Leading national pharmacy benefit managers CVS Caremark (NYSE:CVS) and Express Scripts (NASDAQ:ESRX) are set to shake up the prescription medication landscape with a slew of changes to their preferred drug formularies.
Pharmacy benefit managers serve as intermediaries between insurance companies and their patients by negotiating discounts, analyze prescription data, and, perhaps most importantly, maintain preferred drug formularies that designate if and how which medications are covered. While pharmacy benefit managers regularly make updates to formularies, CVS Caremark and Express Scripts are making unprecedented changes by moving more than 50 brand name medications to the "not covered" category starting Jan. 1 -- forcing patients to either switch to recommended substitutes pay full price for certain medications out of pocket.
Together, the two organizations account for nearly a quarter of the 210 million Americans for whom insurance coverage is managed by the rapidly expanding pharmacy benefit management industry. Luckily, many of the medications losing coverage were already weak sellers, off patent, or otherwise pass their heydays. However, among the names losing coverage a number of big-name medications stand to lose significant ground.
Insulin market shakeup
Eli Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO) insulin vials are set to undergo an interesting swap of patients as a result of major formulary changes. On one hand, CVS Caremark is dropping Lilly products Humalog, Humalin, and mixed products in favor of substitutes from Novo Nordisk insulin lines Novolog and Novolin. On the other hand, the reverse is set to take effect for patients affected by Express Script changes -- Novo Nordisk insulin vials are out, and Lilly insulin products are in.
The changes come at an interesting time as both Novolog and Humalog are set for expiration in mid- to late 2014 after which they will become vulnerable to generic competition. Both have performed strongly domestically, with Humalog pulling in more than $287 million in the third quarter behind Novolog, which scored $330 million during the same period. Express Scripts is the larger between itself and CVS Caremark, and as a result, it stands to reason that Novolog and its Novo Nordisk cousins may get the short end of the deal into 2014.
Bad news for Victoza
In another major twist, big time Novo Nordisk performer Victoza is being excluded by Express Scripts in favor of recommended substitutes Byetta and Bydureon – two products marketed jointly by Bristol-Myers Squibb (NYSE: BMY) and AstraZeneca.
The GLP-1 pre-filled pen has experienced a great run in recent years, landing double digit quarterly growth like clockwork with a solid 14% third quarter sales increase that still came under analyst estimates ranging as high as more than 20% growth.
Victoza third quarter sales weighed in at around $270 million while competitors Bydureon and Byetta have struggled with sales totaling only about $30 million for Bydureon. As a result of emerging changes to Victoza's coverage, Novo Nordisk is setting sales growth expectations in the high single digits rather than its previous double digit performance.
In response to expected slowdowns in sales for both Novolog and Victoza, Novo Nordisk has planned for a major expansion of its sales force in order to maintain prescription volume and revenue.
Novo Nordisk is undertaking a limited effort to pivot in the face of reduced patient access, but the question still remains as to whether or not other managed care organizations and pharmacy benefit managers will follow suit with CVS Caremark and Express Scripts.
However, as cost-saving pressures continue to mount on the health care sector, the impact of managed care on the pharmaceutical industry will continue to force adjustments driven by formulary changes.