Brainstorm Health Daily: October 12, 2017

By Sy Mukherjee and Clifton Leaf
October 12, 2017

Happy Thursday, Dailies. Been on the road a bit so today’s opener will be short and sweet…and, unfortunately, late. Morgan Stanley issued a note Tuesday to clients offering some good reasons why Amazon.com could and should enter the pharmacy business, as CNBC’s Meg Tirrell flagged in a tweet yesterday.

(Meg’s colleague, Chrissy Farr, broke the story that Amazon was seriously considering the move earlier in the month.)

The October 10 report, “Prime Time for Amazon’s Entry Into The Drug Supply Chain?” by Morgan Stanley equity analyst Ricky Goldwasser and colleagues, points out that the regulatory barriers to entry here are relatively low and that the various markets for dispensing drugs are both fragmented and huge. (MS puts the annual U.S. spend on branded drugs at $255 billion and generics at $115 billion.)

But the most provocative takeaway from the client note is how it could disrupt the oft-criticized middlemen in the prescription drug realm, pharmacy benefit managers, or PBMs—which I wrote about recently here.

The MS team lays out “four hypothetical phases” in which Amazon could insert itself into the now-overly-mediated supply chain and ultimately pass along some savings to consumers:

The first would be to set up “virtual retail pharmacies” alongside its dozens of other sales “departments,” from books and baby products to wine, and then contract directly with generic drug makers to sell their pills. “Phase three, establishing direct relationships with branded manufacturers, would be the most critical to changing the marketplace as we know it today, and could take a long time,” the MS analysts write. However…“if Amazon were successful in changing the brand pricing model to be based on ‘net’ price versus the current gross model, we estimate a portion of rebates and other supply chain discounts currently being retained by plan sponsors, PBMs, and to a lesser degree drug distributors could pass back to consumers.”

So what would consumers lose in the deal? Unfortunately, something enormously valuable, in my opinion: the voice of the independent pharmacist. As I wrote back in January, the old-fashioned neighborhood pharmacist remains one of the most accessible frontline healthcare providers in a lot of old-fashioned American neighborhoods. (Eighty percent of independent pharmacies are in communities of 50,000 residents or fewer.)

Amazon getting into this market would likely be a death blow for them, more than it would be for big chains. That would be a big loss, in my view, for American healthcare.

Clifton Leaf, Editor in Chief, FORTUNE
@CliftonLeaf
clifton.leaf@fortune.com

DIGITAL HEALTH

What will the next 40 years mean of DNA sequencing bring? Genomic sequencing is expanding its reach into both the life sciences and consumer health industries, fueling everything from better-targeted drug development to the rise of at-home tests that reveal the nuances of people’s ancestries. So what will the next four decades hold for genomic sequencing? A trio of scientific experts take a stab at that question in Nature, asserting that “[o]ne domain where we are confident that DNA sequencing will be truly transformative is medicine.” That includes everything from prenatal testing to in-development “liquid biopsies” that could reduce cancer screening to a simple blood test. (Nature)


INDICATIONS

Merck ditches cholesterol drug following mediocre trial results. U.S. drug giant Merck is throwing in the towel on anacetrapib, an experimental cholesterol control medication, after mediocre clinical trial results showing just a modest benefit in reducing the risk of heart attacks, strokes, and other cholesterol-related complications. That could be the final nail in the coffin for this particular class of cholesterol therapies called “CETP inhibitors.” Several Merck rivals had already decided to ditch such treatments even as Merck persisted. (Sacramento Bee)

Biopharma loves FDA Commissioner Gottlieb. But is he about to get a promotion? Scott Gottlieb is the kind of FDA commissioner that the drug industry loves: a reform-minded administrator who’s made the goal of spurring drug approvals by changing regulatory pathways a key goal of his tenure. Now, with rumors swirling that he’s on the short list for being the next Health and Human Services (HHS) Secretary (following Tom Price’s resignation after a chartered plane scandal), Gottlieb is downplaying the possibility that he’s going for the promotion. “I feel like I want to continue to follow through on the policies we’ve put out and [my current role is] where I think I can be most effective,” he said in a recent interview. (The Hill)


THE BIG PICTURE

Legal questions abound for Trump health care executive order. President Donald Trump signed an executive order Thursday that would, in essence, sidestep Obamacare regulations and requirements for a type of insurance plan called an “association health plan” which could be purchased across state lines. The point would be to allow for skimpier insurance that comes with lower premiums—but also far higher deductibles, fewer mandated benefits, possible discrimination against people with pre-existing conditions, and annual and/or lifetime caps on coverage. However, the planned executive order could run afoul of federal law and would likely face serious challenges in court, according health law expert Nicholas Bagley and others. The specific statute it could violate is the U.S. Employee Retirement Income Security Act (ERISA), which sets up rules for large group plans run by employers or employees. (Reuters)


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