High prices & shortages targets of new nonprofit drug company

By Brice Wallace

Sometimes, companies create buzz by getting a new name. Or a new CEO. Or more partners. Or expecting eventually to have hundreds of employees. Or by announcing their plans to shake up an industry.

A not-for-profit company spearheaded by Intermountain Healthcare has done each of those.{mprestriction ids="1,3"}

Intermountain and other hospital groups have formed Civica Rx, a company that will produce generic drugs that currently are manufactured by only a few companies that, according to Civica Rx leaders, are manipulating supply in order to cause shortages and raise prices for hospitals and ultimately their patients. The costs of some generic drugs have risen more than 1,000 percent in just a few months “for seemingly no reason,” said Dr. Marc Harrison, Intermountain Healthcare CEO and president. “We believe this is wrong.”

The new company — organized as a Delaware nonstock, not-for-profit corporation and based in Utah — will address “unwarranted shortages and high costs of life-saving generic medications,” Harrison said. “It will be based in Utah, and we believe that it will eventually result in hundreds of new jobs in our economy.”

Working with “reputable” manufacturing partners, Civica Rx will initially focus on producing 14 hospital-administered generic drugs, with the first being ready in 2019.

“We believe that generic drug prices can be reduced to a fraction of their current costs, saving patients — and this is really all about patients, folks — hundreds of millions of dollars a year,” Harrison said during a news conference unveiling Civica Rx. “What you see here today is a free-market solution to a social ill that has been created by individuals who have perverted an industry. We aim to fix that.”

Citing competitive reasons, Harrison declined to identify the 14 drugs.

“Generic drug manufacturers who are honorable, who do not create shortages and who do not gouge prices, have absolutely nothing to worry about, and they know who they are,” he said. “Conversely, the folks who are perverting the system, they know exactly who they are and they should be very concerned.”

Since plans for the company were announced in January, organizers have been contacted by more than 120 healthcare systems in the U.S., representing more than one-third of U.S. hospitals, expressing interest in participating in the new company. Initial governing members include organizations representing more than 500 hospitals. Three major philanthropies will also be governing members.

Dan Liljenquist, senior vice president and chief strategy officer at Intermountain, said the drugs would be available to any organization, with everyone getting the same price and same access. “And nobody will own this business,” he said. “Not a penny of profit will be paid out of this business, ever, to any member or any other entity, for that matter.”

“We envision society owning this business,” Harrison added.

Liljenquist said it only takes one generic company, if it is acting without a profit motive, to lower the prices and make the market stable. “People could do this today,” he said. “It’s just that they’re acting on behalf of shareholders, who have an incentive to profit as much as they can.”

Liljenquist said the Civica Rx approach is “as much about access than the prices.” Consolidations in the industry have left it with one or two producers of the drugs.

“If we don’t have them, people die, so we scramble every day to find these drugs and end up not only with stress and potential patient harm, but also very high prices,” he said. “And that is not how a market works. … Knowing that we would buy those drugs today and tomorrow and 20 years from now, we thought, there’s got to be a better way.”

Civica Rx will need to be a self-sustaining business but will have only enough margin to continue to operate and move on to other drugs, he said. While Civica Rx will begin with hospital-administered drugs, its mission will be “to ensure that all essential generics will be available and affordable to everyone,” he said.

Harrison said Civica Rx hopes to prove its concept and have enough success to force “those few bad actors clean up their act” and make it so that Civica Rx doesn’t have to work down a long drug list — the 14 drugs were narrowed from a group of 200. “Our goal is not to have the largest top-line revenue. Our goal is to eliminate these shortages and make drugs affordable to people. That’s all,” Harrison said.

Martin VanTrieste, Civica Rx’s CEO and working for no pay, said he expects the company to be able to supply at least half of the hospital-administered generic drug market. “I think that drug shortages are the biggest scourge that our industry has created,” he said. “No patient, no family, should have to be concerned that their child can’t get the cancer drug that they need to live.”

While starting with “a small core” of employees — he listed six positions — the company will grow and hire as products are brought to the market. While Civica Rx will initially subcontract with manufacturing partners to get the drugs — which Civica Rx officials said are not difficult to manufacture and were developed decades ago — “as Civica develops, we’re going to look for [manufacturing] locations to build a site and Utah is clearly on that list,” said VanTrieste, former chief quality officer for pharmaceutical company Amgen.

The initial governing members list includes Catholic Health Initiatives, HCA Healthcare, Intermountain Healthcare, Mayo Clinic, Providence St. Joseph Health, SSM Health and Trinity Health. They will provide leadership for the Civica Rx board of directors and provide much of the initial capitalization for the company.

The U.S. Department of Veterans Affairs (VA) will also work in consultation with Civica Rx to address its particular needs.

The three major philanthropies that are governing members are the Laura and John Arnold Foundation, the Peterson Center on Healthcare, and the Gary and Mary West Foundation.{/mprestriction}