Industry Trends

Trends That Matter for M&A Activity in Specialty Pharmacy and Infusion Therapy Spaces

February 14, 2019

The specialty pharmacy and infusion therapy spaces have certainly seen their share of merger and acquisition (M&A) activity over the years. Some challenges within those industries may have helped slow down 2018 activity a bit, observes Reg Blackburn, managing director at The Braff Group. And for 2019, we may see more of the same, AIS Health reported.

The specialty pharmacy and infusion therapy spaces have certainly seen their share of merger and acquisition (M&A) activity over the years. Some challenges within those industries may have helped slow down 2018 activity a bit, observes Reg Blackburn, managing director at The Braff Group. And for 2019, we may see more of the same, AIS Health reported.

As far as specialty pharmacy trends in 2018, Blackburn points out that “the largest specialty pharmacies continue to get even larger. Payer- and chain-owned dominate. Most new entity growth is coming from large academic hospitals starting their own specialty pharmacies.”

Direct and indirect remuneration (DIR) fees in Medicare Part D that include rebates and price concessions occurring after the point of sale have been around since the start of that program more than a decade ago.

But they started really becoming an issue for specialty drugs around 2016, and it doesn’t look like that’s changing any time soon.

Within the specialty pharmacy space, M&A activity “was lower than in past years,” he explains. Through third-quarter 2018, The Braff Group recorded eight specialty pharmacy deals, compared with 18 for full-year 2017, 20 for 2016 and 10 for 2015.

Moving forward into 2019, Blackburn expects to see “continued consolidation at a measured pace.” In addition, he says, “smaller independents will remain under pressure for gross margin and closed networks. They will want to exit, but buyers will be limited.”

Within the infusion therapy space over the past year, observes Blackburn, intravenous immune globulin and other specialty infusion products continue to drive revenue growth.

Radar On Market Access: Novel Drugs, High Prices, Ways to Manage Them Remain Hot

February 14, 2019

With the FDA approving multiple novel new therapies over the past couple of years, we should expect to see more of the same moving forward. But that innovation is not cheap, and the pharmaceutical industry likely will continue to offer products at higher price points than ever before, AIS Health reported.

With the FDA approving multiple novel new therapies over the past couple of years, we should expect to see more of the same moving forward. But that innovation is not cheap, and the pharmaceutical industry likely will continue to offer products at higher price points than ever before, AIS Health reported.

As payers struggle to rein in high specialty drug prices, many have turned to copay accumulator programs, and this trend shows no signs of slowing. “There was an increased focus on copay accumulator programs in 2018,” comments Amy Nash, Pharm.D., president of RelianceRx, the specialty pharmacy affiliate of Independent Health. She tells AIS Health she expects to see “further refinement of copay accumulator programs from payers and additional strategies from pharma to prevent them.”

Moving forward, Nash tells AIS Health, “specialty drug price increases will likely continue to be less frequent and at a lower percentage increase than previous years. We will likely see newly approved products priced lower than competitors to drive utilization.”

The industry could see “a handful of novel gene therapies with curative intent,” says Mesfin Tegenu, president of PerformRx. However, as the prices of these drugs and other innovative treatments continue to grow, “The high prices will necessitate a paradigm shift in the way medicines are paid for….Unsustainable price increases [are] forcing new payment models and novel cost controls.”

“Gene therapies may experience the biggest paradigm shift we will see in the near future,” says Jeremy Schafer, Pharm.D., senior vice president, director, payer access solutions at Precision for Value.

In the oncology space, the FDA last year approved the second tissue-agnostic drug: Loxo Oncology, Inc. and Bayer Corp.’s Vitrakvi (larotrectinib).

In 2019, Tegenu tells AIS Health, “We may see many new agents with new mechanisms of action, particularly site-agnostic chemotherapeutic agents….Cancer continues to be the most targeted therapeutic area of focus in terms of drug development.”

Radar On Market Access: Part D Rebate Proposal Might Raise Premiums, Reshape PBMs’ Business Models

February 12, 2019

While a new federal proposal to overhaul the prescription drug rebate system may not be a significant threat to major managed care companies’ bottom lines, it will likely be disruptive for insurers and PBMs alike, AIS Health reported.

