How the not-for-profit Civica Rx will disrupt the generic drug industry

The generic drug industry should cause prices for medications to drop. But lately it has been engaging in price gouging and making it difficult to obtaining some vital medications.

You’ve heard the stories: a 5,000 percent increase by Turing Pharmaceuticals for one tablet of generic pyrimethamine, which is used to treat toxoplasmosis, a rare infection; a 2,800 percent price increase in a single year for digoxin, a commonly prescribed heart medication.

The chief executive of Nostrum Laboratories, a generic pharmaceutical company, even argued there is a “moral requirement … to sell the product at the highest price,” as he defended a 500 percent increase in the price of nitrofurantoin, a generic drug used to treat bladder infections that is on the World Health Organization’s list of essential medicines.

In response to high pharmaceutical prices and their harmful impact on American consumers, President Trump has proposed lowering Medicare drug prices by tying them to the lower prices that other industrialized countries pay for the same drugs. Sen. Elizabeth Warren (D-Mass.), a 2020 presidential contender, has proposed creating a government-run pharmaceutical manufacturer to mass produce generic medicines in order to lower prices.

Here’s an idea that won’t cost taxpayers a dime: a not-for-profit generic drug company that will shake up the marketplace and benefit the American people. That’s the idea behind Civica Rx, a not-for-profit company formed by three philanthropies and numerous health care organizations that represent about 800 U.S. hospitals. One of the founding health care organizations is Intermountain Healthcare, where I am president and CEO. Martin VanTrieste, the former chief quality officer for Amgen, is serving without compensation as the CEO of Civica Rx.

Our company has a different moral requirement than that of Nostrum and many other generic drug companies: to put patients and their needs first.

Unlike for-profit companies, Civica Rx is a public asset whose mission is to ensure that essential generic medications are accessible and affordable. These are drugs that have emerged from the patent-protection period and are in the public domain. The company will work to ensure they remain that way.

Civica Rx will draw on the collective volume of commitments from its member health care organizations to serve the public good. It will initially focus on 14 hospital-administered generic drugs and expects to have its first products on the market this year.

Shortly after the launch of Civica Rx in September 2018, more than 120 health organizations that represent about one-third of the nation’s hospitals contacted the company and expressed their commitment to the venture or interest in participating with it. Civica Rx is also collaborating with the U.S. Department of Veterans Affairs, which could bring its considerable buying power to the table and would likewise benefit greatly from less-expensive generic medications.

The challenge is clear. Take the example of nitrofurantoin. Nostrum Laboratories raised the price of a bottle of the drug from $474.75 to $2,392, according to Elsevier’s Gold Standard Drug Database. In an interview, Nirmal Mulye, Nostrum’s chief executive, defended the quintupling of the price, saying, “We have to make money when we can. The price of iPhones goes up, the price of cars goes up, hotel rooms are very expensive.”

FDA Commissioner Scott Gottlieb responded on Twitter:

1/2 Regarding @FT story today @bydavidcrow; there’s no moral imperative to price gouge and take advantage of patients. FDA will continue to promote competition so speculators and those with no regard to public health consequences can’t take advantage of patients who need medicine

— Scott Gottlieb, M.D. (@SGottliebFDA) September 11, 2018

In 2015, Turing bought the rights to Daraprim, the trade name of generic pyrimethamine, and raised its price from $13.50 a pill to $750, which boosted the cost of a normal course of treatment from about $1,350 to $75,000. An internal Intermountain Healthcare analysis indicated that a not-for-profit manufacturer can produce and sell pyrimethamine for $3.50 per tablet, which is less than 0.5 percent of the price of Daraprim after it was acquired by Turing ($750) and 25 percent of the price before the acquisition ($13.75).

Two main things allow companies like Turing and Nostrum to jack up their prices: limited supplies of the drugs and the ease with which a pharmaceutical company with deep pockets can undercut anyone who’d consider investing in a competitor by drastically reducing the price long enough to put them out of business. Civica Rx’s not-for-profit model will correct that situation.

With the clout of its large volume commitments, Civica Rx is creating its own market. The participating institutions know how much of each medication they need, and have records that reveal it with great precision.

They also know what constitutes a reasonable cost. That means they can make commitments in advance to purchase specific amounts of medications from Civica Rx at predetermined prices long into the future. Not a penny of profit will be paid out. Any excess funds will be invested back into the organization to perpetuate its not-for-profit mission. Within three to five years, Civica Rx expects to offer its member hospitals up to 100 generic medicines.

The company will operate on a membership model, with several levels of membership that will allow access for all hospitals, regardless of size. Members will range from small community hospitals of fewer than two dozen beds to the largest hospital systems in the nation.

This membership system will ensure that Civica Rx’s long-term volume commitments will let it lock in prices that are both reasonable and transparent. The same price per unit will be offered to each hospital, and no hospital will be able to scoop up the supply.

Locking in prices will ensure stability and consistency in both drug availability and cost. It also allows Civica Rx to commit to supplying its partners with the volumes of medications they need over the long term. That’s the key to enabling the company to produce specific drugs. With many health systems working together, we have the capacity to inject competition into the generic drug marketplace, an injection that is long overdue.

Marc Harrison, M.D., is president and CEO of Intermountain Healthcare, based in Salt Lake City, a governing member of Civica Rx.