Managing High-Priced, U.S. Biotech Rxs in Canada

As the “Saga of Sovaldi” continues to unfold in the U.S., and Congress, insurers, providers, and the U.S. Rx manufacturer, Gilead, hurl charges back and forth at each other, it’s pretty clear the situation will only continue to deteriorate. However, as you look north of the American border, it’s striking how Canadian healthcare entities are managing a similar Sovaldi situation, as well as the other new, high cost, American biotech products that are beginning to appear there.

As a quick review, Health Canada is a single payer healthcare system that has a governmental obligation to provide healthcare to all Canadians. Although predicated on a complicated system of federal and provincial medical cooperation, the approach has evolved since 1946 into a fairly comprehensive, public form of single payer healthcare coverage.

However, recently the Canadian healthcare system has been disturbed by the arrival of several American biotech drugs — the same breakthrough drugs that are creating so much controversy in the U.S. How has this situation played out in Canada versus the invective that’s been experienced in the U.S.?

To put it succinctly, differently… Very differently.

A good example was on display recently in the province of Quebec where blaring headlines noted that after months of controversy, the province would be the first to provide the U.S. biotech Rx poster-child, Sovaldi.

But this came to pass only after a bruising political battle that was played out publicly in the Quebec media. It featured aggrieved patients and highlighted the cases of numerous Canadian Hep C sufferers who were begging for access to Sovaldi. For the provincial health service, however, there was only one concern regarding Sovaldi — cost.

So the big question was could Quebec — and the other Canadian provinces — negotiate significant price breaks from Gilead that would make the drug more affordable in Canada? This meant receiving discounts from the firm that so far, no U.S entity, private or public, has obtained.

The answer to this Canadian question is interesting, and perhaps instructive for U.S. payers and patients. That’s because Gilead, indeed, is offering a significant discount to Health Canada. According to the Canadian Hepatitis C Education and Prevention Society, Canadians will be paying $55,000 CA ($51,000 US) per therapy for Sovaldi versus the US price of $84,000 US. That comes out to an approximate 40% discount for Health Canada…Still not cheap, but quite an interesting price being offered to a fellow G-7 nation, no?

And there’s more. As the other new, U.S. biotech Rxs make their appearance on the Canadian market, Health Canada is continuing to systematically look for lower prices v. the U.S.

For example, in recent weeks several Canadian media outlets have been following the travails of Canadian cystic fibrosis suffers who are trying to find a way to afford Vertex’s new product, Kalydeco.

As with the case of Sovaldi and Canada’s Hep C suffers, numerous Canadian cystic fibrosis patients, (mostly kids) have been presented in the media as having no good options for treatment of the deadly pulmonary disease. Potentially, the advent of Kalydeco has changed all of that. With access to Kalydeco these Canadian kids would have a chance to make miraculous recoveries.

The problem with Kalydeco, as with Sovaldi, is cost. Listed in the U.S. for $300,000 per therapy, not surprisingly, Health Canada’s response to this Kalydeco price tag was similar to the one accorded Sovaldi. No go.

However, following the public barrage of stories on the cases of cystic fibrosis kids, a provincial health price control entity called the, “Pan-Canadian Pricing Alliance (PCPA)” directed Vertex to enter into negotiations on pricing with the provinces...and the company did.

On June 2nd, it was reported that a successful discount had been agreed to between Vertex and the Alberta provincial healthcare service. As a result, Kalydeco is scheduled to be available to all Health Canada cystic fibrosis patients by this fall.

Although no hard figure on the Kalydeco discount has been published, logic would tell us that as a percentage, the agreed to price likely came in somewhere around the reported Canadian Sovaldi discount of 40% off versus U.S. prices. Still not cheap; but a lot cheaper than in the U.S.

Given these two pricing precedents set by Health Canada, it’s pretty clear what the parade of other new American biotech drugs are likely to encounter as they attempt to launch their new Rxs in Canada. Demands for deep discounts will be standard. And if a company refuses to play ball, there will be no sale of the product in Canada.

