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Pharm Exec sits down with AmerisourceBergen supply chain leader Peyton Howell to discuss the latest trends in pharmaceutical distribution, including company efforts to boost efficiency, reliability, and enhance its groundbreaking partnership with Walgreens Boots Alliance.
Drug distribution today is more than just the passive physical act of moving product from factory to pharmacy-in fact, it’s now one of the most “customer centric” functions in the business of health, playing a substantive role at virtually every step in the long continuum of patient care. Structural changes in the supply chain, technology advances and rising payer and patient desires for better value for money are creating new opportunities to serve customers in ways beyond what has traditionally been expected from a distribution partner.
To underscore this transformation, Pharm Exec recently sat down with Peyton Howell, President for Global Sourcing and Manufacturer Relations and a key member of the executive management team for AmerisourceBergen (AB), the nation’s second largest integrated drug distributor. Howell highlights how the company is navigating through some unexpected headwinds on generic pricing; building a more focused organization centered on services that create patient value; taking on a more prominent role in industry-wide policy and reputation issues; and investing significant sums to maintain its pole position on strategic partnerships.
Regarding the latter, Howell details important new investments underway to gird AB’s groundbreaking 2013 pact with Walgreens Alliance Boots, which in May was extended for another three years beyond the original 10-year transaction frame-locking in the deal through 2026 and positioning AB to strengthen its base in generics beyond segment leader McKesson while bolstering its No. 1 spot in the high margin specialty business.
And her best piece of advice for Pharm Exec’s big Pharma readers? Get in touch and stay in touch-and much earlier in the product launch phase.
Looney:The global supply chain is on the leading edge of change in the biopharmaceuticals business-a little noticed but critical factor in preserving the safety, reliability and quality of medicines for patients worldwide. As the second largest US-based distributor of medicines, AmerisourceBergen is a mainstay of the supply chain. What are the key market transitions facing AB and how are you gearing up to manage this heady pace of change?
Howell: We are seeing a major disruptive shift in healthcare, from a fee-for-service system, where success is measured by volume growth, to a value-based system, focused on outcomes. The industry consensus is that change is coming, but the real-time implications on the operational side are still not clear. Our response is very simple: to create more efficiency in the way AB serves the customer. How do we get more quality-based outcomes, for fewer dollars per episode of care? And we have a laser focus on improving access to care, even when the structure and platforms for such care are changing.
Overall, AB is convinced that pharmaceuticals drive efficiency in the health system. It’s a vital, relevant message, all the more compelling given the domestic debate now taking place around high drug prices. That’s a myopic view, in my opinion, and ignores that big picture of how we can work together with patients to manage the healthcare spend and improve patient outcomes.
Taking my point a step further, generic medicines account for almost 90% of US prescriptions and are thus a key element in the drug supply chain-and in this all-important segment, pricing is going down. That’s good news for the consumer. Actually, we see lower generic pricing, despite the obvious headwinds against earnings, as an opportunity for AB, given that one of our business priorities is to support patient access to lifesaving therapies. A robust stake in generics is complemented by AB’s strengths in the branded and specialty segments, which carries obvious appeal in meeting the access issue full on.
Looney: Securing the “triple aim”-around quality, access and cost-is the driving principle in US healthcare reform. How is AB working to achieve the triple aim in its own operations today?
Howell: We do adhere to the triple aim because its simplicity allows us to put more focus on the specifics of care. It is, in fact, critical to my own role leading AB’s Global Sourcing and Manufacturer Relations business: we touch each of the three aims. With reference to cost, AB has an unrivaled position in distributing high-quality generic products that get to the patient, safely, reliably and on time. We know how important generics are to payers and patients operating in a compressed reimbursement environment. In fact, our proprietary generics formulary, PRxO, is structured to secure an appropriate balance between cost, quality and access.
AB is also aware of the vital role of government programs like Medicare and Medicaid in providing millions of US patients with the medicines they need. Cost is critical when serving patients from the public purse. Hence, my team is highly sensitive to the task of delivering value in a cost-efficient manner because there is virtually no place in healthcare where resources are not under pressure. From a strategic perspective, the Walgreens Alliance Boots partnership with AB is a truly innovative deal, where we rely on scale and coordination to guarantee that each patient we contract with gets the right medicine at the right time. Our latest three-year extension of the relationship puts us in the unique position to plan for the long-term, with the operating flexibility to adapt to the many changes taking place in the medicines market worldwide.
