Letter to the Editor: Report on Business magazine (Globe and Mail)

Posted on December 14, 2016

Innovative Medicines Canada has sent a letter of concern to the publisher of the Report on Business magazine and the Globe and Mail regarding the incorrect and misleading article entitled “Big Pharma vs. Everyone” by Paul Webster published earlier this year.

We requested that Report on Business/The Globe and Mail issue a full and complete retraction of the article “Big Pharma vs. Everyone,” and refrain from republishing this article in print or digital media or any other form in the future. The Globe and Mail is currently reviewing our complaint.

Here are the numerous errors and biases that we highlighted in the letter:

On page 44, Webster states “Frustration with these costs – driven partly by pharmacists’ fees and markups, and partly by quickly rising drug prices —is becoming acute.” Patented (commonly referred to as “brand name”) drug prices, including price increases for these products, are regulated in Canada by the Patented Medicine Prices Review Board (PMPRB) and must fall within Consumer Price Index (CPI) measures. Given that the Canadian inflation rate from September 2015 to September 2016 was 1.3 percent, any in-market drug price increases would be at or lower than this rate. According to the PMPRB’s own data, patented drug prices have in fact increased at less than the CPI for the past ten years on average.

The article repeatedly conflates the concepts of “cost” and “price,” which have very different meanings in the context of healthcare expenditures. The article uses changes in expenditures to demonstrate changing prices, when the reality is that utilization has had a larger effect on expenditures and price changes actually have overall had a lowering impact on expenditures, according to data from the PMPRB.

Returning to page 44, Webster cites an example from Tim Clarke regarding a higher-priced drug “introduced in 2014 for Hepatitis C.” The article does not mention to readers that the new generation of innovative Hepatitis C drugs is in fact curative. They completely eradicate the Hepatitis C virus from a patient’s system, in contrast to a previous generation of treatments for Hepatitis C that acted as non-curative therapies, in addition to the non-pharmacologic treatments that are required to treat long-term effects of the disease. Price comparisons should be considered in light of the highly expensive, risky and invasive alternative treatments – notably liver transplants – that are no longer needed for patients that have access to these remarkable medicines.

With regards to the pricing for the drug that cures Hepatitis C, Webster states that the drug “costs at least $55,000.” This is incorrect. In fact, that figure is the maximum allowable price of treatment, as regulated by the PMPRB. Payers in Canada pay less than this maximum amount. In addition, the price of the specific treatment at launch was the lowest out of all eight comparator countries used by the PMPRB.

The statement “The drug costs at least $55,000 to treat a virus that is estimated to infect as many as 400,000 Canadians” is an overstatement. It implies to the reader that 400,000 people in Canada will need active treatment for Hepatitis C. The Public Health Agency of Canada estimates that between 220,697 and 245,987 people in Canada live with chronic Hepatitis C infection, which constitutes the population that could potentially receive treatment for Hepatitis C through these treatments, based on suitability of treatment. Not all of these people will be treated, and even if they were treated, it would offset much higher future treatment costs.

Webster continues by stating, “Some [high-priced specialty drugs] can cost patients up to $1-million annually.” In fact, the highest cost therapy in Canada that we are aware of is $700,000 per patient annually, according to data from the PMPRB. This is based on the frequency of treatment combined with its maximum allowable price. We do note that this treatment is subject to a hearing by the PMPRB into the acceptability of its pricing; however, this price was set according to PMPRB guidelines at launch.

Webster characterizes drugs’ “extreme profitability” as due to “generous patent protections.” However, this must be placed in the proper international context. Canada, in fact, has significantly less patent protection for most innovative medicines than is provided by equivalent developed nations, such as the United States, Japan, Switzerland and the twenty-eight countries in the European Union.

