The Evolving Dynamics of Specialty Pharmacy in Oncology

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1 February 2013 Edition Vol. 7, Issue 2 The Evolving Dynamics of Specialty Pharmacy in Oncology By: Deni Deasy Boekell, Senior Director, Commercial Planning, Kantar Health With the increasing use of specialty drugs in the oncology marketplace, competition among them is proving to be a trend worth watching as they are positioned to become a dominant player. As noted by J.P. Morgan, specialty drugs revenue in the pharmaceutical industry increased 7.9%, in 2011, compared with 2% growth in traditional drug sales (Figure 1). Figure 1: Sales Growth for Specialty and Traditional Drugs 2011 Source: Healthcare Technology & Distribution. J.P. Morgan; May 23, Within four years, specialty drugs are expected to account for up to 35% of pharmaceutical manufacturer sales. 1 The largest category of specialty drug spend is in oncology with $30.6 billion spent in Leading the charge is Rituxan, followed by Herceptin, Avastin, Gleevec, Revlimid, Alimta, Xeloda, Velcade, Tarceva and Sutent. Oncology specialty drugs will continue to grow, driven primarily by the introduction of novel and expensive oral oncolytics (Figure 2). Figure 2: Percent of All U.S. Cancer Patients Treated with Branded Oral Oncolytics

2 Source: Kantar Health CancerMPact, Patient Metrics, U.S. Available from Although there is not one universally accepted definition of specialty pharmaceuticals there is a core set of qualities that is common across most of these products. Among them is cost. Specialty drugs tend to be very expensive and often carry high out of pocket costs. They usually target specific patient populations, such as orphan diseases, chronic conditions (e.g., rheumatoid arthritis) or complex diseases (e.g., HIV, cancer); are often associated with significant side effects; and therefore, may require high levels of patient monitoring and counseling. In addition, many specialty drugs are biologics that have special handling requirements as well as complex dosing and administration regimes. Distribution Channel Options When it comes to managing and dispensing specialty drugs, specialty pharmacies are fundamentally better equipped to handle them than retail pharmacies, which are more commonly configured for higher volume, traditional oral medications. To meet the need for pharmacy services on self-administered (oral and self-injected) specialty drugs, specialty pharmacies evolved and are operated by a variety of entities including health plans, pharmacy benefit managers, and retail pharmacy chains, though many independent specialty pharmacies also exist. Many major retail pharmacies are investing in developing specialty drug capabilities to capitalize on the growing market. Currently, three SPs Express Scripts, CVS Caremark, and Walgreens make up more than 50% of the specialty drug market, while the rest of the market is comprised of hundreds of smaller specialty pharmacies including Diplomat Pharmacy and Omnicare s Advanced Care Scripts. Factors Driving Increased Use of Specialty Pharmacies A number of factors are driving the rising use of specialty pharmacies, including: Increased high-cost specialty product volume, especially oral oncolytics; Pipeline shifts to oral specialty products presaging future marketed specialty drug growth; Payer demand to control specialty spend 58% of plan sponsors with over 25,000 members cite rising specialty costs as their greatest concern 3 ; Growing physician acceptance of orals; and Manufacturer desire to improve safety and supply chain control.

3 Just two years ago, 60% of oncologists preferred prescribing an IV drug over a therapeutically equivalent oral option; however, in 2012, just over 50% of oncologists preferred prescribing an IV drug regimen. 4 In a 2012 Kantar Health Oncology Market Access survey (N=150), among oncologists who responded, they indicated they are more likely to prescribe an oral versus an IV drug because of increased convenience for patients and the support they receive with administrative, financial and clinical management issues from a specialty pharmacy. 5 Impact of Specialty Pharmacy Networks on Payers For payers, improved specialty pharmaceutical care not only supports patient outcomes, it also reduces unnecessary spend due to incorrect dosing, and emergency department visits to resolve drug-drug interactions or difficult-to-tolerate side effects. Payers may also use a specialty pharmacy to check a patient s biomarker status, which ensures what patients are qualified to receive biomarker-targeted drugs (Figure 3). Pfizer uses five specialty pharmacies to support Xalkori for ALK-positive non-small cell lung cancer. Figure 3: The Value Specialty Pharmacies Provide to Health Plans for Cancer Treatment Source: Kantar Health Managed Care Organization Survey, August 2012 and April 2011 (continued on page 2) In addition, payers can be quite restrictive in which specialty pharmacies members can access. In a 2012 Kantar Health Managed Care Organization survey of payers the vast majority of respondents have a closed specialty pharmacy network and a single preferred specialty pharmacy. Only 20% of payers have an open network, while 46% have a single preferred specialty pharmacy (Figure 4). About one-third of the surveyed payers own a specialty pharmacy. Of the remaining payers with a preferred specialty pharmacy that they did not own, 20% intended to operate their own specialty pharmacy in the next three to five years. These findings indicate that it may be beneficial for manufacturers to be aware that the number of specialty pharmacies through which they choose to distribute products can have an impact on patient access, as a narrower distribution network may not include certain payers networks and/or preferred specialty pharmacies. Figure 4: Health Plans Specialty Pharmacy Arrangements

