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How Walgreens-Alliance Boots deal is future of drug store retailing

BY Rob Eder

WHAT IT MEANS AND WHY IT’S IMPORTANT — As much as CVS created a category of one for itself with its vertically integrated retail pharmacy-pharmacy benefit manager-clinic model, Walgreens has cast itself in a category of its own: A pharmacy-driven, global health-and-wellness company with the purchasing strength of more than 11,000 stores.

(THE NEWS: Walgreens, Alliance Boots to merge. For the full story, click here)

This is a play for the future of drug store retailing. Let’s face it: Pharmacy margins continue to take a pounding, as payers — public and private — continue to whittle away at reimbursement levels, and seemingly more and more entities are willing to sell the same script for a cheaper price. DSN has been saying it for years: The drug store of the future will have to become known for something else than just the ability to fill a script, because that part of the business is becoming more and more commoditized every day. As the largest single purchaser of prescription drugs in the world, with a global pharmaceutical wholesale operation to match, in-house manufacturing capabilities in over-the-counter health and wellness and generic drugs, Walgreens-Alliance Boots will have a whole lot more leverage on that side of the business.

But that’s just one aspect of the deal. There are other reasons you have to like it. For instance, it creates a myriad of other reasons for customers to want to shop Walgreens.

One area in which Walgreens will benefit immediately is in its private brand initiatives — not private label, but private brand. One factoid that may have eluded many of those who were on the June 19 conference call announcing the deal: Boots has an R&D group with 400-plus associates in Nottingham that is constantly at work on private brand innovation. Walgreens has taken steps in this direction in recent years with the creation of brands like DeLish and Nice!, but Boots has long been acknowledged for its private health and beauty brand development, with a long, rich tradition dating all the way back to the launch of its No 7 beauty brand in 1935. In addition to No 7, it also features the Boots Pharmaceuticals (OTC), Soltan (sun care), Botanics (natural skin care), Boots Laboratories (anti-age partnership with Procter & Gamble) and Almus, which currently makes generic pharmaceuticals in five European countries. Given the market for multisource generic pharmaceuticals and future projections, having an in-house generic pharmaceutical manufacturing capability would be a decided advantage for a drug store operator.

This is about the future of drug store retailing. If you want a sense of what the future will look like, take a look at Walgreens’ revenue mix today and how the company expects that to change over the next five years. Currently, Walgreens’ total sales tops about $73 billion for the trailing four quarters through May 31 — about two-thirds of that is in pharmacy. In 2016, Walgreens expects sales of the combined companies to total more than $130 billion, and the pie is reshaped drastically, with only about one-third coming from its U.S. Pharmacy business. That looks a lot like the Boots revenue mix today: 35% of sales come from dispensing. Beauty accounts for 32% of sales and about 60% of profits, Alliance Boots group finance director George Fairweather noted.

Make no mistake, when this deal was announced Walgreens emerged into a category all of its own.

WHAT DO YOU THINK? Do you expect to see more of these types of international deals? Maybe a U.S.-Canadian connection? Something in South America perhaps? Post your comments below.

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Specialty prices, cost shifting raise alarms

BY Jim Frederick

Specialty and biologically engineered medicines have been a boon to millions of Americans with life-threatening and life-altering conditions. But their lofty prices are squeezing patients and payers and spawning a growing legislative backlash that threatens insurers and employer-based health plans.

“The imperative to find cost-effective alternatives to biologics reflects the growing demand for these specialty drugs,” IMS Health noted. “Since their origins in the 1980s, biologics have prospered into a U.S. $138 billion market [in 2010].”

There’s no question payers, patients, managed care organizations, insurers and pharmaceutical companies will have to eventually come to some workable arrangement that will allow the flow of needed specialty meds to continue, at a cost that can be borne by patients and their health plan sponsors. According to IMS Health, these drugs account for just 1% of total units dispensed but already generate 17% of pharmaceutical cost outlays by insurers. By one estimate from Express Scripts, specialty and biotech medicines will account for 40% of what payers spend for drugs by 2014.

“Although prevalence of specialty medication utilization is relatively low at the population level, … costs are high — averaging $1,766.79 per prescription,” Express Scripts noted in its “2012 Drug Trend Report.” “The top three specialty therapy classes (i.e., inflammatory conditions, multiple sclerosis and cancer) each had trend [price] increases of more than 15%. Hepatitis C, which had the greatest increase in trend of 194.8%, was influenced by the release of two new oral drugs: Incivek (telaprevir) and Victrelis (boceprevir).”

