Starting January 1, 2011, 80% of specialty pharmaceutical sales volume will be sold through just two companies: AmerisourceBergen and McKesson. On November 1, McKesson Corporation announced the intent to acquire US Oncology, Inc.—a leading integrated oncology company, privately held by Welsh Carson—for $2.16 billion, including the assumption of US Oncology’s outstanding debt of approximately $1.6 billion [Reuters, “Update 4-McKesson to buy US Oncology, boost specialty share,” November 1, 2010]. The deal is scheduled to close on December 31, and the combined McKesson Specialty Care Solutions business will be led by Bruce Broussard, US Oncology’s chairman and CEO, and headquartered in US Oncology’s current location, The Woodlands, Texas. With US Oncology’s 2009 annual revenues of $3.5 billion [US Oncology Press Release: “US Oncology Reports 2009 Fourth Quarter and Year End Operating Results”, February 25, 2010], the combination of McKesson Specialty and US Oncology is expected to give McKesson a 25% market share [Reuters, “Update 4-McKesson to buy US Oncology, boost specialty share,” November 1, 2010] and 3,000 physician customers [McKesson Press Release: “McKesson to Purchase US Oncology in a Transaction Valued at $2.16 Billion,” November 1, 2010] in the specialty distribution segment. AmerisourceBergen is still the dominant leader in the specialty pharmaceutical distribution sector with approximately 55% market share [Robeznieks, Andis, “$2.16 billion boost: McKesson builds portfolio with US Oncology,” Modern Healthcare, November 8, 2010].
In the world of pharmaceutical distribution, market share is a powerful asset. McKesson’s acquisition of US Oncology enables it to leverage its infrastructure and broader set of services across a larger segment of the market. Kantar Health expects that this acquisition will position McKesson to deliver increasing value to its pharmaceutical manufacturers while reaping the margin benefits of such maneuvers. This acquisition brings McKesson additional strength in three key strategic areas: technology and data services, a platform for evidence-based care, and negotiating leverage with manufacturers around distribution margins.
McKesson’s Specialty Solutions Expands its Technology and Data Offering
The US Oncology acquisition builds on McKesson’s 2007 acquisition of Oncology Therapeutics Network for $575 million [McKesson Press Release: “McKesson Expands Specialty Pharmaceutical Business with Agreement to Purchase OTN for $575 Million,” October 4, 2007]. The combined specialty business brings together the Lynx® and iKnowMedTM technology platforms and expands the McKesson Specialty service portfolio to include US Oncology’s Innovent OncologyTM cancer care management services, its Comprehensive Strategic Alliance (CSA) practice management services, and the US Oncology Research network.
With the combined technologies, McKesson is going to have one of the most robust and comprehensive specialty-focused technology offerings in the industry. McKesson’s Lynx technology platform is designed to provide practices with e-prescribing capabilities, practice management tools that include patient scheduling and billing system capabilities, inventory management and charge capture capabilities, and reimbursement reporting and analysis tools. US Oncology’s iKnowMed technology platform is designed to assist oncology practices in the areas of care delivery, drug management, and revenue cycle management. The iKnowMed electronic health record (EHR) is being used by over 900 of US Oncology’s affiliated physicians.
These technologies allow McKesson to offer more practice management services enabling practices to benefit from recent legislation passed encouraging the use of technology in healthcare. This legislation includes the American Recovery and Reinvestment Act of 2009 (ARRA) and the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). Both Acts established incentive payments aimed at physicians to promote the use of health IT—specifically EHRs and e-prescribing technologies—over the next several years. More significantly, these incentives turn to penalties if technology-use requirements are not met toward the end of the incentive periods: 2012 for MIPPA [HR 6331, “Medicare Improvements for Patients and Providers Act of 2008,” January 3, 2008] and 2015 for ARRA [42 CFR Parts 412, et al., Medicare and Medicaid Programs; Electronic Health Record Incentive Program; Final Rule, July 28, 2010]. With legislation proving to be a driving force for physician adoption, McKesson will be well positioned to capitalize on increased interest from physicians in these kinds of technologies.
What does this mean for specialty pharmaceutical manufacturers? Pharmaceutical manufacturers stand to benefit from both the combination of technologies as well as the expected future installed base of technology. With these two technology platforms well positioned in McKesson’s and US Oncology’s customer bases, which includes US Oncology’s network of physicians who provide cancer care to more than 850,000 patients nationwide [US Oncology, Company Profile, US Oncology website, November 2010], McKesson has the potential to capture and manage significantly broader and deeper volumes of drug-related clinical, claims and distribution data. This data can be used to inform manufacturers and payers alike of oncology prescribing regimens and trends. Kantar Health recommends that manufacturers take this opportunity to better understand the breadth of McKesson’s data and inquire specifically about the insights, measurements and reporting around product utilization, and outcomes and reimbursement trends that McKesson is able to deliver.
