Week 10 - Pharmaceutical Drugs & Innovation

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Week 10 - Pharmaceutical Drugs & Innovation

  1. 1. Policy Issue #5:Pharmaceutical Drugs & Innovation HLTH 405 / Canadian Health Policy Winter 2012 School of Kinesiology and Health Studies Course Instructor: Alex Mayer, MPA
  2. 2. Pharmaceutical Drugs & Innovation
  3. 3. Today’s LecturePharmaceutical Innovation in Ontario:What is our Willingness to Pay?• Why does it pharmaceutical policy matter?• Ontario’s Context o Failed policies to attract R&D investments o Failed policies to lower public drug spending o 2008: The Recession• Recent Changes to Pharmaceutical Policy in ON/CAN• Where do we go from here? o Better Public Drug Coverage Policies o Better Innovation Policies
  4. 4. Why DoesPharmaceutical Policy Matter
  5. 5. Pharmaceutical Policy Matters Because… It Affects Our Health o Price of pharmaceutical products o OHIP coverage o Drug approval process o Treatment and Quality of care
  6. 6. Pharmaceutical Policy Matters Because…It Affects Our Economy o International trade o Manufacturing o R&D Capacity o Retail Distribution o Pharmacies
  7. 7. Pharmaceutical Policy Matters Because… It Affects Education o Domestic Expertise o Quality of education o Speed of innovation o Research funding
  8. 8. Pharmaceutical Policy Matters Because… If we get it right…
  9. 9. How is Canada doing?
  10. 10. How is Canada doing?
  11. 11. How is Canada doing?201510 Publid Drug Exp Growth (%) GDP Growth (%) 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-5
  12. 12. Clearly, a work in progress…
  13. 13. Pharmaceutical Policy in Canadao 1987 Patent Act amendment (Bill C-22) • Patent life of pharmaceutical drugs extended to 20 years • Additional protections for Canadian Rx brands from generic competitors • Established the Patented Medicines Price Review Boardo 1994 TRIPS Agreement (WTO) • Data exclusivity for minimum of 5 yearso 2006 Food and Drugs Act amendment (C.08.004.1) • Data exclusivity extended to 8 years
  14. 14. Pharmaceutical Policy in Canada
  15. 15. Failures of Past Pharmaceutical Policy• Past Policies: o ‚Zero-sum Thinking‛ • Accepted argument that pharmaceutical policy involves a real tradeoff between affordability of Rx pharmaceuticals and incentives for R&D investment o Naturalistic Fallacy • Looked to policies in jurisdictions with strong pharma lobbies to try to spur our own industry o Failed to appreciate global nature of pharmaceutical R&D investment o Failed to appreciate the incentives and behaviors responsible for generic drug price inflation
  16. 16. 2008 Recession
  17. 17. Goals of Future Policy• Evidence-Based Decision-making o Considers both the benefits and costs of strengthening patent rights o Balances the diverse interests of Canadian society in setting drug prices o Promotes R&D innovation that is not just profitable but clinically valuable
  18. 18. Recent Changes• In Canada o Federal Secretariat (STIC) to review innovation (2007) o SR&ED Tax Incentive Program (2012) o Research Partnership between CIHR and Rx&D (2012)• In Ontario o Transparent Drug System for Patients Act (2006)
  19. 19. What ElseNeeds to Be Done?
  20. 20. Prescription Drug Coverage in ONProgram Beneficiary Deductible Copay Max Annual CopayOntario Drug Seniors $100 $6.11 N/ABenefits Low-income $0 $2 N/A Seniors LTC & Home $0 $2 N/A Care Patients ODSP/OW $0 $2 N/A RecipientsTrillium Drug Residents w/ Income-based $2 N/AProgram Catastrophic (For $6k- Drug Costs $100k (>4% income) households: $350-$4,000)Special Drugs Any OHIP $0 $0 $0Program beneficiary
  21. 21. Perverse Incentives of ODB Coverage Poverty Wall Working IncomeEffectiveWage of SA Minimum Wage Social Assistance Income Benefits of Welfare outweigh Benefits of Employment
  22. 22. Inequities in ODB Coverage• Seniors but not Low-Income People? o In 2008, ODB subsidized the drug costs of 300,000 Ontario seniors with incomes over $50,000 per year. o Meanwhile, working-poor families are 3.3X more likely not to refill their prescriptions due to high cost and have to spend more than 4% of their total income on drugs before they get any subsidy at all.
