Specialty pharmacy

Inside the economics of the business that is transforming health care

By Jim Frederick Sal Saraniti remembers the rst national gathering of specialty pharmacy representatives hosted by Armada Health Care in 2005. Our very rst Armada meeting ve or six years ago, there were maybe 15 or 20 of us there, said Saraniti, the chief pharmacy ofcer for Fort Lauderdale, Fla.-based Commcare Pharmacy. At this years meeting, there must have been a couple of thousand people there. Saranitis estimate may have been slightly inated the actual number of attendees was something north of 1,000, according to Armada but his description of the fth annual Armada Specialty Pharmacy Summit, held in March in Las Vegas, accurately depicted the phenomenal growth of the specialty pharmacy industry. The boom in specialized and bioengineered medicines is far outpacing innovation and growth in the traditional pharmaceutical industry and drawing in a host of new competitors, from big-chain national pharmacy retailers to small-scale, one-location pharmacy specialists dealing with a specic patient population in a single community. In 2008, Specialty drugs propelled growth, stated the 2009 Medco Drug Trend Report. This group of drugs showed a 15.8% rise in drug spend. Behind the growth, Medco noted, were new products and the absence of a regulatory approval process for lower cost generic versions of specialty drugs. Those factors, the reports authors added, have fueled spending growth in this category. By contrast, the broad market for brand-name pharmaceuticals remains anemic, plagued by a lack of newdrug innovation in traditional drug development, increasing generic competition, the loss of patent protection for some of the industrys biggestselling drugs and the ongoing effects of a recall of big-selling drugs due to patient-safety concerns. If specialty drugs were excluded, overall drug trend would have been 1.3%, Medco reported. There are segments of the pharmaceutical market that are growing, Doug Long, VP trade relations for IMS Health, acknowledged in a July report. Those segments, he added, tend to be in the specialty market, which would also include oncology and biotechnology. In the United States, the pharmaceutical market actually may contract by one or two percentage points in 2009, as weak demand in a recessionary economy, generic competition and an ongoing loss of patent protection for brand-name drugs take their toll, predicted Murray Aitken, SVP healthcare insights for IMS Health. The action, he agreed, will be in specialty and biotech products. Many innovative treatments expected to be launched will be aimed at narrow patient populations, Aitken reported, including some 50 to 60 new chemical or biological products expected over the next two years. About two-thirds of these products

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will be specialist-driven, and many of them are aimed at niche indications and narrow patient populations, noted the IMS research executive. IMS Healths Pamela Sauerwald, general manager of specialty offerings development, also looked to biotech and narrow-indication drugs that treat serious chronic conditions to spur growth in an otherwise lackluster pharmaceutical industry. The specialty pharmaceutical market in general is growing at about double-plus what the traditional marketplace is growing, Sauerwald said. Globally, traditional

Globally, traditional growth is at about 4.4%, and specialty pharmaceuticals are at about 8.8%, year-overyear [in] 2008.
growth is at about 4.4%, and specialty pharmaceuticals are at about 8.8%, year-over-year [in] 2008. In 2008, specialty products generated just shy of $60 billion in U.S. sales, Sauerwald told Specialty Pharmacy, and globally generated roughly $134 billion. By 2013, she predicted, global sales will reach $160 billion in manufacturer revenues. rm pointed out in its World Preview 2014 report, issued June 17. Biotech products are rapidly closing the gap on small molecule drugs, the report noted. Indeed, bioengineered medicines are supplanting traditionally based drugs as the pharmaceutical industrys top-selling products. Products that are biotech in origin, either through monoclonal antibody

Also predicting a continued shift to specialty and biotech was the research and consulting rm EvaluatePharma. Conventional or small molecule drugs, noted the company, still represent the bulk of the pharmaceutical market, noted the company, with worldwide revenues expected to grow to $406 billion by 2014. Of that total, biotech products will generate $169 billion in annual global sales within the next ve years. That doesnt mask the fact that higher value products are seeing a dramatic shift toward biotech, the

or recombinant technology, already account for ve of the top 10 bestselling pharmaceuticals. In 2000, just one biotech drug, Amgens erythropoietin medicine Epogen, claimed a spot among the top 10. Within ve years, EvaluatePharma predicted, theyll comprise seven of the top 10 sellers, and Roches cancer antibody Avastin will supplant Pzers Lipitor as the worlds top-selling drug. The fact that a biotech product will assume Lipitors crown in 2012, after the cholesterol-lowering drug phenomenon goes off patent, is indicative

