PHARMACY

Rite Aid’s strong fiscal results portend significant growth in year ahead

BY Michael Johnsen

CAMP HILL, Pa. — Rite Aid on Wednesday reported $26.5 billion in revenues, representing a lift of 3.9%, and net income of $2.1 billion, or $2.08 per diluted share for the fiscal year ended Feb. 28. 
 
"In the fourth quarter, our strong growth in same-store sales and prescription count, as well as strong cost control, helped drive continued profitability," said Rite Aid chairman and CEO John Standley. "These positive results contributed to a successful year in which we took significant steps to further position Rite Aid as a retail healthcare company." 
 
One of those steps included the expansion of Rite Aid's distribution agreement with McKesson. "This five year extension provides Rite Aid with daily direct-to-store delivery and allowed McKesson to assume responsibility for the sourcing and distribution of generic pharmaceuticals," noted Brent Miller, Seeking Alpha contributor. "The more committed relationship between the two companies created greater supply chain efficiencies for Rite Aid by improving in-stock positions, as well as reducing purchasing costs."
 
Other significant fiscal 2015 highlights include the acquisition of pharamcy benefit manager EnvisionRx, which includes some 21 million patients for Rite Aid to manage, the introduction of its RediClinic operations into the Philadelphia and Washington, D.C./Baltimore markets and its commitment to its Wellness format. 
 
"The company continued their efforts to transition more stores to the new Wellness format," Miller wrote. "The Wellness format concentrates on adding Wellness Ambassadors, improved pharmacist accessibility and interactive kiosks. By the end of the third quarter, 1,259 stores out of total 4,570 were converted to this new format," he noted. "Shortly after the conclusion of fiscal year 2015, the company opened their first net-new store built from the ground since 2010. Between 2010 and 2015, the company was largely concentrating on remodeling stores and converting them to the Wellness format noted above. This 14,500-plus sq. ft. is a huge step forward for the company, as I believe it is symbolic of the management's positive outlook."
 
Same-store sales for the year increased 4.3% consisting of a 5.8% increase in pharmacy sales and a 1.2% increase in front-end sales. Pharmacy sales included a negative impact of approximately 175 basis points from new generic introductions. The number of prescriptions filled in same stores increased 3.5% over the prior year period. Prescription sales accounted for 68.8% of total drug store sales, and third-party prescription revenue was 97.5% of pharmacy sales.
 
For the fourth quarter, the company reported revenues of $6.8 billion, up 3.8%, and net income of $1.8 billion, or $1.79 per diluted share. Same-store sales for the quarter increased 4.5% over the prior year, consisting of a 5.7% increase in pharmacy sales and a 2% increase in front-end sales. Pharmacy sales included a negative impact of approximately 128 basis points from new generic introductions. The number of prescriptions filled in same stores increased 3.5% over the prior year period. Prescription sales accounted for 68.1% of total drug store sales, and third-party prescription revenue was 97.5% of pharmacy sales.
 
Looking forwared to fiscal 2016, Rite Aid said it expects sales to be between $26.9 billion and $27.4 billion with same-store sales expected to range from an increase of 2.5% to an increase of 4.5% over fiscal 2015.
 
The Pennsylvania pharmacy operator already has a strong head start, most recently reporting overall same-store sales increases of 4.3% for the month of March
 
Adjusted EBITDA is expected to be between $1.25 billion and $1.35 billion.
 
Net income for fiscal 2016 is expected to be between $190 million and $275 million or income per diluted share of $0.19 to $0.27. This guidance is net of estimated income tax expense of between $130 million and $180 million, or $0.13 to $0.18 per diluted share, respectively.
 
Capital expenditures are expected to be approximately $650 million. 
 
The company's outlook for fiscal 2016 is based on the anticipated benefits of its Wellness remodels, a full year of benefits from the pharmacy sourcing arrangement with McKesson and other initiatives to grow sales and drive operational efficiencies. The company's outlook also considers planned wage and benefit increases, the introduction of certain new generics and a reimbursement rate environment that is expected to continue to be challenging. 
 
The outlook does not consider the impact of the EnvisionRx acquisition due to the uncertainty as to when the transaction will close. The company's outlook also reflects an increase in income tax expense compared with fiscal 2015, which included an income tax benefit from the reduction of the deferred tax asset valuation allowance. The company expects cash tax payments to remain in a range of $10 million to $20 million for fiscal 2016 as it will continue to be able to utilize its tax net operating loss carry forward.
 
For the year, the company relocated 14 stores, acquired 9 stores, remodeled 440 stores, expanded 5 stores, opened two stores and closed 28 stores.
 
