An Interview with Bill Roth, General Manager, Managing Partner, Blue Fin Group

Medicine

Nicholas Saraceno: Do you believe the news of Eli Lilly’s digital platform will cause a shift in manufacturers bypassing middlemen to offer DTC sales of Rx drugs via telehealth options?

Roth: We talked about it across our entire company on our regular weekly meeting. We view this as more systematic of a number of different macros that are occurring in the industry. I think for me and Blue Fin, we view Lilly Direct as competing with lifestyle pharmacies. They have both the manufacturer branded product available as well as their compounded semaglutide. That’s kind of a bigger issue. I think the second piece driving it is, we’re looking at an industry shift relative to payer coverage and out of pocket implications. If you look at where the NDC blocks have gone for 2024, it appears we’re now over 700 NDC blocks. That’s a tremendous amount of growth from the 30 or 40 blocks we had in the middle of the 2010s. I think what that translate into is that it does have manufacturers contemplating whether they should go through the insurance market. You have the rise of the cash pay pharmacies, and then you have the insurance based market. It’s a chokehold point on branded products in particular. From what we see, that doesn’t give you preferred access. We talked about this at the Inform Trade and Channel conference back in December. For smaller companies, you pay a double digit rate for distribution. So, no surprise you have to come out with wholesale acquisition cost of $1000 a month just to pay for all the channel concessions that are required within. You look at it and say “Do I go through insurance, is it possible to go through insurance?” I think in the case of the GOPs, even if you get coverage, it doesn’t mean you’re going to get what the patient would consider an affordable out of pocket. There’s examples out there that aren’t affordable.

The last issue is the biggest issue. That is the challenge with branded products in retail pharmacy. The retail pharmacies making 100% or more of their margins on generics imply that it’s all generics or they’re massively subsidizing the losses associated with branded prescriptions. From there, 92% of the units or the prescriptions that are going out the door are generic. All of your operational workflows are going to be built around those products. I think the piece that wasn’t obvious for me until the latter half of 2023 was that of the remaining 8%, roughly 80% of that 8% is tied up in the top 50 products. That means that less than 2% of all the other products that are flowing out of the pharmacy are brands. If you’re new to market or on the tail end of your lifecycle, the chance of them using another generic is really high. We expect more of this to happen moving forward.

Saraceno: Do you envision access being expanded in the future to drugs like Zepbound with growing momentum in the medical community to treat obesity as a medical condition?

Roth: I do see the weight management products as being novel therapies and in a relatively unmet need perspective. There are obviously a lot of weight management options already. But, to approach it from an inhibitor perspective is a bit of a novel approach to the class and it sounds like the ethicacy rates are strong. There’s a relatively low overall risk profile against a relatively effective clinical profile. There’s a need in the market and the question is whether its been priced in an accessible way. I think that’s where the cash PAP peice comes into play. We’re working with other manufacturers right now, and I would say that the way that they’re looking at the cash price of the product, they’re going to look at what the best price is and they’re going to say that’s their cash price. That kind of ties it back into the $35 insulins as well. The reality is that the classic retail pharmacies are not built up to handle a cash market. They’re geared and structured to focus on insurance. Cash market has come in another way. One of the question that popped up from my team this morning was why wouldn’t the manufacturer just work with a cost plus out there that already has the infrastructure, the marketing, and the support to hand these types of things. I think that’s where maybe the whole insurance based cash based model comes into play. You never really know why a company does what they’re doing. We’re all making some presumptions, but maybe this is a learning experience. Maybe the want to understand firsthand how to navigate this from a payer perspective, a cash pay perspective, where exactly do those price sensitivities lie? I think it’s a good example of not seeing new products come out in this type of model before. We’ve seen direct models that are at the end of their lifecycle. Here, we have new science in a very large disease state, large unmet need, large patient population, and more so, it would make sense to the payers to put these products on because they have to make up for lost rebate dollars that are occurring right now because of the reductions on insulins. We thought that they were good coverage for the GOPs to earn those rebate dollars back, but the payers still had high out of pocket copays and there’s high deductible plans. That brings us back to what Coherus did. They went to Cost Plus and they priced it out to go against those high end deductibles.

Saraceno: Does this create ethical concerns, especially with weight loss drugs, with these telehealth providers more likely to offer prescriptions to patients who may not necessarily need them because of their close ties to the manufacturer?

Roth: From the point of view of the manufacturer, if you’ve ever spoken behind closed doors with a brand manager, they really have two main focuses. They actually do care about the patients that they wan’t their drug to get to. I haven’t met a brand manager in my 30+ year career that isn’t forwardly altruistic about the reason that they have their product on the market to begin with. I think the second objective is that it is a business model. You have to find enough patients at the right price point to be able to justify the product coming to market. This is a commercial market, and you have to find that right balance. I think where the ethics play in is whether or not the payers have placed the product in a realistic position for affordable access. That’s a broad topic we’re hitting across the spectrum. the reality is that the plan sponsors want to make sure that the patients have access to products. The patients want affordable access to those products. The challenge is that when you’re facing aggressive rebate scenarios the various discounts and statutory rebates that manufacturers are required to pay to the government, how do you pay for those economics and still have something positive at the end of the day? There’s a specific number of drugs on the market right now that have hundreds of millions of dollars of sales and they can’t make money on the product. The commercial payers have taken the incentive away from price increases. So, you really have to negotiate the price at the beginning of your launch and you can’t come to terms with what that price looks like. I can say confidently that there is no more black checkbook by any payer. Medicare has now used national coverage determination multiple times. I think there’s a question of value of the product, value of the profile. The problem is that there’s no money left here to pay for those novel pieces of science. We knew that this was coming to the industry at some point and the question on our team’s mind is “If the manufacturers have an altruistic need, how how do they get the product to the patient?”

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