With an all-important FDA decision on carfilzomib scheduled for July 27, Onyx hopes to graduate to the next stage of commercial success. For a feature-length profile of Onyx and CEO Tony Coles, click here.

Onyx Pharmaceuticals CEO Tony Coles

Following on a strong 4Q report, Onyx Pharmaceuticals’ CEO Tony Coles said the company hopes to transform itself from a one-product company to a three-product company, covering seven types of cancer, by the end of 2012.

On the February 22 full-year and 4Q earnings call, Coles described Onyx’s Nexavar-related cash flow as the impetus for transformation, and the patron of strategic investment in the company’s proteasome inhibitor franchise, which includes carfilzomib. At the end of 2011, the company had roughly $668 million cash on hand.

The regulatory pathway for carfilzomib – a small molecule drug (administered via infusion) in development for multiple myeloma and solid tumors – hinges on FDA’s July 27 PDUFA date, which will determine whether or not carfilzomib is eligible for accelerated approval. The company is already focusing on “launch readiness,” which includes the development of coverage and reimbursement strategies, as well as patient support materials, said Helen Torley, EVP and chief commercial officer, on the call. Onyx also hired a reimbursement and access team in Europe “to prepare for approval.” Torley said carfilzomib could be an over $2 billion opportunity for Onyx.

Through a partnership with the Multiple Myeloma Research Foundation, Onyx launched an expanded access program for carfilzomib last August. The initial target enrollment for the program was set at 250, and the program is currently “over-enrolled,” said Coles on the earnings call. “Take that as a good sign…of support from the clinical community for carfilzomib.”

In a discussion on the company’s plans to test carfilzomib head-to-head against Takeda/Millennium’s Velcade in a new trial, slated to begin this year, Ted Love, Onyx’s EVP, R&D and technical operations, said the company expects to “take a higher dose of carfilzomib” into the main event bout with Velcade, a blockbuster multiple myeloma drug that picked up an approval for subcutaneous administration in January (Velcade was approved as an infusion in 2003). Love is retiring in August.

Onyx’s financial results drew praise from analysts on the earnings call; Nexavar turned blockbuster in 2011, through an 8% increase in sales. In the US, Nexavar, a liver and kidney cancer drug, got a 2% price increase in 3Q 2011, and 3.5% increase this month.

Beyond building Nexavar and hoping for a positive FDA action on carfilzomib, Onyx has “renegotiated and expanded” its partnership with Bayer on Nexavar and regorafenib, the latter a colon cancer drug expected to be filed with FDA by the end of June. If regorafenib is approved, Onyx stands to collect a 20% royalty fee on sales, under the new Bayer agreement, said Coles on the call.

Joe DiMasi

William Looney’s posting for this blog, “Calculating the Cost of R&D: Defending Tufts Research” (January 11, 2012), raises a number of interesting and important points.  Both the posting and the working paper by F.M. Scherer on which the posting was based, reflect a widespread concern over the state of R&D productivity in the pharmaceutical industry.  The level of resources needed to get a new drug approved by regulatory authorities is a critical aspect of the productivity of pharmaceutical R&D.

The Tufts Center for the Study of Drug Development (CSDD) has conducted a series of studies over the decades tracking industry R&D costs related to new drug approval.  Although the study criteria were defined in terms of when investigational drugs enter clinical testing, the results are easier to understand in terms of when that development resulted in success (i.e., when drugs from the study period obtained regulatory approval for marketing).  From this perspective, the first study in the series covered development that generally resulted in approvals during the 1970s, the second study was generally applicable to 1980s approvals, while the last study covered approvals during the 1990s to the early 2000s.  Taken together, the results demonstrate a marked upward trend, over and above general price inflation, in the cost per approved drug.  Alternative approaches examined as part of the last two studies to find ballpark figures by using public data confirm the study results, as does Scherer’s alternative analyses using such data.

