California has become the first state to implement a policy to produce and distribute its own drug products to help lower costs.
California Governor Gavin Newsom has signed into law legislation that will allow the state to produce and distribute its own line of biosimilars, biosimilar insulins, and generic drugs, with the aim of improving access for consumers and lowering prices.
“The cost of health care is way too high. Our bill will help inject competition back into the generic drug marketplace—taking pricing power away from big pharmaceutical companies and returning it to consumers,” Newsom said in a statement. “California is using our market power and our moral power to demand fairer prices for prescription drugs,” he said.
Anatomy of the Bill
Under the newly enacted law, SB-852, the California Health and Human Services Agency would be empowered to form partnerships with drug manufacturers and suppliers that would aid in producing and distributing biosimilars, generics, and insulin products to help lower drug costs and increase market competition.
California is the first state to have a provision to develop its own selection of lower-cost medications. The new law allows California to create its own drug label: Cal Rx.
According to CMS’ projections for national health expenditures, prescription drug expenditures for 2019 totaled $345.7 billion, an increase of 3.2% vs 2.5% the year earlier.
Specialty drugs, including reference biologics and biosimilars, are used by 2% of the US population; however, spending on them accounted for 47.7% of all spending on prescription drugs in 2019 compared with 44.7% in 2018. These totals demonstrate the rapid increase in the cost of these agents, according to a report from Express Scripts.
This legislation is timely because California and the rest of the nation are bracing for a potential second wave of coronavirus disease 2019 (COVID-19) cases, said the bill’s author, Senator Richard Pan, MD.
“SB-852 will not only open up access to affordable drugs for millions of Californians, it is more important than ever, as the COVID-19 crisis brought to light glaring gaps in supplies of essential, lifesaving drugs, and medical equipment and supplies," Pan said in a statement.
The legislation follows Newsom’s proposed health plan, presented in January 2020, intended to leverage California’s purchasing power to increase manufacturing of lower-cost medications to help improve drug affordability.
“Prescription drugs don’t work if people cannot afford them….The state can play a pivotal role in bringing prices down through this authority to negotiate a steady supply for all purchasers and an increase of competition in the drug markets,” said Pan.
A Law Expert’s Reaction
SB-852 puts California in competition with major biosimilar, generic, and reference product developers. However, in an interview with The Center for Biosimilars®, Stacie Ropka, PhD, an intellectual property law partner with Axinn, Veltrop and Harkrider, said she doesn’t expect there to be much backlash from these companies.
“Major manufacturing companies work with California. Right now, they work with end users in California with rebates and bundling to get some good prices,” she said. “It could be an opportunity for them as well.”
“[Reference product] companies that also make biosimilars face the same problem that a company that strictly makes biosimilars faces: you have to be able to market [the product], and you have to be able to get end users to accept it,” she added. “They may try and take advantage of bidding for California and getting themselves a nice contract with a guaranteed purchaser.”
If this law proves to be successful in lowering drug costs for California, Ropka said, it’s possible some other states will look into developing similar legislation.
“I would think that populous states like New York might want to take a look at this and decide if they would like to also become a buyer for these drugs and enter into agreements,” Ropka said.
For more perspective from the legal community on California’s drug market legislation, click here.
National health expenditure projections 2019-2028. CMS. 2020. Accessed September 29, 2020. cms.gov/files/document/nhe-projections-2019-2028-forecast-summary.pdf