Generic Drug Sector Study

Drug development

The development of IG snormally involves three key steps:

• Securing the active pharmaceutical ingredient (API): Described bysome as the "key to the industry", an API can be obtainedthrough two sources: (a) international suppliers from India, Chinaand other countries operating in Canada; or (b) internal sourcingthrough integrated arms of the manufacturer.
• Pre‑Formulation: At this stage, generic manufacturers engagetheir chemists to develop drug formulations based on an analysis ofthe product itself as well as its monograph (listing both the activeand non‑active ingredients).
• Formulation: This stage involves continuing research anddevelopment ( R&D )and the actual preparation of test batches of generic versions, firstin the laboratory (initial small batches) and then in themanufacturing facilities (pilot batches).

The development costs of an IG may not be specific to the sale of the product in any particularcountry. Generic products developed and manufactured in one countrycan be supplied to other countries, provided they meet the othercountries' specific regulatory requirements for approval.

Those contacted for this study indicated that development costsfor a generic product can vary greatly from one to the next. Even insimple cases, costs may be around $1.5 million. However, they can beseveral 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 IGis 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'sbio‑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. ^{Footnote 21}

Standard bio‑equivalence studies measure the rate and extent ofabsorption — or bio‑availability — of a generic drug. This is thencompared to the same characteristics of the reference drug product.The bio‑availability of the generic drug must fall within anacceptable range of the bio‑availability of the reference product.According to those contacted for this study, typical costs for conducting bio‑equivalency studies are in the range of $1‑1.5 millionper product.

In the case of generic drugs, clinical trials are generallyrequired 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 sothey are tested through clinical trials.

Clinical trials are research programs conducted to evaluate anew medical treatment, drug or device. These studies involve patientsin the testing of treatments and therapies. Clinical trials, measure adrug's safety, effectiveness, dosage requirements and side effects.They are normally much more costly and time‑consuming thanbio‑equivalence studies.

In doing its assessment of the bio‑equivalence of a generic product(or an NDS), Health Canada relies on dataprovided by the brand‑name firm at the time it applied for a Notice ofCompliance (NOC) for itsproduct. These data are subject to a minimum period of protection fromthe date the reference product received its approval from HealthCanada to be marketed. This period of protection, originally fiveyears, was lengthened to eight years under amendments to the NOCRegulations in 2006. Where it extends beyond the life of the patent,the extended period of data protection may create an additional delayin bringing the generic drug to the market. The new regulations alsoallow six added months of data protection for drugs that have been thesubject of clinical trials in children.

Once the NDS is filed and, when applicable, the period of data protection ends, Health Canada typically takes between 12 and 18 months to complete its review. ^{Footnote 22}

After filing an NDS with the Minister, generic manufacturers are required under the NOC Regulations to serve a Notice of Allegation ( NOA ) on the patentee that the generic product will not infringe any patent rights. The patentee maythen apply to the court for an order prohibiting the Minister of Health from issuing an NOC on the basis that one of its patents is being infringed. In such cases, the Minister cannot issue an NOC until 24 months have passed or the application has been dismissed. Therefore, the patentee can prevent a generic product from entering the market for up to 24 months, simply by alleging that its patents have been infringed.

Prior to 2006, generics were required to address all patents added by the patentee to the Patent Register with respect to the reference drug product. In 2006, the NOC Regulations were amended to restrict the ability of a drug innovatorto prevent a generic from getting an NOC by adding patents to the patent register after the generic manufacturer files an ANDS . ^{Footnote 23} The generic now only has toaddress patents that were listed on the register in respect of the reference drug prior to the filing date of the NDS . ^{Footnote 24}

If a patentee obtains a stay preventing the Minister from issuing an NOC, but the patents relied upon are later found to be invalid or not infringed, the generic firm that was kept off the market may seek damages for itslosses. Under s. 8 of the NOC Regulations, the court may make any order for relief by way ofdamages that the circumstances require. ^{Footnote 25}

In addition to the NOC Regulations, in some cases, the patentee may rely on a patent lawsuit to prevent entry of a generic drug or to recover damages. In such cases, a generic might succeed under the NOC Regulations, market the drug and then be sued by the brand‑name manufacturer for patent infringement. In this case, if the brand‑name manufacturer is successful, the generic would likely be required to pay damages to the patentee. Conversely, a generic manufacturer may challenge the validity of a patent under the Patent Act if it is preventing the company from receiving a NOC .

Success in the NOC proceedings by a particular firm does not automatically create free entry for all generic firms. Other generic firms still have to obtain an NOC , and address any patents on the Patent Register. Subsequent generic firms may, however, make the same arguments in litigation as the first successful generic. In some cases, the patentee may stop contesting these NOC cases.

Those interviewed for this study, while not providing related data, indicated that patent challenges under the NOC Regulations are commonly encountered and are a normal part of bringing an IG to market. Legal costs for the first generic to challenge were said to becommonly in excess of $1 million and potentially much higher incomplicated cases. However, the costs for subsequent generic manufacturers, for the same reference product, can be as low as a few thousand dollars when NOA are no longer being challenged.

Provincial formulary listing

Once an NOC is issued,a product can be sold anywhere in Canada. However, in order to bereimbursed under provincial drug programs and obtain significant salesvolumes the generic product must be listed on provincial formularies.For an IG , the formularylisting process can take several months from the time an NOC is issued.

In sum, from the time a decision is made to produce a genericdrug, manufacturers typically require between three to six years tobring the product to market. While costs can vary widely from case tocase, they can be in the range of $3.5 million (including costs forbio‑equivalence studies, development and regulatory approval) even fora relatively non‑complex product.

These costs may be lower where, for example, patent challengesare not encountered or product development costs can be spread acrosssales in countries other than Canada. On the other hand, they can bemuch higher when product development is more complicated, clinicaltrials are required, or relatively high patent challenge costs areencountered. For example, the costs for the development ofbio‑generics can be as high as $25 to $50 million. Industry sourceshave indicated that it may take as long as three years after a genericproduct is introduced to market before it will break even, recoupingits sunk developmental and approval costs.

Timing to market

Those contacted for this study cited timing to market as being akey dimension of generic competition. Pharmacies are less likely toswitch to a new generic product if they already have one or twoversions in stock. Stocking multiple manufacturers of the samemolecule is cumbersome and inefficient. For this reason, "timingis of the essence" in the generic drug industry. Productdevelopment and approval is carefully planned to maximize thelikelihood of having a generic version ready as soon as a brand‑nameproduct loses patent protection.

