September 15, 2022
[00:01:00] Gary Bisbee, Ph.D.: What did the young Dan think about leadership?
[00:01:02] Dan Liljenquist: So Gary, I think I mentioned this before. I was born into a very large family. My parents had nine children and then adopted six boys. And so I was born right in the middle of seventh of 15 children. So I grew up with a very dynamic environment and I learned in that environment, a lot of very intelligent people. You gotta work with the group to get them to go anywhere. And I loved my experience growing up. I loved my family. We’re all really close, but I learned early on group dynamics and how to operating in a group and how to move people along. And that served me well, I think in politics and other areas of my life.
[00:01:41] Gary Bisbee, Ph.D.: When did you pick up your interest in healthcare?
[00:01:43] Dan Liljenquist: My dad is a, is an endocrinologist. I was actually born in Nashville. He was a professor of medicine at Vanderbilt, but moved back to Idaho where my mother was from. And because he had two nephews and a niece with type one diabetes and nobody to care for them. And so my dad wanted to start his practice. He wanted to be close to home so he could care for his two nephews and a niece and then built a practice in I Idaho Falls. And my brother now is an endocrinologist, a brother-in-law’s an internal medicine doctor up there practices, another brother’s an orthopedic surgeon. So I’ve been around medicine a lot in my life.
[00:02:16] Gary Bisbee, Ph.D.: What led to envisioning Civica RX, which is a heavy lift, any way you look at that?
[00:02:23] Dan Liljenquist: When I left the legislature and I lost my race I had a local news paper come to me and say, The largest new newspaper in Utah, will you write a weekly column for the paper? And by the way, we’re not gonna pay you to do it. It’s gonna be voluntary. And so the editor’s a really good friend. And I said, I’ll do it. I’ll try it. So I began writing a column in late 2012 and, weekly calm road, over 200 columns. But in January of 2016, when Martin Shkreli, the pharma bro, took Daraprim, captured it, raised the price by 5000%. I’m an econ guy of heart. I’m a free market guy. I want the markets to work and it bothered me that he was out there saying this is just capitalism. This is how capitalism works. There’s no morality to it. And that bothered me. And then six months later I was writing about EpiPen and it was a similar thing. And I realized, these are drugs that have been on the market for years. How does a company corner those and then rip off patients and hurt people. And again, the comment was, this is how our system works. And I said that shouldn’t be how it works. And so I just was started thinking in the summer of 2016. Why are they allowed to do this? Meaning what are the market forces that are allowing this to happen? And Gary, came really down to three things. They can only do this when there’s inelastic demand for a product. Meaning you don’t get the product you die, right? You couldn’t do this with candy bars. They can do this with insulin. They can do this with EpiPen and with Daraprim. And then I thought there’s obviously economies of scale and manufacturing, and that’s a big part of this. The third component was I realized that in some of these markets, only one manufacturer was required to meet the market demand. And so when you have those three factors in elastic, demand economies with scale, and you only need one manufacturer. Trying to bring competition, it’s really hard if you’ve got double the manufacturing capacity for the competition that the closest analog at, Gary, was actually a public utility. You think about power. Same thing. You’ve got inelastic demand, huge economy to scale, you only need one. And so in most of those environments, we regulate those environments. We represent in those environments by regulating price, to some extent. And I just run for the us Senate. I didn’t feel like Congress was gonna do anything. So I started thinking outside of a regulatory regime, what could we do? And I just thought the opposite of a monopoly is a monopsony, it’s a purchasing monopoly. So let’s just go organize the demand side of the equation and just build something new. And that’s where the idea of Civica came to create a nonprofit drug company that would act like a public utility that nobody would own, but that would just act in the best interest of patients. And frankly, when we announced that idea, was enormously popular and we were able to bring 55 health systems together. And growing to launch Civica RX, which we launched in 2018, September of 2018. And I it’s been fun. It’s not often you get an idea. This happened to me on a treadmill at a gym in August of 2016. And two years later, we launched a company and now four years later we make 64 drugs and that’ll be closer to 80 by the end of this year. We’ve treated 35 million patients. We’ve made almost a hundred million doses of medication. I’m the volunteer board chair and I’ll never make a penny off of it. And that’s exactly what I, what makes me happy. I’m we’re just trying to bring low cost to patients.
[00:05:54] Gary Bisbee, Ph.D.: Credit to you and we appreciate your service because it is making a difference for sure. How did you envision the funding, the startup capital, if you will, Dan, to kick off Civica.
