Pamela Leigh Sauerwald, IMS Health

	Today, specialty pharmaceuticals are special indeed: they are dominating pipelines, and their sales are forecasted to grow at twice the rate of traditional products for the next five years (Fig. 1.) By 2013, global revenue from specialty products will exceed $160 billion. But with such rapid growth comes equally rapid change...

The technological evolution behind this extraordinary surge and commanding market presence is driving the need for additional sites of administration and new distribution models. What should manufacturers consider as they navigate the complexities and nuances of their relationships with specialty pharmacies?

	Intensified cost pressure will challenge the degree of access granted to specialty products. What strategies can help companies sustain their commercial success?

	Economic challenges will chip away at patient adherence to these expensive therapeutic regimens. How can manufacturers counteract this trend and support strong patient outcomes?

	The following pages explore developments in specialty product distribution in the US and how they will affect the commercial choices that manufacturers make. This glimpse into the future is intended to help manufacturers as they bring new products to market and partner with specialty pharmacies throughout the lifecycle of specialty products.

	Initially, pharmaceutical products requiring special handling en route to physicians’ offices and hospitals in the US were distributed via specialty wholesalers—as they are still in much of Europe today. In the 1970s, a handful of pioneering specialty pharmacies were formed, primarily as a mechanism for cold-chain delivery and typically focusing on just one or two therapy areas such as cancer, HIV/AIDS, fertility or hemophilia.

	In the intervening years, the advent of biologics with new administration methods, and the rise of managed care, outpatient clinics and home health care have added to specialty distribution opportunities. During the 1980s, specialty pharmacies began to spring up to ensure that medications were handled safely and cost effectively and by the 1990s, even the large chains such as Walgreens and CVS, had established specialty pharmacies to serve the needs of patients with demanding health problems.

	Several of the largest specialty pharmacy providers (SPPs) are the result of a pairing with pharmacy benefit managers (PBMs) or large, retail pharmacy chains, so their dual role as clinical advisor to patients and cost controller for payers comes quite naturally to them.

	The largest SPPs have expanded their business models to include a wide variety of value-added services (Fig. 2). Most strive to provide a more holistic approach to improving health and managing costs by overseeing the individual patient’s pharmaceutical treatment and benefit. In this way, SPPs are becoming an important component in manufacturers’ ability to deliver on the “whole product concept,” a view that considers the product not as a pill or vial, but as a health outcome.

	Several conditions are coalescing to bring about changes in specialty distribution practices and SPP business models that have a bearing on manufacturers’ commercial activities. These include:

	Payers will increasingly look to PBMs—and by extension their subsidiary or partner SPPs&mdash;to apply drug utilization management techniques in order to control costs. Indeed, this expectation is why coverage for specialty products is so often “carved out” into a separate contract. Cost containment techniques include determining access based on diagnostic criteria (such as molecular diagnostic tests, for example), adhering to evidence-based clinical guidelines, seeking prior authorization, requiring step therapy, monitoring the duration of therapy, and minimizing off-label use. All of these techniques will clearly serve to constrict product sales.

	Manufacturers are already expected to demonstrate the value of their medicines to health technology assessors and, ultimately payers, through health economics and outcomes research (HEOR). But specialty pharmacy providers will soon be able to weigh in on this issue of a product’s value with feedback on its comparative effectiveness in the real-world setting. The benefit of this to a given manufacturer depends, of course, on how individual products compare. For better or worse, manufacturers must brace themselves for the availability of such information, because it is coming.

	To the extent that payers extract guarantees from manufacturers on product performance (such as when the National Health Service contracted with J&J to pay for Velcade [bortezomib] treatment in only those patients for whom it proved effective), SPPs can play a role. SPP programs that improve patient compliance and ensure that patients meet required diagnostic criteria prior to receiving treatment can clearly protect the manufacturer’s interests in such situations.

	Another financial issue is how plans manage drug versus medical benefits. There has been a trend, driven by the increased need for medical services, for the medical benefit to be a larger part of the overall benefit calculation. However, the development of more oral products with reduced medical-service requirements may slow this trend.

	The push to find lower-cost alternatives to expensive specialty therapies is motivating governments (particularly where governments are the primary payers of healthcare expenses) to create regulatory pathways for biosimilars. Many questions still surround how the availability of biosimilars will play out in the marketplace, including whether substitution will be permitted or even mandated. This concerns specialty pharmacy providers because the margin differential between brands and biosimilars will affect their profitability, which may, in turn, drive further cost-cutting measures.

