As discussed in this blog, 2006 has been a year in which the patents on many blockbuster brand name drugs have expired here in the U.S. Therefore it is noteworthy when a brand name drug manufacturer beats back a patent challenge. Yesterday, the U.S. Court for the Federal Circuit upheld Eli Lilly’s patent on Zyprexa (olanzapine), a top selling anti-psychotic medication, against challenges from the two largest foreign generic drug manufacturers, Teva and Dr. Reddy. According to the Courts, Lilly’s patent expires in 2011.

Meanwhile, the Food and Drug Administration approved for marketing a new Johnson & Johnson anti-psychotic medication called Invega. Invega reportedly is a new class of drugs to treat schizophrenia which does not cause weight gain and high blood sugar as a side effect, a problem associated with Zyprexa, according to the American Diabetes Association , which has resulted in litigation against Lilly.

Both Walgreens, Inc., the Nation’s largest pharmacy chain (by sales), and Rite-Aid, the third largest chain, reported significant increases in quarterly profits this week. Both chains report that Walmart’s $4 generic drug price has not dented their sales. Among other factors, Walgreens gives credit to the Medicare Part D program and Rite Aid give credit to higher profit margins on drugs like Zoloft which recently shifted from brand name to generic status when the manufacturer’s patent protection expired.

Of course, the second largest chain, CVS, is seeking to acquire the Nation’s largest prescription benefit manager (PBM) Caremark. Rite-Aid indicated that it has no such acquisition plans. Rite-Aid lost money when it acquired a national PBM, PCS, a company which is now part of Caremark.

On the Caremark acquisition front, two shareholder lawsuits brought by two different pension plans were filed against Caremark this week, alleging that Caremark’s directors “breached their duty to shareholders in agreeing to a buyout by CVS Corp. The shareholders said the directors failed to give enough consideration to a higher, unsolicited bid by Express Scripts Inc.” One lawsuit was filed in Nashville, TN, where Caremark is headquartered and the other in Wilmington, DE, as Caremark is a Delaware corporation. On Friday, a federal judge refused to enjoined the CVS deal on the ground that Caremark’s directors plan to consider the Express Scripts offer after January 1.

The Wall Street Journal reports today that two major manufacturers of “high through put genotyping” equipment and “gene chips” — Affymetrix Inc. and Illumina, Inc. — are in a “price war” that appears to be accelerating genetic research. “[G]enotype scans seek to locate and identify the genes that predispose groups of people to certain chronic diseases such as heart disease, cancer, or neurodegenerative conditions such as amyotrophic lateral sclerosis, known as Lou Gehrig’s disease. But the discoveries made by such scans are expected to eventually lead to new genetic diagnostic tests and therapies that can find and treat a range of genetic illnesses.” For example, last month, Affymetrix announced that “A comprehensive scan of the human genome [using their equipment] has identified more than 50 genetic abnormalities in people with sporadic amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s disease). * * * Just a couple of years ago, this experiment would not have been possible because there simply wasn’t a technology that enabled scientists to sift through the three billion molecules in the genome to find the genetic abnormalities that cause disease.”

This is revolutionary. According to the Journal, “[r]esearchers say increasing affordability allows their labs to do more, bigger or different scans, boosting the chances to find genes related to diseases.” Very interesting reading.

Health and Human Services Secretary Michael Leavitt announced yesterday that over 100 private sector employers, including the auto manufacturers, IBM, and Starbucks, and the Commonwealth of Virginia have endorsed the “cornerstone principles” of the President’s August 21 Executive Order as part of their health plan purchasing criteria:

• Standards for connecting health information technology, making it possible to share patient health information securely and seamlessly among health care providers.
• Quality of care reporting, so that health care providers as well as the public can learn how well each provider measures up in delivering care.
• Providing costs of health services in advance, so that when patients choose routine and elective care, they can make comparisons on the basis of both quality and how much of the total cost they will have to pay under their health plan, and
• Providing incentives for quality care at competitive prices, as in payments to providers based on the quality of their services, or insurance options that reward consumers for choosing on the basis of quality and cost.

