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Buying Remaining Stake in Generation Health, CVS Caremark Keeps PGx Programs but Cuts Staff

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Originally published Aug. 23.

Choosing to only maintain the pharmacogenomics-related programs it launched under its Generation Health subsidiary, pharmacy services provider CVS Caremark has laid off around 30 people employed in the unit and has scuttled a number of programs targeted toward diagnostics firms and payors, PGx Reporter has learned.

CVS Caremark disclosed in quarterly financial results filed earlier this month with the US Securities and Exchange Commission that in late June it acquired the remaining 40 percent interest in Generation Health, a genetics benefit management company it had taken a majority stake in a few years ago.

In 2009, CVS Caremark and Generation Health inked a deal under which Generation Health would offer services to facilitate pharmacogenomic testing for the pharmacy benefit manager's customers. Soon after this deal was made, CVS Caremark took a majority stake in the genetic testing benefits management firm (PGx Reporter 12/23/2009).

Now, two and a half years later, CVS Caremark has paid a total of $31 million to buy out the remaining shares of Generation Health from minority shareholders and employee option holders. According to CVS Caremark Chief Medical Officer Troyen Brennan, the company purchased the remaining shares of Generation Health in order to maintain control of the brand name, under which the firm intends to continue its PGx testing offerings.

"Our plans for pharmacogenomics testing are to continue it and basically expand it," Brennan told PGx Reporter. "We're very bullish on the pharmacogenomics testing program." CVS Caremark is currently conducting its own research to identify new opportunities for PGx testing, he said.

According to Brennan, CVS Caremark decided to cut the Generation Health staff in order to focus on in-house PGx testing services. "We thought we could get some synergies by laying off the people who were working at Generation Health," he said. The firm took this action in order "to accommodate some of the things that were going on in the PGx program [by] using people who were currently working for CVS Caremark, so there was some efficiency associated with that."

Generation Health was providing pharmacogenomic clinical services to CVS Caremark clients who were managing benefits for 1.5 million covered lives in total. The firm was offering PGx testing services for approximately 15 generic and specialty pharmacy drugs. Some treatments included in the PGx program were abacavir – an HIV drug for which a genetic test can identify a small subset of patients who are at risk for experiencing severe and at times fatal skin rashes – and the antiplatelet clopidogrel – for which genetic testing can gauge whether patients are less likely to respond to the drug.

Under the PGx program, Generation Health tracked the prescription claims for these drugs in CVS Caremark's system, assessed which patients might benefit from a genetic test, contacted the doctors to inform them of the availability of a genetic test, and facilitated testing if necessary.

Currently, CVS Caremark is using a call center in Pittsburgh to contact doctors about PGx testing opportunities. According to Brennan, CVS Caremark will basically maintain the PGx testing efforts as they were under Generation Health and eventually offer tests to personalize treatments in profitable markets, such as statins and anti-platelet drugs. The company also plans to hire medical directors to consult the company about PGx testing.

In addition to the PGx efforts, Generation Health was also conducting studies to demonstrate the clinical effectiveness and cost effectiveness of molecular diagnostics and had launched a pilot program under which it was working with five health plans to help them track utilization of and recommend coverage policies for such tests (PGx Reporter 3/11/2011). Those programs will not continue under the CVS Caremark organization.

"We think these are good programs, but we think they're probably done best by some [firm] with an independent base," Brennan said.

Rick Schatzberg, former CEO of Generation Health, told PGx Reporter that he ended his employment at the company in July. Simultaneously, however, Schatzberg and four other former Generation Health employees have started a new venture called MetaDiagnostic. The company is conducting clinical utility and cost effectiveness studies for test developers, and will work with third-party payors to track utilization and craft coverage policies for molecular diagnostics (see related story, in this issue).

"Rick with MetaDiagnostic has that independent platform to be able to do those programs more effectively," Brennan noted. "So, that's why it made most sense for us to satellite those out."

When PBMs first got involved in personalized medicine several years ago, many industry observers opined that this was a game changer that would speed adoption of genetic tests into mainstream healthcare. Now, sources knowledgeable of the PBM industry have observed that companies like Express Scripts and CVS Caremark are cutting back their investment in the space because the integration of molecular diagnostics into the traditional pharmacy services model hasn't turned out to be a profitable marriage in the short term.

"Customers aren’t buying," Patrick Terry, head of the pricing, reimbursement, and market access practice at life sciences consulting firm Scientia Advisors, told PGx Reporter. "I think it was inevitable that groups that manage broad therapeutic offerings and generic drugs are not the point of market entry for applied genetics."

CVS' decision to focus just on its PGx program follows a similar move by Express Scripts. Since it acquired Medco in April, Express Scripts has narrowed the list of drugs for which it provides PGx testing services and industry insiders have speculated that the company is not interested in pursuing the clinical utility studies Medco was conducting in collaboration with diagnostic companies. Several employees affiliated with Medco's personalized medicine programs, including Robert Epstein, chief medical officer of the Medco Research Institute, left the company once the acquisition was finalized (PGx Reporter 5/9/2012).

With Medco's investments in personalized medicine scaled back in the Express Scripts merger, "there is no longer a need [for CVS Caremark] to keep pace with Medco's implementation of personalized medicine solutions under the PBM enterprise," Terry said.

With 30 employees, the Generation Health business comprised a small portion of CVS Caremark's overall pharmacy services business, which operates more than 7,000 retail pharmacies and brought in $61.5 billion in revenues for the six months ended June 30. In its 10-Q, CVS Caremark reported that that the minority shareholders in Generation Health incurred $2 million in net losses in the last six months.

"The market analysts are not interested in budget expense line items that are not core to the PBM business activities," Terry said, in an effort to explain why PBMs might be limiting their investments in personalized medicine and reverting to more traditional activities. "The [PBM] industry has always operated under a model of leverage, squeezing tight margins, and consolidation to eliminate competition. The current and substantial profit drivers for the PBM industry are the management of drugs, full stop."

However, Brennan still believes that the company's PGx programs have value and that CVS Caremark's continued investment has the potential to be profitable in the future.

"We think … pharmacogenomics is going to expand over time," he reflected. "Eventually, it's going to be a revenue generator, but more importantly we think that identifying subsets of individuals who will respond to medications and segregating them from people who won't respond will just be more and more important in therapeutics and healthcare going forward.

"So, this is [a program] we need to be doing and our clients are expecting us to do," Brennan continued. "We think this is going to allow us to provide higher quality care and more cost-effective care."

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