While a new federal proposal to overhaul the prescription drug rebate system may not be a significant threat to major managed care companies’ bottom lines, it will likely be disruptive for insurers and PBMs alike, AIS Health reported.

The proposed rule would remove safe-harbor protections under the federal anti-kickback statute for rebates paid by drug manufacturers to PBMs, Part D plans and Medicaid managed care organizations. Instead, it would create two new safe harbors: one for prescription drug discounts offered directly to patients, and one for fixed-fee service arrangements between drug manufacturers and PBMs.

If the proposed rule goes into effect, health insurers will likely have to raise Part D premiums, as they currently use the rebates they get from manufacturers to push premiums down, says Chris Sloan, a director at Avalere. That can be problematic for Part D plans, since one of the main factors they compete on are low premiums.

PBMs, meanwhile, are facing even more disruption, Sloan says. “Figuring out how to transition the revenue that they are receiving in the space now, from a percentage-of-a-rebate-type contract to a fixed-fee agreement with the health plans that [is] not tied to the cost of the drugs, is going to be a pretty monumental change.”

Still, multiple analysts pointed out that a very small piece of those companies’ earnings is likely to be affected by the new rebate rule if it goes into effect.

Based in part on company disclosures, “we estimate the big PBMs’…exposure to all-in rebate retention at [less than] 4% of earnings,” Citi analyst Ralph Giacobbe wrote.

Perspectives on PBMs’ Business Model in State Medicaid Programs

February 7, 2019

As states take a hard look at how they can reduce prescription drug spending in their Medicaid programs, they’ve put an already heavily scrutinized type of organization in their crosshairs: PBMs, AIS Health reported.

As states take a hard look at how they can reduce prescription drug spending in their Medicaid programs, they’ve put an already heavily scrutinized type of organization in their crosshairs: PBMs, AIS Health reported.

Ohio, for example, is forcing PBMs to abandon their current “spread pricing” models — in which PBMs pocket the difference between the amount they reimburse a pharmacy for a drug and the (usually higher) amount they charge a plan sponsor. Instead, they’ll move to a “pass-through” model, where PBMs will be paid an administrative fee by the Medicaid program and have to pay pharmacists the same amount that they bill the state for drugs, The Columbus Dispatch reported.

Most recently, Pennsylvania Auditor General Eugene DePasquale (D) released a report that advocates for legislation that would trade a spread-pricing model for a flat-fee model and allow the state’s Medicaid program to directly manage its prescription drug benefits instead of contracting with managed care organizations.

It might seem as though PBMs are facing a considerable threat from these moves, but industry experts say they are likely to be able to adjust to states’ changing preferences.

“I’d say that the PBMs’ business model could definitely change if more payers move toward this pass-through pricing model, but it doesn’t necessarily eliminate their role entirely,” says Tiernan Meyer, a director at Avalere Health. States can often be strapped for resources, and having a contractor administer pharmacy benefits instead of using their own resources to do so, “can be useful,” she adds.

What’s more, “the PBMs are very much used to this from other contracts that they hold, and they can certainly make money in a transparent environment,” says Robert Ferraro, R.Ph., a principal at the consulting firm Buck’s national pharmacy practice. “I think they would prefer a traditional model where their revenue wasn’t so easily identified by all their customers, but that doesn’t mean they can’t earn a very good living in a transparent or pass-through model.”

A more transparent approach to PBM contracting also helps smaller PBMs compete with the likes of UnitedHealth Group’s OptumRx, CVS Health Corp. and Cigna Corp.-owned Express Scripts Holding Co., because it simplifies the procurement process to an examination of administrative fees, he says.

Radar On Market Access: California Makes Waves With Pharma Benefits, Purchasing Plan

January 31, 2019

Under the direction of its new governor, Democrat Gavin Newsom, California is planning to take control of the pharmacy benefit for all of the state’s Medi-Cal beneficiaries — the vast majority of which currently have that part of their care administered by private insurers and their PBMs, AIS Health reported. What’s more, the order directs state agencies to create bulk-purchasing arrangements for high-priority drugs and establish a framework for letting private businesses and insurers join the state’s buying pool.

