price change optimization and key trends … change optimization and key trends impacting generic...

March 2016 | Proprietary Information

Price Change Optimization andKey Trends Impacting Generic GTNs

Bringing data to life.

Jeff Baab, Vice President, Life Sciences

Jennifer Sharpe, Senior Director, Revenue Analytics Collaborative

March 2016

March 2016 | Proprietary InformationMarch 2016 | Proprietary Information 2

Agenda

Introductions – Poll the Audience

Price Change Optimization Industry Insights

Trends Impacting Generic Price Change Management & GTNs

Federal Budget Generic Inflation Penalty

ACA Final Rule: Generics Watch List

Q&A

March 2016 | Proprietary InformationMarch 2016 | Proprietary Information

Price Change OptimizationIndustry Insights

Price Change Optimization


Wholesaler

Retailer w/ Manufacturer

Contract

Manufacturer

Retailer w/out Manufacturer

Contract

Gov’t Entity Buying Off of FSS

WACDrug

Sale at Retail Contract Price

Sale at Whlsr Contract Price

Sale at FSS Contract Price

CB Requested Per Contract

Price

CB Issued

340b CE Buying Off of PHS Contract

Sale at PHS Contract Price

BillbackFees owed:• 3rd party contract fees• Billback to contracted

entity

Fees owed:• IFF• May not owe whlsr

fees on Gov’t Sales

Some fees are owed on all sales:• Distribution service fees• Prompt pay• Data fees

Fees owed:• Program admin fees• Marketing fees• Non contract sales fee• Per Unit Rebates• Price protection• Shelf stock allowances

Net Price #1 Net Price #2 Net Price #3 Net Price #4

May have multiple contract prices.

Price Change Optimization & Key Trends Impacting Generic GTNs

Utilization Path Drives GTN Rate


There are adjudication and forecasting challenges related to generic fees and rebates because the payment formulas are complicated and require multiple data sets. Here are some examples:

Fee or Rebate Type Example of Calculation Methodology

Data Sets Required Challenges

Distribution Service Fee Apply fee % against direct sales to customer

Direct Sales Direct Sales may not be readily available in Contracting System

Shelf Stock Adjustments (New WAC – Old WAC) x Average Inventory Level over Specified Period

Wholesaler Inventory Data

Validating reasonableness ofinventory data

Product Rebates and/or Service Fees

Apply % against subsetof customer’s Net Sales

Direct sales, adjustments, returns, chargebacks

Anticipating utilization;tying together data sets and calculating net sales

Per Unit Rebates Rebate % Applied to Sales from Wholesaler to Specific End Customer

Chargeback data Need to identify sales to specific customer w/in a contract

Price Change Optimization & Key Trends Impacting Generic GTNsPayment Methods Are Complicated & Require Different Data Sets



Tracking Impact of Price Changes on Line Items

Fee or Rebate Type Contract Price Contract Price

Prompt Pay

Distribution Service Fees

Redistribution Fees

Data Fees

Program Admin Fee

Marketing Fees

Floor Stock Adjustments

Price Protection

Per Unit Rebates

Chargebacks

Billbacks

Medicaid

Returns

• Arrows indicate impact of contract price change on line item (not considering changes to utilization)

• GTN lines that stay flat grow as % of net sales when contract price

• Utilization shifts can have dramatic impact on net sales & GTN rates

• Price basis for some GTN line items can vary by wholesaler

Notes


Price Change Optimization & Key Trends Impacting Generic GTNsPrice Change Optimization – Benchmarking & Better Practices

Understand Price Change Impact

‒ Successful Practices: Finance/Accounting assist Trade/Pricing to calculate price change impact

‒ Pitfalls: accrual or forecasting “miss,” significant negative impact on product profitability

Cross-functional Communication

− Successful Practices: Pricing Committee and/or Price Change Mgt Protocol inclusive of Government Pricing, Finance and Accounting review/approval

− Pitfalls: surprise true-ups, significantly under accrued


Price Change Optimization & Key Trends Impacting Generic GTNsPrice Change Optimization – Benchmarking & Better Practices

Process Documentation

− Successful Practices: SOPs, WIs, process flows

− Pitfalls: ‘Lynch Pin’, human error, lost documentation

Investment in Systems

− Successful Practices:

Automated solution integrated with a Gross-to-Net accrual management application

Understand price change and/or rebate impact to adjudication system

− Pitfalls: manual, paper process driven by e-mails and Excel.


Trends Impacting Generic Price Change Management & GTNs




Manufacturer M&A Activity

Why?

