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Speaker 1: The Michael Berry Show.

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Speaker 2: An article in the Houston Business Journal recently about John

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Speaker 2: and Laura Arnold. John Arnold is listed as the tenth

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Speaker 2: richest Houstonian, his wealth estimated to be about three billion dollars,

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Speaker 2: but he did not continue upon making it big to

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Speaker 2: pursue wealth. He instead started a foundation and started in

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Speaker 2: a Bill Gates sort of way, looking for opportunities to

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Speaker 2: use that wealth toward policies that were important to him,

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Speaker 2: that are important to him. So I read an article

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Speaker 2: about a company called Civica RX, which is a nonprofit

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Speaker 2: generic drug company whose intention is to keep the costs

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Speaker 2: low for pharmaceuticals for low income and high needs patients.

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Speaker 2: So the article which I should give credit to Chris Matthews,

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Speaker 2: a gentleman who wrote it. He deserves his due because

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Speaker 2: he describes what happens. You know, for most of us,

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Speaker 2: we don't know about a drug. Obviously, we see drugs

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Speaker 2: advertised on during sporting events. Seems like the number one

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Speaker 2: place that they advertise drugs. And then you pay attention

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Speaker 2: to all the horrible side effects that come from the drug.

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Speaker 2: But you don't think anything about a drug until your

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Speaker 2: arm swells up.

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Speaker 1: The size of a grapefruit.

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Speaker 2: Or you have searing eye pain, or you can't see,

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Speaker 2: or your impotent, or your blood pressures through the roof,

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Speaker 2: and you're gonna die of a stroke. And so now

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Speaker 2: you need something. And that's when the doctor prescribes it.

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Speaker 2: And when the doctor prescribes it, you have no idea

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Speaker 2: what it's going to cost when you go to pick

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Speaker 2: it up, and that's when you start looking into you know,

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Speaker 2: how much will your insurance pay for it? So the

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Speaker 2: article says the foundations the hospital systems noted problems and

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Speaker 2: failures with the way the generic drug market currently operates.

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Speaker 2: When a drug's patent ends, many generic drug companies enter

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Speaker 2: the market to produce it, driving the cost down. This

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Speaker 2: can lead to the drug becoming less profitable, causing manufacturers

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Speaker 2: to leave the market. Eventually, only a single manufacturer of

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Speaker 2: a generic drug remains, allowing that company to have a

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Speaker 2: monopoly on the market and to artificially inflate the price

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Speaker 2: of the drug as much as it wants, which leaves

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Speaker 2: us with the idea of the patent expiring and the

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Speaker 2: monopoly expiring.

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Speaker 1: Eventually leads to an end.

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Speaker 2: Of the chain monopoly, and the effect for the consumer

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Speaker 2: is the same product value goes or product cost goes

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Speaker 2: through roof. So I asked my friend Dennis Calabres, who's

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Speaker 2: worked with the Arnold Foundation for some time, to help

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Speaker 2: me understand this, and he said, why don't I get

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Speaker 2: you the guy who's the expert on it, Dan Lillenquist.

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Speaker 2: He's senior vice president and chief strategy officer for Inner

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Speaker 2: Mountain Healthcare. He has an amazing background, which we'll get

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Speaker 2: to in a moment, but he's the lead architect and

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Speaker 2: board chair of Civica RX, which is this initiative to

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Speaker 2: create a nonprofit or not for profit generic drug company.

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Speaker 1: Dan, Yeah, thanks for morning with us.

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Speaker 2: So explain to us why this is what need this

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Speaker 2: civica RX is actually filling from the patient perspective as

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Speaker 2: it relates to pharmaceuticals.

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Speaker 3: Yeah, so, I think you did a nice job setting

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Speaker 3: that up. Let me just say that when a drug

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Speaker 3: pass sits patented protected life Meanan, once that formula enters

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Speaker 3: the public domain and it's available for any manufacturer to make,

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Speaker 3: it's still there are certain circumstances where that works really

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Speaker 3: well and the price come down, and there are multiple

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Speaker 3: competitors that stay in the market. But for some of

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Speaker 3: these smaller drugs where there's you know, where you don't

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Speaker 3: really only need one or two producers. What happens over

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Speaker 3: time is the number of manufacturers of that drug consolidates

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Speaker 3: to one or two as you mentioned, and you know,

