This document summarizes a presentation on navigating drug pricing trends. It discusses factors influencing rising drug prices like utilization growth, manufacturer price inflation, and rebates. It also covers PBM contracting considerations like definitions, methodologies, flexibility, and protection. The presentation recommends conducting annual "market checks" to benchmark PBM contract terms and ensure competitive pricing. Conducting independent third-party analyses of industry pricing data is a best practice. Overall the presentation aims to inform attendees about industry trends impacting drug prices and contracting.

1. 5360 Legacy Dr. Bldg. 3 Suite #230 | Plano, TX 75024 | 800.687.4404 | PSGconsults.com PHARMACEUTICAL STRATEGIES
GROUP
Navigating Drug Pricing Trends
Molly Breimhorst
May 23, 2017

2. Molly Breimhorst
VP, Financial & Analytical
Services
• Over 16 years of PBM pricing
experience
• Led commercial pricing and
underwriting team for one of
the largest PBMs in the
country
2

3. Webinar Overview
Impact on PBM Contracting
3
2
Market Check Strategy3
Question + Answer4
Drug Pricing Trends1

4. © 2017 Pharmaceutical Strategies Group, LLC. Proprietary and confidential.
Drug Pricing Trends

5. Price Trend Factors
5
Utilization
Growth
Price
Inflation
Manufactur
er
Rebates
Drug
Mix

6. Growth in Utilization
6
1.3
%
----------------
----
Total
increase in
utilization
according
to Express
Scripts
Trend
Report
60%
----------------
----
Of
Americans
take at least
one
medication
15%
----------------
----
Of
Americans
take 5+
medications
7.1
%
----------------
----
Specialty
increase
due to
expanded
indications
+
concentrate
d pipelineSOURCE: http://www.newsweek.com/prescription-drugs-rise-new-estimates-suggest-60-americans-take-least-one-390354
Express Scripts 2016 Drug Trend Report

7. Drivers of Drug Mix Changes
7
Shifts in
Therapies
Treated
Increased
Specialty Drug
Innovation
Decreased
Generic
Opportunities

8. Drug Prices are on the Rise
8
Prescription drug prices continue to
rise at a rate well above the U.S.
inflation rate
SOURCE: Express Scripts, www.pages.express-scripts.com/R00S0f3G5o0030J0V3GeCF0

9. Manufacturer Price Inflation
In a recent study, 315
generic drugs
experienced cost
increases from 100%
to greater than 1000%
9
SOURCE: www.medscape.com/viewarticle/868812

10. Manufacturer Pricing Strategies
• Sovaldi changed how manufacturers set the list price
• Lack of evidence on basic financial metrics such as R&D costs
• Revenue maximization strategy
• Cost avoidance per cure
• “Value Premium”
• Created a new benchmark
10

11. Manufacturer Pricing Strategies
11
Combination
Medications
Combining two or more
available medications to
make a new one
Different Delivery
Device
Different delivery device,
worth 5x more than Tier
1 generic?
“Unique” Dosage
Forms or Flavors
Special cherry flavor =
21x more than Tier 1 generic
Unit Dose Packaging
Packaging medications into
single-dose units, such as a
blister pack
23mg “unique” strength when 5mg
and 10mg generics are available
“Unique” Strengths

12. Drug Pricing: It’s Complex
List price is a drug
company’s opening bid in
negotiations.
12
List Price WAC AWP
Formulary
Rebate
Supplemental
Rebate
Markups

13. List Price Inflation vs Net Price Growth
List price inflation has shifted previous
benchmarks
13Source: IMS Medicine Use and Specialty Spending in the US, April 2016

14. Evolution of Rebates
14
2011
Start of the Patent Cliff – Pharma increases copay assistance
programs in response
Promotion of PBM preferred formularies
2012-13
Rebate increases artificially inflate list prices; PBMs respond
with inflation protection contracting
Pharma continues utilization of copay assistance, at times in lieu
of rebates; PBMs respond with exclusionary formularies
2014
New Hepatitis C treatments drove a 13.1% increase in US drug
spending; marking a new era in drug management
2015 PBMs and plan sponsors force rebates to offset specialty costs

15. © 2017 Pharmaceutical Strategies Group, LLC. Proprietary and confidential.
Impact on PBM Contracting

16. Definitions
Dispensing Fees
Rebates
Methodologies
Flexibility
Protection
PBM
Contracting
Consideration
s
16

17. 17
Drug
Classification
Average Wholesale
Price
Specialty
Rebates
Brand vs Generic
OTC Classification
Delivery Channel
Biosimilars
HIV and Transplant
Limited Distribution
Source of AWP
Timing of updates and use for metrics
NDC level
Traditional Formulary Rebates
Manufacturer Administrative Fees
Inflation Protection
Data Fees, Clinical Programs
Definitions
Definitions

18. 18
When will guaranteed terms be measured
When will amounts due be paid
How will they be measured
Who will measure them
Methodologie
s

19. 19
Ability to respond to both expected and
unexpected industry events
Benefit
Administration
Drug
Coverage
Channel
Management
Manufacturer
Arrangements
Flexibility

20. 20
Ensure contract allows for:
• Independent evaluation of pricing adjustment
impact
• Ability to negotiate and potentially terminate
contract in event of non-agreement
Protection
Audit and termination rights

21. © 2017 Pharmaceutical Strategies Group, LLC. Proprietary and confidential.
Market Check Strategy

22. What is a Market Check?
Definition
Formal benchmarking exercise comparing
your PBM contract terms to the competitive
market
1
Implications
Utilize to renegotiate pricing during the
contract to ensure competitive levels are
maintained
2
Timing
Annually to go in effect for the following
contract year, or earlier
3
22

23. Trends in Pricing Benchmarks
• We continue to see pricing dynamics and
competition drive better pricing terms year over
year
• Average Brand AWP Discounts have increased
by approximately 1.0% in the last year
• Average Generic AWP Discounts have
increased by several percentage points
• Continual improvement to minimum rebate
guarantees
• Emergence of network alternatives and multiple
formulary options
23

24. Best Practice: Contract Language
• Secure your right to conduct annual checks
• Allow for independent third party to conduct the
market check analysis using industry-wide
pricing information
• Specialty pricing at the drug level to capture the
impact of launches and pricing trends that occur
during the contract term
• Include relevant financial terms and
methodologies in the Market Check review
24

25. Recommendation Overview
Be informed of industry trends and
market dynamics
25
1
2
3
Ensure your PBM contract terms
protect you from these industry trends
and allow you to capitalize on
innovation
Include comprehensive market check
rights in your PBM contract

26. © 2017 Pharmaceutical Strategies Group, LLC. Proprietary and confidential.
Q&A
26

27. 27
HOW DO YOU COMPARE?
PSG MARKET CHECK™
4.5%Average Contract Value
Generated for PSG Market
Check Clients
WWW.PSGCONSULTS.COM/MARKETCHE
CK

28. Molly Breimhorst
mbreimhorst@psgconsults.com
Webinar recording link
will be e-mailed to all attendees
28