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Truth Found in the Wrong Places


Pharmaceutical Executive

Pharmaceutical ExecutivePharmaceutical Executive-07-01-2011
Volume 0
Issue 0

More bad ideas on how to manage the healthcare burden are circulating beyond the stakeholders that initiated them

ADVANCES IN INFORMATION TECHNOLOGY and the near-universal acceptance of health as a key factor in social development are combining to make the process of decision-making in health less local, and more global. For Big Pharma, the implications work both ways. There is an efficiency bonus and the opportunity to leverage connections fostered through the advantages of cross-geography scale and reach. At the same time, more "bad" ideas on how to manage the healthcare burden are circulating beyond the boundaries of the countries and stakeholders that initiated them, with the best example being the ubiquity of the reference-based pricing model to set the price of new innovative medicines against older alternatives.

William Looney

This dynamic is most prominently at play in Europe and of course here in the US, where the debate on high drug prices has revolved around cross-border issues such as why Canada can provide the same treatments to patients, ostensibly at much lower cost—and how US consumers should be empowered to take advantage of the price gap through legislation that authorizes importation of such medicines for personal use. Managing the fallout to preserve a cohesive industry position that works for both countries has become a key focus of trade association work, as evidenced in a series of frank exchanges Pharm Exec conducted with PhRMA President John Castellani and Canada Rx&D Director Russell Williams in our March and April issues, respectively.

In this blossoming database of ideas, some of the best work on behalf of the innovator industry may be found where you least expect it. It pays to scan widely. For example, advocates who retain their faith in market-based solutions to promote medicines innovation might want to look at three recent studies published by the Canadian Patented Medicine Prices Review Board (PMPRB). A federal government-funded bureau whose mandate—to ensure domestic prices of patented drugs are not "excessive"—is widely criticized in the US as a paragon of interventionist bureaucracy, the PMPRB is not seen as a friend of Big Pharma. Yet, consider the findings from these new PMPRB works, published in December 2010:

  • Use of the World Health Organization's ATC/DDD (defined daily dose) classification system for tracking trends in drug utilization is being "misapplied" in many European countries as a basis for determining the price and cost of new drugs. The PMPRB report, "The WHO Defined Daily Dose in Canadian Drug Utilization and Cost Analyses," argues forcefully that this should not be done in Canada, noting that "use of the DDD metric to compare costs of different drugs generally produces invalid or questionable results." This, in the PMPRB's view, should not qualify the ATC/DDD system to test or confirm cost-of-illness, cost-effectiveness, or budgetary impact analyses. The report is doubly valuable as an endorsement of the industry position against using the system to fix costs and set prices, since it represents the unbiased finding of an independent third party.

  • Another study, "Generic Drugs in Canada: Price Trends and International Price Comparisons," reverses the assumption that Canadian medicines are necessarily cheaper than in the US. This may be true for on-patent drugs, which take up a dwindling share of US scrips, but generic drugs in Canada actually are priced higher—and cost more to payers and consumers—than prices for the same products in 11 other industrialized countries. This includes the US, where average prices for generics are roughly 40 percent lower, on a cross-border purchasing power parity calculation. Overall, among the 11 markets surveyed, foreign prices are only about two thirds of corresponding Canadian prices. The report concludes "these price differences are substantial."

  • The third work, "Generic Drugs in Canada: Market Structure," can be used to infer that one factor behind these high prices for generics is a very high level of market concentration in Canada among suppliers. In most therapeutic categories, including those where the volume of prescriptions is highest and thus would be theoretically crowded with competitors seeking market share, only two generic suppliers control upwards of 85 percent of sales. The report does not document a cause, but supportive provincial government policies toward generic medicines has to be factored in.

Globalization of the information flow is clearly here to stay. Casting the net as widely as we can is a key part of our mandate at Pharm Exec, and we aim to make that information sensible, as a basis for action. Let us know how we are doing through our newly revamped website.

William Looney



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