California Wants to Slash Insulin Prices by Becoming a Drugmaker. Can it Succeed?

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Yves here. I know I am preaching to the choir in saying this, but this still needs to be said regularly: It’s a disgrace that the US does nothing to stop price gouging for insulin, a old, essential treatment that is sold for a fraction of the US price all over the world.

By Angela Hart, Senior Correspondent at Kaiser Health News, has won awards for her work on homelessness, public health, and the covid-19 pandemic. Previously, she worked for Politico and The Sacramento Bee. Originally published at Kaiser Health News

California is diving into the prescription drug business, attempting to achieve what no other state has done: produce its own brand of generic insulin and sell it at below-market prices to people with diabetes like Sabrina Caudillo.

Caudillo said she feels like a “prisoner” to the three major pharmaceutical companies that control the price of insulin, which ranges from $300 to $400 per vial without insurance. The price Caudillo paid in 2017, when she was diagnosed, is etched into her memory: $274.

“I remember crying my eyes out at CVS and realizing it’s going to be like this for the rest of my life,” said Caudillo, 24, a college student who lives in La Puente, in Southern California. She now has insurance that covers the entire cost of the lifesaving drug but still has trouble affording her insulin supplies and paying the monthly premium for her plan.

“This disease is really expensive, and I’m barely making it every month,” Caudillo said.

Gov. Gavin Newsom’s administration said roughly 4 million Californians have been diagnosed with diabetes, a disease that can destroy organs, steal eyesight, and lead to amputations if it’s not controlled. One in 4 people who have diabetes and rely on insulin cannot afford it, forcing many to ration or forgo the drug, the administration added.

Newsom is asking state lawmakers to pump $100 million into an ambitious initiative to launch California’s generic drug label, CalRx, and begin producing insulin in the next few years, said Alex Stack, a Newsom spokesperson. The state is also working to identify other generic drugs it could bring to market, targeting those that are expensive or in short supply.

To start, the goal is to dramatically slash insulin prices and make it available to “millions of Californians” via pharmacies, retail stores, and mail order, said Dr. Mark Ghaly, secretary of the California Health and Human Services Agency.

But state health officials are still negotiating a contract with a drug manufacturer to make and distribute insulin and have not answered key questions such as how cheaply insulin could be produced and what patients would pay. To be successful, California — and the company it partners with — must navigate a complicated pharmaceutical distribution system that relies not only on drug manufacturers but also middleman companies that work hand in hand with health insurers. Those companies, known as pharmacy benefit managers, negotiate with manufacturers on behalf of insurers for rebates and discounts on drugs — but insurers don’t always pass those savings on to consumers.

“Insulin has long epitomized the market failures that plague the pharmaceutical industry, which have resulted in keeping insulin prices high,” Vishaal Pegany, assistant secretary of the Health and Human Services Agency, told lawmakers in May. He argued that high prices “have directly harmed Californians.”

Newsom said in early May that disrupting monopolistic drug prices requires state intervention and that California can pull it off because the state — with 40 million residents — “has market power.”

But the nonpartisan Legislative Analyst’s Office questioned whether California can produce its own drugs and achieve lower insulin prices. Luke Koushmaro, a senior fiscal and policy analyst with the office, warned at a legislative hearing in May that the effort could be hampered by “considerable uncertainties” — a sentiment echoed by some Democratic lawmakers.

The Newsom administration thinks state-made insulin could cut some insurers’ spending on the drug as much as 70% — savings it hopes would trickle down to consumers. But “there is no guarantee” that the administration’s predictions of dramatic savings or wide distribution of insulin will materialize, state Assembly member Blanca Rubio (D-Baldwin Park) said at the hearing. “Who is going to write the prescriptions for this magic insulin?” she asked. “Hope is not a strategy. I’m not hearing any strategies as to how this is going to become available.”

The price of insulin has soared in recent years. A 2021 U.S. Senate investigation found that the price of a long-acting insulin pen made by Novo Nordisk jumped 52% from 2014 to 2019 and that the price of a rapid-acting pen from Sanofi shot up about 70%. The investigation implicated drug manufacturers and pharmacy benefit managers in the increases, saying they perpetuated artificially high insulin prices.

