Specialty Pharmacy’s Role in The Future

Voiceover:

Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Charles Rhyee:

Hello, my name is Charles Rhyee, TD Cowen's healthcare technology and distribution analyst, and welcome to the TD Cowen Future Health podcast. Today's podcast is part of our monthly series that continues TD Cowen's efforts to bring together thought leaders, innovators, and investors to discuss how the convergence of healthcare technology, consumerism, and policy is changing the way we look at health, healthcare, and the healthcare system. In this episode we'll talk about specialty drugs, which are typically composed of large molecules that need to be injected or infused, and as a category represent roughly 50% of pharma spending today and continues to increase. Unlike more traditional medications that people pick up at their local pharmacy, specialty pharmacies have emerged along the way to dispense these medications, which often have special handling requirements. With the majority of biopharma R&D being focused in specialty categories, the importance of specialty pharmacies is expected to increase. Today we'll be looking at the specialty pharmacy industry and the role it fills in the healthcare system today and into the future. To help us discuss that topic, I'm joined by Dr. Surya Singh. Dr. Singh brings over 20 years of experience within the healthcare supply chain. Before joining InformedDNA as CEO, Surya was the chief medical officer for CVS Specialty and an attending physician at Brigham and Women's Hospital. Surya is also president of Singh Health Advisors and a senior advisor at ICER. Surya, thanks for joining us today.

Dr. Surya Singh:

Happy to be here. Thank you for having me.

Charles Rhyee:

Maybe just to start here, for those that aren't familiar, what is exactly a specialty pharmacy, and how did they really come about initially?

Dr. Surya Singh:

You hit on it in the intro a little bit, but I'll just expand on what you said, because I think that was a good entree into understanding specialty. I will now rewind the clock to when they started. There's a group of patients and there always have been, especially as there's been proliferation of medication and therapeutic options, that require more essentially clinical consultation, because their case, their condition, and the medication, the therapy they're going to receive, is complicated in some way. Those complications can be because they need special handling and they require some refrigeration to get to their site, and that was one of the reasons why specialty pharmacies started, because there were more molecules, and you referred to them as large molecules, but just to put it slightly differently, instead of small synthetic molecules that are getting packed into largely oral but can also be injectable form, the growth of biologics, really, biologic drugs and large molecules really necessitated having a different type of structure, where you could offer the patient more support, and specifically on that first topic, more support in terms of, how did the drug get there safely to the pickup site or to their home?

The second one is, even if the drug itself doesn't require, the therapy itself doesn't require special handling, it became more and more evident to those working in pharmacy that there were a group of patients that, again, you could be giving them a small molecule, but the patient would require more consultation, more time from a trained pharmacist, and thereby more subspecialization on the part of the pharmacy team. They started to subspecialize teams into hemophilia as factor usage started to step up. As treatments for multiple sclerosis started to increase in availability and how many have been cleared by FDA, that was another area that really started to proliferate, and then of course in cancer and oncology, just as three examples. Now, we have lots of things to talk about in autoimmune, and I know we're going to talk about cardiovascular and the OBC drugs, all that stuff, that are relevant to specialty, but that's how it started, was really in those areas and the need to be able to provide more time at a subspecialty level to explain side effects and explain what to expect in terms of the timing of when your symptoms might be relieved, and efficacy. You just don't have time in a retail pharmacy setting, and training and subspecialization, to be able to do it.

Those are the two main things. Today, specialty pharmacies, though, are really known as the place where all the high-cost medications are dispensed. Right? To that end, CMS even uses a dollar threshold per month as the definition of what is a specialty pharmaceutical drug. The definition has evolved over time, and that has been one of the challenging things, is that even with all the different pharmacy societies, there's not been a unified definition of what constitutes a specialty medication. People have been a little bit all over the map.

Charles Rhyee:

Yeah, and I'm sure we'll touch on that in a little bit. I guess maybe, because you talked about some of these services that support kind of patients' needs, are there some services offered by specialty pharmacists that you consider the most important? Of the different clinical services that can be provided, maybe list a few more of them, but which ones sort of are the most important when you think about patient care?

Dr. Surya Singh:

Yeah, I mean, there's probably ... Again, going back to the same structure that I started off with, one is just, to just be very simplistic about it, but it's still true, especially with the more complicated biologic molecules now, before we even talk about cell and gene therapy, the transport and the supply chain necessary to support the transport of biologic molecules, or just anything that requires something more than just essentially basic safe handling and can be sent by UPS, which literally, small molecule drugs can. I mean, they'll be perfectly safe as long as the temperature doesn't get extreme on either end. Biologic molecules really need to be transported, in many situations, by an organization and participants in the supply chain who really can handle those specialty handling requirements, so that's important for patient care, because the last thing you want is a partially denatured molecule hitting the patient's doorstep, them not knowing, and it being ineffective for a period of time.

