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Biologics restrictions result in lost savings

BY Richard Monks

Restricting access to samples of generic biological drugs would lead to nearly $140 million in lost savings for every $1 billion in biologics sales, Matrix Global Advisors said.

(For the full chain pharmacy section of DSN's Aug. 25 issue, click here.)

“This potential lost savings has enormous implications for the large and growing segment of pharmaceutical spending that biologics represent,” Matrix Global Advisors CEO Alex Brill wrote in “Prescription Drug Savings from Use of REMS Programs to Delay Generic Market Entry,” a report the firm issued last month examining how overuse of risk evaluation and mitigation strategies, or REMS, is slowing the stream of generics into the marketplace.

Biologics are the fastest-growing segment of the pharmaceutical market, he said, growing by 9.6% last year and accounting for 28%, or approximately $92 billion, of the country’s drug spending.

“In light of the forthcoming regulatory pathway for biosimilars and the pending patent cliff among biologics, access to biologic drugs for biosimilar approvals is critically important,” Brill said. “In the current REMS environment, biologics makers will have the same opportunity to restrict access to samples of biologic drugs, with negative consequences to payers and patients.”

Of the 64 approved individual REMS programs in effect today, 15 are for biologics. Brill said some generic drug makers already have reported restricted access to biologics samples.

More restrictions, he noted, are likely to have a dramatic impact on efforts to control healthcare spending.

“To capture the magnitude of the potential lost biosimilar savings from REMS misuse, we use the Congressional Budget Office’s assumptions about the market dynamics following biosimilar market entry,” Brill wrote in his report. “The competitive dynamics of the biologic drug market are not expected to mimic the dynamics in the small molecule market. CBO expects an eventual 40% biosimilar price discount and 35% substitution rate.”

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Abuse of REMS drives up healthcare costs

BY Richard Monks

The generic drug industry — and by extension, patients across the United States — is being adversely impacted by what some are calling branded drug makers’ abuse of risk evaluation and mitigation strategies, or REMS.

(For the full chain pharmacy section of DSN's Aug. 25 issue, click here.)

“When brand manufacturers use these programs to withhold access to drug samples for generic manufacturers’ bioequivalence testing and development, they can delay generic market entry and competition, thereby preserving high drug prices and preventing the cost savings generic drugs are known to deliver,” Matrix Global Advisors CEO Alex Brill noted in “Prescription Drug Savings from Use of REMS Programs to Delay Generic Market Entry,” a study his firm recently did for the Generic Pharmaceutical Association.

The impact that the growing use of REMS is having on healthcare spending is substantial, the report said. Through a detailed analysis of pricing and utilization data for just 40 drugs, Brill concluded that the delays caused by overusing REMS adds $5.4 billion a year in healthcare costs, with the federal government picking up a third of these costs and private insurers covering $2.4 billion. In addition, consumers pay $960 million in extra out-of-pocket costs, Brill said, and state and local governments foot the bill for $240 million of added healthcare costs.

“These estimates should not be construed as the entirety of the lost savings from REMS misuse,” Brill said. “Not all currently restricted products are included in our analysis, and as the problem of brand drug companies’ misuse of REMS and other restricted access programs grows, this lost savings will increase.”

REMS were created in 2007 to improve drug safety for certain products by ensuring that the benefits for patients outweigh the risks. However, Brill said that in recent years, branded drug makers have stepped up their use of “elements to assure safe use” — the component of REMS programs that mandates restricted distribution. The report noted that in 2009 only about a quarter of REMS programs included these provisions. Today, more than half of the 70 approved REMS programs — 64 individual REMS and six shared system REMS — include elements to assure safe use.

In addition, the report noted that some branded drug manufacturers also have begun applying restricted access programs to drugs for which the FDA has not required a REMS program.

While both houses of Congress and lawmakers in a handful of states across the country have tried to enact legislation forcing branded drug companies to share their bioequivalency data with generic manufacturers, these efforts have so far failed to become law.
 

