Competition is heating up in the specialty marketplace as investment capital is drawn in and the pharmaceutical industry shifts from traditional brand-name drugs to specialty drugs over the next few years.
Below are 7 key reasons behind the coming boom in specialty drug dispensing. As I see it, the projected growth in specialty drug dispensing is encouraging market entry, drawing investment capital into the pharmacy industry, and increasing competition for specialty pharmacy services. Dispensing of specialty pharmaceuticals will become less concentrated as regional chains and independents penetrate this market.
SPECIALTY PHARMACY TODAY
Revenues in the pharmaceutical industry will shift from traditional brand-name drugs to specialty drugs over the next few years. Within 4 years, specialty drugs will account for 40% to 45% of pharmaceutical manufacturer sales. According to EvaluatePharma, 7 of the top 10 bestselling drugs (by revenue) are projected to be specialty drugs in 2016, compared with 3 in 2010.
Retail and mail-service pharmacies dispense primarily traditional pharmaceuticals but not exclusively, whereas specialty pharmacies focus on the selfadministered (oral and injected) specialty pharmaceuticals that are covered under a patient’s pharmacy insurance benefit. Although a majority of specialty drugs dispensed by a pharmacy to a patient are sold via a specialty pharmacy, any licensed pharmacy can dispense a specialty drug as long as the product can be purchased from a manufacturer or via an authorized wholesale distribution channel.
As a result, numerous pharmacies with specialty drug capabilities compete vigorously to dispense these expensive therapies. Other pharmacies dispensing specialty drugs are operated by such organizations as health plans, pharmaceutical wholesalers, retail pharmacy chains, home health care providers, and other PBMs. There are also many independent specialty pharmacies.
Right now, 3 companies—Express Scripts, CVS Caremark, and Walgreens— generate about two-thirds (65%) of revenues from pharmacy-dispensed specialty drugs. Smaller competitors include Diplomat Pharmacy, Omnicare’s Advanced Care Scripts, The Apothecary Shops, ICORE, and many more.
THE SPECIALTY DISPENSING BOOM
In 2011, spending on specialty drugs grew by 17.1%, according to Express Scripts’ latest drug trend report. Specialty drug trend is projected to rise 17.1% in 2012, 19.0% in 2013, and 22.0% in 2014.
This projected growth in specialty drug dispensing is encouraging market entry and will increase competition for specialty pharmacy services. In addition to the many pharmacies that already have specialty capabilities, new sources of competition are rapidly emerging. Here are 7 reasons why.
Independent retail community pharmacies are organizing into collaborative networks to penetrate the specialty market. Examples include the Armada Specialty Pharmacy Network, the Community Specialty Pharmacy Network, and Specialty First. These networks support retail community pharmacy dispensing of specialty drugs by providing contracting, clinical support, and other services. They are slowly gaining traction with manufacturers and payers. Industry data are starting to reflect entrepreneurial pharmacy owners going after the specialty market.
Regional and national chains are launching “specialty at retail” programs. For example, Kerr Drug, a 76-store chain with $570 million in prescription sales, launched its Kerr Health subsidiary focused on specialty pharmacy and clinical services. Grocery chain Schnucks opened 4 specialty pharmacies in 2010—2 are within Schnucks stores and 2 are stand-alone facilities within medical clinics. For patients taking specialty drugs, Per Lofberg of CVS Caremark talks about a “seamless experience” across channels.
Private, independent specialty pharmacies are growing fast. There are 10 independent specialty pharmacies on the 2011 Inc. magazine list of the fastest-growing private companies in the United States. Average revenue for these 10 pharmacies was $111.7 million. The average 3-year revenue growth rate was 208%. All but 1 of these companies were founded within the past 15 years. No nonspecialty pharmacies appear on the Inc. magazine list.
Retail pharmacies are leveraging open government payer networks. Some entrepreneurial independent pharmacy owners are focusing on patients who take specialty drugs and rely on Medicare Part D or Medicaid, which pay for about one-third of specialty drugs. “Any Willing Provider” regulations require that these pharmacies be of a Medicare Part D Prescription Drug Plan (PDP).
Accreditation is lowering barriers to entry. Independent accreditation organizations help community pharmacies develop and verify their capabilities to manufacturers and third-party payers. In this way, accreditation creates a pathway by which any pharmacy can build specialty pharmacy capabilities. According to the EMD Serono Digest, more than two-thirds of health plans identify URAC’s Specialty Pharmacy program as the most important thirdparty accreditation for a specialty pharmacy.
Private equity firms are targeting specialty pharmacy for growth capital investments. Investors are also putting money into platform deals—initial acquisitions that are usually followed by other acquisitions to grow the business. Expect more deals as private equity firms try to roll up high-growth companies in this high-growth market.
The specialty pharmacy channel is gaining buy-and-bill volume from the physician office market. This shift is occurring via white bagging of specialty drugs. A specialty drug can be dispensed to the patient by a specialty pharmacy but dropshipped directly to the provider, such as a hospital pharmacy or a physician office. Some specialty pharmacies are also pursuing a hybrid specialty- at-retail/white-bagging model by operating on-site pharmacies at medical facilities. Walgreens already operates a number of relatively small (<1000 square feet) specialty pharmacies within large cancer centers.
A key hurdle for new entrants will be gaining access to manufacturer and payer networks. The manufacturer of a specialty drug limits the number of pharmacies eligible to dispense its specialty product. Manufacturers strategically choose pharmacies with the distinctive capabilities required to efficiently and effectively serve patients, providers, and payers.
Given the growth and number of new entrants, manufacturers will face enormous pressure to broaden limited distribution networks. Looking forward, dispensing of specialty pharmaceuticals will become less concentrated and limited distribution networks will become larger and more open. SPT
About the Author
Adam J. Fein, PhD, is president of Philadelphia-based Pembroke Consulting, Inc. He blogs at Drug Channels (www.DrugChannels.net).