I still think that's important, but just clinically speaking, the thing that, as I was the chief medical officer at CVS Specialty that really hit me in reviewing what we did for patients and listening in on calls and all the teams I managed and so on, is a much deeper understanding of when the patients, from a timeline perspective, should expect the drug to really provide them with, in many cases, symptom relief. When will it take effect? Answer their questions about that, because people are at very different levels of understanding, even after they've been on the drug for three months, six months, a year. Be able to follow up with them to explain, "Oh no, you're going to be ... " Whatever. "Your gait is not going to return to normal in the timeframe that you're expecting. It's going to take a little longer. Stick with it, stay adherent." It really is explaining efficacy, explaining what side effects you might expect, and then explaining what adverse events, if they occur, mean that you should go see the prescribing provider or call into the pharmacy right away, so that you know really how to triage and how to titrate.

That just isn't something that you can do with the ... You go to the pharmacy counter at the retail pharmacy, or increasingly you get stuff from the mail, and it says, "Call here," or, "Do you have any questions about your prescription?" They're not going to have a 20-minute conversation with you about your MS drug, so that is a very important thing that specialty pharmacies do, and it has been demonstrated time and time again to increase adherence rates, and persistence, importantly, at the beginning of new prescriptions. That I often point to as one of the really important things specialty pharmacies do.

Then, the last one, which, you throw out the statistic of about 50% of costs being attributable to specialty medications now, but the other part of that equation I like to tell people is it's only about 2% of prescriptions, so this is very low volume, relatively speaking, to the overall number of prescriptions that are being dispensed across the country. I guess what's most important about that is that you can make sure that you are staffing up, and that the staffing model can support providing more services to meet patients where they are, so to speak, and so the staffing model for specialty pharmacies is usually a little more ... It's not that it's flexible, it's that the capacity is a little more elastic for any particular clinical area. We used all kinds of different new models while I was there, in trying to think carefully about how to provide better, even within that 20 minutes or so of consultation for a new prescription call, or 30 minutes, to provide better insight to the patient so that they would be more likely to drive up persistence and adherence rates, by using nurses to supplement pharmacists. As soon as a patient gets off the phone with a pharmacist, they're talked to by a nurse who can give them a little more pragmatic advice on ... Especially if they're using an injectable medication or they're going to have a home infusion or something like that, what they should expect.

Charles Rhyee:

What's interesting there, too, you talked about the fact that only 2% of the prescriptions account for 50% of the cost in the US. Obviously, each of this, these are high cost medications. I remember back in the day that one of the value adds of specialty pharmacy was that they also helped patients find reimbursement and coverage if they didn't have full coverage. Is that still a function that specialty pharmacies perform today?

Dr. Surya Singh:

It definitely is. I mean, I know we'll dig into some of these topics a little more, and I don't leave it off my list to sort of diminish the relative value of it. I think it's a highly valuable function, but it's also highly variable by clinical area, because in some clinical areas there's a lot of patient assistance available, and it's often accessed, and the specialty pharmacy does help patients navigate not just, as I was talking about before, all the clinical side of things, but the financial side of this, because they are high cost medications. Back to my evolving role of the specialty pharmacy opening, along with the definition shifting to a financial threshold and so on, is the reality that the number one barrier for patients to come off of medications for some clinical conditions is cost, is the amount of cost-share that's been shifted on to them. Specialty pharmacies do play, today, a really critical role in helping patients in some of the specific clinical areas where they're dispensing the meds to find patient assistance programs, not only from the manufacturer but from an advocacy organization, et cetera, from other sources.

Charles Rhyee:

Yeah, you mentioned before, right, and I mean, it makes a lot of sense. You walk into a corner pharmacy and you go to the counter and there's a long line, and obviously that pharmacist doesn't have the time to sit with you to really go over everything, or maybe is not specialized in that condition to the extent that you might need it. Are those really the main reasons why retail pharmacies haven't been able to participate as much in specialty to date?

Dr. Surya Singh:

Everything said is absolutely true, and let me just say the same things from a slightly different perspective and in different terminology. The retail pharmacies are not staffed to be able to dedicate the amount of time in their workflow and document that, not just the time, but what they told that patient, the same as a specialty pharmacy is. It would take a rethinking of the retail pharmacy staffing model for retail pharmacists in their day-to-day and the pharmacy techs that are there with them at the counter to be able to provide that care to patients. There's emerging, and we may be able to get to that in this podcast, to talk about how could you use a variety of different tools and technologies to be able to supplement what the retail pharmacist is doing at the pharmacy counter, and for some people provide a level of care that is not just sufficient but good, for specialty drugs. I think the pieces are starting to emerge and assemble to get there, but today, because of the complexity and because of the human touch element, and the fact that you can't roll a lot of this consultation over to AI yet, you really still do need more a sophisticated, sub-specialized human to do the consultation.

