Category Archives: WAG

CVS/Caremark PBM’s drops drugs and ramps up strategy of promoting generics over brand name pharma! Branded Pharma fits back with co-pay rebates


Generic Company Teva

We told you about 6 months ago that coupons/rebates were a major new strategy that branded pharma was using to fight back against cheaper generic alternatives

Today it was announced that CVS Caremark (one of the largest PBM businesses) will stop  covering 30 drugs next year ranging from diabetes, erectile disfunction and others.  The reason? $$$ of course!

The question

 What does this mean for your portfolio if you have branded or generic alternatives?

  The answer

 This announcement favors the generic alternatives ( large or mid cap generic companies)

Reason

Companies like CVS/Caremark are vertically integrated and not only run thousands of retail drugstores but also have a substantial Pharmacy Benefits businesses that handle processing of drug benefits for companies and health plan customers. PBM’s tend to make “greater profit margins” from generic drugs than the branded alternatives.  So it makes sense that they are promoting the generic companies drugs. In  addition CVS/Caremark don’t like manufacturer discounts (ie rebates) that big pharma is using to combat the cheaper alternatives. These rebates negate c-pay levels set by the health plans to steer members toward cheaper drugs

What’s next in 2012

The move by CVS/Caremark will be the first of  many strategies PBM’s will use to combat the so-called copay cards from drug makers.  It is estimated that 50% of the therapies that CVS PBM has targeted by customers use the co-pay cards. These co-pay cards (ie coupons) give customers a break  by offsetting higher branded alternatives (such as Viagra, Lipitor) with a coupon to defray the costs.  This is big pharma’s answer to combatting generics and giving customers a cheaper alternative.

So CVS/Caremark has decided to drop Eli Lilly’s Insulin products (Humulin), Bayer’s (Levitra) and 32 others.

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Does Walmart (WMT) want to be lowest cost primary health care services and PBM company?


WMT PBM RESEARCH NOTE

WMT made an splashy entry into the PBM market  with new clinics about 6 years ago when it started offering generic perscriptions for $4.00.

So everybody thought that Walmart could use it’s business model and scale up with clinics to be a player in the PBM marketplace.

Walmart also moved into EHC (Electronic Health Record) and  in-store clinics with very limited success.

Companies such as WMT  and other companies are in a race to build more clinics before 2014 when President Obama’s health care overall will take affect and millions of americans will gain health-insurance coverage.

Right now Walmart lags the industry in the # of clinics

CVS – Caremark has 645 clinics

Walgreens has 347 clinics

Walmart has 141 clinics

So what does this mean for Walmarts bottom line?   Today WMT announced that it’s revenue exceeded Wall Street expectations however

it’s gross margin and profit number missed. This is not concerning short term as Walmart attempts to gain back market share that it lost in the last 3 years. The only way to do this is to keep prices low and sacrifice margin.

The primary health care services strategy would act as a “traffic driver” for WMT and that would eventually drive bottom line when prices are increased.

Here’s why WALMART WILL NOT BE A PLAYER IN THE PRIMARY HEALTH CARE SERVICE MARKET

Respondent is responsible for managing the Midwest region for large Biotech firm. He previously worked at Pfizer for 13 years where he launched Viagra, Ziphromax and other $B drugs. He worked as a Region Manager managing hospitals , PBM relationships and over 200 sales representatives responsible for a million dollar book of business.

 Participant – 21 years in Pharma and Biotech marketplace. Currently working at Sepracor and previously worked in sales management at Pfizer.

The respondent asked that he not be identified, and that his company not be identified.

What impact could Wal-mart potential entry as a PBM (Pharmacy Benefits manager) would have on the industry, especially the sale of

 Pharmaceuticals, and competitive impact/reaction for Target and  Walgreen’s and other drugstore retailers. (Impact on traffic, sales,

 pricing, etc. for Wal-mart, vs. other drugstore retailers?)

Answer: Mark said “ What a provocative question regarding Wal-Mart  entering the PBM arena.

The answer to that is a resounding NO.

Though the PBM business model is run much like the Wal-Mart business model, i.e. brand secondary, cheaper generic (knock

off) alternatives primary, there are several issues which exist that would inhibit Wal-Mart’s ability to be successful in

this area:

1. Other than Wal-Mart employees, most of who are underinsured already, I can’t think of another employer group

eager to be represented by Wal-Mart as their PBM. The brand of Wal-Mart, and their reputation of how their employees are

treated, would not be a good “PR” fit with most employer groups and I would think they’d be a bit hesitant in

diluting their brand with that association.

2. Secondly, PBMs are extremely expensive to run and I can’t think of any competitive  advantage they offer against more

veteran PBMs such as Medco and Caremark. For example, the cost eventually the customer sees in the tiered

 copay system is absorbed in the current system by the  employer, wholesaler and MCO (United, BCBS, ect).

