The non-profit medical supply producing entity that hospitals and other purchasing bodies have set up is starting to ramp up initial production.
I’m thrilled to announce that Civica will partner with Xellia Pharmaceuticals to supply Vancomycin and Daptomycin, important and often life-saving antibiotics that have been in short supply in U.S. hospitals. Civica, and our member health systems, thank Xellia
— Martin G VanTrieste (@MgVantrieste) May 15, 2019
Does this matter as the following response asks?
Congrats, but so many questions: Why doesn’t xellia/novo just increase their supply of rx to the us market now? Will new supply of rx be made in China or us? What does it mean to ‘partner’? https://t.co/8fXTtvooON
— Rena Conti (@contirena1) May 15, 2019
I think it does matter. The goal of Civica is to bring down pricing on some drugs by being able to be a countervailing force in being even if not in actuality. We looked at this logic in the winter of 2018 as we went through the five pricing stories for drugs.
Story 3: Cheap generics get expensive fast — the Martin Shkreli story and the Epi-Pen story. Here the exploit is a lack generic manufacturers that can quickly shift to produce near substitutes. The time and cost of other manufacturers to set up a production line to make a cheap competitor won’t ever return a profit as the original manufacturer/distributor will drop prices to or below marginal cost as soon as they see a threat.
The recent agreement by a number of large hospitals to set up a non-profit generic manufacturer is a response to this story. The new entity would be willing to lose money to set up a production line for a generic drug that just saw its charged price increase by 1,000%. I think the entity’s leadership would be totally happy to certify the capability to get a few simple drugs and one complex generic approved as a demonstration of capability and then just use their capability as a looming threat to tamp down on these pump and dump schemes. That would be a stunning success even if the entity never ships a single pill for anything other than demonstration purposes.
Story 4: Short term price spikes for some generic drugs during shortages — this is a distinct story from number 3. There may be other manufacturers that are in the process of responding to a price signal to enter or expand production for a drug but it will take a while. The new entity could serve as a policy response here as a source of production reserves. Larger stockpiles and diversifying supply chains so that most of a particular drug is not made on a single hurricane prone island is another possible response.
As long as supply increases at lower net price point, Civica will have achieved its core objective. This objective is fairly insensitive to methods.