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Since the 1990s, Omnicare (Cincinnati) has been one of the leading pharmacy supply services to the long-term care (LTC) market. Starting in the mid-2000s, the company made a series of acquisitions and, in November 2010, unified them as the Omnicare Specialty Care Group (SCG). Nitin Sahney, who had founded one of the acquired companies, RxCrossroads, in 2001, was appointed president of SCG in 2010 and recently became president and chief operating officer of Omnicare.
SCG has five “platforms” for services to the biopharma industry: Brand Support Services; Supply Chain Solutions; Patient Support Services; Specialty Pharmacy; and End of Life Care. The first three are offered on a fee-for-service basis to manufacturers, making SCG a marketing support organization, a specialty hub provider and a specialty distributor; the latter two involve consigned pharmaceutical products, some of which flow into the parent’s LTC business. Currently, SCG is growing at a 20% per year clip, and reported revenue of about $1.3 billion in 2012, representing more than a fifth of the parent company’s business.
Pharmaceutical Commerce sat down with Mr. Sahney to talk about specialty distribution, the healthcare market and industry needs. Here’s what he had to say.
1) Omnicare Specialty Care Group is made up of four businesses—PBM Plus, RxCrossroads, Excellerx and ACS, all of whom maintain their own identity. How did these companies come together, and how is it planned for them to work together going forward?
Little more than two years ago, the Specialty Care Group essentially did not exist. Instead, it was a collection of five separate businesses that Omnicare had acquired over the years, each operating independently and unaware of any operating and strategic synergies that may have existed. These businesses also lacked direction and the structure required to generate consistent operating improvements and sales results. Today, the Specialty Care Group is an integrated, well-oiled operating entity that is competing very well in the marketplace.
We achieved this by laying a very solid foundation operationally and strategically by constructing a very good operational team and developed a brand new sales function. What we did was to integrate these four entities into five distinct platforms. You can notice these are five platforms; four of them are pointed toward biopharmaceutical services. That is brand support services, supply chain, patient support services and our specialty pharmacy business.
Three out of our five platforms are fee-for-service, which is very exciting for us and we feel there’s a lot of opportunity in that area. In three of the five platforms the manufacturer owns the product, so we do not have any inventory risk. On the other two that are focused on dispensing to the patients, our specialty pharmacy has been growing very robustly and we expect that to continue. We want to be a full-service commercialization partner for challenging products of today’s biopharma industry. We also promise to provide the quickest possible access to patients for these specialty products.
We’ve also made substantial capital investments in the past two years, building or expanding two logistics centers in Kentucky, and opening another patient-support call center last year. Specialty pharmacy is headquarted in Orlando, FL, and is backed up by facilities in Memphis, Louisville and Philadelphia.
2) How much overlap is there with Omnicare’s main line of business, which is focused strongly on the LTC market?
We believe our specialty care group adds tremendous value to Omnicare. In addition to being closer to the manufacturer, the business also diversifies Omnicare’s payer mix with the substantial amount of EBITDA now coming from nongovernment resources.
Within our SCG business, our focus remains on accelerating growth within our fee-for-service business, and we are actively developing new solutions for our biopharma clients. Our specialty pharmacy platform is also gaining traction through limited distribution networks. One unique example is the drug Xenazine [ed. note: tetrabenazine, a therapy for Huntington’s disease, marketed in the US by Lundbeck], where we have utilized our LTC footprint to become the exclusive provider of this product within the LTC channel. We will continue to evaluate opportunities like this to better leverage our assets; with both our businesses now under the leadership of one team, we believe we are in a better position to do so.
Now that both our businesses are in the single management team, we are focused in a very standardized way on metrics and with the same sense of urgency that helped us construct the Specialty Care Group. Our multiphase plan for our long-term care business is underway and we’ll focus on Omnicare’s key differentiated services, clinical operations and technology.
3) Brand Support and Supply Chain Solutions are focused very clearly on serving manufacturers. What does Omnicare do that differentiates it from other players in this market, and what do these differentiators mean for your biopharma clients?
We believe our specialty offering is very differentiated from our competitors, due to the integrated nature of our services and that is resonating very well with our customers. Our structure allows us to provide a complete turnkey alternative for some of the manufacturers. While we can handle selected services for our clients, it is our integrated, end-to-end approach from sales support to dispensing where we can be a true partner with our pharma clients.
One of the key differentiators is that we can represent a manufacturer. So we’re out there to help them in the fee-for-service business, vs. somebody else who may be offering a multitude of products for that therapeutic class. This aligns us perfectly with the manufacturer. We have an internal physician sales staff—of not insignificant size—that calls on physicians to help with accessing specialty pharmaceuticals. And again, due to the fact that we have the Specialty Pharmacy, we are unique as we’re the only company to cross all these different platforms.
4) How are the patient support services structured and delivered? Does Omnicare Specialty have an advantage in providing both supplier services and patient services?
We try to make certain through the solutions that we develop for these branded products that we are engaging the patients and making them involved in their therapies. And then we leverage our distribution expertise to deliver either to practitioners directly, to patients directly, or to make use of what we have in the institutional pharmacy side of our business—the footprint that we have nationally. Besides the specialty pharmacy network, we have more than 170 institutional pharmacies serving 47 states, the District of Columbia and Canada.