[00:06:05] Dan Liljenquist: We looked at it and said obviously you gotta capitalize the business. And a lot of the return on investment, Gary, a actually we were looking to stabilize the drugs for our own hospital systems. When you went and talked to a chief pharmacy officer, and they’ve got 200 drugs on a whiteboard, they’re trying to track down for their patients drugs. We use every day. It was an enormous drag on them. So we knew we would get a return on an investment just by stabilizing this for our business. Our core business would run better. We’d treat our patients better. And so when we brought the idea forward and said, look, it’s gonna be a nonprofit. We’re gonna finance this with contributions. And mostly with debt, a debt instrument, a long-term debt instrument. That the health systems we’ve put up. We brought in also three philanthropy partners as well. So we’ll repay the debt with a 5% interest rate, reasonable interest rate, but nobody owns it. There’s no profit taking nothing. Once that debt’s paid off, nobody owns it. And fact, nobody owns at day one. And when we started framing that up and built the case, that we would be able to stabilize our core business, bring prices down for our core business, we get returns both on the core business and then we’ll get a fair return on the debt. It became a no brainer and That’s why so many people joined to say, yeah, we know this is gonna help our core business. But we also know that there’s a reasonable return in addition to the people who put up the upfront capital.
[00:07:30] Gary Bisbee, Ph.D.: How’s it decided which drugs you’re going to develop.
[00:07:33] Dan Liljenquist: So Gary, the way that works, and this is maybe the most important part of Civica, how do you enter a market where you have a dominant incumbent player who has a monopoly? And what we divided was this idea of a minimum viable volume. So what we do is we go to our membership group and they identify the drugs they’re struggling to get, or they feel like either the supply or the cost is wrong, or they’re worried about and we get together, we discuss, okay, which drug do you want us to make? But then we get upfront purchase commitments from our members before we bring up our drug to market and they are five year take or pay arrangements. Meaning they take the product for us or they pay for it, anyway. Now the good thing is we can actually come out with a very competitive price because we’re not a profit taking entity. We are only trying to actually make enough margin to have the business be self-sustaining and that has led to our success. We’re not after market share with Civica we’re after market impact. We don’t want our members to put all of their volume with us. We want them to put a sizable chunk with us so that we can enter. But though we can also set a fair market price. So just to give you an example, our second drug we brought to market was Daptomycin. When we brought it to market, it was $200 a dose. We came in with a price of $64 a dose, and the incumbent player or drop the price down to 25. Now we were over time able to get our manufacturing costs down to about 25 with our partner, our manufacturing partner, but for our members, it was an immediate. Price went from 200, half of it they were buying at 64, the other half, they bought a 25. It was a huge win. And then eventually Civica was able to match that lower price. And now we have a stable market price for Daptomycin and more importantly, eliminated the shortages for Daptomycin. And then drug by drug, we’ve been doing that. So that’s how it works. And that allowed us to safely enter. We don’t wanna chase away the incumbent players. We just wanna have them make a fair return, a sustainable return. And that’s what Civica is trying to do.
[00:09:35] Gary Bisbee, Ph.D.: So the two key factors, it sounds like are shortages and price. Those would be the two decision points on whether you pursued to develop a particular drug. Is that right?
[00:09:46] Dan Liljenquist: Yes on the hospital side in particular. On the outpatient side, and I know we’re gonna get there in just a second, it really is about price manipulation. It’s not the drugs aren’t short on the outpatient side, but there’s a lot of shenanigans around pricing that we’re working through. Different set of issues with a similar outcome. Patients don’t have access to drugs they need.
[00:10:04] Gary Bisbee, Ph.D.: Congratulations. You’ve announced your first outpatient drug, which happens to be for prostate cancer and I believe that’ll be available next week. Is that right?
[00:10:15] Dan Liljenquist: Yes. So maybe I should back up and just say after we launched Civica, we had large payers come to us and say, Hey, can we do this for outpatient drugs? Our challenges are a little different. It’s not availability. It’s cost. It’s price. And can we work with you on that? So literally within weeks of organizing and launching Civica, we had Blue Shield of California, Blue Cross of Idaho, a handful of other blues plans, reach out, Kaiser, and say, Hey, what can we do on the outpatient side? So we organize a company called Civica Script. And it’s a sister company to Civica. I chair both boards and now we have 140 million people covered by 23 large payers involved in Civica Script. And with that, we set up a similar drug selection committee. And the, one of the first drugs they picked was Admiriterone, which is a oncologic that treats metastatic prostate cancer. And the price it’s primarily picked up by medicare, but the price has been about $3,400 a month. And Civica just announced our price will be $171 a month. So a $3,200 price reduction. And what Civica is doing on the outpatient side specifically, because we want we’re signaling to patients what a fair price is. We intend on our packaging to produce a manufactured maximum retail price. We of course know that pharmacies need a dispensing fee, but we are publishing that maximum retail price because we wanna signal to patients whether or not they’re getting ripped off. So yeah, we just announced that yesterday and very excited about it. It’s a big deal and it’ll be the first of many drugs that, that will put into a totally different channel with a totally different underlying cost structure.
