As the chief executive of Phlow, the new company awarded $354 million by the federal government this week to make generics that are in short supply during the pandemic, Eric Edwards maintains his business is a public benefit corporation. Besides generating a profit, Phlow is supposed to serve a greater good.
But in his last role in the pharmaceutical industry, Edwards fell short of benefiting the public, at least according to a U.S. Senate subcommittee report released in 2018. Kaleo, a company Edwards founded with his twin brother, jacked up the price of its Evzio opioid overdose antidote by more than 600% between 2014 and 2017, which cost U.S. taxpayers more than $142 million.
And in a bid to build market share and generate publicity, Kaleo donated more than 300,000 units of Evzio to police officers, health workers, and nonprofit groups as the opioid crisis took off in 2015. The move managed to draw praise from President Trump. But last year, several law enforcement agencies complained they received units that were anywhere from four to 11 months away from expiration.
The company also drew the attention of Sen. Chuck Grassley (R-Iowa), who launched a probe into Kaleo in 2017 after the company charged $4,500 for its rival to the EpiPen allergic reaction device. The price was part of a complicated strategy some called a Rube Goldberg scheme, because most insured consumers paid nothing, but insurers picked up the bill. Grassley was concerned Kaleo was shifting the burden and cost to others in the health care system.
There is no suggestion that anything illegal occurred. Unlike some generic drug makers, Kaleo was never charged with price gouging, for instance. But the various moves occurred at a time when overdose deaths from opioids were accelerating. For this reason, the episodes raise questions about why the Trump administration tapped Edwards for such a crucial effort.
“Maybe this company is the best one for the job, but it does raise eyebrows,” said Holly Fernandez Lynch, an assistant professor of medical ethics at the Perelman School of Medicine at the University of Pennsylvania. “One would hope that CEOs who behave in a way that is not in the public interest are not rewarded by the federal government a couple of years later.”
Edwards, who is a doctor, was not available for comment, but a spokesman for Phlow, which is based in Richmond, Va., wrote us that Edwards left Kaleo “on good terms more than a year ago and had no oversight of drug pricing during the end of his tenure.” Later, the spokesman reached out to amend the earlier statement to say that Edwards did not oversee pricing decisions at all.
[UPDATE: Later, a spokeswoman for the Department of Health and Human Services wrote to say that, in response to its CoronaWatch program, “Phlow was the only company to present an end-to-end solution” for addressing approaches to continuous manufacturing, near-term shortages of medicines caused by Covid-19 hospitalizations, and increasing domestic manufacturing of APIs” and other materials. But she did not address any questions about Edwards or his track record at Kaleo.]
The contract, which can be extended up to a total of $812 million over 10 years, was awarded as the federal government grapples with ways to combat drug shortages.
Over the past several weeks, hospitals across the U.S. suffered shortages of medicines needed for patients who are placed on ventilators. These included more than a dozen sedatives, anesthetics, painkillers, and muscle relaxants, prompting the Food and Drug Administration and the Drug Enforcement Administration to scramble to alleviate the problem.
There is also growing concern about supplies of pharmaceutical ingredients used in many generic medicines, in particular, since China dominates this market. China is now home to 13% of all facilities that make ingredients for medicines that are sold in the U.S., according to the FDA. And roughly 80% of active ingredients used by commercial sources to produce finished drugs come from China, but also other countries, notably India, according to a U.S. Defense Health Agency official, who noted “dependence on Chinese sources is increasing.”
In general, though, drug shortages have been a problem for years as some manufacturers halt production due either to diminishing profits or manufacturing issues. Two years ago, the issue prompted a group of large U.S. hospital systems and philanthropic foundations to form a nonprofit called Civica Rx to contract with manufacturers to ensure sufficient supplies.
In fact, Civica Rx chief executive officer Martin Van Trieste is on the Phlow board. Van Trieste, a former Amgen (AMGN) executive, did not directly address questions about Edwards or his background, but did send us a note saying he is “confident” that Phlow will be able to produce American-made ingredients at a competitive while using the latest technology.
“I’ve been saying for some time that we need long-term focus and coordinated efforts between U.S. government agencies and the private sector to bolster a geographically diverse and secure supply chain, with an immediate emphasis on creating more generic pharmaceutical manufacturing capability in the U.S.,” he wrote us. Van Trieste also maintained this would give Civica Rx a boost.
His participation was apparently seen as a plus by HHS. The agency spokeswoman wrote us that Phlow was also appealing because the company “put together a very experienced team of established partners.” Besides Edwards, the management team includes former executives from Teva Pharmaceutical and Pfizer. Phlow also has strategic partnerships with Civica Rx, Ampac Fine Chemicals, and Medicines for All, a nonprofit arm of Virginia Commonwealth University. Another Phlow board member is Rosemary Gibson, a health adviser at the Hastings Center, who has written – and warned – about the reliance of the U.S. pharmaceutical supply chain on China.
The contract drew praise from Tom Kraus, vice president of government relations at the American Society of Health-System Pharmacists, who suggested the arrangement “has the potential to be a game changer that could significantly strengthen the U.S. drug supply chain and relieve many of the factors that contribute to drug shortages.”
But one consumer advocate, Margarida Jorge, campaign director for Lower Drug Prices Now, slammed the decision.
“This White House seems to have an open spigot of taxpayer dollars going to drug corporations that profiteer off pandemics. They’re gearing up to give the largest award in history to a corporate executive who quintupled the price of (an overdose antidote) in the middle of the opioid epidemic,” she said. “Yet again, the administration is handing over taxpayer dollars to a drug corporation with no strings attached and no guarantee that we’ll get affordable access to the medicines developed with our money.”
[This post was corrected to note that 80% of APIs are made not only in China, but also other countries, including India.]