Civica Rx Seeks to Disrupt Generic Drug Market

The search for the solution to increasing prescription drug costs is ongoing, with organizations like ecommerce giant Amazon acquiring a digital pharmacy start-up or insurance giant Anthem Inc. throwing their hat into the PBM ring.

Now there’s Civica Rx, a nonprofit generic drug company backed by seven hospital systems and three philanthropic groups.

The new drug company will be their attempt at controlling drug costs and making drugs more affordable and accessible. It has identified 14 hospital-administered generic drugs initially, and it expects to have its first products in the market as early as 2019, according to a Civica Rx press release.

There is potential for Civica Rx to impact employers. “The question gets down to, have the hospitals experiencing these price hikes been passing those costs on to the employer through their medical carrier?” said Craig Oberg, managing consultant at the Burchfield Group, which was acquired by Aon late last year.

If they have been passing along those costs, they then can stabilize the supply chain and manage costs more effectively, he said. It all comes down to how it’s being managed today.

The more generic drugs available, the lower the cost of drugs, and both consumers and employers would benefit, said Arthur “Abbie” N. Leibowitz, chief medical officer, founder and president emeritus at Health Advocate, a national health advocacy, patient advocacy and assistance company. That being said, starting a drug company from scratch requires a lot of work and funding before they will be ready to produce, sell and distribute generic prescription medications.

There’s an extensive development an approval process for drugs, and considering the time it would take to get a new drug on the market, other generic companies could already be creating cheaper versions of competing generics, Leibowitz said.

“Will a startup really be able to compete on price with a well-established generic drug manufacturer? It remains to be seen,” Leibowitz said.

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Cheryl Larson, president and CEO of the Midwest Business Group on Health, was more optimistic.

“Civica Rx has the potential to cause prices for certain generic drug categories to decline by creating competition and eliminating the ability for generic manufacturers to play a short-term pricing war to drive them out of business — a game that has served them well in the past,” she said. Their requirement for hospitals to make a long-term commitment to purchase through Civica Rx was smart, she added.

A potential challenge for Civica Rx is if drug manufacturers monopolize the elements it would need to create the 14 generics they’ve identified, she said.

“We hope the marketplace is not so perverse they would lock out competition at this level. If the reported 120 companies that contacted Civica Rx sign on for the deal, it’s hard to imagine their strategy will not be successful,” she said. “There is power in numbers.”

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One important subtext within the announcement is that generics are the cheaper alternative to brand prescriptions, but that’s not always true, according to David Henka, president and CEO of ActiveRADAR. Since there’s no price regulation for pharmaceuticals in the U.S., the pricing changes on almost a daily basis. Someone looking for something to help lower their cholesterol, for example, might find that on a given day the branded drug is cheaper than the generic.

“It’s not the same old story that generics are the least expensive drugs,” Henka said. “It’s looking at it from a holistic standpoint, having the analytical capability to evaluate the pharma landscape and determine which drugs are therapeutically equivalent and which drugs are the lowest price within those categories.”

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The question for employers is, how will they negotiate with their current PBM to purchase generics at a lower price, Henka said. With multiple generic sources, the prices of those generics fluctuate based on contractual relationships these plans have with the PBM.

Civica Rx is “going in the right direction, but I don’t know if it will create enough momentum to change the space,” Henka said.

Another unknown is how generic manufacturers will respond to the creation of a hospital-owned drug company, according to Oberg. There could be a situation where Civica Rx can use this as a negotiating chip. That is, it could negotiate an exclusive supplier arrangement with some generic manufacturer and guarantee and price and a supply.

“If this consortium of hospitals can do that, that might actually meet their goal of both stability and pricing transparency. That’s my guess, but we’ll wait and see,” Oberg said.