Pharmaceutical Industry in Canada

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
(19992004)
INDUSTRY PROFIT MARGIN
Computer and electronic product manufacturing 3
Motor Vehicle and trailer manufacturing 4
All industries 8
Pharmaceutical and medicine manufacturing 13
Oil and gas extraction and support activities 18

• 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
RANK LEADING COMPANIES RD LOCATION TOTAL SALES ( Millions) MARKET SHARE ()
1 Pfizer Montreal 2288 13.4
2 AstraZeneca Montreal 1121 6.6
3 Johnson Johnson Toronto 1106 6.5
4 GlaxkSmithKline Toronto 996 5.8
5 Apotex Toronto 950 5.6
6 Wyeth Montreal 675 4.0
7 Novartis Toronto 647 3.8
8 Sanofi-Aventis Quebec 625 3.7
9 Merck Frosst Montreal 602 3.5
10 Bristol-Myers Squibb Montreal 552 3.2

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)
• 1987Consumer 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 RD
  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)

21
(No Transcript)
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 RD Economic growth
• Lack of competition

24

• http//www.youtube.com/watch?vKWrpWjP8rFI

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 dont 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

34
(No Transcript)