Webster then asserts, without citing any source, that the aforementioned patent protections guarantee profits “for a dozen years or more.” This is incorrect. While patents are granted during the drug development process, due to regulatory delays and other processes, drugs in Canada generally retain five to seven years of patent exclusivity once they are available on the market, the only time a drug can return a profit. In fact, a 2016 study on patent exclusivity from IMS Brogan reveals that once a product is reimbursed (or, in other words, available) on public drug plans in Canada, there are on average only three to six years of patent exclusivity remaining.

This paragraph then continues with an egregious and misleading statement conflating pricing practices in the US to the Canadian context. We abhor the practices of Turing Pharmaceuticals – a US generic company – but note that their practice of highly inflating the price of an off-patent, or generic, product is unlikely to occur in Canada due to strict regulation, competition and other governmental controls. Patented drug prices in Canada are strictly regulated by the PMPRB, the pan-Canadian Pharmaceutical Alliance (pCPA) and by individual public and private payers, and also cannot increase by more than inflation in any given year, and even this potential increase is in many cases not permitted by Canadian payers.

We would also like to point out that the Daraprim example is irrelevant to the Canadian context, as no licences to market Daraprim exist in Canada. The drug was discontinued in Canada in 2013, and a Toronto Star article notes “hospitals make the drug in-house when it’s needed.”

Webster then attributes a comment to Mike Sullivan noting “drug-makers’ cost-inflating tactics.” We reiterate that the prices of patented medicines are regulated by the PMPRB and any price increase must remain under inflation. Moreover, costs are also attributable to pharmacists and distributors, as noted in the article, but this is often attributed to drug makers, which is inaccurate. The phrase “cost-inflating” in this sentence carries pejorative connotations, and implies that Canadian patented drug pricing is both unreasonable and unregulated, when it is neither.

This statement is further driven home when Webster again conflates the US example to Canada, citing a Bloomberg analysis of price increases in the US, showing that in the US, 30 drugs had price increases higher than inflation, when six had increases at or lower than inflation. This example leads readers to believe that this is the case in Canada, when, as mentioned before, any price increases of patented medicines are regulated to the inflation rate. In reality, actual price increases as reported by the PMPRB in the last 26 years were consistently below inflation and were near or below zero.

In the next paragraph, Webster commits an error in citing statistics comparing apples to oranges. Webster uses data from the CIHI report on healthcare spending for 2015. He wrongly asserts that public drug plans “foot 42% of Canada’s $35-billion annual drug bill.” This is incorrect. Canada’s public plans pay for 43% of the costs of the total of $29-billion in prescription drug costs. The $35-billion figure he then cites is actually $34-billion and includes over-the-counter (OTC) products ($5.1-billion) as well as prescription drugs ($29-billion) (total drug costs). If one were to use the total drug cost $34-billion figure, then the public plan total share of cost would be 36% – a significant difference from 43%. This error results in a misleading interpretation of the data.

In addition, the article does not provide the correct price of Lipitor (atorvastatin) or its generic version. In Canada, the cost of a brand-name Lipitor pill is $2.16 according to IMS Brogan’s Provincial Reimbursement Advisor (PRA) August 2016 edition. The price per pill of generic atorvastatin is $0.39. Generic atorvastatin is one of the molecules priced at 18% of the brand name price.

Overall, this presentation of data creates a confusing and inaccurate representation of spending on drug products in Canada.

Share of Spending

  Prescription Drugs – $29-billion All drugs (Prescription and OTC) – $34-billion
Public Spending 43% 36%
Private Spending 36% 30%
Out of pocket spending 22% 33%


While we note that prescription costs are increasing, the quote that implies that high-cost prescription drug claims (the $130,000 claim mentioned in the article) are “increasingly the case” is both sensational and unsubstantiated. In fact, the average cost of a prescription in Canada is still only about $35, according to 2015 data from IMS Brogan.

We would also like to point out that the quote from the Canadian Pharmacists Association is inappropriate given that this association represents pharmacists, not the business of pharmacy. We question why Webster did not choose to reach out to the Neighbourhood Pharmacy Association of Canada or the Canadian Association for Pharmacy Distribution Management to discuss pharmacy markups and administrative fees, as these associations are directly involved in this business.

