Prescription Drugs – A Primer

Generics, specialty drugs, brand names; so many terms to remember.  Do you sometimes get confused?  If so, read on.

In Canada, a patent grants the patent holder the exclusive rights, for 20 years, to produce and market a trade or band name drug (e.g. Avastin).  The time from drug discovery to approval can take up to 15 years, with an average cost of bringing a pharmaceutical product to market of US $802 million.

Most countries also have data exclusivity regulations which are separate from patents.  Data exclusivity refers to a fixed period of time during which the originator’s registration files cannot be used to register a therapeutically equivalent generic product.

A generic drug shares the same active (medicinal) ingredient as that used in the patented drug.  The non-medicinal ingredients, used as fillers to provide the drug its shape and color, can be different from the original brand.  The generic drug must be within an acceptable bioequivalent (absorption and elimination by the body) range to the brand name counterpart in order to meet Health Canada approval.

The price of prescription drugs in Canada is composed of a number of variables shared by brand and generic drugs alike.  The price of generic drugs in Canada generally also includes a rebate or professional allowance.  In Ontario these rebates have been eliminated for the Public sector.  Professional allowances in the Private sector will fall to 24% on April 1, 2012 and will be phased out on April 1, 2013.

Most patented drugs have a trade or brand name, and thus are typically referred to as “brands” or brand name drugs.

Brand prices (the manufacturer’s actual acquisition cost) are monitored and regulated by the Patented Medicines Price Review Board (PMPRB), a federal government agency.  The PMPRB reviews the “factory-gate” price (the price at which the manufacturer sells the patented medicine to wholesalers, hospitals, and pharmacies).  Drug prices are limited to the median of the prices for the same drugs charged in other comparator countries (France, Germany, Italy, Sweden, Switzerland, the UK and the US).  The countries used as comparators generally have high drug prices which may have the effect of inflating Canada’s patented drug prices.

Generic prices are not regulated by any federal government agency (e.g. PMPRB).  Prices are generally set by provincial and territorial drug plans, at a fixed percentage of the brand name drug, through regulations or negotiated contracts.  Prices are therefore not consistent across Canada and vary by Province and by Payer (e.g. public/private).  The price ceiling for public plans in Ontario is 25% as of April 1, 2012.  As of that same date, private plans will be reimbursed at 25% of the brand name pricing (starting point was at least 60%).

Given this disparity in pricing, it is surprising to note that generics accounted for only 54% of the total prescription drug volume in 2009, but only 24% of prescription drug sales in terms of value.  Generic penetration rates are as high as 73% in the United States, so there are significant savings that are available to Canadian employers. 

Specialty Drugs – Biologics

One factor driving costs the other way (up) is new high-cost drugs, many of which can be classified as biological drugs (biologics).  Biologics offer new medical solutions for conditions like cancer, Crohn’s disease and Rheumatoid Arthritis.

Biologics play an important role in improving the health, quality of life and productivity of plan members affected by certain conditions, and may prevent long-term disabilities.  However, these drugs carry a high cost because of their complex development and manufacturing processes.

Biologics – Quick Facts

  • It is estimated that approximately 13 people in 1,000 had a claim over $5,000 in 2010.
  • Some biologics can offer treatment for conditions where none existed before.
  • Biologics are generally administered by injection or intravenously.
  • Generally, biologics must be stored at a constant temperature from the manufacturer up to the point of administration.  Even a variation of one degree can render the product unusable.
  • Health Canada does not classify subsequent entry biologics (the second to market an innovator biologic) as “generic” biologics.  Thus, cost relief will not be possible, unlike the traditional brand name drugs that are genericized at the end of their 20 year patent.

With biologics “the process is the product” and requires the introduction / insertion of (foreign) DNA into host cell or organism.  Biologics share the following characteristics:

  •  Are composed of millions of atoms.
  • Typically cannot be described by a single chemical formula.
  • Are synthesized by “organisms” (e.g. bacteria, mammalian cell culture).

Biologics represent an increasing percentage of new drugs in Canada.  These drugs represented 13.3% of private drug plan costs in 2009, up from 8.6% in 2005.

With an ever aging Canadian population, employers and employees will have no choice but to become versed in the differences between generic, brand name and specialty drugs.  Prevalent and pervasive benefit themes for the current and foreseeable future will be; 1) The need to increase generic penetration rates, and 2) The use of traditional ‘first line’ drug therapies in advance of more expensive specialty drug treatment regimes.

For over 20 years, Chris Pryce of Human Capital Benefits has been advising employers on all aspects of managing employee benefits programs and related products. If you have any questions, you can contact Chris at 416.924.8280 or by email at chrispryce@www.humancapitalbenefits.com

 

2018-04-17T15:55:46+00:00