Abstract
The past year has produced significant change for Canada's generic drug industry, as provincial governments have capped pricing and in some cases, restricted commercial terms between generic companies and pharmacies. And more change may be on the horizon.
A recent Ontario court ruling and European trade demands aimed at delaying introduction of generic versions of brand-name drugs could also have an impact on Canadian generic drug manufacturers.
Court strikes down Ontario government ban on private-label generics
The Ontario Superior Court of Justice ruled on February 4, 2011, that pharmacies have the right to sell private-label generic prescription drugs — siding with Shoppers Drug Mart and Katz Group Canada (Rexall Pharmaplus) and against the Ontario government. When the province introduced the Ontario Drug Benefit Act (ODBA) last July, it included a regulation that effectively banned sale of store-brand generics, by stating these products weren't eligible for reimbursement under the public drug plan.
In response to a Shoppers and Katz Group challenge, the court ruled that the regulation was beyond the scope of Ontario's drug laws, saying that, “It interferes with the right to trade and commercial freedom without any specific authority to do so.”
The Ontario government has decided to appeal, but if the ruling stands, other pharmacy-store operators may join Shoppers and the Katz Group in offering private-label drugs. This would allow the chains to offset some of the revenue lost from provincial bans on generic company rebates.
“We estimate that this trade deal would increase the cost of drug plans by about $2.8 billion a year”
— Paul Grootendorst
Associate Professor, Leslie Dan Faculty of Pharmacy, University of Toronto
“In effect, this would allow pharmacies to get the rebates indirectly,” says Paul Grootendorst, associate professor at the Leslie Dan Faculty of Pharmacy at the University of Toronto. “The chains would capture money that would otherwise be going to the traditional generic companies. It will disrupt the established relationships and contracts between major generic companies and pharmacy chains.”
The generic sector may also be affected by a new trade agreement between Canada and the European Union.
Canada-EU trade deal could add almost $3 billion to Canadian drug plan costs
Canada and the European Union (EU) are negotiating the terms of a comprehensive new trade agreement, and pharmaceutical regulations are part of the discussions. The EU is advocating for changes that would extend intellectual property (IP) protection for brand-name pharmaceuticals, which are one of Europe's leading exports to Canada — worth $5.3 billion in 2009.
Dr. Grootendorst and Aidan Hollis, professor of economics at the University of Calgary, co-authored a report on the potential impact of the EU proposals on Canada's drug costs and generic drug marketplace. The report, commissioned by the Canadian Generic Pharmaceutical Association (CGPA), was released February 7, 2011.
The authors say the proposed European measures would delay the arrival of generic drugs on the Canadian market by an average of 3.5 years — producing a financial loss for Canada's generic companies and an associated spike in drug spending. “We estimate that this trade deal would increase the cost of drug plans by about $2.8 billion a year,” says Dr. Grootendorst.
“There would be no significant upside to these measures for provincial governments,” he adds. “The brand-name companies may invest more R&D in Canada but on net, governments will be paying more. That will put pressure on budgets and they will either have to cut back on the benefits of drug plans, raise taxes or increase deficits.”
Canada's Research-Based Pharmaceutical Companies (Rx&D) responded to the CGPA-commissioned report with a February 7 statement from president Russell Williams. Calling the report “flawed,” Mr. Williams said that Canada lags behind both Europe and the United States in IP protection for pharmaceuticals and needs to make changes to compete.
“Having weaker intellectual property protection than our global competitors is not an effective way to control health costs, but will have negative consequences for Canada in reduced jobs and investment in the knowledge economy,” said the statement. “As well, the study provides no estimates of the savings from new medicines and vaccines in preventing disease and saving lives while reducing the cost of hospitalization and surgery.”