Charles Rhyee:

One of the things I was thinking about was the fact that, you look in the market today, a lot of biologics that come to the market are listed as sort of limited distribution drugs. A lot of talk about LDDs, and if I'm not mistaken, right, that's really the manufacturer saying, "We want to have our product distributed through a small set of pharmacies so that we can have more control or be able to monitor patients." Any number of reasons, right? I'm just wondering, how much do you think that LDDs has played really in the growth of the specialty pharmacy model?

Dr. Surya Singh:

I would say that LDDs are more of a consequence of the specialty pharmacy model. Let me elaborate. Maybe there's a little bit of a self-propagating cycle between the two, but the LDDs really started after specialty had taken hold, and I know there's this progression, I'll just give a quick Cliff's Notes version, of PBMs buying specialty pharmacies and specialty pharmacies then sort of becoming better integrated with both the kind of data infrastructure within those larger advantage care organizations, and having spent a long time inside one of them, I would say the value of that data integration is pretty high to patients, ultimately, because it allows you to do a lot of things around making sure that you pick up all your prescriptions for non-specialty and specialty at the same time, or you get them shipped to you at the same time. Drug-drug interactions and things are picked up much quicker because of the pharmacy profile.

Back to the LDD situation, the limited distribution drugs that have remained limited distribution for longer, in the world largely of specialty, but there've been a couple other things that were right on the fringe, right on the edge of being specialty versus retail dispensed that chose to go the limited distribution drug pathway, but the major decision factor in making it an LDD drug was that you wanted, A, from the manufacturer's perspective, and I've heard this directly from many manufacturers, wanted to ensure that it was dispensed through specialty, and they wanted to have control over what the relationship looked like with them, between their organization as the manufacturer and the specialty pharmacies. Meaning that, in a lot of situations, they didn't get the same level of, I would even say, data analytics and reporting back from specialty pharmacies, unless they said, "This is a limited distribution drug, we're going to select for pharmacies that are allowed to ... They're going to be the preferred pharmacy partners to dispense this drug. Now we can dictate what reports we need back for you to remain in the network."

As specialty pharmacy, my experience was, we would then say, "Great, we want to be able to dispense your drug so we're going to agree to it." We might negotiate a little bit about, can we actually get all the data elements you want and get them back to you in a timely fashion, in this cadence, and so on? It's a way for them to exert some power and control over that relationship which didn't exist otherwise.

Charles Rhyee:

Is there an RFP process, then, that manufacturers go through to select the network? Maybe talk through, what are the typical criteria that manufacturers are really looking for when they are selecting specialty pharmacies for a limited network?

Dr. Surya Singh:

First, they want to know kind of breadth and presence. Can you actually dispense this everywhere that they think they're going to be able to get patients? Interestingly, toward the tail end of my time there, we started to see more questions about, what kind of data integration do we have? Maybe not necessarily with them, but with the rest of the healthcare ecosystem, because they know that especially for adverse event reporting back to FDA, there may be pieces of the clinical records that's not coming directly from the pharmacy that they'll need to have access to, and they want to try to figure out, can a specialty pharmacy essentially be the data hub that's gathering that for them? Through EMR, et cetera, et cetera, so that was the second thing. These are not in a particular order of importance, but just categorical items in the questionnaires, the RFP process, so that's another one.

The third one that I would say is of outsized importance, and usually in my opinion swayed the process more and was more of a key decision factor, is making sure that we, specialty pharmacies, can provide back to them everything that they need. Not quite turnkey, but as close as possible for their own reporting needs, because some of that has to go back to FDA. They need some of that for what they've agreed to as phase four with FDA or in their own, for follow-up from their own trials, and assimilating, quote-unquote, real-world evidence or real-world data to support real-world evidence in support of their ultimate goals and supplemental indications, or proving out the value of the drug that they have for HEO or health economics and outcomes research studies, and so on. We would see in those RFPs a variety of different questions, and most of it, I would say, more than about just anything strictly economic, was much more about, what can we provide back in terms of a service offering? A lot of the service offering is around data and reporting and analytics.

Charles Rhyee:

I asked the question only because there's companies that are in the market today with specialty pharmacies, and one of their selling points is, "Hey, we have access to all the limited distribution drugs out there," and then you hear all these companies say they also have that, and it starts to make me think, well, how limited are these networks, really? Maybe give us a sense. Typically, if a manufacturer has a limited distribution drug, how many pharmacies do they typically include in a network?