“Insulin manufacturers lit the fuse on skyrocketing prices by matching each other’s price increases step for step rather than competing to lower them, while PBMs, acting as middlemen for insurers, fanned the flames to take a bigger cut of the secret rebates and hidden fees they negotiate,” U.S. Sen. Ron Wyden (D-Ore.) said when the report was released.

Contacted by KHN for comment, the trade associations that represent brand-name drugmakers, pharmacy benefit managers, and California health insurers blamed one another for the increase in prices.

Under Newsom’s plan, generic forms of insulin — known as “biosimilars” because they are made with living cells and mimic brand-name drugs on the market — would be widely available to insured and uninsured Californians.

If Newsom’s $100 million initiative is approved by lawmakers this summer, the state would use that money to contract with an established drugmaker to begin supplying CalRx insulin while the state constructs its own manufacturing facility, also in partnership with a drugmaker.

The administration is currently negotiating with drug companies that can produce a reliable supply of insulin under a no-bid contract, but no partnership has been formalized. The insulin would be branded with images associated with the state, such as the “California Golden Bear.” And, Pegany said, the packaging could boast that the lower-priced insulin was brought to patients by state government.

“There’s a short list of people who would even compete for this,” Ghaly told KHN in May. “We’re going to put together competition and get a partner we think is going to deliver not just the soonest, but something that we think is sustainable.”

On the short list is Civica Rx, a nonprofit drugmaker based in Utah. Civica announced independently in March that it was preparing to produce biosimilar insulin — exactly what California is seeking. The FDA last year approved the first biosimilar, interchangeable insulin product, and Civica plans to make three types of generic insulin to compete with the brand-name versions made by Eli Lilly and Co., Sanofi, and Novo Nordisk.

Allan Coukell, Civica’s senior vice president of public policy, told KHN that the drugmaker has had discussions with the Newsom administration and is in talks with other states.

Civica aims to market insulin for close to the cost of making it, rather than charging markups and making profits, he said. Coukell said the company plans to bring biosimilar insulin to the market for roughly $30 per vial and $55 for a box of five pen cartridges.

Coukell acknowledged that Civica may have to work with pharmacy benefit managers, which also help health insurers determine which drugs they will cover, to distribute the medicine but doesn’t expect that to cause a big price increase. “Our goal is to make these insulins available to any American who needs them,” Coukell said. “Our goal is to have market impact, not market share.”

The state has had discussions with other companies, including celebrity investor Mark Cuban’s for-profit drug company, the Mark Cuban Cost Plus Drug Company. It is building its own manufacturing plant, like Civica, but for now sells drugs online to anyone at wholesale cost plus a 15% markup. Founder Dr. Alex Oshmyansky said that the company’s talks with California fizzled out early on but that he’d be open to future discussions. Cuban is the chief investor in the company, Oshmyansky said.

“America is the wealthiest country in the history of human civilization, so for our citizens to not be able to afford medications, including insulin, due to market manipulations is terrible,” Oshmyansky said.

For people with diabetes like Caudillo, relief can’t come fast enough. She stockpiles insulin in case she can no longer afford health insurance and donates extra to other people in need.

“I know how expensive it is when you aren’t covered, and if you don’t pay that money, you’re going to be in the hospital fighting for your life,” she said. “Your body goes into decay, and your organs slowly shut down. It’s very painful. No diabetic should have to go through that.”

KHN senior correspondent Samantha Young contributed to this report.

This story was produced by KHN, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.

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  1. Samuel Conner

    One wonders where the humanitarian NGOs are on this whole subject of outrageously priced ‘old medicines’.

    I would think that some public-spirited retired pharma process engineers could easily crowd-source funding to create a non-for-profit production company to make generics.

    1. Matthew G. Saroff

      The humanitarian NGOs are fine with the status quo.