The advantage of being first to market is supported by analysisperformed on molecules that lost patent protection and encounteredgeneric entry between January 1998 and December 2006. As shown inTable 2, for about two thirds of the molecules, the first entrant wasable to maintain the leader's position at the end of 2006.

Patent challenges

A competitive dimension related to timing to market is companies'patent challenge strategies. A generic company may file its NDS to market a generic becausethe brand‑name drug's main patent has expired or is about to expire.By marketing the generic, the generic company is not infringing on anyof the other patents that are held by the brand‑name company. ^{Footnote 26} However, sources contacted for the study indicated that genericcompanies commonly enter the market prior to the expiry of all listedpatents based on the belief that any remaining brand company patentsare invalid or would not be infringed.

Companies that are the first to file a challenge may gain an advantageover others by getting their product into the supply chain earlier.However, not all generic manufacturers aggressively pursue legalchallenges. According to industry sources, some generic manufacturerschallenge only those patents where there is a perceived certainty of apositive outcome, such as where a brand company is no longerchallenging NOA s. They mayavoid the costs of legal proceedings altogether by timing their entryto the market in line with the brand's patent expiration.

While a generic that first successfully challenges brand patentsmay have the advantage of being first to market, this can be a costlyprocess. The generic manufacturer has to evaluate whether costs sunkinto a patent challenge can be recouped after the product launches.

In cases where the brand manufacturer fights the first genericchallenger but gives up further challenges, thereby opening the marketto all generics, the first generic challenger may not obtain a majorfirst mover advantage. The generic may be in a situation where it isout of pocket for legal costs and has to compete against othergenerics, IG s or AG, which did notincur the same costs. ^{Footnote 27}

Pricing

In the case of sales to retail pharmacies, pricing decisions bymanufacturers consist of two elements: the establishment of theproduct's invoice price and the net pharmacy price. The net pharmacyprice is the price paid by the pharmacy net of any off invoice rebatesand discounts. Invoice prices are the amounts typically reimbursed bypublic and private drug plans. As developed further in section 5.A.,limited competition appears to take place in invoice prices. Untilrecently, invoice prices have tended to reflect maximum generic pricesallowed under Ontario legislation. Price competition amongmanufacturers has tended to take place at the pharmacy level in theform of lower net pharmacy prices. Once generic versions of brand‑nameproducts are placed on provincial formularies and are designated asinterchangeable, they essentially become commodity products. ^{Footnote 28}

This situation results in pharmacies being the most important andinfluential customers of generic manufacturers. Traditionally, themost important factor in competing for pharmacies' business, wherethere are multiple generics available, has been generic manufacturersproviding rebates off invoice prices. ^{Footnote 29}Rebates on generic drugs arenot recorded on invoices, but are provided to pharmacies and hospitalsin a separate transaction often as a lump sum for drugs purchased in agiven period.

It has not been possible to obtain information about the precise sizeand nature of rebates from manufacturers to retail pharmacies andhospitals. Average rebates have been estimated to be 40%, althoughsources indicated they may have been higher. ^{Footnote 30} Sources further indicatedthat rebates have been as high as 80% for individual generic products.

The traditional role of rebates as a competitive dimension is beingaltered by the Ontario Transparent Drug System for PatientsAct, 2006, discussed further in Section 4.A.2. The legislationprohibits the granting of rebates to pharmacies. While it allowsprofessional allowances to be provided as a possible alternative torebates, these are capped at 20% of pharmacies' costs for drugsdispensed under Ontario Drug Benefit (ODB) programs. In addition, thelegislation, with certain exceptions, reduces the maximum amount thatcan be reimbursed for generics, under ODB plans, to 50% of the branddrug price. These generic drug price or professional allowance caps donot apply to drugs dispensed under private drug plans. The legislationmakes Ontario the second province in Canada to prohibit rebates. Suchrebates have been prohibited for several years in Quebec and have beenrecently the subject of a number of legal actions. ^{Footnote 13}

While the full effects of the Ontario legislation are to bedetermined, the capping of generic drug professional allowances limitsa key dimension of competition among generic drug manufacturers. Thealtered competitive framework may be particularly problematic forgeneric drug manufacturers with limited product portfolios. Theability to grant higher rebates or allowances can provide them a meansto enter and expand market share in competition against rivals withbroader product lines. With rebates and allowances being restricted orprohibited, it can be anticipated that competition in other areas,such as breadth of product line, will assume greater importance.

While the full effects of the Ontario legislation are to bedetermined, the capping of generic drug professional allowances limitsa key dimension of competition among generic drug manufacturers. Thealtered competitive framework may be particularly problematic forgeneric drug manufacturers with limited product portfolios. Theability to grant higher rebates or allowances can provide them a meansto enter and expand market share in competition against rivals withbroader product lines. With rebates and allowances being restricted orprohibited, it can be anticipated that competition in other areas,such as breadth of product line, will assume greater importance.

Authorized generics

AG are theactual brand‑name drug product manufactured by the brand company, butsold as a generic by a licensee or subsidiary of the brand, competingwith independent generics.^{Footnote 32} Because they are identicalto the branded drugs and approved by the patent holder, AG do not encounterthe product development and federal regulatory approval barriers toentry that apply to IG s.Although in some provinces listing of AG on provincialdrug formularies can be faster, under the streamlined formularylisting process employed by most provinces there is no advantage for AG.

Introducing an AG prior to the expiration of a brand‑name product's period of patentprotection runs counter to the business interests of a brand‑namemanufacturer. The lower‑price AG will simply erodethe market share of its higher priced brand‑name counterpartdiminishing the brand company's revenues. However, licensing thesupply of an AG after the end of patent protection potentially provides the brandcompany a means to make some returns on a portion of generic drugsales.

A brand‑name manufacturer may decide to license the manufacturing anddistribution of the AG to an IG manufacturer. Thedecision of an IG manufacturer to partner with a brand‑name manufacturer for the releaseof an AG isbased on several factors. These may include their ability to source APIs to produce theirown generic version and the expected return on supply of the AG versus developingand marketing its own IG . IG manufacturers differ on their AG strategies. Whilesome engage in little if any supply of AG, othersincorporate them as a component of their business strategy. Accordingto industry sources, the number of AG available in theCanadian market has been trending downwards. In 2006, AG accounted foronly about 7% of the generic sales, compared to about 15% in the early90s.

