Bend the Trend. May 21, Express Scripts Holding Company. All Rights Reserved.

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1 Bend the Trend May 21,

2 What We ll Discuss Welcome and introductions Key highlights of the current Drug Trend Report Compounds Specialty market dynamics Questions and answers 2

3 Key Takeaways Unsustainable Trend 2014 drug trend highest since 2003 Key Trend Drivers Compounded drugs and hepatitis C Required Creative solutions that meet plan sponsor needs without sacrificing patient health Express Scripts Expertise Smart formulary management, channel optimization, clinical specialization, fair drug pricing 3

4 Drug Trend Over Time Source: Express Scripts 2014 Drug Trend Report 4

5 Components of Overall Trend Commercially Insured Source: Express Scripts 2014 Drug Trend Report 5

6 Commercially Insured Therapy Class Review: Traditional Medications Source: Express Scripts 2014 Drug Trend Report 6

7 Commercially Insured Class Review: Specialty Medications Source: Express Scripts 2014 Drug Trend Report 7

8 The Express Scripts Prescription Price Index Source: Express Scripts 2014 Drug Trend Report 8

9 More than 15% of Express Scripts Clients Spent Less on Rxs per Capita in 2014 Versus 2013 $ Spend (PMPM) % Trend Unmanaged Managed Tightly Managed Source: Express Scripts 2014 Drug Trend Report 0 Unmanaged Managed Tightly Managed 9

10 Key Brand Drugs Losing Patent Protection More Than $73.1 Billion Within the Next Five Years (Annual Sales) $26.7 Billion $23.9 Billion $6.6 Billion $6.5 Billion $9.3 Billion Abilify Aggrenox Aloxi Androgel Copaxone Namenda Nexium Ortho Tri-Cyclen Lo Welchol Zyvox Azilect Azor Benicar Crestor Cubicin Epzicom Nuvigil ProAir HFA Seroquel XR Tamifu Zetia Butrans Fanapt Ivanz Relpax Reyataz Strattera Sustiva 600mg Treximet Viagra Viread 300mg Vytorin Adcirca Cialis Elidel Levitra Lexiva Rapaflo Sensipar Solodyn (addl. Strengths) Viread Emend Exelon Patch Exjade Fentora Gilenya Lyrica Ranexa Solodyn (addl. Strengths) Symlin Vesicare 10

11 Orphan Drugs Cystic Fibrosis: Rare genetic condition affecting 30,000 people in the U.S. New drugs provide treatment for the disease not just symptoms Kalydeco (ivacaftor) approved Jan. 2012; first therapy to treat disease Currently approved for selected genetic mutations (~5% of the CF population) Lifesaving treatment at a cost Cost of treating a patient with Kalydeco often exceeds $300,000 per year ORPHAN DRUGS are medications indicated to treat rare conditions diseases and disorders which affect fewer than 200,000 individuals in the U.S. and for which adequate or curative treatments have not been developed. 11

12 Industry Changes COMPOUND DRUGS PMPY: $ % 128.2% ADVANCED USERS ONLY: Insert photo here. Send photos to the back of this slide using the Arrange tools. If you choose this layout, you may need to copy and paste the white convex box from the master page (so the image can hide behind it) Utilization Unit Cost Total Trend = 128.4% Before our compound management solution was implemented, total trend was 276.9% 12

13 Regulation Changes Impacting Pricing 2011 (through 12/31/11) COMPOUND CLAIMS P R O C E S S 2012 (1/1/12 and beyond) NCPDP 5.1 Only most expensive ingredient submitted Coverage based on only most expensive ingredient Blind summation of all ingredients submitted and paid NCPDP D.0 All ingredients submitted Coverage based on all ingredients Each ingredient cost must be submitted for reimbursement Expanded reject oversight Greater visibility identifying concerning trends 13

14 Compound Management Solution Source: Express Scripts 2014 Drug Trend Report 14

15 U.S. spend per insured person Hepatitis C pricing and trends were on an unsustainable path: we are helping clients get costs under control Total average treatment over $100,000 per patient when not covered by our cost controls Hepatitis C drug forecast 3.2 M Americans are living with the hepatitis C virus 16,000 New cases diagnosed each year 15

16 Patient Access to Hepatitis C Cures Unprecedented problem. Unprecedented solution Expand access to a cure at a more affordable price Provide high quality care Achieve better health outcomes More Affordable Access, Adding Value to Payers and Patients 16