>> Pamela Sauerwald, GM specialty offerings development, IMS Health

of the increasing dominance of biotech products, and specically cancer antibodies, the research rm noted. Not only will there be a dominance of biotech products in 2014, the fact that all of the top six best-selling drugs will be biotech illustrates the importance of these products as growth drivers for the industry as it faces its biggest challenge
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Specialty pharmaceuticals
IMS Global Denition
A group of medications designed to target and treat specic, characteristically chronic, often rare or genetic diseases that are:
TYPICALLY Initiated only by a specialist Generally not taken orally Require special handling (e.g., cold chain) Unique distribution management, administration and/or paperwork Frequently very expensive AT TIMES Warrant intensive patient counseling to ensure compliance Require reimbursement assistance EXAMPLE DISEASES TREATED
Cancer, Crohn's disease, cystic brosis, Gaucher's, growth hormone deciency, hemophilia, hepatitis C, immune deciency, infertility, multiple sclerosis, pulmonary arterial hypertension, rheumatoid arthritis and other diseases

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Top 10 specialty categories globally

Specialty pharmaceuticals Oncologics (e.g., Avastin, Erbitux, Herceptin, Rituxan, Sutent, Taxotere, Xeloda) HIV antivirals (e.g., Atripla, Kaletra, Truvada) Immunosuppressants (e.g., Prograf, Cellcept, Rapamune) Erythropoietins (e.g., Aranesp, Procrit) Specic Antirheumatics (e.g. Enbrel, Humira, Remicade, Orencia, Kineret) Immunostimulants (excl. Interferons; e.g., Neulasta, Copaxone, Neupogen) Interferons (e.g., Roferon, Avonex, Betaseron) Immunoglobulins (e.g., Gamimmune, Gamunex, Octagam) Blood coagulation (e.g., Helixate FS, Koate) Antivirals (Hepatitis B&C) (e.g., Rebetol, Copegus, Baraclude) Total others
Source: IMS MIDAS, December 2008 IMS Specialty Market Dynamics

Specialty products span a number of categories

2008
% market share % growth U.S.$ % CAGR* 03-07

100.0 35.7 9.1 9.1 8.5 8.2 6.6 4.2 3.7 3.0 2.9 9.0

8.8 11.4 11.9 17.9 -14.0 18.2 6.0 8.1 11.5 8.6 6.2 9.8

13.9 18.1 12.5 13.8 4.5 35.5 14.2 7.6 12.0 11.7 5.1 11.4

* compound annual growth rate

to date, given the scale of the small molecule patent cliff. In response, traditional pharma companies are scrambling to buy or innovate their way into the biotech sector. The weight of evidence for a shift to biotech products as the industrys growth driver is overwhelming, making the recent moves by big pharma to access biotech platforms not only for generating innovative medicines but also to launch biosimilar products all the more compelling, noted EvaluatePharma. A recent report from the trade group Pharmaceutical Research and Manufacturers of America supported that assertion. Specialty medicines are typically used to help patients for whom alternative treatments have not been, or are no longer effective, noted the report. Citing a study published earlier this year in the journal Health Affairs, PhRMA pointed out that specialty medicines represent less than 7% of total healthcare spending, even for the most severely ill patients. Their positive impact on patient outcomes and disease management,

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however, can be profound. In recent years, patients have beneted from new specialty medications, achieving major advances against such diseases as cancer and multiple sclerosis, the group contended. Some say weve turned a corner in the war on cancer. Indeed, PhRMA reported, thanks to targeted cancer therapies, better detection and prevention, for the rst time in 70 years, cancer deaths in the United States began to fall, an annual trend detected in 2006 and conrmed in 2007. A recent survey from the group found 324 biotechnology medicines in development for nearly 150 diseases, including 154 drugs for cancer, 43 for infectious diseases, 26 for autoimmune diseases and 17 for AIDS/

