3 Donors Back Effort to Keep Generic Drug Prices Low

Three nonprofits committed up to $30 million to the creation of a low-cost drug manufacturer that was launched today by a group of hospital systems frustrated by drug shortages and escalating drug prices.

The drug maker, called Civica Rx, is structured as a nonprofit. It will provide generic drugs to seven hospital systems, which run a total of about 500 hospitals in the United States.

The Laura and John Arnold Foundation, the Gary & Mary West Foundation, and the Peterson Center on Healthcare, a nonprofit created by the Peter G. Peterson Foundation, each contributed $1 million to Civica Rx. Each of the three grant makers has also committed up to $9 million in loans to the nonprofit, which plans to start offering drugs as early as next year.

The creation of a nonprofit drug manufacturer is “a constructive disruption in what is often a dysfunctional marketplace,” said Mark Miller, vice president for health care at the Arnold Foundation.

When drug patents expire, he explained, manufacturers often flock to produce generic versions. The increased competition can drive prices down, but in doing so, many of the generic manufacturers then seek profits elsewhere and quickly flee the market.

If a single producer is left, it can jack up the price as it sees fit. And if its factory runs into a glitch, it may fall behind on its orders, resulting in reduced patient care.

Sticking to the Mission

Civica Rx will be able to tap the lines of credit offered by the three nonprofits with below-market-rate interest payments and longer loan terms, Miller said. The hospital systems will cover the regulatory and production costs of up to 14 hospital-administered drugs that have fallen into short supply. The initial cash provided by the nonprofits will be used to reduce the price for poor and sick patients.

Representatives from Arnold, West, and the Peterson Center will have seats on Civica Rx’s board to make sure it sticks to its charitable mission, Miller said. Part of that is ensuring the cost of the drugs doesn’t spike.

“The prices of the drugs should cover the cost of production and whatever small increment is needed to keep the operation going,” he said. “Specifically, it is not to generate a profit.”