Dr. Surya Singh:

I would say the average size is about somewhere between three and five, when they say they're going to have ... They will almost inevitably have at least one of the big three specialty pharmacies that are one of the big three vertically consolidated managed care organizations. OptumRx, Accredo, or CVS Specialty almost always was in those networks. There were a few exceptions to that where there would be four midsize specialty pharmacies, and one of them or two of them would be completely independent, PBMs, that is. Because, there are smaller PBM and specialty combinations and partnerships that have come and gone and so on outside of those big three that I mentioned, but by and large, they would want to include, they being the manufacturer, in selecting their limited distribution network, at least one of those large ones, because they have to make sure that in some of the far reaches of the overall pool of potential recipients of their product, of their therapy, that there's somebody that can supply it to them, and they would look for breadth from the smaller/midsize players, also.

From what I saw, and I don't have a good statistic on this. I was actually looking before today's session to see if I could find anything, but I don't have a great statistic on how often, for LDD networks, one of those big three is included, but in my experience, which now is four years old, it's very ... Not ubiquitous, but close. I mean, it's most of the time, 90%, 95% of the time, one of those big three is in the LDD network from the get-go.

Charles Rhyee:

Yeah. I mean, we've talked a little bit about it so far. Definitely want to jump into this dynamic, right, on these vertically integrated organizations, where we think of Cigna, we think about CVS, United. I remember specialty pharmacies, specialty distribution companies, they used to be independent. I used to cover, right, Accredo Health and Priority Healthcare back in the day. Over time, we saw these companies acquired by the major PBMs, and then the PBMs themselves acquired by managed care. When you look back, that first step, you mentioned sort of data integration as one thing. What do you think drove PBMs to make that push into specialty pharmacy in the first place?

Dr. Surya Singh:

I mean, when you really look at it, take two steps back and look at the macro lens for what was going on with PBMs, they had a first chapter of value creation around mail order, and a second chapter of value creation around generic dispensing, and that wave of the first major patent expirations, and then they needed something else in order to continue to grow. The high cost and the need for what I was talking about at the outset, of these specialized services, led them to have to make a decision of, "Are we going to essentially build up staff and build up capabilities to be able to command a higher price and thereby compete with specialty pharmacies, or are we just going to go buy the specialty pharmacies that have already built up this set of capabilities and are able to command a higher price because they have something that's needed clinically?" That increasingly, not really from a regulatory standpoint, but from a clinical compliance standpoint, and to be consistent with good evidence-based practice, you need to be able to do X, Y and Z, and the specialty pharmacies could do those things, and the PBMs couldn't, because they had a low-cost model and they weren't staffed appropriately for that. It was just a shorter path to be able to add those capabilities through an organic pathway and M&A, acquisition, instead of trying to build it up.

I think the story could have played out very differently if even one of them had decided, and I'm talking about Medco and so on, they had just said, "No, we're going to build up this set of capabilities organically, we're just going to build it," but instead, all of them bought specialty pharmacies and then started to figure out this. It wasn't really all about data integration in those days. It was much more about integration of all the different services and staff, or referral patterns and so on.

Charles Rhyee:

Do you think that specialty pharmacy holds the same importance for managed care, given the sort of clinical nature of it, the cost nature of it?

Dr. Surya Singh:

I think because it's ... Well, two things. One is, because it's grown to such a huge portion, as we talked about before, and just to reiterate, not to be too redundant, but when it's 50% of the cost and drug costs are going up, and there's more treatments available for formerly unaddressed populations and smaller and smaller populations, rare conditions, and part of that I know we're talking about with cell and gene therapy, but as you look at that equation, you can't be taking care of ... You can't be a population health organization the way that most managed care organizations think of themselves without having this function. It's like, it's an absolute. I don't see any way that they can function without it. You can't get a deep enough partnership in place contractually to have it be the same as if it was an integrated organization. Even as a wholly owned subsidiary, there still is, in its ... Operating as a separate business unit and has its own P&L, there's still going to be better integration and better data exchange than there would be if you just did it through a partnership, and I don't think any of them can get away from that today.

Charles Rhyee:

What's interesting is, you talk about the evolution of the PBM model. I mean, I've seen various estimates, but by our estimates, specialty pharmacy itself contributes a significant portion of earnings to the major PBMs at this point. Do you have an estimate, would you think, that specialty pharmacy constitutes for a PBM's earnings at this point?

