Opinion

Canadians paying the price for failed drug-pricing policy

As president and CEO of Life Sciences Ontario (LSO), a former government official, a scientist who has contributed to patented therapeutics and a Canadian citizen, I am compelled to respond to Dr. Danyaal Raza’s Feb. 2 opinion piece in Healthy Debate. In his article, Dr. Raza makes a number of bold claims in support of the federal government’s recent changes to the pharmaceutical-pricing environment. However, the article relies on flawed and outdated data that require further clarification.

Let me start by noting that the Patented Medicine Prices Review Board (PMPRB) regulations are a symptom of a much larger problem that needs to be addressed: the broken relationship between government and the life sciences sector. Take, for example, Canada’s response to the COVID-19 pandemic. In May of last year, the governments of the United Kingdom and France reached out to the sector and partnered early with leaders in the industry to line up the capacity and contracts that would boost production and secure access to COVID-19 vaccines. Canada’s goal, on the other hand, is to have enough vaccines to inoculate just 3 million Canadians by the end of March of this year. We’re 41st in the world in terms of per-capita inoculations and we’ll probably remain in that position throughout the first quarter of this year, during which new variants threaten to overrun Canada’s largest provinces.

In this challenging context, and out of concern for the impacts of these regulations on Canada’s life sciences ecosystem, LSO has taken an evidence-based approach to illustrate how and why the PMPRB reforms impede Canadian research and the availability of new medicines and vaccines.

Let’s review some assertions.

Does Canada have some of the highest drug spending in the world?

Dr. Raza makes this point by using a table showing Canada with the fourth highest level of so-called “pharmaceutical spending” per capita among Organization for Economic Cooperation and Development (OECD) nations; Canada is eclipsed only by Germany, Switzerland and the United States.

The problem is twofold. First, it doesn’t consider the benefits of spending on pharmaceuticals that are, in many cases, the best use of limited health-care resources, keeping patients out of clinics and hospitals by preventing and treating diseases.

Second, the data is selective and exaggerated. The table is drawn from Canadian Institute for Health Information data that lumps in innovative medicines with generic medicines, over-the-counter medicines and a range of ancillary costs, such as wholesaler distribution, drug plan administration and pharmacists dispensing fees. To get a clearer picture, if we use the PMPRB’s own data from its 2018 Annual Report, we see that patented medicines (the only drug category subject to the PMPRB regulation changes) accounted for $16.7 billion, or just 6.6 per cent of total health spending. Moreover, according to the Canadian Health Policy Institute, spending on patented medicines as a percentage of GDP was the same in 2019 (0.8 per cent) as it was in 2003 – a 16-year period of zero average annual growth relative to GDP. This doesn’t even consider the massive rebates generating billions in annual savings across all governments that aren’t counted in the PMPRB’s comparative data. They bring per-capita spending down significantly. Finally, the PMPRB includes patented medicines that have lost market exclusivity and are subject to generic competition in its calculations, which significantly overstates spending on medicines that could be the subject of inappropriate monopolistic behaviour.

Is industry bluffing about delaying launches and pulling back investments in research and clinical trials?

No, this is real and already happening.

A report commissioned by LSO from IQVIA released last summer found that in 2019, the year the price controls were adopted, Canada only benefitted from access to 13 globally launched medicines when we should have had closer to 30 based on historical trends.

This downward trend was further substantiated in a 2021 LSO-sponsored third-party survey of 43 pharmaceutical leaders that found more than a third have already delayed bringing new treatments to Canada, and nearly all anticipate further impacts on medicine launches and investments in the health research ecosystem.

Furthermore, a recent peer-reviewed paper from the Canadian Health Policy Institute observed a significant decline in Phase III and Phase IV clinical trials in Canada, both of which are reliant on large industry scale, expertise and investment.

Did Big Pharma abdicate on its 10 per cent R&D investment to sales ratio commitment?

In working groups and discussions between PMPRB, Industry Canada (now known as ISED), accounting experts and pharma over the past decade, it has been demonstrated that the PMPRB methodology to calculate the investment ratio is outdated and does not reflect today’s reality of extramural research (in hospitals and universities) beyond pharma walls, pre-competitive multi-company collaborations and clinical trial investments, along with a host of other investments into Canada’s economy and health-care system.

A 2017 report from Ernst and Young found that Innovative Medicines Canada members (not all of whom reported) invested 9.97 per cent of gross patented-medicines revenue into a 21st century definition of R&D that is comparable to how R&D expenditures are reported in other OECD nations. 

Do national pricing levels impact pharma investment and drug launch decisions?