There’s a lot for the American pharmaceutical industry to think about here. As I ruminated on these Canadian results, I came up with a couple key questions for U.S. drug manufacturers:

1. If breakthrough American biotech drugs are now being provided to G-7 countries at substantial discounts, similar to those that Canada has won, how long will public and private U.S. healthcare entities put up with the prices currently being charged for Sovaldi, Kalydeco, and the many other new biotech products that will soon be available?

I’d have to say, it’s a pretty good question.

If the likes of U.S. Medicaid and the new public State Exchanges currently providing Rx access through Obamacare decide it’s time to seek discounts similar to those being accorded to G-7 countries, and in particular, to our neighbor to the north, Canada…I am not sure that I see much negotiating space for Rx firms like Gilead and Vertex.

Frankly, the other 500 pound public healthcare gorilla sitting in this “pricing” room is …U.S. Medicare. The introductions of the high priced products like Sovaldi and Kalydeco could cause Medicare to break with its current no discount/rebate policy for Rxs.

Should that happen, and there are Members of Congress who keep talking about it, I would have to suggest the result would be a race to the bottom for public Rx reimbursements.

On the private side, as previously mentioned in this publication, we already have what amounts to a ‘holy war’ being waged by American patient groups, insurers, and several PBM payers against Sovaldi’s pricing. Collectively, it is hard to see how Gilead can hold out indefinitely against this kind of pressure — especially as potential Sovaldi competitors move through the FDA promising pricing alternatives to Sovaldi.

Finally, we should also note that Kalydeco is already experiencing a Sovaldi-like reception in both the public and private U.S. market places ...and no doubt the next round of high priced U.S. biotech Rx entrants will be given the same welcome.

2. So let’s say this Rx discounting issue takes hold in the U.S. — and Gilead, Vertex, and all the other American breakthrough drug research firms are forced to provide their new biotech products at prices well below those that the companies anticipated for the drugs. What happens then?

To me, this is the key issue in this entire discussion. The way this has worked for decades is that the world has been essentially freeloading on American drug innovation since the 1980s. A quick look at recent global R&D spending, universally viewed as a key indicator of likely Rx patent generation, makes this point clearly [p. 69]. Over the last 33 years, the U.S.A., hands down, has been the most committed nation on Earth in terms of Rx research and the generation of new drug patents.

However, because of Canadian-like single payer systems operating all over the globe, as well as desperate third world countries that present horrific public health challenges, cutting edge American Rx products are now being provided internationally at drastically reduced prices versus those charged in the U.S.

Traditionally, here in the U.S, the Rx industry has made up for these worldwide “losses” by charging and being paid very high prices for their breakthrough products like … Sovaldi and Kalydeco. In the end, the U.S. is where most of their global profits are derived.

But do the recent Canadian pricing experiences perhaps provide a foreshadowing of what’s to come in the U.S.? As we certainly have seen in the Sovaldi case, these “traditional” American Rx pricing “arrangements” are clearly being challenged on several levels in 2014.

The question that I would imagine is being asked in the Gilead and Vertex Board Rooms today is, “Given all these pricing pressures, not only from foreign healthcare systems, but now, from American public and private healthcare entities, how do we make a profit? And without that profit, where will our capital for future R&D be generated?

I think you would have to agree, that’s another very good question.

Perhaps the capital will come from the federal government? Or maybe the state exchanges? What about from the American PBMs and insurance companies that are aggressively negotiating the new, lower prices for these biotech products?

Or maybe that R&D capital will come from Canada…and the rest of the G-7s…and all the other parts of the world that currently are enjoying the deeply discounted prices & health benefits that these new U.S. products bring to their citizens…?

Probably not, you say? Well, if that’s true, then for U.S. pharmaceutical firms there really is a lot to think about in 2014.

Tom Norton, NHD Smart Communications of Illinois, Inc.