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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