Quality is the next component in what we do. All of our relationships are contingent on us purchasing directly from the manufacturer-a critical differentiator exclusive to companies of our global reach, size and scale. Our ties allow us to source not only great products, but to pursue great innovative ideas as well. AB doesn’t have to purchase products from just anyone: we have the reach to choose the best.
Another aspect of AB’s commitment to quality is how we manage the way customers receive our products. We operate a highly sophisticated “just-in -time” distribution network that ensures customers obtain what they need on a daily basis. We handle multiple complex arrangements with customers ranging from community pharmacies, to physician practices to leading academic hospitals. This is a vital stewardship, one where any failure carries significant adverse consequences for patients and their providers. As our CEO Steve Collis says repeatedly, it is impossible for AB to be complacent about quality.
The third element is access. Access is closest to my heart because without access there can be no outcome, whether you measure that in terms of cost, efficiency or quality, let alone improvement in the patient’s condition. Many industry observers are unaware of the range of the services we provide to patients in helping them secure and maintain access to the medicines they need. Drug manufacturers will attest to the level of engagement we have with them at every stage of the commercialization process.
For the past two years, we have been in discussions with manufacturers around the pursuit of a patient-centered approach to sourcing and commercialization. The objective is to give patients more options in how they would like to access medicines, as part of their care continuum. AB is the US leader in specialty drug distribution. We believe in this space there is much room to experiment around the preferences of the patient.
Instead of simply assuming that a specialty drug must be accessed through a designated specialty delivery platform, we are working with manufacturers on other pathways that may end up being more convenient for patients-as well as yielding a better result on adherence. This effort coincides with market changes that are broadening the definition of what constitutes a specialty product. The new cures for hepatitis C and the next-generation PCSK9 hypercholesterolemia drugs are examples, because their potential audience approximates the size and scale of a primary care, chronic disease population. The evidence shows that for this group, patients might be best served in a community pharmacy operation and so we have been working with manufacturers to make these medicines available in these outlets, closer to where patients live and work.
Joint “re-thinks” with our manufacturers like this one is an achievement AB takes pride in-not only because it’s pro-patient but also because we see it as the wave of the future. Instead of a specialty product only being available through a handful of dedicated pharmacies or via mail, we can guarantee the integration of drug therapy with all other care a patient receives. Certainly, it makes things more convenient for patients but it also feeds the quality agenda in that patients are exposed to not only the pharmacy, but to the physician practice as well as out-patient hospital facilities. It requires AB to really live that triple aim.
Looney: Any other market or environment trends that affect your operations in the supply chain space?
Howell: Government regulation is an issue that continues to keep me up at night. The press headlines on biopharmaceutical prices and costs are striking and easily misinterpreted by the public. Changes to reimbursement are multiplying, creating more uncertainty about whether consumers will be able to access their medicines at an affordable price. Access counts, but it is no longer guaranteed.
AB is particularly concerned about the current initiative of the CMS, under Medicare Part B, to reclassify reimbursement of some specialty cancer drugs administered by physician practices. In our view, the changes would make overall care more expensive by requiring administration of medicines in the full acute care setting, at a higher level than is needed. Lost in this discussion is matching the patient’s needs to the most cost-effective platform of care appropriate to the treatment they are receiving. AB sits right in the middle of the triple aim construct, which gives us the credibility to help redirect that discussion away from a singular focus on pricing.
Indeed, the good news is that, in contrast to the big drug manufacturers, AB is not directly affected by reimbursement rules. Our profit margins are uniquely low in comparison to other players in healthcare. We can serve as a neutral party in the debate. Certainly, drug manufacturers can benefit from the independent perspective-colored by our margins compared to the competition-that AB brings to the table. Steve Collis has significantly increased our visibility in Washington, DC. He has encouraged members of the AB executive team to engage constructively with legislators, policy people, government, and regulators on expanding access for patients. I am of the opinion that Pharm Exec readers on the biopharma side find this contribution largely constructive and valuable.
Looney: On the business side, what is the state of progress around your precedent-setting partnership with Walgreens Alliance Boots?