Given scattered evidence of increasing costs for some components of the drug development process for more recent years and, the year 2011 notwithstanding, a generally stagnant level of new drug output, Tufts CSDD has undertaken a new study in our R&D cost series.  Currently, we are in the process of gathering data.  The results will cover new drug development that yielded approvals during the first decade of the 21th century.  As in the past, the cost of failures will be taken into account, and separate estimates of the time costs associated with the lengthy drug development process will be determined.  The data will reflect the diversity of development by therapeutic class and molecule type undertaken by mid-sized to large biopharmaceutical firms. There is more to R&D productivity than output per dollar spent, but clearly such a metric is needed as a starting point for a full discussion of productivity and what can be done to improve it in such a crucial segment of the health care sector.

Editor’s Note: The Tufts CSDD data has been cited by industry, which arouses skepticism, but as Forbes pointed out last week, the mean cost estimation may fall on the conservative side, particularly when current failure rates are considered.

The chief target for those who contest the cost figures cited by industry is the work conducted over three decades by the Tufts Center for the Study of Drug Development.  Its most recent in a series of profiles – based on its own interpretation of data drawn from the leading US-based “big pharma” companies – tagged the average cost of bringing a new compound to market at more than $800 million. Last year, two prominent industry critics, Donald Light and Rebecca Warburton, published a harsh critique of the Tufts study methodology, or, as the authors put it, “mythology.”   Specifically, their paper contends that a key element in the Tufts work – which apportions the expense of investing funds in research against alternative uses of that capital to obtain an equal or higher return – is poor grounds for fixing costs; eliminating this “opportunity cost” pushes down the average cost virtually in half, to only $403 million. Their own anecdotal calculations render that figure even lower. In addition, the 11 per cent interest rate figure used by Tufts in estimating the value derived from that alternative use of funds against the investment in R&D is deemed excessively high; Light and Warburton claimed that three per cent would be more appropriate.

So who is right here?  Tufts is criticized for relying too much on company data without broad options for disclosure, while Light and Warburton are well-known for their adversarial stance on virtually every policy issue relevant to biopharmaceuticals.  Enter an objective third party, in the form of a new study just published by F. M. Scherer, emeritus Professor at the Kennedy School of Government at Harvard.  Scherer is well-known for his earlier work on drug innovation and pricing which was balanced – if sometimes skeptical – in supporting industry claims.

In R&D Costs and Productivity in Biopharmaceuticals, Scherer makes the following points:

•    There has been over the past 30 years a substantial growth in average R&D costs.  Spending by the industry on R&D rose by an average 7.4 per cent annually between 1970 and 2007, whereas the number of approved new drugs increased by only 2.1 per cent annually over the same period – in other words, with more money spent to obtain a much lower rate of increase in new drug approvals, it is inevitable that the average cost of bringing those medicines to market has tended to rise.

•    Pre-clinical costs for industry have been fairly steady over the period reviewed, largely because of the higher profile and resources of the National Institutes of Health [NIH] in subsidizing basic research.  Industry progress in creating tools for “rational drug design” is another positive factor.  The real growth in costs has taken place at the clinical stage, where industry obligations have soared due to tighter regulatory controls and the complexity of trials.   Trials are bigger, testing requirements on enrollees have become more extensive and complex, while teaching hospitals and other trial sites are charging more to sponsor and participate, seeing their development support work as “profit centers.”

•    The opportunity foregone to invest R&D funds elsewhere is a legitimate calculation in estimating average drug development costs due to the long time lag to secure market access and profits, which is more prominent than in other sectors.  Scherer says the US government evaluated the merits of this approach and endorsed it as far back as 1993, when a federal Office of Technology Assessment report stated that “the practice of capitalizing costs to their present value in the year of market approval is a valid approach to measuring R&D costs.”

•    The argument that estimates of cost should incorporate the implicit value derived by companies from the tax deductibility of R&D outlays is overridden by the difficulty of singling out qualifying activity on both a functional and geographic basis,  a calculation that the corporate tax regime is not set up to do.

