2 bloor street east 29th floor toronto, on m4w 1a8 · 1 “understanding health care cost drivers...

THE IMPACT ON CANADA OF PHARMACEUTICAL REGULATIONS AND PRICING POLICIES

STUDY OBJECTIVES

• The primary objective of this report is to highlight the implications of Canada’s medicine price controls and access restrictions on:

o The health of Canadians o Canada’s Innovation Strategy as supported by industry R&D investment o Canadian jobs and infrastructure investment

• This report is not intended to address all relevant federal and provincial policies and

regulations o Some general solutions are proposed, with examples of how they might be

implemented. The authors acknowledge that alternative approaches to implementation exist.

CAVEAT

• The health outcomes section of this analysis is intended to yield high-level insights into the impact of differential drug utilization, but is not designed as an academic research effort; the authors encourage deeper analysis of the issues as identified by relevant experts

ABSTRACT Canada’s long-standing commitment to a socially responsible health care system is under increasing pressure to achieve sustainability while adhering to the principles of the Canada Health Act. This report analyzes the economic and health implications of Canada’s federal and provincial policies on drug pricing and reimbursement and concludes that Canadians are under-investing in drug coverage. The increasing focus on drug reimbursement as a cost to bear, rather than as an investment opportunity, has led to poorer health outcomes, lost jobs, reduced capital investment and lost R&D investment. This analysis shows that the net negative economic impact exceeds $1B per year, indicating that Canada is missing a significant opportunity to develop a sustainable and comprehensive system for drug coverage. Recommendations for policy change are provided, although Canada’s federal and provincial governments will need to partner with the Life Sciences industry to ensure that implementation is consistent with Canadians’ vision of an equitable and sustainable health care system.

2 Bloor Street East 29th Floor

Toronto, ON M4W 1A8 For more information or copies of this report, please contact:

Frank Pinto, Public Relations Bain & Company, Inc.

(646) 562-7996 or [email protected]

BACKGROUND Canada’s health care system has served as an example of comprehensive health care coverage for many years. The five principles of the Canada Health Act -- public administration, comprehensiveness, universality, portability and accessibility -- serve as a stark contrast to the multi-tier, free market system that prevails in the United States. While Canadians are justifiably proud of this health care system, they, like citizens of many countries, are struggling to ensure the affordability of the system while providing appropriate access to all medically necessary services. Of primary importance is the principle of “comprehensiveness” – that is, Canadians should not be required to surrender the quality of medical care because provinces continue to manage health care budgets in silos that separate the various categories of health care spend (e.g. medicines, hospitals, long term care facilities, etc.). Each silo’s struggle with budget pressures forces it to reduce the comprehensiveness of coverage. Provinces routinely make trade-offs with unintended consequences, forsaking system-wide benefits and long-term performance in favour of meeting short-term silo budget objectives. We believe that this explains, in part, the Conference Board’s recent finding that:

“Canada is the third largest spender on health care, but only a ‘middle-of-the-pack performer’ on indicators related to health status, non-medical factors and health outcomes.”1

As the cost of providing health care to Canadians continues to increase, provincial governments have sought to control spend through a combination of restricted access, regulations and policies. By one measure, the current set of policies saves Canadians a maximum of $7B per year. However, this report concludes that the economic cost to Canada of the current set of policies far outweighs these so-called “savings”. The economic costs include increased hospitalization, missed work, foregone R&D spend, lost jobs, lost corporate profits and lost tax revenues. Both provincial and federal governments contribute to this issue. At the federal level, the Patented Medicine Price Review Board (PMPRB) sets price ceilings that are artificially low by applying a very restrictive definition of what is an innovative medicine. Since PMPRB designates very few new medicines as truly innovative, the system rewards only very significant leaps in innovation. In contrast, incremental improvements in therapies, which often lead to significant improvements in patient outcomes, are not recognized as innovative. For example, many new medicines often deliver significantly greater efficacy than the preceding first-in-class innovators (for example, new statins for hypercholesterolemia and protease inhibitors for HIV therapy). Even for those medicines deemed innovative, price

This study, funded by Pfizer Canada, reflects the recommendations of Bain & Company Canada, Inc. and not necessarily those of Pfizer Canada. Contents are the exclusive property of Pfizer Canada Inc. No reliance on any statement or information herein, forward looking or not, can be made by any third party.