An issue about introducing an AG is that it may affect the incentive for a generic manufacturer to develop an IG . ^{Footnote 33} This is unlikely to be an issue for drugs having high sales relative to entry costs. However, it has the potential to affect the entry of IG s for drugs having relatively smaller valued sales. This may be particularly significant when the AG is able to obtain a first mover advantage. This matter is considered in Table 3.

Statistical analysis was performed on a set of molecules that lostpatent protection between 2001 and 2006 and where the first genericcompetitor entered within the period. An AG entered 26 (36%)of the 75 drug markets in the sample. ^{Footnote 34} No clear pattern was foundof AG enteringfirst. Of the 26 markets in which both an AG and an IG entered, the IG entered first in 12, the AG entered first in 11. They both entered in the same month in three markets. Note that inabout half of the cases, the AG entered themarket after an IG . However,in only two of the cases where it entered first, was the AG able to maintainthe highest share. Table 3 shows the status of the AG in January 2007and the timing of AG entry.

The sample does not show a clear and consistent pattern of AG entering before IGs. Moreover, where they do enterfirst, AG ,while they may obtain high market share for an initial period, retainleadership over time in only a small number of cases. ^{Footnote 35}

Breadth of product line

As discussed further in section 4.A, given the commodity nature ofgeneric drugs, other things equal, pharmacies can reduce their costsby dealing with as few manufacturers as possible. This provides morediversified manufacturing firms with a competitive advantage overcompetitors with smaller product lines as they are able to bundle aportfolio of products across multiple therapeutic classes. ^{Footnote 36} As indicated above, one means by which less diversifiedmanufacturers have been able to overcome this disadvantage has been byoffering lower net pharmacy prices.

4.A.2 Role of retail pharmacies in the competitive framework for generic drugs

Retail pharmacies play a pivotal role in the competitive frameworkfor, and pricing of, generic drugs in Canada. Though they do notprescribe pharmaceuticals, after a drug has been prescribed,pharmacists normally have broad scope, under provincial andprofessional laws, policies and regulations, to substitute amonginterchangeable generic and brand drugs products when fillingprescriptions. ^{Footnote 51} As well, to minimize theircosts, pharmacies have an interest in stocking only one, or a smallnumber of interchangeable products.

Because of this, competition among generic manufacturers andsuppliers to supply generic drugs to patients in the community hastended to focus on pharmacies. As indicated in the manufacturingchapter, this competition takes place in a variety of ways. Animportant dimension has been to grant rebates to retail pharmacies offpharmacy invoice prices.

Previous analysis of the Canadian pharmaceutical sector and testimonyprovided in recent hearings on amendments to Ontario's generic drugrelated legislation and regulations indicate that these rebatesprovide important returns to pharmacies. ^{Footnote 52}

Rebates have also provided a financial incentive for retailpharmacies to substitute generic products for branded products. Asindicated in the manufacturing chapter and discussed further insection 5.A, off invoice rebates and discounts and other suchbenefits, have normally not been reflected in prices reimbursed bypublic and private insurers. Rather, those contacted for this studyindicated that reimbursed prices for newly introduced generic drugsreflect the former maximum limits under Ontario provincial drugbenefit legislation.

The following table shows the incentive provided to dispense genericdrugs through off invoice rebates and discounts, and their impact onthe profitability of pharmacies. The table is based on arepresentative branded drug prescription cost of $40 reimbursed underthe Ontario Drug Benefit ( ODB )guidelines prior to the Transparent Drug System for Patients Act. Themaximum generic drug invoice price, based on the former Ontariomaximum generic drug price legislation is $25.20. ^{Footnote 53} The table uses an allowablemark‑up of 10% of the cost of pharmaceuticals. ^{Footnote 54} Rebates are set at 40%. Inrecent Ontario provincial generic drug related hearings, this was thelower range of rebates paid on average to independent Ontariopharmacies. Dispensing fees are set at $6.54. ^{Footnote 55}

Based on these numbers, the sale of a generic drug provides a netreturn to the pharmacy of $19.18 versus $10.54 for the brand product.^{Footnote 56}

In Ontario, pharmacy returns from the sale of generic drugs under ODB plans are being substantiallyaffected by the changes made to Ontario generic drug legislation andregulations in 2006. The maximum cost for generic products reimbursedunder ODB plans has beenreduced to 50% of the interchangeable brand product, where more thanone generic is available.

Manufacturers are now prohibited from granting rebates on genericdrugs but they can provide professional service allowances in eightapproved categories. For drugs dispensed under ODB plans, these allowances mayequal up to 20% of product costs. For other drugs and other plans,there is no limit on the amount of professional allowances they canprovide. In addition to these changes, the maximum allowable mark‑upfor ODB drugs dispensed to ODB patients has been reduced to8% from 10% and maximum dispensing fees have been increased to $7.00from $6.54.

The implications of these changes on pharmacies' return on ODB sales are reflected in thefollowing table.

Under the new Ontario legislation and policies, if maximumprofessional allowances are provided, pharmacies retain a financialincentive to dispense generic drugs for provincial plan beneficiaries.However the return to pharmacies in the form of rebates or allowancesis reduced by just over 75%, from $10.08 to $4.00. The total return,including mark‑ups and dispensing fees, is reduced 34.2% to $12.60from $19.14.

Based on 40% rebates prior to the Transparent Drug System For PatientsAct, 2006, the net price received by the generic drug manufacturer on ODB sales is higher underthe revised reimbursement framework. This framework, in effect,establishes a net pharmacy price floor at 40% of the brand drug price.By comparison, at 40% rebates under the previous ODB maximum price for multiplesource generics, the net pharmacy price received by manufacturers was37.9% of the brand price.

While the full impact of the new Ontario legislation and regulationson pharmacies and manufacturers is yet to be determined, as developedfurther in Chapter 5, the lower ODB prices have not been extended to non‑ODB drug sales for which there isno maximum allowance. In addition, private sales are not subject tomaximum dispensing fees or mark‑ups.

It is anticipated that Quebec will receive the benefit of lowerOntario provincial drug plan prices because of their policy that theyreceive the lowest formulary prices offered in other provinces. ^{Footnote 57} However, the potential impact of this change on pharmacies ismitigated by Quebec's pre‑existing prohibition of rebates. Further,the province is also considering implementing a professionalallowances scheme parallel to Ontario's. ^{Footnote 58}

4.B.1 Overview

While retail pharmacies are the principal dispensers of drugs inCanada, hospital pharmacies also play a significant role. In 2006,they purchased $2.08 billion of drugs, compared to $15.74 billionpurchased by retail pharmacies.

