M Dunn Wham
`n
`allud-
`
`Canadian Generic Drug Sector Study
`
`October 200?
`
`Exhibit 1 132
`
`000001
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`Exhibit 1132
`IPR2017-00807
`ARGENTUM
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`IPR2017-00807
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`ARGENTUM
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`000001
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`Contents
`
`Executive Summary
`1. Introduction
`2. Canadian Generic Drug Manufacturing
`2.1. Manufacturing Description
`2.2. Generic Drug Supply Considerations
`2.3. Barriers to Enter the Supply of a Generic Product
`2.4. Competitive Dimensions
`2.5. State of Competition
`3. Independent Pharmacy Distributors
`3.1. The Canadian IPD Sector
`3.2. Role of IPDs in the Generic Drug Competitive Framework
`4. Retail and Hospital Pharmacies
`4. A. The Canadian Retail Pharmacy Sector
`4.A.1. Overview
`4.A.2. Role of Retail Pharmacies in the Competitive Framework For
`Generic Drugs
`4.B. Hospital Pharmacies
`4.B.1. Overview
`4.B.2. Role of Hospitals in the Competitive Framework for Generic Drugs
`5. The Generic Drug Reimbursement Framework
`5.A. Public Drug Plans
`5.A.1. Scope and Nature of Public Plans
`5.A.2. Public Plan Generic Drug Related Policies
`5.A.3. Public Plan Generic Drug Policies Competitive Effects
`5.B. Third Party Drug Plans
`5.B.1. Overview
`5.B.2. The Canadian Private Drug Plans Sector
`5.B.3. The Role of Private Drug Plans in the Generic Drug Competitive
`Framework
`6. Summary of Key Findings
`Appendix 1. Federal Regulatory Framework for Pharmaceutical Products
`Appendix 2. Data Description
`Appendix 3. List of Acronyms
`
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`List of Tables
`
`Table 1. Ranking Of Generic Manufacturers By Sales
`Table 2. Status Of The First Generic Entrant
`Table 3. Status Of The Authorized Generic After Independent Generic Entry
`Table 4. Share Of Pharmaceuticals ($) By Distribution Channel (DC)
`Table 5. Pharmacy Sales By Therapeutic Class, 2006
`Table 6. Retail Pharmacy Count By Category
`Table 7. Canadian Frontstore and Dispensary Revenue by Pharmacy Category
`Table 8. Historic Pharmacy Return On ODB Branded Versus Generic Drugs Sales
`Table 9. Current Pharmacy Return On ODB Branded and Generic Drug Sales
`Table 10. Top Ten Therapeutic Classes By Hospital Purchases, Canada, 2006
`Table 11. Ranking Of Hospital Sales By Generic Manufacturer, 2006
`Table 12. Inter-Provincial Pharmacy/Hospital Price Ratio Analysis, 2006
`Table 13. Average Unit Pharmacy Invoice Prices Of Generics Relative To Canada
`Average, 2006
`Table 14. Current Formulary Listing Price Of Generics Drugs As A Percentage Of The
`Brand Price
`Table 15. Public Plans versus Private Plans Unit Price Ratio, 2006
`Table 16. Sources of Provincial Formulary Prices
`
`List of Charts
`
`Chart 1. Generic Entry
`
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`Executive Summary
`
`The Competition Bureau promotes and protects competitive markets across the entire
`economy. The Bureau is not only responsible for enforcing the civil and criminal
`provisions of the Competition Act, it is also responsible for advocating for greater
`reliance on market forces to deliver the benefits of competition to Canadians.
`
`Canada’s health system is an area where competition is often viewed as playing a limited
`role. The reality is that competitive markets are responsible for delivering many of the
`products and services on which our health system relies. Given their importance to the
`welfare of Canadians and because this is a large market - at approximately 10% of GDP,
`health related markets have been a key enforcement and advocacy priority for the Bureau
`for several years.
`
`The Bureau’s health-related advocacy activity has focused on pharmaceuticals. This
`reflects the role of pharmaceuticals in treating patients and their importance as a source of
`health care costs – at $17.8 billion in 2006, they are the second largest source of health
`care costs. The Bureau has specifically focused its attention on prescribed generic
`pharmaceuticals. Generics play an important role in keeping health costs down by
`providing competition for brand drugs when they lose patent protection.
