1. Pharmacy Management Conference
NYBGH
Pharmacy Management Conference
Bill Resnick
Dr. Aran Ron
July 22, 2010

2. Current and future state of specialty medications
Agenda
Introductions
Current and future state of specialty medications
Financial impact of specialty medications
Strategies plan sponsors can adopt to control cost and adherence of specialty medications
Wrap Up/Q&A 2 2

3. Who is SBG
A boutique consulting firm with a specialty practice in pharmacy benefits management
50+ years of experience with a team of seasoned professionals with complementary skill sets in all aspects of pharmacy and health care management
Areas of expertise include:
insider knowledge of the PBM business model and pricing tactics
procurement/contract negotiations
clinical expertise (Medical Advisor on staff)
plan design modeling
ongoing management
financial performance audits
SBG currently provides PBM consulting services for over 850,000 commercial members and over 30M additional members through our work with a combination of regional and national health plans across the country 3 3

4. Current State of Specialty- Why it’s so Unique?
Evolving definition-usually a large molecule injectable – but increasingly a small molecule oral drug (more than just a biologic)
Drug that targets a disease with unmet medical need for relatively small populations and include one of the following:
Premium price (very high cost medicines)
Coverage under the medical benefit but increasingly under the pharmacy benefit
Generally prescribed by a relatively small number of physicians
Specialized pharmacists/care coordinators
Often requires special handling and storage
Very few generic alternatives available-expectations of development of “bio-similars” or follow-on protein products
--Many specialty drugs treat small patient populations and have limited competition
--While legislation facilitating “biosimilars” – providing a pathway for generic equivalents to specialty drugs – has been widely discussed, there are no meaningful biosimilars or generics to date for specialty drugs
--Many specialty drugs have been determined by Medco’s P&T Committee to be unique, without viable therapeutic alternatives, resulting in Formulary “Must Add” status
--Must Add status significantly limits ability to implement step therapy and similar programs, and to negotiate substantial discounts --For most specialty drugs, even in cases where P&T permits formulary exclusions, PA’s and other UM rules, “Grandfathering” of patients taking non-preferred drugs is generally required, so that PA type rules are limited to new patient starts only --Grandfathering requirement means that it takes significant time to achieve meaningful share shift against non-preferred agents, while any manufacturer discounts are discontinued once any disadvantaging activity occurs, even if limited to new starts --Grandfathering also results in reluctance of “preferred” manufacturer to provide substantial additional value for preferred status given length of time it may take to achieve ROI
reduces impact of utilization shift (naïve patients only ~10% of utilization)
limits value to manufacturers --A significant portion of specialty drug spend is covered on the medical benefit, which is separately administered under different plan design, with rx cost often bundled with administrative costs
--Many specialty drugs span numerous indications, resulting in complex rules addressing, for example, drugs having “Must Add” status for one indication but “May Add” status for other indications
market basket considerations, custom coverage rule creation and maintenance costs, FDA warnings, etc
P&T “must add’s for some indications but “may adds for others
--The easiest agent to remove from formulary may be the least expensive agent, increasing net cost to plan
contracting philosophy for BoB, contract expiration timing, client benefit considerations, etc.
shifting share to preferred often means forfeiting rebates/discounts from non-preferred mfr. “zero sum gain” 4 4

5. Trends in Specialty That Impact Growth
Expanded indications for currently approved therapies
Expansion of adjunctive therapies for multiple disease states
Growing number of oral therapies, particularly Cancer
Biotech’s being prescribed earlier in disease progression
New FDA drug safety program “REMS” ( Risk Evaluation & Mitigation Strategies)-to ensure benefits of drug outweigh the risks 5 5

