Canadian Drug Pricing Policy

1. AARP International Forum on Prescription Drug Policy Washington Canadian DrugPricing Policy Tom Brogan President BROGAN INC. June 2003 BROGAN INC.

2. Canadian Drug Pricing Policy “Explain the difference in Canadian and US Prices” • Historic factors • Federal review agency • Provincial government impact on pricing • Conclusions and Policy Considerations

3. Economic Impact on Price Pricing historically lower in Canada 1968 19% below US 1976 15% 1982 19% 1983 16% Price for individual market Income per person 22% below US GDP per person 15% below US Single Source Drugs Only

4. Provincial gov’t decision process for determining which drugs to reimburse for population covered (seniors, welfare, others) Government influences on pricing Federal Patented Medicine Prices Review Board reviews prices for all patented drugs sold in Canada

5. 1987 Federal Policy Changes • Patent system restructured • Compulsory licensing restricted • Industry R&D commitment main objective • Price review - quid pro quo • Major public opposition

6. R&D-to-Sales Ratios of Reporting Companies (1987-2001) Source: PMPRB Annual Report 2001

7. Patented Medicine PricesReview Board (PMPRB) • Guidelines (transparency) Main Factors Consumer Price Index (CPI) International prices Therapeutic class

8. PMPRB Impact • Companies plan pricing to comply • Some flexibility in administration • “Price control” applicable to few drugs • 21 Voluntary compliance agreements + 2 hearings in 15 years

9. Pharmaceutical Price Trends Int’l Max Rule Int’l = 6 European countries + US 1987: 45% of patented drugs below median 1997: 78% of patented drugs below median Source: PMPRB- Trends in Patented Drug Prices-1998

10. Provincial Price Influences • 40% of drug market paid by provincial government plans (depending on drug) • Provinces influence prices through market access • Restrict reimbursement based on therapeutic and cost advantages

11. Provincial Policies and Practices • Formularies • Detailed listing process • Submissions • Clinical • Application to covered population • Budget impact and pharmacoeconomic analysis

12. Provincial Policies and Practices • 1994 price freeze • Generic substitution • Special Listings • First line vs. second line • Selected indications only • Reference-based pricing • Manufacturer agreements on sales • Cost-sharing / income-testing

13. New Molecular EntitiesNo. & type of listing by province 58 new drugs receiving NOC in 1999-2001 Source: BROGAN iMAM™

14. Growth in Public Plan Total Cost, Seniors 1993/94 – 2002/03, Ontario Growth Rate – Beneficiaries over 65 3% 10% 9% 7% 10% 11% 16% 14% 14% Total Cost= Drug Cost + Dispensing Fees Source: Brogan Inc. Ontario Drug Benefit Database

15. Increase in Drug CostCanada & US, 1996-2001 Source: IMS. Health Inc.

16. 10.9 8.0 6.9 3.8 Cost Drivers, Private PayersAnnual % Change, 2001 to 2002 19.8 Source: Brogan Inc. Private Payers Database

17. Cost per Claimant by Age2002-2003 Ontario Public 2002/2003 Private Payers 2002 Age Source: Brogan Inc.

18. Multiple Drug Use Sample of Data 1996-2000 Age Source: Brogan Inc. Private Payers Database

19. Conclusions • Historic price differential • Economic differences between US and Canada??? • Federal policy objective to stimulate R&D - not price control • PMPRB has impacted prices

20. Conclusions • Company pricing decision based on market access to public plans • Utilization driving costs despite extensive administration • Efforts to ensure appropriate use

21. Policy Considerations • Government has disproportionate power and impact relative to private sector buyer. • Potential for perverse effects • Impact on R&D • Consider total health care

22. Impact of DrugsHIV/AIDS