State of California and Others to Manufacture Generic Drugs

In a bid to lower drug prices in California, Governor Gavin Newsom has proposed that the state of California create its own generic drug label and enter into partnerships to have generic drugs manufactured on behalf of the state.  The details are located in the new proposed budget: http://www.ebudget.ca.gov/2020-21/pdf/BudgetSummary/HealthandHumanServices.pdf.
  

A group of health insurers in the United States also plan to manufacture generic drugs:

The Blue Cross Blue Shield Association (BCBSA), 18 independent and locally-operated Blue Cross and Blue Shield (BCBS) companies and Civica Rx (Civica, Inc.) announced today their partnership to create a new subsidiary dedicated to lowering the cost of select generic drugs. The subsidiary is being formed in response to the impact of high drug costs on the health of Americans and the overall affordability of health care. Other health plans, employers, retail partners and health care innovators who share the belief that patients and their needs come first are invited to join the initiative.

“We believe everyone should have access to health care, no matter who they are or where they live,” said Scott P. Serota, president and CEO of BCBSA. “Through this partnership, we will push toward the vital objective of providing greater access to much-needed medications.  As BCBS companies and Civica embark on this important work, we hope others will join us to achieve the change Americans want to see in the health care system.”

 Bringing together the brand that invented health insurance more than 90 years ago and an innovative nonprofit company that has already seen success helping to stabilize drug supplies within hospitals, the groundbreaking partnership between BCBS companies and Civica will expand on Civica’s mission by focusing on the affordability of generic medications outside of the hospital setting. 

BCBS companies have decades of collective experience providing health insurance to members in every ZIP code across the country. As champions of health care affordability, the Blue companies continue to drive solutions that will increase access and improve health for their members and for the health of all Americans.

Nonprofit Civica was formed in 2018 by three philanthropies and numerous health care organizations in an effort to combat drug shortages and price spikes in hospitals. 

“Civica’s mission is to make quality medicines available and affordable to everyone,” said Martin VanTrieste, Civica president and CEO. “Serving patients is our privilege and our responsibility—one that we are proud to share with BCBS companies who are committed to tackling one of the most important health care challenges of our time. Numerous studies confirm that medication costs can dictate whether individuals fill or ration their generic prescriptions. Together with BCBS companies, we are taking action to put patients first.” 

In the partnership, BCBSA and BCBS companies are committing the capital to bring select high-cost generic drugs to market for consumers. The subsidiary will acquire and develop Abbreviated New Drug Applications (ANDAs) for select generic drugs and partner with Civica and manufacturing partners to bring more affordable generic drugs to uncompetitive markets in exchange for aggregated volume and multiyear purchasing commitments. Initially, several generic medications identified as having high potential for savings will be prioritized by the partnership and will evolve into a platform that can be used to enhance competition for additional generic drugs.

This partnership will result in meaningful savings for individuals and families, with the first generic medications becoming available by early 2022. The new partners welcome further participation from others in the health care industry who are united with their goal of promoting competition to spur production of affordable, quality medications.

“Civica is already bringing value—in quality, supply and price—to the in-patient hospital market and with BCBS will expand that mission to reach individuals and families buying generic prescriptions in hospitals and pharmacies,” said Dan Liljenquist, Civica board chairman. “Combining Civica’s mission with the commitment BCBS companies show to their members places us in a position to make a significant impact on lowering drug costs.” 

More information is available, here. 

The parlous state of national champions: the sagging fortunes of Teva

One of the darker aspects of hi-tech is the fate of national champions in smaller countries. When we say "fate", we typically mean the rise and fall of such companies in the face of global competitors from the U.S. Nokia in Finland and Nortel in Canada come to mind, both world class competitors, at least for a while, and in Nokia's case, the world leader in an earlier generation of cell phones. To this list the name of the Israeli company Teva Pharmaceutical Industries should be added; in some ways, Teva's story may be the most emotional of all.