•    Scherer also dismisses the Light and Warburton contention that three per cent is a more valid rate of interest in estimating the investment potential of alternative uses of R&D outlays. He calls it “clearly wrong.”   The Tufts study’s 11 per cent rate is well in line with the private sector’s underlying cost of capital over the study period, and is actually “quite conservative” given that the cost of capital in R&D itself is fairly three or more percentage points higher, given the inherent risks of investing in unproven science over a long period of time.

There are also some implicit recommendations on industry positioning worth gleaning from the Scherer paper.  First, he admits that methodologies for calculating the cost of drug development pose inherent challenges.  More progress could be made, with support from industry, in overcoming them.  Stakeholders should work together with Tufts to address misconceptions and enhance public confidence in the survey.  To that end, industry associations like PhRMA might well expand and improve methods of collecting member R&D data, particularly for R&D activity outside the US; while BIO, PhRMA’s biotech partner, might also upgrade its commitment to quantify member R&D spending to support the work of Tufts and other academic institutions – big pharma must not be the sole source.

Second, companies that currently provide the data to these institutions might consider reevaluating the confidentiality standards that bar efforts to openly evaluate and communicate that data to other stakeholders.

Third, journalists and other communicators need as a “matter of good practice” to highlight the opportunity cost element as a factor when reporting the numbers from the Tufts studies. This should no longer be allowed to be treated as a “surprise” wielded by activists to discredit the body of evidence as a whole.

Finally, the regulatory community must better understand how its practices are driving development costs.  It is advised to work more closely with industry in agreeing basic standards for defining,  monitoring and, where appropriate, ameliorating such costs.

The stakes here are high, as it can arguably be said that the three decades of Tufts surveys are the most important body of policy research to bear on the cost of supporting good science.  If there is no agreed line of defense around the basic issue of costs incurred in bringing a medicine to market, then industry is the ultimate loser when it comes to obtaining access and defining a price for that medicine, especially now that payer expectations around “evidence” are becoming more insistent and precise.

The Tufts Center is undeterred by the criticism and regards the Scherer paper as a welcome addition to the debate. Center Director Ken Kaitin told PE that a new, equally robust iteration of its research is underway. “We are presently collecting fresh data from companies.  The interpretation of this data is exclusively our own, as has always been the case,” Kaitin told PE.  He noted that the Center is committed to communicating with any interested party on ways to extend the integrity and relevance of this important line of research.

This announcement came just a couple of weeks after Witty — in his capacity as President of EFPIA — outlined the industry’s “significant concern” to EC Health Commissioner John Dalli over the debt crisis in Europe, particularly in Greece, Italy, Ireland, Portugal and Spain, where, he pointed out, pharma has been obliged to take price cuts and discounts of more than €7 billion ($9.3 billion) during 2010 and 2011. “The pressures on innovation are now immense,” Witty wrote. “I believe it is time to review current pricing and reimbursement practices…” Last month The Telegraph reported that the European price-cut toll has seen GSK’s revenue fall by 4% in the region during the third quarter. Witty predicted that the ongoing crisis (along with the effects of US healthcare reform) will cost GSK about £325m ($507 million) this year.

GSK’s lifeline, of course, is now coming from the emerging markets — outside America and Europe, the company’s Q3 sales grew by 17% — which now represents 38% of its total turnover. But with pharma particularly vulnerable to issues of trust and pricing, Witty’s stance suggests that standing firm and stoically weathering the blows is no longer going to be enough to ride out Europe’s economic storm.

At first blush, a system whereby countries or geographic areas are carved out along socioeconomic lines maximizes profit: prices are set according to consumers’ “willingness or ability to pay,” which can bring previously unaffordable treatments into use. However, a tiered price can work against local competition in a given area, which tends to deliver a lower sustainable price over the long term, according to a critical analysis of tiered pricing done by authors from Medecins Sans Frontieres and Harvard School of Public Health.