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1 “Understanding Health Care Cost Drivers and Escalators,” The Conference Board of Canada, March 9, 2004

ceilings are implemented. Thus, the Life Sciences industry has little incentive to invest in research designed to yield innovative medicines. Moreover, the PMPRB and the provincial formularies have complex regulations that limit the ability to offer targeted rebates, and lead to price freezes for existing medicines. These price controls significantly decrease the incentives for Canada’s Life Sciences industry to develop innovative products. In fact, in some price-controlled markets, an increasing number of novel therapies are unavailable to patients. For example,

“[In] Spain and Germany… we are working the issues through with them, but we are not going to compromise Crestor prospects in Europe either because of ludicrous labeling or ludicrous pricing.”

Sir Tom McKillop, CEO AstraZeneca, July 2004

Similarly,

"Pfizer has closed research sites in France, Germany and Italy in the past year and [CEO] McKinnell said it would not launch key new drugs, such as arthritis medicine Bextra, if it could not agree acceptable prices in markets like France and Germany.”

The Toronto Star, July 2004 Canada’s intellectual property standards also lag competing nations’, who, not surprisingly, are able to attract more R&D investment than Canada. Two areas where Canada lags are data exclusivity and patent term restoration. In both the US and EU, regulatory agencies confer data exclusivity for a period of 5-10 years. During this period, the agency will not approve new products based on the same active ingredient. Patent term restoration provides credit to the innovator for time lost during the clinical development and regulatory review process. Both gaps are deterrents for innovators to introduce their products in Canada and both favor generic products. Paradoxically, Canadian pricing of generic medicines is among the highest in the world. (Appendix A, Exhibit A1) Saddled with tight budgets and the challenge of an ageing population and its growing requirements for medicines, provincial governments have reduced access to medicines. In fact, provincial formularies have slashed full listing of newly approved medicines by more than half since 1993 (Appendix A, Exhibit A2). Moreover, even when medicines are made available, significant waiting times result from a complex and largely redundant regulatory and reimbursement approval process.


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These waiting times are exacerbated by slow and redundant listing processes, which vary significantly by province. First, Canada’s Therapeutic Products Directorate (TPD) conducts a full regulatory review of all new medicines, despite the fact that almost all of these medicines have been previously reviewed and approved in other regions, including Europe and the US. Once TPD issues its approval, Canada’s Common Drug Review (CDR) process is initiated. CDR is intended to consolidate the evaluation of the cost-effectiveness of new medicines. However, provincial formularies continue to conduct multiple parallel, redundant reviews, thereby obviating the need for CDR. For example, Bain’s analysis of 25 innovative medicines shows that Ontario patients wait more than a year longer than Quebec patients who, in turn, wait 9-12 months longer than Swedish and American patients (Figure 1). Figure 1: Waiting time for new medicines is more than two years for provincial formularies2

US Sweden Quebec Alberta BC Ontario

1114

23

2731

38

0

10

20

30

40 months

Median delay to access new medicines from time of filing(Sample of 25 innovative medicines approved from 1988 to 2002)

Reimbursement approvalRegulatory approval

US Sweden Quebec Alberta BC Ontario

1114

23

2731

38

0

10

20

30

40 months

Median delay to access new medicines from time of filing(Sample of 25 innovative medicines approved from 1988 to 2002)



Once a new medicine is in the provinces’ hands, budget constraints make it hard to provide immediate coverage. Since budgets for medicines and other areas of health care are managed as separate silos, provinces are unlikely to make decisions that include trade-offs across silos to achieve the lowest total cost and the best health outcome. This waiting time challenge is even more acute for the most innovative medicines. Canada conducts priority review for the most innovative medicines only half as frequently as the US. Even when medicines are granted priority review, the process in Canada takes almost twice as


