Editor’s Note: This is the final entry of a three-part blog series covering the notable insights from Asembia 2023. Did you miss Part 1 or Part 2 of this series?

Specialty Lite and Emerging Distribution Models

Generics now represent over 92% of prescriptions that flow through Retail Pharmacy. These products flow through without Step Edits, Prior Authorizations or high patient copays and the market is rapidly converting to cash pay. This leaves branded products in a precarious position as the situation is the opposite with many facing Step Edits, Prior Authorizations, and high copays. Any issue that requires a pharmacist or technician to support the prescription journey breaks the daily workflow and is viewed as a costly time burden for the pharmacy on products that aren’t afforded much in the way of reimbursement. The access issues that were common in Specialty have crept downward to non-Specialty brands. The concept of a brand being available at a Retail Pharmacy is waning. 

The factors around this have been building for years. PBM contracts intent the use of generics over brands. Wholesale distributor contracts and processes intent the use of generics over brand. Yet many branded manufacturers haven’t woken up to the reality of this paradigm shift yet. Our industry has taken Retail Pharmacy for granted but we can do that no longer. Just like our industry created Specialty Pharmacy back in the 1990s, we need to move to a new form of e-commerce or digital pharmacy now. 

The best product archetype to use as an early indicator for this transition in pharmacy is what we refer to as Specialty Lite. These are products that are below the financial threshold to fit into classic Specialty Pharmacy but too complex from an access and reimbursement standpoint to be considered for traditional retail. The PCSK-9 inhibitors are typically used as the poster children for this exercise. 

The historical approach to non-Specialty brand channel strategy was to go open access through all forms of retail and outpatient pharmacies and open access via wholesale distribution. This was built when there were little to no Prior Authorizations, Step Edits and when copays were modestly higher than brands. The leading edge is to use some form of e-commerce or digital pharmacy in an exclusive format with some link to a digital support service or call center and either ship directly or through a form of distribution that is neither wholesale nor specialty. (We’re still debating what to call this new form of distribution) 

One aspect of the model is clear, the use of digitization of the management of the prescription journey. It’s filling a really big and necessary void in the marketplace as reimbursement declines and the cost to serve the patient and prescription increases. It’s fair to say that despite over a hundred of these the jury is still out on these. The problem is the data on products flowing through Retail Pharmacy is simply not provided to industry like it is in Specialty Pharmacy. We can’t see the prescriptions coming in, abandonment rates, time to fill, and adherence metrics. 

But with growing NDC blocks over the last 5 years, declining reimbursement, increasing cost to serve and PBM and Wholesale Distribution incentives on generics, wouldn’t it reason that another channel would make more sense. Building on this we are seeing hard data points through primary research of pharmacies not only refusing to stock products but outright reject incoming prescriptions. The doctor electronically processes the prescription, but the receiving pharmacy informs the patient at the counter that they don’t support that product. This is a problem. 

Building on top of the pharmacy problem is that even if a manufacturer wanted to sell to a large network of Retail Pharmacies, the typical mode of distribution is wholesale. For many of these products, they are marketed and distributed by companies with one or a handful of products. The rates paid for wholesale distribution are between 3X-5X the cost paid by large manufacturers and clearly outside of the range of Bona Fide Fee For Service. This presents another set of challenges. So even if a manufacturer pays for what appears to be access it still doesn’t work. 

This leads to the other fascinating trend which is direct distribution. This is the primary form of distribution for a) Cell and Gene b) Orphan/Rare c) 50% of vaccines and 50% of Specialty Pharmacy products. IntegriChain data shows that 35% of specialty-lite goes direct. So, direct is really the primary, not secondary, or alternative, distribution mode for those types of products. A lot of the industry’s collective thinking about distribution is stuck in the past. Direct is the fastest growing form of distribution and is more prevalent than anyone realizes. And manufacturers are seeing the benefits of direct distribution. The visibility of product flow all the way to the pharmacy. Control of pharmacy access and landed acquisition cost. And there’s the cost. It is the most profound for products with heavy 340b value. We have a client with a WAC in the thousands of dollars, and they were paying approximately half of the 340b price. If left in this situation the manufacturer will have little choice but to discontinue the product or find another form of distribution. There are 3PLs out there that have picked up on this and are in the market showing manufacturers how this works. So, I think we’re on the edge of something big here.

If you’re interested in learning more about specialty lite commercialization strategies and new approaches to patient access, pharmacy and distribution consider studying Specialty Lite analogs within certain Therapeutic Areas or Drug Classes, review ICyte benchmark data for how Specialty Lite products perform in the various traditional and digital pharmacy models, and compare and contrast the positives and negatives both with the use of traditional retail pharmacy and the use of digital pharmacies and patient services platforms. 

About the Author

William Roth

William Roth

Senior Vice President and Managing Partner, Consulting

Bill Roth, a recognized expert on business model development in healthcare, leads IntegriChain's Strategy and Operational Consulting organizations. Bill founded Blue Fin Group, which was acquired by IntegriChain in 2022, in 2001 and grew the organization into a leading access and commercialization management consulting firm. For more than 25 years, he has helped both start-ups and industry leaders improve patient care, financial health, and the strategic direction of their organizations. His unique experience, skillset, and knowledge has been built by working directly with almost every type of business model across the pharmaceutical industry. As a highly sought-after thought leader, Bill is often cited by market researchers and analysts for his accurate predictions of future trends. He speaks frequently at industry conferences and was featured on the cover of Pharmaceutical Commerce in January 2016 as a leader in the sector. Prior to founding Blue Fin, Bill spent nearly 10 years at Cardinal Health in management and executive roles. He earned a BS in business administration from Saint Michael’s College. Dave Weiss, VP of Industry Solutions and I recently did a webinar that takes a deeper dive into the various forms of pharmacy and what is going on with a backdrop to the new product archetypes, shifting reimbursement, and the onset of new pharmacy types. If you’re interested in a copy of the recording, please reach out to ic@integrichain.com.