For readers who might not be familiar with Teva, the company became the world's largest producer of generic drugs and the undisputed national hi tech champion of Israel. Unlike so many of the vaunted Israeli start-ups that have gone from creation to exit in less than a decade, leaving their founders with millions, if not hundreds of millions of dollars, but adding little to the overall macro-employment situation in Israel, Teva maintained (either organically or by acquisition) multiple plants in Israel, as well as keeping the company an Israeli entity with its headquarters in a suburb of Tel-Aviv. Yet, on December 14th, the company (with a new CEO, Kåre Schultz, formerly of Novo Nordisk) announced that it would eliminate a quarter of its employees world-wide, including 1,700 in Israel.

This number may not seem like the cause for national economic mourning, but in the Israeli context, there is no other way to describe the impact of the cut-backs on the national psyche. The New York Times (" 'Nobody Thought It Would Come to This': Drug Maker Teva Faces a Crisis", December 17, 2017) described Teva as the "corporate version of a national celebrity", the one genuine instance of a home-grown company that became a world leader in its field. Indeed, there are few pension funds in the country that do not hold Teva stock, such that it became, again, in the words of The New York Times, "the people's stock".

It is the company’s long-time roots in the country that strike a particular chord, dating back to the early 20th century, when the predecessor to what is now Teva began to distribute--via camels and donkeys-- drugs and like products in what was then Turkish Palestine. This blogger recalls being told the story of those early days by a third-generation descendant of founders, a source of continuing family pride, but a story also recounted fondly by broader swathes of the Israeli population.

But behind this romanticism is a medium-sized pharmaceutical company, by international standards, which had everything go right for it— for a while. In the 1960's, certain national legislation enabled the company to enter the market for generic drugs and hone the management and execution skills needed to successfully compete in this market. At that time, the company was blessed with a larger-than-life chief executive, Eli Hurvitz, who drove the company's international expansion in the area of generics while continuing to keep the company Israeli-focused to the extent possible throughout his tenure at the company (he retired as CEO in 2002). This included establishing plants in the country's periphery, long a backwater in the country's economy. Further, the company enjoyed oversized success as a patent licensee (from the Weizmann Institute of Science in Israel) of the branded drug—COPAXONE, used to treat multiple sclerosis, the sales of which came to constitute nearly 40% of the company's operating profits in some years.

So what happened? First, starting in about 2010, the economics of the generic drug market significantly changed, especially in the U.S., where large retail pharmacy chains joined with so-called pharmacy-benefit managers to create purchasing giants with the market power to force down prices. With margins narrowing as a result, Teva, at least with respect to the plants in Israel, found itself in an inferior position vis a vis competitors in lower cost countries, both from established generic competitors in India and more recently in China.

Second, the company is facing a patent cliff regarding the COPAXONE product: the brand name is not likely to be of commercial consequence post-patent as competitors enter with lower-cost alternatives. Teva thereby faces the double whammy of not having a proprietary block-buster product to replace COPAXONE plus a declining competitive position in the generic market.

Third, the company's declining fortunes in the generic drug area was exacerbated as a result of its acquisition in 2015 of the Actavis generic products division from Allergen. The purchase price was $40.5 billion. Debate in the Israeli business press has raged over whether Teva overpaid at the time, given the state of the generics market, or whether the wisdom of hindsight rules. Whatever is correct, the company has $35 billion in debt and is facing a cash squeeze. Cutting costs is the only short-term strategy. The announced restructuring is expected to save the company $3 billion by 2019.

This blogger previously discussed ("When a company's future is caught in the generic drug/proprietary drug crosshairs") the particular challenge of a pharmaceutical company of the size of Teva, with 2016 revenues in the amount of $21.9 billion, and a market capitalization that has declined nearly $20 billion during 2017. How to right the ship with respect to its generic products, while also ramping up the necessary R&D to support a viable proprietary drug business, is daunting for even the largest pharmaceutical company. However Teva responds to this challenge, it is difficult to imagine that it will keep its status within Israel as the undisputed national industrial champion. There is no one else to replace it.

By Neil Wilkof