Hospital pharmacists oversee the dispensing and storage of allmedicines given to patients in the hospital (in‑patients). Generally,pharmacists in hospitals face greater clinical complexity inmedication management while community pharmacists face more complexbusiness and customer relations issues.

Under the Canada Health Act ( CHA ),all necessary drug therapy administered in a Canadian hospital settingis insured and publicly funded. ^{Footnote 59} Out‑patient medications areoutside the Act's authority.

Provincial and territorial governments are responsible forproviding hospital care in their jurisdictions. This includesplanning, financing and evaluation of services, such as drugadministration and management. Drugs purchased for hospital patientsare covered by hospital budgets.

Hospitals maintain their own drug formularies listing all drugsavailable for prescription by a physician. Formularies tend to besimilar from one hospital to another within the same province.However, significant differences may be found from one province toanother, especially on expensive therapies such as cancer drugs.Hospital drug formularies tend to be more specialized than provincialor private plan formularies. This is due to the inclusion ofmedications that might be given only in a hospital setting, such asintravenous ( IV ) drugs and othertherapies that must be provided on an in‑patient basis.

Most hospitals have Pharmacy and Therapeutics (P&T) committees thatdetermine the drug selection for their formulary. Although thesecommittees are multi‑disciplinarian, formulary decision‑making tendsto be physician‑driven. Physicians prescribe drugs for patients andthe hospital pharmacist ensures that they are available on theformulary. As in retail pharmacies, in cases where there are multiplesources for one drug (brand‑name and generics), generic drugs willnormally be substituted for the brand drug unless the prescribingphysician has indicated “no substitution”.

In a retail pharmacy, drugs are dispensed for a specific number oftreatment days for acute symptoms, or for a 30‑day to 90‑day supplyfor chronic symptoms. The standard of care for a hospital pharmacy isto dispense drugs on a unit‑dose — a single dose of the medication. Inunit‑dose dispensing, medication is dispensed in a package that isready to administer to the patient. ^{Footnote 60}

The main therapeutic classes of drugs used in hospital settingsdiffers greatly from retail pharmacies. Table 10 shows the top 10therapeutic classes of drugs dispensed in hospitals by purchase costin 2006. Cancer drugs are, by a wide margin, the largest class ofdrugs purchased by hospitals although they were not among the 10largest classes purchased by retail pharmacies. Cardiovascular drugs,the largest class of drugs purchased by retail pharmacies, were the9th largest class purchased by hospitals. In total, of the 10 largestclasses of drugs purchased by hospitals, only 3 ranked among the 10largest retail pharmacy categories.

4.B.2 Role of hospitals in the competitive framework for generic drugs

Differences in hospital versus retail pharmacy drug purchasesare also reflected in the ranking of generic manufacturers by hospitalsales. While diversified producers offer a wide range of products in avariety of forms, others may specialize in injectables or topicalapplication products that are more widely used in hospitals than inretail pharmacies. Table 11 indicates this. The table compares genericmanufacturers' rankings for sales to hospitals versus total sales tohospitals and pharmacies for molecules that lost patent protectionduring the 2001 to 2006 period.

Mayne Pharma Canada was the largest seller of these genericdrugs to hospitals in 2006, but was the eighth largest genericmanufacturer measured by total sales including both hospitals andretail pharmacies. Sandoz, ranked seventh in total sales, was rankedsecond measured in hospital sales. Apotex, which had the highest totalsales, was ranked fourth in hospital sales only.

Prices for generic drugs used by hospitals are generally determined bynegotiations and contracting between the hospitals themselves and themanufacturers. While this may be done on a hospital by hospital basis,it is increasingly being done through group purchasing organizations (GPOs) or RegionalHealth Authorities ( RHA s).

GPO s, such asHealthPro, MedBuy and Contract Management Services, are stand aloneoperations whose shares are held by hospitals and other health careorganizations. They were established by hospitals and other healthcare facilities to economize on their goods and material costs byproviding centralized procurement and obtaining the benefits frombuying in higher volumes.

RHA s were establishedby most provincial governments in the 1980s and 1990s to amalgamatevarious health services, including hospital services, within regions.^{Footnote 61}Although RHA s mayparticipate in GPO programs, they may also do their own group purchasing.

GPO or RHA contracting processesare normally conducted in a public forum. The GPO or RHA will identify its needsfor products, usually by conducting a comprehensive review of theproducts consumed by each member and their respective annual volumesand unit costs.

A Request for Information ( RFI )process may be used, gathering information from members and suppliers.Supplier information is sought later, allowing for an economicalvalue‑added benefits analysis. These analyses are usually an integralcomponent of the Request for Proposal. ^{Footnote 62}

A Request for Proposal ( RFP ),outlining the market size, the items and conditions under which thecontract will be developed, is issued to all interested suppliers. Thecontract awarded is often a sole source agreement with the supplierfor participation by all of the GPO's members.

Contracts with brand/patented drugs manufacturers often include aright‑of‑first‑refusal clause for cases where a generic drug becomesavailable during the term of the contract with the brand manufacturer.If the price of the generic drug is lower than the negotiated pricefor the brand/patented product, the GPO has the opportunityto sever the contract with the brand manufacturer.

In some cases, packaging, colour and/or shape of a drug can play acritical role in purchasing decisions. GPOs will often requesta sample of the drug to evaluate its appearance. To minimize medicalerrors in drug dispensing in hospitals, the appearance of a drug canmake a difference for the pharmacist. These factors may, at times,result in the purchase of a higher priced drug product.

As with retail pharmacies, drugs used by hospitals may be obtainedthrough IPD . Bystreamlining their pharmaceuticals procurement through an IPD, hospitals canbenefit from channel efficiencies, reduced inventory and decreasedadministrative costs.

• Competitive contracting processes may be used to obtain IPD services. Keyconsiderations are whether the IPD can:
• Service all members within its membership
• Provide simplified invoicing
• Guarantee delivery times
• Ensure IT systemcompatibility for logistics management between the IPD and the GPO members.

Since drug prices are negotiated with the manufacturers, the mainpoint of negotiation with IPD is theirmark‑up. Distribution and warehousing services are also negotiated.

According to persons contacted for the study, bidding for multiplesource generic products can be highly competitive. Rebates off invoiceprices are often included in the contract negotiations. In the case of GPO s, manufacturerrebates are sent in a lump sum on a regular basis, usually quarterly,semi‑annually or annually.