`
`Several studies have found prescription generics to be relatively more expensive in
`Canada than in other countries. The studies prompted the Bureau to conduct the generic
`drug sector study to examine the generic drug market and identify areas where changes in
`the market framework may secure greater benefits through competition.
`
`In conducting the study, the Bureau relied on publicly available information, data
`purchased from data providers, and information voluntarily provided by sector
`participants. In July 2007, a preliminary draft of the study was circulated to key interest
`groups for fact-checking and to provide them with an opportunity to offer additional
`information.
`
`Key findings in the study include the following:
`
`
`• Generic drugs are supplied through a unique and complex framework. Physicians
`prescribe medication to be taken by patients. In filling the prescription,
`pharmacies can supply any brand-name or generic drug product listed on
`formularies (or drug plan product lists) as interchangeable for the prescribed
`medication. Drugs are paid for by drug insurance plans or out-of-pocket by
`consumers. Government and private drug plans provide coverage for
`approximately 98% of all Canadians. Pharmacies are normally paid the invoice
`price.
`
`
`
`
`
`• Generic manufacturing has become more competitive over the past 15 years. It
`appears that strong competition exists in the supply of many generic drugs in
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`Canada. The end of patent protection for a drug can now lead to supply within a
`short period of many interchangeable generic products.
`
`•
`
`In most provinces, an important way in which manufacturers compete to have
`their product stocked by pharmacies is by offering them rebates off invoice prices.
`Rebates provide incentive for pharmacies to select a particular manufacturer’s
`product. It has not been possible to obtain detailed evidence regarding the size of
`these rebates. Public sources and information provided by parties interviewed for
`this study indicate that these are on average 40 per cent of the price the pharmacy
`is invoiced. Rebates are currently prohibited in two provinces, Ontario and
`Quebec. However, legislation adopted in Ontario in 2006, and under
`consideration in Quebec, allows generic drug manufacturers to provide
`professional allowances to pharmacies.
`
`• Competition by generic manufacturers to offer lower prices through rebates is not
`reflected in prices paid by either public or private plans, or out of pocket. Rather,
`until recently, prices paid for generic drugs across the country tended to reflect the
`maximum generic drug prices allowed under Ontario’s drug plan. This changed in
`2006 when Ontario reduced the maximum it would pay for generic drugs to 50%
`of the brand-name product price. These lower prices are not paid by private drug
`plans in Ontario, or drug plans in other provinces, although this pricing discipline
`is due to be adopted in Quebec in 2008.
`
`
`
`
`
`
`
`• Plans incorporate various policies, such as maximum generic prices and so-called
`“most favoured nation” clauses, to reduce their generic drug costs. However,
`these policies provide limited incentive for manufacturers to compete by offering
`competitive generic prices to the plans.
`
` A
`
` regulatory and market framework where incentives to supply drug plans more closely
`reflect the underlying market dynamics could provide significant benefits to drug plans,
`and in turn to insurers, employers and Canadians.
`
`The Competition Bureau will continue its work in the generic drug sector by examining
`possible options for obtaining the benefits from competition and the impediments to their
`adoption. Measures for accomplishing this goal may include, for example:
`
`
`• providing manufacturers with incentives to compete to be listed on plan
`formularies;
`• using competitive tendering processes to determine the products that can be
`dispensed by pharmacies;
`• monitoring of the net price paid by pharmacies for generic drugs to ensure the
`price paid by plans reflects competitive prices; and,
`• an increased role for private plans in obtaining lower prices for their customers.
`
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`Chapter 1: Introduction
`
`The development and supply of pharmaceuticals is an important part of health care
`delivery in Canada. Pharmaceuticals are the second largest and fastest growing source of
`health care costs in Canada. In 2006, they accounted for an estimated 17% of all health
`care spending in the country.1 Total retail and hospital expenditures on pharmaceuticals
`(at invoice cost) in 2006 were $17.8 billion.2
`
`Generic pharmaceuticals (“generics”) play an important part in helping to control
`prescription drug costs in Canada. Generics are determined by Health Canada to be “bio-
`equivalent” to patented pharmaceuticals. Their role is to provide competition for brand-
`name products when their patent protection ends.
