▸ Launched: 2018
▸ Funding at launch: $100 million
▸ Mandate: To offer its members, a consortium of hospital networks, an affordable and stable supply of generic drugs
▸ Senior management: CEO Martin VanTrieste, previously chief quality officer at Amgen; Chief Quality and Regulatory Affairs Officer Donna Gulbinski, previously head of quality, manufacturing, and supply at Bristol-Myers Squibb; and Chief Business Development Officer Ned McCoy, previously director of IP strategy and licensing at Abbott Laboratories
▸ Hospital consortium: Catholic Health Initiatives, HCA Healthcare, Intermountain Healthcare, Mayo Clinic, Providence St. Joseph Health, SSM Health, and Trinity Health
▸ Philanthropic contributors: The Laura and John Arnold Foundation, the Peterson Center on Healthcare, and the Gary and Mary West Foundation
▸ Membership tiers: Governing members make a onetime donation of $10 million and have the most control over Civica’s mandate; founding members make a onetime donation of $5 million and get a say in what products will be made; partnering members pay $300 per licensed drug, a fee that is capped at $1 million.
▸ First goal: Make 14 generic products, largely hospital-administered drugs, in 2019
In 2015, Intermountain Healthcare executive Dan Liljenquist was reading about soaring prices for old generic drugs with disbelief. For several months, companies such as Valeant Pharmaceuticals (now Bausch Health) and Turing Pharmaceuticals—made famous by its villainous CEO Martin Shkreli—were making headlines by acquiring products that had long been off patent and instituting astronomical price hikes.
“When I saw Martin Shkreli come out and jack up the price of Daraprim by 5,000%, really, I was stunned,” Liljenquist recalls. “How could somebody corner the market so completely for a drug that had been on the market for decades?”
Liljenquist, chief strategy officer for the hospital chain, began contemplating ways to fix the broken system. He decided the market needed a generic-drug company that would operate like a public utility, with stakeholder buy-in that ensures patients have access to medicines at a fair price.
In September 2018, Intermountain and several partners launched Civica Rx. A nonprofit generic-drug company, it has seven governing members—health-care organizations that run roughly 500 hospitals in the US—and financial support from three philanthropies. It’s also actively recruiting more hospital systems to join. All members can buy its products at the same affordable prices—prices that its leaders say will be set with transparency.
Civica has set the ambitious goal of launching its first products next year. They will be a critical test for members that have bought in to the model. “They’re giving us lots of money on a promise that we’re going to fix the system,” says CEO Martin VanTrieste, a former Amgen manufacturing executive who came out of retirement to help get the nonprofit running.
Experts are intrigued by the concept. Although much ink has been spilled over the high price of innovative new drugs for cancer and rare diseases, “the vast majority of the drugs we use in a hospital setting and outside are generics,” points out Amitabh Chandra, director of health policy research at the Harvard Kennedy School of Government.
In the case of smaller-volume generics, “we have a terrible situation” in which a few companies with near monopolies charge exorbitant prices on drugs that have come off patent, Chandra says. These are drugs “where society has paid off its debt,” and they should be cheap and widely available, he adds.
Over the past decade, about 200 products have spent time on the US Food and Drug Administration’s drug shortage list. As VanTrieste explains, most of them are old, often injectable, products that need to be made under highly stringent conditions.
“The economic model for these very old sterile injectables is broken,” VanTrieste says, and everyone in the supply chain—from the manufacturer to the hospitals—shares the blame.
He describes a vicious cycle: In their push to control health-care costs, hospitals drive down the prices of older medicines. Critical suppliers, no longer able to turn a profit, drop out of the market. Suddenly, the supply chain is fragile. Shortages can occur easily, allowing prices to skyrocket. After the run-up, new players emerge, and prices start to fall again.
