The impact of changing the reference countries on the list prices for patented medicines in Canada: A policy analysis.

BACKGROUND: Canada's Patented Medicine Prices Review Board (PMPRB) uses external and internal reference pricing (IRP) to regulate patented drug list prices. PMPRB has changed external reference countries from 7 to 11 to include countries with prices closer to the OECD median. We examined the impact on the list prices for patented medicines had the amendment been implemented from 2013. METHODS: Using IQVIA MIDAS® quarterly sales data, we selected branded products that were launched in Canada in 2013-2018. The list price for each product in each country was calculated as its average annual price during the 3rd year post Canadian launch. The median international price (MIP) was the median of the list prices of PMPRB7 (MIP7) and PMPRB11 (MIP11). We assumed the same IRP would be (scenario 1) or would not be used (scenario 2). RESULTS: Among the selected 400 products, 80.3 % (321) had MIP7 and MIP11 (launched in at least one reference country); 18.3 % did not have MIP11. The total current expenditures were $7,134.4 M. In scenario 1, MIP11 would not be binding for most products and expenditures would decline only by 0.7 %. If IRP were abolished, expenditures might decline by 14.1 % if the launching sequence would not change. CONCLUSIONS: MIP11 might not be binding for most medicines. The impact depends on whether to retain the IRP and approaches taken for medicines without MIP11.

Pull me - push you? The disparate financing mechanisms of drug research in global health.

BACKGROUND: There is an inconsistency in the way pharmaceutical research is financed. While pull mechanisms are predominantly used to incentivize later-stage pharmaceutical research for products with demand in the Global North, so-called neglected diseases are chiefly financed by push funding. This discrepancy has so far been ignored in the academic debate, and any compelling explanation for why we draw the line between push and pull at poor people is lacking. MAIN BODY: Clinical development of new pharmaceuticals is chiefly financed by free market pull mechanisms. Even in cases where markets fail to deliver adequate incentives, demand enhancement mechanisms are used to replicate pull funding artificially, for example, with subscription models for antibiotics. Push funding in clinical research is almost always used when the poverty of patients means that markets fail to create sufficient demand. The general question of whether push or pull generally is the more efficient way to conduct pharmaceutical research arises. CONCLUSIONS: If the state is efficient in directing limited budgets for pharmaceutical research, push funding should be expanded to global diseases. If private industry is the more efficient actor, there would be enormous value in experimenting more aggressively with different approaches to enhance market demand artificially for neglected diseases.

An Optional Delinked Reward System: Making Pharmaceutical Innovation Work for Everyone.

Conflicts over pharmaceutical pricing are driven by the patients' need for affordable medicines and the producer's reward for the investments in developing innovative medicines. A single price cannot achieve both goals, as it will either obstruct access by patients or provide too low a return to investors. This has led to calls to "delink" the payment for innovation from the price paid for drugs, so that both goals can be met efficiently and without conflict. However, the details of how best to do that are unclear. This paper proposes a specific implementation for delinking the Optional Delinked Reward System (ODRS), which integrates ideas from numerous pharmaceutical reimbursement systems. The ODRS would allow firms to choose either to negotiate a sales price for a drug (as is the current practice in most countries) or to sell their drug at a low "generic" price with a supplementary "delinked" reward based on assessed health benefit. This model builds on recent innovations in drug reimbursement including the UK's Antibiotic Subscription Pilot and the Pneumococcal Vaccine Advanced Market Commitment. The ODRS would ensure affordable and immediate access for patients and a fair reward for innovators.

High Prices for High Profits?

Canadian and foreign governments are struggling with determining whether to reimburse expensive drugs for rare diseases. The problem is that although insurers want to offer fair access to medicines for patients with rare diseases, the drugs are often priced far above normal cost-effectiveness thresholds. This leaves insurers with no tools to determine how much to pay. This article notes one reasonable standard: prices should not, in these circumstances, allow for profiteering by innovative companies.

Modeling Tiered Pricing Frameworks: A Simulation Approach.