      They get donations from big pharma (vigorish), and they get to play the hero when big pharma makes a small contribution of their drugs, and they get hired to distribute it.

  2. Louis Fyne

    Normally I am pro-onshoring, but not with these actors. the State of California should not touch anything related to manufacturing, particularly drugs. Just directly import everything from India or China.

    Sacramento has the anti-Midas effect, it is incompetent (see LA-SF rail). Any gradiose long-term visions, get bogged in political quicksands (see LA-SF rail). The only winners are contractors (see LA-SF rail).

    Feature, not a bug. See oligarchic-like gripe that a few insiders have on the entire state government, tracing all the way back to the Leland Stanford days.

    CA is too corrupt and too big to governn. in a perfect world, California really ought to be 3 distinct states.

    1. Carolinian

      Don’t many of our drugs come from China and India anyway–only it’s the drug companies that are sourcing them there rather than the government?

      From a cui bono standpoint it’s hard to see why any of the existing US players would cooperate since they are the ones profiting from the gouge. The insurance companies profit from a situation that pushes normally healthy young people into paying premiums. The notorious benefit mangers profit from the rake off. Physicians themselves are often players in the high priced drug racket. And most of all our politicians and their supporting media are highly involved with the drug lobby.

      For those of us not up to speed on this are there national laws that would prevent California from simply importing cheaper drugs?

      1. EB

        Insulin is a drug that can be produced cheaply anywhere. Novo Nordisk, a biotech from Denmark, was the first to produce Human insulin produced in genetically modified E. coli nearly 40 years ago. This brought down the cost of production enormously. Since then, the process has been optimized even further, meaning that production costs have gone down even further over the years. One production facility can produce literally tons of insulin per year. In summary, even if you produce insulin in high wage countries, you can still produce insulin very cheaply. One solution for states or countries would be to buy insulin directly from a pharmaceutical company that produces generic drugs and insulin is a generic drug.

  3. William Beyer

    I recently found out about a great aunt I never knew I had, one of 13 children of my great grandparents, five of whom were dead of diabetes before their 26th birthdays. Alice had great hope when insulin first became commercially available in rural Wisconsin around 1921, and she learned to inject herself at home every day. After five years she broke down crying, realizing that she would never be able to afford to live on her own because the drug consumed her entire earnings. She simply gave up, refusing to take her insulin, and died after a short period in the bed my father was born in a week later. A century later, price-gouging for insulin should be a criminal act, punishable by death.

    1. Janie

      Your story makes me think about the continuity of national characteristics. It’s the same sad, oughtta-be criminal, story we hear today. Why is that? Is it baked into our national psyche? Is there such a thing? Is Russia today similar to Russia under the tsars? France, or England? Makes my head hurt; maybe I’ll go back to bed.

  4. H. Alexander Ivey

    The government does not need ‘market power’ They are the government, they can put people in jail and take their money, just ‘cos.

    No need to build factories and negotiate with patents. Just tell the SOBs this is your price. Give it or no more state of California Drivers License for you.

  5. jefemt

    Crackpot thought from bumphuc flyover before the coffee kicks in, but:

    -substitution of alternative goods/ services by self-serving opportunistic competitors kicks in when price escalation creates demand destruction for the endangered unaffordable mainstay.
    Implication that there is elasticity of demand, people can and will go without, or find a cheaper satisfactory subsitute.

    “essentials’ (where do we draw the line?) like Utility functions, in theory health care and attendant medicines that our fellow human beans need- are in a different class.

    Oil will be a daunting outlier and crack-up point— might start the next Civil War… anyway…

    Heavily regulated, price controlled from the top down (not a popular posture in the age of PMC Markets above all else…) ie California buys direct from India or China and becomes the supplier…

    OR, Nationalized basic industry (we cannot afford to produce anything here in our over-priced US economy)
    Might we be able to , if there are no share-holder pressures to grow, and make a beyond-reasonable return on investment? View Insulin production, and the people that do it, with a different econometric—pay a fair living wage and benefit package, but don’t pay 5% of the employees 800x that of the folks doing the work? The math might actually work, maybe we can produce goods and services in the US if we get back to highly regulated Utilities and proscribed profits, as there used to be when Corporations were NOT people, and their profit margins were very carefully monitored, and corporate charters were very carefully measured and not granted willy nilly by simply paying a fee or two to create and register.