Of the case studies examined in the report, Abbott’s price for the HIV treatment lopinavir and ritonavir (LPV/r) remained at $500 in African countries and other “least developed countries” from 2002 to 2007, or until the Clinton HIV/AIDS Initiative announced a generic LPV/r for $470. Abbott then reduced its price to $440, suggesting that manufacturers “do not have strong incentives to reduce tiered prices in the absence of competition, nor are tiered prices immune to competition when it does arise,” according to the report.

In the case of Bristol-Myers Squibb’s antiretroviral (ARV) treatment for HIV, the company created a Category 1 tier including 57 primarily low-income and African countries, but excluding southern African countries, which were lumped into a higher income Category 2. Southern Africa has the highest HIV-prevalence rates in the world, and the impact of a Category 2 placement means that BMS “prices its important second-line drug atazanavir 25% higher, at $547, in southern Africa, compared with $412 in other [Category 1] countries where HIV prevalence is lower, and in a few cases, income is higher,” the report found.

In the case of Lilly’s drug-resistant TB products capreomycin and cycloserine, however, tiered pricing did work to create lower prices than competitive production, but there were special circumstances. For example, TB endemic countries participating in the “preferential price” scheme facilitated by the WHO Green Light Committee beginning in 2002 – a program that also transferred technology to local generics manufacturers in support of local production – did not see a cheaper generic reach the market. In the case of capreomycin, no generic products were WHO pre-qualified for use as of September 2011, and cycloserine had gone up in price by a multiple of four, after Lilly stopped producing the drug. Lilly’s tiered pricing did in fact keep prices at the lowest rates, although demand was low and production capacity was limited.

“Tiered pricing does not necessarily result in the lowest sustainable prices, nor does it reliably lead to price reductions over time,” the report’s authors conclude. “In comparison, when markets are sufficiently large and multiple sources of production exist, robust competition has consistently proven across different therapeutic areas to result in lower prices.” Tiered pricing also leaves “too little decision-making power to governments, which are accountable to their populations under international law for insuring access to medicines.”

Countries that aren’t strong negotiators, and can’t convincingly threaten compulsory licensing, for example, get the short end of the stick with tiered pricing. In 2006, Honduras purchased LPV/r for about six times more than Brazil paid, despite the fact that HIV rates are equivalent in both countries, and Honduras per capita gross national income is roughly 25% of Brazil’s. To create a truly “win-win” situation for manufacturers and patients, governments and manufacturers will need to consider new models that “de-link” medicine prices from R&D costs. How countries contribute to R&D financing as a global public good will influence the new models that help to bring new medicines to the most needy.

In an attempt to demystify that role, Medco CEO David Snow told attendees at the Cleveland Clinic’s Medical Innovation Summit last week that pharmacists are not in fact doling out health information to patients. “I’m not dissing retail [pharmacy], but…there’s a fiction that a pharmacist comes out and dialogues with you,” said Snow. “In reality, a high school student hands you a script from the shelf.”

In a follow-up dis to retail pharmacists, Snow added that Medco’s “robots” are “twenty-three times more accurate” than human pharmacists, in terms of errors in dispensing prescriptions. Physicians were also taken to task during Snow’s talk, titled “The Case for Smarter Medicine.” A large majority of the labels on drugs dispensed by Medco contain genetic information relevant to patient outcomes, and yet, “no one is doing the recommended testing or screening,” said Snow. “We call physicians who don’t prescribe correctly,” which is a more difficult telephone call to make than the one to non-adherent patients, he said.

Among chronic disease patients, 65% stop adhering to medication within 12 months, and poor management of chronic and complex disease leads to “$350 billon in excess healthcare costs annually,” said Snow, citing a statistic from a 2005 RAND Corporation study.

