8 Mega Trends Shaping the Future of Specialty Pharmacy
Here are key factors that significantly impact the marketplace and are gathering high levels of attention today in the diverse world of specialty pharmacy.
The world of specialty pharmacy is a diverse collection of businesses and viewpoints. Despite those differences, however, we are all being significantly impacted by a number of environmental factors. Those factors are rapidly altering our landscape and shaping the very ways in which we do business, set goals, allocate resources, staff and lead our organizations, and most importantly, how we plan for the future. Those factors are the focus of this article, but by no means will I claim this to be a definitive or exhaustive list. It is simply a collection of several critical factors gaining very high levels of attention today.
I’ll refer to the trends that really stand out as the 8 Mega Trends that are—or soon will be—shaping the collective future of specialty pharmacy.
Mega Trend #1: Escalated Spending
The first Mega Trend gaining a lot of attention these days is the escalated spending being devoted to specialty, and I do mean it is gaining A LOT of attention. So why all the fuss? Well, the flames of sensitivity for the general public are being fanned by headlines such as this one from a recent Forbes issue: “Drug Prices are Soaring Into the Stratosphere: Nine Medicines Now Cost More Than $200,000 Thousand Per Year.” 1 Also, the AARP recently reported that drug prices rose by nearly 10 percent in 2010. Headlines such as these that describe the high cost of medications are certainly not new, but the news becomes particularly sensational when it relates to very expensive specialty medications. With so much emphasis on the cost of health care in America today, drug spending is gaining dramatically increased attention from those who are paying the ever increasing bills.
Another reason specialty drug cost is grabbing headlines is its growing presence on many “tops” lists. For example, of the top 10 drugs worldwide in 2009, 5 of them were specialty drugs. By 2016, specialty drugs are expected to represent 8 of the top 10.2 As reported in Medco’s 2011 Drug Trend Report, we see that the amount of specialty spending has been increasing steadily. This year it will represent 17 percent of the total spend, and current projections are that within 5 years it will grow to represent a full 40% of spend.
Not surprisingly, all of this is having a profound effect on payers who are looking for ways to lessen the impact. Some payers are looking to shift more cost-sharing onto patients while others are becoming highly motivated to manage specialty categories that were once considered untouchable. Many specialty categories already require prior authorization and often have quantity limits. We are now seeing many clients adding tiers, implementing preferred drug programs, and some are experimenting with outcomes-based structures. Of course, this also has prompted payers to continue to squeeze pricing in their specialty pharmacy and pharmacy benefit manager (PBM) networks.
Mega Trend #2: Generic Wave
The second Mega Trend impacting our future is one often referred to as the coming “Generic Wave.” In the next 5 years, more than $100 billion in spend will become an available market for generic competition.3 Historically, there have been few generic opportunities within specialty, but along with the “wave,” we expect to see several new and substantial generic entries as an alternative to significant specialty drugs such as Copaxone and Gleevec. Anticipation of this wave is already having a significant impact on the strategies of many pharmaceutical manufacturers (Pharma).
For example, continued reductions in the workforce are being driven by a need to maintain margins and to prepare for a declining small molecule base of business. The trend toward outsourcing also continues to grow as Pharma adopts this strategy to reduce cost and operate more efficiently. Merger and acquisition activity continues as companies look for ways to replenish their brand portfolios, and the quest for growth is leading more companies to turn to relatively untapped emerging markets with lower barriers to entry, as well as focus their development efforts on biotech in an attempt to gain greater protection from future generics.
Mega Trend #3: Bulging Pipeline
Speaking of development, the pipeline is bulging with specialty pharmacy products. We closely track these drugs as they progress and there are more than 600 specialty products in the current pipeline.4 The drugs cover many categories and oncology is particularly well represented, accounting for nearly half of all drugs we are following. Within those 600-plus drugs in the pipeline are drugs that will bring new and improved routes of administration (ROAs), which will certainly be a benefit for patients. However, those of us in specialty pharmacy know that simply moving a drug to an easier ROA will not solve adherence issues. In fact, some oral therapies are associated with the absolute lowest compliance rates. There are many reasons for this, but the fact stands clear that moving a drug to an oral is not a panacea for compliance.
