Drug Pricing in Canada Victoria Brown, Anureet Sohi, Lisa Weger SPHA 511

1. Drug Pricing in Canada Victoria Brown, Anureet Sohi, Lisa Weger SPHA 511

2. Pharmaceutical Industry in Canada • 4th fastest growing market with 8% annual growth rate • Canada ranks in 8th place in world market of pharmaceutical sales • One of the most profitable and innovative industries in Canada

3. Average profit margin for selected industries (1999–2004) Source: Statistics Canada

4. Structure of the Industry • The pharmaceutical industry is made up of three main branches: • Large multinational companies who focus on numerous patented medications and their development • Large companies who focus on producing generic medications • Smaller biotechnology companies who focus primarily on research and market only a few drugs

5. Patented vs. Generic Drugs • Drug Patent – A type of license that under new legislation lasts 20 years for patents filed today - a patented drug provides companies the sole right to manufacture, market and sell a drug. - also implies that the company does not have to disclose all of the chemical components of the drug. • Generic Drug – Drug produced without patent protection usually when patent expires

6. Major pharmaceutical companies MAT Combined Data December 2005

7. Pharmaceutical Industry • Majority of success of the pharmaceutical industry is research and development • Currently only 3 out of 10 new medications will recoup their research and development costs • To bring a new patented medication to market costs approximately one billion dollars

8. Drug Marketing • In Canada roughly 80% of drugs are marketed annually • Of these drugs 10% are breakthrough drugs • About 49% are moderate improvements over existing therapy

9. Stakeholders • Important stakeholders include: • Professional associations (pharmacists, other health care professionals) • Pharmacies • Patient groups • Pharmaceutical companies

10. Industry Issues • Social responsibility to provide Canadians with fairly priced and efficient medications • Moral responsibility to develop and produce medications sometimes without thinking about financial factors and recouping development investments

11. Industry Issues • Obligation to use knowledge obtained from the development and research within the industry to develop medications • Obligation to develop medications not only for mass market conditions (hypertension, etc) but also for diseases that affect smaller subsets of the population

12. Industry Regulation

13. Price Influences • Prices (brand name & generic drugs) • Pharmacists’ professional fees • Retail & wholesale mark-ups • Population composition • Prescribing habits • Drug utilization • Trends towards newer drug therapy

14. Patented Drugs • Federal government • 1969: Patent Act Amended: Compulsory Licensing • 1987: Bill C-22 Patent Extension to 10 yrs • 1993: Bill C-91 Patent Extension to 20 yrs Compulsory Licensing

15. PMPRB • PMPRB (Patented Medicines Price Review Board) • 1987—Consumer protection pillar • Regulate prices of Patented Drugs • Independent & autonomous • Quasi judicial body

16. PMPRB • Sets price guidelines • Introductory drugs • Limits price increases • Existing drugs • Does not set drug prices • Excessive price Voluntary Compliance Undertaking

17. PMPRB: Regulation Factors • Relevant market • Same therapeutic class • Countries other than Canada • Changes in Consumer Price Index

18. Patent Extension • Patented drug manufactures: • Profits • Market Share • Increased contribution from drug sales to R&D from 5% to 10% • Generic companies only imitate Patented drugs

19. Non-Patented Drugs Regulated differently…….. • Intellectual property protection • Regulation of the drug approval process • Reimbursement and formulary decisions • Provincial policies and drug plans

20. Provincial Policy & Drug Plans • Cost containment • Product Selection Generic over Brand • Price Selection Lowest priced drug • Reference Based Therapeutic class Pricing (BC)

22. Cost Drivers • Generic manufacturer rebates • Authorized generics • High Patent drug prices • Federal price control determines maximum allowable drug price based on highest priced drug in therapeutic class

23. Normative Analysis • Contradicts publicly funded, universal health care system. • Fair: cost-containment strategies • Promote macroeconomic stability & control • Patent extension • Increased R&D = Economic growth • Lack of competition

24. http://www.youtube.com/watch?v=KWrpWjP8rFI

25. Winners, Losers and Reforms

26. Who are the winners and losers? • Industry stakeholders will be both winners and losers: • Pharmaceutical companies • Pharmacies • Pharmacists • Patients It just depends on the scenario!

27. Canada vs. US • Canadian brand-name drugs are priced 40%lower than the US (the reverse is true for generics) • Canadians benefit because they pay less for brand-name drugs than Americans • But … • US citizens also benefit from the lower prices when they cross the border to purchase ‘Canadian’ drugs (Grey Market) • This could negatively effect the supply of Canadian drugs for Canadians … a situation where Canadians would be the “losers”

28. Why? • Two theories: • Lack of competition in Canada • Side effect of policies to lower prices • What can we do? • Impact of our policies on price, price competition and barriers to market entry

29. Pharmacists • In 2006 Ontario reformed to reduce the allowable limit on rebates to 20% (from 40%) • Created controversy around cost savings being passed on to the customer/patient • Resulted in tension for pharmacists (and pharmacies) around linking compensation to drug prices vs the services they provide • This year Ontario has once again made a move to mandate lower prices, other provinces will probably follow

30. Authorized Generics Patent holding pharmaceutical companies benefit because they can release a drug onto the market quickly and gain market share, dictate the price, etc Other companies don’t want to enter the market – not enough incentive Lack of market competition means higher prices, few options, etc for patients

31. Other Reforms (Canada) BC - Reference Based Pricing and low income patients Ontario Drug Benefit Program – places a cap on the generic price as a % of the brand-name SK and QC - use a competitive tendering process

32. Other Reforms (Global) • Joint Regulation: • Various countries looking to joint drug approval process, anticipating various benefits • Can drug pricing follow? • Many companies have locations globally … • Sell to the same customers … • Lessons to be learnt from New Zealand

33. Summary • Profitable and innovative industry in Canada that consists of both large companies and smaller firms who manufacture brand name (patented) and generic (non-patented) medication • Corporate social responsibility to develop and produce fairly priced and efficient medications for Canadians that target both mass market conditions and diseases affecting a smaller subset of the population  • Patented drug prices regulated by PMPRB. • Generic drug prices regulated based on provincial drug plans and formularies. • Government regulation decreases market competition thereby increasing drug prices. • Be mindful of the impact our ‘price lowering policies’ have on the market (barriers to entry and price competition) • There are many approaches to price regulation – we could all benefit from working together and learning from other countries methods