Pharmacy Industry News: Supreme Court sides with pharmaceutical industry in two decisions
Supreme Court sides with pharmaceutical industry in two decisions
Justices rule that generic drug makers cannot be sued by injured patients in most cases and that drug manufacturers have a 1st Amendment right to buy private prescription records to use for marketing purposes.
June 24, 2011|By David G. Savage, Los Angeles Times
The Supreme Court gave the pharmaceutical industry a pair of victories, shielding the makers of generic drugs from most lawsuits by injured patients and declaring that drug makers have a free-speech right to buy private prescription records to boost their sales pitches to doctors.
In both decisions Thursday, the court’s conservative bloc formed the majority, and most of its liberals dissented.
About 75% of the prescriptions written in this country are for lower-cost generic versions of brand-name drugs. Federal law requires the makers of brand-name drugs to label their products with FDA-approved warning information and to update the warnings when reports of new problems arise.
Fierce Competition Prompts Changes for Rite Aid and Walgreen
The economic recovery seems to be having a positive effect on the Drug Stores sector. Same store sales rose for many companies during the most recent quarter. This was spurred by growth in pharmacy sales volumes as nearly the entire sector saw itself filling more prescriptions. Some generic introductions hurt total revenues, however. The Bedford Report examines the outlook for companies in the Drug Stores Industry and provides investment research on Rite Aid Corporation RAD
-0.42% and Walgreen Co.
WAG
+1.45% . Access to the full company
reports can be found at:
www.bedfordreport.com/RAD
www.bedfordreport.com/WAG
With fierce competition in the Drug Stores industry, companies are investing a great deal of money to bolster their product offerings as well as their in-store experience through re-models. All this is in hopes of attracting more customers to come buy similar products.
In the most recent quarter, Walgreen said that selling, general and administrative (SG&A) expenses skyrocketed more than 7 percent year over year to $4.2 billion. The company said that it opened or acquired 41 new drugstores (a net gain of 25 after relocations and closings) in the third quarter.
The Bedford Report releases equity research on the Drug Store Industry so investors can stay ahead of the crowd and make the best investment decisions to maximize their returns. Take a few minutes to register with us free at www.bedfordreport.com and get exclusive access to our numerous analyst reports and industry newsletters.
Last week Rite Aid posted a net loss of $63.1 million in the first quarter of fiscal 2012 compared with a loss of $73.7 million in the year-ago period. During the company’s earnings call, Rite Aid CEO, John Standley said the drug store plans to fuel growth by increasingly administering the immunizations Americans used to receive from their personal physicians. Rite Aid expects to more than double its injections this fiscal year to some 1.5 million.
Express Scripts continues on long path to growth, analysts say
When Express Scripts Inc. got blindsided this week by the nation’s largest drugstore chain, Walgreen Co. — which publicly threatened to end their multibillion-dollar relationship — the episode marked an epic clash in the pharmaceutical industry.
Walgreen officials, in announcing they had canceled contract negotiations with the St. Louis-based pharmacy benefit manager, pronounced themselves ‘surprised” that Express Scripts had the temerity to drive such a hard bargain with “the largest retail provider in their pharmacy network.”
The reaction from Express Scripts? Whatever — customers can just take their Express Scripts benefit cards to competitors literally down the block. “On average, another pharmacy within the Express Scripts network is within one-half mile of a Walgreens pharmacy,” taunted a company release, while careful to also emphasize an interest in continuing talks.
Wall Street responded Tuesday by driving down Walgreen stock — while Express Scripts’ shares inched up, apparently unaffected. While such brinksmanship often characterizes such high-stakes negotiations, and some analysts believe a deal will be forthcoming, the dust-up nonetheless underscored the extent to which Express Scripts has penetrated the market after years of explosive growth. And yet investors believe the company has capacity to grow further still, even as the company matures into an established player.
“If there’s one thing that’s constant, our company is focused on growth,” said Larry Zarin, a senior vice president and chief marketing officer at Express Scripts.