	IMS also believes that there will be a movement to discourage (or outright prohibit) physicians from continuing to buy specialty products in bulk and then bill payers for them as they are administered to patients (the so-called buy-and-bill model). Payers contend that the practice represents a conflict of interest for physicians by affecting their prescribing choice. If payers are successful in overturning the buy-and-bill model, the effect will be to level the playing field for makers of medications that have not represented a revenue opportunity for prescribers.

	And, as more of the burden of healthcare costs is transferred to patients’ shoulders, we can expect adherence to expensive and inconvenient treatment regimens to deteriorate. In this respect, SPPs certainly are developing more strenuous interventions, and an SPP’s ability to bolster compliance will become a significant differentiator.

	The number of specialty products in the pipeline promises to strengthen the specialty distribution channel in the US and to drive adoption of the US model in European markets. Specialty products are being developed for new disease categories (such as pulmonary arterial hypertension, for example), adjunctive therapies that mitigate side effects or augment the efficacy of existing therapies are in development, and new technologies that will change the treatment paradigm for some disease states are on the horizon. These include therapeutic vaccines* and mechanisms for delivering personalized medicines. New drug delivery technologies, such as transdermal methods, self-administered infusion, or the longstanding drive of transforming injectable/infusible drugs into oral solids, factor into the industry’s future.

	We anticipate that many therapies, owing to new delivery mechanisms, will be able to be administered at different sites, and this will have a bearing on whether they fall under medical or pharmacy benefit plans. Thus, emerging drug-delivery technologies will drive changes in payer benefit designs—changes that manufacturers must take into account as they prepare to launch a product, develop competitive strategies, and create forecasts.

	Although we expect some new specialty products to be introduced in pill form (as opposed to injectable form, such as with some upcoming MS treatments), they will still carry a high-risk profile, and patients using them will continue to benefit from the disease management services that SPPs offer patients, in medium and “high-touch” categories.

	In the wake of the safety issues that have shaken the market in the past few years, the Food and Drug Administration (FDA) is requiring that more drugs have Risk Evaluation and Mitigation Strategy (REMS) programs. (And, many companies are voluntarily preparing them.) Specialty pharmacy providers can serve as a vital component in executing REMS by offering patient education, encouraging compliance, sending clinical check-up reminders and managing side effects.

	IMS foresees that due to the above market forces, the SPP segment in the US market will mature rapidly, leading to continued consolidation and partnering between players.

	Eventually, we expect the US business to be concentrated between just three to five major players, as is already the case with US wholesalers, retail chains, PBMs, and mail service providers.

	Many players may also pursue a strategy of vertical integration through ownership of a PBM, a clinical administration site, and an SPP. This would complicate the sales process for manufacturers on many levels. On the most elemental, it will become very important, but harder, to understand the web of connectivity between providers, benefit managers, and specialty pharmacies, in order to employ an account-based, or customer-driven, sales model.

	The potential for explosive growth within the segment is not lost on investors, and as SPPs in the US gain strength and mass, they will acquire the wherewithal to expand geographically into the major European markets. In April, 2008, Accredo, one of the nation’s leading providers of specialty pharmaceuticals, acquired a majority interest in Europa Apotheek Venlo, one of Europe’s leading mail-order pharmacies serving Dutch and German healthcare markets from its Netherlands operations—an action that may be an example to others.

	Manufacturers clearly have much to gain from maintaining healthy business relationships with SPPs. From a manufacturer’s standpoint, one of the greatest advantages of those SPPs that subscribe to the more evolved service model is their close and ongoing relationship with the patient. SPPs take over where physicians leave off in working with patients to manage their disease and benefit fully from their treatment. To manufacturers, SPPs are communication links to patients and strong influencers in the success of therapy.

	SPP services that directly serve manufacturers’ interests include:

	Nationwide shipping (overnight, if necessary) and delivery of products while maintaining cold-chain continuity as needed

	Coordinating patients’ participation in clinical trials

	Resolving access and reimbursement issues, thus paving the way for usage

	Encouraging compliance and persistence through refill reminders, patient education, and troubleshooting

	Delivering care to indigent patients, executing manufacturers’ patient assistance programs

	As the sector consolidates, purchasing contracts with SPPs will carry more weight, and market leaders will negotiate from a position of strength, both with non-owner PBMs and with manufacturers.

	Elements of the supply-chain strategy must be thought through early in a product’s development—long before launch plans are underway. Too often, companies stumble onto an approach, without the benefit of proper analysis and scenario planning. Companies must address such complex and wide-ranging questions as:

	What delivery technology will be approved by regulators?