6. Latest Trends
In 2009 specialty drug spending increased 19.5%, and is expected to grow at rates of 20% and higher in each of the next three years.
Here’s a look at how traditional medications compared to specialty medications
Traditional
Specialty
Total
Overall
4.8%
19.5%
6.4%
Prevalence
3.5%
5.7%
3.7%
Cost/Unit
5.3%
11.6%
6.0%
Units Per Rx
0.4%
-1.1%
0.2%
Patent Expirations
-2.4%
0.0%
-2.1%
New Drugs
0.3
1.5%
0.5
Intensity
0.6%
-1.0%
0.4
Mix
-2.9%
2.7%
-2.3%
Prevalence-changes in the % of patients taking meds, Cost Per Unit -changes in ingredient cost+taxes+admin fees-rebates, Units/Rx-changes in the # of units prescribed per fill, Patent Expirations -the impact of branded medications expiring, New Drug Entrants -the impact of new branded drugs in 2009 on spend, Intensity-changes in utilization among those using drugs, Mix-changes to lower cost or higher cost products 6
Source: ESI 2009 Drug Trend Report 6

7. Amounts above are averages based on SBG client sampling
Common Specialty Drugs and Avg. Cost
Drug
Average Cost Per Month
Enbrel
Rheumatoid Arthritis
$1,800
Copaxone
Multiple Sclerosis
$2,800
Avonex
$2,400
Humira
Cellcept
Transplant
$1,300
Xolair
Asthma
$1,900
Betaseron
$2,900
Gleevec
Cancer
$4,900
OBJECTIVES
Bring attention to the high cost of specialty products
DISCUSSION ITEMS
Say “As we mentioned on the last slide, the specialty market contains some very high cost products. The table on this slide provides an overview of some of the most widely used specialty products, the conditions they are prescribed for, and the average cost per claim”
[READ INFORMATION FROM TABLE]
Amounts above are averages based on SBG client sampling
On average 1% of population will utilize these Meds—and can skew the average PEPY cost of $1500 to easily $2500+ in the next few years
Average cost of a traditional medication is $67 vs. $1867 for specialty 7 7

8. Top Specialty Products
Top 10 Specialty Drugs dispensed during the first
quarter of 2010 for SBG Sample Client
Disease State
RA/Ps RA MS
Cancer
PPH
Member Contributions are generally immaterial in relation to the price of the product, however, member cost must be balanced against the risk of non-compliance
Average Member Cost share is 24% for Generic and 16% for Brand 8 8

9. Specialty Drugs Unique Clinical Characteristics
Can be highly effective treatment – move from control of symptoms to slowing disease and potentially achieving remission
Mechanism of action includes immune modulation, targeted protein synthesis and other unique focused functions
Disease states include
Rheumatoid arthritis, oral oncology, multiple sclerosis, hepatitis C, infused oncology, transplants, growth deficiency, blood cell deficiency, respiratory conditions, infertility, pulmonary hypertension
Oncology accounts for half of the specialty drug expenditure – cancer treatment as a chronic disease with declines in cases and deaths 9 9

10. Over 250 specialty medications have been approved by FDA
Growing Pipeline
Over 250 specialty medications have been approved by FDA
Pipeline is robust with specialty drugs likely to outnumber small molecule drugs
633 specialty drugs in development for more than 100 diseases (254 for cancer, 162 infectious disease, 59 auto immune)
Approvals will outnumber other new drugs 10 10

11. Examples of specialty pipeline drugs
Replagal – treatment of Fabry disease with enzyme alpha-galactosidase A manufactured by human cell line, $250 million projected sales approval 2010
Motavizumab – second generation respiratory syncytial virus antibody, $950 million projected sales, approval 2010
Telaprevir – Protease inhibitor for treatment of hepatitis C, $1.9 billion projected sales, approval 2011
Benlysta – inhibitor of B lymphocyte stimulator for treatment of lupus and RA, projected sales $1.1 billion, approval 2011 11 11

12. Challenges in Clinical and Fin. Mgmt of Specialty Drugs
Often the only option for treatment of a complex serious illness
Production by small number of biotech manufactures allows for high pricing and limited leverage
Multiple routes of administration and benefit coverage presents utilization control and reporting issues
Traditional methods of pharmacy management not applicable
Use of drugs for off label indications
Complexity of data capture and coverage – medical, pharmacy and specialty rider 12 12

13. Coverage of Specialty Pharmaceuticals –Med vs. Rx
Historical coverage driven by location of administered - self administered drugs under pharmacy and infusions under medical
Medical vs. Pharmacy
Two thirds of plans cover self injectables under pharmacy
70% cover drugs requiring administration by a health professional under medical
5% have a separate rider
Differences in reimbursement rates, billing systems, cost share and utilization management approaches
Example – Humira (injectable) vs remicade (infusion) 13 13