Dr. Surya Singh:

Not that I would call out right now, and I didn't look at any of the 10Ks. I look at filings ahead of this call to see what the most recent ... It's actually broken out in [inaudible 00:23:58]. You can see what the business unit, the specialty pharmacy business unit, is doing in terms of performance. I mean, I'll just give a very curt and general answer. The majority. Definitely the majority. I mean, and I won't give a specific percentage, but it fluctuates a little bit, and also, remember that the math around which business unit is providing the biggest boost to earnings and what is providing really what the profitability is all depends on how, especially in the world of pharmacy, the rebate dollars frankly still get allocated. If it's an overall contract, are the rebate dollars for specialty drugs being allocated over the entire pool of prescriptions for that customer, or only over the specialty drug portion and attributable to the specialty pharmacy? That still is a significant piece, but that's at least some answer. I didn't sidestep it all the way.

Charles Rhyee:

Yeah, no, and I was going to say, right, I mean, would you have been surprised if that number was 40 or 50%? It sounds like you would agree.

Dr. Surya Singh:

I would agree. Yeah.

Charles Rhyee:

Yeah. Obviously, I think there's been a lot of regulatory scrutiny on the PBMs, and certainly part of it has been, I think, a focus of regulators has been around steerage of patients by PBMs into their captive specialty pharmacies. Would love to get your thoughts around that, because, do you think specialty pharmacies could operate successfully independently, and would that actually be better for patient care overall, if we think about ... Not that I'm saying this is going to happen, but if there was some call for a change in the rules, or you had to split out specialty pharmacy, or at a minimum, right, change where there could be no forced steerage, at least, into captive PBMs?

Dr. Surya Singh:

Yeah, it's an interesting question. I think it will continue to be a question, because even when I was eyeball-deep in doing this every day, I was always struck by how many people, despite what I thought was a very clear way of being able to demonstrate and articulate this wasn't the case, were just like, "Hey, look, there are some misaligned incentives here, fox guarding the hen-house, you guys inherently want to drive, or the managed care organization, but you want to drive more prescribing, you want to drive more dispensing and utilization." Really, just to say what I said then and I still believe is true, if these organizations that are consolidated, all of them, if that was their goal and they followed that logic, just, more utilization is a good thing for our business, they would lose the big contracts, because they would underperform on what their promises had been in terms of overall cost control, essentially, because of the increased utilization.

It's self-defeating. If you're really kind of thinking over a three-year contract, you'll know that you're going to have to report out on what the utilization was, and you're going to have to justify, because there are smart people on the other side of the negotiating table, why did utilization go up? If the removal of a prior authorization or something else is the reason why it happened, you're probably going to lose that customer, and that's worth way more than the incremental prescriptions overall. Anyway, I think overall, my overall answer is, I don't think splitting out the specialty pharmacy, again, just from a strictly economic standpoint, would make a lot of sense for the market and for those organizations. Getting to two other angles on the answer to that, from a patient care perspective, it's a mixed bag. I still think it would be bad for patient care overall to have them be independent in today's environment, really for two reasons.

One is that, and I know I've said this term a few times, but I'll just apply it again and define what I mean. The data integration for patients who are on specialty drugs is really important, so the average patient who's on a specialty drug is on about five to six other medications as well. If you don't have the ongoing pharmacy record, forget the white card, which is the pharmacy record of those other medications, the ability to be able to anticipate and correct for dosage changes that need to be made as those medications are changed or just any other complication ... Just think blood pressure medications, for instance, right, that are titrated all the time, and a lot of the patients with a specialty condition have that plus other chronic conditions that those five to six meds are used for. The issue is that you don't have any insight into that as a specialty pharmacy, so you don't know that that's being changed. Is not, or is it not? You have no idea, because in many cases, today, despite [inaudible 00:28:52] work and data interoperability, it still isn't as penetrated into all parts of the pharmacy record as you would like, to get essentially a comprehensive medication view.

That's a big issue, number one. Issue number two is more from a patient adherence standpoint. Again, if they're able to get their medications, which we went to great pains to be able to do within the organization I was with, and now I think basically all of the consolidated players that we've been talking about can do this, they'll synchronize the script so that it's just much easier for the patient to get all their medications refilled in a timely fashion and not have gap days in between their prescriptions, and so on. That's another sort of reason why it makes sense to keep them together. The con, I said it's a mixed bag. On the flip side, independent specialty pharmacies should be able to do an even better job, to my earlier point, at providing the high-touch services. I was talking all about the clinical needs. You mentioned the financial assistance programs. I think all of that, you can titrate the service model better to patients as an independent organization in some ways, and so that's attractive, but it doesn't overcome all the other things.

Charles Rhyee:

No, that makes a lot of sense. It's interesting, and obviously we'll be watching what happens there. Wanted to move on a little bit here. I think it's hard to talk about pharmacies and what's happening in the pharma world without talking about GLP-1s. What I think is interesting is, if I'm not mistaken, these drugs, even though they're injectable, aren't considered specialty medications, right, and retail has become the prime setting for dispensing of these drugs. Correct me if I'm wrong, are they considered specialty meds or not?