17 Newly Approved Agents Sovaldi Polymerase Inhibitor Once daily oral polymerase inhibitor; new class of direct-acting HCV antiviral For genotype 1 and 4: triple therapy regimen with peginterferon and ribavirin x 12 weeks All oral interferon free regimen for genotypes 2 and 3; taken with ribavirin x 12 to 24 weeks Favorable/adverse effect, tolerability and drug interaction profile; approved for use in HIV+ Viekira Pak TM Combination Therapy All oral DAA regimen; polymerase inhibitor, NS5a, protease inhibitor Approved for use in genotype 1 Twice daily all oral, interferon free regimen Favorable/adverse effect profile Harvoni Combination Therapy Combination of an NS5a inhibitor and nucleotide polymerase inhibitor Approved for use in genotype 1 Once daily all oral, interferon free regimen Favorable/adverse effect profile 17

18 Report: Sovaldi ROI Not Justified $100M-200M 1-year cost per 1,000 patients Even at a 20-YEAR HORIZON, if all patients infected with Hepatitis C are treated with new regimens, the cost offset will only cover approximately TWO-THIRDS of initial drug cost. 18

19 Comprehensive Solutions to Manage Hepatitis C FORMULARY MANAGEMENT UTILIZATION MANAGEMENT EXCLUSIVE PRICING PATIENT- FOCUSED CARE FAIR PRICING ADVOCACY HEPATITIS CURE VALUE PROGRAM $4.32 PMPY savings Up to 16% savings 2% savings 89% more likely to stay on therapy * 8x fewer wasteful fills * Without change, drug costs will skyrocket 1,800% by 2016 Offering first-in-class strategies to manage your benefit and drive down costs HCV program available to save clients 20+ percent total client costs *Compared to retail, JMCP Vol. 20 #12 Dec

20 High Cholesterol Population and treatment guidelines POPULATION 33.5% of US adults have high LDL, less than half are treated Familial hypercholesterolemia unique challenges Aging population = more patients MEDICATIONS #2 in spend for Express Scripts clients Cholesterol management PMPY = $51.87 Generics dominate TREATMENT GUIDELINES Controversial new treatment guidelines Statins demonstrated improvements in morbidity and mortality 17% of US ADULTS WITH HIGH LDL ARE UNTREATED 20

21 PCSK9 Inhibitors Transforming cholesterol management THE FACTS: Est. $12K/patient annually Self injected antibody Effective in lowering cholesterol No identified drug interactions and fewer side effects Mid-2015 approval Broad indication likely No cardiovascular event reduction outcomes data STATINS $, generics Myalgia, LFT elevations High dose ~50% LDL Interactions and contraindications PCSK9 $$$, branded biologics Injection site reactions 60-65% LDL No known interactions 21

22 Cholesterol Management s Unmet Needs SHORT-TERM TREATMENT GAPS Familial hypercholesterolemia Statin intolerance LONG-TERM IMPLICATIONS Morbidity and mortality data Dramatic implications for cost and treatment Statin drug interactions Not to goal with statin PCSK9 study results could change COST AND TREATMENT approaches dramatically 22

23 PCSK9 Management Strategies Impact Modeling Client-specific, proactive modeling of costs based on specific-use scenarios Formulary Management Preferred product strategy under evaluation Utilization Management Clinical Management Prior Authorization solution Further drug approval criteria Personalized counseling and injection training from specialty clinicians Adherence and therapy optimization 23

24 Looking Forward 24

25 Trend Forecast: Traditional Medications Source: Express Scripts 2014 Drug Trend Report 25

26 Trend Forecast: Specialty Medications Source: Express Scripts 2014 Drug Trend Report 26

27 More Than 5,400 Drugs in Development 2,329 Phase I 2, Phase II Phase III Reg Review in US 82 27

28 Pipeline Drugs Target Conditions That Affect Millions 5.4M Alzheimer s 26M Diabetes 67M Hypertension 71M High Cholesterol 91M Obesity Sources: U.S. Centers for Disease Control and Prevention, Alzheimer s Association 28

29 Specialty Market Dynamics 29

30 Market Projection: Specialty Spend Growth in Pharmacy 2014 Actual 2018 Projected 68.2% 31.8% 50% 50% Specialty Pharmacy Benefit Traditional and Specialty Medical Benefit Sources: Express Scripts Book of Business; Express Scripts analysis of Thomson Reuters MarketScan Commercial Database. 30

31 What s Trending in Specialty SOARING SPECIALTY TREND 31% Specialty versus 6% Traditional in 2014 MIGRATION TO SPECIALTY TIERS 8% increase since 2012 BIOLOGICS IN DEVELOPMENT 900 biologics targeting 100 diseases MARKET ACTIVITY Hepatitis C price wars Biosimilar market entrants Expanded therapy categories 31