Mega Trend #4: Targeted Therapies
The fourth Mega Trend is the move from “shotgun” medicine to targeted therapies. Within the specialty pipeline we see that nearly 70 percent of the drugs in the pipeline have an identified biomarker associated with them. Obviously not all of those markers have been turned into meaningful tests—yet. However, it is a solid bet that we will see personalized medicine (or pharmacogenomics) grow on the drug discovery side as well as the drug prescribing and managed care side. Payers have a growing appetite to develop programs to encourage the “smart” application of drugs. Some have said that if you follow personalized medicine to its extreme, eventually every disease could become a rare disease.
On the subject of rare diseases, I expect to see orphan drug approvals for treating rare diseases continue to grow at a rapid rate. Consider that there were only 10 such drugs on the market in 1983 and today there are more than 350. The Orphan Drug Act and its protections are generally considered one of the most successful pieces of legislation—ever. However, there are more than 7000 identified rare diseases awaiting treatment and many Americans are anxious to see Pharma narrow the gap between those 350 drugs and the 7000 rare diseases.5
Mega Trend #5: Health Care Reform
Mega Trend number 5 is the impact of legislative and regulatory activity. We are closely watching the estimated 32 million Americans who are expected to gain new coverage by 2019.6 Health care reform (which I usually refer to as simple expansion) will swell the ranks of many payers. One of the most pronounced impacts will be on Medicaid programs, many of which are already struggling to make ends meet for their existing patients. As they struggle to absorb the growing numbers of patients resulting from the new coverages, the ensuing budget cuts and declining reimbursement rates are posing huge financial challenges for those of us attempting to provide care to patients.
Many states have little confidence that they’ll see benefit from the increased rebate amounts that are subject to federal retention, and as a result the number of states resorting to new ways of operating is growing dramatically. Managed Medicaid could quickly become the new “norm” as this form of managed care becomes the only viable way to stretch already scarce resources even further.
On the regulatory front, Risk Evaluation & Mitigation Strategy (REMS) programs are important and undoubtedly here to stay. They will continue to necessitate complex delivery models, but the FDA has openly acknowledged that we collectively need to find a better way to manage some of these programs, particularly those with the most complex requirements. Many in the distribution chain have complained that these programs were designed and implemented with little to no involvement from those who actually have to “do” the implementation. We see encouraging signs that future programs will offer improved consideration to the impact on those involved in distribution and dispensing. Demonstrating the willingness to monitor and improve programs on a real-time basis, the FDA has recently released more than 25 drugs from REMS program oversight.
Track and trace is another area where we should expect to see activity in the future. California has now pushed its e-pedigree requirements to at least 2015. What we all agree on is that drug safety and integrity are absolutely essential. What we do not agree on is how to best accomplish it and whether the proposed changes are ultimately really going to be a cost-effective or meaningful improvement over existing controls. If you are not involved in this discussion, you should really consider taking an active role to help ensure that we do not add cost to the delivery of health care unless it is done in a way that provides a meaningful, incremental benefit. Ultimately those responsible for the drug distribution will be the ones to bear much of the cost and complexity, so the cost of not advocating appropriately can be high.
Mega Trend #6: Emergence of Biosimilars
The sixth Mega Trend is the emergence of biosimilars. We believe this space will really begin to develop in the United States sometime in 2013, and within 5 years more than $40 billion in market opportunity will become eligible for biosimilar competition. 7
Last year, we saw legislation that established a pathway without providing any real guidance as to how to actually get biosimilars approved. The FDA has signaled an intention to provide more direction by the close of 2011, which is a development we will all be following closely. Some key issues still being debated include how to actually file and gain approval, as well as how to attain the interchangeability designation.
There is a fair amount of discontent that remains with several provisions in the legislation, which has left many looking for alternate approval pathways. Despite the uncertainty, the opportunity is so large that many manufacturers have publicly signaled their intent to play in this space and the list includes those traditionally associated with brands as well as generics.