For the second year in a row, Express Scripts is the Post-Dispatch’s top-performing publicly traded company in the St. Louis region, based on the newspaper’s analysis of revenue size and growth, return on capital and profit growth. It is the fourth time since 1992 that the company has claimed the distinction.
Express Scripts, which manages about 656 million prescriptions annually, posted $45 billion in revenue in 2010 and a profit of $1.2 billion — compared with $24.7 billion in revenue and $828 million in profit in 2009.
HURDLES AHEAD
Maintaining that upward trajectory remains a challenge. A new report by bond rating agency Moody’s Investors Service concluded that one of the biggest challenges facing the nation’s three largest pharmacy benefit managers — New Jersey-based Medco Health Solutions, Express Scripts, and Rhode Island-based CVS Caremark Corp. — is ‘stagnant to declining commercial insurance membership trends.”
According to Moody’s, other challenges faced by the industry include customer resistance on pricing and health care legislation.
Pharmacy benefit managers administer prescription drug benefits for employers, government agencies and health plans. They also help manage the amount of money their clients spend on drugs by encouraging employees to choose generic drugs, rather than brand-name medicines, and obtain these drugs via mail order (effectively skipping retail outlets such as Walgreens).
Moody’s praised Express Scripts’ financial flexibility but noted that the overall market for pharmacy benefit managers remains uncertain. United Healthcare indicated recently that it is exploring the efficiencies it might gain from “in-house” management of the pharmacy benefits of its $11 billion contract with Medco. Other health insurers, which are under mounting pressure to keep costs down, also may be considering the in-house option.
In the face of such challenges, Express Scripts seems determined to run lean. In a year of reorganization, the company laid off several hundred workers last year and shut down a prescription processing plant near Philadelphia. It opened a high-tech, heavily automated mail-order facility in northern St. Louis County. And like many other large companies, it has outsourced and sent offshore some of its operations.
Wall Street analysts remain upbeat about Express Scripts’ growth potential.
“For the next five years, the growth looks good — and near term, it’s pretty significant,” said Art Henderson, an analyst at Jeffries & Co. in Nashville.
Henderson and other financial analysts said that, although 2011 has provided a bit of a market lull, Express Scripts is well-positioned to exploit the pipeline of drugs whose patents will expire in the next few years — by providing lower-cost generic drugs instead of branded ones.
The company makes higher profits on generic drugs because it can negotiate lower rates from the multiple drugmakers that offer generic substitutes for branded medications.
The patent on Lipitor, a blockbuster anti-cholesterol drug, is due to expire in December; and patents for other top-selling drugs, such as Plavix, antidepressant Lexapro, and Singulair (an asthma drug) are due to expire next year.
Express Scripts’ profits on generics, however, could face incursions from government regulation. Some federal and state lawmakers have voiced the need for greater transparency from pharmacy benefit managers about their pricing schemes and acceptance of manufacturer rebates and discounts.
Express Scripts has received kudos from an industry trade association for its degree of transparency, but some lawmakers remain puzzled as to how exactly the company buys and sells prescription medications, how it chooses the drugs on its formularies, and from which kinds of transactions it reaps the largest profits.
Express Scripts spent about $1.9 million last year on federal lobbying activities about such issues as legislation, pricing, antitrust, Medicare payment rates, and generic versions of biotech drugs, according to records filed with the clerk’s office of the U.S. House of Representatives.
‘FLUSH WITH CASH’
Jeff Jonas, an analyst at Gabelli & Co. in Rye, N.Y., agreed that Express Scripts’ has “a bright future” via the generic drug pipeline. But he said the firm also may continue to grow through acquisitions.
“There are still deals out there, either traditional PBMs or something along the lines of specialty companies that manage biotech drugs,” Jonas said, “and their track record (for acquisitions) is pretty good.”
