A New Business Model for Pharma?

Published on: 
Pharmaceutical Technology, Pharmaceutical Technology-02-02-2018, Volume 42, Issue 2
Pages: 10

Hospitals form not-for-profit drug company to combat drug shortages and high prices.

Frustrated by drug shortages and high costs, hospitals adopt a DIY approach. As a consumer, I get frustrated with the lack of service or skills offered by local business establishments. For example, the counter staff at the neighborhood franchise of a national coffee shop cannot master the skill of pouring coffee and milk into a cup without overfilling it or spilling it down the side of the container. Sometimes I need to remind them that the coffee should be hot.

Then, there is the bagger in the supermarket who likes to mix cans of soup and fresh tomatoes in the same bag. Fortunately, the store does not charge extra for the bruised produce.

In these situations, I want to grab the coffee or groceries and say: “just let me do it myself!”

This venting is a long introduction to a recent news story with a message for pharma. A consortium of four healthcare groups, citing frustration with ongoing shortages and high costs of generic medications, announced that they would form a not-for-profit generic drug company. The new company intends to provide patients “an affordable alternative to products from generic-drug companies whose capricious and unfair pricing practices are damaging the generic-drug market and hurting consumers,” according to a joint press statement.

The healthcare groups, Ascension, Intermountain Healthcare, SSM Health, and Trinity Health-working in consultation with the US Department of Veterans Affairs (VA)-represent more than 450 hospitals in the United States.

In announcing the new venture, the groups said they want to stabilize the supply of essential generic medications used in hospitals, many of which have been subject to chronic shortages; make drugs more affordable; and bring competition to the market for generic drugs. The founding members report that other health systems will soon join the initiative.

Drug shortages are a source of pain for hospitals. As of Jan. 23, 2018, FDA listed more than 80 drugs in shortage--including sterile water--and almost 125 as discontinued. Drug price hikes have been well documented. It is easy to understand the frustrations of the founding organizations and their desire to “do it themselves.” The execution of the plan, however, faces major hurdles.


The new, unnamed company plans to be an FDA-approved manufacturer or will sub-contract manufacturing to contract manufacturing organizations. At the time of the announcement, details about production facilities, the types of drugs to be manufactured, and other information were not available. The planning, development, construction, and validation of a manufacturing facility will be a lengthy, expensive process. One advantage the consortium will have over legacy facilities is access to newer technologies and processes for drug manufacturing, which could offer better production efficiencies.

An advisory committee from pharma, business, and government includes Madhu Balachandran, retired executive vice-president of global operations, Amgen; Martin VanTrieste, retired senior vice-president and chief quality officer, Amgen; Don Berwick, president emeritus and senior fellow, Institute for Healthcare Improvement and former CMS administrator; Clayton Christensen, professor at the Harvard Business School and founder of Innosight; Bob Kerrey, managing director, Allen & Company and former Nebraska governor, US senator, and pharmacist; and senior-level leaders from the organizations founding the company.

The initiative has lofty goals, framed around the need to serve patients. While some pharma manufacturers may shrug off this initiative as unachievable, impractical, or not a threat, they should consider the reasons behind the action: generic-drug manufacturers are failing to deliver quality drug products or are charging unaffordable prices. In other words, they are not serving patients, their customers.

Article Details

Pharmaceutical Technology
Vol. 42, No. 2
February 2018
Page: 10


When referring to this article, please cite it as R. Peters, " Finding the Right Mix for 2018 Bio/Pharma Success," Pharmaceutical Technology 42 (2) 2018.