drug importation: economic impact
TRANSCRIPT
Drug Importation: Drug Importation: Economic ImpactEconomic Impact
Patricia M. Danzon PhDPatricia M. Danzon PhDThe Wharton SchoolThe Wharton School
U. PennsylvaniaU. PennsylvaniaJune 2004June 2004
Effects of Drug Importation are Effects of Drug Importation are Highly UncertainHighly Uncertain
US legislative proposals differUS legislative proposals differCountriesCountriesPrePre--conditionsconditionsEnforcementEnforcement
Manufacturer responseManufacturer responseUS and exporting countries’ responseUS and exporting countries’ responseLeast bad vs. worst case scenarioLeast bad vs. worst case scenario
Status QuoStatus Quo
Importation into the US is illegal Importation into the US is illegal In practice, individual own use is permittedIn practice, individual own use is permittedHealth plan/payer initiatives cooled by FDA warningHealth plan/payer initiatives cooled by FDA warning
US$650US$650--700m. imported from Canada in 2003 (IMS 700m. imported from Canada in 2003 (IMS estimate) of over $200b. US salesestimate) of over $200b. US salesSafety concerns are a major issueSafety concerns are a major issue
Authorized countries could become conduitsAuthorized countries could become conduitsPolitical pressurePolitical pressure
Consumers, payers and Medicare face rising drug costsConsumers, payers and Medicare face rising drug costsHigher US prices viewed as “unfair”Higher US prices viewed as “unfair”
Importation from Canada, EU, Japan:Importation from Canada, EU, Japan:1. Least Bad Scenario 1. Least Bad Scenario
Aggregate savings to US consumers is smaller than Aggregate savings to US consumers is smaller than revenue loss to manufacturersrevenue loss to manufacturersKey issuesKey issues
Mismatch of productsMismatch of productsSupply restrictions Supply restrictions –– launched productslaunched productsForeign price increases or nonForeign price increases or non--launch launch -- new productsnew productsIntermediaries capture some of the savingsIntermediaries capture some of the savings
a. Mismatch of products a. Mismatch of products Matching on formulation/strength reduces Matching on formulation/strength reduces
matching sample by roughly 50%matching sample by roughly 50%
37% 35%
42%
31% 33%
62% 61%
17%10%
33%
61%
15%21%
16%
33%
14%
35%
0%
10%
20%
30%
40%
50%
60%
70%
CANADA
CHILE
FRANCE
GERMANY
ITALY
JAPAN
MEXICO UK US
Sample percent of sales Matched with US, by presentation
Source: Danzon and Furukawa, Health Affairs, Oct. 2003
40.6440.645656757524.3624.36565637.537.5BelgiumBelgium
19.5319.532828757511.2711.27282837.537.5GreeceGreece
50.9350.936060757530.6930.69606037.537.5PortugalPortugal
58.1458.146060757531.6931.69606037.537.5AustriaAustria
43.0943.096060757525.8525.85606037.537.5NetherlandNetherland
42.242.26060757525.925.9606037.537.5SpainSpain
11.6111.611414757513.313.3282837.537.5ItalyItaly
9.879.87303050506.576.5730302525FranceFrance
60.3960.395050757534.3334.33505037.537.5GermanyGermany
55.0555.055656757533.0133.01565637.537.5United United KingdomKingdom
E/PackE/PackPackPackStrngthStrngthE/PackE/PackPackSizePackSizeStrengthStrengthCountryCountry
Different formulations may limit importation Different formulations may limit importation
b. Manufacturer Supply Restrictions b. Manufacturer Supply Restrictions of Launched Productsof Launched Products
Some manufacturer supply restrictions for Some manufacturer supply restrictions for Canadian pharmacies; common in EU Canadian pharmacies; common in EU
legal so far……legal so far……Will wholesalers/pharmacies forego profitable Will wholesalers/pharmacies forego profitable export opportunity?export opportunity?
Some shortages reportedSome shortages reportedEven if 20% of EU + Canada volume is shipped Even if 20% of EU + Canada volume is shipped to US, would only fill 20to US, would only fill 20--30% of US volume30% of US volume
And only for matching drugsAnd only for matching drugs
US Dominates Global Sales:US Dominates Global Sales:Due to Volume and PriceDue to Volume and Price
+8.4+8.4+8.0+8.024.9%24.9%$116.3$116.3EU (15)EU (15)+11.3+11.3+9.1+9.183.2%83.2%$389.2$389.210 Key Markets10 Key Markets+10.4+10.4+9.3+9.3100.0%100.0%$467.9$467.9WorldwideWorldwide+15.2+15.2+11.1+11.149.1%49.1%$229.5$229.5North AmericaNorth America+8.8+8.8+9.4+9.428.8%28.8%$134.5$134.5Europe (All)Europe (All)+4.0+4.0+3.4+3.411.2%11.2%$52.4$52.4JapanJapan
+11.0+11.0+9.3+9.37.2%7.2%$33.8$33.8Asia/Africa/AustraliaAsia/Africa/Australia--2.82.8+5.5+5.53.7%3.7%$17.4$17.4Latin AmericaLatin America
CAGRCAGR9898--020220032003% Share% ShareUS$ BillUS$ Bill
World Audited World Audited MarketMarket
% Growth Constant % Growth Constant $$20032003
Source: IMS Health Incorporated
Per Capita Consumption, By Molecule Age, Per Capita Consumption, By Molecule Age, Relative to U.S. ConsumptionRelative to U.S. Consumption
Note: United States equals 100%. Source: Danzon and Furukawa, Health Affairs Oct. 2003
26%
65%
91%
2%6%
22%
44%
91%
97%
58%72%
78%
25%
44%
62%
1%5%
53%
4%3%12%
32%
42%
115%
0%
20%
40%
60%
80%
100%
120%
CANADA
CHILE
FRANCEGERMANY
ITALY
JAPAN
MEXICO UK
24 months or less 25 to 60 months Total
c. Decline in Foreignc. Decline in Foreign--US Price US Price DifferentialsDifferentials
Manufacturers will be less willing to sell at low pricesManufacturers will be less willing to sell at low pricesManufacturer control greatest for launch priceManufacturer control greatest for launch priceUS market vs. loss of foreign salesUS market vs. loss of foreign salesFeasible pricing band varies by product, importer costs etc.Feasible pricing band varies by product, importer costs etc.
Countries that are unwilling/unable to pay higher prices Countries that are unwilling/unable to pay higher prices may see fewer/delayed product launchesmay see fewer/delayed product launches=> Loss of access abroad, lower manufacturer => Loss of access abroad, lower manufacturer revenues but little gain for US consumersrevenues but little gain for US consumers
Decline in Median Best Price Discounts for HMOs and GPOs after OBRA 1990 “Best Price”
HMOs GPOs0
10
20
30
14.2
27.8
18.4
15.3
22.124.4 Quarter 1, 1991
Quarter 1, 1992
Quarter 1, 1993
Perc
enta
ge
SOURCE: GAO: Changes in Best Price for Outpatient Drugs Purchased by HMOs and Hospitals, Aug. 1994.
Countries with Lower Prices Have Fewer Countries with Lower Prices Have Fewer Launches, Longer Launch delays Launches, