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In splintered drug market, industry seeks solutions

BY Jim Frederick

If you’re a pharmaceutical manufacturer, wholesaler or retailer, that distinct chill you’ve been feeling at your place of business over the past couple of years isn’t just some abstract news from the nation’s financial press; it’s the downdraft created by falling U.S. demand for brand-name prescription medicines.

Stymied by weak demand in a recessionary economy, intensifying generic competition, a relative dearth of research-and-development breakthroughs and an ongoing loss of patent protection for some of their biggest-selling pioneering medicines, branded pharmaceutical manufacturers have scrambled over the last three years to restore their once-enviable track record for product innovation and sales growth. And 2009 was no exception.

Reporting on industry trends for the 12-month period ended June 2009, IMS Health tracked a dismal performance record for the branded drug industry. While total retail prescription drug sales rose 4.2% to roughly $300 billion, the real action was almost all in the generic and specialty/biotech segment of the market. Sales of brand-name pharmaceuticals were up 2.7% for the period, thanks largely to drug-price inflation and biotech or specialized medications, while sales of generics jumped nearly 12%.

When measured in unit sales, the picture for the branded side was even worse. The number of prescriptions dispensed by U.S. pharmacies edged up roughly 1% during the 12-month period ended last June, but the growth was driven by booming demand for low-cost, me-too medications.

According to IMS, generics grew 5.6% in number of prescriptions dispensed, while branded pharmaceuticals, by contrast, actually declined a sobering 9.2% in units. Me-too medications now account for 70% of all U.S. prescriptions dispensed, according to the research company, and their sales have more than tripled since 2000 to more than $51 billion last year, or 17% of the U.S. total.

By contrast, specialty pharmaceuticals, whose distribution is driven by specialized pharmacies and primary care physicians, saw solid sales growth of more than 4% in the June 2008 to June 2009 12-month period.

“The new and expanding field of specialty pharmacy could bring more biologic products into the pharmacy space, meaning some biologics that are now limited to clinics and hospitals will join insulin and the few others now in pharmacy,” said Doug Long, VP trade relations for IMS.

It’s no secret that much of the industry’s research and development focus—and most of the innovation and sales growth—has shifted to the expensive and highly targeted arena of specialty and biotech pharmaceuticals. Murray Aitken, SVP healthcare insight for IMS, predicted that many of the new chemical and biological entities emerging over the next few years “will be specialist-driven,” and aimed at “niche indications and narrow patient populations.”

Top 10 drug classes

Source: IMS Health, National Sales Perspectives, June 2009*In millions
  MAT JUNE 2009
LEADING CLASSES US$* % MARKET SHARE % GROWTH
U.S. INDUSTRY $291,804 100.0% 3.2%
1. Lipid regulators 16,811 5.8 -3.2
2. Antipsychotics, other 14,222 4.9 3.3
3. Proton-pump inhibitors 13,891 4.8 -0.9
4. Antidepressants 11,420 3.9 -1.9
5. Angiotensin II antagonists 7,946 2.7 12.9
6. Seizure disorders 7,773 2.7 -18.1
7. Antineoplastic monoclonal antibodies 7,670 2.6 9.3
8. Erythropoietins 6,450 2.2 -12.9
9. Antiarthritis, biologic response modifiers 5,938 2.0 13.6
10. Analogs of human insulin 5,699 2.0 28.8
TOP 10 $97,819 33.5% 0.4%

Market share and growth of top 10 prescription drugs

U.S. INDUSTRYTOP 10Source: IMS Health, National Sales Perspectives, June 2009*In millions
    MAT JUNE 2009
PRODUCTS (COMPANY) US$* % MARKET SHARE % GROWTH
$291,804 100.0% 3.2%
1. Lipitor (Pfizer) 7,668 2.6 -2.9
2. Nexium (AstraZeneca) 6,111 2.1 7.2
3. Plavix (BMS) 5,212 1.8 15.8
4. Advair Diskus (GlaxoSmithKline) 4,540 1.6 6.1
5. Seroquel (AstraZeneca) 3,965 1.4 9.2
6. Singulair (Merck & Co.) 3,548 1.2 2.5
7. Abilify (Otsuka America Pharmaceuticals) 3,525 1.2 35.7
8. Actos (Takeda) 3,245 1.1 5.8
9. Enbrel (Amgen) 3,164 1.1 0.1
10. Remicade (Johnson & Johnson) 3,099 1.1 7.9
$44,076 15.1% 7.1%

That could spell some trouble for traditional retail pharmacies, most of which aren’t set up to handle the complex dosage regimens, insurance expertise or close coordination with patients and their doctors that the specialty pharmacy business requires—let alone the staggering costs of some specialty and biotech drugs. But it also could spell huge opportunity for chains and independents that can summon those capabilities as the $70 billion U.S. market for specialty products continues to ramp up.

One thing seems certain: the commoditization of the lower end of the generic drug marketplace likely will continue as $4 generic drug promotions and pricing pressures remain a staple of the U.S. pharmacy market. Those pressures will continue to weigh on profit margins at the pharmacy counter as more drugs lose patent protection and such pharmacy giants as Walmart keep up the pressure on pricing.

Top 10 leading cos. in sales

Source: IMS Health, National Sales Perspectives, June 2009*In millions
  MAT JUNE 2009
LEADING CORPORATIONS US$* % MARKET SHARE % GROWTH
U.S. INDUSTRY $291,804 100.0% 3.2%
1. Pfizer (including Greenstone) 20,103 6.9 -6.3
2. AstraZeneca 17,128 5.9 10.2
3. GlaxoSmithKline 16,259 5.6 -12.3
4. Merck & Co. 14,678 5.0 -13.3
5. Johnson & Johnson 14,162 4.9 -11.9
6. Roche (including Genentech) 13,221 4.5 6.8
7. Novartis (including Sandoz) 12,604 4.3 0.7
8. Lilly 12,564 4.3 10.3
9. Amgen Corp. 12,404 4.3 -5.8
10. Teva 12,171 4.2 23.6
TOP 10 $145,293 49.8% -1.7%

Top 10 leading cos. in Rx volume

Source: IMS Health, National Prescription Audit, June 2009*In millions
  MAT JUNE 2009
LEADING CORPORATIONS TRx* % MARKET SHARE % GROWTH
U.S. INDUSTRY 3,867 100.0% 0.9%
1. Teva 625 16.2 5.2
2. Mylan Labs 320 8.3 5.0
3. Novartis (including Sandoz) 237 6.1 -10.3
4. Watson Pharmaceuticals 225 5.8 -2.5
5. Pfizer (including Greenstone) 212 5.5 -10.5
6. Apotex 104 2.7 32.9
7. Mallinckrodt 94 2.4 3.3
8. Qualitest Products 93 2.4 4.3
9. AstraZeneca 91 2.4 1.6
10. Merck & Co. 88 2.3 -23.0
TOP 10 2,091 54.1% -0.2%

Here again, however, the market may hold a huge opportunity for pharmacy providers willing to make a real break from the traditional business paradigm to forge new ties with health plan payers and patients, and new personalized services designed to keep those patients healthier at a lower cost.

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Walgreens taps veteran to head CCR

BY DSN STAFF

NEW YORK In a high-stakes campaign to fire up its front-end appeal, reaffirm its relationship with America’s consumers and rejuvenate its same-store sales, Walgreens has gone to its bench.

Walgreens has named one of its veteran operations people, Mike Arnoult, to the key post of VP in charge of Customer Centric Retailing. Until last month, the post was held by Chong Bang, who left the company in mid-December to oversee merchandising at Toronto-based Shoppers Drug Mart.

Unlike Bang, Arnoult is more a seasoned operations manager than a merchant. His appointment is a clear sign that Walgreens has moved beyond the conceptual and launch phase of CCR, and is ready to begin the next phase of the massive project: the expansion of a CCR-based store design across Walgreens’ coast-to-coast network of 7,147 drug stores.

Nevertheless, Arnoult inherits a critical challenge at the retail behemoth. CCR encompasses Walgreens’ massive effort to pull together a sprawling marketing and merchandising operation and focus its efforts more sharply on meeting and anticipating customer demands. Within two or three years, it will transform the chain’s front-end presentation and go-to-market strategy coast-to-coast with a leaner, more condensed merchandise mix; a sharper focus on health, wellness and patient education in the aisles; improved departmental adjacencies and signing; and — Walgreens merchants hope — a better overall shopping experience.

Bang took CCR all the way from conception to realization, streamlining assortments, cutting hundreds of redundant SKUs, and applying new rationale to categories, adjacencies and promotional strategy at the front end. He also oversaw the test and launch of a new Walgreens store prototype, based on CCR principles and a better read of consumer needs.

Arnoult will now take the CCR rollout from a 400-store pilot in Texas to nationwide completion. Given the chain’s aggressive plans for 2010 — nearly 3,000 stores scheduled for a CCR redesign by the end of the year — he’ll need to bring all his proven management skills to bear to coordinate local-market remodeling activities with Walgreens’ operations and merchandising teams.

“We’re evaluating the findings from the Texas stores and doing some tweaking,” company spokesperson Tiffani Washington told Drug Store News in December. “We’ll continue the rollout [of the CCR-based store overhaul program] starting in January.”

Arnoult brings to his task a strong resume in store, district and regional management. His 20-year career at Walgreens includes stints as store manager, district manager and store operations VP, followed by a year as head of online merchandising. He’s a 1990 graduate of Marquette University with a B.A. in communications.

“His ability to build relationships and collaborate across the organization will be invaluable,” Walgreens asserted.

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Bartell to cease filling Medicaid prescriptions at 15 locations

BY DSN STAFF

NEW YORK The Medicaid storm is still intense in Washington as Bartell Drugs has announced that — as of Feb. 1 — it will no longer fill Medicaid prescriptions at 15 of its 57 stores. Limiting access to pharmacies with its payment cuts could spell an increase in other healthcare costs — costs that represent the majority of health expenditures.

As stated in the article, the decision stems from a court decision in Massachusetts in September 2009 that reduced the industry pricing standard.

Bartell stated that — unlike most other insurance providers, including other states — the Washington State Department of Social and Health Services has made no effort to offset this significant reduction, resulting in sizeable reductions in payments to pharmacies.

The intent, according to Bartell, is to return to the established level of compensation prior to the Sept. 26, 2009, court action. As it currently stands, Bartell simply can’t afford to fill the Medicaid prescriptions.

While Bartell currently is the only pharmacy retailer to take such action, it certainly isn’t alone in the battle.

In March 2009, Walgreens threatened to stop serving Medicaid patients in 44 of its stores in the state. The company at that time stated that it operates 111 pharmacies throughout the state, but the 44 pharmacies in question represented more than 60% of its total Medicaid business in the state. However, in May 2009, Walgreens stated that it would continue to serve Medicaid patients when the state agreed to make smaller cuts than it had planned.

But will the court decision in Massachusetts now prompt other pharmacies to follow in Bartell’s footsteps? Perhaps, but if you ask Doug Porter, the state’s director of Medicaid, he will likely say no. In a recent Seattle Times article, Porter was quoted as saying that Medicaid recipients should not worry about other companies following suit and he is “convinced pharmacies can weather this change.” As reported by the Seattle Times, several pharmacies and industry trade groups filed suit in U.S. District Court in Seattle trying to force the state to return its reimbursement rates to those it was paying before the Massachusetts settlement. A hearing is scheduled for Jan. 15.

Last year, the pharmacy groups filed another lawsuit, after an earlier attempt by the state to cut its reimbursement rates. That suit was withdrawn when the state agreed to make smaller cuts than it had planned.

“We are deeply concerned about the health of our patients. Pharmacists are on the front lines of our healthcare system protecting patients by ensuring safe and appropriate medication use. Commercial healthcare payers and Medicaid programs in some states have already adjusted pharmacy reimbursement necessary to maintain patient access to the essential care provided by pharmacies. If Washington Medicaid does not do the same, it can result in reduced access to medicine for our neediest and most vulnerable patients ultimately leading to expensive emergency room visits and hospitalizations,” stated Jeff Rochon, Pharm.D., CEO, Washington State Pharmacy Association, in an NACDS press statement issued in September.

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