    We’ve come a long way, baby!!

    Maybe we are entering into the beginning stirrings of the anti-monopoloy Trust busting reaction late 1800-early 20th century?

    It sure ain’t gonna be supported by Elon, Jeff or Bill… they apparently simply cannot be sated.

    And the Squad, who might advocate for such a change—despite rumors to the contrary– hold control of what arithmetically is perhaps 2% of Congressional votes at most.

    I dunno, no matter the subject, I tend to see a dark future looming…

    Is it age and changing perceptions, or is it facts on the ground?

  6. Hayek's Heelbiter

    We must never, never forget.

    When inventor Frederick Banting discovered insulin in 1923, he refused to put his name on the patent. He felt it was unethical for a doctor to profit from a discovery that would save lives. Banting’s co-inventors, James Collip and Charles Best, sold the insulin patent to the University of Toronto for a mere $1. They wanted everyone who needed their medication to be able to afford it.

  7. Susan the other

    How do we make the “Market” free from manipulation. Only by government intervention. Is this irony? The usual ploy for PPPs to succeed is some kind of toll. But if PPPs are not really partnerships but instead are state funded, then there’s no incentive to profiteer. So California should not be calling this a “partnership.” It should be called “state-owned” – a medical utility of sorts. It can be called anything California wants to call it. There should be no difficulty distributing affordable insulin to people. Mail-order works; maybe a new distribution center. The complaints about California being too corrupt to take on Pharma is nonsense. Corruption happens. So does honesty, and good sense. If California does go into a contract with a pharmaceutical manufacturer, then California will be able to control prices. Heaven forbid. That means California will control profits. But one thing is very interesting about this whole turn of events and it is that a non-profit is going to succeed at manufacturing affordable insulin and will achieve good revenue for its efforts. I do believe there is a much deeper and more profound message here about “the market.” Something like the market can function full-well without profits. Gasp.

  8. divadab

    Canada used to have a government-owned Crown Corporation that produced insulin – Connaught Laboratories. It was sold off by Reagan pal Brian Mulroney’s neo-liberal wrecking crew to a foreign pharmaceutical company.

    Just consider this – Banting and Best, who invented and patented the production of insulin, donated their patents to the University of Toronto because they saw this as an essential to humanity, not a source of personal wealth. Great men.

    Of course, to the corrupt neo-liberal breakers like Mulroney, who never made anything in their lives but profits for themselves and their croneys, Banting and Best were fools. Because personal profit is the only principle greedy self-dealing scum like Mulroney recognize. People like Mulroney are simply unable to understand people who act on selfless principle because they never would, are actually incapable of it.

  9. Tom Stone

    Since the rest of California’s Government is like CalPers only worse I know which side of this bet I’d take.
    And the Eastern span of the Bay Bridge is a better example CA corruption, that puppy got milked for decades,it cost more than 8 x the estimate and the build quality is so shoddy that it is less safe than the structure it replaced.
    Did I mention that the maintenance costs are going be a large multiple of the original estimate (Poor build quality) and that the estimated lifespan of the new structure is optimistic?
    REALLY optimistic given the likelihood of the Hayward fault letting go.

  10. Michael Mck

    Seeing as California has a budget surplus I (a Californian) would rather they built or (bought) a publicly owned pharma factory with insulin as the first product. Of course instead we talk of hiring a bit of the excess capacity of the industry that is the problem (though Civica Rx seems groovy), or importing cheaply from abroad (fragile long supply chain).
    PBMs certainly need to be bypassed, could it be legal to send Californian insulin straight to the patient? Tom and Louis’s points above about the track record of Californian projects are valid but I see that as a product of the corporate capture of government.
    I will take Louis’s ideal of California as 3 states one farther and suggest it leave the USA entirely

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