Branded companies have acquired generic companies as entry point to generic business and vice versa.

− Diversification, path to AG launches, reduction of risk

Acquisitions can remove competitors from marketplace.

Challenges:

Brands and generics look at GTNs differently

Completely different business models and contracting

Speed and volumes of the generic world

Recent deals involving generic manufacturers:• Lannett Company acquired Kremers Urban

Pharma ($1.2 B)• Teva agreed to acquire Allergan’s generic

portfolio ($40.5 B)• Hikma Pharma acquired Roxane Labs (~$2 B)• Endo International acquired Par

Pharmaceuticals ($8 B)• Mylan lost bid to acquire Perrigo ($34 B)



Supply Chain Consolidation

WBAD (Walgreens -

ABC)

McKesson –Rite Aid

Red Oak(CVS-Cardinal)

CVS -Omnicare

Analysis of a Deal: CVS – Target

•CVS bought Target’s pharmacy business for $1.9B

•Target pharmacies will be rebranded and operate as CVS within Target stores

•Target’s >80 retail clinics will rebrand as CVS MinuteClinics

•Target primarily bought generics directly and branded products from McKesson. Branded utilization will shift to Cardinal and generics to Red Oak, who supplies CVS.

•May shift flow of specialty products from Diplomat (supplied Target) to CVS Health’s Specialty Connect program.

CVS - Target

Walgreens –Rite Aid

(pending)



Generic Price Inflation is Slowing Down

From 2013 – 2014, saw phenomena where generic prices were actually increasing for majority of products on the market.

− Due to various reasons such as raw material or product shortages and competitors dropping out of the market.

Recently, the FDA has made a concerted effort to clear its backlog of ANDA applications which is changing the trajectory of generic competition and pricing.

Wholesaler earnings reports, where margins are hurting, are clear indications that generic prices are starting to fall again.



Introduction of Biosimilars in Marketplace

Affordable Care Act paved way for FDA to approve biosimilars, which are essentially a “generic” of a biologic.

The approval pathways and costly manufacturing processes increase cost of bringing a biosimilar to the market.

The price erosion for the branded biological drugs is not expected to be as great as for traditional generic drugs.

− While the market is still shaping, prices for biosimilar products may be 65% -85% of their originators.

Biosimilars have huge potential in the U.S. market since there is an upcoming patent cliff on several blockbuster biologic products.

Success of a given biosimilar will depend on many factors, including price, duration of therapy, experience of physicians with the products and patient preference.


Federal Budget Generic Inflation Penalty




Quick Background on Inflation Penalty Concept

Inflation Penalty

− Amounts to a “price protection” penalty that is added to the rebate per unit paid on Medicaid utilization.

Historically…

− Inflation penalty has always been applicable to single source and innovator multi-source drugs



Branded Medicaid URA & Inflation Penalty Primer

Greater of (AMP * 23.1%) or (AMP - BP)

(Basic Rebate + Additional Rebate)

What is CPI-U? An economic indicator published by the Bureau of Labor Statistics that represents the prices paid by urban consumers for a representative basket of goods and services. It is represented by a number, such as 231.23, 232.67, etc. that can be compared over time to measure inflation.

What does this mean? If AMP grows faster than inflation between the launch quarter and current quarter, that additional growth is added to URA as an “inflation penalty.”

Current AMP – Baseline AMP x CPI-U New

CPI-U Baseline

Unit RebateAmount (URA)

=



Generic Inflation Penalty: What We Know

What Changed

− The budget deal signed by President Obama on Oct 26th, 2015 requires manufacturers that participate in MDRP pay an “inflation penalty” on non-innovator drugs (“N” drugs). This penalty has only applied to S and I drugs historically.

Effective Date

− The additional rebate is expected to become effective in 1Q 2017.



Generic Inflation Penalty: Where Do We Stand?

First Marketed Before April 1, 2013

First Marketed AfterApril 1, 2013

Baseline AMP 3Q 2014 Fifth full calendar quarter after which the drug is marketed as an “N” drug

Baseline CPI-U The CPI-U for Sept 2014

The CPI-U for the last month in the baseline AMP quarter



New URA Calculation for “N” Drugs

Basic RebateBasic RebateAdditional

RebateAdditional

Rebate

AMP x 13%

+ = Total URATotal URA

Note: The Current CPI-U is the CPI-U value of the month prior to the quarter being calculated.

Current AMP – Baseline AMP x CPI-U New

CPI-U Baseline


ACA Final Rule:Generics Watch List




Final Rule: Why Does It Matter?