Howell: We have just completed a three-year contract extension of the partnership. It serves as a vote of confidence for the future based on what we have already accomplished. The project shows that AB has the will to be just as innovative as the research-based drugmakers when it comes to process and service improvements. It is also a living example of our ability to execute around value creation on a very significant scale.
The partnership extends to all of our purchasing activities, across all types of manufactured medicines: brands, specialty, generics and consumer OTC. We
have what I believe is the best people in the industry working in each of these segments of the distribution business. And our contacts with drug manufacturers are far more strategic today; it’s no longer just about supply. Access and value issues are now front and center.
It’s a refreshing new way to be able to approach the manufacturer, from a long-term perspective. It gives both time and the leeway to do interesting things around a joint commitment to the patient. I can personally attest to the great conversations we are having with customers around AB’s unique service capabilities, ranging from patient access and adherence services and health outcomes consulting to our Good Neighbor Pharmacy support program.
Looney: What about talent recruitment and retention-you recently noted this as one of your key priorities in extending the partnership.
Howell: We continue to add to our talent base. Walgreens Alliance Boots now has a full team of associates here in Bern, Switzerland, in addition to Walgreens Alliance Boots HQ in Chicago. London is our third principal site. I am located at Bern and the emphasis here is to facilitate contacts between manufacturers and sourcing personnel in an intimate, around-the-clock, no-surprises arrangement, buoyed by state-of-the-art technology capabilities. We have also embedded AB people in the Walgreens Alliance Boots Development Purchasing unit as well. The strategy is deceptively simple: mobilize our entire organizations to approach manufacturers-together.
Looney: The three-year contract extension is built on a commitment to make additional investments in the partnership. Can you explain? What assurances can you give drug manufacturers-and patients-that supply interruptions won’t jeopardize the success of your stronger service orientation?
Howell: We are making investments to support the growth of this partnership, chiefly to drive the expansion of our distribution infrastructure. The other is to augment our working capital, particularly in increasing the inventory and tracking of products to ensure that our access exposures are fully covered. Third, we are making selective investments in our customers’ businesses, on the premise that supporting their growth will also prove beneficial to the Alliance. A positive example of that is AB’s strong support for the Good Neighbor Pharmacy network in the US.
The key metric I use to assess the success of our investments is the level of service to the customer. The best example of that is how we have reacted to the market changes in generics, where today we have a larger supply of generic products than in the recent past, giving us the best levels of service in this segment in AB’s history. Right now, we are at a 98% service level for our proprietary generics formulary, which has been achieved despite the fact that shortages of generics in the US marketplace still exist. We have put a laser-like focus on managing for the eventuality of a product shortage, chiefly by better communications with manufacturers to anticipate any supply issue and mitigate the risk to our customers, starting with Walgreens Alliance Boots but covering everyone else with whom we do business as well.
Relationships count for everything. Generics are no different; in fact, the scale of the industry requires we rely on active intelligence-gathering and sharing, especially at the secondary manufacturer level or below. We work to maintain an open line of dialogue and conversation with manufacturers. We want to know right away when a potential problem arises with an API producer, including the many based abroad, so we can fix the breach, or contract for supply from an alternate manufacturing source.
Looney: How are you building a culture that adequately confronts risk? What kind of cultural stamp are you introducing to the Walgreen Alliance Boots relationship?
Howell: Working closely with manufacturers and the data and intelligence we pull from the relationship is very important, but it is not exclusive. What matters ultimately is how our teams at AB and Walgreens Alliance Boots work together in a way that puts the patient and the customer first. The purpose of our culture is to institutionalize the patient-first mentality. Everyone who works here has a duty to speak up for the patient.
Another part of the culture we are building is the facility we opened two years ago in Bern. It’s been exciting for me, as an AB veteran, to launch this small coordinating center devoted to the partnership. The office focuses on coordination work as well marketing and formulary services for the generics business. We are located just a short drive from the Walgreens Alliance Boots main operations unit. We are only about 20 people here, which creates a very entrepreneurial, can-do spirit as well as making sure we don’t lose our eye on the patient.
