1. ©2003 AdvancePCS The Solution: Specialty Benefit Management Alan Wright, M.D., M.P.H. Senior Vice President and Chief Science Officer

2. ©2003 AdvancePCS Agenda  Specialty drugs defined  Costs in perspective  Reasons for the focus  Specialty benefit management  Health plan experiences  What’s next for specialty?

3. ©2003 AdvancePCS  Specialty drugs are synthetic or recombinant versions of natural biologic substances, like cells, proteins made by cells (enzymes, or antibodies) or genetic material from cells (DNA or RNA)  Large complex molecules  Difficult to produce consistently  Costly Specialty Drugs: Defined Source: Mass High Tech, “Lower Costs Pub Generic Biologic Drugs on the Rise” Campbell Evans, P. March 2003

4. ©2003 AdvancePCS  Biotech in nature  Injectables –Requires special monitoring, handling, and delivery  Select orals –Tracleer, Temodar, Thalomid, Gleevec, Iressa – exceeding $30K per year  Expensive therapies  Costs range from $10,000-$1 MM annually per patient  Requires expert clinical services  Limited to few physician specialists Specialty Drugs: Defined

5. ©2003 AdvancePCS Costs in Perspective: Specialty Drives One-third of Health Care Costs Average Annual Total Cost Per Case $1,200 $6,600 $71,600 Patients Acute Low-grade chronic Worried well Prevalent chronic (e.g. asthma, diabetes) Procedures (e.g. surgery, childbirth) Rare chronic (e.g. rheumatoid arthritis, hemophilia, pulmonary hypertension, Gaucher disease, multiple sclerosis) Multiple comorbidities Key Distribution Channels Retail Retail and mail order Specialty pharmacy Source: Franklin Health, Chase H & Q 90% High Frequency Common Conditions 9% Chronic Conditions 1% Severe Unique Conditions 1/3 Of Total Costs 1/3 Of Total Costs 1/3 Of Total Costs

6. ©2003 AdvancePCS Specialty Therapy Examples Avg. Annual Chronic Condition Medications Cost (AWP) Growth Hormone DeficiencyNutropin, Humatrope, Genotropin, Norditropin $18,000 Hepatitis CRebetron, Pegasys $24,000 InfertilityFertinex, Lupron, Gonal F$18,000-20,000 Multiple SclerosisBetaseron, Avonex, Rebif, Copaxone$15,000 Oncology, BMT, HIV/AIDSNeupogen, Procrit, Neulasta, $5,000-20,000 Aranesp, Fuzeon HemophiliaRecombinant Blood Factor Products$150,000 + Rheumatoid Arthritis Enbrel, Remicade, Humira$15,000 + Gaucher DiseaseCerezyme/Ceredase$250,000 Pulmonary Hypertension Flolan, Tracleer, Remodulin $30,000 -100,000 Lysosomal Storage DisordersFabrazyme, Aldurazyme$175,000 + Therapies in “red” approved in last 12 months. 071003

7. ©2003 AdvancePCS Reason for the Focus on Specialty Drugs  Specialty therapies will have a direct impact on drug spend  High cost –Drug expense –Patients using specialty drugs are driving most of your medical spend  Growing market –8% of spend today –Moving to 20%  Difficult to manage medical benefit spend  Other issues

8. ©2003 AdvancePCS Reason for the Focus Specialty is 5 th Largest, Fastest Growing Class Source: AdvancePCS Claims Analysis 13% 19% 20% 22% 36% Specialty pharmaceuticals

9. ©2003 AdvancePCS IndicationPhase Budget Impact Launch Year Exanta (ximelagatran) The tx & prevention of venous thromboembolism Phase IIIHigh2004 Fuzeon (enfuvirtide) The tx of HIV infection Pending approval High2003 Xolair (omalizumab) The tx of allergic asthma in adults Pending approval High2003 pregabalinThe tx of neuropathic pain, generalized anxiety disorder, and epilepsy Phase IIIHigh Reasons for the Focus Specialty Drugs Budget Impact Forecast

10. ©2003 AdvancePCS Specialty Drug Costs Pharmacy Budget ~30% Medical Budget ~70% Network Rates AWP + ??? Paper Electronic Incorrect billing and payment Missed discounts Multiple vendors, multiple rates Confusing J and ICD9 codes Reasons for the Focus A Management Challenge

11. ©2003 AdvancePCS Specialty Benefit Management Addresses the Challenge  Provides an effective integrated solution, bridging both pharmacy and medical benefits  Improves patient health  Lowers costs  Reduces administrative workload

12. ©2003 AdvancePCS Specialty Benefit Management Components

13. ©2003 AdvancePCS Specialty Benefit Management Benefit: Improves Member Health  Increases appropriate drug utilization  Improves compliance via utilization and education programs  Lowers the potential for drug interactions with comprehensive screening  Minimizes emergency room, doctor visits, hospital stays and other medical expenses

14. ©2003 AdvancePCS  State Blue Cross Blue Shield plan with 375 members using specialty drugs billed under medical benefit  Recommendations included:  Transitioning specialty drug spend from medical benefit to PBM-based claims processing and reporting  Moving from multiple suppliers to a single-source pharmacy service to lower cost  Reduced annual specialty drug spend from $8.9M to $7.4M Provided a savings of $1.5M or 17% Specialty Benefit Management Benefit: Lowers Costs for Health Plans

15. ©2003 AdvancePCS $1,532/claim PMPM $724/claim $495/claim $2,334/claim Lymphoma Rheumatoid Arthritis Ovary/breast Cancer Prostrate Cancer Specialty Benefit Management Uncovering Specialty Costs: One Client’s Findings

16. ©2003 AdvancePCS  Large national health plan faced problems providing Flolan therapy to 75 pulmonary hypertension (PH) patients  Contracted on patient-by-patient basis and paid 25-50% more than necessary  Faced customer service issues  Struggled to identify patients for proper clinical support because of coding and procedure issues  Recommendations included establishing:  One national rate for specialty drug pricing  Standard claims processing and coding procedures  Case management support and patient education  Reduced annual specialty drug spend from $7.5M to $5.25M Provided savings of $2.25M or 30% Specialty Benefit Management Example of Lowering Costs

17. ©2003 AdvancePCS What’s Next for Specialty Drugs? Going Generic Conventional DrugsBiologic Drugs Regulated by FDARegulated by Center for Biologics Evaluation and Research (CBER) Generics overseen by the Centers for Drug Evaluation and Research (CDER) Hard to prove bioequivalence of complex biologic molecules Abbreviated new drug application (ANDA) expedites approval for generics No expedited process for generics Generics proven equivalent to brands. If equivalent, generics not required to show safety and efficacy Generic biologics must conduct full safety and clinical trials

18. ©2003 AdvancePCS Source: ABN Amro, as cited in The Wall Street Journal, August 26, 2002 Generics Seek To Break into Biotech as Patents Expire DrugIntron A (interferon alfa 2b) Epogen (epoetin alfa) Procrit (epoetin alfa) Neupogen (filgrastim) Avonex (interferon beta 1a) CompanySchering Plough AmgenJohnson & Johnson AmgenBiogen ConditionsLeukemia, Hepatitis B and C Anemia NeutropeniaMultiple Sclerosis 2000 Sales$1.4 Billion $2.03 Billion $1.72 Billion $1.22 Billion $761 Million Patent Expiration 20022004 20062011