A recent article in Bloomberg News discussed the new nonprofit firm, Civica Rx, and its goal to bring to the market some critical drugs that are in short supply, or that are too expensive. According to the article, the company has a three-pronged approach to delivering these drugs, including sourcing from manufacturers with patents on specific drugs; hiring Contract Manufacturing Organizations (CMOs) to produce them; and a more long-term goal is to manufacture their own. Through its lofty and much-needed initiative, Civica Rx highlights one of the most perplexing issues in the pharma industry today: how to provide ample supplies of critical drugs, and to do so cost effectively.
The reasons for dangerous shortages and high costs are numerous, but below are four key ones:
Product defects and recalls. Since the start of 2013, pharmaceutical companies based in the U.S. or abroad have recalled about 8,000 medicines, comprising billions of tablets, bottles and vials that have entered the U.S. These drugs have included critical drugs, such as heart medications, blood pressure meds and others. Not only do the recalls cause a shortage in the marketplace, but they can incur huge costs and a major loss of revenue for their manufacturers, who often ultimately increase prices to recoup losses and stay afloat.
Natural disasters. Manufacturing plants can be affected by storms, earthquakes and other weather events that can halt production of critical drugs and medical devices. Hurricane Maria, which destroyed many parts of Puerto Rico, is a prime example. Following the hurricane, there was a shortage of Saline IV bags, among other drugs, because power was not reliably restored, workers were displaced and firms were struggling to survive. Many manufacturers had to limit shipments, and the shortages continued months after the initial impact of the disaster.
Heightened M&A activity. Mergers and acquisitions in the pharma space have picked up recently, with deals such as the acquisition of Shire by Japanese pharma firm, Takeda; and GlaxoSmithKline’s planned acquisition of Novartis. This type or activity is causing industry consolidation, and creating fewer, yet larger suppliers who set market prices because they own the monopoly.
Quality problems. While not always leading to product recalls, heighted scrutiny by the FDA and government agencies around the world are making it more difficult and costly for firms to bring products to market. In some cases, it can be decades before a drug is commercialized. When quality issues are raised – whether in the plant, among equipment or in materials – costly delays can result, creating a rippling effect across the industry.
The idea behind Civica Rx’s plan to encourage greater competition and more options for health systems is to become a marketplace. It will essentially become the middleman between hospitals and drug makers to source the best options and increase supply, by enabling healthy competition and avoid sole-source deals, where certain manufacturers have been the preferred vendors for health systems.
Outsourcing to CDMOs
While Civica Rx’s current efforts are focused on working with suppliers that own rights to approved drugs but have not marketed them because they have been unprofitable, a second key strategy is to work with Contract Development and Manufacturing Organizations (CDMOs) to more quickly and efficiently manufacture them. CDMOs can help them accomplish this task for the following reasons:
CDMOs have ready-made resources. CDMOs have already invested in the infrastructure, plant equipment, and expertise required to manufacture quality drugs and Active Pharmaceutical Ingredients (APIs). In addition, to meet strict GMP requirements, companies need to invest in quality control, quality analytics, testing, cleaning protocols and numerous other requirements. It would not be reasonable for a company like Civica Rx to invest in this infrastructure because of the high costs to do so for perhaps a single drug. CDMOs are structured to use this equipment over and over for multiple sponsors so the costs are shared, and infrastructure is available immediately.
Large pharma firms are not as agile. Large pharmaceutical firms simply cannot move as swiftly as smaller, more agile firms. Complex reporting requirements, audits, processes and protocols make most projects move slower and more bureaucratically. For this reason, CDMOs can accomplish the same work in a fraction of the time, because they are not bogged down in paper work and strict board-enforced requirements.
CDMOs bring best practices to bear. CDMOs are in the business of producing APIs and other new chemical entities for a variety of drugs. They’ve addressed a myriad of challenges and helped numerous companies commercialize their products. Their libraries of best practices and lessons learned alone can help to minimize the risk associated with new drug manufacturing.
It’s clear that Civica Rx is on the right track, making bold moves to bring more life-saving drugs to the people that need them most. By becoming a marketplace of sorts, and working with API manufacturers, it can remove 20 to 30 percent of the cost of API development; and, it can bypass distributors to cut costs even further. Many a pharma supplier has stopped selling certain drugs – especially those with a very narrow base of patients, simply because the costs to develop them make them unprofitable. By figuring out a way to make it worthwhile for manufacturers to develop these drugs again at a profit, life-saving drugs will be more readily available.
Civica Rx is certainly on to something, and hopefully the rest of the industry follows suit – It would mean greater supply of critical drugs at more affordable costs. It’s simply a question of thinking out of the box about how products are manufactured and distributed.