Biotech and Pharmacies

Trying to take advantage of explosive biotech opportunities, most try to map out leading drug pipeline candidates that have the highest likelihood of success during trials.

But here’s a question, what if I asked: Is the creation of a “miracle drug” only half of the equation that leads to the success of a biotech company?

The 800 lb. gorilla in the room (and no one wants to talk about it) is distribution. In big healthcare, distribution comes in the form of the Pharmacy Benefit Management (PBM) organizations that process and pay prescription drug claims. These PBMs also contract with pharmacies and negotiate with drug manufacturers for discounts and rebates.

Every PBM maintains their “formulary” or list of approved drugs they are willing to cover on each drug benefit plan, at a set rate, and as you can imagine, getting on that list is the other half of the success equation for biotech companies.

Breaking Down The Numbers

Just looking at the numbers, the power these PBMs wield is startling, more than 210 million Americans (two thirds of our entire population) receive drug benefits administered by PBMs. Most who subscribe to a PBM fall under one of the “big five” listed below. If you have a PBM, these should look very familiar.

• Express Scripts
• CVS Caremark
• Prime Therapeutics (Blue Cross Blue Shield)
• United Health
• Catamaran Corporation

The Express Scripts Holding Company (Nasdaq:ESRX) is the largest pharmacy benefit management organization in the U.S., with revenues of $104.62 billion. This week, we saw a move by Express Scripts that truly showed the power that these companies wield over billion dollar drug manufacturers.

Treatment solutions for Hepatitis C have been big business in 2014 with two main players, AbbVie (NYSE:ABBV) and Gilead Sciences (Nasdaq:GILD). Gilead comes to the market with $84,000 per course Sovaldi and $95,000 per course Harvoni, while AbbVie comes with $83,319 per course Viekira Pak.

When Gilead launched the $1,000 per day Sovaldi in 2013, it quickly became the best pharma product launch in history with 2014 sales expected to hit $12.7 billion. Sovaldi could cure 95% of patients depending on the strain of virus, preventing eventual liver failure. This year Harvoni was launched, which is the first one pill Hep C treatment, combining Sovaldi and a new drug.

However, this week Express Scripts inked a deal with AbbVie (NYSE:ABBV) to be the exclusive provider of Hep C treatments for it’s twenty-five million patients. In return, AbbVie will provide a huge rebate to Express Scripts, which should flow down to its customers… right?

There’s a high likelihood that patients will complain loudly about the decision because taking Viekira instead of Harvoni will mean taking more pills, taking Ribavirin and being on meds for an additional month.

However, whatever the outcome is, this example is a true illustration of the daily power plays occurring on the “distribution” side of the house that will affect your healthcare and your wallet.

I currently track trends surrounding healthcare and biotech utilizing my social media collective Intelligence system and provide alerts in my Biotech Intel Trader service.

As always, I will continue to monitor the market’s social media collective intelligence and keep you updated on the latest trends.

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Ben

Categories: Biotech

About Author

Ben Benoy is a veteran of the U.S. Marine Corps and has been an active retail trader since 2006. He identifies investment opportunities based on key social media trends. He first identified the concept in 2008 and has since developed a tool for tracking investment “chatter” between social media users. His proprietary Social Media Stock Sentiment system has developed into a state-of-the-art platform that identifies and classifies chatter about stocks through algorithms and other indicators to forecast stock-price direction. Ben’s track record speaks for itself — over the past 12 months, his system boasts a win rate of 82.2% on 112 stock trades.