The action that flows when a small group gets focused is truly amazing. It reminds me of my early days when I was involved in the founding of the Lash Group, now the centerpiece of AB’s work in patient support programs. Hence, I think you could see this small coordinating center concept introduced elsewhere in the company as we move forward.
Looney: In what ways are you leveraging within the Alliance partnership the outcomes consulting services-including Xcenda and the Lash Group-you brought in to the AB family some years ago?
Howell: I had no idea when I assumed leadership of the Global Sourcing and Manufacturer Relations portfolio how vital my background in commercialization strategy and patient access would be. I am able to instinctively single out those barriers that impede patient access to care. There is not a day that goes by that I do not address these capabilities with our manufacturers in the form of topics like outcomes or observational studies. It’s critical that we engage here because that work ultimately impacts how many of our customers will be interested in accessing the medicine or reimbursing it.
Looney: The goal of every organization is to keep its offerings fresh-state-of-the-art. Looking ahead, what will be most important to do in keeping the Walgreens Alliance Boots partnership at the top of its game?
Howell: The first thing is staying proactive in responding to the external environment. It’s the ability to read signals and respond effectively with the full force of the organization behind it. That is a human endeavor, which demands, in turn, a second element, which is recruiting and keeping the best talent. I see Walgreens Alliance Boots today as a 13-year commitment running all the way to 2026. The atmospherics around that fulsome time frame is similar to a good marriage. I want the talent to come forward, to share and engage. It’s the only way to build the creative connections that take this business in new, often unanticipated, directions. Personally, I think we can do a lot to stay innovative in the near future, beyond what we have already done in integrating the huge generics business around a different marker of success. It’s a safety net that we’ve now got three more years, extending well into the next decade, to make that happen.
Looney: Drug manufacturers are the principal reader demographic for Pharm Exec. Is there anything you can recommend to raise the quality and performance of your relationship with them? Are you satisfied with the level of consultations around product launch?
Howell: One important issue is to involve us as early as possible during the launch cycle. There have been several instances recently when little outreach took place until the very last minute, a situation that can also be driven by the trend toward greater FDA reliance on accelerated approvals. We need early and regular consultations with the manufacturer to make sure we can be ready with enough product to ensure that we are building access from the very start.
What we must avoid is a situation where approval of the drug finally comes but patients end up in that “no man’s land” between launch and an agreement from insurers to reimburse it. Delays can be reinforced by the confusion that takes place as providers adjust to rules on prior authorization. With proper preparation and consultation with the manufacturer, we can do a
lot to compress that interregnum to avoid disruptions for providers and their patients.
Strong science and great innovation creates its own momentum around new medicines, magnified by social media that can induce a popular clamor for access to the best products. Patient advocates thus expect manufacturing levels in line with the anticipated demand. Failure to do so can create real anxiety for those without alternatives to treat their disease. The point I want to make is it’s not easy for us to address that on our own.
Looney: Another priority for AB is learning to operate seamlessly as a global enterprise. You have described it as “global ideas applied locally.” Given the company’s history as a highly decentralized entity, how close are you to achieving this objective?
Howell: Walgreens Alliance Boots has been transformative in moving the entire company toward status as a global product and service provider. Outside of the US, which is by far our largest market, we are focusing on specific areas where we see gaps in our global portfolio. For example, we are on course to become the market leader in clinical trial logistics across the globe.
Building on AB’s lead position in US specialty drug distribution, we are investing in other countries to address structural supply gaps, which are compounded by the fact that many foreign distribution models provide sketchy coverage of hospitals and other acute care facilities where most specialty drugs are delivered. As manufacturers expand their specialty business to additional markets abroad, it is important we be there to meet their needs. I’d add that this commitment includes extending our US-based patient access programs and consulting service capabilities to the non-US markets, as manufacturers put down roots there.
You are correct to state that AB is not advocating a single global solution to every issue in sourcing and distribution. Instead, we strive to display the big picture but to act small in applying all our knowledge to the very different systems, access and practice dynamics that exist across the globe. Our strategy is to acknowledge, respect and adapt to these differences as we support manufacturers in entering new markets throughout the world.
Looney: Can we expect more AB acquisitions as you follow these moves by the big Pharma companies?
Howell: We are open to bolt-on acquisitions if they make a good fit to our product or service portfolios. But there are also many options for us to grow organically.
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