What: News that the nation's largest pharmacy benefit manager is severing ties with a specialty pharmacy that fills prescriptions for it and a competitor sent shares in Insys Therapeutics (NASDAQ:INSY) tumbling by 10% earlier today.
So what: Express Scripts is terminating its relationship with Linden Care Pharmacy, a pharmacy that it determined is a primary dispenser of drugs made by Horizon Pharma, a company that purchases and rebrands existing medications, often with higher price tags.
The severing of ties with Linden Care Pharmacy could have implications on other specialty drugmakers that rely on Linden Care Pharmacy to fill prescriptions, such as Insys Therapeutics.
Insys Therapeutics markets the fast growing pain medication Subsys, an opioid therapy that competes with Teva Pharmaceuticals (NYSE:TEVA) Actiq and Fentora. Because Linden Care Pharmacy reportedly fills at least some Subsys prescriptions, and other specialty pharmacies that work with Insys Therapeutics could also see their relationships end with payers, investors worry that Subsys sales could decline, even if temporarily, thus allowing Teva Pharmaceuticals to win market share.
Now what: Insys Therapeutics has gotten a lot of negative media attention lately for potential off-label marketing practices used to promote Subsys, but Express Scripts decision isn't related to that scrutiny.
Also, before investors worry too much about the potential risk of Teva Pharmaceuticals winning away Subsys market share, they should consider that the removal of Linden Care Pharmacy from Express Scripts network may not end up having all that big of an impact on Insys Therapeutics.
Express Scripts already excluded Subsys from its drug formulary this year and that exclusion hasn't had a material impact on Subsys sales. Since Subsys revenue was $91.1 million in Q3, up 57% year-over-year, and the impact of this action may be minimal, the sell-off in Insys Therapeutics shares may be overdone. Regardless, it might be worth keeping an eye out just in case other payers cut ties with wholesalers that are more directly connected to Insys Therapeutics.
Todd Campbell owns shares of INSYS THERAPEUTICS INC. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.The Motley Fool owns shares of and recommends Express Scripts. The Motley Fool recommends Teva Pharmaceutical Industries. 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.