Can California Manufacture Its Own Insulin and Will Patients Benefit?

Five Questions for Four Experts

Not much has worked to stem the tide of the cost of insulin. The price has risen between a 5% and 16% since the turn of the century.

Officials in the state of California say they have had enough and intend to take matters into their own hands. They will attempt to produce insulin basically at or near cost. Last summer, Governor Gavin Newsom signed a budget that allocates $100 million to get the project off the ground in the first year. Half is allocated to develop and seek FDA approval for short- and long-acting insulins, and the other half to help support construction of a manufacturing facility. The state plans to partner with a private company—some are reporting that CivicaRx may get the nod. 

A health economist recently analyzed California’s plan and found the allocated funds are reasonable for the first year, and would lead to insulin being produced for between $78 and $133 per patient per year. We asked 4 experts to answer 5 questions about this endeavor. 

1. $100 million seems reasonable to get the initiative off the ground. However, given California’s fiscal history, do you think this has staying power? 

Charles Karnack, PharmD, BCNSP,  assistant professor of clinical pharmacy, Duquesne University, Pittsburgh, PA: With the backing of an established generic manufacturer, California should be able to pull this proposal off initially. When the public sees how successful this proposal can be, funding will be prioritized in the  state budget. 

Gary Owens, MD, president of Gary Owens Associates, Ocean View, DE: If the $100 million is adequate for the first year, then why not build in a small margin to generate revenue to cover future years to sustain the project? This takes some of the dependency away from state funding and the potential to lose or have that reduced.

F Randy Vogenberg, PhD, RPh, principal at the Institute for Integrated Healthcare, Greenville, SC: California has a lot on its agenda and tends to short the actual costs and implementation factors of initiatives. For ex ample, the California bullet train remains mired in debate with little to offer consumers after at least a decade of effort.  

Norm Smith, Principal, Payer Market Research: I do not believe California will run out of money for this project, given their positive cash flow due to the number of technology companies based in the state. But I agree with Dr Vogenberg—this project have financial challenges similar to the bullet train.

2. What do you think is the key to making the partnership model work?

Dr Owens: The key is to partner with a reliable generic manufacturer to produce and sell the product at cost or a little above. If the contract establishes that the dollars go to production and distribution and not to things like marketing, then it should work.

Dr Karnack: I agree. The key to is to partner with the right company. CivicaRx seems appropriate based on previous partnerships with health care systems, insurance providers and philanthropic foundations. Oversight by health care and fiscal authorities is also key. 

Dr Vogenberg: Regardless of who the partner is, underfunding a commercial effort to manufacture a biological seems like an effort doomed to fail. 

Mr Smith: A significant issue with diabetes is patient compliance. States could play a role in this area, but not with manufacturing a difficult to make product—and doing so effectively and efficiency. With that said, I think an established US-based partner such as [Eli] Lilly [and Company] would make sense, but I think Lilly is too smart to get involved. 

3. Potential roadblocks loom, including possible lawsuits brought by pharmaceutical companies and delays from pharmacy benefit managers (PBMs). Are these legitimate concerns? Would a cashpay option that bypasses all this be better? 

Dr Owens: Litigation is always possible, but might look bad in the public’s eye. I think PBMs would handle this like any generic and cover it. Cashpay will be an option for the uninsured, assuming the distribution system can be set up. I see no reason to take the cash route for those with insurance. 

Dr Karnack: I could see pharma bringing a lawsuit to slow things down. In my experience working in an ambulatory pharmacy next to an endocrinology clinic, cashpay is common. However even with these lower prices, many patients cannot pay cash for their basal bolus insulin regimens.  Help is often needed through government assistance or—as a last resort—hospital system philanthropic programs.  

Mr Smith: I don’t think the legal route is likely, but PBMs in particular will object because of the threat to their business model. Regarding cashpay, I’ll go a step further. I can see California attempting to give insulin away—if the state can get FDA approval. And that’s a big if. 

Dr Vogenberg: The roadblocks identified are legitimate and subversive to a patient-centered solution. Another roadblock is the patients’ ability to manage their own behaviors. And while some individuals need assistance with aspects of social determinants of health, studies show that human behavior is a key determinant in achieving positive and sustainable health outcomes.

4. It seems as if we come back to this question often. Even if California is able to pull this off, will any revenue loss by pharma companies and PBMs likely be made up by raising prices elsewhere? 

Dr Owens: That is likely to happen but it will still benefit the individuals with diabetes who depend upon insulin. 

Dr Karnack: Unfortunately, yes. The insulin cash cow would now be gone. However other prescription items will increase in price as much as allowed by law. 

Dr Vogenberg: PBMs have already moved to financial arbitrage, and pharma is moving elsewhere in their R&D and other investments. Be careful what you ask for. Despite good intentions, the law of unintended consequences comes into play. 

Mr Smith: I am not so sure this will be much of a factor. Pharmaceutical companies set individual product prices in the context of their product line. Insulin is not a major profit contributor for these companies.

5. What are the odds that California will be able to pull this off? 

Dr Owens: Initially, I was inclined to say it has a 50/50 chance of success. But upon further reflection, perhaps less than that due to complexity, the potential for litigation, and the current economic environment that may be moving into a recession.

Dr Karnack: Having a generic manufacturing plant in the West can be attractive since so many plants are located offshore or in the east. California may need special tax exemptions to make the location more attractive than other areas. Also, since the generic company may be a nonprofit or private-public partnership producing necessary, life-saving medications like insulin, there will be less shareholder pressure to produce dividends. Considering those factors, this has a decent chance to succeed. 

Dr Vogenberg: The short-term and long-term odds appear low to me. I don’t see this having a meaningful impact on individuals with insulin-dependent diabetes. 

Mr Smith: The odds as I see them are between slim and none, and slim just left the room.