`
`Generics account for a large and growing portion of pharmaceuticals dispensed in
`Canada. Their share of prescriptions dispensed through retail pharmacies in 2005 was
`43%. In 2005, total generic drug spending was $3.2 billion, with an annual growth rate of
`13.6%. From 2004 to 2005, retail purchases of generic drugs grew at 12.1%, twice the
`growth of brand-name drugs. Generic drugs captured a smaller share of hospital spending
`at 11.6% in 2005, but were 36.4% higher than in 2004, four times the growth rate for
`brand-name drugs.3
`
`The benefits of generics are indicated by their share of pharmaceuticals costs relative to
`their share of prescriptions. While accounting for 43% of drug prescriptions in 2005, they
`accounted for only 18% of drug expenditures.4 As discussed later in the report, generic
`retail drug prices are frequently significantly lower than the corresponding bio-equivalent
`brand-name product prices.
`
`Despite these savings, there is widespread concern in Canada that generics are not
`providing the benefits they could. A series of studies have found Canadian pharmacy
`invoice prices for generic drugs, which generally reflect the amount reimbursed by public
`and private drug plans, to be on average substantially higher than in other countries. For
`example, the June 2006 report on generic prices by the Patented Medicines Price Review
`Board (PMPRB) concluded that Canadian retail pharmacy invoice prices for generic
`drugs are substantially higher than in 10 of the 11 comparator countries considered.5 The
`
`1 In comparison, hospitals accounted for 29.8% of the forecasted $148 billion spent on health care in
`Canada in 2006. See Canadian Institute for Health Information (CIHI), “Drug Expenditure in Canada,
`1985-2006”, available at: secure.cihi.ca/cihiweb/products/hcic2006_e.pdf.
`2 Retail pharmacy expenditures were $15.74 billion and hospital pharmacy expenditures on drugs were
`$2.08 billion. See IMS “News Release for 2006 Canadian Pharmaceuticals Review“ available at:
`www.imshealthcanada.com/vgn/images/portal/cit_40000873/7/25/80533297IMS%20Release%20Final%20
`English.pdf.
`3 Source: IMS Health available at:
`www.imshealth.com/web/content/0,3148,77303623_63872702_77770096_77808854,00.html.
`4 Ibid.
`5 PMPRB, June 2006, “Canadian and Foreign Price Trends”. Other studies finding Canadian generic drugs
`prices to be high in comparison to other countries include: i) Palmer D’Angelo Consulting Inc, August
`2002, “Generic Drug Prices: A Canada US Comparison” PDCI Report Series, available at:
`www.pdci.on.ca/pdf/Generic%20Pricing%20Study%20Final%20Report.pdf; ii) PMPRB, November 2002,
`
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`PMPRB estimated that Canadian non-patented prescription drug spending could have
`been reduced by as much as 32.5%, or $1.47 billion in 2005, if Canadian retail pharmacy
`prices were the same as the corresponding international median prices.6 Acting on these
`concerns, provincial and federal governments in Canada have taken, or are considering, a
`number of actions to reduce their generic drug costs.
`
`Generic drugs are an important area of interest under the National Pharmaceutical
`Strategy (NPS). The NPS is part of the 10 Year Plan to Strengthen Health Care agreed to
`by First Ministers on September 16, 2004.7 Under the NPS, in October 2005, the PMPRB
`was given responsibility to monitor and report on non-patented prescription drugs.8
`Among the nine elements of the NPS are the acceleration of access to non-patented drugs
`and the achievement of international parity on generic drug pricing.9
`
`Provincial governments are also acting individually to reduce their generic drug costs. In
`June 2006, the Ontario government amended legislation to require that generic drugs
`reimbursed under provincial drug plans normally be priced at no more than 50% of their
`brand-name reference product.10 Previously, maximum prices for the first generic in
`Ontario were set at 70% of the branded equivalent, with subsequent generics having a
`maximum price of 90% of the first generic. In February 2007, Quebec adopted a new
`policy limiting the price of the first generic drug to 60% of the price of the brand-name
`drug and subsequent generics to 54% of the brand-name drug.11
`
`While there is widespread concern regarding the supply and pricing of generic drugs in
`Canada, there is substantial uncertainty about the underlying causes for the findings of
`high Canadian prices. Potential explanations include the following:
`
`
`
`“A Study Of The Prices Of The Top Selling Multiple Source Medicines In Canada”, available at:
`www.pmprb-cepmb.gc.ca/CMFiles/study-e22SHF-8292005-2710.pdf; iii) Brett Skinner, August 2004,
`“Generic Drugopoly: Why Non-Patented Prescription Drugs Cost More In Canada Than In The United
`States And Europe”, available at: www.fraserinstitute.ca/admin/books/files/GenericDrugopoly.pdf; iv)
`Brett Skinner, February 2005, “Canada’s Drug Price Paradox: The Unexpected Losses Caused By
`Government Interference In Pharmaceutical Markets”, available at:
`www.fraserinstitute.ca/admin/books/chapterfiles/Jun05ffparadox.pdf; and v) PMPRB, October 2006,
`“Trends in Canadian Sales and Market Structure”. Both PMPRB reports are available at: www.pmprb-
`cepmb.gc.ca/english/view.asp?x=805.