President Bush signed the Tax Relief and Health Care Act of 2006 yesterday (see 12/20 FEHBlog entry) and in response the U.S. Office of Personnel Management is allowing the following actions that are permitted under this law:

• Agencies may accept belated Federal Employees Health Benefits (FEHB) open season enrollments in a [High Deductible Health Plan] HDHP with a [Health Savings Account] HSA through December 31, 2006, for employees who are otherwise eligible for an HSA. [The regular Open Season closed on December 11.] Contact your agency Human Resources office for instructions.
• SHPS, the FSAFEDS administrator, will allow FSAFEDS enrollees to revoke their HCFSA or change their HCFSA to a Limited Expense HCFSA (LEX HCFSA) for 2007, so that they may enroll in an HDHP with an HSA. Anyone enrolling in an HDHP may also elect a LEX HCFSA [an FSA limited to dental and vision expenses]. Enrollees should go to www.fsafeds.gov for instructions. >THIS CHANGE MUST BE MADE ON OR BEFORE DECEMBER 31, 2006.
• Current FEHB Program HDHP enrollees with a [Health Reimbursement Arrangement] HRA may make a one-time transfer of the HRA balance to an HSA if they are otherwise eligible for an HSA in 2007.
• FEHB Program enrollees who choose HDHP coverage for 2007 may make a one-time balance transfer from a 2006 HCFSA [Health Care FSA] to an HSA. Anyone who enrolls now or enrolled in an HDHP during Open Season will have to transfer any remaining HCFSA funds to be eligible to have an HSA.
• For FSAFEDS enrollees wishing to make such a transfer, there may be a small processing fee for the transfer. FSAFEDS will notify participants regarding of any fee. The transfer will be made after the payment is received.

Earlier today, President Bush signed the Tax Relief and Health Care Act of 2006 which makes several improvements to the Health Savings Account (“HSA”) law (Internal Revenue Code § 223). Most significantly, as discussed in an earlier post, the new law, which is effective January 1, 2007, for the HSA changes, increases the maximum annual contribution to the indexed amounts as opposed to the lesser of the associated health plan’s high deductible or the indexed amount, which has been the law.

President Bush signed into law the following three health care bills that were enacted during the recent lame duck session of the 109th Congress:

• The Combating Autism Act of 2006 — significantly increases funding for autism research and treatment and public education about autism
• Pandemic and All-Hazards Preparedness Act of 2006 — “creates a new agency within the Health and Human Services Department to oversee the development of medicine and equipment to respond to a bird flu pandemic or a bioterrorism attack.”
• Ryan White HIV/AIDS Treatment Modernization Act of 2006 — renews law and shifts funding to rural areas and the South.

A study published recently in the New England Journal of Medicine concludes that the diagnostic effectiveness of a colonoscopy depends on the doctor’s techniques. An article in the New York Times today gives advice on how a prospective patient can question a doctor about his or her technique. I have always thought that medicine is as much an art as it is a science, a consideration which complicates quality transparency initiatives in my opinion.

Reuters reports that CVS filed a registration statement today with the Securities and Exchange Commission concerning its proposed acquisition of Caremark (which is available on the SEC’s EDGAR system). According to Reuters, “there is a $675 million breakup fee if either it or Caremark terminates the deal under certain circumstances.”

Meanwhile the stock market continues to respond favorably to Express Script’s higher offer for Caremark, pushing Express Script’s stock price up 3.3% today. According to Businessweek.com analysts predict that the debt load associated with Express Script’s leverage buyout proposal is “manageable.” Time will tell.

Caremark and CVS responded to Express Script’s competing bid for Caremark with measured press releases describing their agreement as “definitive” and stating that Caremark’s board of directors will take the ESI proposal under advisement. The stock market responded by boosting Caremark’s common stock price from $50.30 per share to $55.28 per share as investors expect a bidding war over Caremark.