The  advantages these firms have are longstanding relationships with major employer groups that will be hard to

supplant. Wal-Mart won’t be able to offer anything different what current PBMs offer, lesser priced drugs (generics) as the

preferred agent with step edits in place to ensure that branded agents are tried only after generics fail.

Most Tier 1 drugs already have a copay that is nominal ($2-$5) Wal-Mart will be unable to offer anything over what that current

PBMs offer other than some sort of  point of service discount since they run their own pharmacies. The problem with that

is Caremark and Medco already have lucrative deals in place with Walgreen’s, CVS and Target so I don’t see the business

opportunity for them, especially considering what their margin expectations will be from running the business.

Overall my guess is that, from a distance it appears to be potentially a good  opportunity; however when they look at

operation cost and other variables, this will…nowhere. Merck Pharma found this out sometime ago, when it purchased

Medco for 7.2 billion, lost a ton of cash, then divested itself from it. The reasons were not entirely the same; however the

cost was the major issue there as well.

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E-Commerce will soon be #1 revenue driver for some discount and luxury retailers


Recent 2011 quarterly announcements show that Abecrombie and Fitch derived 11% of total revenue from online sales.

Gap got 9% of total sales online  and global retailer powerhouse H&M made $1b in sales online.

What does this mean for the broader discount, dept store and luxury retailers going forward?  It means that stores that haven’t made significant

capital investment in their .com businesses will be at a major competitive advantage starting Fall 2 and holiday season 2011.

Our estimates show us that the IPAD and more robust GPS (Shoppertrak, Foresquare) technologies will enable businesses to generate additional 5% –  10% sales online. This will lower operating margins as less square footage in stores will be the norm.

Additionally the all important gross margin will improve given the lost cost marketing campaigns that can

be done instead of costly broadcast and print campaigns.    The retail sector that will benefit the most will be discounters (Dollar, WMT, TGT, KOHLS and dept. stores (M, JCP and SHLD).

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Walmart is going back to basics to reverse same store sales decline


Wal-Mart details plans to reverse U.S. decline


What’s old is new!!  Discount retailers are all about traffic..traffic…traffic.  So Walmart is seeking to reverse seven straight quarters of same-store-sales declines at its U.S. namesake chain, Wal-Mart Stores Inc. that it’s expanding the number of items on its shelves, launching TV advertising and working with its suppliers to lower costs. The questions are how will this affect margins and EPS?  The urban store launch is not ready to affect EPS for the world’s largest retailer

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WMT which was hurt by a previous strategy to narrow its product assortment, said it’s adding about 8,500 items, or 11%, to an average store.

The retail giant is returning so-called “heritage” products to its shelves in an effort to reverse declining U.S. same-store sales.

Fishing supplies, crafts and fabric are among items being added back to store shelves adding that the company is tailoring some merchandise to local demand, such as selling ice-fishing tools in markets like Minnesota.

BASICS

To make room for more items, Walmart U.S. is raising the height of its shelves and bringing back its so-called action alleys — or products in the center of busy aisles — which the company said has boosted comparable sales. Previously, the retailer had embarked on a remodeling campaign to lower shelf heights and de-clutter its aisles to make its stores more appealing to higher-income shoppers.

The company is now pitching its stores as a one-stop shop at a time when its low-income shoppers are facing rising prices for gasoline, food and possibly apparel.

Walmart has lost traction to its smaller rival Target Corp. (NYSE:TGT)   and dollar-store chains such as Dollar General Corp.(NYSE:DG)  and Family Dollar Stores Inc. (NYSE:FDO).

Walmart is also refocusing on its everyday low-price strategy after a previous move to cut prices temporarily on some items didn’t fare as well as expected.

As part of the low-price moves, the retailer said its store managers and product buyers will check on competitors’ prices more often. It also said it will match a lower advertised price even if customers don’t bring in a competitor’s advertisement, and it is training employees to make sure the simplified policy is implemented consistently across all stores.

About 80% of products like pasta, beverages and snacks have been added to its dry grocery aisles, and that will continue, the company said. In the next few months, the company plans to add to its fresh grocery and consumables aisles, including such items as paper towels, toilet paper and laundry detergent.

General-merchandise categories like electronics, sporting goods, apparel, fabrics/crafts and outdoor living will expand later this year, Wal-Mart said.

In March, Bill Simon, president and chief executive of the company’s biggest sales division, said he’s seen “an improving trend in business.” Read more comments from Walmart U.S. CEO.

Wal-Mart’s shares rose 0.6% to $52.86 in midday trading.

 

Walgreen Stores to Sell Spit-and-Mail Gene Testing Kits in U.S.


If others adopt this (Walmart , CVS) adopt this it could be a BOON

Because after mailing the kit, customers go online and, for $79, can buy a test that looks at genes affecting a person’s ability to respond to Bristol-Myers Squibb Co.’s blood-thinner Plavix, cholesterol-lowering statins such as Pfizer Inc.’s Lipitor and other drugs. If patients have certain variants of these genes, they may need unusually large or small doses of a drug or be unable to handle the drug at all, according to a Pathway patient guide.