  23. 23. ODB’s Generic Price Policy• Capping generic prices at 25% of Rx o A price cap may mean that some products only those drugs whose cost of production is significantly below 25% of Rx will appear on the market. o Generic drugs with higher costs of production will not enter the market (there is no profit to be made), thereby eliminating some potential benefit that patients would have received from a lower-priced generic option.
  24. 24. Perverse Incentives of Gx Price Cap SupplyBest PriceFixed Price 25% Rx Price Cap Demand Qty Under-supply of generics
  25. 25. Lack of Balance in Incentives facing Rx and Gx Manufacturers • Rx have incentives to claim multiple (often invalid) patents for the same pharmaceutical product. o At worst, the litigation delays introduction of price competition from Gx products. o Gx have little incentive to litigate due to the ‚free- loading problem‛ (subsequent Gx manufacturers will benefit the same amount at less cost).
  26. 26. The Public Drug Coverage Solutions
  27. 27. ‘Better Coverage’ Policy OptionsSolution #1:Using Income, not Age as the eligibilitycriterion.
  28. 28. Perverse Incentives of ODB Coverage Poverty Wall Working IncomeEffectiveWage of SA Minimum Wage Social Assistance Income Benefits of Welfare outweigh Benefits of Employment
  29. 29. Non-Discriminatory ODB Coverage No Poverty Wall Working IncomeMinimumWage Social Assistance Income Constant Incentive to Work
  30. 30. ‘Better Coverage’ Policy OptionsSolution #2:Use a declining reimbursement schemebased on number of marketentrants, instead of a fixed price cap.
  31. 31. Perverse Incentives of Gx Price Cap SupplyBest PriceFixed Price 25% Rx Price Cap Demand Qty Under-supply of generics
  32. 32. Declining Reimbursement Scheme SupplyBest PriceFixed Price 25% Rx Price Cap Demand Qty Demand for generics is met at point that optimizes net social benefit to taxpayers and Gx manufacturers
  33. 33. ‘Better Coverage’ Policy OptionsSolution #3:Reward Generic Manufacturers forlitigating against invalid patents, through aroyalty rate (e.g. 3% of revenue) owed bysubsequent manufacturers to the first-mover.
  34. 34. Effect of Successful Gx Litigation against Rx Patents SupplyRxMonopolyPriceBest Price Demand Qty
  35. 35. ‘Better Coverage’ Policy OptionsTo increase the scope of public drugcoverage, promote equity and lower insurancepremiums, Ontario should therefore:1. Use income instead of age for drug benefits eligibility2. Use a declining reimbursement scheme instead of a price cap for Gx drugs3. Reward successful Gx litigants of Rx patents with royalties from other Gx manufacturers
  36. 36. How do we promote innovation?
  37. 37. Failures of Past Pharmaceutical Policy• Past Policies: o ‚Zero-sum Thinking‛ • Accepted argument that pharmaceutical policy involves a real tradeoff between affordability of Rx pharmaceuticals and incentives for R&D investment o Naturalistic Fallacy • Looked to policies in jurisdictions with strong pharma lobbies to try to spur our own industry o Failed to appreciate global nature of pharmaceutical R&D investment
  38. 38. Better ‘Innovation’ PolicySolution #1:Use reference-based pricing for public Rxdrug coverage.
  39. 39. Better ‘Innovation’ PolicySolution #2:Subsidize pharmaceutical R&D byspecifically targeting the high failure rateof many Rx clinical trials.
  40. 40. Better ‘Innovation’ PolicySolution #3:Introduce a pay-for-performance rewardscheme for Rx innovators; Replace PatentSystem with a Licensing System.
  41. 41. ‘Better Innovation’ Policy OptionsTo increase the degree of pharmaceuticalinnovation in the province and promote thedesign of clinically valuableproducts, Ontario should therefore:1. Use reference-based pricing for public Rx coverage.2. Subsidize pharmaceutical R&D and facilitate basic research/knowledge dissemination.3. Introduce pay-for-performance to reward clinical innovators that create genuinely beneficial cures.

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