The Promise of Non-Profit Drug Companies

With trust in pharmaceutical companies waning and drug prices climbing, it’s clear providers and patients are frustrated with drug manufacturers.  Out of this frustration, providers and philanthropists have banded together to form non-profit drug companies, which aim to deliver low-cost generics by eschewing the profit-driven focus of other drug makers and embracing a mission to make drugs accessible and affordable.  But in an industry dominated by for-profit players, do non-profit drug companies stand a chance at making a difference?

The Major Non-Profit Players

Over the past few years, a handful of non-profit companies have emerged. 

  • Civica Rx, the most prominent non-profit drug maker, formed in September 2018 when several major health systems teamed up to manufacture their own generics.  The company grew out of a need to bring competition to the pharmaceutical industry, with the hopes of reigning in high prices for generics.  Civica first began manufacturing two antibiotics in March 2019 and signed agreement to produce injectable medications later that year.  In January 2021, Civica announced plans to build a 120,000 square foot facility just south of Richmond, VA to produce sterile injectable drugs for hospitals.  Civica has also expanded into drug development – in  January 2020, it signed a deal with Thermo Fisher Scientific to develop and manufacture its own drugs.  The company also notably partnered with 18 Blue Cross and Blue Shield companies in January 2020 to form a new subsidy to reduce the cost of generics.
  • Phlow Pharmaceuticals formed in January 2020 to produce active pharmaceutical ingredients (APIs) used in drug manufacturing.  Beginning in May 2020, the federal government awarded Phlow a total of $812 million to manufacture medicines at risk of shortage, including medicines for the COVID-19 response.  Notably, Phlow partnered with Civica on the new facility near Richmond, VA.
  • Harm Reduction Therapeutics formed in 2017 with the goal of preventing opioid overdose deaths by bringing a low-cost, over-the-counter naloxone spray to market.  In June 2020, the company received $6.5 million in financial support from Purdue Pharma, which produces opioids for prescription use. 
  • Medicines360 formed in 2015 to develop and provide low-cost contraceptives to women.  In October 2019, the Food and Drug Administration (FDA) approved a hormonal intrauterine device (IUD) Medicines360 developed with Allergan that prevents pregnancy for six years, the longest approved duration for IUD use in the US.

Advantages of Non-Profit Drug Makers

When it comes to delivering lower-cost drugs, non-profit pharmaceutical companies have several advantages

  • Non-profit drug companies focus on generic drugs, meaning they are out of the patent protection period and in the public domain. 
  • Additionally, thanks to their non-profit model, these companies don’t need to raise prices to honor fiduciary obligations to shareholders.  Excess funds can also be invested back into the organization to enable it to continue its non-profit mission.
  • Civica specifically operates on a membership model for hospitals that allows the company to make long-term commitments to members at a fair price.  This arrangement also allows Civica to offer the same price per unit to each hospital member.

Challenges for Non-Profit Drug Makers

Success for non-profit drug companies is not guaranteed, and they face major obstacles to fulfilling their mission.

  • Despite financial assistance from philanthropy, grants, and other means, non-profit companies lack access to capital through multiple investment streams that for-profit companies can more readily access.  This leaves non-profits at a serious disadvantage when it comes to research and development, which involves raising large amounts of capital.
  • When it comes to certain rules and regulations, the non-profit status of companies like Civica doesn’t entitle them to many breaks or special treatment.  For instance, the FDA imposes user feels on all drug manufacturers, regardless of their status or mission. 
  • Some reimbursement and payment policies may present obstacles  for non-profits to offer lower prices, particularly Medicaid’s “best price” rule.  To remain sustainable, non-profit drug makers may offer higher prices for some purchasers while keeping prices low for uninsured or low-income patients.  By offering low prices to the aforementioned groups, non-profits would be required to offer the same low price across Medicaid. 

Will Non-Profit Drug Companies Make a Difference?

Non-profits like Civica Rx and Phlow are new entrants to the drug market, and only time will tell if their efforts will pay off in the form of lower drug prices.  However, non-profits could follow a few strategies to increase their odds of success.  While Civica Rx and Medicines360 have become involved in drug development, non-profit drug manufacturers would be better off focusing on generics given their disadvantage in research and development.  Additionally, non-profit drug makers could push for policy and regulatory changes to give them a more favorable position in the market, such as reducing or waiving user fees for non-profits, increasing price transparency, or creating an exemption under the Medicaid “best price” rule.

ICER’s Growing Influence on Drug Value

The Institute for Clinical and Economic Review (ICER) has grown to become a leading voice on drug pricing in the US.  As the emphasis on value in the US health care system and concern over high drug prices continues to grow, more stakeholders are likely to look to ICER for guidance on whether a drug is appropriately priced. 

ICER was founded in 2006 by Dr. Steve Pearson, an ethicist from Harvard Medical School, with the goal of improving value in health care.  One of the main ways ICER seeks to carry out this mission is by publishing reports on whether new drugs are cost-effective.  Using both economic and clinical evidence, ICER determines a “value-based price benchmark” for each drug it studies based on the based on how much a patient’s quality of life improves.   While ICER does take some membership-based funding from companies including CVS-Caremark and Pfizer, the organization does not accept funding to perform research on specific drugs or therapies. 

ICER’s influence began to grow in 2015 thanks to financial support from billionaire John Arnold, who provides the organization over two-thirds of its funding.  Now, the organization plays a critical role in driving the national conversation on drug prices and value.   Only a third of ICER’s reports have found a drug to be cost-effective and appropriately priced, and in response, many drug companies, payers, and providers have adopted some of the organization’s pricing recommendations.  For example:

  • CVS Health allows its commercial plan clients to exclude drugs from their formularies that fail to meet ICER’s cost benchmarks.
  • Novartis set the price of its gene therapy drug Zolgensma in line with ICER’s recommendations.
  • The Department of Veterans Affairs uses ICER drug assessment reports in drug coverage and price negotiations with the pharmaceutical industry.
  • ICER’s cost effectiveness reports on PSCK9 inhibitors, which are used to manage and prevent cardiovascular disease, drove annual list prices down from $14,600-$14,100 to $5,850.
  • A report by ICON plc found over a third of payers surveyed would be likely to request a rebate to match the net ICER cost-effective price.

ICER isn’t without criticism.  As a private organization, ICER has drawn concerns from patient advocates and physicians for its lack of oversight and regulations.  Additionally, the organization has faced pushback over the use of its quality-adjusted life years (QALYs) formula, which estimates a drug’s dollar benefit.  Some patient advocates say QALY determines costs in a discriminatory manner because the formula assigns individuals with a chronic condition or a disability with a lower value.  Notably, the federal government is prohibited from using QALYs to measure cost-effectiveness under the Affordable Care Act. 

In the future, Cost-effectiveness itself is a complicated concept in light of growing trends:  ICER could impact health care based on growing trends:

  • A heightened focus on health disparities could prompt ICER to review how different therapies affect certain demographic groups.
  • In the oft-chance the US adopts a public health insurance option or even a single-payer system, ICER could play a greater role in dictating cost-effectiveness.  For example, the United Kingdom-equivalent of ICER has significantly more clout in the country’s National Health Service. 
  • ICER may be forced to adjust its methodologies to address the growth of personalized medicines such as cell and gene therapies, which benefit a relatively limited number of individuals compared to therapies the organization has traditionally studied.

Furthermore, if the US adopts a public health insurance option or even a single-payer system, ICER could play an even greater role in drug coverage and pricing.  The United Kingdom-equivalent of ICER has direct decision-making authority within the country’s National Health Service.