California Rx: State May Dive Into Generic Drug Market
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California Rx: State May Dive Into Generic Drug Market

(KHN illustration/Getty Images)

SACRAMENTO — California is poised to become the first state to develop its own line of generic drugs, targeting soaring drug prices and stepping into a fiercely competitive drug market dominated by deep-pocketed pharmaceutical companies.

The Democratic-controlled legislature overwhelmingly approved a measure Monday that would direct the state’s top health agency to partner with one or more drug companies by January to make or distribute a broad range of generic or biosimilar drugs — including the diabetes medicine insulin — that are cheaper than brand-name products.

The bill, SB-852, also opens the door for California to make its own generic drugs in the future.

Gov. Gavin Newsom will have until Sept. 30 to sign or veto the measure.

“People need these drugs, but prices are through the roof, so we’re saying there’s a role for the state to bring prices down,” said the bill’s author, state Sen. Richard Pan (D-Sacramento).

He argued the measure is more important than ever because COVID-19 has exposed “glaring gaps” in the ability of public and private entities — from major hospitals to government drug purchasers — to maintain adequate supplies of drugs, medical equipment and devices.

“This also creates a model to address drug shortages and other supply chain issues during COVID and future pandemics,” he said.

Newsom, a Democrat, floated his own generic drug proposal in January as part of his broader drug agenda to reduce pharmaceutical costs, but was forced to abandon his plan in May as he and lawmakers sought to address a pandemic-induced $54 billion budget deficit.

Though it could take years to successfully bring a new California generic product to the market, the move would put the nation’s most populous state in direct competition with major generic and brand-name drug manufacturers that dominate the market, and potentially allow California to use its massive purchasing power to drive down drug prices.

“Other legislative efforts in Congress and in other states have focused on government negotiating with pharmaceutical companies to lower prices on generic drugs,” said Edwin Park, research professor at the Health Policy Institute at Georgetown University.

The Pharmaceutical Research and Manufacturers of America, which represents brand-name drugmakers, has taken a neutral position on the bill and declined to comment.

But Brett Michelin, lead lobbyist for the Washington, D.C.-based trade group that represents generic drugmakers, the Association for Accessible Medicines, said generic companies aren’t threatened by the possibility of California entering the market — and even welcome it.

“Generic manufacturers are more than open to doing this kind of partnership,” Michelin said. “I think having a fair and open process to sell drugs and compete for customers is what the generic industry is very used to and comfortable with.”

Under the measure, state-developed generics would be “widely” available to public and private purchasers within California. Taxpayers would pick up the costs, roughly $1 million to $2 million in startup funding, plus ongoing staff costs estimated in the low hundreds of thousands of dollars annually, according to a state fiscal analysis.

It’s unclear which drugs the state would make or procure, though it would target drugs that could produce the biggest cost savings for the state and consumers.

But the bill specifically calls for the production of “at least one form of insulin, provided that a viable pathway for manufacturing a more affordable form of insulin exists at a price that results in savings.”

Insulin is a biologic drug, made with living cells. Once a biologic hits the market, rival copycat products that follow are called biosimilars.

Three major drug companies — Eli Lilly and Co., Sanofi and Novo Nordisk — have long controlled the lucrative insulin market in the U.S. The state of California would be the first entity to produce a biosimilar version of one of the newer, fast- and long-acting insulins on a not-for-profit basis, said Jane Horvath, a health policy consultant in Washington, D.C.

Although it would be costly and could take years, the Utah-based nonprofit drug company Civica Rx, which has consulted with Pan on his bill, is discussing partnering with California to produce generic or biosimilar drugs. It has already hammered out deals with major health systems running short on critical drugs, including the Department of Veterans Affairs, and is producing lower-cost generics for insurers, including Blue Shield of California.

“There’s no doubt insulin would be a more complex and expensive drug to develop, but it’s certainly possible,” said Allan Coukell, the company’s senior vice president of public policy. “We are watching how the biosimilar market develops.”

Patients who need insulin have faced huge cost spikes. A 2019 report by the Health Care Cost Institute concluded that average prices for insulin doubled from 2012 to 2016. And California health insurance regulators found last year that diabetes medications accounted for nine of the 25 costliest brand-name drugs sold in the state.

“It’s a big deal — diabetes affects a lot of people who rely on insulin for their very lives,” said Larry Levitt, executive vice president for health policy at the Kaiser Family Foundation. “And insulin has probably been the poster child for unreasonable drug pricing.” (Kaiser Health News, which produces California Healthline, is an editorially independent program of the foundation.)

Laura Marston, a Washington, D.C.-based lawyer and diabetic who advocates for lower insulin prices, said she’s excited about California’s idea.

Marston has been on the same insulin, Humalog, since 1996. At that time, the price was $21 a vial, but has since ballooned to more than $275 a vial, she said.

“If there was a lower-cost option and the price wasn’t going to be raised, I would absolutely switch from Humalog,” she said. “I feel held totally hostage to these pharmaceutical companies.”

Marston said she’d like the federal government to do the same thing, “so it could apply to all patients.”

Congressional efforts to tackle rising prices for insulin and other drugs fizzled last year in the face of opposition from the influential pharmaceutical lobby. So states have increasingly sought ways to regulate a for-profit industry in which brand-name manufacturers hold near-monopoly power.

Colorado last year became the first state to cap out-of-pocket insulin costs at $100 for a 30-day supply. It was followed by at least nine other states, from New Mexico to New York, whose cost-sharing caps vary.

California had already capped out-of-pocket drug costs at $250 to $500 for a 30-day supply, but a measure that would have lowered the cap for insulin to $100 a month stalled this year — a casualty of a pandemic-shortened legislative calendar.

Newsom’s office declined to comment on the generic drug legislation. But recent changes to the proposal reflect direct negotiations with the administration, Pan’s office said.

Newsom spokesperson Jesse Melgar said in a statement that “the governor’s goal of a sustainable system of universal coverage has not changed and making prescription drugs affordable is one more step toward that goal.”

Should Newsom sign the bill into law, the state Health and Human Services Agency would have 18 months to identify a list of drugs the state could manufacture, with a report due to the legislature by July 2022. By July the following year, the state would be required to assess whether it can manufacture its own generics and biosimilars.

The bill calls for state health officials to prioritize development of generics for chronic and high-cost health conditions, and urges production of those that can be delivered through mail order.

California could emerge as a leader in the national drug debate, Levitt said.

“If California can pull it off, it would be a model for other states and federally,” he said. “For it to pull this off means it can be done at scale.”

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