Webster then asserts “generic drug manufacturers as a group charge 18% of the price of the brand-name equivalents to their products.” This is incorrect. There are currently under 20 generic molecules in Canada set at this 18% level within publicly-funded drug plans. In some cases, some generics still may charge as high as 80% or more of the brand price based on the rules set out by the pCPA Generic Value Initiative and based on actual data from PRA. Canadian generic prices have been, and remain, significantly higher on average than the price of equivalent U.S. medications.

Webster then demonstrates that he does not understand the different business models of innovative and generic drug companies with his assertion that, even with lower pricing, generic drug manufacturers “are still profitable.” While innovative pharmaceutical companies have only the remaining limited time of market exclusivity after safety and listing processes to recoup their original investment and continue R&D for the next generation of treatments, generic drug firms can market a generic drug in perpetuity, without reinvesting any of their profits into R&D.

In the following paragraph, Webster writes that “ironclad patent protections” are responsible for delivering “massive profits to their owners.” Leaving aside the hyperbolic language, the statement is incorrect. Patent protection in Canada for pharmaceuticals is weaker and less dependable than equivalent protection in other developed nations. For example, since 2005, 28 drug patents in Canada have been invalidated prematurely in Canada, unlike the same patents which were upheld in similar developed jurisdictions, such as the US, Japan and the EU, in whole or in part due to a unique patent utility doctrine, which unfairly disadvantages all Canadian patent holders – but particularly, the Canadian pharmaceutical industry.

Webster’s reference to the cost of developing a “blockbuster” drug is not entirely accurate. The Tufts Center for the Study of Drug Development estimates the cost of developing a drug – blockbuster or not – at $2.6-billion USD. It should also be noted that today’s treatments, and the treatments of tomorrow, are increasingly focused on targeting diseases with smaller patient groups or diseases that have been neglected in the past, including orphan/rare diseases.

The author then uses an example comparing the unit price between two drugs, ignoring the fact that a low-priced drug can still have a significant budgetary impact. According to IMS Brogan, sales revenues for generic atorvastatin are projected at $222,389,000 to the end of 2016, and $201,597,000 for the Hepatitis C treatment to the end of 2016. In other words, mass utilization of low cost drugs can be equally or more significant when considering total drug budget expenditures than higher cost products. Moreover, the expenditure impact of low-cost generic atorvastatin is repeated year-over-year, whereas the impact of the Hepatitis C drug is expected to be a one-time use and expense. In this context, Webster’s argument of low-priced drugs with respect to high-priced drugs seems dubious.

Page 45 of Webster’s article features an illustration comparing the price of a Hepatitis C drug in Egypt versus the price of the same Hepatitis C drug in Canada. There are numerous issues with this comparison:

  • The simplest error is claim of price in the illustration. If we take a “two-month” supply to be 8 weeks, then the claim that this specific Hepatitis C treatment costs $55,000 in Canada is incorrect. The duration required for this Hepatitis C treatment is minimum 12 weeks – approximately three months. That this treatment is referred to as a “supply” implies that this is a chronic-use therapy, which is incorrect.
  • A more serious issue is the false dichotomy that the author creates by comparing the price of a treatment in Egypt with the price of the same treatment in Canada by insinuating that price in Canada should be the same as in Egypt. Drugs the world over are priced on a complex set of factors including the cost to develop the drug, disease burden, a country’s economic conditions, among other factors. Egypt has a rudimentary healthcare system (demonstrated by the use of dirty medical tools, a fact noted as a significant contributor to Egypt’s high Hepatitis C prevalence), barely any concept of health insurance either public or private, low GDP per capita compared to Canada as well as a very high 10 percent inflation rate. This is not to mention serious security issues, high infant mortality, low literacy rates and level of human rights abuses.
  • As mentioned before, the ceiling price of drugs in Canada is strictly regulated by the PMPRB, which takes into account the price of the same drug (or similar, if not available) in a basket of countries most similar to Canada; that is, similar GDP and comparable levels of R&D. The PMPRB basket of countries consists of France, Germany, Italy, Sweden, Switzerland, the UK and the US. For obvious economic and societal development reasons, Egypt is not part of this basket, as it would not match PMPRB criteria.