McKesson Gains an Evidence-Based Care Program
McKesson has been absent in the recent competitive dynamics relative to evidence-based care programs and this acquisition provides McKesson with access to US Oncology’s Innovent Oncology services. At the center of the Innovent offering is the Level I Pathways—US Oncology’s evidence-based approach to reducing variability in oncologists’ drug choice and treatment. These pathways are developed and maintained by a multidisciplinary group of physicians within the US Oncology network called the Pathways Task Force and are imbedded in the iKnowMed EHR to enable oncologists to select the pathways-approved treatment at the point of care.
In May 2010, US Oncology and Aetna announced an arrangement in which US Oncology will provide Level I Pathways, among other services, to physicians in the Aetna network in Texas, tying pathways compliance to reimbursement. This is US Oncology’s first such program with a national payer and is expected to expand into other states throughout 2011 [US Oncology – Aetna Press Release: “Aetna and US Oncology Team up to Improve Quality, Cost of Cancer Care,” May 19, 2010].
Not surprisingly, Level I Pathways are referenced primarily by US Oncology practices—there has been little uptake of these pathways outside of the US Oncology network [Journal of Multidisciplinary Cancer Care, “Clinical Pathways Programs: Confusing Choices for Payers and Physicians. Part 2: Promising Options,” October 27, 2010]. This is expected to change as a result of the acquisition. The combination of McKesson and US Oncology will position the Innovent program and the Level I Pathways to achieve greater penetration of the market, particularly in areas of regional concentration of McKesson and US Oncology customers. The program will have greater success recruiting participating practices if McKesson is able to turn Pathways compliance into enhanced reimbursements from local payers. The success of the Aetna program, and Aetna’s willingness to expand into other locations, should give some indication to McKesson’s future success at securing contracts with other national payers and ultimately getting a foothold in this part of the market.
What does this mean for specialty pharmaceutical manufacturers? Level I Pathways could gain in importance as McKesson puts its muscle behind it; and in recent years the market has seen that differential reimbursement influences prescribing habits and thus, product use. Kantar Health recommends that manufacturers make sure that the multidisciplinary Pathways Task Force that develops and updates Level I Pathways is well informed of clinical advances on drugs. The better a drug’s clinical performance, the more the manufacturer will want to get that information in front of pathways committees in general. With McKesson now backing the Level I Pathways efforts, it stands to become one of the leading pathways tools in the nation.
McKesson Increases its Market Share Leverage
With 25% market share in the specialty pharmaceutical distribution sector and the “#2 market share” ranking firmly in hand, coupled with deep relationships with practices in US Oncology’s CSA network, McKesson is in a uniquely powerful position. It may seek to leverage that power in negotiations with manufacturers for preferred pricing and/or higher fees.
What does this mean for specialty pharmaceutical manufacturers? McKesson may seek to increase margins on generics, fee-for-service (FFS) rates may change, performance incentives on drug marketing programs and marketing service fees all may increase. But these changes, if they occur at all, would be relatively small, incremental shifts. Mostly, McKesson will be well positioned to capitalize on the imminent biosimilars boon and the expected hefty margins that will accompany these products.
Distributors can influence market share movement of competing drugs that are similar in clinical efficacy and toxicity as in the case of generics and some brand-to-brand competition; biosimilars are likely to be no exception. While the distributor gains improved profit margins on drug sales from these market share movement tactics, the manufacturers fight it out in a zero-sum game: one manufacturer’s gain is another manufacturer’s loss. With the emergence of biosimilars, manufacturers of brand biologics, stand to lose both market share to the biosimilar manufacturers and profit margins to the pharmaceutical distributors. Kantar Health recommends that brand manufacturers of biopharmaceuticals seek to align strategically with McKesson—altering what has traditionally been a vendor-supplier relationship—into one of vested interests to ensure continuity of supply to the marketplace.
The key for specialty pharmaceutical manufacturers will be to work with McKesson as a strategic partner, leveraging the market and drug insights that it generates, exploring long-term opportunities to collaboratively drive value into the market, contracting with the combined GPOs, advertising through the McKesson Specialty channel, and partnering with its clinical research business.
