Replies to post #362355 on Elite Pharmaceuticals Inc (ELTP)

[no2koolaid]

I thought Nasrat's discussion on the Q1 CC made it clear that the issue of market share is about contracts that are often created and renewed on an annual basis, which are tied to PBM formularies. FYI: Costco, CVS, Walmart, Walgreens, all have their own internal PBMs, which regulates purchasing across the system. Moreover, since we are talking about generics, it is about pricing. What enables Elite to have better pricing while maintaining profitability? Effective control of their value chain. Just to be clear, despite long term relationships with pharma distribution channels, LCI cannot alter the PBM formulary timing. As Nasrat pointed out, you learn along the way how to best pitch pricing. One more thing...Peak revenues for generics can lag novel drugs because of the aforementioned issues.

How about a reading assignment?

First, there are two types of formularies: open and closed. Open formularies typically cover all medications, which allows the patient the greatest access. This also comes at the highest cost for the plan sponsor.

Whereas, closed formularies do not cover all medications. This type covers most drugs, but restricts the choice (through drug exclusions) that the patient and provider have. Although every therapeutic class will have treatment options available, not all medications will be covered.

In some closed arrangements, a generic first approach may be employed—only covering generics with very select brand name medications. Overall, closed formulary offerings provide any given client the most flexibility to balance costs verse member disruption.

The next piece of the puzzle is the formulary tier design, which typically have three tiers as the most common setup. Some, however, may have extra tiers to afford clients additional cost control options. With specialty costs continually increasing, plan sponsors are beginning to explore the use of a four- or five-tier approach to better help manage these costs.

Tier 1: Generic medications (this does not include all generic medications)
Tier 2: Preferred brand medications
Tier 3: Non-preferred brand medications
Tier 4 (if applicable): Specialty or high-cost tier