Table 12 indicates how hospitals pay relatively low invoice prices forgeneric drugs. The table compares invoice prices paid by hospitals toretail pharmacies for individual generic products, identified by DIN. The table does notreflect any off invoice rebates that may be paid to either retail orhospital pharmacies. For each province, for each drug, the ratiobetween the retail pharmacy and hospital unit invoice price wascalculated. ^{Footnote 63}

As indicated by the table, retail pharmacy invoice prices tendto be well in excess of hospital invoice prices. On average, pharmacyinvoice prices were approximately 39 per cent higher than hospitalinvoice prices, with differences within provinces ranging from 20% inSaskatchewan to 48% in Nova Scotia.

It was not possible to obtain data on any rebates provided tohospitals that are not accounted for in their invoices. To the extentsuch rebates are provided, they constitute a further gap between thenet price paid by hospitals and the retail pharmacy invoice pricesnormally reimbursed by private and public drug plans.

5A.1. Scope and nature of public plans

In 2006, according to CIHIforecasts, the provinces and territories were the main providers ofpublic drug plans in Canada, accounting for about 84.2% of all relatedexpenditures. The remaining public plan expenditures are paid underfederal drug benefit plans and social security funds. The federal drugbenefit plan accounts for about 6.7% of the total expenditure andsocial security funds for about 8.8%. ^{Footnote 67}

Public plan pharmaceutical product coverage

Public plans fully or partially reimburse drugs that are listed ontheir drug formularies. These are developed in consultation withexpert drug advisory committees and reflect individual plans' listingand reimbursement policies. ^{Footnote 68} In order for genericproducts to be considered for formulary listing, the standard filingrequirements include the following:

• Consent to access information about the drug from variousagencies
• Confirmation from the manufacturer of its ability to supplythe drug
• Data indicating bio‑equivalence to the brand drug product
• Health Canada NOC
• Price information
• Approved product monograph. ^{Footnote 69}

In addition to meeting these filing requirements, generic drugs may also be subject to additional interchangeability requirements in order to be listed on a formulary.

Interchangeability can deal with factors beyond a drug'sbio‑equivalence to a brand product. For example, bio‑equivalent drugsmay not be deemed interchangeable with a reference brand product dueto:

• Difficult packaging or delivery devices
• A particularly bad taste
• The lack of a marking on a tablet allowing it to be easilydivided into two where such a marking exists on the brand referenceproduct.

If these or other characteristics of a generic product couldinterfere with the proper use or delivery of the drug, the product maynot be listed on the formulary.

The timing of the listing of generic drugs on public formularies canvary significantly across provinces, depending on the frequency withwhich provincial formularies are updated and reviews of generic druginterchangeability are conducted. ^{Footnote 70}

Public plan beneficiaries

The coverage of public plans can vary substantially fromprovince to province. All provincial and territorial drug plansprovide coverage for seniors (New Brunswick and Newfoundland andLabrador apply an income test) as well as residents receiving socialassistance.

Through specific targeted programs, or more generally, throughplans available to all residents, all provinces and territories alsoprovide coverage for residents with specific medical conditions and/orwho may face exceptionally high drug costs. The specific medicalconditions most commonly covered are cystic fibrosis, diabetes,cancer, organ transplant, AIDS / HIV , and multiple sclerosis.

Four provinces offer universal eligibility for drug coverage: BritishColumbia, Alberta, Saskatchewan and Manitoba. The Ontario Trilliumdrug plan provides coverage to all residents who are not covered undera private plan and who have high drug costs relative to their income.Quebec maintains cost and income based drug plans that are availableto all residents who do not have private drug insurance. ^{Footnote 71} New Brunswick, Nova Scotia, P.E.I. , Newfoundland and Labrador, andthe territories do not provide universal or general cost andincome‑based programs.

There are six federal drug benefit programs, serving:

• First Nations and Inuit
• Veterans
• Members of the military
• RCMP
• Prisoners in federal correctional facilities
• Refugees

The Non‑Insured Health Benefits (NIHB) plan for FirstNations and Inuit is the largest of the plans accounting for 65% ofall federal plan expenditures in 2005‑2006. The plans for Veterans andNational Defence are the next largest accounting for 22% and 7%,respectively. The remaining plans collectively account for about 6% offederal spending. ^{Footnote 72}

Reimbursement

Drugs covered by public plans are normally acquired by patientsfrom retail pharmacies. The amount reimbursed is determined by theapplicable public plan policy on allowable drug costs and pharmacymark‑ups and professional fees, less any applicable patientco‑payments and deductibles.

Limited exceptions to the delivery of pharmaceuticals through retailpharmacies apply in the cases of the Department of National Defense (DND) and NIHB. DND delivers drugsthrough 50 of its own base pharmacies located throughout Canada. Drugsupplies are also carried with DND when troops aredeployed in foreign theatres. While most NIHB costs are reimbursedthrough retail pharmacies, the plan also maintains nursing stations onremote reserves which receive supplies obtained through bulkpurchasing administered by The Department of Public Works.

5.A.2 Public plan generic drug related policies

Public plans may incorporate a variety of policies pertainingdirectly or indirectly to generic drugs. Key among these are thefollowing:

• Provincial interchangeability laws
• Formulary price caps
• Maximum cost reimbursement
• Net acquisition cost
• Standing offer contracting
• Most favoured nation provisions
• Deductibles and co‑payments.

Interchangeability laws

Interchangeability laws provide the legal basis forinterchanging generic products and brand pharmaceuticals. The lawsgenerally apply to all interchangeable products, whether they aredispensed under public or private plans or paid for out‑of‑pocket.They generally consist of two elements:

• Provisions that allow pharmacists to interchangebio‑equivalent products
• Provisions that protect the dispenser of the interchangeddrugs against related legal proceedings.

Interchangeability laws may be mandatory, requiring that thelowest cost interchangeable products be dispensed, or, they may bevoluntary, permitting, but not requiring, pharmacists to interchangeproducts.