OBJECTIVE: Drug plans take different approaches to determining reimbursement prices for generic drugs. One common approach is to set the maximum reimbursement price as a percentage of the price of the interchangeable branded drug. In many countries this percentage depends on the number of generic entrants, a model we call "tiered pricing." This paper seeks to enhance understanding of how to set the tiers. METHODS: We construct a simple model of tiered pricing and set parameters to match evidence on generic drug costs and the distribution of revenues. Using simulation methods, we then assess different tier structures in terms of total surplus and average drug cost. RESULTS: We find when tiers are bunched tightly together welfare outcomes are poor. Moreover, there are large welfare gains from increasing the number of tiers from one to two, and only small welfare gains from increasing the number of tiers beyond four. CONCLUSIONS: The choice of tiers has substantial welfare and cost implications. While it is possible to refine the simulation analysis based on specific market characteristics, an optimal tier structure, such as the one we propose in the paper, should have at least two tiers.

The Impact of Tiered-Pricing Framework on Generic Entry in Canada.

BACKGROUND: Generic drug prices have been capped at specified percentages of the interchangeable branded drug's price by the Canadian provincial public drug plans since 1993. The Pan-Canadian Pharmaceutical Alliance, formed as a coalition by the provinces/territories in Canada, implemented an alternative approach, a tiered-pricing framework (TPF) for new generic drugs on April 1, 2014, under which the percentage varies with the number of generic firms in each market. We evaluate the impact of the TPF on generic entry, ie, listing in public drug plans in Canada. METHODS: Our study compared the pre-TPF period (01/01/2012-03/31/2014) with the TPF period (04/01/2014- 06/30/2016). Prescription drugs from nine provincial public drug plans were grouped into a "market" if they had the same active ingredient and strength, route of administration, and dosage form. Each "market" was contestable by generics and met the eligibility criteria for TPF. At the "market" level, Cox proportional-hazards models with time-varying covariates were used to measure the impact of the TPF on the first generic listing in any provincial public drug plan in Canada relative to the first launch date worldwide. RESULTS: A total of 189 markets in Canada were selected for the analyses. Generic drugs in small markets were more likely to be listed in Canada during the TPF period compared to the pre-TPF period (hazard ratio [HR], 95% CI: 3.81, 1.51-9.62). There was no significant difference in generic drug listings in large markets between the two policy periods. CONCLUSION: TPF speeds up generic entry in small markets and generates the benefits of generic competition while avoiding the pitfalls of the previously employed price-cap regulations.

Reimagining Pharmaceutical Market Exclusivities: Should the Duration of Guaranteed Monopoly Periods Be Value Based?

OBJECTIVES: To describe the main features of a pharmaceutical market in which the duration of guaranteed monopoly periods would correspond to a new pharmaceutical product's value. METHODS: After reviewing patent and regulatory exclusivity-based mechanisms for protecting prescription drug markets from competition to incentivize drug innovation in developed countries, we model market protection mechanisms within the current framework to give the longest-lasting market protections to drug developers that bring the most affordable products to market with highest public health and clinical value. RESULTS: An approach tying pharmaceutical market exclusivity to value would have 3 main features. First, it would be based on regulatory exclusivity (ie, the drug regulator refrains from authorizing generic entry for a certain amount of time), rather than patents. Second, the duration of exclusivity period would be pegged to the magnitude of a product's anticipated health impact and its proposed price by using modified methods from the field of health technology assessment. Third, the duration of the value-based exclusivity period would be reassessed routinely 3 years after the product's launch to account for its real-world effectiveness. CONCLUSIONS: Linking a drug's proposed price to the duration of its regulatory-based exclusivities would both incentivize the development of high impact, low-cost products and motivate drug developers to introduce these products at lower prices.

Market concentration of new antibiotic sales.

