US hospitals launch non-profit generic drug producer to counter rising prices

Several American healthcare systems have joined forces to form a new non-profit pharmaceutical company to counter price gouging and scarcity of generic drugs by increasing their supply.

Civica Rx was launched on 6 September with the healthcare systems and three foundations providing initial capital of $100m (£77m; €86m).

The company will focus on about 20 drugs primarily used in hospitals—which it declined to name “for competitive reasons”—and hopes to ship its first pills in early 2019.

The byelaws require unanimous consent to change certain provisions of the company charter, such as the requirement that it remain a not-for-profit organisation, and that all members be charged the same price for a drug with no discounts allowed.

“We want to bring the benefits of scale to the little guys,” Dan Liljenquist, chairman of the board of Civica Rx, told The BMJ.

The effort is being led by Intermountain Healthcare, based in Salt Lake City, Utah, where Liljenquist is chief strategy officer, and also includes the Mayo Clinic. Together the systems control nearly 500 hospitals, almost 10% of the total in the US.

The company hopes to reduce what is spent on those drug by an average of 20%, although it acknowledged that some prices might rise in order to guarantee an adequate supply. Additional savings at the hospital level might accrue by having a reliable supply and not having to spend time tracking resources and modifying treatment protocols because of shortages.

Martin Van Trieste has said that he will serve as chief executive without compensation, because he believes in the mission of the company. He has 35 years experience in the pharmaceutical industry, including as chief quality officer for Amgen.

Civica Rx plans to eventually own the generic rights to produce the drugs it makes.

Liljenquist said that a key part of the group’s strategy will be to hold “the rights to license and manufacture” some generic drugs. A company that has the rights to produce a generic, but has chosen not to do so, may be willing to transfer those rights “in exchange for a long term production contract,” he said. A small fee or a tax write off for donating the rights to the charity might encourage such deals.

Scott Gottlieb, the US Food and Drug Administration commissioner, has pledged to expedite approval of generic drug applications as one way to increase competition and supply, and to rein in prices.

Civica Rx will initially work with generic manufacturers around the world but eventually hopes to increase production capacity within the US.

Marc Harrison, Intermountain chief executive, told CNBC: “We’re only interested in those organisations that are creating shortages and driving prices up in an irrational fashion.”

By only going after so-called “bad actors” accused of price gouging, such as Martin Shkreli or Valeant Pharmaceuticals (since renamed Bausch Health Companies), the group hopes to allay fears of competition with the broader pharmaceutical industry. “We expect that the vast majority of drugs we buy will still come in through the same channels,” said Harrison.