No coach left a bigger mark on college basketball than UCLA's John Wooden. And he did it by first focusing on the basics. Legendary basketball player Bill Walton still recalls Wooden teaching the team how to put on socks and tie their shoelaces the right way.
Focusing on the fundamentals pays off in the long run for businesses, too. One biotech that appears to be sweating the details well is Amarin (NASDAQ:AMRN). Winning in the prescription drug game doesn't come only from having a good product. You have to know how the game works. That's something that Amarin's management team certainly seems to understand.
Tracks of the tiers
Insurance companies and pharmacy benefits managers, or PBMs, live in a world of tiers. Tier 1 drugs are generics that usually require only a minimal co-payment. Tier 2 drugs are brand-name medications that payers prefer their members use when a generic alternative isn't available. These drugs require a higher co-pay amount than tier 1 but less than higher-tier drugs.
Tier 3 includes brand-name drugs that payers don't prefer, usually because lower-cost alternatives are available in tier 1 or tier 2. Insurers and PBMs discourage use of these drugs by charging higher co-pay amounts. Tier 3 also includes specialty drugs for which no lower-tier alternatives are available. Many payers add a fourth tier as well, which usually includes non-preferred specialty medications.
Which tier a drug insurers and PBMs assign it to is a big deal because it can heavily impact sales numbers. New drugs are often assigned to tier 3 status until payers review the medications' effectiveness and cost.
Amarin looks to be navigating this trail of tiers pretty well. At the end of the first quarter, management stated that it had secured formulary access for the drug in plans covering more than 190 million people. At first, none of those plans included Vascepa in their tier 2 category. However, during April and May, Amarin said that health plans covering 40 million individuals switching the drug to tier 2.
By the end of the second quarter, the situation had improved considerably. Amarin announced that 72 million people had access to Vascepa as a tier 2 drug -- more than twice the amount at the end of the first quarter. It's no coincidence that the drug's sales also more than doubled.
The company won't provide more numbers about tier 2 conversions until its third-quarter results announcement. However, in August management listed the migration of payers from tier 3 to tier 2 as one of its top priorities.
One victory already secured is with Aetna (NYSE:AET). The nation's fourth-largest health insurer lists Vascepa as a tier 2 drug. Aetna began 2013 without Vascepa on its formulary at all, which isn't surprising since the drug wasn't launched until January.
The nation's fourth-largest PBM also counts Vascepa as a tier 2 drug. Catamaran (NASDAQ:CTRX), which was formed last year out of the merger between SXC Health Solutions and Catalyst Health Solutions, updated its preferred drug list in July with Vascepa listed as a preferred omega-3 fatty acids medication.
Has Amarin managed to win over the No. 1 players? Not yet, apparently. UnitedHealth Group (NYSE:UNH), the nation's largest health insurer, doesn't list Vascepa on its 2014 Prescription Drug List. Gaining tier 2 status with UnitedHealth would likely be a huge boost, since the company also owns the third-largest PBM in the U.S. -- OptumRx.
The biggest PBM, Express Scripts (NASDAQ:ESRX), also still shows Vascepa as a tier 3 drug on its Medicare formulary. The PBM leaves the drug off of its 2013 National Preferred Formulary list. With 90 million covered individuals, Amarin could see tremendous benefits from swaying Express Scripts to move Vascepa to tier 2.
Amarin investors anxiously await next month's meeting of the U.S. Food and Drug Administration advisory panel and the FDA's approval decision in December. A positive verdict for Vascepa in treating patients with triglyceride levels between 200-499 mg/dL would be like a college basketball team making it to the Final Four.
What about tier 2 or tier 3 designation for the new indication if approved? When asked about this in August, Amarin CEO Joseph Zakrzewski said that his understanding is that all of the current tier 2 classifications for Vascepa will all "translate over." Amarin might not win FDA approval for the broader indication. Either way, though, the efforts to convince payers to move Vascepa to tier 2 was worthwhile.
Focusing on the basics doesn't always guarantee a victory in the end, but it certainly doesn't hurt the chances of doing so. Coach Wooden's lessons on tying shoelaces seemed crazy to some. But he led his UCLA teams to 10 national championships -- including an unprecedented string of seven in a row. His attention to detail paid off.
Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Catamaran, Express Scripts, and UnitedHealth Group. The Motley Fool owns shares of Catamaran and Express Scripts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.