Medco’s CEO: I Like Those Democratic Proposals

David Snow may be a Republican, but he knows when legislation is in his best interest. And efforts by Democrats to make biogenerics a reality and to create a safety net for millions of uninsured Americans will mean more business for Medco Health Solutions, the pharmacy benefits manager that he runs. Dave doesn’t say who’ll win his vote in the upcoming election, but he does sound happy in an interview with The Star-Ledger of New Jersey (which owns Pharmalot). Here is an excerpt…

SL: Wal-Mart could be moving into the pharmacy-benefits business. Are you worried?
Snow: A lot of people shake in their boots when they hear the name Wal-Mart in any industry. This is a very, very complicated business with serious barriers to entry. I just don’t think they’re going to pull it off. You just don’t snap your fingers and say you’re going to be a pharmacy-benefits manager.

SL: Why are generic drugs so good for Medco’s business?
Snow: We make our money on generics, because by doing that, we are completely aligned with the best interests of our clients. We do not make money on branded drugs at our mail pharmacies. We make zero dollars. However, 84 percent of the drugs going through those mail facilities are branded drugs. Since 2006, enormous volumes of branded drugs have gone off patent with generic availability. Both 2006 and 2007 were fantastic years for branded drugs going generic. There is still about $80 billion worth of branded drugs scheduled to go off patent between now and 2015.

Sixty-three percent of all scrips are generic now - only 37 percent are brand. From a client’s perspective, from the person who pays the bills perspective, only 16 percent of the dollars are generic. The rest represents 84 percent of the payer’s expense. We try as best we can - and we’re very good - at appropriately moving from brand to generic. I could make money on those brands, but I choose to make it on generics, so there’s no question about my line of sight with my clients. If I’m incented to move brands, my client’s got to say, “My God, are you serving my best interest?”

SL: Do your pharmacists encounter resistance from consumers when it comes to generic drugs?
Snow: If you look at retirees, they love generics because it saves them significant money. It’s a great way to avoid getting into that doughnut hole where they’re 100 percent responsible for the cost of their drugs.

It’s doctors, too, who used to be brainwashed by brand manufacturers with all the sampling and all the reps in their offices. They’re recognizing that they’re throwing the system’s money away when they prescribe the brand when it doesn’t bring any incremental value over these blockbuster drugs that are now generics. Docs are much more likely to write a generic script right out of the box now.

SL: Is Medco planning to expand into Europe?
Snow: We’re examining it. We have some very significant proprietary software and proprietary technology that has direct applicability in Europe. An interesting statistic in England, for example, is that two-thirds of all emergency room visits are tied to drug interactions. Over here, the pharmacy-benefit managers message retail pharmacies, they have programs and software that warn of drug interactions, so a pharmacist won’t dispense without calling a doctor. In England and in Europe, generally, they don’t have that.

There are two types of interest that we’re seeing. One scenario is the socialized system, where it’s top-down government control. They’re interested in the technologies because they can implement things. Then you have the scenario in several countries where they’re privatizing drug benefits. We’re actually getting inquiries from those dominant players saying “I want to sustain my dominance, will you partner with us in this new privatized market?” Both scenarios are very interesting to us.

SL: Medco’s business may be booming at the moment, but what are some of the challenges going forward?
Snow: I worry about the business-to-business brand issue. If employers decide over time to get out of Medicare responsibility for their retirees, I need to be able to capture those people. A big part of my business is those retirees. I need to deal with that. What’s interesting is, typically, what you worry about is a massive change politically around a presidential election. I’ve been in health care for 30 years now, and it’s the first time I can say we’re just fine no matter if the Democrats or the Republicans get into office.

SL: But from a business perspective, do you have a preference?
Snow: I’m a Republican. I’ve always been a Republican, but when I look at what the Democrats are willing to tackle and what they’re likely to do, there are two fundamental things, and they’re both good. Number one, they will create a pathway for biogenerics. There’s no road map approved by the Food and Drug Administration to create a generic substitute when biologics expire. President Bush just pushed through a generic-pathway piece of legislation. The Democrats are much more likely to do a stronger version. The Republicans tend to be a little too sympathetic to brand pharma, so they make rules skewed a little too heavily to brand pharma.

The second thing the Democrats are likely to tackle is a national safety net for the uninsured. That would be great for society and Medco. And here’s why: The uninsured population today is about 47 million people. When they get ill, they access care in the most expensive places, like hospital emergency rooms. They tend to not get routine care, so they end up needing more expensive care down the road. We all pay for it. I think broad, bipartisan support would be there for a national solution. From a Medco perspective, it’s great news, because it’s a brand new market we don’t serve today.