Kantar Health will be watching McKesson’s integration of US Oncology with interest—paying particular attention to how McKesson leverages its newly acquired assets in the delivery of products and services to the market and how it manages its ongoing relationships with manufacturers. We suggest that manufacturers do the same.
Written by Jennifer Dolan, a member of the Kantar Health Oncology Market Access team and Principal of Dolan & Associates. Jen is a contributing author to the Oncology Market Access US report series.
Contributions by Vaishnavi Rammohan and Patricia Ensor. Kantar Health, a global consultancy and marketing insights organization, delivers value to our clients in the life sciences industry through four globally integrated practice areas: Treatment Value, Commercial Development, Brand and Stakeholder Management, and Marketing Insights. Formed in 2009 by uniting Consumer Health Sciences, Mattson Jack, TNS Healthcare, and Ziment, Kantar Health is the next-generation decision-support partner, delivering evidence-based guidance to accelerate clients’ global and local success.
For the first time, a screening method has been shown to reduce lung cancer mortality. Preliminary results from the large National Cancer Institute (NCI)-sponsored National Lung Screening Trial (NLST) show a 20% reduction in lung cancer deaths in a high-risk population screened with low-dose helical CT scans versus conventional chest X-ray.
“These results demonstrate the rigorously defined ability of low-dose helical CT scans to reduce deaths from lung cancer in an older, high-risk population of heavy smokers,” stated Harold Varmus, MD, Director of NCI. “But no one should come away from this trial believing that it is safe to continue to smoke. Low-dose helical CT scans do not prevent or protect against lung cancer, and smoking has many other detrimental effects in addition to lung cancer.”
Neither NCI nor study investigators are making any screening recommendations based on the preliminary findings of the NLST. First a thorough analysis of the data will be conducted, followed by publication of full study details in a peer-review journal. After that, recommendations from several groups, such as American Cancer Society, American College of Radiology, and Radiological Society of North America, are expected.
The study enrolled more than 53,000 current and former smokers aged 55 to 74 in August 2002. The study was conducted at 33 centers in the U.S. at a cost of more than $250,000,000. All participants had a history of at least 30 pack-years (i.e., smoked at least a pack a day for 30 years) and were free of signs, symptoms, or a history of lung cancer at enrollment. Participants had three annual screens with either low-dose helical CT scans (also called spiral CT) or standard chest X-ray.
As of October 10, 2010, a total of 354 lung cancer deaths were reported in the spiral CT arm versus 442 in the chest X-ray arm, representing a 20.3% reduction in lung cancer mortality. At that time, an independent Data Safety Monitoring Board review recommended that the study be stopped early due to the obvious benefit of spiral CT screening.
An intriguing finding of the study, which remains to be fully elucidated, was a 7% reduction in all-cause mortality among the group screened with spiral CT versus those in the conventional x-ray group. Potential explanations could include fewer deaths from cancers other than lung, respiratory disease, and cardiovascular disease.
Despite the positive findings of this study, CT screening has some disadvantages that need to be considered. First is cost. A diagnostic low-dose helical CT scan (as opposed to a screening scan) costs about $300, and the screening scan should fall in that ballpark. Insurers, including Medicare and Medicaid, do not reimburse for lung cancer screening, although they do provide reimbursement for diagnostic scans once symptoms of lung cancer appear. A second consideration is the 25% false-positive rate in the CT group necessitating further workups and more medical procedures that can lead to complications. Another concern is whether lifetime radiation exposure from spiral CT increases the risk of cancer.
To put this in context, radiation exposure from spiral CT study amounts to about 1.4 millisieverts (mSv) compared with an average of about .1 mSv for the single-view chest X-ray used in this study. Radiation exposure from a 2-view breast mammogram averages from 2.5 to 3.5 mSv.
One question that will be answered by complete analysis of LCST data is which subgroups, if any, had a preferential benefit from spiral CT. It is also possible that other groups not included in NLST may have a survival advantage from spiral CT, such as younger patients, light smokers, and non-smokers.
“These findings should not be interpreted to mean that the general public should have low-dose helical CT scans. Only high-risk patients were studied. Modeling will be done [based on trial data] to determine who should get them,” stated Douglas R. Lowy, MD, Deputy Director of NCI.
Presumably, the survival benefit of spiral CT is due to detecting lung cancers at an earlier stage when they are treatable. However, that was not the focus of the trial. “We assume that earlier detection accounted for reduced mortality, but this will be subjected to further analysis. The power of this study is that it met the ultimate endpoint—deaths from lung cancer were reduced. It is important to stress that,” stated Dr. Varmus.
– by Alice goodman