May 11 (Bloomberg) — Personal gene-testing is coming to a Walgreen’s near you.

Starting May 14, Walgreen Co. will become the first U.S. retailer to sell test kits, for $30, that promise customers information about their risk for developing diseases and passing conditions to their unborn children. Buyers get vials in which they can send their saliva to Pathway Genomics, the closely held San Diego company that makes the tests, then pay another $79 to $249 to get a detailed report assessing their genes.

Pathway and competitors 23andMe Inc. and Navigenics Inc., two other closely held gene-testing companies that sell their services online, are at the forefront of marketing personal DNA data directly to consumers and may be ahead of their time, said Steven Burrill, a venture capitalist and biotechnology investor based in San Francisco.

Early Adopters

“We’re in the early adopter stage,” Burrill said in a telephone interview yesterday. “Some consumers are ahead of the medical community. If you run to your doctor with your genetics report, he may say, ‘Oops, I don’t know what this means.’”

Pathway’s test kits will offer to analyze customers’ genes for three purposes: to predict what each individual’s risk is for diseases ranging from Alzheimer’s to prostate cancer, to assess would-be parents’ probability of passing on health problems to offspring, and to evaluate how the test-taker will respond to certain drugs.

Walgreen’s customers can pay $20 to $30 to get a test kit — essentially a plastic vial and shipping envelope — and then can go to Pathway’s website and choose from three services the company offers, said Pathway’s Woodman. The kits will be sold at all Walgreen’s outlets other than those in New York, where state regulations restrict direct-to-consumer gene tests.

Store Shelves

The Pathway product will be stocked on store shelves near drug-testing kits and other diagnostic tools, said Jim Cohn, a Walgreen spokesman, in a telephone interview yesterday.

After mailing the kit, customers go online and, for $79, can buy a test that looks at genes affecting a person’s ability to respond to Bristol-Myers Squibb Co.’s blood-thinner Plavix, cholesterol-lowering statins such as Pfizer Inc.’s Lipitor and other drugs. If patients have certain variants of these genes, they may need unusually large or small doses of a drug or be unable to handle the drug at all, according to a Pathway patient guide.

For $179 they can buy a second test that the company says may tell prospective parents if they are carriers of gene mutations that would give their children a high risk of developing Tay-Sachs disease, beta thalassemia, a type of cystic fibrosis, and 34 other conditions. Since many of these rare illnesses are caused by a single recessive gene, a child born to two parents who each carry the gene would have a one-in-four chance of developing the condition, the patient guide says.

26 Health Ailments

A third test, also $179, can tell people if they have gene variants that the company says increases the risk of 26 health ailments including macular degeneration, a common cause of vision loss; coronary artery disease; Alzheimer’s disease; colon, lung and prostate cancer; and multiple sclerosis.

Customers can buy all three tests for a package price of $249. All patients will receive a report explaining the company’s analysis of how the results affect their risks and what steps consumers can take to protect themselves.

Genetics plays a contributing role, not a determining one, in all of the ailments on the health conditions test, said David Becker, Pathway’s chief scientific officer.

‘Motivation Tools’

Learning about genes that “increase your propensity” for certain conditions can act as “motivation tools to help people make good lifestyle choices and learn about their family history,” Becker said.

If a patient was shown to have genes that increased his risk for prostate cancer, “we’re going to tell you your risks in a responsible way,” Woodman said. “You have a higher-than- average propensity for this particular condition and therefore you should pay attention to it, speak to your physician and make lifestyle choices that are going to offset the risk factors.”

“Genetics are not a sentence, they are not definitive,” Woodman said. “This is what the public has a misunderstanding about.”

Pathway will provide genetic counseling over the phone to patients who request it to help them understand the results, Becker said. Counselors will call customers whose test results show they have significant risk of developing or passing on a particular condition. Doctors employed by Pathway will review all orders and make sure they are appropriate, he said.

‘Elevate Awareness’

Selling the gene tests in a retail store instead of over the Internet “may elevate public awareness and make the tests seem more commonplace and therefore potentially more useful than they may be,” said Joan Scott, director of the genetics and public policy center at Johns Hopkins University in Baltimore.

In the past, the FDA hasn’t closely regulated diagnostic tests that were both made and tested by the same laboratory and didn’t make claims about users’ health, Gutierrez said. In the past six months or so, test-makers seem to be making more health claims and the agency is concerned, he said.

“They’re beginning to make claims about metabolizing drugs and it could have an influence on what drugs people take and how they dose them,” Gutierrez said.

The $34.3 billion global baby food category is consolidating..HNZ is lurking


Here comes HNZ and watch out for our pick MATK  see post www.57thstventures.com

The $34.3 billion global baby-food category, which includes formula, has been consolidating, and the 2008 melamine- contamination crisis led Chinese consumers to favor foreign producers, Bernstein’s Howard said. Nestle SA of Vevey, Switzerland, acquired Gerber Baby Foods from Novartis AG in August 2007, andDanone SA bought Numico later that year.