Under the direction of its new governor, Democrat Gavin Newsom, California is planning to take control of the pharmacy benefit for all of the state’s Medi-Cal beneficiaries — the vast majority of which currently have that part of their care administered by private insurers and their PBMs, AIS Health reported. What’s more, the order directs state agencies to create bulk-purchasing arrangements for high-priority drugs and establish a framework for letting private businesses and insurers join the state’s buying pool.

The idea of the state’s Medicaid program shifting to an entirely fee-for-service drug benefits system is already sparking worries about what it will do to PBMs’ bottom lines.

“We suspect that the fee-for-service aspect [of the executive order] may have an adverse impact on PBMs and potentially MCOs that provide managed Medicaid services in the state,” RBC Capital Markets, LLC analyst George Hill wrote in a research note. Currently, California’s Medicaid managed care organizations contract with 10 different PBMs to administer the pharmacy benefit for 10.64 million managed Medicaid lives — which comprise nearly 90% of the state’s total Medicaid lives.

In addition, one concern for managed care plans is the fact that carving out benefits makes it more difficult to coordinate care, according to L.A. Care CEO John Baackes.

“I think one of the advantages of a managed Medi-Cal plan like ours is that for people who are in very difficult circumstances health-wise, we do provide an element of care management that’s important,” he says. “And if there’s an element of the benefit that we don’t control, then it’s awkward.”

Regarding the the concept of California starting a bulk-pharmaceutical buying program, Andrey Ostrovsky, M.D., former chief medical officer at CMS’s Center for Medicaid and CHIP Services and current CMO at Solera Health, says it could indeed help drive down prices, since the PBMs that currently serve the state operate independently.

But other experts aren’t so sure.

“If you’re negotiating directly with the manufacturers on drug prices, how’s the delivery system of that going to work, and how are the pharmacies, at the local level, going to be able to maintain a profit and not lose money?” asks Brian Anderson, a principal with Milliman, Inc. Just because a state can negotiate a large rebate from drug manufacturers doesn’t necessarily mean it’s negotiating a lower drug price, he adds.

Radar On Market Access: 2018 Saw Slowing M&A Activity; Expect More of the Same in ’19

January 29, 2019

The specialty pharmacy and infusion therapy spaces have certainly seen their share of merger and acquisition (M&A) activity over the years. Some challenges within those industries may have helped slow down 2018 activity a bit, observes Reg Blackburn, managing director at The Braff Group. And for 2019, we may see more of the same, AIS Health reported.

The specialty pharmacy and infusion therapy spaces have certainly seen their share of merger and acquisition (M&A) activity over the years. Some challenges within those industries may have helped slow down 2018 activity a bit, observes Reg Blackburn, managing director at The Braff Group. And for 2019, we may see more of the same, AIS Health reported.

As far as specialty pharmacy trends in 2018, Blackburn points out that “the largest specialty pharmacies continue to get even larger. Payer- and chain-owned dominate. Most new entity growth is coming from large academic hospitals starting their own specialty pharmacies.”

Direct and indirect remuneration (DIR) fees in Medicare Part D that include rebates and price concessions occurring after the point of sale have been around since the start of that program more than a decade ago.

But they started really becoming an issue for specialty drugs around 2016, and it doesn’t look like that’s changing any time soon.

Within the specialty pharmacy space, M&A activity “was lower than in past years,” he explains. Through third-quarter 2018, The Braff Group recorded eight specialty pharmacy deals, compared with 18 for full-year 2017, 20 for 2016 and 10 for 2015.

This lower volume, he says, “is driven by fewer acquisition targets of a size large enough to move-the-needle for strategic buyers and/or large enough to be a platform for PE [i.e., private-equity] buyers. In addition, there is caution from both buyer types given the impact of DIR fees on gross margin.”

Moving forward into 2019, Blackburn expects to see “continued consolidation at a measured pace.” In addition, he says, “smaller independents will remain under pressure for gross margin and closed networks. They will want to exit, but buyers will be limited.”

Within the infusion therapy space over the past year, observes Blackburn, intravenous immune globulin and other specialty infusion products continue to drive revenue growth.

The Braff Group recorded four infusion therapy deals through the third quarter of last year, compared with seven in 2017, six in 2016 and 14 in 2015. 2018, says Blackburn, “continued the recent trend of low deal flow. The sector has experienced significant consolidation over the past five to 10 years.”

In the new year, Blackburn expects to see “continued modest deal activity primarily because of low inventory.”