In the past, Express Scripts has been able to grow its business by expanding its existing operations and acquiring competitors including National Prescriptions Administrators Inc. (2002), Curascript (2004) and Priority Healthcare (2005).
In December 2009, Express Scripts purchased Indianapolis-based Wellpoint’s Next RX subsidiary for $4.68 billion.
“Express Scripts is a very strong cash generator. … They’re flush with cash, and they have good balance sheets,” said Helene Wolk, an analyst at Sanford C. Bernstein & Co. Inc. in New York. “They still have enough flexibility to do acquisitions if one presents itself.”
As one of the largest pharmacy benefit managers, it’s unclear whether the Justice Department would permit Express Scripts to acquire one of its chief rivals (or, for that matter, to be acquired by one of them). The nation’s top three PBMs control about 60 percent of the market. But the company could target a variety of other potential acquisitions.
With or without more acquisitions, Wolk said, it is likely that Express Scripts will experience a “robust growth swing of about 20 percent” in the next three to five years. “Express Scripts’ earnings have been stellar in the last few years,” Wolk said.
The company appears to want to build its business by becoming more competitive among larger employers. A substantial portion of the company’s revenue depends on its contract to manage pharmacy benefits for the military’s TriCare Program.
But analysts said Express Scripts has done well locking up long-term contracts with the Defense Department and Wellpoint.
The company is focused heavily these days on cost-cutting, reorganization and sending a portion of its information technology and customer support work to places like India and the Philippines.
“I can assure that we’re always trying to get more efficient,” Zarin said. “Our clients hire us to reduce costs, with no compromise to clinical outcomes. We are counted on to run lean and mean.”
Still, pharmacy benefit managers including Express Scripts are expected to gain more business as an additional 32 million Americans are insured under the health reform law.
Jeff Hall, the firm’s chief financial officer, said in a written statement that Express Scripts’ research and innovation into consumer behavior “translate into strong returns for shareholders and superior outcomes for our plan sponsors and patients.”
Later this year, the company plans to open its fourth headquarters building in northern St. Louis. “We are excited about further expanding our workforce in St. Louis,” Hall said.
D3 Names Christine Stoffel VP Business Development and Strategic Alliances
D3 LED, LLC (D3), the world’s leader in specialized LED digital display applications, announced today at the 2011 Sports and Entertainment Alliance in Technology Consortium in Los Angeles, CA the hiring of Christine Stoffel of Phoenix, AZ, as vice president, business development and strategic alliances. Ms. Stoffel will be responsible for identifying complementary technology products companies for revenue-generating partnerships in the sports, entertainment and retail-connected real estate markets, and growing the Company’s recently launched sports and entertainment brand, A2D3.
Stoffel joins D3 with more than 20 years experience leveraging innovative technologies to develop large scale business models that have dramatically improved customer experience and enterprise performance, and generated new revenue opportunities.
“Christine brings an impressive background in technology and management in the sports and entertainment arena to D3,” said Jason Barak, managing partner of D3. “She has delivered simultaneous mission-critical technology projects and her extensive experience designing and delivering competitive advantages and revenue opportunities will be a key asset to D3 as we continue on our aggressive growth track. Christine specializes in integrated technology connecting consumer experiences, brand awareness and return on investment.”
Prior to joining D3, Stoffel was the vice president of information technology for the Arizona Diamondbacks where she was instrumental in turning the ballclub into one of the more technologically forward sports franchises in the sports industry. Her achievements included brokering unique partnerships with technology stalwarts such as Dell, Nortel and Microsoft; and building a stable core network infrastructure in the ballpark that allowed the D-backs to deploy interactive wireless solutions for their fans.
Additionally, Stoffel has served as the vice president, information technology & strategic operations for the Phoenix Coyotes, overseeing all technology systems for the Coyotes, Arizona Sting lacrosse team and Jobing.com Arena. She has held numerous positions with other Phoenix-based companies, including senior IT manager/acting director with Caremark RX, the nation’s premier integrated pharmacy services provider.
