Ringo Chiu/SOPA Images/Sipa USA via AP Images
California Gov. Gavin Newsom speaks about the state’s insulin partnership with Civica Rx after visiting a Kaiser Permanente warehouse in Downey, California, March 18, 2023.
Several months ago, California’s CalRx Biosimilar Insulin Initiative partnered with nonprofit generic drug producer Civica Rx to develop and manufacture insulin, a lifesaving drug for people with diabetes whose price has tripled in the last decade. The pair aim to sell their publicly backed brand across the country, including to people without insurance, at $30 a vial—a tenth of the price of some existing brands.
This innovative partnership leverages the unique strengths of governments and nonprofits when competing with corporate producers, and has the potential to make insulin more affordable and accessible to people whose lives depend on it. It has also prompted breathless anticipation among progressive onlookers about whether a public option for pharmaceutical manufacturing may be on the horizon.
But even as California is getting much of the credit, most of the heavy lifting of developing, manufacturing, and distributing low-cost insulin is coming from Civica, the nonprofit partner. Rather than showcasing the state’s strength, the CalRx initiative is exposing how underwhelming the resources available to the government currently are. If states like California are serious about stepping into the ring with the corporate heavyweights of the pharmaceutical industry, they are going to need one hell of a workout.
Wrestling Down Insulin Prices
The California legislature established the CalRx program at the Department of Health Care Access and Information (HCAI) in 2020, empowering it to develop, produce, and sell critical generic drugs at low prices. CalRx decided to start with insulin, given that the drug has grown so expensive that people have been risking their health and lives by rationing doses.
Regulators have been playing a game of whack-a-mole with insulin producers and insurers for years in an attempt to push prices down. The Biden administration’s Inflation Reduction Act (IRA), for example, set a $35 price cap on Medicare recipients’ monthly insulin expenses. More broadly, the 2021 American Rescue Plan forced manufacturers to lower some insulin list prices for all users, or face large penalties through the Medicaid rebate program. But much of the benefit to patients is coming from caps on co-payments, which doesn’t fully solve the problem. In his contentious veto of an insulin price cap on insurers, California Gov. Gavin Newsom argued that “with copay caps … the long-term costs are still passed down to consumers through higher premiums from health plans.”
Meanwhile, the Big Three insulin producers—Eli Lilly, Novo Nordisk, and Sanofi—control 90 percent of the global insulin market, which allows them to muscle out competitors. They continue to develop new, increasingly expensive brands of insulin, while limiting access to cheaper alternatives.
After the Big Three each announced price cuts on some insulin brands last March, T1International, an advocacy group for people with Type 1 diabetes, reported that Eli Lilly’s discounted $25 lispro remained largely unavailable in pharmacies, prompting a congressional report from three Democratic senators. Soon afterward, Novo Nordisk announced that they would discontinue U.S. sales of Levemir, mere months after advertising a 65 percent price cut for it.
“It’s like they take the PR win, and they say, ‘We’re lowering the price,’” observed Allison Hardt, community development director at T1International. “And then literally no one actually will be able to get that insulin, at all.”
“Ultimately the pharmaceutical companies have got a stranglehold on what’s really a very, very old medicine. And part of the reason for that is that there just isn’t public infrastructure or capacity to call that bluff on it,” said Nick Dearden, director of Global Justice Now and recent author of Pharmanomics: How Big Pharma Destroys Global Health. “We need to look at a fundamentally different way of producing our drugs.”
Rather than showcasing the state’s strength, the CalRx initiative is exposing how underwhelming the resources available to the government currently are.
Manufacturing insulin is more complicated and more expensive than producing a generic like aspirin, where the contents are identical whoever makes it. This is because insulin is a biologic drug, naturally produced by living organisms. To produce it, manufacturers must artificially replicate this biologic process.
The variations in how companies produce biologic drugs result in slight differences in each brand’s product, making new versions “biosimilar” to the original. These variations subject new biosimilars to additional regulatory scrutiny and fees before they are approved for public consumption.
Unfortunately for prospective competitors, even when a biosimilar drug patent has expired, details about incumbent producers’ manufacturing process remain protected indefinitely as a trade secret. Delivery technology such as pumps or pens, which are commonly required for biologics, must also be developed anew.
“If some hedge fund or some rich person wants to go through the process of developing a biosimilar … building manufacturing capacity, doing the work introducing it into the market, and negotiating with [pharmacy benefit managers], then that is an investment of millions of dollars,” explained Anthony Wright, executive director of Health Access, a California health care consumer advocacy coalition. To be exact, Civica estimates it will take over $200 million to bring three key insulin varieties to market, whereas developing new generics requires an average of $1 to $4 million.
Few for-profit companies are willing to risk this investment. “Incumbent manufacturers could undercut that investment at any time by taking their current high costs and just cutting the price,” Wright said. This tactic ensures that newcomers, who need higher prices to earn back all that they invested in developing their brand, will fail. Afterward, the incumbents, who had the entire duration of their patent-protected monopoly to recoup their initial R&D investment, can bring prices back to their monopoly high.
