The State of Specialty Pharmacy 2019: Industry Trends and Photos from #Asembia19 (rerun)

The 2019 Summit attracted an incredible range of job functions and organizations. This event has more diversity than any other industry event. As in previous years, the largest manufacturers, wholesalers, and pharmacies sent dozens of representatives. A few companies had more than 100 people at the conference.

This year, I noticed a greater presence of account directors and managers from every part of the drug channel. Consequently, the number of private meetings has increased faster than the number of attendees. Like many other people, I spent much of the summit running between private meetings. I was therefore happy that Asembia reinstated the opening reception, so Paula and I could catch up informally with our industry friends.

We should all be thankful that Larry and Robert Irene have personally sustained and grown an annual event that unites all aspects of the specialty industry in a neutral forum. The Wynn’s coming expansion looks to make the 2020 Summit even bigger, better, and more productive.

I again had the honor of leading the event’s Featured Session, Specialty Pharmacy Industry Outlook: What’s Next?. I was joined by Doug Long from IQVIA and Lisa Gill from J.P. Morgan Securities. SpongeBob SquarePants also made a surprise appearance.

We made our slides available in real time at the conference via this @DrugChannels tweet. You can download the full deck here: https://drugch.nl/asembia19

If you were there on Wednesday morning, you also heard our spirited panel discussion. We of course took a selfie from the stage—my Asembia tradition!

To conclude Wednesday morning, I had the great privilege of interviewing the inspiring Maria Shriver. I was a bit nervous about this session. I don’t normally sit casually in front of thousands of people and chat with an internationally known journalist and celebrity. Unsurprisingly, she was a true professional and made my job very easy.

Here’s a picture of us on stage. I’m on the left.

Total prescription dispensing revenues from specialty drugs at retail, mail, long-term care, and specialty pharmacies reached $146 billion in 2018, an increase of 6.0% from the 2017 figure. (See Exhibit 36 of our 2019 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.) This growth rate was a historical low. We estimate that specialty drugs accounted for more than one-third of the pharmacy industry’s revenues in 2018.

There appears to be an unexpected growth rebound for some of the larger independent specialty pharmacies. So far in 2019, these companies are growing more quickly than the overall specialty market.

As I see it, leadership at the winners have a business mindset. This means that they are not afraid to exit unprofitable therapeutic categories and reject contracts with subpar reimbursement. These savvy specialty pharmacies are successfully marketing their businesses’ capabilities and services to regional payers and health plans.

In some case, these SPs have been added as a network option even after the payer has limited specialty dispensing to a PBM-owned pharmacy. They are also focusing on patients covered by Medicaid and Medicare Part D, two of the fastest-growing payers for prescription drugs. (See Section 7.1.3. of our 2019 pharmacy/PBM report for details.

As in Vegas, luck also helps. The bigger companies are benefiting from the exit of Avella Specialty Pharmacy (acquired by UnitedHealth Group’s OptumRx) and the troubles at Diplomat.

After last year’s Asembia meeting, I predicted: “Specialty pharmacies are entering a period of intense competition that will reduce prescription profits.”

Unfortunately, this prediction seems to be coming true for many smaller specialty pharmacies. I spoke to numerous owners who told me about competitive pressures, struggles to gain access to payer and PBM networks, and profit challenges associated with direct and indirect (DIR) remuneration payments to Medicare Part D plans. As we show in The Top 15 Specialty Pharmacies of 2018: PBMs Keep Winning, PBMs and insurers dominate specialty drug dispensing channels.

Consequently, I heard about many owners looking to sell their companies. Based on my chats with business brokers and bankers, these owners may face valuations far below their expectations.

As I show in The Specialty Pharmacy Boom: Our Exclusive Update on the U.S. Market, about one-quarter of all accredited specialty pharmacy locations are owned by hospitals, health systems, physician practices, and providers’ group purchasing organizations.

Drug Channels Institute estimates that in 2018, the 10 largest specialty pharmacies owned by health systems had specialty pharmacy revenues of $170 million to $425 million. (See Exhibit 50 of 2019 pharmacy/PBM report for the list.)

However, competitive conflicts continue to grow between PBMs and provider-owned pharmacies. Many hospitals are discovering that their patients may be unable to fill (or refill) prescriptions at the provider-owned facility. In a few situations, payers are trying to alter reimbursement in order to capture 340B drug discounts for commercial plan sponsors—which is totally unacceptable behavior, IMHO.

For evidence, look no further than Premier’s decision to unload its specialty pharmacy business to CVS Health. Premier implied that 2019 annual revenues were $470 million, which is higher than our estimates for 2018. Alas, Premier's specialty pharmacy business was apparently losing $6 million per year.

Payers’ network management is—or should be—making hospitals and their consultants reduce revenue and profit forecasts. Ironically, it is also now encouraging hospitals to deepen 340B contract pharmacy partnerships with PBM-owned specialty pharmacies. For our evidence of these relationships, see Specialty Pharmacies and PBMs Penetrate the 340B Program—And How Manufacturers Should Respond.

Much more to come as the shakeout intensifies.

[Click to Enlarge]