Sub Sector Spotlight:
Specialty Pharmaceuticals and Specialty Pharmacy
Andy Dixon, Director, Harris Williams & Co.
Dr. Erik Eglite, VP, Chief Compliance Officer &
Corporate Counsel, Lundbeck Pharmaceuticals LLC
David Ivill, Partner, McDermott Will & Emery
Marc Tomassi, Managing Director, Huron
Consulting Group
Moderator: Frederic Levenson, Partner
McDermott Will & Emery
Harris Williams & Co. Overview
HW&Co. HCLS Group
HW&Co. Global Presence
 20+ year history
By the Numbers
 Stable platform with
consistent senior
leadership

26 sell-side HCLS deals in the
last 24 months

Deal size range ~$100 MM to $1 BN,
HCLS average of ~$250 MM

~20% of HW&Co. revenue
contributed by the HCLS Group

Significant experience in specialty pharma,
home infusion, and PBM
 154 M&A professionals
 8 offices in the U.S. and
Europe
 10 industry groups
 Unmatched senior-level
attention
 100% of revenue is from
M&A advisory
 147 closed deals since
2012
Medical and Life
Sciences Products
Facilities and
Alternate Site Care






Pharma / Specialty
Pharma
Distribution
Medical/ Surgical
Supplies
Med Device / DME








Home Infusion
Home Health
Long-Term Care
Behavioral Health
Practice Management

 70% of revenue from
repeat clients
 60% of sales to strategic
buyers
Ancillary Services
and Outsourcing
Pharma Services
PBM
Managed Care
Payor Services
Revenue Cycle
Management
HCIT
Key Focus Themes