Stoffel also founded the Sports and Entertainment Alliance in Technology Consortium (S.E.A.T.), now in its fifth year, which offers technology, marketing, sales and operations executives innovative networking and communication channels to focus on everyday and industry-unique challenges facing sports teams, along with creating a foundation to tackle the latest technologies and newest challenges through the cooperation and the leveraging of shared knowledge and strategies.
“We’re thrilled to announce Christine’s hire at the year’s S.E.A.T event where the A2D3 brand has such a strong presence,” said Barak.
Stoffel holds memberships in the Association of Women in Sports Careers, Computer Security Institute Association, Business and Professional Women Foundation, National Association of Female Executives and the Women in Technology Association. She sits on the boards of the Luxury Suite Directors, the National Advisory Council for Ticketing Technologies in Sports and Entertainment, and she is a member of the Phoenix CIO Forum.
Muscat Pharmacy Group reinstates its support for MedHealth and Wellness 2011 Exhibition
For the second time since 2009, Muscat Pharmacy, representing major international pharmaceutical companies such as Bayer, Boehringer Ingelheim, Bristol Meyers Squibb, GlaxoSmithKline, Johnson & Johnson, Merck AG, Novartis Pharma and Pfizer, to name a few, will bring in its various principal companies to showcase its wide spectrum of pharmaceuticals and other healthcare products. Established in 1968, the company now boasts of 66 retail outlets and 33 pharmacies. Its participation in MedHealth & Wellness 2011 reflects Omanexpo’s commitment to raise the quality of healthcare in Oman. Muscat Pharmacy was MedHealth’s biggest exhibitor in 2009.
MedHealth & Wellness made its debut in 2009 as a pioneering health and wellness show in Oman, and has served as a launchpad for other organized healthcare exhibitions, conferences and fora in the Sultanate. For the first time this year, it will feature a high-profile conference that will be held concurrently with the exhibition on September 27 and 28. To date, nine highly acclaimed local and international speakers have already expressed their commitment to share their expertise and views on various relevant topics revolving around the prevention and treatment of lifestyle diseases such as cancer, diabetes, asthma, and cardiovascular illnesses, healthcare marketing, medical tourism, hospital management technology, and healthcare best practices. Among the international speakers who have given their confirmation are Diabetes Association Qatar executive director Dr. Abdulla Al Hamaq, National & International Health Research Initiative Chairman Dr. Adnan Hammad from Michigan, USA, and Private Hospitals Association (PHA) Jordan Chairman Dr. Awni Al-Bashir. The conference will culminate in session-sponsored programs.
Omanexpo’s general manager Nasser Diab said, “We are happy to welcome another valuable addition to the growing number of exhibitors and supporters for MedHealth & Wellness 2011. We would like to thank Muscat Pharmacy for their unwavering commitment to support MedHealth & Wellness, the same way they did in 2009. This is proof of the value and significance of our show, both as a beneficial sourcing, networking, and instructional platform and as an avenue for support of the government’s initiatives to boost healthcare in Oman.”
“Again, the continuous efforts by the government to improve healthcare services, backed by its recent announcement of the 260-million-dollar worth of health projects underway is encouraging for us as an exhibitions organizer and for the sector as well,” he added.
MedHealth & Wellness Exhibition & Conference 2011 is supported by the Ministry of Health, the Oman Chamber of Commerce & Industry, National Association for Cancer Awareness, Private Hospitals Association of Jordan, and Oman Heart Association with Agility as its Official Logistics Partner. Huron Consulting Group is one of its Conference Session Sponsors.
Omanexpo is one of the regions’ leading organizers of high-profile, industry-focused trade and consumer exhibitions and conferences. It is a member of UFI-The Global Association of the Exhibition Industry and the International Association for Exhibitions and Events (IAEE) and is recognized as the only exhibitions management company in Oman with the highest number of UFI-approved events.