Provinces having mandatory interchange laws include Saskatchewan,Manitoba, Newfoundland and Labrador, and Prince Edward Island.Newfoundland and Labrador and P.E.I. further require that theinterchangeable product dispensed be the lowest priced productavailable. ^{Footnote 73}

In the remaining provinces, Nova Scotia, New Brunswick, Quebec,Ontario, Alberta, and B.C. ,legislation permits interchange, but does not make it mandatory.Pharmacists may substitute a prescribed drug with aninterchangeable drug. ^{Footnote 74}

Most provinces' legislation also provides protection for pharmacistsfrom liability for any legal proceedings stemming from thesubstitution of an interchangeable drug, provided that substitution islegally allowed in that province. ^{Footnote 75} However, in all provinces,physicians can prevent interchange of generic products by indicatingthat "no substitution" is to be made. This may occur where there is amedical reason why a patient must receive a specific brand of drug.Also, a patient may request "no substitution" and pay any additionaldrug costs out‑of‑pocket.

Formulary price caps

Under formulary price caps, a generic drug must be priced at orbelow a maximum price in order to be listed on a public planformulary. Two provinces, Ontario and Quebec, currently use price capsto limit maximum prices for generic drugs under their provincialformularies.

In Ontario, under the Transparent Drug System for PatientsAct, 2006, generic drugs normally must be priced at no more than 50%of the reference brand product price in order to be listed on the ODB formulary. There are limitedexceptions to this rule. Where there is evidence that the genericproduct would be the only drug product of its type designated asinterchangeable with an original drug product, the drug price may benegotiated between the provincial drug plan and the drug manufacturer.This price may be higher than the 50% maximum, but lower than theprice of the original product. ^{Footnote 76}

In Quebec, a regime is being implemented under which the price of thefirst generic drug will be limited to 60% of the price of thereference brand product. The price of subsequent generic drugs will belimited to 54% of the brand‑name drug. ^{Footnote 77}

In Ontario, after an initial formulary price is established,subsequent price increases are regulated.Changes to the drug benefitprice of products on the provincial drug plan formulary are subject toapproval by the Executive Officer of Ontario Public Drug Programs.

Quebec implemented a policy in 1994 preventing price increases fordrugs listed on the province's formulary, except in certaincircumstances. ^{Footnote 78} However, the province is inthe process of implementing a mechanism to allow drug price increasestied to the province's consumer price index. ^{Footnote 79}

Maximum generic cost reimbursement

Maximum generic cost reimbursement policies, generally listed underprovincial plans as maximum allowable cost or lowest cost alternativereimbursement policies, do not prevent generic drugs from being listedon public plan registers if they are relatively high priced.^{Footnote 80}Instead, they provide an incentive to dispense low cost genericsby stipulating a maximum amount that will be reimbursed for a group ofinterchangeable products. If a higher cost brand or generic product isdispensed, the difference must be paid by either the patient or the pharmacy.

Maximum cost reimbursement policies apply in all provinces as well asthe Yukon. ^{Footnote 81} In most cases, maximum cost reimbursement prices are obtained frommanufacturers. The exception is B.C. ,which sets maximum reimbursement cost based on pharmacy pricesobtained through its Pharmanet system.

As with interchangeability policies, exceptions may be made tothe maximum generic cost reimbursement policies in limitedcircumstances. For instance, if a patient must receive a particulardrug for medical reasons, or the lowest cost product is unavailabledue to a supply shortage, provincial drug plans may reimburse the costof a more expensive product, with no additional cost to the patient.

Net acquisition cost

Pharmacies actual acquisition costs of drugs, whether they arepatented or no longer patent protected, are used by many provinces asa basis for reimbursing drugs under their public plans, subject to anyapplicable maximum price or cost reimbursement policies. In theseprovinces, the maximum amount that can be reimbursed for generic drugsis the lower of the pharmacy actual acquisition cost or the maximumgeneric cost reimbursement price.

In some provinces, regulations or policies further stipulate that theactual acquisition costs reported by pharmacies should be the netacquisition cost, incorporating the value of any purchase pricereduction, rebate, allowance, free products, or discount received bythe pharmacy or dispensing physician. These provinces are Nova Scotia,New Brunswick, Quebec, Saskatchewan and British Columbia. ^{Footnote 82}

Standing offer contracting

Standing offer contracting involves the use of a competitive biddingprocess to establish the maximum price that will be reimbursed. Thewinning manufacturer guarantees delivery of the specific drug at thecontracted price. In return, the manufacturer's product is givenpreference or used exclusively during the contract period. ^{Footnote 83}

A number of provinces have attempted or considered using astanding offer contract process. However, Saskatchewan is the onlyprovince currently following this approach. The province uses standingoffer contracting for 91 high volume interchangeable drug groups.

Most favoured nation provisions

Most favoured nation provisions require that the price offeredto a provincial drug plan by a manufacturer for a particular drugproduct be no more than the lowest amount charged to other provincialdrug plans elsewhere in Canada.

Most favoured nation provisions currently apply under the drug plansof two provinces: Quebec and Newfoundland and Labrador. ^{Footnote 84} In Quebec, all generic drug manufacturers must sign a commitmentthat they will submit a guaranteed selling price for any drug theywish to have entered on the list of medications. ^{Footnote 85} The guaranteed selling pricemay not be higher than any selling price granted by the manufacturerfor the same drug under other provincial drug insurance programs.^{Footnote 86}

In Newfoundland and Labrador, in order to have a product listed on theformulary, the manufacturer must provide for a specific period, aguaranteed price for the product that is no higher than the best priceavailable elsewhere in Canada. ^{Footnote 87}

Deductibles and co‑payments

Deductibles are amounts that patients covered by drug plans mustspend on prescription drugs before the plan will begin to reimbursecosts. Co‑payments are amounts that beneficiaries are required to payfor prescription drugs that are partially reimbursed under a drugplan.

Provincial drug plans typically implement deductibles andco‑payments as a means to keep overall drug plan costs down and todiscourage over‑use of prescription drugs. However, withinterchangeable generic drugs, significant deductibles and co‑paymentsmay also provide incentive for patients to search for lower pricedproducts.

Co‑payments and deductibles are required under many public drug plans.While in many cases they are limited, in some, plan beneficiaries canspend substantial amounts. For example, under the B.C. Universal Fair Pharmacare plan,those under 65 years of age are required to make co‑payments of 30%amounting to 2 to 4% of their total family income beforepharmaceuticals will be fully reimbursed. Under the SaskatchewanSpecial Support Program, a deductible of up to 3.4% of annual familyincome applies. Under Manitoba's Pharmacare program, deductibles arebetween 2.32% and 5% of adjusted family income. The Ontario Trilliumdrug program similarly has an income based deductible. The Albertaprovincial drug plan requires residents to make co‑payments of 30% toa maximum amount of $25 per prescription.

