What: News that the nation's largest pharmacy benefit manager is severing ties with a specialty pharmacy that fills prescriptions for Horizon Pharma (HZNP) sent Horizon tumbling by 18% earlier today.
So what: Pharmaceutical companies that acquire, rebrand, and reprice existing medications, such as Horizon Pharma, have been on the hot seat lately for practices that resemble price gouging. As a result, insurers and companies that manage benefit programs for payers have been distancing themselves from them.
The latest example of this is Express Scripts' (ESRX) termination of its relationship with Linden Care Pharmacy, a pharmacy that was found to be a primary dispenser of drugs made by Horizon Pharma. Express Scripts is also investigating other pharmacies to see if they also appear to have deep ties to Horizon Pharma.
Additionally, Express Scripts has filed a lawsuit against Horizon Pharma claiming that Horizon Pharma owes it approximately $140 million in rebates tied to a prior agreement.
Now what: Linden Care Pharmacy has filed its own suit against Express Scripts alleging that Express Scripts is unilaterally terminating its relationship without cause. According to Linden Care Pharmacy, it generates just 17% of its revenue by filling Horizon Pharma medications.
Meanwhile, Horizon Pharma has issued a statement saying that Linden Care Pharmacy accounts for only 5% of its sales and that Express Scripts' wholly owned specialty pharmacy, Accredo Health, actually generates more sales for Horizon Pharma than Linden Care Pharmacy does. Further, Horizon says that Express Scripts' lawsuit isn't related to this matter. Instead, the suit is tied to a previous contract that Horizon Pharma had terminated after determining that Express Scripts wasn't fulfilling its obligations.
Nevertheless, if Horizon Pharma fails to swap out script volume to other specialty pharmacies that remain on Express Scripts' network, losing access to Express Scripts' patients could be a big blow.
Investors should also realize that Express Scripts' decision could spark a review of pharmacies filling Horizon Pharma drugs at other insurers and pharmacy benefit managers. If those other payers also decide to shut off Horizon Pharma's specialty pharmacies, then Horizon Pharma could be forced to rely on traditional pharmacies for fulfillment and that could lead to more prescriptions for its drugs being shifted to non-Horizon Pharma alternatives.