Dr. Surya Singh:

Right now they're not, and it's unclear to me that it will remain there. I mean, I take it back, just to rewind the clock a little bit, to the last new drug entrance in the cardiovascular world that we thought were going to be much more blockbuster than they were, is the PCSK9 inhibitors, in the 2015 sort of timeframe, and we actually had long debates over whether those should be dispensed out of specialty or out of the retail pharmacy, and ultimately we decided they were going to be ... It was a little bit of one of the first larger scale hybrid models we had, where it could be both, depending on the situation. I think what's going to happen with the GLP-1s is something that's kind of similar, but in this setting a much more, I don't know if it's modern, but the decision-making protocol around, does it end up being dispensed out of pharmacy, will really have to do more with who the ultimate customer is, and, what kind of health system wraparound services do they have?

I believe that the default model, from what I'm reading and seeing in the market and so on, is going to be that it's going to come from retail. I'm not sure if that's necessarily the most positive thing, but given the volume, from a clinical standpoint I mean, given the volume, it probably makes more sense from ... It would overtake and be disproportionately critical to every specialty pharmacy's business and start to squeeze out services and everything else from a just attention standpoint in specialty pharmacy. Cancer and neurodegenerative diseases and autoimmune and all the other things would start to get squeezed out, because this is such a ... It is already becoming such a giant volume.

Charles Rhyee:

Yeah, no, and I'm sure we can talk hours about this one, but I guess it goes back to the earlier point you were saying, that the definition of specialty, right, it's not kind of universally defined, but CMS is defining it by cost. By a cost measure, does it qualify as specialty? I think it was supposed to be, what, $5000 a year, was CMS's limit? I can't remember exactly. Maybe I'm wrong.

Dr. Surya Singh:

It used to be ... I actually could look at ... The last time I looked, I believe it was $740 per month, was CMS's definition, so about $8500 a year.

Charles Rhyee:

Right, so this would qualify, right? This is about, what, 1600 a month, out of pocket?

Dr. Surya Singh:

That's right, out of pocket. Although, for the Zepbound program, the Lilly Direct program, which, I don't know if we're going to get there, to talk about that, the price is lower than that, so it's just under the threshold, on a monthly basis. It's not specialty by that definition, but that's such a different model. I mean, it's not really ... I would have a hard time classifying the patient getting drug through that Lilly Direct model as specialty or non-specialty. It's just a new method.

Charles Rhyee:

I guess where I'm kind of going, right, because maybe from a clinical standpoint there is a lot of extra services you could provide patients, let's say, on GLP-1s, but I'm thinking about drugs even like Humira. Other than the initial, teaching patients how to take the injection, some basic conversations around potential side effects, it's kind of self-explanatory, right? The patient doesn't need a lot of handholding, so couldn't Humira be similar, that it could be dispensed out of retail? I know some volume is, but I'm just thinking forward, as manufacturers kind of develop these new medications that are injectables but have such severe side effect profiles that you need constant monitoring, is there room for where retail takes a bigger role in specialty than historically? Then maybe you really define specialty pharmacies for those autoimmune, oncology, things like that.

Dr. Surya Singh:

Yeah, I mean, I think there is, and I was alluding to this a little bit before. I said the tools that we have today, and I was talking more about technology, but I do think there's this merging of ... You're talking about another axis of the merging of specialty back into retail, which is, maybe the model becomes, for some drugs, especially self-injectable drugs, you called out Humira, but I would just say any self-injectable drug where there's not likely to be a change, there's just two dosage forms, whatever, it's very simple. The initial, like everything, getting people over that initial activation energy and teaching and so on, you do need the high-touch service, and then after that, you could go to a retail model. In a way, a program that we rolled out while I was still at CVS called Specialty Connect was the first foray into doing this, because what we said was you could pick up your specialty medication in any of CVS retail locations.

Instead of it being shipped or largely shipped, but a few ... We had, whatever it was, 40 or 50 brick-and-mortar specialty locations around the country in major metro areas. Now you could go to the whatever it was at the time, 10,000 stores or something. You could go anywhere to go get your specialty medication. We would get it to you in that timeframe, and you could track. This is right around the time we were rolling out our digital presence and the first integrated app and all of that, and you could track where the medication was and then just go to your store and pick up your other prescriptions and do whatever you do at CVS at the same time that you go get your prescriptions. In the future, taking CVS out of the equation and just saying anybody, any of the pharmacies, retail pharmacy chains, including Walgreen's as well, and all the smaller chains and so on, and then Amazon, for their part, you could imagine that maybe they have deals with specialty pharmacies where the specialty pharmacy gets the newly diagnosed or new prescriptions, and then there's a referral relationship where it gets sent to the retail player.

