Specialty pharmacy market, not so special anymore?

No blue light specials here, no need to run. An analysis of the Inc. 5000 by Drug Channels “reflects the overall specialty (pharmacy) market slowdown.” Why? “Pharmacy revenues from specialty drugs grew by nearly 9% (in 2017), this growth rate was a historical low. Reasons include lower spending for drugs treating hep C, the launch of generic specialty drugs, slower growth in list prices for some specialty drugs, and the launch of specialty products with list prices below those of competitive products.” Remember, just a few years ago, specialty pharmacies were rolling. Go here for a nice primer on specialty pharmacies. Here (see table) is a list of the fastest growing private specialty pharmacies. Specialty pharmacies are critical pieces of the US healthcare system, and while 9% growth is considered “slow” we should all be so lucky to work for such an industry.

Sell shovels or mine for gold?

It’s the age-old question that gets at your risk profile. Drug Channels has provided a wonderful analysis of Fortune 500 companies that are involved in the drug channel business (McKesson, CVS, Express Scripts) and pharma companies (Pfizer, Amgen, Biogen). Highlight #1 – The average revenue for the 7 drug channel companies ($131B) is 4x greater than the 11 pharma companies ($29B). Highlight #2 – Profit, as a percent of revenue, is ~7x greater for the pharma companies (14.6%) than for the drug channel companies (2.2%). Highlight #3 – The return to investors was dramatically higher for pharma (14.9%) than for drug channel companies (-9.3%). Can anyone say Amazon? Can anyone say Trump? It looks like either selling shovels or mining for gold seems like a pretty good proposition, but remember we are looking at the best of the best in this analysis.

Drug spending in the US is… down?

Well, for some cohorts, yes, drug spending in 2017 was down. Holy schneikies. What’s more is that, according to the Express Scripts 2017 Drug Trend Report, drug spending increased by only 1.5% for their commercial plan sponsors and it declined for nearly half of commercial payers. For a really good synopsis of the report, go here. In what we can only assume will be a politically unpopular analysis, Drug Channels points out that specialty drug costs are not the problem because “Specialty unit costs grew by 3.2% for commercial payers, while utilization grew by 8.1%. In other words, spending increased because more people were treated, and more prescriptions were dispensed. That’s not a drug price problem.” Son of a … But it’s not all sunshine and roses, as 6.3% of people spent more than $1,000 out-of-pocket for prescription drugs in 2017. Sorry for the buzzkill.