Drug Pricing in Canada

Victoria Brown, Anureet Sohi, Lisa Weger

SPHA 511

• 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

Source: Statistics Canada

• 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

• 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

MAT Combined Data December 2005

• 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

• In Canada roughly 80% of drugs are marketed annually

• Of these drugs 10% are breakthrough drugs• About 49% are moderate improvements over

existing therapy

• Important stakeholders include:– Professional associations (pharmacists, other

health care professionals)– Pharmacies – Patient groups– Pharmaceutical companies

• 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

• 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

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

• 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

• PMPRB (Patented Medicines Price Review Board)

• 1987—Consumer protection pillar• Regulate prices of Patented Drugs• Independent & autonomous• Quasi judicial body

• Sets price guidelines– Introductory drugs

• Limits price increases– Existing drugs

• Does not set drug prices• Excessive price

Voluntary Compliance Undertaking

• Relevant market• Same therapeutic class• Countries other than Canada• Changes in Consumer Price Index

• Patented drug manufactures:– Profits– Market Share

• Increased contribution from drug sales to R&D from 5% to 10%– Generic companies only imitate Patented drugs

Regulated differently……..• Intellectual property protection • Regulation of the drug approval process• Reimbursement and formulary decisions

– Provincial policies and drug plans

• Cost containment– Product Selection Generic over Brand

– Price Selection Lowest priced drug

– Reference Based Therapeutic class Pricing (BC)

• 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

• 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

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

• Industry stakeholders will be both winners and losers:– Pharmaceutical companies – Pharmacies – Pharmacists – Patients

It just depends on the scenario!

• 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

• 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

• 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

• 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

•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