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Speaker 3: if they're the only maker of the drug and you

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Speaker 3: need that drug and it's a matter of life or death,

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Speaker 3: they can almost charge you whatever they want. A great example,

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Speaker 3: it's the one that everybody will know, is Martin Screlly

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Speaker 3: when he went and took a drug called Draprin that

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Speaker 3: had been on the market for fifty years and cornered

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Speaker 3: that drug. He raised the price from you know, seven,

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Speaker 3: you know, thirteen dollars and fifty cents a pill to

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Speaker 3: seven hundred and fifty dollars a pill, and the price

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Speaker 3: is still there today. And the problem is is it's

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Speaker 3: not super attractive for other manufacturers to come in and

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Speaker 3: make that drug because they know that Martin Screlly could

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Speaker 3: just collapse the price of the drug, wipe out their

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Speaker 3: investment if they try to make that drag and then

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Speaker 3: just raise the price later because they have this dominant

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Speaker 3: market position. So what we thought was Civica RX is

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Speaker 3: you know, if we could get together with health systems

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Speaker 3: around the country and with philanthropies. We could create a

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Speaker 3: totally independent, not for profit company that doesn't require any

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Speaker 3: government intervention to go in and compete for these markets

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Speaker 3: that have been cornered by folks who are willing to

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Speaker 3: rip people off. And we did that through a not

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Speaker 3: for profit structure so that nobody would own it. Essentially,

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Speaker 3: we're trying to make sure that these drugs remain within

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Speaker 3: reach of ordinary Americans and we're fighting for these markets.

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Speaker 3: And that's what the idea is about.

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Speaker 2: I have a minute left in this segment. Why doesn't

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Speaker 2: the free market work in setting a price?

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Speaker 1: Here?

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Speaker 3: You know, it's really interesting. It's really hard to get

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Speaker 3: capital to flow into a market where there's a dominant

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Speaker 3: monopoly position, and in fact, the money that's flowing into

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Speaker 3: the market, Michael, is flowing to find opportunities like there

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Speaker 3: to corner your own market to make money. And so

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Speaker 3: we just saw that this wasn't repairing itself, so we

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Speaker 3: thought we'd tried a different structure to get at it.

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Speaker 2: And the idea is, so you're a non for profit,

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Speaker 2: you're not manufacturing the pharmaceuticals.

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Speaker 3: So we are going to be an FDA licensed manufacturer.

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Speaker 3: But what we're going to do is contract with contract

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Speaker 3: manufacturing underneath this organization, the not for profit status is

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Speaker 3: we don't want anybody to own this because the temptation

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Speaker 3: when you compete in the market is then to jack

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Speaker 3: up the price to maximize returns for your shareholders. This

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Speaker 3: is That's not what we're trying to do here. We're

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Speaker 3: trying to make sure that society at large benefits from

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Speaker 3: what we're doing, rather than a handful of shareholders.

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Speaker 1: Dan, can you hold with me for just a moment.

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Speaker 2: Yeah, all right, I'm going to post this article from

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Speaker 2: the Houston Business Journal which kind of puts the background

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Speaker 2: in here. You know, medicine, the healing process or the

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Speaker 2: treatment process is so odd to me. It's the only

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Speaker 2: thing I can think of. And if you went to

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Speaker 2: a restaurant, you ate your meal and at the end

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Speaker 2: they gave you a bill and you didn't know whether

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Speaker 2: it was going to be twenty bucks or eight hundred bucks,

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Speaker 2: and especially with pharmaceuticals, that's the way.

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Speaker 1: You have no idea, you just pay it. It's crazy.

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Speaker 2: All right, we'll talk to Dan LILNQUI was coming up,

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Speaker 2: Dan lilonquest or you an you a Conway twenty fans.

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Speaker 3: I don't know him very well, but I was just

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Speaker 3: listening as great song.

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Speaker 2: Would you be willing to devote some time I could

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Speaker 2: kind of do a tutorial and just catch you up

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Speaker 2: to speed on what there is to know about Conway.

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Speaker 3: Yeah, please do it right now.

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Speaker 2: Okay, So, Civica RX, this group that John Arnold's foundation

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Speaker 2: looks like y'all raised. I got thirty million dollars from

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Speaker 2: three different foundations.

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Speaker 3: Now actually we've raised so we raised thirty million from

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Speaker 3: three foundations, but we raised another one hundred and thirty

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Speaker 3: million from health systems around the country.