4 Source: Kantar Health; Managed Care Organization Survey, (n=150) August 2012 Plan members have limited flexibility in accessing drugs from a specialty pharmacy that is not payer-preferred or is out of network. For payers with a network of more than one specialty pharmacy but with one preferred specialty pharmacy, only one-third have incentives for patients to use that specialty pharmacy. These payers use a carrot-and-stick approach to drive patients to their preferred specialty pharmacy. Incentives include direct billing and lower prices for the patient, while higher cost sharing may be incurred if the preferred specialty pharmacy is not used. When a patient needs a drug that is not offered through a network specialty pharmacy, most payers will make an exception to their policies. However, about 40% of payers will still make every effort to enforce their policies. Under a manufactured-determined limited network scenario, patients may face significant financial hardship and manufacturers may want to implement policies and programs to ensure that patients have access to the drugs they need. Considerations for Drug Manufacturers Using Specialty Pharmacies Drug manufacturers may use a specialty pharmacy to gain greater control over the supply chain. Manufacturers may also provide the clinical care or training with oncology expertise that the patient may not otherwise receive. A specialty pharmacy helps patients get the drugs they need, facilitate prior authorization approval, and schedule delivery, help patients stay on therapy with refill reminders, provide side effect management and nurse follow-up, provide REMS implementation (med guide distribution, ETASU execution), and provide utilization data including payer access (reversals and PA success rates). For these reasons, increasing use of specialty pharmacies has become standard, and all of the oral oncology products launched in 2011 and 2012 are distributed through specialty pharmacies. Planning Ahead Manufacturers may want to incorporate a channel strategy into their commercialization plans at least 18 months before launch. Because specialty drugs serve relatively small patient populations, a manufacturer may be able to efficiently reach the entire market with a limited number of channel partners. But it is necessary to understand the opportunities and risks of strategic options. Multiple factors to consider when determining an specialty pharmacy network include: Patient population size, Drug characteristics (e.g., safety issues/adverse events, complex administration, cost, clinical expertise), Distribution control versus patient access trade-offs (fewer SPs allow for greater control, but may cause

5 access issues; larger networks may result in problems trying to coordinate all SPs so patients get a consistent experience), Administrative burden (hub services can be helpful in alleviating burden), and, Access to data. For example, small patient populations can warrant a very limited specialty pharmacy distribution strategy, while a limited strategy for large patient populations could result in a bottleneck for obtaining the drug and cause issues with higher patient cost sharing due to distribution through non-payer-preferred specialty pharmacies. Both AstraZeneca s Caprelsa and Exelixis Cometriq use a single specialty pharmacy in the ultra-orphan disease medullary thyroid cancer. The nature of the product is also important as drugs with few safety risks and uncomplicated administration could go through the retail pharmacy segment, though prior authorizations and high cost sharing will likely remain an access challenge. Furthermore, access to market data is also important for manufacturers, as specialty pharmacies do not regularly report this information to data aggregators. Establishing data submission as part of an specialty pharmacy contract or working with hub services is important in order to know how a product is being used and to identify issues and opportunities. In Closing The key to success for manufacturers when engaging with a specialty pharmacy is to ensure that the specialty pharmacy is effective, efficient, and experienced in oncology requiring nominal paperwork, avoiding redundant or unnecessary administrative steps, facilitating speedy and accurate dispensing and delivery of drug and offering expert-level clinical oncology care. It is also important that effective quality controls and customer service are in place by the specialty pharmacy. Overall, the specialty pharmacy must be reliable and easy for oncology patients and oncologists to use lest they also become a barrier to what they promise to bring: optimal access to complex and costly medications. Sources: 1. Prime Therapeutics: 2012 Drug Trend Insights; Healthcare Technology & Distribution Healthcare Technology & Distribution. J.P. Morgan, 23 May Express Scripts, 2012: 9 Leading Trends in Rx Plan Management. 4. Kantar Health; Oncology Market Access, Channels Module, Kantar Health; Oncologist Survey, May About the Contributors Deni Deasy Boekell is Senior Director, Commercial Planning in the Oncology Commercial Strategies group at Kantar Health. Kantar Health is a global, evidence-based decision support partner to the world s leading pharmaceutical, biotech, device and diagnostic companies. Our 700+ staff act as catalysts, working closely with customers to drive distinctive decisionmaking that help them prioritize product development and portfolios, differentiate their brands and ensure product profitability after launch. We are unique in that we bring together clinical, medical and methodological expertise, commercial/marketing know-how and proprietary data. It is this rare combination, together with our unparalleled stakeholder reach, that enable us to mobilize incisive, imaginative and timely ROI-driven solutions, empowering clients to deliver better healthcare options to their customers. Kantar Health s oncology-related offers include Oncology Market Access (OMA) US which provides strategic and tactical insights into the evolving oncology landscape. Combining Kantar Health s commercial and clinical expertise in oncology, OMA US provides cutting-edge information and analysis on critical reimbursement, coverage and competitive issues in the US oncology marketplace.

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