Responding to Snow’s comments, Chrissy Kopple, VP media relations for the National Association of Chain Drug Stores (NACDS), said in an email: “If there were any doubt about [Medco's] intent to impose mandatory mail order on more patients, depriving patients of their choice of pharmacies, then these comments should erase such doubt at this point.” Kopple wrote that “Americans trust their community pharmacists and find them highly accessible,” and cited three national surveys as evidence. For a view of the pharmacist contrary to Snow’s portrait, see the New Yorker’s recent profile of Dr. Don.

Medco and Express Scripts, the first and third largest pharmacy benefit managers (PBMS) in the country, respectively, are currently awaiting Federal Trade Commission (FTC) scrutiny on a proposed merger, which retail drug stores and pharmacists have sought to prevent. In testimony before the FTC, Dennis Wiesner, a pharmacist and member of the NACDS, said there is “only one stakeholder that would benefit [from the merger]: the new mega PBM.” Citing cases brought by “over 30 State Attorneys General,” Wiesner said PBMs have “accepted rebates from [drug] manufacturers in return for placing higher priced medications on prescription drug plans’ formularies,” among other things, and that an even larger mega PBM would “have even greater ability to dictate one-sided, unfavorable contract terms to pharmacies, health plans and employers, ultimately harming consumers.”

“Pharmacists help to ensure that patients understand their medications and take them as directed,” and they “collaborate with doctors and other local healthcare providers to assist in medication decisions,” said Wiesner in his FTC testimony. “Community pharmacies also provide critical, cost-effective services like immunizations, disease state management and monitoring, and health education and screening programs.”

In his own testimony before the FTC, David Snow argued that Medco depends on retail pharmacies, since “more than 85% of prescriptions filled for Medco customers are filled through our networks of more than 60,000 retail pharmacies…Medco is dependent on the continued existence of strong independent retail pharmacies.”

Robert Epstein, chief clinical research and development officer at Medco, said too often pharmaceutical companies “show up in the middle of Phase III with a half-baked cake,” which inevitably raises questions. “What about sub-populations with side effects? What about an additional endpoint, an observational study or comparative information?” asked Epstein.

In response, panel moderator Richard Pasternak, an associate professor at Harvard Medical School and a former Merck VP, said “payers aren’t interested in early stage research, and pharma isn’t set up to listen to them.” Barry Gertz, SVP and head of clinical research and regulatory affairs at Merck, suggested that despite regulations and other challenges, “We have to force that dialogue to occur. The mechanisms haven’t evolved to include the needed communications, and the structure for payer/pharma communications.”

Epstein said R&D departments – not marketing departments – should be in direct contact with payers at the very earliest stages of development. Researchers, after all, are “more candid,” and they “ask the right questions.” Roger Longman, founder of Windhover Information and CEO at Real Endpoints, said Medco may be interested in early stage communications with pharmaceutical researchers, but “other payers aren’t, and R&D [researchers] aren’t.” R&D departments “are marketing-driven,” and health insurance payers have “very little incentive to dialogue with pharma early on,” said Longman. “Insurance companies wait and then say you don’t have the right data, we’re going to screw down the price, and government is banned from using cost effectiveness to determine how much it will pay” for a drug. Longman cited Italy as the “most aggressive” geography for value-based agreements involving payers in the drug development process. In Italy, “you have a drug, you bring it to a payer, an endpoint is identified, and if you meet the endpoint, you get paid,” he said.

Peter Pitts, president of the Center for Medicine in the Public Interest, wondered which R&D groups would be available for speaking with payers. “Are we talking about the Quintiles of the world? Who, inside pharmaceutical organizations, is left to think about clinical trial designs?” asked Pitts, somewhat rhetorically.

Regardless of what endpoints are pursued in clinical trials, Epstein said comparing a drug to placebo, as opposed to a comparable therapeutic product, “doesn’t work for us.” He cited a JAMA article published last May, finding that over “50% of all new drugs” approved by FDA come with comparative effectiveness data. The study also found that more than two-thirds of new molecular entities recently approved in therapeutic categories where alternative treatment options exist contain comparative effectiveness data.