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Speaker 2: Okay, let's step back from what y'all are doing. I

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Speaker 2: want you to be king. Let's step back from what

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Speaker 2: y'all are doing for a moment, because you're trying to

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Speaker 2: correct what you see as faults in the market. Errors

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Speaker 2: in the market are shortcomings in the market. I'm going

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Speaker 2: to make you king of healthcare for a moment, and

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Speaker 2: I know your politics and that you're a free market guy.

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Speaker 2: Tell me how you fix the problem. Solve the problem

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Speaker 2: of innovation, because we want companies to engage in research

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Speaker 2: and development. We want them to have an incentive. They

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Speaker 2: want them to make money, so they'll go make these products,

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Speaker 2: but still keeping life saving drugs for high needs and

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Speaker 2: low income patients available.

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Speaker 3: How do you do that well, I mean so civic

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Speaker 3: ARX is a start down that road. Listen. The challenge

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Speaker 3: with innovation is it takes a lot of money to

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Speaker 3: go find a drug to take it through the process.

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Speaker 3: That the innovators require a time to get a repayment

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Speaker 3: for those drugs, and we allow that with our patented

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Speaker 3: protection protected process, and I support that. I think we

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Speaker 3: have some of the most innovative companies in the world

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Speaker 3: working in that space. How they price those drugs. You

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Speaker 3: know during the patented time that that's a problem that

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Speaker 3: that Congress is going to have to address. There's no

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Speaker 3: way around it. They've got to try to figure out

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Speaker 3: if they're going to do something, they'd have to they

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Speaker 3: have to address that directly through legislation. But once a

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Speaker 3: drug becomes once that formula pass its patented protected life

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Speaker 3: and our feeling is a civic r X is that

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Speaker 3: that drug, that formula is owned by the public at

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Speaker 3: that point, and that we think that the prices should

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Speaker 3: be fully transparent. A lot of the challenges in the

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Speaker 3: market with drug pricing is because they hide the ball

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Speaker 3: on the price. They have all these rebate schemes where

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Speaker 3: they pay money, you know, back and forth between different companies,

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Speaker 3: you know, not only just the manufacturers, but the distributors

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Speaker 3: of the drug, and it makes it really difficult for

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Speaker 3: customers to know what the drug, what the appropriate price is.

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Speaker 3: So a civic ar X, we've just said, look, we

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Speaker 3: are going to be one hundred percent transparent on our price.

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Speaker 3: We're not going to pay rebates. We're not going to

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Speaker 3: go and try to hide the ball from our customers

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Speaker 3: or what the price of the product is. And uh.

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Speaker 3: And so that's a founding principle for Civica and we

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Speaker 3: expect at the end of the day we make a product,

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Speaker 3: Civica has the incentive is only to make enough money

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Speaker 3: to make sure that the company stays viable, but nothing more.

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Speaker 3: And we've committed to full price transparency and that's where

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Speaker 3: we think the start needs to happen. By the way,

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Speaker 3: that needs to happen across the board in healthcare. You know.

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Speaker 3: So I'm the chief strategy officer of a seven billion

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Speaker 3: dollars integrated health system in Utah and we were just

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Speaker 3: rolling out very transparent pricing here in Utah for for

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Speaker 3: you know, very common procedures to start that after here

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Speaker 3: as well, just for a long time healthcare in general,

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Speaker 3: they've we've been able to hide the ball on pricing

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Speaker 3: and that has that has to turn around, and consumers

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Speaker 3: deserve to know what what each procedure or what each

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Speaker 3: service they buy is going to cost beforehand.

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Speaker 2: How in the heck did it happen that this end

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Speaker 2: street developed and nobody stepped in and said, look, it's good.

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Speaker 1: When you go to a barbecue joint, you go.

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Speaker 2: Brisket is X per pound and ribs are why per pound,

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Speaker 2: and you choose how much you want to order and

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Speaker 2: what sides and what drink, and then you pay for

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Speaker 2: it and you eat your food. It's the only industry

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Speaker 2: I can think of where you get a bill at

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Speaker 2: the end. Why has nobody said, we're going to tell

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Speaker 2: you what you pay before you start.