Final Rule sets forth new and revised regulations that affect AMP and BP reporting, Medicaid rebate processing, and reimbursement rates related to Medicaid utilization.

Many provisions of the rule have an effective date of April 1, 2016.

− Certain provisions will be effective as of April 1, 2017.

The Final Rule may impact a manufacturer’s brand strategies, financial liabilities, and compliance and contracting policies, processes, and systems.



General Provisions that May Affect Generic AMPs

Area of Impact Description of Guidance

Inclusion of U.S. Territories in Definition of “States”

Effective April 1st, 2017, manufacturers may have to pay Medicaid rebates on Medicaid utilization in five U.S. territories, including Puerto Rico. Additionally, transactions to customers in the territories will be eligible for AMP and BP reporting.

Class of Trade - Specialty Pharmacies / Home Health / Infusion

These types of customers are eligible for AMP if they also meet the definition of RCPs.

Prompt Pay Offered to RCPs Only exclude CPPD offered to wholesalers. CPPD offered to AMP eligible customers, like RCPs, should be included in AMP as a price concession.



Clarifications Related to Authorized Generics


Treatment in AMP of Sales to Secondary Manufacturer

Include sales of an AG to the secondary manufacturer in the AMP of the brand only when secondary manufacturer acts as wholesaler selling to RCPs.

Final Rule specifically excludes sales to a secondary manufacturer that relabels the product.

Treatment in AMP when Manufacturer Owns Both Brand and AG

When a single manufacturer markets both the original and AG under a common NDA, the AMP and Best Price calculations are to be “blended across the NDC-9s.” Subsequent Q&A duringthe CMS webinar indicated that CMS expects separate AMPs to be filed for the brand and AG in this scenario.



Definition of Covered Outpatient Drugs


Definition of Multi-Source Drugs CMS is now defining “original NDA” to mean an NDA under section 505(b) of the Food, Drug and Cosmetic Act (FDCA), as opposed to an ANDA under section 505(j) of the FDCA. This may result in drugs that have been marketed as generic drugs, for all intents and purposes, being treated as branded drugs in the Medicaid Program.

CMS has created a “narrow exception” through which manufacturers may request their drugs continue to be treated as “N” drugs. Subsequent operational guidance on this matter is anticipated from CMS.


Price Change Optimization & Key Trends Impacting Generic GTNsMove Towards AAC as Basis for Pharmacy Reimbursement

States are also being asked to shift to AAC (NADAC, etc.) based reimbursement models rather than EAC (AWP). Also, FULs will be calculated at 175% of weighted average mAMPs but the greater of FUL or NADAC will set FUL.

• Generally, ACA FULs < State MACs < Pre-ACA FULs

• ACA FULs will likely act as new, lower ceiling for some product classes

Potential Impact

• Complicated to sort out impact of FULs and MACs

• RCP reimbursement likely to go down

• Need to manage relationships and pricing w/ RCPs

Considerations & Challenges

• Spillover impact to pharmacy reimbursement from commercial plans?

• How will RCPs react to lower reimbursement?

Questions from Final Rule


Session Takeaways

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Key Elements Summary

Understand and follow the trends and business deals of your customers

Get involved with cross-functional team to understand the financial impact of pricing and contracting decisions

Have lunch with your Medicaid folks to discuss the financial impact of the Federal Budget Inflationary Penalty

Have lunch with your Government Pricing folks to discuss the financial impact of the ACA Final Rule



Q & A

Jennifer SharpeSr. Director, Revenue Analytics [email protected]

Jeffrey BaabVice President, Life [email protected]

mailto:[email protected]

mailto:[email protected]


daVIZta Overview

28

CompanydaVIZta was founded in 2010 with a fundamental premise: predictable revenue forecasts create healthier companies. By focusing on Revenue Analytics, daVIZta provides business leaders with enhanced visibility of current and forecasted company performance. This data-enabled vision provides an advantage to companies looking to optimize operations and maximize profits.

Solutions Revenue Analytics Software

daVIZta’s Revenue Analytics platform, d-RiveTM, takes a data-centric approach for fast, accurate, on-demand revenue forecasts.

Data ManagementRevenue SMart is the foundational data solution for all revenue related analysis.

Consulting ServicesOur diverse team of professionals bring unparalleled breadth and depth of experiences in the Life Sciences industry. Leveraging our perspectives in Finance, Operations, Compliance, Contracting, and IT, we pride ourselves on customizing solutions to fit each of our client’s unique set of challenges.

price change optimization and key trends … change optimization and key trends impacting generic...

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