To cope with the rising costs, a growing number of employer-sponsored health plans are adjusting their drug coverage for their highest-cost employees and retirees. That means adding a fourth tier to drug plans to account for specialty medications and charging patients higher co-pays of up to 30% or more of the cost of those drugs.

For patients who depend on the highest-price specialty pharmaceuticals, that could easily generate thousands or tens of thousands of dollars in out-of-pocket costs. A Kaiser Family Foundation survey reports the number of American workers now in a four-tier health plan has doubled to 14% over the past five years.

“There’s no question … that management is getting more aggressive” in controlling costs for cancer treatment, for instance, noted Mark Zitter, founder and CEO of The Zitter Group, a benefits consulting firm. Nevertheless, an April report from Zitter on controlling oncology costs noted, “despite their expanded use of [average sales price] reimbursement, coinsurance-based cost-sharing and prior authorizations, payers have been unable to rein in costs” for their plan members who are dealing with cancer.

The problem of higher out-of-pocket costs for individual health plan members is well-documented. “Companies anticipate that employees’ out-of-pocket expenses will rise to 18% of total allowed charges in 2012,” the National Business Group on Health noted. “Altogether, the share of total healthcare expenses paid by employees, including premium and out-of-pocket costs, is expected to be 34.4% in 2012, up from 33.2% in 2011.”

Alarm over rising co-pays and premiums is getting attention from many state lawmakers. According to the New York Times, at least 20 states have introduced legislation to limit out-of-pocket costs for consumers for high-ticket specialty drugs, and at least two — New York and Vermont — have enacted permanent or temporary measures to cap co-pays or ban four-tier plans.

Employer-based health plan sponsors, insurers and managed care organizations, however, flatly reject charges that they’re unfairly shifting cost burdens onto patients. The real problem, they argued, lies with the biotech manufacturers that set prices.

“This is a pricing issue, not a coverage issue,” asserted Mark Merritt, president of the Pharmaceutical Care Management Association, which represents pharmacy benefit managers. “We’re getting savings where we can, but fundamentally, the cost sharing is a symptom of the problem, not the problem, and it’s really not a channel or distribution issue; it’s really just very expensive products for a small population, and it’s something payers are grappling with.”

One development that will relieve some of the upward pressure on these hugely expensive drugs will be the increasing use of biosimilar medicines, which, like generics, mimic the properties of patented pioneer products and offer competition that reduces market pricing, sometimes dramatically. IMS Health predicted “accelerated growth over the next decade and beyond” for me-too biotech drugs, to as much as $2.6 billion in annual sales by 2015.

“Although currently small and narrowly focused on a few disease areas and countries, the biosimilars opportunity is set to expand as patents expire on leading biologics, U.S. legislation comes into effect and payers push for their wider adoption to manage burgeoning costs,” IMS reported late last year. “Potentially, this market could be the single fastest-growing biologics sector in the next five years.”

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New CDC test for dengue approved by FDA

BY Allison Cerra

ATLANTA — A diagnostic test designed to detect the presence of dengue virus in people with symptoms of dengue fever or dengue hemorrhagic fever has been approved by the Food and Drug Administration, the Centers for Disease Control and Prevention announced Thursday.

The test, called the CDC DENV-1-4 Real Time RT PCR Assay, has been authorized by the Food and Drug Administration for use in the United States and can be performed using equipment and supplies many public health labs already use to diagnose influenza. The new test will help diagnose dengue within the first seven days after symptoms of the illness appear (which is when most people are likely to see a healthcare professional and the dengue virus is likely to be present in their blood). The test can identify all four dengue virus types. CDC officials said this marks the first FDA-approved molecular test for dengue that detects evidence of the virus itself.

"The need for the new dengue diagnostic test was high," said Jorge L. Munoz-Jordan, chief of the molecular diagnostics and research at the CDC dengue branch. "Patients will be diagnosed sooner than before, and public health laboratories will have a clearer picture of the true number of dengue cases. Dengue is now a reportable disease in the United States, and the availability of state-of-the-art dengue diagnostics will improve patient management and the public health response to dengue."


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