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Manufacturing anxiety about generic drug prices

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Generic drug companies often present themselves as a modern-day Robin Hood: taking from brand name drug companies, and passing the spoils on to Canadians. Public debate is brewing, however, over how to split the loot.

Recently, the Canadian Generic Pharmaceutical Association (CGPA) released a report on the "risks" associated with "tendering" to achieve lower generic drug prices.

Here's the context: Canadians pay unnecessarily high prices for generic drugs. Our prices are set as a percentage of the equivalent brand name drug. Ontario currently prices at 25 per cent -- the lowest in Canada -- yet still pays far higher prices than most countries, adding $245 million dollars to the province's annual drug bill. Nationwide, this figure likely exceeds a billion dollars.

In June, Canada's provincial premiers started remedying this problem. They proposed having generic firms compete to supply provincial drug plans, as is done in other countries. The resulting contracts, or "tenders," would unquestionably lower generic drug prices.

Competitive prices mean tighter margins for pharmacies and generic manufacturers, so the CGPA opposition comes as no surprise. But how solid are their arguments?

The first "risk" in the CGPA report addresses patents. Our laws require generic firms to invalidate all the patents on a branded drug in order to get Health Canada approval. Many branded manufacturers exploit this rule by filing many patents -- some of questionable validity -- to extend patent protection for their drugs. The report argues inflated generic prices support the costs of this litigation. Because tendering lowers prices, they argue it would reduce the incentive for generic firms to challenge weak patents, and thus, delay generics coming to market.

We need only look south of the border for a better system. The U.S. rewards the firms that challenge patents by granting them a six-month period of market exclusivity, a targeted prize that induces litigation. This and other viable alternative policies are simply not presented as potential solutions in the CGPA report.

The second "risk" listed in the report is that tendering might increase drug shortages. While opponents of tendering have been quick to bring up shortages, they have not properly considered the obligations governments could require in tendering contracts. For example, governments could oblige companies to stock several months of back supply, and require that companies pay all costs associated with securing alternative sources, if necessary.

This is exactly how other countries manage these issues. The CGPA report itself admits that there "have not been any reports of serious supply disruptions in the European Union countries that use tendering."

The third "risk" is that tendering would harm Canadian generic manufacturers. This argument, which seems akin to a request for corporate welfare, conveniently avoids the reality that generic drug production is highly globalized. Only two of nine CGPA member generic manufacturers are headquartered in Canada, and both sell their products in over 60 other countries. We suspect losing a Canadian tender will be far from catastrophic for these firms.

In any case, it appears Canadian firms could afford to offer more competitive pricing to Canadians. For example, Ontario pays 50.3 cents for amlodipine (10mg) from Apotex, Canada's largest generic manufacturer. Apotex also lists this drug in New Zealand, a country that uses tendering widely, for 3.4 cents.

The final "risk" concerns the viability of community pharmacies. On this count, Canadian experience speaks volumes. When Ontario reduced generic prices in 2010, pharmacy chains claimed it would result in closures. The government went ahead anyway, and the number of pharmacies in Ontario continues to increase. Back then, Canada had 40 per cent more pharmacies per capita than the United States, and now we have even more.

So, where does this leave the Canadian taxpayer?

Right now, our governments are dumping hundreds of millions of extra dollars into a dysfunctional system and hoping for the best. It would be cheaper, more effective, and more transparent for our governments to employ tendering to secure timely and affordable drug supplies.

Ironically, the CGPA report authors, Aidan Hollis and Paul Grootendorst, are on the record supporting tendering. In a 2011 report that wasn't paid for by the generic drug industry they stated, "We recommend continued experimentation with tenders for generic drugs."

We couldn't agree more. Our pricing system for generic drugs is fundamentally broken. Canadians need access to generic drugs at fair prices, not manufactured anxiety based on one-sided arguments. The "risks" of tendering are predictable and manageable. It's time Robin Hood gave more to Canadians, and kept less for his merry men.

Michael Law is an expert adviser with and an assistant professor at the Centre for Health Services and Policy Research (CHSPR) at the University of British Columbia. He wrote this with Jillian Kratzer, a researcher at CHSPR.

Republished from the Winnipeg Free Press print edition November 19, 2012 A13

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