CalRx and Civica, by contrast, gain an advantage by being a not-for-profit initiative. Put simply, “we don’t have investors who need to get paid back,” explained Allan Coukell, Civica’s senior vice president for public policy.
Civica, founded in 2018, has been likened to a “health care utility.” It raises R&D funding from mission-aligned organizations like hospital systems, health insurance providers, and philanthropies—all of which want lower drug prices, often because they themselves pay the cost of exorbitantly priced medicines.
These partners do not expect Civica to return this funding, allowing the nonprofit to write off its R&D expenses. That done, they can set drug prices that simply cover production, distribution, and operations without adding a significant markup. “Our goal is to have market impact, not market share,” said Coukell. Getting incumbents to drop their price to protect their market share is, in fact, the mission.
With over 3.2 million people living with diabetes, California shares this mission to protect public welfare. In addition, through its Medi-Cal and CalPERS programs, California covers the medical costs of over 15 million people—including their insulin. Thus, whether Californians buy cheaper CalRx insulin, or whether brand-name insulin becomes cheaper to compete, both the state and its taxpayers benefit.
Finding a Spotting Partner
Though CalRx’s vision for lowering insulin prices is sound, the success of this strategy remains almost entirely dependent on Civica’s capabilities—including its funding, its market relationships, and its manufacturing infrastructure.
Civica launched its insulin initiative in March 2022 without any support from California. Although the state had already established CalRx by this point, and had expressed interest in producing their own insulin, “there was,” Coukell noted, “no certainty that that was going to come through.” Instead, Civica got financial backing from a range of allied corporations, diabetes stakeholder organizations, and philanthropies, including Arnold Ventures, Beyond Type 1, the Blue Cross Blue Shield Association, Kaiser Permanente, and Trinity Health.
Civica and CalRx didn’t announce their partnership until a year later, when CalRx agreed to give the entirety of its $50 million budget for developing insulin to Civica, making the state one of Civica’s largest funders. In exchange for CalRx’s investment, Civica’s insulin will now bear the CalRx label when sold in California.
It would have been arguably risky and difficult for California to act alone. “You need to go into this with some humility that this is not a small thing for a state to embark on,” noted Wright. “Even just to build state capacity and knowledge about this world, that will take some time.” And that would have delayed critical support to insulin users in the state.
However, Dana Brown, director of health and economy at The Democracy Collaborative, warns about the risks of California becoming overly dependent on Civica in the long term. “California is trying to do something path-breaking,” she said, but adds that there exist “limitations of this model of the state relying on a private, be it nonprofit contractor, to figure out all the details, when there are potentially other goals that state action could contribute to by, frankly, investing a bit more state infrastructure and capacity.”
Such concerns have found renewed salience after COVID vaccine manufacturers like Moderna quadrupled the price of these essential drugs, which they had only been able to produce thanks to billions of dollars in public spending and logistical support from Operation Warp Speed (OWS).
The potentially more transformative opportunity could come from investing in public manufacturing capacity.
Many experts lay partial blame for the price increases at the feet of the government agencies that failed to anticipate the consequences of privatizing publicly developed research and infrastructure. “Instead of leveraging the enormous public investment to facilitate fair vaccine prices over the long term … OWS deliberately disavowed these kinds of moves,” Amy Kapczynski, Reshma Ramachandran, and Christopher Morten wrote in Boston Review.
In contrast to OWS, CalRx “is shaping up to be a plan whereby the public sector is creating a market for a nonprofit rather than a for-profit,” said Brown.
Civica may be sincerely committed to the mission of lowing drug prices, but their nonprofit status is no guarantee that they will always uphold the broader public interest. After all, in other corners of the health care market, nonprofits are just as concerned with maximizing income as their for-profit counterparts.
In Civica’s case, the biggest risk of mission drift may come from their for-profit members, many of which contribute to systemically high health care costs, even as their pocketbooks make them strategic allies in the fight to lower drug prices.
Civica’s partnership with CalRx may help to keep the nonprofit aligned with the public interest over the long term. Through their insulin program contract, California gained two seats on the board of the Civica Foundation. CalRx also joins Civica in quarterly joint steering committee meetings to monitor the project’s progress and keep it aligned with public priorities.
T1International and other groups are pushing the state to go even further by creating a consumer advocacy council to advise CalRx on issues like the availability of its insulin in pharmacies.
Both Michigan and Maine are exploring opportunities to produce insulin, and are likely to face the same capacity constraints and dearth of potential partners that prompted California to work with Civica. “I’m not casting any aspersions,” noted Dearden in discussing Civica. However, he warned, “you don’t want to make that third party as big as some of the pharma giants today so that it starts behaving in a very different way in future.”