[00:12:02] Gary Bisbee, Ph.D.: So you announced pursuing insulin earlier this year. When will that be? Is that a 2023 or 2024 release date?
[00:12:10] Dan Liljenquist: Yeah. So we announced in March of this year, that Civica will be producing three molecules of insulin, generic versions or biosimilar versions of Humalog Novalog and Lantis. So Humalog and Novalog are the fast acting insulins that people with type one diabetes use. And then Lantis or glargine is a basal insulin that is used for both type one and type two diabetes. And we’re bringing all three molecules to market. But between those three, they make up about 85% of the insulin prescriptions in the country and probably will end up being more because a lot of people are on older insulins because they can’t afford those three. So we partner with a company called Genesis that was four years into a eight year or seven year development cycle. And Genesis will be our partner and we hope to go into clinical trials next year. And hopefully we expect in 2024 to bring those insulins to market beginning of 2024. And Gary, the more important thing is, look, these insulins, the price has gone up on average by 11% a year, the list price for 20 years.
[00:13:13] Gary Bisbee, Ph.D.: Oh, my gosh.
[00:13:14] Dan Liljenquist: And this is after their patented life. But these drugs are clearly in the public domain. They should be, and we are gonna put them in the public domain. So Civica is committed that our insulin vials will sell for no more retail, no more than $30 a vial and a five pack of three milliliter flex pens will be no more than 55. And that reflects an 85 to 90% price reduction on those drugs. And we are intent on democratizing insulin. What’s been fun about this one, Gary, is we’ve raised the majority of the funds through philanthropy. And we’ve had Juvenile Diabetes Research Foundation, Helmsley Trust, The Arnold Foundation, the Glen Toman Family Foundation, Intermountain, Kaiser, Trinity, and a significant contribution from blues plans to fund this as a philanthropic venture.
[00:14:01] Gary Bisbee, Ph.D.: You mentioned that Civica Scripts that they cover roughly 140 million people. That’s roughly what, 40% of the people in a country which is just a terrific group proportion.
[00:14:13] Dan Liljenquist: Gary, we have more join us all the time. Look, nobody likes the current situation. Nobody likes it. I think people feel trapped in it. Certainly patients are at the tail end of it. We believe that medicines that once they’re in the public domain and we want the innovators to keep innovating. But once drugs are passed their patented life, and those formulas are owned by society, at that point, we’re intent to making sure they’re within reach of regular people who need them. And if there is anything, a modern day equivalent of owing your soul to the company’s store, Gary, it’s have a chronic disease and not have any ability to impact how much you pay. That was the impetus for Civica.
[00:14:55] Gary Bisbee, Ph.D.: You made the point when we were speaking last week, it’s not so much about market share, but market impact that counts. Dan, can you describe that for us or share that thought with us?
[00:15:07] Dan Liljenquist: Yeah. Going back to the beginning, Gary, look for me, it was the government probably has an interest in figuring out how to make sure monopolies don’t exist for generic drugs. But their ability, their willingness to do so to regulate is one thing, but I’m not sure they would have the capacity to do it either. Unless you’re actually in the market, participating in the market as an honest broker, it’s really hard to move anything. So the whole idea of Civica was how do we stabilize the market, stabilize the price? If we can do that. So if you think about it, we’ve got about a third of the us hospital. we’re asking those hospitals to give us half of their volume. So we’re really only moving 10 to 12% of the market, but if we can move 10 to 12% of the market and have the price come down and be come down by 90% and be fair, that’s where we’re after we want the patients. To have the benefit. And so that’s where we’re after. So that’s been the fun thing. We’ve had enough to move the market and stabilize the market, stabilize pricing without feeling like we’ve gotta go build massive manufacturing facilities and go head to head with some of these big players. We want them in the market. We need them in the market. And so we’re trying to do this in such a way where there’s not a race to the bottom on price and they still have an incentive to manufacture. But some of these things are just, the prices are sky high because of artificial shortages or other things. And that’s how monopolist maximize prices. They don’t restrain supply by 20%. They restrain it by 1% just to make you desperate enough to pay for frontal line access and bid up the price. And so it’s a very interesting dynamic. All we feel like we needed to move is 10 to 15% of the market to have the market impact on price. And that’s what we’re seeing.
