Alternative Revenue Stream: Specialty Pharmacy

According to industry experts, specialty pharmacy is expanding and growing at a rate greater than any other segment of the pharmacy industry. Currently, more than 40 percent of the drugs under development are considered specialty drugs, according to a report released by the National Center for Policy Analysis. The enormity of the drug pipeline is facilitating the development of more than 3,000 immunology and oncology drugs.

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While specialty drugs only account for one percent of dispensed prescriptions, they account for approximately 28 percent of total pharmacy spending within the US. Moreover, this trend is expected to not only continue, but significantly increase over the next three to five years — with the specialty segment spend projected to overtake the traditional drug sector by 2018.

To date, very few community pharmacies have chosen to enter the specialty arena, creating an ideal opportunity to develop an alternative revenue stream. The slow entry by traditional community pharmacies is expected to increase as many of the existing barriers come down and logistical issues are worked out. One thing is sure: while some business considerations must be engaged, pharmacy entrepreneurs will be venturing into this arena.

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What Exactly is a Specialty Pharmacy?

Currently, there is no FDA designation for specialty drugs, and there is no industry consensus definition that clearly describes how to identify a specialty medication. However, there are certain characteristics the specialty drug category has in common, including:

  • High cost (greater than $1,200 per month)
  • Require proper administration and handling
  • Could require distinctive inventory management
  • Can have an FDA-mandated Mitigation Strategy and Risk Evaluation program that requires more intensive support
  • Designed to treat complex, “high touch” patients
  • Developed to treat orphan, chronic or niche disease states
  • Demand critical monitoring to achieve optimal positive health outcomes
  • Necessitate prior insurance verification and authorization

The specialty drug industry will focus on expensive drugs that have a high specificity in what they treat and how they are managed.

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Why Entrepreneurs Should Consider Specialty Pharmacy

Current trends in specialty pharmacy reveal this segment of the pharmaceutical industry is expected to produce a $100 billion national market for “take home” prescriptions. The annual growth is projected at 20 percent or greater. While the current share of the prescription volume is minimal, specialty drugs account for 20 to 30 percent of the overall pharmacy spend. More importantly, the development pipeline is currently made largely of specialty drugs. Fifty percent of late-stage developmental drugs are classified as specialty drugs, and 70 percent of applications for new drugs fall under the classification of specialty drugs.

Not Only Rewarding but Lucrative

While the indicators suggest running a specialty business will be very profitable, it is also an opportunity to provide a much-needed service to the community. Specialty pharmacies provide patients with complicated, chronic or life-threatening illnesses access to needed medications and adherence programs. When a community has a specialty store, its residents receive essential services, such as expedited access to specialty drugs, improved clinical outcomes, and enhanced safety management.

If an existing system does not have an infrastructure that can facilitate specialty drugs, or it is too fragmented, patients see significant delays in the start of treatment, subsequently leading to extended stays in treatment institutions. The fragmentation will also lead to communication gaps between providers and the pharmacies. The specialty pharmacy system allows the structure to be more congruent, with greater connectivity.

Affordable Financing Options

Pharmacies seeking to include specialty pharmacy services in their business models may need capital to make that happen. Financing from specialty lenders offers a growing pharmacy the opportunity to delve into specialty practice without affecting bottom line numbers. Financing is available for acquiring an existing specialty pharmacy, purchasing inventory, hiring staff and marketing the business.

Finding a lender who knows the unique needs of a pharmacy owner is crucial to the success of obtaining a loan. Lenders that understand factors that affect a pharmacy’s value, such as script trends, Gross Profit Margin trends and tangible and intangible assets of the business, will allow the conversation and lending process to be much smoother. The good news: there is capital available, and with interest rates still near all-time lows, access to capital is relatively inexpensive. With the projected growth and available funding, specialty pharmacy is an excellent opportunity to create an alternative revenue stream.