Continuum of Care

Fee-for-Value

Data Analytics

Cost Containment

Population Health

Risk-based Models
SELECT HW&CO. HCLS GROUP PHARMA AND PHARMA SERVICES TRANSACTIONS
a division of
a portfolio company of
has been recapitalized
by
has been acquired by
a portfolio company of
a portfolio company of
a portfolio company of
a portfolio company of
a portfolio company of
has merged with
In a recapitalization by
a portfolio company of
has been acquired by
has been acquired by
has been acquired by
a portfolio company of
a portfolio company of
a portfolio company of
has been acquired by
has been acquired by
has been acquired by
has been acquired by
has been acquired by
&
2
Context for Specialty Pharma M&A Activity:
Total Spend and Drug Development
LARGE AND GROWING MARKET …
Specialty Pharma Spend is growing in absolute dollars and as a percentage of Total Drug Spend
Total Drug Spend
($ in billions)
% of Total Drug
Spend
$468
$398
Total Specialty
Spend
$334
$92
30%
$127
38%
$179
45%
2012
2014
2016
$302
… WITH DISPROPORTIONATE VOLUME IMPACT, NOW …
79%
50%
2018
15 of 27 – 2013 NDAs are “Specialty”
35%
8 First-in-Class
~50%
35%
2013 Spend
Specialty
Pharma
Brands
40%
25%
2013 Volume
$235
… AND CONTINUING IN THE FUTURE
Specialty Pharma Market
1%
20%
17%
CAGR
15%
2017 Spend
Generics
•
•
•
•
•
•
•
•
Adempas
Imbruvica
Kadcyla
Kynamro
Mekinist
Sovaldi
Tecfidera
Xofico
9 Orphan
•
•
•
•
•
•
•
•
•
Adempas
Gazyva
Gilotrif
Imbruvica
Kynamro
Mekinist
Opsumit
Pomalyst
Tafinlar
3 Breakthrough
• Gazyva
• Imbruvica
• Sovaldi
3
Context for Specialty Pharma M&A Activity:
Clinical Administration (Home & Alternate Site Infusion)
CHRONIC DISEASE IN THE U.S.
HIGHLY FRAGMENTED INDUSTRY
CVS,
Coram
10%
For the Years 1995 – 2030P
Chronic Disease Patients (millions)
180
160
140
120
118
125
133
141
149
164
157
171
Walgreens,
Option Care
6%
Express Scripts,
Critical Care
Systems
5%
100
Bioscrip
5%
80
60
Other
Independents
74%
40
20
0
1995
2000
2005
2010
2015P
2020P
2025P
2030P
INFUSION THERAPY PRODUCT MARKET SHARE
CHRONIC CONDITION CONTINUUM
Represents Size of Market ($ in millions)
Chemotherapy
2%
Pain
Management
4%
Total Parenteral
Nutrition
10%
IVIg/Specialty
Pharmaceuticals
13%
$30,000
Other
16%
Anti-infectives
(antibiotics)
28%
Per Day Cost
Comparison by
Care Setting:
Hospital: $1,500
Home: $200
Enteral Nutrition
25%
Savings: ~90%
Total Parenteral
Nutrition
$1,100
$25,000
Revenue / Patient
Hydration
2%
IVIg/Specialty
Pharmaceuticals
$1,430
$20,000
$15,000
$10,000
$5,000
Anti-infectives
Enteral Nutrition
(antibiotics)
$2,750
$3,080
Chemotherapy
Hydration
$220
$220
Pain
Management
$1,000
$0
Acute
Weeks / Months
Years / Lifetime
Chronic
4
Observations on Specialty Pharmaceutical M&A Activity
▪ Specialty pharmaceutical M&A activity has been strong in 2013
and YTD 2014 and should continue for the foreseeable future.
–
–
–
–
Need for big pharma to fill growth gap
Shift in absolute dollar and percentage of total drug spend to specialty drugs
Strong pipeline of new specialty therapeutics
Desire to add innovative therapies that significantly improve patient outcomes
vs. “me too” drugs
▪ Many of these innovations occurring at specialty pharmaceutical companies
▪ Large-cap pharma has found it more efficient to acquire rather than develop their own drugs
– Potential for manufacturing, administrative, R&D and other synergies
– Notable recent transactions:
Date / Target / Buyer / Enterprise Value
▪ Aug-14 / Questcor Pharmaceuticals, Inc. / Mallinckrodt plc / $4.8B
▪ Jul-14 / Forest Laboratories, Inc. / Actavis plc / $25.4B
▪ Apr-14 (announced) / Allergan Inc. / Valeant Pharmaceuticals / $59.6B
▪ Mar-14 / Cadence Pharmaceuticals / Mallinckrodt plc / $1.4B
5
Observations on Specialty Pharmacy /
Home & Alternate Site Infusion M&A Activity
▪
M&A activity within specialty pharmacy and home & alternate site infusion
has been robust driven by both strategic and financial buyer activity.
SECTOR OBSERVATIONS
ACTIVE SUBSECTORS
― Specialty Pharmacy
― Compounding
― Home / alternate site infusion
― Benefit management
OUT OF FAVOR / BUYER RED FLAGS
― Therapies: high $ per patient; high acute mix; concentration
― Payor: high out of network; high government; concentration
― Referral sources: attrition; concentration
DRIVERS OF STRATEGIC INTEREST
― Enhance growth profile
― Follow continued absolute dollar and percentage of total
drug spend shift to specialty
― Add to existing footprint and fill in geographies
― Build density / increase market share
― Expand therapy mix
― Aligned with respect to healthcare trends:
 Individualized care
 Role within ACOs
 Home / alt site delivery
KEY VALUE DRIVERS
―
―
―
―
―
―
―
Disease states served / therapies
Ability to contract with payors
Payor mix
Quality of referral sources and depth of relationships
Relationships with suppliers; access to therapeutics
Ability to quantify / track outcomes data
Scale
DRIVERS OF FINANCIAL BUYER INTEREST
― Strong sector growth driven by both secular and
demographic trends
― Assets typically exhibit highly recurring revenue profile
(chronic patient base)
― Highly fragmented
― High commercial payor mix / low gov’t reimbursement risk
― Multiple avenues for expansion:
 Organic
 Therapy expansion
 Geographic / de novo
 Add-on acquisitions
― Active strategic buyer landscape
6
Huron Life Sciences Practice Overview
Corporate Strategy
Ensuring that corporate vision and
objectives are seamlessly linked to
achievable optimized solutions
R&D
Research & Development