The author blames new innovative curative treatments like Hep C drugs for “turning the insurance model on its head.” We object to the insinuation that this is the fault of innovative therapies. From the beginning, the insurance model in Canada has been a “claims in, claims out” system, not a “true” insurance against catastrophic drug expenses or to treat the entire disease. Drug insurers in Canada have not previously had any incentive to save drug plans money as drug insurers’ profit comes from fees for administering drug plans and total dollars spent in drug plans, nor have they had to consider the effect of cures or treatments for rare/orphan diseases beyond their own financial bottom line. Since drug insurers only pay the drug portion of disease treatments, the expectation is that the public healthcare system will take care of the remainder. The significant and profound effect these treatments have on patients’ lives, quality of life and productivity is not considered at all by drug insurers in the current context, when the equation is solely about cost and not value.

We also object to the insinuation that drug companies negotiating a product listing agreement (PLA), like any other business negotiating a confidential contract, are “secretive,” building on the theme in the article that pharmaceutical companies are to blame. Just as one would not expect an information technology company to disclose the value of a contract for computer equipment with a private enterprise or that any defence contract details would be public, the same standard binds contracts with pharmaceutical companies operating in Canada. In no other industry in Canada would there be any expectation of a taxpayer-funded bureaucracy negotiating prices on behalf of a profitable private sector industry, such as the insurance industry.

We further object to the phrase that drug makers are “inflicting” costs onto drug plans. This is unbalanced and inappropriate language. Drug insurers are free to choose which drugs to include in their plans and have many cost-containment mechanisms. We note that industry has a record of working with public drug plans to successfully negotiate bulk-purchasing agreements to alleviate cost burdens on public plans, which insure Canada’s most vulnerable populations. Private plans are also increasingly entering into reimbursement agreements with manufacturers to help protect their clients’ plans. We also note that health plan premiums charged by insurers are growing at double the pace as actual drug costs, according to data from Buck Consultants and IMS Brogan.

We also note that the language used to describe the Reformulary Group and its work insinuate that it is a public, not-for-profit entity, rather than a private, for-profit entity in the drug insurance industry. In fact, page 48 features a direct solicitation for business for the Reformulary Group. The use of selective quotes from the Reformulary Group to provide argumentative proof combined with an advertisement for its services demonstrates the blatant bias of the author.

The article then refers to Stevenson’s comments that the “vast majority of newly introduced high-priced medicines are “me-too” knockoffs offering little or no therapeutic benefit over older, cheaper drugs.”  If what is meant by this statement is that subsequent entrants in a class are priced higher than the original, this is incorrect. According to PMPRB Regulations, a follow-on therapy in the same therapeutic class can be priced equal to or lower than the original drug (or originator). In fact, the data demonstrates that follow-on products are priced lower than the original competitors (PRA Pricing Monitor, multiple editions, and PMPRB, Monitoring the Guidelines, Dec. 2015). The other interpretation would be that the price of a genericized version of an older drug in a class is lower than the price of a newer innovative product in the same class or used for the same disease. If this is the case, it is a misleading comparison since it ignores the variety of treatment responses between patients and the value that one treatment could bring to a patient over the existing older genericized product. Our industry favours a marketplace that encourages market entry of more than one formulation of novel medicines. This approach benefits both payers and patients. Payers will benefit from greater levels of competition, and patients will benefit from having more options available to them and their health care practitioners. Additional (similarly effective) products in a class also provide added safeguards against potential drug shortages.