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2Reimbursement times reflect data available for medicines receiving reimbursement approval; sources include US FDA; Therapeutics Product Directorate; Swedish Medical Products Agency; IMS Health Provincial Reimbursement Advisor FAME database; Apoteket AB (Swedish reimbursement data); California and Texas Medicaid formularies; Parexel’s Directory, 2004

long as the US (Figure 2). The implications for Canadians are clear – delayed access to innovative drugs can contribute to poor health outcomes. Figure 2: Canada’s priority review of innovative medicines is ½ as frequent and takes twice as long3

Standard

Priority

Canada US0

20

40

60

80

100%

Percent of medicines filings (Sample of 25 innovative medicines )

Canada(10 drugs)

US(21 drugs)

399

203

0

100

200

300

400days

Median review time for priority medicines (Sample of 25 innovative medicines )

Standard

Priority

Canada US0

20

40

60

80

100%

Percent of medicines filings (Sample of 25 innovative medicines )

Canada(10 drugs)

US(21 drugs)

399

203

0

100

200

300

400days

Median review time for priority medicines (Sample of 25 innovative medicines )

For example, a novel HIV/AIDS anti-viral therapy, Viramune, did not receive regulatory approval (from Canada’s TPD) for more than two years, despite demonstrations staged by patient advocacy groups at Health Canada. Moreover, reimbursement delays in Ontario, Saskatchewan and Manitoba added an additional 200 to 300 days before patients were provided coverage. In contrast, the U.S. Food and Drug Administration granted regulatory approval in less than four months. Similarly, a breakthrough therapy for rheumatoid arthritis, Enbrel, was developed in part in Canada but was made available in 19 countries before Canadian approval. These delays prompted the Canadian Rheumatology Association to state that

“it would be unethical to deny [drugs like Enbrel] to appropriate patients due to economic considerations…because these medications can prevent the direct cost of joint damage, including frequent hospitalizations and joint replacement surgery, as well as indirect costs, such as disability and premature death.”

Canadian Rheumatology Association4

This report concludes that Canada is falling short of delivering “comprehensive” access to care, in part because government policies restrict access to innovative medicines.

3Drugs classified with “priority” status targeted for review within 180 days in US and Canada; analysis based on a sample of innovative drugs approved 1989-2003; categorized US “A” filing as priority and “B” or “C” filing as standard for drugs approved prior to 1991; sources include FDA drug database, Therapeutics Product Directorate, Parexel’s Directory 2004/2005


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4 Position statement, “CRA releases position statement on use of biologic therapies for rheumatoid arthritis; Unethical not to treat based on economic considerations” April 3, 2002

RESTRICTED ACCESS TO MEDICINES IS UNHEALTHY FOR CANADIANS The link between drug utilization and health outcomes has been well established by leading health economists:

“The estimates indicate that the number of hospital stays, bed-days, and surgical procedures declined most rapidly for those diagnoses with the greatest increase in the total number of drugs prescribed and the greatest change in the distribution of drugs…”

Frank R. Lichtenberg5

Similarly, others have found statistically significant and economically important effects of pharmaceutical consumption on health,6 suggesting that Canada’s restrictions on access to medicines (Figures 1-2, Appendix A, Exhibit A1) might have unintended consequences for Canadians’ health. Yet, Canadians use relatively less of new innovative medicines (Figure 3). Figure 3: Canadians use less of new, innovative medicines7

2 years or less 2 to 5 years 5-10 years

26

65

99

0

20

40

60

80

100%

Canadian per capita consumption relative to US (1999)

Time from US drug launch

5 “The Impact Of New Drug Launches On Longevity: Evidence From Longitudinal, Disease-level Data From 52 Countries, 1982-2001,” Working Paper 9754, National Bureau of Economic Research, June 2003 6See, for example, Richard D. Miller and H. E. Frech III, "The Productivity of Health Care and Pharmaceuticals: Quality of Life, Cause" (July 24, 2002). Department of Economics, UCSB


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7Patricia M. Danzon and Michael F. Furukawa, “Prices and Availability of Pharmaceuticals: Evidence from Nine Countries,” October 2003

