800 hospitals are joining forces to make their own drugs and upend the generic pharma business. They just revealed the 2 treatments they plan to make first.

AP

Antibiotics and other critical hospital drugs are in short supply. A new group called Civica Rx is starting to do something about that.

• A group of 800 hospitals created a nonprofit generic drugmaker called Civica Rx.
• The hope is to make generic drugs that are in short supply or have artificially high prices, based on what the hospitals need.
• On Wednesday, the organization picked a supplier and two antibiotics to start with in its plan to upend the generic pharma business.
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Hospitals have a creative plan to tackle the high price and frequent shortages of generic drugs.

The nonprofit company, dubbed Civica Rx, was first announced in early 2018, and has gained a lot of attention for its promise of a cheaper and more reliable supply of crucial medicines. In total, 800 hospitals from more than 20 health systems have joined the effort.

Now, Civica has picked its first supplier: Xellia Pharmaceuticals. Xellia, based in Copenhagen, will make antibiotics for the hospitals in Civica's network, including vancomycin and daptomycin, according to a statement. Overall, Civica has committed to making 14 different drugs this year.

The hospitals that are part of Civica agreed to purchase the drugs for five years from Xellia, and will receive the drugs by the third quarter of this year. The antibiotics business can be difficult for manufacturers if they're not sure how much of their products hospitals will want to buy.

"What we offer these manufacturers is certainty," Civica CEO Martin VanTrieste told Business Insider.

Read more: Hospital groups and the VA are trying to upend the generic drug business

Civica's priorities include making essential medicines that have been on the FDA drug shortage list and taking on decades-old drugs that have artificially higher prices because there's no competition to make them.

In some cases, companies made business choices that led to shortages, such as giving up on unprofitable drugs. Other drug shortages are related to manufacturing problems. In other cases, a drug is only being produced by a single manufacturer, which can lead to price hikes. There's also been a consolidation of the manufacturers that produce generic drugs.

For years, health systems have been on the hook for skyrocketing drug prices for injections or drugs delivered through IV solutions. As of Tuesday, there were 205 drugs currently facing shortages, according to the American Society of Health-System Pharmacists. Those shortages include everything from bags of saline solution to common antibiotics - including vancomycin and daptomycin - and a type of epidural used for pregnant women during childbirth.

Vancomycin and daptomycin can be given through an IV and are used to treat potentially deadly infections. Civica has given a commitment to Xellia that it'll purchase the antibiotics for its member hospitals for the next five years.

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