`6 Federal/Provincial/Territorial Ministerial Task Force, June 2006, “National Pharmaceuticals Strategy
`Progress Report”, available at: www.hc-sc.gc.ca/hcs-sss/alt_formats/hpb-dgps/pdf/pubs/2006-nps-
`snpp/2006-nps-snpp_e.pdf.
`7Available at: www.hc-sc.gc.ca/hcs-sss/delivery-prestation/fptcollab/2004-fmm-rpm/index_e.html.
`Participants in the NPS include the federal government and all provinces with the exception of Quebec.
`8 Non-patented drugs include brand-name drugs that lost patent protection as well as generic drugs. The
`June 2006 PMPRB report referred to above was the first of these quarterly reports.
`9 NPS Progress Report, June 2006, supra, note 7.
`10 The Transparent Drug System for Patients Act 2006, S.O. 2006, c. 14, passed third and final reading in
`the Legislative Assembly of Ontario on June 19, 2006 and received royal assent on June 20, 2006. Certain
`provisions of the Act came into force upon royal assent and the balance came into force on October 1,
`2006.
`11 Price regulation in Ontario and Quebec is examined in more detail in Chapter 3.
`
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`• The use of inappropriate statistical methodologies12
`• Higher domestic concentration of the generic manufacturing industry
`• Provincial and federal government regulatory practices
`• Provincial pharmaceutical reimbursement practices.
`
`Assessing these and other possible reasons for the performance of the Canadian generic
`drug sector requires an understanding of the underlying competitive framework. This
`framework involves a complex interplay of:
`
` •
`
` Provincial and federal legislation and regulation
`• Domestic and foreign generic drug manufacturers and suppliers
`• Distributors
`• Pharmacy benefit managers
`• Rural, banner, mass merchandise and other pharmacies
`• Provincial, federal and private insurance plans.
`
`While studies have been done concerning separate elements of this framework, the
`interplay between the various elements has not been systematically examined.
`
`Bureau Purpose and Interest in Conducting the Generic Drug Sector Study
`
`The Competition Bureau, under the direction of the Commissioner of Competition, is
`responsible for the administration and enforcement of the Competition Act, a federal
`statute that applies to all sectors of the Canadian economy. The Commissioner is also
`responsible for the administration and enforcement of the Consumer Packaging and
`Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act. The
`purpose of the Competition Act, as set out in section 1.1, is to maintain and encourage
`competition in Canada in order to promote the efficiency of the Canadian economy and
`provide consumers with competitive prices and product choices.
`
`The Act defines a number of practices that are prohibited as criminal offences or are
`subject to review by the Competition Tribunal under the civil provisions of the Act. The
`Act does not provide the Bureau with any authority to decide the law or to compel
`business to adopt any particular type of conduct. Further information is available on the
`Bureau website, at www.competitionbureau.gc.ca.
`
`The Bureau promotes competition in two ways.
`
`It is a law enforcement agency. It investigates allegations of anti-competitive conduct
`and pursues criminal and civil remedies to stop anti-competitive behaviour.
`
`
`
` •
`
`
`12 D’Cruz J., Hejazi W. and G. Fleischman, 2005, “Comparisons of Retail Prices of Generic Prescription
`Drugs in Canada vs. United States: A Comprehensive Study”, available on the CGPA website at:
`www.canadiangenerics.ca/en/issues/Comparison_of_Retail_Prices_of_Generic_Drugs_in_Canada_vs_US_
`DCruz_et_al_Nov_2005.pdf.
`
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`•
`
`It also acts as an advocate for competition. To that end, it frequently makes
`submissions to legislative bodies or regulators on how to implement reforms that
`encourage competition.