Mega Trend #7: Growth of Co-pay Programs
Mega Trend number 7 is certainly a controversial topic—the growth of co-pay programs. In the interest of clarity here, I am NOT referring to Patient Assistance Programs. I am referring to those programs that target patients with commercial coverage. The growth in these programs is staggering. Cleveland Research actually counted these programs and in 2009 there were 86 of these programs, but just 2 years later the count had grown to 296 programs.8 There are signs that we may have finally reached the tipping point where payers and PBMs are determined to find ways to control these programs. The real rub is that these programs are viewed as being misused to “up-tier” products, reduce generic competition, work against network designs, or just simply remove financial incentives intended to help patients make certain choices. Some also point to the fact that these programs are not considered appropriate for government payers as a signal that they should be regarded as inappropriate in general.
Mega Trend #8: The Next Big Things
The eighth and final Mega Trend is really a collection of 3 items that I’ll bucket as “The Next Big Things.” They are: adherence, medical benefit management, and the demand for demonstrated value.
The single biggest thing, of those 3, is adherence. Adherence is certainly not new to specialty pharmacy, but the growing interest in it is, especially by those previously unconcerned. There is a heightened awareness of the inherent advantage of helping patients follow their physician’s orders for their therapy. With real-time intelligence and the ability to touch patients with counseling, coaching, and reminders, specialty pharmacy providers are uniquely suited to help increase adherence. Once a patient clears the managed care hurdles to actually go on therapy, most agree that the least expensive and best thing for all involved is for the patient to stay adherent to that therapy. Without adherence, many of these drugs would amount to little more than high-cost waste, creating a disappointment for patients, payers, and prescribers.
There is a growing realization that almost half of the specialty Pharma spend lies on the medical side. This spend has historically had limited visibility and controls; however, that appears to be well on the way to changing as more payers are realizing the importance of managing this spend. Many creative solutions are emerging and the pace is expected to quicken over the next year.
We are entering a period where the purchasers of health care (the payers) are becoming increasingly sophisticated and discriminating. As they become more serious about controlling spend in specialty, they will increasingly demand value and proof of that value. This translates to an increased need for comparative studies, clinical proof of benefit, and responsibility in manufacturer pricing.
In closing, although specialty may have its fair share of uncertainty and challenge, we are truly fortunate to be in such a dynamic space. Whether your role is in clinical, administration, drug development, market access, dispensing, patient support, or working within managed care to control costs and broaden access to care, we are all fortunate to have a contributing role in helping some of the most chronically ill patients realize the benefit of very advanced medications. Indeed, we have a changing but bright future. Change creates challenge, but it also brings abundant opportunities for growth. SPT
Bill Martin is group vice president of business development at Accredo Health Group, Inc, in Memphis, Tennessee. He is a member of the Specialty Pharmacy Times Editorial Board and offers his insights into the future of specialty pharmacy with this article. The Accredo Health Group, Inc, is headquartered in Memphis, Tennessee, and provides specialty pharmacy and related services for patients with complex and chronic conditions through its Therapeutic Resource Centers.
1. Herper M. The world’s most expensive drugs. Forbes. February 22, 2010. www.forbes.com/2010/02/19/expensive-drugs-cost-business-healthcare-rare-diseases.html. Accessed August 4, 2010.
2. EP Vantage and Evaluate Pharma, Manufacturer Reporting.
3. Glenn B. Generic wave to drive Cardinal Health’s profitability in coming years.The Motley Fool. www.fool.com/investing/general/2011/04/07.aspx. Accessed May 1, 2011.
4. Accredo Pipeline Database Phase II and Phase III. As of September 29, 2010.
5. Food and Drug Administration. FDA at Rare Disease Day. www.fda.gov/ForIndustry/DevelopingProductsforRareDiseaseConditions/ucm239698.htm. Accessed 5/11/2011cbsnews.com/8301-503544-162-20000846-503544.html. Accessed May 1, 2011.
6. Jackson J. Health care reform bill summary. CBS News. www.cbsnews.com/8301-503544-162-20000846-503544.html. Accessed May 1, 2011.
7. U.S. drug spend estimates are based on IMS Health data for 2009, manufacturer reported U.S. sales or a percent of manufacturer reported worldwide annual sales of the drug.
8. Personal communication with Adam Fein, Pembroke Consulting.