5.A.3 Public plan generic drug policies competitive effects

Despite differences among their generic drug plan policies, reimbursedgeneric prices tend to vary little between the provinces. Thefollowing table indicates this, comparing invoice prices of genericdrugs in retail pharmacies. The table compares 2006 average invoiceprices for 579 generic drugs sold by prescription in retail pharmaciesin nine provinces for which data were available. ^{Footnote 88} For each drug, the unitinvoice price in each province relative to the national average unitinvoice price was calculated.

In all provinces, average generic prices are within 2.5% of thenational average. Median prices are within 1.5% of the nationalaverage. ^{Footnote 89}

Those interviewed for this study generally indicated that there islimited competition in generic drug provincial formulary pricing.Prices in all provinces for initial and successive generic drugproducts are generally considered to reflect the former maximum priceguidelines under Ontario legislation and regulations. Under theguidelines, the first generic listed on the ODB formulary was to be priced atno more than 70% of the brand equivalent. Subsequent generics were tobe priced at no more that 90% of the price of the first generic.

This view exists despite public plans policies designed toensure that low cost generics are dispensed. These policies aregenerally considered to have played an important role in ensuring thatthe lowest priced generic drugs on provincial formularies aredispensed or reimbursed. They also help guarantee a minimum level ofcost savings from generic drugs. However, they have not generatedstrong competition among generic drug manufacturers to reduce theirpublic plan list and formulary prices.

This observation is consistent with incentive structure undermost public plan designs. Interchangeability policies, while theyprovide a basis for substituting lower for higher cost drugs, do not,in themselves, provide incentives for companies to reduce theformulary prices reimbursed by public plans.

Maximum cost reimbursement policies similarly provide limitedincentives for generic drug manufacturers to compete on price byoffering lower formulary prices. Key competitive features of thesepolicies include:

• The price of the lowest cost product is publicly listed onprovincial formularies, or maximum allowable cost or least costalternative prices lists.
• Competing generic drug manufacturers can protect theircompetitive positions by matching formulary price decreases offeredby other manufacturers.
• Generic drug manufacturers that are the first to offer lowerformulary prices are generally not given preference under publicplans.

Due to these features, a manufacturer offering a lower formularyprice to a public plan may have a limited opportunity to gainsignificant market share while decreasing its return on sales.Instead, other manufacturers can protect their competitive positionsby offering matching formulary price decreases.

Net acquisition cost policies that are aimed at capturing thevalue of rebates and other such benefits potentially allow publicplans to increase their benefits from competition among genericmanufacturers. However, the monitoring and auditing capabilities ofpublic plans has traditionally focused on pharmacy invoices that donot capture off invoice rebates, discounts and other benefits.

Establishing a framework to ensure that such benefits arecaptured would require much more extensive auditing capabilities toallow public officials to broadly examine pharmacies' operations andfinances. In designing an effective net acquisition cost policy, anadditional concern would be to avoid interfering with efficiencyenhancing or normal business terms, such as volume or loyaltydiscounts and prompt payment rebates.

Public plan maximum formulary price policies require genericdrugs to be priced at or below a maximum price relative to theirinterchangeable branded products. This potentially gives provinces themeans to ensure a minimum cost saving for generic drugs. However,these policies do not reflect either the development and supply costsnor the competitive prices of generic drugs. Further price regulationof this nature runs the risk of preventing the supply of high costgeneric drugs for which the development cost is higher than theallowable price.

Most favoured nation policies, while intended to ensure that aprovince's generic drug prices will be no higher than those of otherpublic plans, can act as a disincentive for manufacturers to competeby offering lower formulary prices to other public plans. They may dothis by ensuring that low formulary prices initially offered in oneprovince will be automatically extended to other provinces having mostfavoured nation policies. Even if the initial offering of the lowprice conveys a competitive advantage in the first province, this willresult in a lower price being received by other provinces with mostfavoured nation provisions.

As noted, significant deductibles and co‑payment requirements applyunder various public plans in Canada. However, no indication wasprovided by research or interviews that these have led to generic drugprice competition among pharmacies. In any case, if co‑payments anddeductibles are increased as an indirect means to promote generic drugcompetition, the issues of health care quality and access would haveto be addressed. ^{Footnote 90}

Where it has been possible to apply, standing offer contractingappears to provide significant competitive benefits. As noted,Saskatchewan is the only province obtaining pharmaceuticals throughthis approach.

Of the 91 drugs for which standing offer contracting is used,information on 37 drugs, which were also sold in other provinces (andwere part of provincial reimbursement claims), was available. ^{Footnote 91} The following table compares current Saskatchewan generic drugformulary prices for this set of drugs to prices in British Columbia,Saskatchewan, Manitoba, Quebec and Ontario, expressed as a percentageof the brand product price. ^{Footnote 92}On average, Saskatchewan paysthe lowest percentage of the brand price, about 42%. Ontario has thenext lowest average price, 46%, reflecting the recent maximumformulary price caps implemented in the province.

While increased direct contracting by public plans may have thepotential to increase their benefits from competition amongmanufacturers, parties with whom this matter was discussed pointed toa number of related obstacles and issues to be addressed. Theyinclude:

• Ensuring that such contracting promotes or sustainscompetition among generic manufacturers, rather than results in aconcentrated and uncompetitive generic drug supply sector.
• The need to effectively and efficiently integrate contractingpractices and pharmacy operations.

In addressing the first of these issues, it would be importantto ensure that competitive contracting is designed to protectcompetition through successive rounds of contracting. Processes thatresult in the exit of manufacturers over time may ultimately lead to aloss of effective competition.

On the second issue, in effectively integrating contractingpractices and pharmacy operations, it is important to consider how todeal with existing inventory when there is a change in contractedmanufacturers. A further consideration may be ensuring that differentinterchangeable products remain available to deal with circumstanceswhere a contracted generic product cannot be used by a patient formedical reasons.

Reliance on competitive contracting also places greater emphasison successful bidders being able to supply the market, and mechanismsto ensure that alternative sources are available where a contractor isunable to meet demand.

The practices noted above are not the only ones that might beconsidered to shift the focus of generic competition to public plans.Others might involve, for example, restricting access to formulariesas a means to encourage price reductions.

Practices shifting the focus of generic competition to publicplans, away from pharmacies, in any case, would increase emphasis onthe regulation of pharmacy professional fees and mark‑ups. As thesepractices would limit the potential to provide rebates or professionalallowances by generic drug manufacturers, they would tend to makepharmacies more reliant on professional fees and mark‑ups, and wouldmake the pharmacy net returns more transparent.