Based on these insights, Bain evaluated the impact of drug access restrictions in breast cancer and schizophrenia. According to a medical oncologist at Toronto Sunnybrook Regional Cancer Center, “taxane therapy is the standard of care for locally advanced breast cancer”; but Canada’s utilization of taxanes is 80 percent below the United States (Appendix A, Exhibit A3). At the same time, the mortality rate for Canadian breast cancer patients (age-standardized) is significantly higher than is observed in the United States (23 percent in Canada compared with 17 percent in the United States, Appendix A, Exhibit A4). This difference in mortality rates is likely due to a wide range of factors, including diagnosis rates, alternative therapies and data tracking methods. Still, on a pro rata basis, more than 1000 Canadian women die every year, partially as a result of inadequate treatment. Unfortunately, the data is not captured nor analyzed to understand the link between different treatments and different outcomes. Similarly, Canada spends 30 percent less than the United States on atypical antipsychotics for schizophrenia patients (due in part to lower utilization), despite the fact that these drugs “have generally proven to be more effective and to cause fewer side effects than conventional antipsychotic drugs.”8 In this case, Canadian schizophrenia patients spend almost 50 percent more days hospitalized than their U.S. counterparts. Again, there are surely a number of contributing factors to differential hospitalization rates, but the impact of restricted drug use is likely to be significant. Incremental hospitalization and missed work cost Canada $2.0B per year More broadly, there is a clear correlation between increased drug utilization and reduced hospital stays (Figure 4).


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8 Dr. Dilip Jeste, director of Advanced Center for Interventions & Services Research at the University of California, San Diego

Figure 4: Medicine utilization is correlated with reduced hospital stays9

Pharm aceu t ic alu tiliza tion

B ed d ays pe r capita

19 80 1985 199 0 1 9950.0

0.5

1.0

1.5

2.0

Acute care bed days(pe r cap ita)

0

100

200

300

Ph arm aceut ical spen d ingper ca p ita (U S$ PPP)

We saw earlier that Canadians use less new innovative medicines than Americans (Figure 3). We also know that Canadians spend 40% more time in hospital than Americans. Furthermore, we also know that in aggregate, Canadians miss 45 million more work days than Americans. (Appendix A, Exhibits A5 & A6) Put together, these factors add up to over $15B per year in economic loss. If one believes that 15% of this loss could be recouped by providing better access to medicines, the loss could be reduced to $2.0B per year. While we believe that 15% is a conservative estimate (based on the percentage of healthcare spend on medicines), the data does not exist today to calculate the benefits with certainty. We recommend that industry and governments invest in research to understand the total costs and benefits of increased utilization of medicines. Foregone R&D amounts to $3.2B per year In the decade from 1992 to 2002, there was a massive outflow of R&D investment activity from Europe and Asia. During that period, North American R&D spend on new medicines increased by $6.2B. Canada’s share was a paltry $300M (Appendix A, Exhibit A7). In 2002, Pharma R&D spend per capita in Canada stood at less than 1/3 the US’, 1/3 the UK’s and less than ½ of Japan’s. Achieving US levels of R&D spend per capita would add $3.2B per year in R&D investment in Canada.


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9 Note: Analysis based on sample of 13 OECD countries (Australia, Belgium, Canada, Denmark, France, Germany, Ireland, Luxembourg, Netherlands, Norway, Switzerland, UK, US) for which spend and hospitalization data available 1980 – 1997; pharmaceutical spend based on OECD definition, which includes pharmaceuticals and medical non-durables; sources include OECD Health Data, 2004

Since almost all pharma companies invest in Canada at lower rates than their global average, we have concluded that the gap in R&D spend is due to structural causes. (Figure 5) Figure 5: Life Sciences companies under-invest in Canada10

Canad

ian inves

tment

Aventis Pfizer Merck GSK Novartis AZ Eli Lilly BMS J & J Roche

14.212.3 12.3 12.1

10.9 10.99.6 9.2

8.2

3.8

0

5

10

15

20

25%

R&D spend / sales by geography (2002)

