The Express Scripts story: super-pharmacies and the US drug industry
Express Scripts, the largest independent manager of pharmacy benefits in the US, recently updated the formula it uses to decide which drugs to sell, a move that resulted in some surprises for big pharma. Analysts fear the move will hit some of the major drug companies where it hurts, but how do the mega pharmacies make these decisions and what does it tell us about the strategies that ultimately guide the US drug industry? Sally Turner reports.
With the cost of global healthcare soaring – and both Medicare and the National Health Service (NHS) under pressure to optimise services – it is no surprise that drug spending is receiving increased attention from those footing the bill. Some ‘super-pharmacies’ are intent on shifting costs on to patients, but the majority are moving towards new management of formulary categories once thought ‘untouchable’.
Express Scripts is one of the largest pharmacy benefit managers (PBMs) in the US, providing coverage to 25 million Americans, with a portfolio of approximately 3,900 medications. These PBMs act as an intermediary between pharmaceutical companies and patients, and play a crucial role in delivery to the public. As of 2018, the company is the 25th-largest in the US, and in 2016 declared revenues of $100.752bn.
“PBMs hold a lot of sway in the industry, particularly ones that provide coverage to a large number of Americans,” explains Rahael Maladwala, health analyst for GlobalData. “So it is important for pharmaceutical companies to give them a voice in strategy discussion, in regards to pricing and market access strategy.”
There are 48 drugs being removed from Express Scripts’ formulary coverage from 1 January 2019.
“Many of these include rare disease speciality drugs, however, a lot of the drugs being excluded have biosimilars and generics available,” he continues.
Among the specialty medications being dropped by Express Scripts are Atripla, CSL Behring’s Berinert to treat hereditary angioedema, and five factor VIII products to treat haemophilia.
Sanofi’s factor VIII drug, Eloctate, has relied on US sales for approximately 70% of its revenue generation, but has now been removed in favour of lower-priced alternatives including Shire's Adynovate and Advate. AbbVie’s leading hepatitis drug Mavyret was also excluded from the list, which is bad news for the pharma giant given industry analysts predicted sales to rise in excess of $1bn next year.
Express Scripts’ decision drivers
In addition to efficacy and safety, value of treatment is now a key factor that drug manufacturers must focus on to in order for a product to be considered for formulary coverage. This will undoubtedly have been a key driver in Express Scripts’ decision-making process.
The removal of these drugs, mainly branded, signifies an opportunity for generics and biosimilars to fill the gap with cheaper alternatives.
“However, it must be noted that efficacy and safety are the first factors to be considered and cost-effectiveness only comes into play in areas where multiple drugs are available for a patient,” says Maladwala. "The removal of these drugs, mainly branded, signifies an opportunity for generics and biosimilars to fill the gap with cheaper alternatives, thus reducing costs. Express Scripts was also recently acquired for $67bn by Cigna, and this decision may signify a change in strategy for this ‘super’ PBM.”
With the ‘generic wave’ continuing to flood the market, we can expect to see new, high-profile generic products and biosimilars becoming successful alternatives to once ‘untouchable’ speciality drugs.
Shock waves – the fall-out for pharma
Express Scripts has been quick to reassure clinicians and the public about supply issues, stating that the vast majority of patients are unlikely to be affected.
“Of the 48 drugs removed from the 2019 formulary, 22 have better value generics available, and 11 have better value biosimilars,” comments Maladwala. “And 12 drugs have a competitor (same active ingredient) which has a lower net cost, a further ten medications are multisource brands with direct generic equivalents, and nine are short-term therapies (there is some overlap between these categories). In a case where a patient does not get the optimum treatment, there is a formulary exception scheme.”
Big pharma are likely to feel the fall-out most heavily, with companies that price their drugs lower having a higher chance of getting formulary coverage.
In a case where a patient does not get the optimum treatment, there is a formulary exception scheme.
“In response there are two main strategies that companies can take,” continues Maladwala. “Either lower their prices to be competitive, or commission studies gathering real world evidence to show that the price is proportional to the improvement in a patient’s quality of life (QOL), compared to other drugs for the same indication – even if the price is higher, the difference in the patient QOL warrants the high price. Pharmaceutical companies would be wise to incorporate this approach.”
Mergers and acquisitions also continue apace in pharma as companies look for ways to restock their brand portfolios, and develop innovative biotech in a bid to secure greater protection from future generics.
Winners and losers
It is difficult to predict with confidence which pharmaceutical companies will be winners and losers in the wake of the Express Scripts’ announcement. The companies that have lost coverage will take a significant hit, including Sanofi and AbbVie, as well as a whole host of smaller players that have developed rare disease drugs.
“Companies such as Gilead and Merck who remain on the formulary list, now have much less competition for their drugs,” says Maladwala. “However, it is likely they have been left on because they agreed to discounts, rebates and lowered prices, and as such their revenue may not rise as much as expected.”
Companies such as Gilead and Merck who remain on the formulary list, now have much less competition for their drugs.
However, it looks as though the decision will ultimately be positive for US patients, as by reducing costs Express Scripts has the potential to improve coverage for its subscribers.
“In the long term, this move is likely to be seen as part of a bigger movement of lowering drug prices and moving to an outcome-based pricing system,” adds Maladwala.
Setting a precedent on policy
The Express Scripts decision is indicative of a trend in US healthcare – a move towards the more outcomes-based, patient-oriented pricing strategy that Maladwala has identified.
“This isn’t just limited to Express Scripts,” he explains. “CVS Health are removing 23 drugs from their formulary in 2019. It is likely this will continue to be a major issue in US policy and reimbursement in the future.”
This isn’t just limited to Express Scripts. CVS Health are removing 23 drugs from their formulary in 2019.
The implementation of the ‘Biosimilar Action Plan’ by the US Food and Drugs Administration also looks to encourage the development and penetration of biosimilars in the US market.
“Again this is based on improving the value of treatment and lowering drug prices. I expect schemes and policies such as this will become more common over the next decade,” he concludes.
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