[00:16:59] Gary Bisbee, Ph.D.: You’ve spent a lot of time in the pharmacy industry or at least pharmaceutical industry over the last five, six years. How would you redesign the pharmaceutical industry and the associated distribution? How would you redesign that? If you could, Dan.
[00:17:16] Dan Liljenquist: I said this in a column in modern healthcare and it doesn’t make our PBMs friends very happy. And I don’t wanna lump all PBMs into this model because there are some that are very, open and transparent and who really feel like they should be transparent. But what happened is there was the pharmacy benefit managers created the highway between the manufacturer and the retailer and the patient. But over time they became highway men. And started extracting significant rents out of the middle of there. And I understand why employers, wanted to control drug costs. The PBM started saying, Hey, we’ll give you guaranteed rebates to help you control those costs. And then negotiated on the other side. The challenges the rebates are negotiated on drugs that are coming off patent or that are in the space between being patented and then being in generic. Because in that space, you’re coming off a very high price from the innovator and in that space, they’ve kept prices high. And what they’ve done is they’ve shared a lot of economics on the back end. And I just don’t think that’s right. We know people with type one diabetes, for example, are paying billions and billions of dollars more than they should for list prices of insulin so that rebates can be passed around on the back end and a full one quarter of people with diabetes type one, diabetes are rationing insulin. So they’re delaying their care. They’re creating long term impacts. It’s stressful. And I think that rebate scheme for drugs that are clearly past their patented life is actually hurting patients. If I were gonna redesign it, I would just say, Hey, be open, transparent. You need manufacturers that are open and transparent. You need retailers to say, we insist on transparency because if there were transparency, this wouldn’t be able to happen. And and that’s what we’re working on. Transparency. We’re not asking for any special regulations from Congress to support our business model, although frankly has been very popular with both sides of the aisle. But we believe transparency should be the hallmark of drug supply chains. Absolutely. And that’s where we’re focused.
[00:19:24] Gary Bisbee, Ph.D.: Speaking of Congress. What do you think about the current legislation hasn’t been passed yet, but being developed where there would be some constraints on medicare pricing. What do you think about that?
[00:19:37] Dan Liljenquist: For insulin specifically, there’s been a lot of talk about capping insulin copays for Medicare and honestly we’re supportive of all that stuff. The more that puts patients in control, a rebate scheme fall apart if you have patient caps on what they spend, they start to fall apart. I would say in addition to, I think CCAL will probably have a bigger impact on the insulin pricing because the government legislation really only applies to Medicare and exchange plans and doesn’t affect the people who are underinsured or uninsured. Civica’s price will be available to everybody regardless of insurance. And we hope to solve that problem that way. Although we are we’re supportive of efforts to make pricing more transparent, to make sure that there’s not backend rebate schemes that are making it hard for people who are dealing with a complex disease to begin with to not be able to afford their medications specifically for drugs that are already in the public domain. So just know that we applaud that I applaud that personally. I’d vote for it because I don’t think the voice of the patient is being adequately represented in these conversations. And I don’t think any patient would sign up for a rebate scheme like this.
[00:20:41] Gary Bisbee, Ph.D.: So Dan, from an idea on a treadmill six years ago, to Civica RX and Civica Scripts, you’ve made an enormous impact. What’s next for you? And what’s next for Civica?
[00:20:53] Dan Liljenquist: We’re just getting started. We’re building 140,000 square foot manufacturing facility in Petersburg, Virginia. That’ll be online later this year. That’s where we’ll begin our batch runs for our FDA approval for insulin, but we’ll make a whole variety of drugs in that facility. We’re just plowing ahead. The company is doing well. We’re ahead of budget. We’re ahead of schedule. We’ve got really good leadership helping us guide Civica along and with some of the best leaders in healthcare around the country sitting on our board. Excellent buy-in. For example, Bill Rutherford, the CFO of HCA is our finance chair. Dennis Stalin, the CFO of Mayo Clinic is our comp committee chair. We’ve got excellent operators and clinicians involved with us and that’s fun. And then, it feels like the sky’s the limit from a impact perspective. And every drug that is necessary, or there’s no close substitutes, we’re watching those markets to make sure they function. If they function well, and their dogs available and fairly priced, we’ll have no interest in intervening. But when it’s not that’ll be in our crosshairs.
[00:21:53] Gary Bisbee, Ph.D.: Dan, this has been a terrific interview as expected. Once again, congratulations on all that you’ve accomplished in relatively short period of time at that.