`
`
`In its advocacy role, the Bureau strives to ensure that competitive factors are taken into
`consideration in the formulation of policies. It advocates that regulators and policy
`makers rely on market forces to achieve the benefits of competition, namely lower prices,
`better quality and improved product choice for Canadians. Given the important benefits
`of competition, regulation should only interfere with market forces where necessary, and
`then, only to the minimum extent needed to achieve other policy objectives.
`
`The Bureau’s interest in conducting the current study comes from its advocacy role. The
`intent of the study is to outline and describe the competitive framework for prescribed
`generic drugs in Canada, with a focus on market structure and regulatory features.
`
`The purpose of this study is not to examine Canadian generic drug prices relative to other
`countries. Rather, it is to provide an understanding of the underlying competitive
`framework in order to identify potential areas for further promoting the benefits of
`competition. These areas will provide the basis for further Bureau analysis and advocacy
`work on generic drugs.
`
`In conducting this study, the Bureau relied on publicly available information as well as
`information provided voluntarily through extensive interviews and contacts with industry
`participants from the private and public sectors. The Bureau would like to thank all
`parties that have provided information for the study.
`
`Organization of the Report
`
`The competitive framework for generic drugs involves a complex set of interactions
`between manufacturers, distributors, drug dispensers (pharmacies and hospitals) and
`payers or reimbursers (public and private drug plans and patients). This report outlines
`key features and roles of industry participants at each level related to generic drug
`competition.
`
`Chapter 2 examines generic drug manufacturing in Canada. Chapter 3 discusses the role
`of independent pharmacy wholesalers and distributors (IPDs). Chapter 4 addresses the
`practices of dispensers of generic drugs. Section A considers retail pharmacies, section B
`deals with hospital pharmacies. Chapter 5 examines key features of the reimbursement
`framework for generic drugs. Public drug plans, the largest source of retail prescription
`drug funding in Canada, are considered in Section A. The role of private insurers is
`examined in Section B. Chapter 6 provides a summary of key findings.
`
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`Chapter 2: Canadian Generic Drug Manufacturing
`
`Section 2.1 of this Chapter describes the Canadian generic drug manufacturing sector.
`Section 2.2 outlines the considerations manufacturers take into account in determining
`whether to supply a particular generic drug. Section 2.3 discusses the barriers to entry
`into the supply of a generic drug. Section 2.4 examines the dimensions for competition
`among generic manufacturers. Finally, section 2.5 considers the state of manufacturing
`competition in Canada.
`
`2.1 Manufacturing Description
`
`There are over 15 suppliers of generic drugs in the country with 13 companies having
`manufacturing facilities in Canada. The largest Canadian manufacturer, Apotex, is
`domestically owned and controlled.13 Of the next nine largest suppliers, seven have a
`parent company or group that is foreign-based.
`
`The larger manufacturers tend to offer a large portfolio of drugs across multiple
`therapeutic classes and in a variety of forms, while others are less diversified or more
`specialized. For example, Taro Pharmaceuticals, an Israeli pharmaceutical company
`entered the Canadian market in 1984 and specializes in topical products. Hospira, a 2005
`entrant, specializes in products used in hospitals including critical care products and
`specialty injectable pharmaceuticals. Sandoz acquired Sabex in 2004, and it specializes in
`injectable and ophthalmic generic pharmaceutical products.
`
`Table 1 shows the ranking of generic manufacturers based on the value of their sales to
`hospitals and retail pharmacies in Canada.
`
`Table 1. Ranking of Generic Manufacturers by Sales
`
`
`2006
`Rank
`
`Manufacturer
`
`Year 2006
`$(000s)
`
`Year
`2006 (%)
`
`Year 2006
`Cumulative (%)
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`Apotex
`
`Novopharm
`Genpharm14
`Ratiopharm
`
`Pharmascience
`
`Sandoz Canada
`
`1,100.8
`
`483.0
`
`365.3
`
`359.5
`
`280.5
`
`190.1
`
`34.16
`
`14.99
`
`11.34
`
`11.16
`
`8.70
`
`5.90
`
`34.16
`
`49.15
`
`60.48
`
`71.64
`
`80.34
`
`86.24
`
`
`13 For the purpose of this analysis, we use the term “manufacturer”, even though a company did not
`manufacture but just distributes the product in Canada. According the Food and Drug Regulations, C.R.C.,
`c. 870, a “manufacturer” of a drug is not necessarily the company that makes the product, but the company
`to which the product is registered at the time of approval.
