week 10 - pharmaceutical drugs & innovation
DESCRIPTION
TRANSCRIPT
Policy Issue #5: Pharmaceutical Drugs &
Innovation
HLTH 405 / Canadian Health PolicyWinter 2012
School of Kinesiology and Health Studies
Course Instructor: Alex Mayer, MPA
Pharmaceutical Drugs & Innovation
Today’s LecturePharmaceutical Innovation in Ontario: What is our Willingness to Pay?
• Why does it pharmaceutical policy matter?
• Ontario’s Contexto 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
Why Does
Pharmaceutical Policy
Matter
Pharmaceutical Policy Matters Because…
It Affects Our Healtho Price of pharmaceutical
products
o OHIP coverage
o Drug approval process
o Treatment and Quality of care
Pharmaceutical Policy Matters Because…
It Affects Our Economy
o International trade
o Manufacturing
o R&D Capacity
o Retail Distribution
o Pharmacies
Pharmaceutical Policy Matters Because…
It Affects Education
o Domestic Expertise
o Quality of education
o Speed of innovation
o Research funding
Pharmaceutical Policy Matters Because…
If we get it right…
How is Canada doing?
How is Canada doing?
How is Canada doing?
2000
2002
2004
2006
2008
2010
-5
0
5
10
15
20
Publid Drug Exp Growth (%)GDP Growth (%)
Clearly, a work in progress…
Pharmaceutical Policy in Canada
o 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 Board
o 1994 TRIPS Agreement (WTO)
• Data exclusivity for minimum of 5 years
o 2006 Food and Drugs Act amendment (C.08.004.1)
• Data exclusivity extended to 8 years
Pharmaceutical Policy in Canada
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
2008 Recession
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
Recent Changes
• In Canadao Federal Secretariat (STIC) to review
innovation (2007)
o SR&ED Tax Incentive Program (2012)
o Research Partnership between CIHR and Rx&D (2012)
• In Ontarioo Transparent Drug System for Patients Act
(2006)
What Else Needs to Be Done?
Prescription Drug Coverage in ON
Program Beneficiary Deductible Copay Max Annual Copay
Ontario Drug Benefits
Seniors $100 $6.11 N/A
Low-income Seniors
$0 $2 N/A
LTC & Home Care Patients
$0 $2 N/A
ODSP/OW Recipients
$0 $2 N/A
Trillium Drug Program
Residents w/ Catastrophic Drug Costs (>4% income)
Income-based(For $6k-$100k households: $350-$4,000)
$2 N/A
Special Drugs Program
Any OHIP beneficiary
$0 $0 $0
Perverse Incentives of ODB Coverage
Minimum Wage
Working Income
Social Assistance Income
Social
Assistance
Benefits (ODB)
Benefits of Welfare outweigh Benefits of Employment
Effective Wage of SA
Poverty Wall
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.
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.
Perverse Incentives of Gx Price Cap
Supply
Demand
Under-supply of generics
25% Rx Price Cap
Qty
Best Price
Fixed Price
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).
The Public Drug Coverage Solutions
‘Better Coverage’ Policy Options
Solution #1:
Using Income, not Age as the eligibility criterion.
Perverse Incentives of ODB Coverage
Minimum Wage
Working Income
Social Assistance Income
Social
Assistance
Benefits (ODB)
Benefits of Welfare outweigh Benefits of Employment
Effective Wage of SA
Poverty Wall
Minimum Wage
Working Income
Social Assistance Income
No Poverty Wall
Constant Incentive to Work
ODB Benefits
ODB Benefits
Non-Discriminatory ODB Coverage
‘Better Coverage’ Policy Options
Solution #2:
Use a declining reimbursement scheme based on number of market entrants, instead of a fixed price cap.
Perverse Incentives of Gx Price Cap
Supply
Demand
Under-supply of generics
25% Rx Price Cap
Qty
Best Price
Fixed Price
Declining Reimbursement Scheme
Supply
Demand
Demand for generics is met at point that optimizes net social benefit to taxpayers and Gx manufacturers
25% Rx Price Cap
Qty
Best Price
Fixed Price
‘Better Coverage’ Policy Options
Solution #3:
Reward Generic Manufacturers for litigating against invalid patents, through a royalty rate (e.g. 3% of revenue) owed by subsequent manufacturers to the first-mover.
Effect of Successful Gx Litigation against Rx Patents
Supply
Demand
Qty
Best Price
Rx Monopoly Price
‘Better Coverage’ Policy Options
To increase the scope of public drug coverage, promote equity and lower insurance premiums, Ontario should therefore:
1. Use income instead of age for drug benefits eligibility
2. Use a declining reimbursement scheme instead of a price cap for Gx drugs
3. Reward successful Gx litigants of Rx patents with royalties from other Gx manufacturers
How do we promote innovation?
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
Better ‘Innovation’ Policy
Solution #1:
Use reference-based pricing for public Rx drug coverage.
Better ‘Innovation’ Policy
Solution #2:
Subsidize pharmaceutical R&D by specifically targeting the high failure rate of many Rx clinical trials.
Better ‘Innovation’ Policy
Solution #3:
Introduce a pay-for-performance reward scheme for Rx innovators; Replace Patent System with a Licensing System.
‘Better Innovation’ Policy Options
To increase the degree of pharmaceutical innovation in the province and promote the design of clinically valuable products, 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.