Contrary to the assertion based on one limited study that is almost two decades old, the link between pricing levels and investment and launches is very real and documented.

A systematic review of published academic studies between 1995 and May 2020 on the pricing and investment/drug access question conducted by researcher Yanick Labrie found that: “Forty-four of the 49 studies reviewed showed a significant negative relationship between drug price controls and investment in pharmaceutical R&D or access to innovative drugs. The claim that there is no link between price and R&D or access to medicines is not supported by the evidence from the scientific literature.”

It is also telling that the federal government decided to exempt COVID-19 vaccines and therapeutics from the new pricing regime, demonstrating that it knows the PMPRB changes are a regulatory barrier to accessing new vaccines and medicines.

Final thoughts

Here’s the rub: Governments have all the necessary tools today, right now, to limit pharmaceutical prices and spending. In addition to the current powers of the PMPRB, provincial and territorial governments can also control the prices of medicines reimbursed in their jurisdictions through other statutory, legal and policy tools, and through the efforts of the pan-Canadian Pharmaceutical Alliance.

To conclude, many of Dr. Raza’s assertions are misguided. Ultimately, Canadian patients, scientists and health systems are paying the price for this failed policy experiment, which is not what our country needs at this critical moment.

 

Life Sciences Ontario is an industry lobby group sponsored in part by various pharmaceutical companies.

6 Comments
  • Brett Skinner, Editor CHPJ says:

    Joel Lexchin offers an ideological rant instead of evidence-based argument. He criticizes Canadian Health Policy Journal because we are a digital publisher and disparages us for not publishing letters to the editor? CHPJ is a peer-reviewed journal, published articles are fully referenced, data sources and methodology are explicitly detailed – and can be replicated. We will publish counter analyses that are rigourous enough to pass peer review. Lexchin has the option to challenge published research findings with evidence. His intellectual bullying is no substitute for scientific debate.

  • Karen S. Palmer says:

    The Supreme Court of British Columbia had this to say about Mr. Labrie’s lack of independence and lack of reliable methodology in other matters (Source: https://www.bccourts.ca/jdb-txt/sc/20/13/2020BCSC1310.htm#SCJTITLEBookMark140): At paragraph [2112] “Mr. Labrie opined on behalf of the plaintiffs on the effects of duplicative private healthcare with specific reference to the experience in Québec post Chaoulli. I have already addressed earlier in this judgment the issues relating to Mr. Labrie’s independence as an expert witness as well as methodological issues with respect to his report. I have concluded that Mr. Labrie’s evidence is to be afforded little or no weight due to his lack of independence and lack of reliable methodology in his report. In particular I emphasize Mr. Labrie’s selective consideration and citation of the literature and his failure to articulate his methodology while also ignoring fundamental differences between the healthcare systems in British Columbia and the countries that are the subject of his analysis.”

    • Yanick Labrie says:

      Ms. Palmer does not present any argument against the points raised in the article. Her quote is taken out of context about an unrelated issue and creates a distraction that doesn’t serve any argumentative purposes here. Instead of discussing the message, she prefers to shoot the messenger in an ad hominem attack that has no place in what should be taking place here: a “healthy debate.”

  • Joel Lexchin says:

    Dr. Jason Field’s response to Dr. Raza’s opinion piece is unfortunately tainted by drawing almost exclusively on material published in Canadian Health Policy, an on-line only journal that aggressively advocates a free market solution to every problem. Further, there is no indication on the CHP’s website that it accepts letters to the editor about articles that it has published.

    Where was the systematic review by Yanick Labrie on the effects of regulating pharmaceutical prices on research and development (R&D) and access to new drugs published? In Canadian Health Policy. In reading the article, there was no duplicate extraction of data and no assessment of the risk of bias of the studies that were included. His protocol was not prospectively registered in a database such as PROSPERO. He did not report that he developed his search strategy with the aid of an information specialist. All of the above are considered markers of high-quality systematic reviews. Importantly, the stated objective reveals that Mr. Labrie had a bias when he undertook his research. His stated objective was not to examine the effects of price regulation but to examine the negative effects of price regulation.

    Dr. Field implies that Canada does not have one of the highest levels of pharmaceutical spending in the world, but according to the OECD publication Health at a Glance Canada’s per capita spending in 2019 was fifth highest. The figures from the Canadian Institute for Health Information do aggregate all spending on pharmaceuticals in Canada as Dr. Field claims, but the same is true for the figures from all of the other countries included. Does Dr. Field have data that compares spending on just patented drugs in Canada with that in other countries? He doesn’t offer any such data. Dr. Field talks about rebates to provincial governments but rebates are common internationally. Are rebates higher in Canada than elsewhere? Dr. Field presents no data.