The panel, titled “What is ‘Value’ and How Can it be Measured and Demonstrated in Therapeutic Innovations,” was part of a forum associated with the Galien Foundation’s Prix Galien ceremony, held last night in New York City. Prix Galien winners this year included Janssen’s (J&J) Stelara and Amgen’s Prolia, for best biotechnology products, and Pfizer’s Prevnar 13, for best medical agent.

“Perception of value drives the willingness to pay, and those perceptions vary from country to country,” said Adam Woodrow, vice president of Pfizer’s specialty care business unit, at a marketing and strategy forum hosted by Simon-Kucher & Partners. “We need to do a much better job communicating value to payers, and that means knowing what turns the payer on,” said Woodrow.

In a global environment where “a simple slip up in one country” can mean losing “half a billion dollars overnight,” – due to the widespread adoption of cross-country reference pricing in Europe, Asia and elsewhere – drug companies need to send a consistent message to stakeholders, said Woodrow. Payers often speak with physicians, for example, when evaluating a product for reimbursement; if sales reps are out saying one thing to doctors, and payers are hearing something else, that disconnect could translate into a less than ideal reimbursement decision.

Patient groups and associations represent another way to boost the perception of value on a given drug, said Woodrow. “Patient groups can be incredibly powerful” in gaining reimbursement, he said, citing the World Federation of Hemophilia as one particularly strong organization. “Hemophilia drugs are reimbursed almost across the board,” due in no small part to governments being pressured by patients, said Woodrow. “We have to be very careful about how we interact with patient groups.”

Woodrow, who jokingly referred to the UK’s National Institute for Health and Clinical Excellence (NICE) as NICER – “No, I Can’t Expect Reimbursement” – said Big Pharma has “failed to communicate value properly, but let’s be real: half the drugs are me-too, so there is no value. We have to begin [the clinical process] with a truly different value proposition” that recognizes the payer’s needs and perception of value, and brings patient advocacy groups on board.

The New York City Life Sciences Marketing & Strategy Forum was held yesterday in Manhattan.

In a letter to the Joint Select Committee on Deficit Reduction – otherwise known as the Super Committee, a bipartisan body tasked with cutting $1.5 trillion from the federal budget over the next 10 years – the Pharmaceutical Care Management Association (PCMA) talked up PBMs’ use of pharmacy networks, home delivery, utilization management and formularies to bring down costs. The letter goes on to describe seven ways to save:

• Medicaid: the program’s pharmacy benefit should use more generic drugs, and pay drugstores less, in keeping with the prices that Medicare and private insurers pay.
• Medicare Part D: maximize generic and therapeutic interchange, by “shifting spending from the most expensive single source drugs to equally effective lower cost options.”
• Reduce biologic exclusivity periods.
• Allow Part D health plans to negotiate prices on all drugs.
• Remove the DTC advertising tax credit.
• Remove Medicare’s restrictions on home delivery, and encourage the use of mail order for maintenance medications.
• Ban pay-for-delay drug settlements, to provide quicker access to low-cost generics

Mark Merritt, President and CEO at PCMA (and a former PhRMA strategist), said in a statement that “Everyone in the pharmacy community: drugstores, pharmacy benefit managers, drug companies, drug wholesalers, and others have a responsibility to offer cost-saving solutions to this committee.” Merritt was honored by the Generic Pharmaceutical Association (GPhA) earlier this year, in recognition of his “aggressive advocacy for lower cost prescription medications,” according to the PCMA website.

Many of the PCMA’s recommendations to the Super Committee fly in the face of PhRMA’s efforts to protect things like biologic exclusivity, price negotiations in Part D, rebates for Medicaid/Medicare dual eligibles and the DTC tax credit. All of those are viewed as necessary revenue streams that facilitate the development of innovative new treatments.

A spokesperson for PhRMA declined to comment on the specific proposals laid out by the PCMA. “Regarding the Super Committee, PhRMA’s focus is on communicating the success of the Part D program, and any proposal that would weaken the program should not be considered,” the spokesperson said.