Webster references Stevenson mentioning “drug company rebates” without explaining that this is an issue specific to the generic pharmaceutical industry, and has been banned in most provinces, but then uses the descriptor “both…brand-name and generic wings” to describe another practice in the following sentence. It is important to note that supply chain rebates are a function of the generic pharmaceutical industry in Canada, yet this same descriptor was not included in the first sentence.

We also object to the fact that Webster alleges that the brand name industry in Canada provides incentives to doctors and pharmacists to favour certain products. Since 1988, Innovative Medicines Canada has had a strong and robust Code of Ethical Practices (the Code). Our Code forbids member companies from offering payments or inducements that are unlawful or improper. Adherence to the Code is a condition of membership of Innovative Medicines Canada – and the majority of Canada’s largest brand-name pharmaceutical companies form our membership.

With respect to patient benefit cards, the quote from Stevenson states that these cards result in “medication that is often more costly for their employer or health plan.” In fact, these programs are offered to help patients and their doctors choose the most appropriate treatment, allowing them to make the choice to use a brand name product if the treatment will only be reimbursed at the generic level, as is usually the case for many private drug plans.

Webster cites fines paid in the United States by pharmaceutical companies, but cites no fines or other evidence that similar issues exist in Canada. Tarring all pharmaceutical companies with the same brush is either careless journalism or, more likely, is intended to imply to readers the same issues must exist in Canada, despite the author’s failure to provide any evidence to support the insinuation.

On page 49, Webster uses the statement “The public has no way of knowing whether the public plans in Canada are still being soaked compared with international comparators, as in the case of Solvadi (sic).” PMPRB Regulations ensure that brand name drug prices in Canada can never be priced higher than the median price of seven international comparators mentioned above. It is misleading to use the word “soaked” as well as to pair it with international comparators, when pricing is set at the median. A median, meaning the middle of a data set, in this case price, cannot therefore be defined as excessive to comparators.

We also categorically deny the assertion that “Innovative Medicines Canada…rejects efforts to challenge drug costs.” In fact, our association and its members are taking concrete action to address affordability and availability of treatments to Canadians, including the above-mentioned actions on access for the underinsured and uninsured. We are working collaboratively with governments, including the PMPRB, the federal government, the pCPA and provincial governments to address pricing issues in public drug plans. Our member companies strive every day to address the challenging cost and reimbursement environment in Canada. We also work collaboratively with private plan stakeholders to help address unnecessary costs related to pharmaceuticals.

Webster states that Innovative Medicines Canada’s former interim president Elaine Campbell “complained” about cost containment. This is untrue. At best, it is a complete mischaracterization of her words. The “complaint” Webster refers to is actually a blog post by Elaine Campbell, entitled “Cost, Effectiveness and the Value of Innovation” discussing the ways that drugs provide value to healthcare systems above and beyond treating patients. The posting discusses how the value of curing a patient can be captured by the healthcare system in more than just dollars. A real world example of this concept is the innovative products that cure Hepatitis C, instead of patients having to have a liver transplant and a lifetime regimen of anti-rejection drugs.

Finally, we take issue with the unclear and misleading headline of the article. As Globe and Mail Public Editor Sylvia Stead recently wrote, “the test then is to make [headlines] clear and on message.” The headline of this article, “Big Pharma vs. Everyone,” implies that pharmaceutical companies are attacking or opposed to everyone; when in fact the majority of the article deals with the challenges of reimbursement and access in the practices of Canada’s private insurance and retail pharmacy industries. More importantly, it is a grossly unfair caricature of pharmaceutical companies in Canada, who create new innovative medicines and vaccines that save or improve the lives of Canadian patients every day.

One response to “Letter to the Editor: Report on Business magazine (Globe and Mail)”

  1. Anonymous says:

    Thanks for the sensible critique. Me and my neighbor were just preparing to do some research on this. We got a grab a book from our local library but I think I learned more from this post. I am very glad to see such great info being shared freely out there.

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