Global investment

Trying to understand this phenomenon, we looked at several factors that might explain why the R&D investment does not make its way here. We have found that it was not for lack of an educated work force, higher wages, tax treatment of R&D or infra-structure. On all those aspects, Canada rates as well if not better than competing countries. (Appendix A, Exhibits A8 and A9). This leads us to the conclusion that the major driver of Canada’s inability to attract its fair share of R&D investment is its commercial environment with respect to medicines. The current commercial environment is hampered by factors that we have listed before, including:

1. restricted access,

2. long wait times for approval and listing of new medicines,

3. a managed pricing system, and

4. relatively weak intellectual property standards. Foregone jobs, corporate profit and taxes cost Canada $3.1B per year Our analysis shows that Canada’s lower activity level in the pharma industry causes approximately 8300 direct jobs to not exist. Achieving levels of pharma employment similar to


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10Parexel’s Pharmaceutical R&D Statistical Sourcebook 2004/2005; Research Infosource’s Canadian Corporate R&D Database; PMPRB

the US, UK and Japan would increase direct employment in the pharma industry by 1/3 over current levels. (Figure 6) Figure 6: Canada’s direct employment in pharma could increase by 830011

Canada US UK Japan

0.76

1.021.09 1.10

0.00

0.25

0.50

0.75

1.00

1.25

Pharmaceutical employeesper 1000 in population (2002)

Although we have not added them into our scorecard calculation, we have noted that, with a 2x factor, the Life Sciences industry has the highest job multiplier effect of any knowledge-based industry. Lastly, lower pharma spend also leads to lower corporate profits, which are typically reinvested in increased R&D, facilities, and jobs. It also leads to a smaller tax base for governments. Together, these factors amount to a $3.1B/year loss to Canada. Canada’s policies cause a net economic loss of at least $1B per year The total impact of Canada’s policy environment for innovative medicines is shown on Canada’s economic and health scorecard. Despite the perception that Canada’s federal and provincial governments are “saving” $7B, the scorecard clearly shows a lost investment opportunity leading to a net negative impact on the Canadian economy.


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11 Parexel’s Pharmaceutical R&D Statistical Sourcebook 2004/2005; Rx&D; ABPI; Japan Pharmceutcial Manufacturers Association (JPMA); US Department of Labor; 2002 data used where available, but UK is 2001 and Japan is 2000

Figure 7: Canada’s economic and health scorecard12

Economic and health impact in Canada (2002)

Hospitalization & missed work


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Our conclusions rest on looking at the total health care and economic picture, not individual pieces in isolation.

12 Bain analysis; R&D impact Can$3.2B, Jobs Can$0.6B, Corporate profit and tax Can$2.5B, hospitalization and work absence Can$2.0B; number and value of additional Canadian lives not estimated (not included in net score)

spend spend Lower

impact impact Net

Costs

R&D Jobs

-4

-2

0

2

4

6

Can$8B

Additional Canadia n

lives

Can$8B

6

4

2

0

-2

-4

R&D Corporate profit & tax Canadia n

lives Additional

RECOMMENDATIONS Following we make several general recommendations (in bold italics below). While we agree that there are several valid approaches to implementation, we have outlined a few examples along with each general recommendation. To achieve leadership in the global Life Sciences industry, Canada must change 1. As we have seen above, over the last decade, governments have increased restrictions on

medicine reimbursement and their policies have resulted in delayed access to new, innovative therapies.

Instead, we propose that Canadians should have increased access and faster access to innovative medicines to produce better health outcomes. Canadians need increased access to medicines For example, provincial governments must re-evaluate the metrics by which they determine coverage of medicines. Medicines should be listed immediately upon approval, based on data available from clinical trials. In some cases, it may be appropriate to make listings probationary – to preserve the option to change status when more data becomes available. All provinces should strive for minimum restrictions on access to medicines, to fully realize the benefits of improved quality of care. Governments should partner with Life Sciences companies to agree on appropriate use standards, to ensure that Canadians receive only the most appropriate medicines. In turn, Life Sciences companies should increase funding for research to demonstrate the health outcomes impact and the total cost savings of innovative medicines. They should also actively promote the appropriate use of medicines. Canadians deserve faster access to medicines Canadians are forced to wait many months, even years, before they benefit from novel life-saving medicines. Canada’s review of novel medicines for regulatory approval is largely duplicative of the US FDA and EU EMEA, and takes significantly longer. In addition, Common Drug Review (CDR) and provincial formulary reviews begin after innovative medicines are approved. This laborious process adds little value and introduces unnecessary waiting times for patients in need. Canada has multiple opportunities to accelerate access to innovative medicines. For example, as described in the federal government’s recent report on Smart Regulation, Canada should explore mutual recognition partnerships, with either the EU or US, to