    Dr. Field asserts that only 13 globally launched drugs were available in Canada in 2019 when historically we should have had 30. A 2019 Health Canada report lists over 35 new drugs approved in 2019. Let’s also not forget that less than one third of all new drugs are given a high therapeutic rating by independent agencies and organizations.

    Dr. Field claims that the methodology used by the Patented Medicine Prices Review Board to calculate spending on research and development is flawed. Here are some of the items that the pharmaceutical industry thinks should count as Canadian R&D spending: management of clinical trials that take place outside Canada, administrative costs for applications for clinical trials, the cost of drugs that are donated, and contributions that support the arts and other cultural activities in Canada.

    Dr. Field asserts that Dr. Raza “relies on flawed and outdated data”. He should examine his own data before he criticizes others.

    • Karen S. Palmer says:

      The Supreme Court of British Columbia had this to say about Mr. Labrie’s lack of independence and lack of reliable methodology in other matters (Source: https://www.bccourts.ca/jdb-txt/sc/20/13/2020BCSC1310.htm#SCJTITLEBookMark140): At paragraph [2112] “Mr. Labrie opined on behalf of the plaintiffs on the effects of duplicative private healthcare with specific reference to the experience in Québec post Chaoulli. I have already addressed earlier in this judgment the issues relating to Mr. Labrie’s independence as an expert witness as well as methodological issues with respect to his report. I have concluded that Mr. Labrie’s evidence is to be afforded little or no weight due to his lack of independence and lack of reliable methodology in his report. In particular I emphasize Mr. Labrie’s selective consideration and citation of the literature and his failure to articulate his methodology while also ignoring fundamental differences between the healthcare systems in British Columbia and the countries that are the subject of his analysis.”

    • Yanick Labrie says:

      In response to Dr. Lexchin’s post regarding my research, my literature review was conducted thoroughly, applying rigorous methodology and it was peer-reviewed. The 49 studies collected have all been published in credible academic journals, including the American Economic Review, the Review of Economics and Statistics, the Journal of Health Economics, the RAND journal of Economics, Value in Health and Health Affairs. Many of the studies’ authors are distinguished and well-respected academics, among which are Frederick M. Scherer (Professor Emeritus, Harvard University), Henry G. Grabowski (Professor Emeritus, Duke University), Patricia M. Danzon (Wharton School, University of Penn), Frank R. Lichtenberg (Columbia University), and Iain Cockburn (Boston University).

      The objective of the research was not undertaken from a biased position as claimed by Dr. Lexchin. The analysis was based on a logical hypothesis derived from economic theory: price controls are likely to discourage pharmaceutical R&D investments, by making them less profitable. In a study published last year in Health Economics, Policy and Law (Trujillo, A. et al. “Fairness in drug prices: do economists think differently from the public?”), researchers at Johns Hopkins University show the results of a survey of 310 economists who are members of the renowned National Bureau of Economic Research. A vast majority of these experts oppose drug price controls. In fact, only 4% of them believe that price controls do not have a negative impact on pharmaceutical R&D investment.

      There is also a well-established consensus with regard to the negative link between price controls and the launches of new drugs in a country. University of Toronto economist Paul Grootendorst, undoubtedly one of the best in Canada in the area of pharmaceutical policies, published in July 2020 a rigorous study (with Oliver Spicer) on the launch delays to be expected following more stringent price controls such as those envisaged by the PMPRB. Their conclusion is unequivocal: “The literature indicates that controls on drug list prices delay drug launches. Using recent OECD country level data, we estimate regression models of country level drug launches as a function of public list prices, market size and membership within the EMA. The models show that price is a particularly important covariate, and the impact of price on drug launch across this group of countries is greater in the short term than the long term, indicating that drug price controls will lead to drug launch delays. Though our methods and data sources differed, these findings are in alignment with previous studies on this topic. Here, we predict that a 25% price decrease will lead to a 6-10% and 6% decrease in drugs launched over 1- and 8-year periods, respectively. Moreover, a 45% price decrease will lead to a 13-22% and 13% decrease in drugs launched over these respective periods.”

      Dr. Lexchin may deliberately choose to ignore economic theory, but he cannot ignore the huge body of empirical evidence that has accumulated on this issue over time, without raising doubts about his ideological bias.

      I invite Dr. Lexchin to identify one or more studies not included in my literature review or this post that might contradict these conclusions.

Author

Jason Field

Contributor

Dr. Jason Field is a former government official, scientist, and current president and CEO of Life Sciences Ontario.

Republish this article

Republish this article on your website under the creative commons licence.

Learn more