We calculate the average sales of new antibiotics during their first 8 years on the market. The discounted net present value is only $240 m in total per antibiotic, well below costs of supplying these products. The reliance on the US for sales is striking: the US market accounts for 84% of sales during the first 8 years. These facts clarify the need for additional revenues, especially from other countries, to support incentives for the development of new antibiotics. Market entry rewards may be of particular value.

The economic theory of cost-effectiveness thresholds in health: Domestic and international implications.

Public health insurers often use an implicit or explicit cost-effectiveness threshold to determine which health products and services should be insured. We challenge the convention of a single threshold. For competitively provided products and services, prices are determined by cost; but for products with market power, patentees will increase the price according to the perceived threshold. As a result, a change in the threshold affects the prices of all patented products, including those which would have been developed even at a lower threshold. The insurer can increase efficiency by reducing the threshold for patented products, even accounting for the effect on innovation. We also model a multi-country setting, in which thresholds for patented products will fall below the globally cooperative solution because each country does not recognize the positive externality of its own spending on innovative medicines. We show that this tragedy of the commons problem can be partly corrected through referencing other countries' thresholds, but only when the countries have similar willingness to pay.

Factors associated with drug shortages in Canada: a retrospective cohort study.

BACKGROUND: To monitor the magnitude of the drug shortage problem in Canada, since 2017, Health Canada has required manufacturers to report drug shortages. This study aimed to identify the factors associated with drug shortages in Canada. METHODS: We conducted a retrospective cohort study of all prescription drugs available on the market between Mar. 14, 2017, and Sept. 12, 2018, in Canada. All drugs of the same active ingredient, dosage form, route of administration and strength were grouped into a "market." Our main outcome was shortages at the market level, determined using the Drug Shortages Canada database. We used logistic regression to identify associated factors such as market structure, route or dosage form, and Anatomic Therapeutic Chemical (ATC) classification. RESULTS: Among the 3470 markets included in our analysis, 13.3% were reported to be in shortage. Markets with a single generic manufacturer were more likely to be in shortage than other markets. Markets with oral nonsolid route or dosage form were more likely to be in shortage than those that were oral solid with regular release (odds ratio [OR] 1.66, 95% confidence interval [CI] 1.11 to 2.49). Markets for sensory organs were more likely to be in shortage than most other ATC classes. Markets with a higher proportion of drugs covered by public insurance programs were more likely to be in shortage (OR 1.03, 95% CI 1.00 to 1.05 per 10% increase). INTERPRETATION: Markets with a single generic manufacturer were most likely to be in shortage. To ensure the security of drug supply, governments should be vigilant in monitoring markets with a single generic manufacturer, with complex manufacturing processes, with higher demand from public programs or those that are in certain ATC classes.

Patient income and health innovation.

This study analyzes the relationship between the number of clinical trials in a disease area, the health losses from that disease, and the average income of people suffering from it. Average patient income appears strongly predictive of the number of clinical trials, whether funded by industry or not. We are able to precisely estimate the relationship between income and the number of trials and to identify both (a) the specific diseases that appear to be underfunded relative to their harm to human health and (b) the amount of additional funding required to bring innovation investment up to the present average.

Industry incentives and antibiotic resistance: an introduction to the antibiotic susceptibility bonus.

The scarcity of novel antibiotic compounds in a time of increasing resistance rates has begun to ring alarm bells at the highest echelons of government. Large new financial incentives to accelerate antibiotic research and development, such as market entry rewards (MERs), are being considered. However, there is little focus on how to sustain the efficacy of new, promising antibiotics reaching the market. Currently, inappropriate use of antibiotics is commonplace, which has accelerated resistance development. In an attempt to halt this trend, antibiotic stewardship policies are being implemented in many resource-rich settings. Unfortunately, this has not yet had an impact on the amount of antibiotics being prescribed globally. One important hurdle is misalignment of incentives. While governments and health services are incentivized to promote prudent use of this common good, pharmaceutical companies are incentivized to increase volume of sales to maximize profits. This problem must be addressed or else the major efforts going into developing new antibiotics will be in vain. In this paper we outline an approach to realign the incentives of pharmaceutical companies with wider antibiotic conservation efforts by making a staged bonus a component of an MER for antibiotic developers when resistance to their drug remains low over time. This bonus could address the lack of stewardship focus in any innovation-geared incentive.

