A New Take on Vertical Integration: Hospital System Start Manufacturing Drugs
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A New Take on Vertical Integration: Hospital System Start Manufacturing Drugs


Pharma Solutions first released the story of the four major hospitals announcing that they’re coming together to launch a drug manufacturer in March of 2018 (click here for the article). Less than a year later, Civica is officially chartered, comprised of about 750 hospitals, across more than 20 founding hospital systems and charitable foundations. The new not-for-profit company is focused on, per the company, “addressing shortages and high prices of lifesaving medications” that has become a national crisis for hospitals and patients. Specifically, “hospital systems and philanthropy partners work to determine the drugs that Civica will supply based largely on the most urgent need” so that the company acts “in the best interest of patients.”

Government Shutdown

Civica still needs approval from the FDA for manufacturing or sub-contracting activities, but believe that the ongoing government shutdown is unlikely to delay its plans. Per Chief Commercial Officer Heather Wall, as long as the government shutdown does not stretch into months, there will not be “a significant delay in bringing drugs to our health care systems.”¹

Reading the Lines and Between the Lines

Civica explicitly suggests on their website that current manufacturers are, through “market manipulation,” using their size and position to profit at the detriment of hospitals and patients for at least some products. At the very best, Civica suggests that their go-to-market strategy, which is primarily securing demand through long-term contracts, is superior to that of current manufacturers.


At this time Civica is on track to launch at least 14 hospital-administered generic drugs as early as the second half of 2019. With over 750 hospital systems, the cash infusion is significant and we could very quickly see this number begin to climb exponentially.

Additionally, Civica “will [also] do the research & development required to bring that product to market” when “a partner does not exist for a generic medicine.”²

Vertical Integration Within the Pharmaceutical Industry and Why This is Different

One of our most visited topics is on the consistent vertical and horizontal integration of the pharmaceutical industry. The industry is in the process of consolidating into only a few conglomerates that span distribution, care providers, insurance, and PBMs:
However, this is something else entirely.

A Health System First

However, integration involving manufacturing has primarily gone horizontal. For example, in the hospital-administered generic drug space, Pfizer acquired Hospira in 2015; and Hikma acquired Medlac in 2018 and Roxane in 2015. Although each of the Big 3 wholesale distributors and most large-chain pharmacies have their own-labeled product, this is something new: healthcare providers are going to “eventually own the Abbreviated New Drug Applications (ANDAs)” for all products sold, perform R&D, operate a manufacturing site and, essentially, go toe-to-toe against existing manufacturers for sales.

Drug Distribution

So far, Civica has been notably quiet on the drug distribution front, which is an integral component of the current pharmaceutical supply chain. Will they also start their own 3PL/drug distributor?


Per Civica’s Mandate, all members will have the same price, breaking the industry norm of greater volume equals greater discounts; meaning “that the smallest critical access hospital will have the same price as a 200+ hospital system.” For possibly the first time, hospital systems will have truly transparent pricing throughout the entire supply chain.

True Player in the Industry

Civica ambitiously plans to win business, far past establishing volume through long-term contracts within its own hospital system members. Notably, Civica wants to:
  • win sales, and even “be a supplier for the Veterans Administration”
  • perform R&D on generics
  • potentially distribute its own drugs
Very interested in seeing what happens next!


1. FDAnews: https://www.fdanews.com/articles/189847-nonprofit-generic-drugmaker-plans-2019-rollout-adds-12-members

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