Specialty drugs will benefit PBMs: Goldman analyst

Randall Stanicky said Friday that growth in specialty drug spending, combined with the desire of insurers to control costs within this expensive category of drugs, serves to benefit large benefit managers such as Medco Health Solutions Inc., Express Scripts Inc. and CVS Caremark Corp. that have specialty franchises.

Specialty drugs are typically high-priced, medications, derived from human genes, that require an injection or infusion for administration. Many therapies for chronic diseases, such as cancer or rheumatoid arthritis, are classified as specialty pharmaceuticals.

"With large and integrated specialty operations, Medco, Express, and CVS Caremark seem especially well positioned, as some industry competitors without a specialty footprint are now scrambling to develop this capability."

Stanicky rates Medco and CVS Caremark "Buy," while Express Scripts has a "Neutral" rating.

Although health care research firm IMS Health has forecast 3 to 6 percent annual growth for the U.S. pharmaceutical sector, specialty drugs are expected to grow 14 percent annually through 2011 because of new drugs coming onto the market. According to Goldman, current specialty drug spending stands at $59 billion.

Pharmacy benefit managers also will benefit through personalized medicine, the idea that drug therapies can be tailored to a patient's genetic data, gaining wider acceptance. Personalized medicine can increase a patient's response rate to a drug, eliminating spending on therapies that don't work, according to Stanicky.

Shares of Medco were up 1 cent to $48.12, while CVS shares also rose 14 cents to $43.33 in afternoon trading. Express Scripts shares were down $1.22 to $70.95.