The CalRx-Civica partnership may thus represent a potentially groundbreaking experiment for bringing down generic and biosimilar drug prices—but to truly transform pharmaceutical market dynamics, more than one organization should be capable of implementing it. “If Civica is the only player, then that’s not quite achieving the goal of having it be more democratic, because then there’s only that one alternative,” noted Hardt.
Strength-Building Exercises
California appears to be considering ways to use its ten-year contract with Civica as an opportunity to learn how to build its own drug development, manufacturing, and marketing capacity. That includes understanding how to navigate the complex web of market relationships between drug manufacturers, insurers, and pharmacies, to accomplish the basic task of getting low-cost drugs in front of patients.
The first challenge facing CalRx is to ensure that pharmacy benefit managers (PBMs)—the intermediaries between drug manufacturers, insurers and pharmacies—do not restrict access to its insulin once it is ready for sale. PBMs like CVS Caremark determine which drugs get covered by insurance, which in turn shapes brands’ popularity with consumers. They often prefer when insurers pay for more expensive brands, even when cheaper alternatives exist, because drug manufacturers pay them fees based on insured drugs’ prices.
In 2020, for example, PBMs refused to add Semglee, a cheaper alternative to Sanofi’s Lantus brand, to their lists of insured insulin options. This forced Semglee’s manufacturers to relaunch a more expensive branded version to garner insurance coverage. The unbranded, cheaper version of Semglee still exists, but remains less popular since most major insurance plans do not cover it.
Unlike other drug manufacturers, CalRx and Civica are committed to ensuring that their insulin is available to everyone, irrespective of insurance coverage, at the same transparent price—denying PBMs an opportunity to collect high fees. The risk is that PBMs may retaliate, as they did with Semglee, by limiting the availability and popularity of the brand in their pharmacies, directing insured customers back to more expensive options.
If PBMs limit uptake of the cheaper CalRx brand for patients with insurance, they would ease the pressure that the Big Three would face to lower their prices in turn. CalRx might still be a public-health victory for increasing access to insulin for people who are under- or uninsured—but its market-wide impact would be muted.
As a public entity, however, CalRx has more options for circumventing PBMs. For example, they are considering distributing insulins through independent pharmacies or local grocery stores, developing direct-to-consumer channels such as online mail-order pharmacies, or partnering with public coverage programs like CalPERS.
Whether Californians buy cheaper CalRx insulin, or whether brand-name insulin becomes cheaper to compete, both the state and its taxpayers benefit.
California is also in discussion with other Western states about creating a public PBM that would offer more transparent pricing and be more accountable to the public than the existing companies. This proposal is still in its early stages, but would be a good complement to public drug manufacturing efforts.
Looking beyond the immediate implementation challenges, the potentially more transformative opportunity could come from investing in public manufacturing capacity. For example, CalRx received an additional $50 million from the California legislature to explore insulin manufacturing opportunities in the state.
Although CalRx has not yet decided how they will use this funding, it is clear that they are facing similar constraints to when they first started thinking about developing a new biosimilar brand. $50 million is not enough for CalRx to pay for their own manufacturing facility, and the state does not have existing capabilities that they can repurpose for this program. Instead, CalRx will again need a partner to provide the bulk of funding and manufacturing know-how.
Civica once again seems poised to be that partner of choice. The nonprofit recently invested $140 million into building a new fill/finish facility in Virginia, where they plan to compile CalRx insulin vials and injectable pens using active pharmaceutical ingredients (API) imported from India. “We would like to bring that manufacturing back to the U.S.,” said Coukell. “That’s where the second $50 million from California comes in. It would not by any means fully fund a drug substance facility, but it would be an important contribution.”
Civica is now working with the Governor’s Office of Business and Economic Development (GO-Biz) to help identify potential sites in California for insulin manufacturing, based on the availability of water, electricity, and a skilled workforce.
Even if it must work with a third party like Civica, this remains an opportunity to build public control over manufacturing infrastructure. Brown noted that “it could be a publicly owned factory, even if it’s a private contractor–operated factory, leaving more rights within the public sector to end a contract” if it ceases to align with public goals.
“It makes sense for the public to retain a certain degree of infrastructure in public hands,” agreed Dearden, especially “if what they want to do is to actually recreate this sector as opposed to simply bring the price of a single drug down.”
In particular, Dearden argues that public manufacturing infrastructure could limit the opportunities pharmaceutical companies have to create monopolies and raise prices in the first place. It would give smaller companies or university departments a choice to scale up an invention with a public institution, rather than Big Pharma.
“By creating an alternative,” Dearden noted, “you’re saying: Actually, there’s a whole route here from early research to getting this stuff to patients which doesn’t involve a bottleneck created by the pharmaceutical industry.”
As they ring in the new year, CalRx and Civica remain focused on the immediate challenges of unveiling a low-cost insulin brand that could offer immediate relief to millions of people in California and across the country. However, the true measure of their partnership—and of any additional collaborations with other states—will be whether the state can match its ambition to reshape pharmaceutical markets in the public interest.