5.B.1 Overview

Private drug plans generally complement public plans by coveringpersons or costs not covered by the public plans. As noted, abouttwo‑thirds of Canadian residents are covered by private insurance.According to the CIHI,private insurers, including group and individual insurance, paid $7.6billion for prescription drugs in Canada in 2006 representing 35.8% oftotal prescribed drug expenditures. ^{Footnote 93}

This section describes the private drug plans sector in Canadaand its role within the competitive framework for the generic drugs inCanada.

5.B.2 The Canadian private drug plans sector

While individuals may purchase private drug insurance, group benefitplans provide approximately 95% of private coverage in Canada. ^{Footnote 94} These plans are normally sponsored by or organized by employers,or professional orders or associations. In choosing the level and typeof coverage to provide, plan sponsors look for a balance between morecomprehensive coverage (desired by plan members), managing their riskexposure, and minimizing their drug coverage or insurance premiumcosts.

Plan sponsors have the option of providing either fixed cost(insured), or uninsured plans for their members.

Insured plans

Under insured plans, drug costs are principally reimbursed bythe drug plan provider. These groups pay a "premium" per employee orfamily. Smaller groups usually choose the premium method of funding asa means to manage their risk. Premiums include the cost of anticipatedclaims expense, administration costs, a charge for risk and anestimate for claim cost increase. At renewal time the claimsexperience is analyzed. If the rate varies from what was anticipated,this may be reflected in either higher or lower rates on renewal.

Administrative services only

Larger groups are more likely to sponsor uninsured oradministrative services only (ASO) plans as the size of theirmembership can adequately diversify their exposure to risk. Thesegroups choose to self insure which means they pay the claim costs plusa percentage or per claim fixed charge for administration. Since thegroup assumes the risk of large claims, no risk charge needs to beincorporated.

Insured and ASO drug plans are provided in Canada by bothfor‑profit insurers, such as Great‑West Life, Manulife and Sun‑Life,and not‑for‑profit companies, such as Green Shield Canada, AlbertaBlue Cross and Medavie Blue Cross.

The administration of these plans is complex and highlytechnical. It requires:

• Maintaining and updating drug formularies
• Developing and maintaining a network of pharmacies
• Claims adjudication
• The manual and electronic processing and settlement of drugclaims
• Expertise in the analysis and assessment of claimsinformation
• Expertise in the development of coverage and reimbursementpolicies
• Expertise in the development of flexible software solutions
• Coordination with provincial plans.

Non‑profit drug plan providers, such as Blue Cross and Green ShieldCanada, have developed capabilities to provide these services fortheir own and other group plans that they administer. ^{Footnote 95} For‑profit drug planproviders widely contract out the electronic processing and settlementof claims to third party pharmacy benefits managers (PBMs).

PBM s serve asintermediaries between the plan provider and the pharmacy to settleclaims. They may also provide other pharmacy benefit managementservices listed above. In some cases, PBMs may deal directly withemployer or other plan sponsors rather than through a plan provider.ESI Canada and Emergis are the two largest PBMs in Canada. OtherCanadian PBM s includeClaimSecure and Nexgen Rx .

5.B.3 The role of private drug plans in the generic drug competitive framework

Private plans may adopt similar policies to those used by public planson generic drug pricing and interchangeability. It has been statedthat in Canada, provincial government drug plans have structured thepricing and gross margins that both public and private plans pay. ^{Footnote 96}

The view is supported by the following table comparing genericdrug costs reimbursed by provincial plans in comparison to privateplans. Drugs covered in the table include both generics and brand‑namedrugs that have lost patent protection. They were both public andprivate plans reimbursement claims in 2006.

Prices used for constructing the table include both drug costsand pharmacy mark‑ups reimbursed. For each drug, the average unitprice in Canada was calculated. The ratio between the national averageunit price paid by a public plan and the unit price paid by a thirdparty payer was computed. The table shows descriptive statistics ofthe ratios between the unit prices paid by the provinces on averageand the private plans.

For both brand‑name and generic drugs, the prices paid byprivate plans tend to be higher than the price paid by the publicplans. On average in 2006, non‑patented brand, per unit, cost publicplans about 90% of the cost of private plans. For generic drugs only,the ratio was 93%.

The higher prices paid, on average, by private plans versus publicplans may reflect the granting of higher mark‑ups by private plans ortheir payment of higher drug prices than the provinces. ^{Footnote 97}

This relationship between public and private plan generic drug pricesis undergoing change. Although Ontario legislation has capped genericdrug prices under ODB plansat 50% of the brand price where more than one generic is available,these prices are not being provided to private plans in Ontario.Consequently, a two‑tiered price structure exists in the province forgeneric drugs. Further concern has been expressed that not onlyprivate plans do not currently benefit from lower generic prices inOntario, private plan prices may increase to compensate for the lostrevenues on ODB sales underthe reduced ODB maximumgeneric drug prices.

The limited role of insurers and PBMs in seeking lower costgeneric drugs is an important difference between the generic drugcompetitive frameworks in the US and Canada. In the US , insurerowned and independent PBM sare highly active in negotiating generic drug rebates or discountsfrom manufacturers. These can provide important savings on drugs costsfor plan sponsors. ^{Footnote 98} Determining the reasons forthis difference between the Canadian and Us generic drug sectors wasbeyond the scope of this study.

Filing and management of drug submissions

All drug submissions must be accompanied by:

• A completed drug submission application form
• A submission evaluation fee form
• A copy of the proposed label(s)
• The appropriate drug submission certification form.

New drugs must have a copy of the product monograph. Drug submissionsare processed according to the Management of Drug SubmissionsPolicy, which also identifies the performance targets for reviewtime frames for different types of submissions.

The Submission Evaluation Fees Guide identifies theevaluation fee and the timing of payment for different types ofpre‑market drug submissions. Fees are charged for the followingservices linked to the regulation of drugs:

• Drug Submission Evaluation
• Drug Master File Registration
• Issuance of Export Certificates (for non‑controlled drugs).

In addition to the fee for evaluating the safety, efficacy and qualityof a product, HPFBlevies other user fees ^{Footnote 113} for drug therapeuticproduct regulatory activities:

• Fees for maintaining the right to market a product (an annualfee must be paid for each Drug Identification Number (DIN) that pertains to adrug)
• A fee for an establishment license that certifies the type ofoperations and category of products that the establishment isauthorized to handle.