But the idea that innovation requires a big budget is being increasingly challenged, particularly in light of the political debate around the deficit and government’s budgetary capacity for so-called entitlement spending. While the PCMA letter is surely one of many letters hoping to bend the Super Committee’s ear – PBMs stand to gain financially from an increased use of mail-ordered drugs and generic utilization, or course – it remains unclear where the biggest cuts will come.

In early August, Gene Sperling, Director of the National Economic Council and Assistant to the President for Economic Policy, wrote in the White House blog that “Everything is on the table, as it should be,” with respect to the Super Committee’s mandate. If the pharmaceutical industry hopes to convince the Super Committee, and the American public, that innovative drug prices are justified, it will need to speed up efforts to align positive health outcomes with expensive new products.

With the “largest and most significant” mail-order business in the industry, according to Shaun Urban, president of Ogilvy CommonHealth payer marketing, and Ogilvy Healthworld payer marketing, Medco brings a high-margin platform to Express Scripts, a company with expertise in driving generics utilization. Patients using mail-order pharmacies are primarily suffering from chronic conditions, and need maintenance medications; by offering co-pay rebates to patients for a 90-day supply of a medication, the companies incentivize mail order use among certain populations.

That doesn’t sit well with bricks and mortar pharmacies, which sign contracts with PBMs often out of economic necessity, given the breadth of a PBM’s patient base. “The relationship [between PBMs and retail pharmacies] is not a fair relationship,” says John Norton, a spokesperson for the National community Pharmacists Association. “What PBMs generally do is steer patients into their mail-order pharmacies through mandates or incentives,” such as restricting a retail pharmacy’s ability to provide a 90-day supply, or offering a three-month drug quantity for a two-month co-pay price, says Norton. On top of that, PBMs nickel and dime pharmacies through contractual agreements, which establish drug reimbursement rates, and they (PBMS) also plague pharmacies with financial audits, says Norton. “They game the system to their advantage, and that’s the dynamic we’re faced with – this merger will create a bigger monster, who’s able to push the model in a more aggressive fashion.” Walgreen’s announced in June that it would not renew its contract with Express Scripts for 2012, despite an expected $5.3 billion in drug sales the pharmacy expects to realize through the relationship in 2011.

Indeed, a combined Express Scripts/Medco entity would “negotiate downward,” based on its size, for prescription filling fees and reimbursement at the pharmacy level, but also in discounts and rebate contracts with drug manufacturers, says Urban. Despite that kind of pricing leverage, Medco has a history of being “a little more pharma friendly” than Express Scripts or CVS Caremark, the third major PBM player. Medco “engages with pharma in areas like disease management programs, wellness and prevention initiatives, partnering on adherence interventions and programs,” on a fee-for-service basis, says Urban. On the specialty pharmacy side – Medco owns Accredo, the market leader, and Express Scripts owns CuraScript – Medco helps pharma with “injection training through their nurse educator resources,” and that kind of historic relationship with pharma “now may trickle over into the newly-formed Express Scripts/Medco organization,” says Urban.

Although Express Scripts led the industry in brand drug utilization when it introduced its proprietary “bid grid” system, letting drug manufacturers bid on the rebates they will provide to PBMs, the company also demonstrated an ability to drive generic utilization, a side effect of a more restrictive formulary system. The proposed Medco acquisition would potentially increase generic market share against brands, since Express Scripts has “a history among the three big PBMs of being able to most effectively drive generics utilization, and now with that reputation and demonstrated capability, and unequivocally having the largest mail-order piece, the risk of greater generic utilization is quite significant,” says Urban, adding that PBM margins on generic drugs are “much greater” than on brand drugs.

The deal, if it survives FTC scrutiny – Norton’s association, as well as the National Association of Chain Drug stores, will do everything thing they can to stop it – will offer yet another reason for generics manufacturers to raise a toast.