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leverage the existing regulatory review capability and eliminate the current redundancy. This approach will reduce timelines, resource utilization and risk by partnering with world-class regulatory review organizations such as EMEA or FDA. Further, the CDR and provincial formulary review processes should be synchronized with TPD’s regulatory review, such that new medicines are immediately available to all patients as soon as they are approved. Canada should aim to achieve review and access timelines that are comparable to the world’s most innovative economies.

2. Governments have also imposed restrictions on the price for new, innovative therapies.

Instead, Canada should eliminate price regulation for medicines and allow greater pricing flexibility to reward true innovation. For example, price competition could be introduced throughout the value chain. This would ensure that value is allocated to the system benefits of innovative medicines. By also allowing rebates, the largest purchasers (i.e. the provincial governments) can ensure that their unit prices can be controlled and in many cases, reduced.

3. Canada has relatively weak intellectual property standards.

We propose that the gaps be closed on patent term restoration and data exclusivity. For example, in both the US and EU, regulatory agencies confer “data exclusivity” for a period of 5-10 years (5 in the US, 6-10 in the EU) for new chemical entities. During this period, the agency is barred from approving any new products based on the same active ingredient. This data exclusivity provision ensures that incentives to innovate are preserved regardless of patent status. Similarly, shorter periods of data exclusivity (1-3 years) are conferred on filings for new indications for existing products, creating incentives to study existing medicines for a broader range of therapeutic applications. Since Canada does not offer data exclusivity for clinical studies, the Life Sciences industry must rely on patent law as its sole source of intellectual property protection, thus decreasing the incentive to develop some innovative medicines. In addition, Canada has no provision to credit innovators with time lost during the clinical development and regulatory review processes. For example, in the US, the patent term is extended by up to 5 years, based on the duration of clinical development (half credit) and regulatory review (full credit). As a consequence of these intellectual property protection shortfalls, Canadians are likely to be denied access to medicines based on legal technicalities, even in those situations where novel clinical research data is available. Canada should offer both data exclusivity and patent term restoration to be competitive with the world’s most innovative economies.


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4. Life Science companies must also contribute to the solution

In return for creating a more attractive commercial environment, governments should expect the Life Sciences industry to:

For example, commit to increasing R&D investment so that Canada gets at least its fair share. They could also make an explicit and concrete commitment to “appropriate use” of medicines. That is, to ensure that Canadians receive only those medicines that they need, and avoid the use of certain medicines in situations where they are not cost effective. The industry should also partner with physicians, experts and governments to develop comprehensive standards and an approach to measuring the impact of innovative medicines on health outcomes and total health care costs.

CANADA NEEDS A HEALTHY LIFE SCIENCES INDUSTRY To realize the full benefits from the life sciences industry, Canada must change its perspective on the health care system to ensure that Canadians receive top quality care in an economically sustainable way. Others have called for a similar change in perspective. For example, Dr. Henry Friesen, former President of the Medical Research Council of Canada, stated: “We are calling for a major structural change in viewing our health system not as a cost to be endured, but as a tremendous opportunity to be explored and to be examined at every level. The health system then becomes not only a provider of health for all Canadians but a generator of wealth for Canada.”13

Fortunately, this goal is achievable and is entirely consistent with the federal government’s objective of “Building an Economy for the 21st Century”.

“Innovation is the tangible outcome of good ideas and is the lifeblood of a successful 21st century economy.”

Liberal Party Platform, 2004

“Our objective is clear: to be a true land of innovation. A market teeming with new products and services, a country where the quality of life never ceases to grow.”