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Sears Holdings’ CEO: Q2 earnings ‘unacceptable’

BY Antoinette Alexander

HOFFMAN ESTATES, Ill. — Sears Holdings announced on Thursday a wider net loss and decrease in revenues for  second-quarter 2014.

For the quarter ended Aug. 2 net loss attributable to Holdings' shareholders was $573 million, or a $5.39 loss per diluted share, compared with $194 million, or $1.83 loss per diluted share, for the prior year second quarter.

Revenues decreased $858 million to $8 billion for the quarter compared with revenues of $8.9 billion in the year-ago period. The revenue decrease included the separation of the Lands' End business, which was completed in the first quarter of 2014 and accounted for $330 million of the decline. The revenue decrease also included the effect of having fewer Kmart and Sears Full-line stores in operation, which accounted for $256 million of the decline, as well as a decrease of $140 million at Sears Canada. Revenues for the quarter also declined as a result of lower domestic comparable store sales, which accounted for $47 million of the decline. Finally, the company also experienced a revenue decline in its Home Services business during the quarter, as well as a decline in delivery revenues, which combined, accounted for the majority of the other revenue decline.

For the quarter, domestic comparable store sales declined 0.8%, comprised of a decrease of 1.7% at Kmart and an increase of 0.1% at Sears Domestic. The decline at Kmart primarily was driven by declines in the grocery and household, appliances and consumer electronics categories.

The company noted that Kmart inventory decreased in virtually all categories with the most notable decreases in the apparel, consumer electronics, home and drug store categories.

"We have continued to show progress in our transformation, as demonstrated by our year-over-year increase in online and multi-channel sales, and with our member sales now representing 73% of eligible sales," stated Edward Lampert, Sears Holdings' chairman and CEO. "However, our second quarter earnings are unacceptable and we are taking steps to address our performance on several levels. This includes reducing costs as we evolve our business model, investing in our Shop Your Way and Integrated Retail customer initiatives, rationalizing our physical footprint and improving pricing and promotions. As we move through the transformation, our new programs are becoming more prominent both in how we run the company and in how we serve our members, and we are pleased with how our members are responding."

Lampert continued, "As we progress with our transformation by investing in new programs and platforms, we continue to bear the costs of two promotional models, which adversely impacts margins. There is more work to be done to get results where we expect them to be. Like any transformation, we must first overcome the burden of the initial costs before we can enjoy the benefits. We have a large and valuable portfolio of assets that provide us with the flexibility we need to fund our transformation as we proactively work to return Sears Holdings to profitable growth and deliver shareholder value."

During the quarter, Sales to Shop Your Way members in Sears Full-line and Kmart stores increased to 73% of eligible sales, up from 71% during the second quarter last year;

In addition, online and multi-channel sales grew 18% over the prior year second quarter and 22% over the prior year first half, the company stated.

"During the first half, we generated approximately $665 million in additional liquidity, including the $500 million dividend received from the separation of Lands' End. BofA Merrill Lynch continues to assist us in exploring strategic alternatives for our 51% interest in Sears Canada, including a potential sale of our interest or Sears Canada as a whole. Our interest in Sears Canada has a current market value of approximately $765 million as of August 19, 2014. We also continue to reduce unprofitable stores as leases expire and in some cases will accelerate closings when it is economically prudent. We have already announced the closure of approximately 130 underperforming stores in fiscal 2014 and may close additional stores during the remainder of the year. As previously indicated, when including the $500 million received in connection with the Lands' End spin-off, we expect to raise in excess of $1.0 billion in proceeds to Sears Holdings in fiscal 2014, creating value and helping to fund our transformation,” stated Rob Schriesheim, Sears Holdings' CFO.

Schriesheim added, "As we have previously disclosed, we are continuing to evaluate strategic alternatives for our Sears Auto Center business. We have had discussions with third parties regarding a variety of opportunities, including partnerships. In addition, over the next six to 12 months, we intend to work with our lenders and others to evaluate our capital structure with a goal of achieving more long-term flexibility, and may take other actions as appropriate."

 

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