You have the specialty pharmacy as a backup if the patient needs something, and as long as there's, again, back to technology and data integration, there's a way to get the patient back to somebody if they need it, they don't need the every refill call that we've traditionally done. We have made a big deal out of making sure that every time that a new refill goes out, that that patient gets talked to live, and maybe in the future that's not going to be as necessary. Especially if pharmacies have already recognized themselves that they don't need to do that, but maybe it starts to erode after that initial period, 90 days, whatever it is, that the patient needs to be on the pharmacy enrollment in the same way.

Charles Rhyee:

I wanted to move on to another topic, which is biosimilars, and I think of this as maybe potentially a big opportunity for specialty pharmacies, because if we think about how traditional mail order pharmacies benefited with the generic cycle through the 2000s, early 2010s, it looks like we're about to enter a major cycle of biosimilar introductions that I think could expand over the next 10 years or so. How much of an opportunity do you see that for specialty pharmacies?

Dr. Surya Singh:

I think it's ... Let me loop back to specialty pharmacies. Just in general for pharmacies, especially with the rules being ... Relaxed is the wrong term, but at least being more clear for how to get to interchangeability, with interchangeability being more readily available and perhaps the bar being changed, I don't want to say lowered, but changed, for being able to achieve interchangeability, I think it's a giant opportunity for pharmacies with all the introductions. I think we could get close to the price erosions and cost savings that we were originally modeling back when biosimilars were still just a couple on the market, for cell growth factor and so on. That's a really good thing. For specialty pharmacies, I think there is an opportunity, but back to our earlier conversation just a second ago, it may be that especially after that initial ... Back to even the same model we were just talking about, most of the biologic drugs that do or are going to have biosimilars, especially the ones in the autoimmune category, which everybody was so concerned about, and now that we're getting competition through biosimilars in that category and we see price erosion, and we convince ourselves that through a good accumulation of experience and evidence, that patients are going to be fine if you get them to a specialist for the first period of time, and then back to another setting, i.e., retail, or it's just mail order from a non-specialty pharmacy.

Back to what I said, some of the players I was talking about before, then I can imagine that the specialty pharmacy will benefit from that first period, but not on an ongoing basis, because they should be some of the easiest prescriptions to just dispense. Again, interchangeable just lets the pharmacy decide and interchange. I would think that for those drugs, especially the ones that are very simple to inject or to take, those would be candidates for being dispensed out of retail, if the market is starting to shift to that at all.

Charles Rhyee:

Yeah, I mean, do we need full real interchangeability, the AB rating so that you can interchange across different biosimilars, really, to get the full benefit? Right now, we have sort of limited interchangeability, right, just between specific biosimilars to the original product.

Dr. Surya Singh:

I think as more experience and evidence starts to accumulate, we're going to get ... I don't know if it'll be some different construct. It won't be quite the moniker or probably won't be AB rating. I mean, maybe it will be, maybe I'm wrong, but in concept, if we have that, I do think we have to get to that level in order to get the full economic benefit, in order to get the full cost reduction. Until that's true, it's not as simple as it has been to drive up generic dispensing rates.

Charles Rhyee:

Yeah. When we look at maybe CVS, right, they formed Cordavis last year, and part of their goal was to bring lower cost biosimilars to the market. It kind of touches on what we've been talking about a little bit, which is, to me, it seems like a way to bring more specialty into the retail setting, and it kind of goes back to some of the things we just spoke about. Do you think the dynamics have changed enough that we will see more specialty drugs dispensed through retail going forward?

Dr. Surya Singh:

I think we will. I just don't know how rapid the change is going to be, but I think we'll see more. I don't think it's going to be a sea change, though, because there's going to be a lot of wrangling around. What does this mean for the overall contract value and for guarantees, and all these other parts of the economics of pharmacy that we haven't talked about in depth today? The short answer is, I think it's yes, but of course, it's yes, but. I think it's going to be slow. I don't think it's going to happen rapidly.

Charles Rhyee:

What about cell and gene therapies, right? I mean, this whole new class of drugs are very expensive to begin with. In theory, they become cures, right? Ideally, they should be one and dones for folks. What do you think the role of specialty pharmacy will be as we get more of these type of therapies coming into the market?

Dr. Surya Singh:

Yeah, again, this is a little bit more of a nuanced answer, I guess, to the question. I think, not that specialty pharmacies won't have a role, but for the majority of the cell and gene therapies that are on the market right now and the most proximal ones in the pipeline, they're largely dispensed through a health system. It's like, they're Part B, they're medical benefit drugs, and so specialty pharmacies traditionally have not had as much role on those drugs. I think for the majority, 80% of terms of volume, although it's a small volume overall, that's going to be true, especially on the cell therapy side, because even with ... Certainly for CAR-T, but also for the TIL therapy, tumor infiltrating lymphocyte therapies and so on, these other things that are reaching the market in cancer, they're all ... They require either some kind of conditioning on the part of the patient that looks more like a bone marrow transplant, or an intense process of getting the patient ready and extracting cells and preparing the cells, and putting them back in, and that's largely inpatient.

