Government pricing programs drive a significant portion of pharmaceutical revenue and risk, requiring careful diligence and accurate price reporting. ASP and AMP price reports are certified by the CFO or another designee, and the stakes are high for non-compliance within statutory price reporting. However, this can and should be a strategic imperative focused less on getting the price calculation right and more on strategic impacts on all sides of the business. This presentation examines the financial implications of expansion in Medicaid and related programs as well as commercial drivers impacting contracting and rebating strategy with consideration for the following key topics: • Financial outlook for government programs business • Impact of market drivers such as anticipated increase of beneficiaries and coverage requirements • Impact of government program expansion into commercial business lines • Financial assessment of the bottom line impact to brand and generic manufacturers • Chief challenges ahead in managing rebate estimates, accruals and financial disclosures

1. Results In Revenue
Making Sense of Government
Programs –
Assessing the Impact of Expanding
Rebates, Discounts and Customer
Behavior on Pre and Post Deal
Contracting Strategy
Jesse Mendelsohn, Associate Director
Model N
Kris McGraw, Solutions Principal
Model N
Ron Sandhu, Associate Director
High Point Solutions
© 2012 Model N, Inc. All information is proprietary and confidential.

2. Agenda
Time Topic
1:30 – 1:45 Aligning Objectives between
Regulatory and Commercial:
The Old and the New
1:45 – 2:00 Current analyses your peers
are performing today
2:00 – 2:10 What’s coming in the near and
distant future?
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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3. Aligning Objectives: Regulatory & Commercial
• Never before has commercial contracting practice been established
with as much input from the regulatory practice
• As recently as 5 years ago there was a large disconnect
• DRA was the engagement … Health Care Reform is the marriage
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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4. Aligning Objectives: Regulatory & Commercial
• What are the regulatory implications of commercial contracting
strategies?
• Oldies but goodies:
 Will a new contract strategy set a new BP?
 Is the revenue we’re going to make from the new strategy offset by likely increase
in Medicaid rebate liability?
 Are downward trends in my commercial prices decreasing my ASP?
 How will this impact Medicare physician reimbursement and the competitiveness
of my drug in the Medicare market?
 Will a contract change result in a lower price for my FSS tracking customer?
 Is the revenue I’m going to make from the lower tracking customer price offset by
a potential decreased FSS price?
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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5. Aligning Objectives: Regulatory & Commercial
• New Ones due DRA and more recently HCR:
 Is my contract pricing or rebate arrangement a bundle?
 Will I need to reallocate discounts and rebates as part of my government pricing
processes?
 Will the revenue we make by the bundled arrangement be offset by increases in
Medicaid liability?
 Is my pricing and rebate relationship with retail community pharmacies still
sound business now that their sales have a greater impact on AMP?
 As retail community pharmacy prices and rebates now comprise most of the AMP
calculation for non-5i drugs, are the strategies still sound given their greater
impact on my Medicaid liability?
 If a product has a small volume of retail community pharmacy transactions, a
single misresolved chargeback can have dramatic repercussions.
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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6. Aligning Objectives: Regulatory & Commercial
 Are my line extensions / new formulations still profitable?
 Is the new HCR URA calculation increasing my Medicaid liability?
• Are my Managed Medicaid units “double dips”?
 A unit rebated as part of a commercial PBM contract can then be
submitted again as part of a managed Medicaid invoice.
 This may be contractually allowed – however you may consider
analyzing your commercial agreements to limit these “double dips.”
• Is my branded prescription fee assessment (IRS) impacting my NDC’s
profitability?
 Is the government calculating their purchases correctly?
 Should I dispute?
 How does this impact my bottom line?
• Is the rigid definition of “exclusively pediatric” increasing my
rebates? Results In Revenue
© 2012 Model N, Inc. All information is proprietary and confidential.