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Speaker 3: Well, it goes back to an economic principle. It's when

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Speaker 3: you are desperate for a service. Look with brisket, when

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Speaker 3: you look at the price of a brisket, you can

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Speaker 3: truely choose whether or not to buy it. And by

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Speaker 3: the way, some of the best brisket in the world

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Speaker 3: is down there, so I need to come visit you.

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Speaker 3: But you look at the price you choose to buy it.

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Speaker 3: With healthcare, the demand is almost perfectly an elastic, meaning

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Speaker 3: you're almost willing to pay whatever it takes to save

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Speaker 3: a life. And that allows I mean, that really is

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Speaker 3: a challenge for markets because that allows the person who's

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Speaker 3: setting that price and providing that service to price discriminate,

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Speaker 3: to kind of figure out how much that you're able

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Speaker 3: to pay and charge of that. And I think part

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Speaker 3: of the problem with healthcare in general is the intervention

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Speaker 3: of the government payment schemes as well, because at the

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Speaker 3: end of the day, the government with the payment with

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Speaker 3: Medicare and Medicaid, they tag those payment rates based on

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Speaker 3: commercial rates. So the higher you can move up your

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Speaker 3: commercial payment rate, the higher you can get paid on

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Speaker 3: Medicare and Medicaid. And so there's this game that's gone

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Speaker 3: on over the decades to try to goose up your

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Speaker 3: top line revenue so that you can maximize the amount

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Speaker 3: of money you draw down from Medicare and Medicaid, and

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Speaker 3: that's become really a big problem in the market.

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Speaker 2: Well, and it seems like there's less price competition. Going

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Speaker 2: back to what you're doing here with Civica RX, the company,

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Speaker 2: the not for profit company that the Ronald Foundation gave

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Speaker 2: this money to. Where is this the money that y'all

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Speaker 2: are receiving. Is that going towards product development or is

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Speaker 2: that going to subsidies because you talk about filling the

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Speaker 2: need for people that can't afford these drugs, So it

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Speaker 2: is not.

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Speaker 3: Going to subsidies. This is going to right now. It's

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Speaker 3: going to set up manufacturing that allows Civica to start

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Speaker 3: manufacturing products, and then we are going to do that

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Speaker 3: at the lowest price possible so that we make those

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Speaker 3: available broadly. Here's the dirty little secret with respect to

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Speaker 3: you know, Martin Screlli's jacking of the price of that drug.

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Speaker 3: You know, it's still only costs and pennies a pill

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Speaker 3: to make dreprehim. He's just charging seven hundred and fifty

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Speaker 3: dollars because he can. So the price that is in

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Speaker 3: the market has almost no relation to the underlying manufacturing

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Speaker 3: costs of that drug. And so what civic our ex

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Speaker 3: is designed to do is to come in and actually

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Speaker 3: manufacture those drugs. We'll use contract manufacturing to help us.

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Speaker 3: But then since we get to set the price. Since

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Speaker 3: we have the FDA license or we'll have the FDA license,

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Speaker 3: we're going to set a price that is more appropriate.

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Speaker 3: We think we could take the price of certain products

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Speaker 3: down by ninety plus percent and then put them back

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Speaker 3: in reach of our ordinary people because we're not trying

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Speaker 3: to maximize returns for shareholders, and so you know, we

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Speaker 3: expect to take the price down. Our goal is to

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Speaker 3: make the mission of civicas to make sure that essential

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Speaker 3: generic medications are available and affordable to everyone. And so

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Speaker 3: that's where the capital be going. Is going to enter

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Speaker 3: these markets where the price has you know, shot up,

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Speaker 3: to kind of pop the bubble of that price and

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Speaker 3: bring it back within reach of regular people.

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Speaker 1: Dan, can you hold with us or do you need

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Speaker 1: to go?

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Speaker 3: So I've got to I actually need to go, no.

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Speaker 1: Worries, I want to talk further. I'm fascinated about what

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Speaker 1: you guys are doing. Thanks for your time. I appreciate it.

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Speaker 3: Hey anytime, I'd love to come back on and discuss

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Speaker 3: us further if you'd like, so, thank you.

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Speaker 2: You know, I am fascinated by this subject because at

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Speaker 2: some point or another, we're all going to need pharmaceutical

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Speaker 2: products all of us and the traditional marketplace might pricing mechanism.

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Speaker 2: How you spur innovation but still make a product that

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Speaker 2: the market can decide the pricing is it has failed.

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