Nonprofit vows to lower generic drug costs
GRAFTON — It's a long way from Manhattan, where Turing Pharmaceuticals this fall raised the price of a generic drug to fight parasitic infections by 5,000 percent. The aim, in the words of founder Martin Shkreli, was "to make as much money as possible."
But in this Central Massachusetts town, a small team of drug industry veterans has launched a startup to counter Turing and other biopharma price gougers by making affordable generic medicines to treat critical diseases. And they're doing it as a nonprofit.
"We want to create a competitor to stabilize the prices," said Deborah J. Drew, founder and chief executive of the year-old nonprofit startup called Drew Quality Group, which initially is seeking to raise $2.5 million so it can begin producing drugs as soon as next year. "When you end up with a single-source manufacturer, they can charge any price they want."
Drew and her associates, who have manufacturing and financial backgrounds, also say they want to produce some of the scores of medicines on the Food and Drug Administration's shortage list. Those drugs, which typically have only a single producer, are in short supply either because their manufacturer is grappling with safety problems or there is no domestic supplier and an overseas producer no longer finds it profitable to make drugs to treat small numbers of patients.
The group's focus on generics comes amid fears that even when branded therapies lose their patent protection — traditionally a time when low-cost copies enter the market — prices are remaining too high for consumers and employers. Insurers have reported double-digit percentage cost increases for some commonly used generics over the past two years.
Much of the increase is coming from large generic drug companies, but upstarts like Turing have also been acquiring older generic medicines and jacking up their prices. Turing representatives did not respond to a request to discuss their business.
Drew Quality has 10 employees, most of whom are volunteering their time during the fund-raising phase. Vice president Dana K. Staub, who has worked in manufacturing for companies such as Genzyme and AbbVie Inc., had the idea to organize as a nonprofit partly because, like his colleagues, he was disillustioned with the traditional drug business.
By operating as a nonprofit, Drew Quality won't have to pay the same taxes a drug company does. Nor will it have to focus on cost-cutting by sending work overseas to India or China. The group wants to employ people close to home and make sure patients get access to therapies they need without being squeezed financially.
For Deborah Drew and Ian Striffler, the director of quality assurance and contract manufacturing, the motivation stems in part from their Army background.
"We don't leave somebody behind," Drew said. "For me, the inspiration came from all the bad actors. We are saying there has to be a better way. This is our health we're talking about."
But the first order of business for Drew Quality, which is based temporarily in the founder's home here in the Blackstone Valley, is to raise enough money to begin producing drugs. And that's where its nonprofit status could make things more difficult, by cutting it off from investors seeking a return.
The group is initially seeking $2.5 million from foundations or government agencies, which would enable Drew Quality to farm out production work to a contract manufacturing organization in New England and begin operating as a so-called virtual manufacturer.
Ultimately, it plans to combine revenue from that effort with other money it raises to build two production lines of its own in Massachusetts at a cost of about $30 million.
So far, the fund-raising has proved challenging. A number of private foundations the group has contacted, including some that back drug research, told them they didn't have a funding category for nonprofit drug manufacturing or a way of evaluating its business plan.
"Nobody out there is doing not-for-profit drug manufacturing," said Striffler. "Because this is so new, none of the foundations have a criteria for us. We're kind of an odd organization."
They were also turned down by state and federal agencies that promote life sciences. In a letter to Deborah Rhodes, the Drew Quality general counsel, Pamela Norton, vice president for industry relations for the Massachusetts Life Sciences Center, which offers grants, loans, and tax breaks to biotech and medical technology companies, wrote, "The non-profit status you have . . . would make you ineligible for the grant and loan programs that my team administers."
Life sciences center spokesman Angus McQuilken said nonprofits like Drew Quality, when they are ready to build plants or buy production equipment, are eligible to compete for grants under the center's capital program. McQuilken said applicants under that program are more likely to receive funding if they can identify a source of matching funds.
Deborah Drew, who has designed and set up manufacturing processes for large biopharma companies such as Smith, Kline & French and AstraZeneca PLC, said Drew Group wants to start out producing generic pills but eventually expand into biosimilars, generic versions of the protein-based biotech drugs that are becoming a growing part of the industry.
Once it makes the decision to produce a drug, Drew Quality, like other manufacturers, would have to set up and test its process and get a license from the FDA, tasks it estimates would take about six months. That would delay its ability to quickly bring down the price of a drug.
And while it plans to underprice companies that have boosted prices substantially, Drew Quality will still charge enough to pay its employees and plow some money back into the business. Deborah Drew said the cost of its generic drugs will be closer to the discounted prices that were charged before companies pushed them higher.
"We're not going to be giving the product away," she said. "We want to create a sustainable business model for the generic supply line."