7. What are your peers doing today?
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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8. Current Behaviors
Pre and Post Deal Contracting Strategy
• Pre-deal, the business wants to know the impact of any new
programs, especially when bundles are a factor in BP determination.
• Details of credit, voucher, coupon, replacement, and sampling programs
• Details of Patient Assistance Programs operated or funded by Company
o
(administration, mechanics, personnel and funding)
• Managing accruals with healthcare unknowns/changing program
coverage.
• Some Manufacturers’ products could become 5i depending upon final rule.
• Impact of price increases including their timing.
• Analysis of sales percentages broken down in detail by COT and
channel
• Avoid revenue leakage
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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9. Analysis ImpACT of working together
• Using Analytics to Make Better Pricing and Contracting
Decisions
• Synthesize internal & external data
• Segment prices and set “fair market” prices
• Executing Contracts and Measuring Compliance to Reduce
Net Revenue Erosion
• Eliminating fragmented processes & systems
• Increased leverage during negotiation stages
• Forecast and track deal economics
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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10. What does the future hold?
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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11. Key Provisions in Health Reform
• Expansion of Medicaid/CHIP to non-elderly adults and
children with incomes up to 133 percent of the Federal
Poverty Level
• Individual mandate to obtain health insurance, or
financial penalty for failing to do so
• Will add approximately 40M new lives to Medicaid and
Health Exchanges
• Medicaid Managed Care Plan utilization is now eligible
for MDRP rebates
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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12. Effects of Reform on Health Insurance Coverage
Enrolled Lives (M)
Source: Congressional Budget Office and the staff of the Joint Committee on Taxation
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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13. However, Medicaid Expansion under Health Reform
will not impact all states equally…
• New York
• Massachusetts
• Hawaii
• Vermont
• New Jersey
• Alabama • California
• Texas
• Medicaid expansion will disproportionately affect states with low levels of
coverage
• States with low coverage, or lacking coverage for childless adults, will see
reductions of 40% to 50% in uninsured adults below 133% of FPL, vs.
reductions of 10% to 20% for states with wider coverage
Source: The Kaiser Commission on Medicaid and the Uninsured
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© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue

14. How Much Difference One Year Can Make…
Updated CBO Estimates for 2016
Change in Enrolled Lives (M)
March 2011 Estimate March 2012 Estimate
• Higher unemployment and lower wages will increase people eligible for Medicaid, and
impact eligibility for health exchanges
• Growth in private health insurance premiums has slowed over the last several years
Source: Congressional Budget Office and the staff of the Joint Committee on Taxation
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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15. Effects of Eliminating Individual Mandate on the
Uninsured
Lives (M)
Source: “Effects of Eliminating the Individual Mandate to Obtain Health Insurance” – June 16, 2010, Congressional Budget Office and the staff of the
Joint Committee on Taxation
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© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue

16. Trends in Managed Medicaid…
• Historically, Managed Medicaid ineligible for MDRP rebates
established under OBRA ‘90, incentivizing states to create FFS
programs or carve out prescription drug coverage
• Nevertheless, States have been experimenting with Managed
Medicaid since the 1980’s
• The trend of states moving from FFS to Managed Medicaid will
likely accelerate
• Texas, New York, Ohio recently carved pharmacy benefits back into
Managed Medicaid
• With mounting budgetary pressures, states are increasingly
mandating managed care for previously exempt populations,
like people with disabilities
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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17. How will contracting strategies with PBMs evolve?
INCREASING NEW POTENTIAL
GOVERNMENTAL SOURCES OF
SCRUTINY REVENUE
• Transparency Reqs. • Expansion in
• % Scripts: Managed Medicaid
• Retail vs. Mail • Health Exchanges
• Generic vs. Brand • Employer Plans?
• Amount & Type of
Price Concessions, PBMs
and Pass Through
INDUSTRY
STRUCTURAL
CHALLENGES
• New approvals in many
therapeutic areas are
slowing
• After patent cliff, less
opportunity for brand to
generic switching
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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18. Key Questions for Manufacturers…
• Who will be the “winners” in the health insurance
exchange marketplace?
• Which commercial plans have experience in the
Medicaid marketplace, placing them at a competitive
advantage?
• Double discounts on Managed Medicaid utilization?
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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19. Key Considerations & Best Practices
• More important than ever not to inadvertently set a
new Best Price
• Multi-Disciplinary Pricing Committee
• Recognize product-specific impacts
• For example, Single Source and Innovator products with
Best Price discounts in excess of 23.1%
• Develop informed reserves, accruals, and forecasts
• Clearly define contracting objectives (profitability,
customer significance)
• Develop “win” and “lose” scenarios, and turn lost bids
into opportunities to test “loss” scenarios
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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20. Thank you!
• Ron Sandhu
• ron.sandhu@highpoint-solutions.com
• Kris McGraw
• kmcgraw@modeln.com
• Jesse Mendelsohn
• jmendelsohn@modeln.com
© 2012 Model N, Inc. All information is proprietary and confidential. Results In Revenue
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