How will recent trade agreements that extend market protections for brand-name prescription pharmaceuticals impact expenditures and generic access in Canada?

Canada recently entered into two multinational trade agreements (i.e., the Canada, United States, and Mexico Trade Agreement; and the Comprehensive Economic and Trade Agreement with the European Union). The resulting federal policy changes will prolong periods of market protection afforded to eligible brand-name prescription drugs by extending competition-blocking patent and data exclusivity terms. While previous studies have analysed these two policy changes in isolation, it remains unknown what the total combined impact will be in a typical year. Our objective was to design an analytic approach that can assess more than one change to a country's market protections and then to apply this methodology to the Canadian context. We find that the collective impact of these policy changes will be to extend the regulatory protection period for new drugs from an average of 10.0 years to 11.1 years. Depending upon the model's assumptions and all contingencies considered, an 11% increase equated to an average of $410 million annually (with a minimum estimate of $40 million and a maximum of $1.4 billion). Despite this uncertainty reflected in the range of possible financial impacts, we conclude that such methodological approaches could be useful for rapidly evaluating potential policy changes prior to adoption, which may further assist in budget planning to mitigate increased cost to the downstream health authorities most impacted by these trade concessions.

Orphan Drug Pricing and Costs: A Case Study of Kalydeco and Orkambi.

BACKGROUND: A common narrative is that high prices are necessary for "orphan drugs" because of the fewer patients. In the context of state health insurance systems, the high prices create significant challenges because of limited budgets. RESULTS: This study carefully examines both costs and revenues of two drugs for cystic fibrosis (ivacaftor and lumacaftor), showing that, for this important example, prices are not high because of fewer patients. The study then explores the justifications usually given for high orphan drug prices, including the need to support research and development for new drugs. Each of these standard justifications is shown to be inadequate; instead, it appears that the exercise of market power in the presence of insurance is the dominant driver of high prices. INTERPRETATION: Insurers need to re-examine how they address high-priced drugs.

Estimating the clinical cost of drug development for orphan versus non-orphan drugs.

BACKGROUND: High orphan drug prices have gained the attention of payers and policy makers. These prices may reflect the need to recoup the cost of drug development from a small patient pool. However, estimates of the cost of orphan drug development are sparse. METHODS: Using publicly available data, we estimated the differences in trial characteristics and clinical development costs with 100 orphan and 100 non-orphan drugs. RESULTS: We found that the out-of-pocket clinical costs per approved orphan drug to be $166 million and $291 million (2013 USD) per non-orphan drug. The capitalized clinical costs per approved orphan drug and non-orphan drug were estimated to be $291 million and $412 million respectively. When focusing on new molecular entities only, we found that the capitalized clinical cost per approved orphan drug was half that of a non-orphan drug. CONCLUSIONS: More discussion is needed to better align on which cost components should be included in research and development costs for pharmaceuticals.

Sustainable Financing of Innovative Therapies: A Review of Approaches.

The process of innovation is inherently complex, and it occurs within an even more complex institutional environment characterized by incomplete information, market power, and externalities. There are therefore different competing approaches to supporting and financing innovation in medical technologies, which bring their own advantages and disadvantages. This article reviews value- and cost-based pricing, as well direct government funding, and cross-cutting institutional structures. It argues that performance-based risk-sharing agreements are likely to have little effect on the sustainability of financing; that there is a role for cost-based pricing models in some situations; and that the push towards longer exclusivity periods is likely contrary to the interests of industry.

Canada's New Generic Pricing Policy: A Reasoned Approach to a Challenging Problem.

Alberta, quickly followed by other Canadian provinces, has introduced a new pricing model for generic drugs, in which prices are inversely related to the number of generic manufacturers of the drug. This paper examines the rationale for the new policy.