Ken Johnson. The case for specialized medicines is indeed compelling, both in terms of their potential benet to millions of patients with serious and hard-tomanage diseases, and in terms of their potential as a huge and fast-growing new industry. But the specialty pharma landscape abounds with challenges. And it demands from its practitioners a serious commitment to hands-on, ongoing patient care; lengthy insurance adjudication; and close
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HIV and related conditions. These potential medicines, all of which are either in human clinical trials or under review by the Food and Drug Administration, will bolster the list of 108 biotechnology medicines already approved and available to patients, PhRMA reported. The biotechnology revolution is helping create medicines that use unprecedented technologies, such as nano-sized particles that seek out and kill viruses, ways to actually regenerate healthy muscle to replace damaged heart tissue and gene therapy, added PhRMA SVP

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Top 10 Rx products 2000 Only one specialty drug

Rank 1 2 3 4 5 6 7 8 9 10 Product Losec/Prilosec Zocor Lipitor Epogen/Procrit Norvasc Pravachol Prozac Zyprexa Seroxat/Paxil IR Claritin Company AstraZeneca Merck & Co. + Sanofi-Aventis Pfizer + Astellas J&J + Amgen Pfizer BMS + Daiichi Sankyo Eli Lilly Eli Lilly GlaxoSmithKline Schering-Plough Therapeutic subcategory Antacids & anti-ulcerants Anti-hyperlipidaemics Anti-hyperlipidaemics Anti-anaemics Calcium antagonists Anti-hyperlipidaemics Anti-depressants Anti-psychotics Anti-depressants Anti-histamines Technology Small molecule chemistry Small molecule chemistry Chiral chemistry Recombinant product Small molecule chemistry Small molecule chemistry Small molecule chemistry Small molecule chemistry Small molecule chemistry Small molecule chemistry ww sales ($m) 6,260 5,328 5,207 4,672 3,361 2,866 2,585 2,366 2,349 2,194

Top 10 Rx products 2008 Half are specialty drugs

Rank 1 2 3 4 5 6 7 8 9 10 Product Lipitor Plavix Advair Enbrel Diovan Rituxan Remicade Nexium Epogen/Procrit Avastin Company Pfizer + Astellas + Almirall BMS + Sanofi-Aventis GlaxoSmithKline Wyeth + Amgen + Takeda Novartis + Ipsen Roche SGP + J&J + Mitsubishi Tanabe AstraZeneca J&J + Amgen + Kirin Roche Therapeutic subcategory Anti-hyperlipidaemics Platelet aggregation inhibitors Other bronchodilators Other anti-rheumatics Angiotensin II antagonists Anti-neoplastic MAbs Other anti-rheumatics Antacids & anti-ulcerants Anti-anaemics Anti-neoplastic MAbs Technology Chiral chemistry Small molecule chemistry Small molecule chemistry Recombinant product Small molecule chemistry Monoclonal antibody Monoclonal antibody Chiral chemistry Recombinant product Monoclonal antibody ww sales ($m) 13,507 9,447 7,828 6,455 5,825 5,481 5,293 5,200 5,162 4,818

Source: EvaluatePharma

coordination between pharmacies and other health professionals and payers. These products treat complex chronic diseases, and the emphasis is on complex. Theyre hard to treat, they tend to have high-risk proles, and there could be a lot of side effects, noted IMS Sauerwald. Also complicating the prescribing, dispensing and treatment regimen of specialty medications, she added, is that there may be a lot of titration [adjustment] in dosage. More so than in traditional pharmacy, the high-cost, high-management world of specialized and biotech medicines also demands close coordination of activity and patient management among what Sauerwald calls the four Ps: the

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patient, the payer, the pharmaceutical manufacturer and the prescriber. These products are written, maintained and fullled ongoing by the actual specialist; its not a back-andforth between a [general practitioner] and a specialist, Sauerwald noted. Theyre for medium- to high-touch diseases, meaning you have to have a lot of patient interaction. Specialty pharmacy is far more complex and much more labor-intensive than traditional pharmacy, agreed Nick Calla, VP trade relations for Walgreens Specialty Pharmacy. Complications can ensue along every step of the process, from getting the medicines intact to patients with serious chronic conditions and making sure theyre administered

correctly, to assuring that the patient remains compliant with the dosage and therapeutic regimen. Specialty pharmacy practice also demands following up periodically to monitor the patient for any side effects or other challenges. It has to be done in partnership with the manufacturer, Calla told Specialty Pharmacy. One of the most daunting challenges faced by any pharmacy dealing in specialty medications is their extremely high price tag, with some drugs costing $1,000 or more for a single dose. Said Sauerwald, Specialty drugs can range from around $6,000 per patient annually to as much as $750,000. In oncology, they can run to $1 million to $1.5
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Top 10 Rx products 2014 Specialty drugs will dominate