`14 Recently bought by Mylan Laboratories Inc. as part of its acquisition of Merck KGaA's generic business,
`Genpharm's parent company.
`
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`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`
`
`
`
`Cobalt Pharma
`Mayne Pharma Canada15
`Taro Pharmaceuticals16
`Ranbaxy Pharmaceuticals
`Canada
`
`Laboratoires Riva
`
`Nu-Pharm
`
`Hospira
`
`Dominion Pharmacal
`
`ProDoc
`
`Others
`
`77.4
`
`54.8
`
`37.3
`
`34.2
`
`28.2
`
`14.8
`
`14.3
`
`12.5
`
`11.6
`
`158.2
`
`2.40
`
`1.70
`
`1.16
`
`1.06
`
`0.88
`
`0.46
`
`0.44
`
`0.39
`
`0.36
`
`4.91
`
`All Manufacturers
`
`3,222.5
`
`100.0
`
`88.65
`
`90.35
`
`91.50
`
`92.56
`
`93.44
`
`93.90
`
`94.34
`
`94.73
`
`95.09
`
`100.00
`
`
`
`
`Source: IMS Health.
`
`Generic manufacturers provide their products through three main supply routes:
`Independent pharmacy distrubutors (IPDs), pharmacy chain self distributors, and direct to
`pharmacy shipments. IPDs, discussed in the next chapter, are the principal supply route
`followed by self distribution. Some direct sales continue to occur but are a declining
`means for providing supply.
`
`2.2. Generic Drug Supply Considerations
`
`Manufacturers consider several factors when determining whether or not to develop and
`introduce an independent generic (IG) product. Key considerations include the following:
`
` •
`
`Demand size and competition: The projected aggregate demand size of the
`
`reference brand product as well as the related therapeutic class, play important roles.
`First, the generic manufacturers take into consideration how many manufacturers are
`expected to introduce competing generic versions (independently or under licensing
`agreements) of the targeted molecule. Second, branded companies may in some cases
`provide added competition to the generic manufacturer by introducing: (i) a competing
`drug within the same therapeutic class, or (ii) brand extensions to replace older
`formulations whose patents are about to expire. Brand extensions may reduce the
`potential demand size available to the generic industry once the original drug loses patent
`protection, with a proportion of patients being prescribed the new version.17
`
`
`
`15 Recently bought by Hospira Inc. as part of its acquisition of Mayne Pharma Limited, Mayne Pharma
`Canada's parent company.
`16 Recently bought by Sun Pharmaceutical Industries Limited, an Indian pharmaceuticals company.
`17 While NOC Regulations prevent a firm from using the process to delay a generic version of the original
`formulation when the brand-name drug loses patent protection, it does not prevent a brand-name firm from
`marketing “new and improved” formulations.
`
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`Development and approval costs: An important part of the entry decision is the
`•
`evaluation of the total costs of introducing a generic drug to the market. These costs
`relate to drug development, the need to conduct bio-equivalence and/or clinical studies
`and federal and provincial approvals.
`
` •
`
`Timing: The length of time it would take to develop the product and obtain
`
`approval from Health Canada is a crucial consideration. This is especially so if it results
`in the late release of a generic product after the relevant brand-name product loses patent
`protection.18
`
` •
`
`Specialization and product portfolio: For example, a manufacturer involved in
`
`some related work, or specializing in drugs within a certain therapeutic class or in certain
`dosage forms (creams, ointments, injectables), would benefit from economies of scale or
`scope in production. On the other hand, manufacturers may wish to supply a drug to
`make their product portfolio more attractive to customers.
`
` •
`
`Legal challenge costs: Challenging brand patents, as discussed below, can be a
`
`costly and time-consuming process. A generic manufacturer already involved in legal
`challenges may decide not to enter into another challenge.
`
`Once all factors and risks are considered, the manufacturer is then in a position to
`calculate its projected sales versus costs. If the expected return on investment is
`favourable, then the decision to develop the product may go forward. There is no unique
`entry threshold for molecules coming off patent. It varies among manufacturers and
`depends on the characteristics of the molecule, the manufacturer and the barriers to entry.