Paul Martin, Prime Minister of Canada14


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13 Interview of Dr. Henry Friesen, “Health Care as an Economic Driver,” Conversations from the Frontier, January 24,2004, Frontier Centre for Public Policy 14 Remarks of Paul Martin to Board of Trade of Metropolitan Montreal, September 18, 2003

Canada’s Innovation Strategy aims to move Canada into the top five most innovative economies in the world, by 2010. To achieve this goal, Barber and Crelinsten15 calculate that the national investment in R&D must more than double, from $22B to $50B. This dramatic increase in R&D investment can be achieved only through a partnership between government and industry. Indeed, Barber and Crelinsten show that today’s principal R&D investors, such as information technology and health care companies, must lead the charge. In almost all innovative economies, healthcare R&D comprises a large portion of the total investment. However, Canada’s healthcare R&D investment lags far behind (Figure 8), despite the broad recognition that this industry plays a key role in driving innovation:

“We need an efficient, productive, profitable and innovative pharmaceutical industry to support the objectives of the Canada Health Act.”

House of Commons Standing Committee on Industry16

Figure 8: Canada’s per capita investment in pharma R&D lags other innovative economies17

U S UK Japan Canada

140126

96

39

0

50

100

Can$150Pharm a R&D spend per capita (2002)

Canada’s federal government previously recognized the value of the Life Sciences industry by improving intellectual property protection standards. Since these changes were implemented in 1992, Canada’s pharmaceutical industry has tripled its R&D investment, which now exceeds $1.2B per year. Furthermore, network effects have contributed to the rapid growth of Canada’s biotechnology sector, both in terms of the number of companies and the total R&D investment (Appendix A, Exhibit A10). 15 H. Douglas Barber & Jeffrey Crelinsten, “The Economic Contribution of Canada’s R&D Intensive Enterprises 1994-2001”, March 2004 16 House of Commons Standing Committee on Industry, Minutes of Proceedings, April 23, 1997


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17 Parexel’s Pharmaceutical R&D Statistical Sourcebook 2004/2005; PhRMA (Pharmaceutical Research and Manufacturers); ABPI (The Association of the British Pharmaceutical Industry); EIU (Economist Intelligence Unit); currencies are converted to Can$ using average exchange rate for 2002

Summary In the end, spending on medicines should be viewed as an investment in the economy and the health of all Canadians. Canada has a significant opportunity to move to the forefront of the world’s most innovative economies, especially given its competitive advantage in infrastructure, tax incentives and educated workforce. The final piece of the puzzle, building appropriate commercial incentives for innovation, must be developed as a partnership between government and industry, ensuring a productive and sustainable healthcare system for future generations of Canadians. We believe that the current approach to pharmaceutical regulations and policies cost Canada over $1B per year. These costs come in the guise of poorer health outcomes, increased hospitalization, missed work, lower investment, lost jobs and foregone tax revenues. There are clear ways to address the issues and improve the health and economic prospects of Canadians.


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APPENDIX A Exhibit A1: Canadians pay some of the world’s highest prices for generic medicines18

SWI CAN DEU UK US AUS SWE FRA ITL NZ

110100

76 74 69 68 6760 59

32

0

25

50

75

100

125%

Average ratio of minimum foreign genericprice to minimum Canadian generic price

Exhibit A2: Provinces have reduced listings of new medicines19

1993

2001

BC Ontario Alberta Quebec0

20

40

60

80

100%

Newly approved medicines receiving fulllisting on provincial formularies

Change -64% -64% -51% -50%

18 PMPRB, A Study of the Prices of the Top Selling Multiple Source Medicines in Canada (2002)


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19 IMS Provincial Reimbursement Advisor FAME database, 2003; years refer to year in which medicines received Notice of Compliance (NOC); multiple formulations of the same molecule approved with the same NOC date counted as single occurrences

Exhibit A3: Canada uses taxanes to fight breast cancer 80% less often20

US

Can

Taxol Taxotere

100

18

100

19

0

20

40

60

80

100

2003 taxane medicine usage index�(US = 100)

