Hospital-owned generics initiative unlikely to benefit the CMO industry

A recently-announced plan to establish a not-for-profit generic pharmaceutical company is unlikely to be a boon to the contract manufacturing organisation (CMO) industry, according to GlobalData, a data and analytics company

A consortium of five hospital organisations representing 450 hospitals aims to address the problem of needed medications that are in short supply or have undergone extraordinary price increases.

The consortium is led by Intermountain Healthcare and includes the US Department of Veterans Affairs’ Veterans Health Administration, SSM Health, Trinity Health and Ascension. The latter three are all Catholic not-for-profit healthcare systems. More hospital networks are expected to join the initiative.

Jim Miller, President and Founder of PharmSource, a GlobalData company, said: “Our initial reaction is that the group has some significant hurdles to overcome, the most serious of which is the manufacturing capacity to produce the drugs. Constraints on good manufacturing practices (GMP)-compliant capacity have been a significant contributor to the product shortages the new initiative seeks to address.”

Furthermore, the hospital-owned generics company will face a difficult decision: it can either build sophisticated procurement, quality assurance and distribution operations capable of creating and managing a global network of active pharmaceutical ingredient (API) and drug product suppliers, or it can build a manufacturing facility that will require a sizeable investment (easily $50 million at the scale they are addressing) and 3–5 years to complete.

Miller continues: “It’s also worth noting that none of the advisory committee members named in the hospital group’s press release has any significant generic industry experience. The committee includes two former Amgen executives, a former Medicare official, a management consultant, an investment banker and some hospital executives. One is led to question whether the group really understands what it is getting into.

“Until more details become available, we think it unlikely that this new initiative will be a benefit to the CMO industry. A more likely scenario, at least in the near term, is that the hospital group evolves into a purchasing consortium that negotiates contracts with existing generics companies guaranteeing pricing and volumes sufficient to maintain a stable supply of the products currently in short supply.”