`
`2.3 Barriers to Entering the Supply of a Generic Product
`
`Generics may be classified into IGs, developed and supplied without authorization by the
`brand drug manufacturer, and authorized generics (AGs) that are supplied under licenses
`granted by the relevant brand drug company.19 In bringing an IG to the market, a
`manufacturer encounters various barriers to entry. Key barriers to entry relate to sunk
`costs associated with drug development, regulatory approval and provincial formulary
`listings.20
`
`Drug Development
`
`The development of IGs normally involves three key steps:
`
`
`i. Securing the active pharmaceutical ingredient (API): Described by some as the
`“key to the industry”, an API can be obtained through two sources: (a) international
`suppliers from India, China and other countries operating in Canada; or (b) internal
`sourcing through integrated arms of the manufacturer.
`
`18 The approval process is described in more detail in the next section.
`19 Licensing may also take place between two generics manufacturers.
`20 Sunk costs are costs that are non-recoverable once spent.
`
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`
`
`ii. Pre-Formulation: At this stage, generic manufacturers engage their chemists to
`develop drug formulations based on an analysis of the product itself as well as its
`monograph (listing both the active and non-active ingredients).
`
`iii. Formulation: This stage involves continuing research and development (R&D)
`and the actual preparation of test batches of generic versions, first in the laboratory
`(initial small batches) and then in the manufacturing facilities (pilot batches).
`
`
`The development costs of an IG may not be specific to the sale of the product in any
`particular country. Generic products developed and manufactured in one country can be
`supplied to other countries, provided they meet the other countries’ specific regulatory
`requirements for approval.
`
`Those contacted for this study indicated that development costs for a generic product can
`vary greatly from one to the next. Even in simple cases, costs may be around $1.5
`million. However, they can be several times higher for more complicated products, such
`as biologics.
`
`Regulatory Approval
`
`In order to market an IG in Canada, a manufacturer must obtain approval from Health
`Canada under the Patented Medicines (Notice of Compliance) Regulations (NOC
`Regulations). The NOC Regulations, as explained in detail in Appendix 1, address two
`issues, first, whether the IG is bio-equivalent to the Canadian brand reference product,
`and, second, whether the IG infringes any valid patents.
`
`Bio-equivalency
`
`To market an IG, the manufacturer must file an Abbreviated New Drug Submission
`(ANDS) with the Therapeutic Products Directorate (TPD) of Health Canada, containing
`data that demonstrate the drug’s bio-equivalence with a Canadian reference brand
`product.
`
`The ANDS must contain sufficient information for Health Canada to assess the bio-
`equivalence of the generic to the brand-name product, as well as evidence of tests
`conducted on potency, purity and stability of the new drug.21
`
`Standard bio-equivalence studies measure the rate and extent of absorption - or bio-
`availability - of a generic drug. This is then compared to the same characteristics of the
`reference drug product. The bio-availability of the generic drug must fall within an
`acceptable range of the bio-availability of the reference product. According to those
`
`
`21 The generic firm may undertake its own clinical trials instead of conducting bio-equivalence studies. In
`practice, however, showing bio-equivalence is much less expensive and generic firms almost always
`choose this path. See Bristol-Myers Squibb Co. v. Canada (Attorney General), 2005 SCC 26.
`
`
`
`12
`
`000013
`
`

`

`contacted for this study, typical costs for conducting bio-equivalency studies are in the
`range of $1-1.5 million per product.
`
`In the case of generic drugs, clinical trials are generally required for:
`
`
` More complex formulations
`• When a brand-name product is claimed to be ‘process-dependent’;
`• When a blood-sample study is inappropriate.
`
`For example, topical products do not enter the blood stream so they are tested through
`clinical trials.
`
`Clinical trials are research programs conducted to evaluate a new medical treatment, drug
`or device. These studies involve patients in the testing of treatments and therapies.
`Clinical trials, measure a drug’s safety, effectiveness, dosage requirements and side
`effects. They are normally much more costly and time-consuming than bio-equivalence
`studies.
`
`In doing its assessment of the bio-equivalence of a generic product (or an ANDS), Health
`Canada relies on data provided by the brand-name firm at the time it applied for a Notice
`of Compliance (NOC) for its product. These data are subject to a minimum period of
`protection from the date the reference product received its approval from Health Canada
`to be marketed. This period of protection, originally fiv