14. Coverage of Specialty Pharmaceuticals –Med vs. Rx
Integration under pharmacy specialty medications benefit allows for alignment of incentives, data collection and standardization of benefits
Allows for management of me-too drugs or appropriate substitutes
Can implement co-pay differentials if substitutes exist
Co-insurance and out of pocket maximums – requires integrated processing
Allows for data tracking and management 14 14

15. Limitations of Traditional Pharmacy Management
Many traditional management methods not effective
Generic substitutes
Creation of formularies
Maximization of manufacturer’s rebates
Therapeutic substitutions
Quantity restrictions
Patient cost share through tiered copays
Requires more complex and sophisticated tools 15 15

16. Adherence and Affordability
Limitations of cost shifting
Adherence to treatment is multi-factorial (costs, complex regiments, side effects etc)
Can have a significant impact on outcomes and medical costs
Increasing cost share may reduce employer/plan drug costs - but will likely impact hospital/ER costs and clinical outcomes
Studies have found decrease in fill rate 4.6 more likely if out of pocket costs greater than $250 vs. less than $100 16 16

17. Categories of approaches to manage specialties
More clinical and utilization management
Provider reimbursement
New specialty provider strategies
Benefit design 17 17

18. Most common recent changes specialty pharmacy
Created new copay - 90%
New benefit – 75%
Mandatory specialty pharmacy program – 70%
Decreased reimbursement for drugs - 67%
Selected preferred products – 40%
Utilized lab values 36%
Step edits – 33%
More prior auths – 31%
Genetic testing – 22%
Source EMD Serono Injectable 5th edition 18 18

19. Clinical Strategies to Manage Specialty Drugs
Vary by therapeutic class
Optimize clinical outcomes (MS, Hepatitis C, oral oncology)
Limit off label use (Oncology)
Prevent inappropriate use based on national guidelines (respiratory syncytical virus, growth hormone)
Require trial and failure of other agents first (rheumatoid arthritis, psoriasis and asthma)
Future strategies focus on targeting based on laboratory values and genetic testing 19 19

20. Clinical Utilization Management
Goals include:
Appropriate use based on disease severity and diagnosis,
Limit non-FDA approved use (up to 33% in oncology)
Ensure tried and failed first line therapy
Strategies include
Step Therapy
Preferred drugs for select classes (impose prior authorization, tiered copays, on line edits, payment lockout)
Preferred drugs when available in therapeutic class (growth hormone, multiple sclerosis, hepatitis)
Coverage criteria and review for select drugs assure appropriate use according to national guidelines 20 20

21. Case and disease management
Clinical Utilization
Case and disease management
Coordination with current programs
Rare disease management programs
Management of individuals with multiple conditions/co-morbities
Role of education and patient care management
Compliance
Administration
Expectation management
Avoidance of unnecessary hospital and emergency utilization 21 21

22. New drugs being approved and utilized at a rapid pace
Clinical Utilization
Pipeline management
New drugs being approved and utilized at a rapid pace
Need information and analysis of new approvals
Understanding of clinical and financial impact of the drug
Assuring placement in correct therapeutic category and implications for current drugs
Development of clinical strategies 22 22

23. Financial Utilization Management
Distribution management
Use of specialty pharmacies vs open network or buy and bill
Reimbursement methodology
Discounts off average wholesale price (AWP) vs average sales price (ASP)
Site of care management
Modification in provider reimbursement and large margins on administering drugs
Better capture of claims submission data (move from non-specific J codes)
Claims management
Retrospective and concurrent DUR 23 23

24. Survey of most effective strategies
Implement prior authorization
Implement step edits
Mandate use of specialty pharmacy programs
Select preferred products
Create guidelines 24 24

25. Increase in the number of specialty products
Summary
Increase in the number of specialty products
Continued cost pressure and irrational price increases
Highly effective treatments-which often lead to lower medical expenses
Heightened emphasis around clinical programs and ongoing oversight
Different strategies required to manage specialty vs. traditional medications 25 25

26. Copies of the presentation will be made available
Q&A
Copies of the presentation will be made available
Contact information: 26 26