Rank 1 2 3 4 5 6 7 8 9 10 Product Avastin Humira Rituxan Enbrel Lantus Herceptin Crestor Spiriva Remicade Gleevec/Glivec Company Roche Abbott + Eisai Roche Wyeth + Amgen + Takeda Sanofi-Aventis Roche AstraZeneca Boehringer Ingelheim SGP + J&J + Mitsubishi Tanabe Novartis Therapeutic subcategory Anti-neoplastic MAbs Other anti-rheumatics Anti-neoplastic MAbs Other anti-rheumatics Anti-diabetics Anti-neoplastic MAbs Anti-hyperlipidaemics Anti-cholinergics Other anti-rheumatics Other cytostatics Technology Monoclonal antibody Monoclonal antibody Monoclonal antibody Recombinant product Recombinant product Monoclonal antibody Small molecule chemistry Small molecule chemistry Monoclonal antibody Small molecule chemistry ww sales ($m) 9,232 9,134 7,815 6,583 6,386 5,796 5,739 5,552 5,220 5,136

Tracking the growth of specialty

Sales by technology Biotechnology Conventional Other unclassied sales Total Rx & OTC sales 2000 ($bn) 28 222 60 310 2008 ($bn) 108 408 127 643 2014 ($bn) 169 406 163 738

% of total Rx & OTC sales Biotechnology Conventional/unclassified

2000 ($bn) 9% 91%

2008 ($bn) 17% 83%

2014 ($bn) 23% 77%

% of Top 100 drugs Biotechnology Conventional

Source: EvaluatePharma

2000 ($bn) 11% 89%

2008 ($bn) 28% 72%

2014 ($bn) 50% 50%

million per year. And of course because these products are quite expensive ... access is a challenge, particularly regarding the payers. Because of the expense, they have to be prior-authorized and have proof of medical necessity. Reimbursement assistance is frequently needed, and of course you need patient counseling to ensure persistence and compliance, she continued. Given those high costs, patient advocates and public and private health plan payers eagerly are awaiting progress in Congress to break the regulatory logjam at the FDA with legislation that

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will clear an approval pathway for generic versions of bioengineered drugs. But dont expect those so-called follow-on biologics to be cheap by current generic industry standards, warned Commcare CEO Nick Saraniti. Theres no generic pathway through the FDA for biologics right now. But even when there is, were not talking generics like traditional retail, like $4 Walmart generics, Saraniti observed. Granted, its not going to be $5,000, but it could be $3,000 or $3,500. Its still going to be very expensive, and its still going to need to be managed.

Many specialty meds also are very high-maintenance, requiring refrigeration, special handling and storage, and a demand-driven, just-in-time ordering and replenishment system. That fact isnt lost on such big retail pharmacy companies as Walgreens and CVS Caremark companies that are staking big claims to the specialty drug arena and applying their operational and distribution expertise to the question of handling, storing, dispensing and administering high-tech medicines. Walgreens, for its part, is tackling those challenges with its high-tech logistics and distribution network, already one of the most sophisticated in all of retailing. We do it with inventory management, Calla said. You dont order the med until youre absolutely sure youre going to need it. And you have to make sure you coordinate the delivery of the medication with the patient. Some of this stuff has a very short shelf life, and if its not used right away, you could lose out. So at the end of the day, its about effective inventory management and effective patient management, because you have to make sure the patient and doctor are aware its coming, he added. The challenge inherent in getting these highly targeted, very expensive medications from the point of manufacture to the patient is really why specialty pharmacy was born, Calla noted.

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Fueled by an expanding pipeline of complex products and protocols, the specialty pharmacy market is forecast to grow from $80 billion to more than $500 billion in the next 15 to 20 years. From one end of the market to the other, only Specialty Pharmacy covers the innovations, issues and big ideas that are building this business. If youre involved in the distribution, production or manufacturing of specialty pharmaceuticals, or if your company provides benet services to specialty pharmacies and their patients, subscribe to Specialty Pharmacy, your source for business insights, analysis and perspective.

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