32 New Specialty Drug Pipeline Proportion of Near-Term Specialty Pipeline Drugs by Indication 27.8% 11.1% 11.1% 11.1% 5.6% 33.3% Cancer Orphan Conditions Hepatitis C Inflammatory Conditions Hemophilia Multiple Sclerosis 32

33 Biosimilars Source: Hillary Clinton and Amy Poehler on Saturday Night Live: 33

34 54 Biotech Products With Patent Expirations Through 2020 Overall U.S. Market Opportunity (in $ Billions) $14.1 $38.8B BIOSIMILAR OPPORTUNITY 2015* Neulasta Rituxan Epogen Procrit Neupogen Synagis Pulmozyme $7.4 Humira Elitek ReoPro Berinert $0.3 $6.2 Lemtrada Remicade Xolair Erbitux $7.1 Avastin Herceptin Orencia Actemra Advate *Includes all drugs with patent expirations through 2015 Source: U.S. Drug spend estimates are based on IMS Health data for The availability of biosimilars is highly variable due to litigation, patent challenges, FDA s establishment of 351(k) pathway, or other factors. $4 Lucentis Tysabri Pegasys Vectibix Peg-Inton Kineret 34

35 Near-Term Biosimilar Pipeline BIOSIMILAR Zarzio (filgrastim - Sandoz) Remsima (infliximab Celltrion/Hospira) Pegfilgrastim (Apotex) Retacrit (epoetin alfa Hospira) ANTICIPATED APPROVAL DATE * Pending August 8, 2015 August 17, 2015 October 16, 2015 BRAND MANUFACTURER Amgen (Neupogen) Janssen (Remicade) Amgen (Neulasta) Amgen (Epogen), Janssen (Procrit) PATENT EXPIRATION Nov. 10, 2013 Sept. 4, 2018 Oct. 20, 2015 June 6, 2015 (adalimumab) Winter 2016 Humira (Abbvie) 2016 INTENDED USE Neutropenia Rheumatoid Arthritis and other Inflammatory Conditions Neutropenia Anemia Rheumatoid Arthritis and other Inflammatory Conditions Zarzio may be one of the first biologics approved using the FDA s biosimilars pathway * Approval or launch may be delayed due to litigation Continue to support use of the most CLINICALLY APPROPRIATE and COST-EFFECTIVE medications 35

36 Specialty Pharmacy Benefit Management Spectrum of Solutions BENEFIT PLAN DESIGN NETWORK MANAGEMENT UTILIZATION MANAGEMENT MEDICAL BENEFIT MANAGEMENT Reduce waste and encourage adherence through formulary strategy, days supply design, and member cost share recommendations Savings on unit cost discounts through Exclusive Specialty program Significant savings through programs like Prior Authorization, Drug Quantity Management, and Preferred Specialty Management Savings through management of medical-billed specialty drug spend Full spectrum of specialty drug management programs to reduce waste for plan sponsors 36

37 Specialty Plan Design Recommendations 1 Add separate specialty tiers and pivot to coinsurance with stepped percentages TRADITIONAL MEDICATION TIERS Tier Category Retail Copayment Home Delivery Copayment 1 Generic $7 $7 to $14 2 Preferred Brand $27 to $44 $67 to $110 3 Non-Preferred Brand $47 to $78 $117 to $150; Max. $150 SPECIALTY MEDICATION TIERS Tier Category Accredo and Retail Copayment 1 Generic 10% to 15% (up to $100 Max) 2 Preferred Brand 20% (up to $250 Max) 3 Non-Preferred Brand 20% or Not Covered Source: Express Scripts Research Study February 2015: Effect on Specialty Copay on PMPM Utilization 37

38 Specialty Plan Design Recommendations 2 Increase member cost share, while being mindful of impact to utilization Average PMPY 0.08 Specialty Utilization $0-$100 $101-$250 $251-$500 $501+ Average Member Specialty Copay Source: Express Scripts Research Study February 2015: Effect on Specialty Copay on PMPM Utilization 38

39 Specialty Plan Design Recommendations 3 Provide access to various marketplace means to help patients with the high cost of specialty medications Copay Assistance Programs Cover a portion of the member s responsibility HCR Out-of-Pocket Maximum PPACA requires all nongrandfathered health plans to limit a member s out-of-pocket expenses for in-network Essential Health Benefits Consumer-Directed Health Plans First dollar coverage is often incorporated through HSA and HRA spending accounts 39