	Will HEOR data be required by health technology assessors such as the National Institute for Health and Clinical Excellence (NICE) in the UK?

	Given the delivery technology and risk profile of the disease, where will the product be administered? Does the therapy require “high-touch” disease management to be successful?

	What will be the product’s competitive set? (Does your definition of competitors extend to products that are classified as earlier step therapies?)

	How will the product fare in comparative effectiveness studies?

	What types of partners will thus be needed in the supply chain?

	Based on its site of administration, will the product be covered by insurers/payers under a medical or pharmacy benefit? The answer has major implications for pricing and reimbursement strategies.

	What distribution channels are emerging in the geographies of interest?

	What type of distribution partner will offer the right balance between the conflicting needs of maximizing access and maintaining control over the distribution process?

	Do we have the expertise to use this channel advantageously, or would it be advisable to work with a partner who is more familiar with it?

	One of the most important considerations is how broad to make your distribution flow. Logistically and economically, the goal is to cover the most patient lives with the fewest partners, while avoiding payer obstacles. The breadth of the network is to some degree set by the form of administration; products that are administered by healthcare professionals allow for fewer partners in the channel, whereas oral agents require a slightly larger network of pharmacies and distributors. Companies often opt to launch with a restrictive channel strategy and then expand over time. (This is preferable than doing the opposite, which could offend those partners who were eliminated from the network for a specific product.)

	Decisions should be based on the following considerations:

	Type of channel: wholesaler, specialty distributor (via physician) or specialty pharmacy (collects co-pay and makes patient specific shipments) or

	Point of purchase: retail pharmacy, mail, physician’s office or clinic, medical center, specialty pharmacy

	Site of care: home: oral, self-injected or assisted: physician’s office or clinic, hospital, infusion clinic

	Other stakeholders: managed care organizations (MCOs), PBMs, government, employers

	Market environment: disease state, product attributes, competition, and market potential

	Applying a ‘specialty lens’ to commercial decisions

	In order to make effective commercial decisions, manufacturers operating in the specialty pharmaceutical market need a broad base of evidence on prescribing practices, sales and prescription activity, treatment pathways, and patient outcomes. They need access to:

	Sales and prescription volume and share in each relevant channel

	Anonymized, patient-level data tracked over time to reveal penetration patterns by patient characteristic, treatment pathways, dosing metrics, utilization history, and health outcomes

	Source-of-business metrics, uncovering market dynamics and competitive trends

	Health Care Relational Spheres (HCRS) to understand the affiliations between entities

	When advanced analytic techniques are applied to this foundational understanding of how specialty products are being prescribed, distributed, and used, it is possible to:

	Direct pipeline investments based on an accurate assessment of market opportunity by indication

	Develop sound distribution strategies early in the product lifecycle so that positioning within the channel becomes a competitive advantage

	Achieve optimal market access, relying on proof of health outcomes to support value demonstration

	Ensure that global launches follow the most advantageous pricing and reimbursement strategies

	Segment prescribers based on a true understanding of their treatment patterns and visibility into their patient populations

	Allocate promotional resources effectively, by indication

	Manage brands for optimal performance, mindful of competitive moves and market dynamics

	For manufacturers already in—or planning to enter&mdash;the specialty pharmaceutical market, the shifting landscape presents three key business challenges: understanding the dynamics of the market, demonstrating product value in terms that all stakeholders appreciate, and developing the best distribution strategy for each product in the portfolio. PC

	Specialty Distribution Evolving Outside of the US

	In other major world markets, the distribution channel is quite different (because the central government funds health care), but it is migrating toward the US model. Specialized pharmacies are only now emerging within the major European markets, and those in Canada are already patterned similarly to the SPPs in the US in terms of the breadth and sophistication of their offerings.

	In Europe, most specialty pharmaceuticals are administered in hospitals, but this is bound to change as cost-saving efforts accelerate. Alternative and less-expensive sites for administering specialty products (such as the patient’s home, infusion centers, and ambulatory clinics) are gradually taking hold.

	Home health care is already making inroads in the UK, and some specialty pharmacies are now operating in Germany and the Netherlands—although they do not yet offer the array of value-added services seen in the US. IMS believes that it is only a matter of time before EU markets mimic the US model for SPPs, either through the emergence of EU businesses, or through the geographic expansion of US entities.

Pamela Leigh Sauerwald, IMS Health

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