerated the trend.
"The chains have seen a tremendous fattening of traditional growth," said Diplomat CEO Phil Hagerman. "The generic wave … helps support margins, but doesn’t drive top-line growth. And the industry has come to realize that if you don’t put a stake in the ground around specialty, you’re going to lose that business. Specialty is growing at 20% to 24% a year, where traditional pharmaceuticals now is growing at 2% to 4%."
What’s more, said Atheer Kaddis, SVP sales and business development, a pharmaceutical maker can use direct or indirect means to limit distribution of high-touch drugs and freeze traditional community pharmacies out of the picture. "You don’t necessarily have to create a limited-distribution panel," he said. "You can create barriers to reporting that are so high that indirectly you lock out the retail pharmacies."
"It’s not just the performance measures they’re looking at," he added. "It’s the actual volume and type of data that has to be reported: turnaround times, prior-authorization success, side-effect management and success, compliance and persistence programs that require you to exceed 90% medication possession ratios. So now you have managed care and PBMs locking out retail pharmacies, and pharmaceutical companies, saying, ‘Are you contracted with these PBMs and payers?’ And the retail pharmacy has to say, ‘No, we’re not anymore. We’re locked out.’ So it’s a Catch-22."
All these challenges point to one essential factor that keeps most retail pharmacy operators — excluding the few big chains with their own specialty pharmacy divisions — from competing on their own in the rapidly expanding specialty pharmacy arena: the prohibitive cost of entry.
Enter Diplomat. In 2009, the company launched its Retail Specialty Network to allow retail pharmacy chains and independents to gain entry to the specialty arena. How? By partnering with an experienced specialty pharmacy that can provide the back-end resources, the patient support and the close collaboration with pharmaceutical suppliers and managed care plans that retailers need to compete in specialty pharmacy.
"The most important challenge a retailer has here is not that they lose a high-cost biologic drug," Hagerman added. "The most important thing we do for them is protect their market basket."
"A mass merchandiser with a pharmacy department may have a patient on six or seven drugs plus one complex biological. But the market basket is over $200 every time the patient walks through the door. And if that merchandiser doesn’t have that complex medication, that patient can walk out and go to a competitor," Hagerman said.
Drawing on Diplomat’s expertise and back-end resources also allows a retailer to connect its pharmacy customers with a team of funding and insurance specialists whose job it is to link patients with sources of financing, charitable grants and co-pay assistance to help them shoulder the high out-of-pocket costs of specialty drug therapy.
As the behind-the-scenes specialty resource provider for retail pharmacies that participate in its programs, Diplomat also provides additional services that allow front-line retail pharmacists to offload other time-consuming duties that come with the specialty pharmacy turf. For instance, said VP operations Robert Fleckenstein, if a patient comes into the store with a new prescription that requires prior authorization, "we can help the patient through whatever insurance hurdles there may be."
Added Kaddis, "We’re trying to send the message that you can have specialty at retail." Managed health plans, payers and pharmaceutical companies, he said, should be aware that including retail pharmacies in a specialty network means offering patients "the benefits of convenience, and the ability of patients to interact with their pharmacists face-to-face, and yet still get the value of specialty intervention. We have made a commitment as a company to support various models of distribution of specialty pharmaceuticals. When specialty at retail is embraced by retailers, payers and manufacturers, we want to be there to provide support.
"And that can be a huge win-win for everyone involved," Kaddis noted. "It’s definitely a win for the patient, who can continue to get his or her traditional and also specialty medications at retail. It’s a win for the retailers because they keep that patient and that relationship. And it’s a win for managed care, because…they can still offer specialty drugs at retail and get that benefit for their patients."