Exhibit A4: Canadian women face higher mortality rates from breast cancer21

Canada

US

1990 1992 1994 1996 19980

10

20

30

40%

Age- and incidence-standardizedbreast cancer mortality rate

1999 Mortality Rate

23%

17%

20 IMS; OECD Health Data 2003; DataMonitor, "Strategic perspectives: 2001 Cancer Cost Analysis, Pharmacoeconomic perspectives on breast cancer pharmacotherapy", Oct. 2001; Total Pricing Systems Inc, PPS Pharma Publication, Nov. 2004, Bain interviews of leading Canadian oncologists, Jul-Aug 2004; medicine usage index is country taxane medicine spending, normalized for pricing differences and patient population size; US pricing data does not reflect typical rebates (this would increase US relative usage); latest available prevalence data (2000) used to estimate patient population


1821 Source: OECD Health Data 2003

Exhibit A5: Canadians spend 40% more time in hospitals than Americans22

Canada US

1.0

0.7

0.0

0.2

0.4

0.6

0.8

1.0

Acute care bed-days, per capita (2001)

Exhibit A6: Canadians miss 45M more work days due to illness than Americans23

US Canada

4.4

7.3

0

2

4

6

8

Days absent from work due toillness (per person, per year)

22 OECD Health Data 2004, Statistics Canada


1923 OECD Health Data 2004, Statistics Canada

Exhibit A7: Canada has failed to attract its fair share of R&D24

1992 - 2002


20

+Can$0.3B (Can$1.8B)

+Can$5.9B (Can$4.5B)

24 Parexel’s Pharmaceutical R&D Statistical Sourcebook 2004/2005; dollars represent value of share gain/(loss) 1992-2002 (share of spend was evaluated for each country by year, 1992 shares were applied to the total 2002 spend); 1992 exchange rates used to control for fluctuations in currency values

Exhibit A8: Canada’s highly educated population and competitive wages should attract R&D investment25

OECDAvg

Canada US Japan Eur.

4137

34

23

0

10

20

30

40

50%

Adult population w/ postsecondary education (2001)

US

Can

ada

Health

care

serv

ices

Fina

nce/

Acco

untin

g

Admin, S

uppo

rt

& Clerica

l

IT-C

ompu

ter,

Softw

are

Engin

eerin

g0

20

40

60

80

100%

Wagecomparison

OECDAvg

Canada US Japan Eur.

4137

34

23

0

10

20

30

40

50%

Adult population w/ postsecondary education (2001)

US

Can

ada

Health

care

serv

ices

Fina

nce/

Acco

untin

g

Admin, S

uppo

rt

& Clerica

l

IT-C

ompu

ter,

Softw

are

Engin

eerin

g0

20

40

60

80

100%

Wagecomparison

Exhibit A9: Canada’s tax environment and infrastructure should attract R&D investment26

25Adult population with tertiary level education: OECD 2003; age comparison: Industry Canada ‘International Migration of Skilled Workers: Facts and TempFFs December 1999’; adult population is between the age of 25 and 64; wage comparison is 1998


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26 OECD STI Division 2003; extent resources meet business needs from World Competitiveness Yearbook 2004

Exhibit A10: Network effects support growth of Canada’s biotechnology sector27

1997 2001

227

416

0

100

200

300

400

500

Number of Canadian biotech firms

1997 2001

0.5

1.4

0.0

0.5

1.0

Can$1.5B

R&D spend by Canadian biotech firms

1997 2001

227

416

0

100

200

300

400

500

Number of Canadian biotech firms

1997 2001

0.5

1.4

0.0

0.5

1.0

Can$1.5B

R&D spend by Canadian biotech firms

This report was authored by Pierre Lavallée, Tim van Biesen and Jaime Kriss of Bain & Company, Inc. The analysis was conducted by Bain & Company, Inc.


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27 Ernst & Young, Beyond Borders: The Canadian Biotechnology Report 2002; Parexel, Pharmaceutical R&D Statistical Sourcebook 2003/2004; Statistics Canada ‘Biotechnology Use & Development Survey 1999-2001’ as reported in BioteCanada, ‘State of the Industry Report 2002’

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