There's some that they're talking about doing outpatient, as you probably know, for CAR-T and so on now, but that body of things, it's unlikely ... Specialty pharmacy is not going to play much of a role now or in the future on that. Then, in the viral vector delivered gene therapy universe, and maybe even in the CRISPR gene editing, and we have our first one of those, too, in the market, that's been approved now, but in that family, specialty pharmacy can play a role. It has not been extensive so far. I mean, Accredo was the exclusive for Luxterna when it came out, and there have been a few other gene therapies where specialty pharmacies have played a role so far, but by and large they've also been medical benefit.

Charles Rhyee:

Yeah, I was thinking about the Luxterna example and just thinking the role that could be part of. Well, just wanted to then maybe close out here and just ask you, what do you think is some of the things that people should watch out for? Any kind of big changes that you kind of see over the next few years that could really benefit, or just on the horizon for specialty pharmacies that people should be aware of?

Dr. Surya Singh:

Specialty pharmacy specifically? I think we just hit on the last topic. The cell and gene therapy approvals that have been rolling out have been very rapid, but the cell and gene therapy uptake in the market has been really slow, and really looking back on it now, this is pretty predictable, because it takes a lot to change practice, and it takes a lot to really encourage patients, especially in hemophilia and sickle cell and some of these very specific populations, that this new therapy is not just safe but something they should do. I think that's going to continue to shift the market and shift the way we think about, in specialty pharmacy, what the specialty pharmacy really is responsible for. On the gene therapy side, not cell therapy so much, as I was saying before, I do think specialty pharmacies are going to step forward to take a bigger role in those seven digit therapies and make sure that their service offering is tailored to be able to do that.

The second big change is that, I think, and this speaks a little bit to the merging with retail point that we were talking about, and merging back into retail as part of this, I think specialty pharmacies are going to change their ... Evolve, I'd say, rather than change. They're going to evolve their business model so that they can define the patient population, as opposed to a cost threshold. I don't know if CMS will go along with that or even participate or drive it, but I think the pharmacies themselves are going to say, "These are the types of patients we take care of, and we take care of them kind of no matter what."

Charles Rhyee:

That'll be interesting to see. I think we're going to have to leave it there. Surya, it was great to have you today. Really appreciate all your insights here, and we'll obviously keep a lookout on what's on the horizon, and obviously an important and growing, an increasingly growing part of the market here. Appreciate all your time, and thanks everyone for joining us on this podcast, and look forward to having you join us on future ones. Thank you.

Voiceover:

Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.

The views or opinions expressed herein represent the personal views of the writer and do not necessarily reflect the views of TD Securities or its affiliates.

This material is intended to provide commentary on the market for commodities discussed herein.

Not Advice: The information contained in this material is for informational purposes only and is not intended to provide professional, investment or any other type of advice or recommendation, or to create a fiduciary relationship. Neither TD Securities (USA) LLC (“TD Securities USA”) nor any of its affiliates (collectively, “TD”) makes any representation or warranty, express or implied, regarding the accuracy, reliability, completeness, appropriateness or sufficiency for any purpose of any information included in this material. Certain information may have been provided by third-party sources and, while believed to be reliable, has not been independently verified by TD, and its accuracy or completeness acannot be guaranteed. You should not make an investment decision in reliance on this material, which is intended to provide only brief comments on the topics addressed, and is based on information that is likely to change without notice.

Not Securities or Derivatives Research: This material has not been produced, reviewed or approved by TD’s securities or derivatives research departments. The views of the author may differ from others at TD, including TD securities or derivatives research analysts.

Not Independent: The views expressed in this material may not be independent of the interests of TD. TD may engage in conflicting activities, including principal trading before or after posting this material, or other services involving commodities discussed in this material, or related financial products. TD may have a financial interest in the commodities discussed in this material, including, without limitation, a financial product that references such commodities.

Not An Offer or Solicitation: Nothing contained in this material is, or should be construed as, an offer, a solicitation of an offer or an invitation to buy or sell any commodity, or any financial product that references such commodity, and it is not intended for distribution in any jurisdiction where such distribution would be contrary to law.

Risk of Loss. Transactions in commodities, and financial instruments that reference commodities, involve risk of loss, and are subject to the risks of fluctuating prices. You should weigh potential benefits against the risks. Past performance is no indicator of future performance and the Materials are not intended to forecast or predict future events.