California, Other States and Organizations Develop Schemes to Enter Generic Market and Drive Down Prices

Drugs pills money

Generic drugs and their biologic cousins, biosimilars, are viewed as a way to drive down the costs of drugs and provide savings to consumers and healthcare providers. The State of California is considering a measure to sell its own brand of generic drugs in an effort to get in on those cost-savings.

California’s Gov. Gavin Newsom is expected to reveal the scheme today in his new state budget. Newson’s office has released the broad outlines of the plan, which would have the state contracting with one or more generic drug companies to manufacture specific prescriptions under the state’s label. They would then be sold to Californians at a lower cost.

“It’s an interesting idea without there being any specifics,” Craig Garthwaite, director of the healthcare program at Northwestern University’s Kellogg School of Management, told the Los Angeles Times. “The question is: What is the goal? Is it to decrease aggregate spending on drugs or fix market failures?”

The California plan is the first state-run generic program to date, although there are a number of other state-related plans as well as federal programs and healthcare organizations looking at ways of getting into the generic market.

At the federal level, much of the most recent efforts have been on allowing consumers to buy drugs legally from Canada. In addition to the announcement of a notice of proposed rulemaking (NPRM), the administration announced the availability of a new draft guidance for the biopharma industry that laid out procedures they can follow to facilitate importation of prescription drugs, including biologics that are FDA approved, manufactured outside the U.S., and authorized for sale in any foreign country, and were originally intended to be marketed in that country.

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In October 2019, the FDA announced that its efforts to increase drug competition via generic drugs had resulted in a record number of generic drug approvals this year. For fiscal year 2019, the agency reported 1,171 generic drug approvals, 935 of them full approvals and 236 tentative approvals. This is up from last year’s all-time record of 971 generic drug approvals.

That announcement came only a day after it was reported that Teva Pharmaceuticals was discontinuing manufacture of its generic version of vincristine, a chemotherapy drug vital to the treatment of childhood cancers, including leukemias, lymphomas and brain tumors. In this case, Pfizer manufactures the only branded version of the chemotherapy agent, which has physicians worried this will result in shortages.

The Center for Biosimilars noted, “Such care interruptions have become more common, due to shortages of older, off-patent drugs and insufficient generic competition. Besides creating patient care issues, the shortages also limit potential cost savings.”

Perhaps the most interesting and successful effort has been Civica Rx, which was launched in January 2018 by five healthcare systems as a not-for-profit generic drug company. The companies were the U.S. Department of Veterans Affairs (VA), Intermountain Healthcare, Ascension, SSM Health and Trinity Health. Since then, more than 1,000 hospitals in 46 states joined Civica Rx.

Civica Rx was to initially focus on establishing price transparency and stable supplies of 14 generic drugs often used in hospitals. The idea was to depend on long-term contracts member organizations sign stating they will buy a fixed percentage of their drug volume from Civica Rx. One focus was on drugs that had a 50% or greater price increase between 2014 and 2016 and essential drugs that were on national shortage lists.

In May 2019, Civica Rx signed its first produce supply agreement with Copenhagen, Denmark-based Xellia Pharmaceuticals. Xellia will manufacture essential antibiotics, including Vancomycin and Daptomycin, for Civica’s members.

In July, Civica Rx announced a five-year deal with London, UK-based Hikma Pharmaceuticals to manufacture and supply Civica’s members with 14 sterile injectable drugs as a private label distributor. Hikma will also use its Abbreviated New Drug Applications (ANDAs) and Civica’s labeling and National Drug Code (NDC).

Hikma has a portfolio of more than 100 injectable drugs. It is the third largest supplier of generic injectables to the U.S.

Other states have made alliances with pharmaceutical companies to eradicate hepatitis C infections. These include AbbVie and the State of Washington, and Louisiana and Gilead Sciences subsidiary Asegua Therapeutics. However, partly because the bidding for these contracts remain confidential, critics are questioning the secrecy and whether these deals actually are financially beneficial.

The Louisiana deal, in what is being called a “Netflix model,” the (WSHCA) inked a contract with AbbVie with a goal of eliminating hepatitis C virus (HCV) in the state by 2030. AbbVie won the contract, but the price and details of the deals are confidential under the Washington state Public Records Act, as well as federal rules that hide drug prices related to them being company trade secrets.

Critics note that without transparency, it’s impossible to know whether this is a good public policy or just a great deal for drug companies. USA Today wrote that these deals could “primarily benefit manufacturers hoping to lock down payments of perhaps $10,000 per patient for drugs from Medicaid. The same drugs from the same manufacturers can cost less than $100 per course of treatment in other parts of the world.”

In terms of the California proposal, Gov. Newsom stated, “The cost of healthcare is just too damn high, and California is fighting back.”

Trish Riley, executive director of the National Academy for State Health Policy, told the Los Angeles Times, “Every state has been frustrated with high drug prices. They want to balance their budgets and these drug price spikes make it difficult. This could have a tremendous impact.”

Riley points out that although no other state has tried to cut out the supply chain for generic drugs, Civica Rx is a smaller-scale model California might emulate. “It’s an example of what aggressive purchasing can accomplish.”

Although details are still pending, that hasn’t stopped critics.

“Frankly, I think it’s a ludicrous proposal that demonstrates a profound misunderstanding of generic drug economics,” Adam Fein, chief executive of the Drug Channels Institute, told the Los Angeles Times. “It’s like saying you want to go to Post [Consumer Brands] for your Fruity Pebbles and open a supermarket to buy them. It doesn’t make sense.”

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