 
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Survey: Generic reimbursement lag an impediment to community pharmacy

BY Michael Johnsen

 
 
ALEXANDRIA, Va. – Patient access to generic prescription drugs and community pharmacies are both increasingly at risk due to inadequate reimbursement rates that fail to cover the cost of filling prescriptions, according to a new survey of 700 community pharmacists conducted by the National Community Pharmacists Association.
 
“For decades community pharmacists have promoted the appropriate use of generic drugs to lower costs. However, more recently the price for some of these medications has skyrocketed 1,000% or more virtually overnight while reimbursement rates paid to community pharmacists have inexcusably lagged behind for weeks or months,” stated NCPA CEO Douglas Hoey.
 
“This survey finds that this problem has only grown more severe over the past two years and requires urgent attention from federal and state policymakers,” Hoey added. “Community pharmacies cannot be expected to continually fill many prescriptions at a significant loss. Ultimately patients are impacted as well. Some patients are already skipping medication due to higher prices and copays or are forced into the Medicare coverage gap or ‘donut hole’ sooner. Others will likely find it more difficult to find certain generic drugs at all because their pharmacy can no longer afford to stock and dispense them.”
 
The new survey asked pharmacists to describe their experiences in this area since an earlier 2013 survey first documented the problem. Among the findings:
 
  • Virtually every pharmacist experienced a “large upswing” in the acquisition cost of a generic drug over the past six months, with approximately 80% stating that this occurred in at least 26 instances during this period;
  • 93% said the situation has grown worse since the 2013 survey; and
  • The vast majority of pharmacists (87%) said it took one month or longer for reimbursement rates (often MACs or “maximum allowable costs”) to be updated by the insurance plan’s pharmacy benefit manager to reflect market costs. Nearly all pharmacists (92%) said the problem of slow MAC updates has deteriorated since 2013 and that appeals to update reimbursement benchmarks are typically denied or ignored by the PBM.
Respondents were also asked to mention specific drugs and instances of below-cost reimbursement. The most commonly cited medications include Benazepril (high blood pressure); Clomipramine (antidepressant); Digoxin (control heart rate); Divalproex (to treat seizures and psychiatric conditions); Doxycycline (antibiotic); Budesonide (asthma); Haloperidol (psychotic disorders); Hydroxychroloquine (rheumatism arthritis, malaria); Levothyroxine (hypothyroidism); Methylphenidate (Attention Deficit Hyperactivity Disorder);Morphine (pain); Nystatin/Triamcinolone (fungal skin infections); Pravastatin (high cholesterol; heart disease); Tamsulosin (benign prostatic hyperplasia-BPH); and Tizanidine (muscle relaxant).
 
To mitigate this problem Reps. Doug Collins, R-Ga., and Dave Loebsack, D-Iowa, have introduced H.R. 244, The MAC Transparency Act. It would apply to Medicare Part D, the military’s TRICARE program and the Federal Employees Health Benefits Program and would require MAC benchmarks to be updated every seven days to better reflect market costs and allow pharmacists to know the source by which such benchmarks are set. The Centers for Medicare & Medicaid Services, in response to NCPA’s concerns, issued a final rule in May 2014 to require price updates in Medicare Part D every seven days starting in 2016. 
 
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Sandoz Canada GM to lead new CGPA Biosimilars Board

BY Michael Johnsen

TORONTO – The Canadian Generic Pharmaceutical Association announced Tuesday the establishment of a new CGPA Biosimilars Board and the election of Michel Robidoux, president and general manager of Sandoz Canada, as its inaugural chair.
 
"The establishment of the new CGPA Biosimilars Board signifies the focus our industry is placing on ensuring that Canada is a viable market for the production and sale of biosimilar treatments," said Robidoux. "The establishment of clear rules for the approval and reimbursement of cost-saving biosimilar products in Canada is essential for the ongoing sustainability of both public and employer-sponsored drug plans, and to ensure that more Canadians can gain access to the treatments they need."
 
"We have an important role to play in educating patients, prescribers and drug plan sponsors on biosimilar products," Robidoux added. "As the worldwide biosimilars market continues to rapidly evolve with more products becoming available, we will bring that international experience to Canada."
 
Robidoux was appointed president and general manager for Sandoz Canada in 2010 and has more than 25 years of experience in the pharmaceutical, generic, consumer and medical device industry. He originally joined Sandoz Canada as VP sales in 2008. Before joining Sandoz, Robidoux was VP at Roche for various business units within the company such as Diabetes Care, Professional Diagnostics, Molecular Diagnostics and also Applied Science. Prior to Roche, he worked at Bayer for seven years in sales and marketing.
 
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