Applying R&D best practices to
drive innovation
LM&A
Licensing, Merger & Acquisition
Identifying, assessing and
executing asset acquisition,
divestitures (supported by Huron
Business Advisory practice)
Risk
Mitigation
Corporate
Strategy
Commercial
Risk Mitigation
Addressing new complexities to
meet evolving compliance
requirements and enable strategy
execution
Commercial
Aligning branding, marketing,
sales and channels within a
compliant environment to develop
sustainable competitive advantage
7
Implications of Specialty Pharma Growth…
…for pharma
…for payers
•
•
•
•
Evolving portfolio mix, org structures
Changing dynamics of pharma relationships with HCPs
Shifting of distribution channel relationships (SPPs)
Increasing government scrutiny of stakeholder interactions
•
•
Increasing priority to control specialty budgets
Broadening array of utilization management tools being deployed, ranging from
traditional to novel
Greater demand for demonstration of positive HECON value proposition
Changing roles among plans, PBMs and SPPs
•
•
…for
consumers
•
•
•
Potentially huge financial burden in funding out-of-pockets
New demands on patients & caregivers to manage complex regimens
Relationships with new industry stakeholders (case coordinators, Rx compliance
interventions, pharma PAPs)
8
Investor Considerations
Mfg &
Distribution
R&D
•
•
•
•
Increasing regulatory
hurdle
Geographic variability
Clinical trial design, cost
and risk
Early engagement of HCPs
and payers
•
•
•
Biologics manufacturing /
regulatory considerations
Shift from retail to specialty
channels
Reg scrutiny of SPP
engagement
−
−
−
Bona fide services
FMV
Contractual
arrangements
Sales &
Marketing
•
•
•
•
•
•
9
Pricing, access, HECON
key adoption drivers
Clinical audience
segmentation (specialized
treaters, sites)
Pharmacy vs. medical
benefit economics
Product funding programs
Commercial v. Part D v.
Medicaid differences
REMS requirements
Key Regulatory and Diligence Issues in
Specialty Pharmacy Transactions
David S. Ivill
(212) 547-5698
divill@mwe.com
Overview
▪ The diligence process will focus on the following key
areas:
–
–
–
–
Licenses, provider numbers, and accreditations
Payor agreements
Policies and procedures
Compounding
Doc # 56008506
11
Licenses, Provider Numbers, and Accreditations I
▪ A specialty pharmacy may hold hundreds of the
following licenses, provider numbers, and
accreditations:
–
–
–
–
–
In-state and out-of-state pharmacy licenses
State-specific and DEA controlled substance licenses
Medicaid and Medicare provider numbers
NPI and NCPDP numbers
Accreditations (i.e., Joint Commission)
Doc # 56008506
12
Licenses, Provider Numbers, and Accreditations II
▪
▪
▪
▪
CHOW-related filings include notices and applications that must be submitted
either pre- or post-closing, as required by regulatory agencies
It is more likely states will require new license applications for transactions
involving CHOWs at the parent and grandparent levels of the specialty
pharmacy’s organizational structure than at the great-grandparent level or above
CHOW-related filings for the specialty pharmacy’s licenses may be a gating item
for the transaction
– In certain states, a pharmacy will not be able to operate post-CHOW unless it has been
issued a new pharmacy license (therefore generally these become conditions to
closing)
– Examples of these states include California, Delaware, Maine, New Mexico, and North
Carolina, which all generally require pre-closing applications, regardless of the level in
the specialty pharmacy’s organizational structure at which the CHOW is taking place
– Certain Medicaid applications may need to be submitted pre-closing
Conversions from corporations to limited liability companies may also trigger filing
requirements
13
Payor Agreements
▪ A specialty pharmacy may have hundreds of payor
agreements
▪ The specialty pharmacy’s “top” 15 or 20 payor
agreements will typically cover a significant percentage
of its revenues – therefore this is an efficient way to
hone the due diligence request for payor agreements
Doc # 56008506
14
Policies and Procedures
▪ Review the specialty pharmacy’s policies and
procedures regarding:
–
–
–
–
–
–
HIPAA
Fraud, waste, and abuse
Conflicts of interest
Exclusion checks
Compliance with Deficit Reduction Act of 2005 (if applicable)
Controlled substances
Doc # 56008506
15
Compounding
▪ Inquire about the specialty pharmacy’s compounding
operations
– Does it engage in sterile/non-sterile compounding?
– Does it engage in batch compounding?
– Does it comply with the U.S. Pharmacopeial Convention’s
<797> guidelines?
– Has it registered to comply with Section 503B of the Federal
Food, Drug, and Cosmetic Act (known as the Drug Quality and
Security Act)?
16
Other Considerations
▪ Services provided by the specialty pharmacy to longterm care facilities
▪ Dispensing of 340B drugs by the specialty pharmacy
▪ Government contracts held by the specialty pharmacy
▪ PBM and TPA services provided by, and associated
licenses held by, the specialty pharmacy
▪ Laboratory licenses held by the specialty pharmacy
Doc # 56008506
17
Sub Sector Spotlight:
Specialty Pharmaceuticals and Specialty Pharmacy
Andy Dixon, Director, Harris Williams & Co.
Dr. Erik Eglite, VP, Chief Compliance Officer &
Corporate Counsel, Lundbeck Pharmaceuticals LLC
David Ivill, Partner, McDermott Will & Emery
Marc Tomassi, Managing Director, Huron
Consulting Group
Moderator: Frederic Levenson, Partner
McDermott Will & Emery