To illustrate the phenomenon, VanTrieste and Liljenquist point to isoproterenol, a decades-old drug used to maintain heart rhythm. After competition drove the drug’s price to as low as $20 per vial, most manufacturers left the business, leaving just one player: Marathon Pharmaceuticals. Valeant bought Marathon and proceeded to jack up the drug’s price to nearly $1,800 per vial “because they could,” Liljenquist says.
That price hike, and others like it, became the subject of a congressional investigation in 2015, but public scrutiny hasn’t fixed the underlying problems in the generic-drug market. “Rather than having a nice, flat, stable demand curve in the supply chain, you have a sine wave where it goes up and down in terms of price, and up and down in terms of shortages,” VanTrieste explains.
Civica’s plan is to inject certainty into the market by setting—and sticking to—a fair, sustainable price for the medicines it produces. A lot of VanTrieste’s time is spent educating new Civica members about what such a price might be. For a product like isoproterenol, he says, “it’s not $2, but it’s not $2,000.”
The nonprofit plans to roll out its first 14 products in 2019. Although VanTrieste declines to identify specific drugs, he says they are primarily sterile injectables that have been on the market for decades.
Liljenquist says he had expected that getting its members to agree on what to make would take some time, but “it really took just an hour in the afternoon of one of our first meetings.” And although Civica will initially pursue the hundreds of drugs that hospitals are struggling to get, its “goal is to move past just inpatient” products to also offer medicines taken at home, he adds.
Health policy experts are encouraged by the concept but wonder how traditional generic-drug manufacturers will respond to Civica’s first products. “Will they just cut their price?” Harvard’s Chandra asks. If that happens, the venture’s viability is threatened.
The solution, Civica executives argue, is to require a long-term commitment from its members, who can opt in to each product the company manufactures at a set price. When a hospital system opts in to a drug, it must agree to buy at least half its annual volume from the nonprofit.
In turn, Civica will use that multiyear commitment to convince prospective manufacturing partners to sign on for the long haul. For the typical generic drug, anywhere from four to seven companies hold a manufacturing license, but often only one or two are actually producing it.
Civica believes it can entice some of those other companies back into the market. “The best thing for a manufacturer is certainty,” VanTrieste says, “and they’re going to know for the next 10 years . . . they’re going to have guaranteed demand and margins.” And indeed, so far “everyone we have approached has agreed to work with us,” he says.
Those manufacturing partners are just one part of the nonprofit’s strategy to get a raft of affordable generic drugs to market. Civica will also develop its own abbreviated new drug applications—required for FDA approval to market a generic—and then enlist contract manufacturers to make them. It may also buy or build its own manufacturing capacity.
Developing redundant manufacturing capacity is critical, VanTrieste says. “We don’t want to depend on one supplier. We don’t want to become the problem we’re trying to solve.”
Buying or building could be a challenge, drug manufacturing experts caution. The US has plenty of injectable capacity, and developing product formulations is relatively straightforward, says James Bruno, president of the consulting firm Chemical and Pharmaceutical Solutions. But capacity to make oral-dose drugs is not as plentiful. “If they tried to buy, good luck,” Bruno says. “Ain’t a whole lot for sale right now of any real value.” Building a new facility, meanwhile, could take two to three years.
Still, many are eager to see what the nonprofit can pull off. When Stacie Dusetzina, a health policy professor at Vanderbilt University Medical Center, first heard about Civica, she had been arguing with a colleague and had said, “Maybe the government should start manufacturing drugs and just set a price,” she says. “I think this is a really interesting solution to a problem in the market.”
Dusetzina is eager to see if Civica can shift beyond hospital-administered generics to other drugs, such as specialty cancer treatments that have remained expensive even as generics entered the market. “If they go in that direction, how much traction can they get, and how disruptive can they be?” she asks.
Even if there are hiccups, the effort is laudable, Harvard’s Chandra says. “Someone is finally doing something sensible and serious about small-market generics,” he says. “It’s so important for patients that we’re actually doing something about it as opposed to just making noise.”