40 Managing Copay Assistance A B Variable Copay Plan Design True Out-of-Pocket and Deductible Protection Sets copay to max of copay card or outof-pocket 6.4% savings on hepatitis C costs for a plan with 69K lives Prevents copay assistance from being applied to members accumulated amounts Accredo helped find $240 million in assistance in

41 Gleevec Transformed Leukemia 100% 93% (leukemia-only causes) 80% 84% (all causes of death) Proportion of Leukemia Patients Alive 60% 40% Gleevec Era 20% % Years from Referral to MD Anderson Cancer Center 41

42 Adherence in Leukemia Drives Healthcare Savings Accredo Improves Adherence Percent of Gleevec Patients With MPR >90% Accredo 63% Retail 53% 50% 52% 54% 56% 58% 60% 62% 64% $49,537 PER PATIENT saved per year: fewer and shorter hospital stays Journal of Clinical Oncology, 2006 (June 20 suppl; abstr 6083) presented at ASCO 2006; Express Scripts book of business scripts

43 Adherence Is Survival for Transplant Patients Specialty pharmacy management of transplant patients leads to higher adherence and lower costs MPR in Transplant Patients 1 76% Drive adherence. Save organs. Save lives. 85% Impact of Adherence in Transplants on Hospitalization Rate and Cost 1 7.5% $5, % $3,345 Avg Cost Hospitalization % Patients Hospitalized 5.5% $2, % $1,566 Retail Pharmacies CuraScript Specialty Pharmacy <80% 81-90% 91-95% >95% Medication Possession Ratio (MPR) NONADHERENCE IS A FACTOR IN 36% OF TRANSPLANT LOSSES, with 20% to 50% of transplant patients nonadherent. 2 Accredo transplant patients have higher adherence than retail. 1. Express Scripts research, Aug Source: Thomson Reuters MarketScan Commercial Claims and Encounters database. Bivariate correlation. Patients selected if had at least two pharmacy claims for immune suppression medications between 1/1/2007 and 12/31/ Laederach-Hofmann K, Bunzel B. Noncompliance in organ transplant recipients: a literature review. General Hospital Psychiatry. 2000;6:

44 Advanced Utilization Management Reduce waste and improve health outcomes PRIOR AUTHORIZATION PREFERRED SPECIALTY STEP MANAGEMENT Right Right Patient Drug Ensures clinically appropriate use of traditional and specialty drugs Trying clinically effective, front-line specialty drugs before second-line drugs DRUG QUANTITY MANAGEMENT Right Amount Aligns dispensing quantity with FDA-approved dosage guidelines and other supportive evidence Significant savings across all categories 44

45 Medical Channel Management MEDICALLY BILLED SPECIALTY-DRUG CHALLENGES Lack of program control Limited reporting and utilization management Inconsistent clinical protocols between pharmacy and medical J-code billing format Delays in billing MEDICAL CHANNEL MANAGEMENT SOLUTION Better visibility and control of specialty spending Increased savings from coverage and therapy management Real-time adjudication Tracks spending at NDC level Improved reporting 47% OF ALL SPECIALTY DRUG SPEND is billed through the medical benefit 45

46 Taking Action Aligning patient care and benefit affordability Clients moving from UNMANAGED to TIGHTLY MANAGED status can LOWER TREND 20.2% Specialty Trend 16.9% 13.8% up to 32% while IMPROVING CARE for their members Unmanaged Managed Tightly Managed HGH MS Pulmonary +10% +2% +5% % Increase in Adherence Rates GUARANTEE AVAILABLE Source: Express Scripts Research Study Impact of Effective Management on Specialty Trend 46

47 Key Takeaways Growth in Specialty Drug Spend is Not Sustainable Effective Pharmacy Trend Programs Deliver Savings Specialty Pharmacy is Key to Optimal Adherence Biosimilars Provide Opportunity to Manage Trend 47

48 Drug Trend Report: Key Facts 2014 Trend Therapy Class Review Looking Forward Overall trend: +13.1% Traditional drug trend: +6.4% Specialty drug trend: +30.9% Overall trend was driven by higher drug costs for specialty medications, which now exceeds 31% of total PMPY spend For the 4 th year in a row, diabetes medications had the highest traditional PMPY spend If compounds were excluded from the analysis total traditional trend would have been just 2.3% instead of 6.4% Three hepatitis C medications made up 96.4% of total Hepatitis C spend and 11.8% of total specialty spend. Specialty trend will slow to more sustainable levels, averaging 22.1% over the next three years. Medications used to treat less-common specialty conditions, many of them orphan diseases, are forecast to increase significantly in the next few years, driven by both brand inflation and increased utilization. 48