Patient support is two things: One, how do we create access to the products and get patients on therapy? Tools include a reimbursement support program, and hub access services to address the barriers in the marketplace. Again, we’re doing this on behalf of our manufacturing partners.
Two, on the back side, we want to make certain we maintain that patient on therapy through these tools such as compliance and persistency, copay support programs and ultimately the distribution with the product. The end result is we want to make certain that the patient remains on therapy and mitigate any of the challenges that are in the marketplace today.
5) What is the near-term outlook for SCG?
Since our Specialty Care Group was formed in late 2010, we laid a foundation for significant growth. We invested in our operations and infrastructure, including building a new sales force. For the last eight quarters, we’ve seen this performance show itself in double-digit revenue and EBITDA growth.
While I’ll tell you that we don’t believe that we can continue to grow at the 20% to 30% rates we’ve seen thus far, we do believe that this is a double-digit, long-term growth story for two reasons.
First, the industry grows in the high single digits. We have already seen significant increases in specialty molecule drugs over the last several years, and that will continue into the future. If you look at today’s pipeline, there is a saturation of traditional drugs in the marketplace, but we see continued increases in the pipeline of specialty drugs. Today, there are more than 900 specialty products in the current pipeline.
Secondly, the number of drugs that we have in our business today is very small relative to the number of drugs in the marketplace and the growth that’s coming. There are good opportunities ahead for us as the market has yet to mature in our view. We will continue to enhance our structure, where warranted, adding key talent to further our credibility with our biopharma clients. We will also look to penetrate additional disease states to open up markets in underserved therapeutic states, like orphan drugs. We also will look at ways to leverage both the SCG and LTC assets collectively, especially with both businesses now being under one management team. Taken together, we believe our Specialty Care Group is well positioned to capitalize on these opportunities.
6) As you put yourself in your pharma customers’ shoes, what are the big problems or challenges to be overcome in today’s healthcare market? What would you advise pharma companies to do to meet them?
From a market dynamics challenge, we’re in an interesting time right now in that specialty pharmacy and specialty products are taking a larger segment from a cost standpoint. So, we’re seeing the payers come forward with a number of initiatives to help control and contain costs, leveraging tools such as prior authorization and step added therapies to contain costs and barriers to access.
At the top of the list of challenges are growing healthcare price and budget pressures, followed by the growing need to demonstrate cost effectiveness. This not only impacts FDA approval, but also can have implications to reimbursement and coverage.
From the governmental side, the Patient Protection and Affordable Care Act is going to create more complexity in this marketplace. It will challenge consumers with how they are going to obtain insurance. We believe there’ll be an increase in the number of underinsured individuals, creating an opportunity for us to help support these patients as they try to access complex therapies.
Finally, there’s just the unique nature of the products that are coming to market, whether they’re cold-chain, limited distribution, or orphan drugs for small patient populations. Supply chain challenges and developing the appropriate strategy to get products to market are causing biopharma to really look beyond a traditional marketing and channel management strategy and to execution of specialty services and specialty distribution.
Payer actions like restricted access, step edits, prior authorizations and the like are understandable. Scrutiny of high prices for specialty drugs is warranted. At the same time, I worry that payers are not paying enough attention to the overall cost of healthcare. Restricted access to new therapies can mean higher hospitalization costs and lower quality of life. Look at how the scene has changed for multiple sclerosis, with multiple therapies available now that vastly improve the quality of life. We remain on the side of the manufacturer in these regards: new medications can lessen overall patient cost and reduce human suffering.
7) Looking back to your early days in the industry—and looking ahead at the prospects for SCG, how has all of this affected you personally?
I’m an entrepreneur at heart. When I first came to the US from India, I had wonderful opportunities to learn, working at a home infusion company and then at a major wholesaler—this was in the early 1990s, before wholesaling became so consolidated, and before PBMs. I saw the need for patient support services as the pharmaceutical industry evolved, and that led to the founding of RxCrossroads in 2001. We started from scratch.
After that company was sold to Omnicare, I left and spent considerable time back in India, doing pro bono work and becoming more knowledgeable about the pharma industry there, which is dominated by the generics makers. By now I had a family, with two daughters, and they’ve spent considerable time in India as well.
The India market is very dynamic, and has a bright future. Logistics is the problem there—how to distribute drugs across a vast subcontinent, with a population of 1.2 billion. No cold chain, few well-performing supply chain services. They’ll work that out over time. The other point I would make is that specialty products have a future there. In the past, people believed that complex conditions like rheumatoid arthritis or multiple sclerosis are effects of developed Western economies. They’re not—they are universal problems. Specialty products will be needed.
When I returned to Omnicare, I felt that we had a dramatic opportunity to provide real value to the pharma industry, and ultimately to healthcare delivery in the US. We have a solid management team, and we’re executing well on a solid strategy. The future is bright.
I love living here in the Midwest, in the Cincinnati area. People told me Cincinnati and Kentucky are not cosmopolitan areas, but I find a rich culture with interesting people here. It’s tremendously satisfying to be part of a company that’s generating hundreds of new jobs. And there is still a lot of work to be done and challenges to be met.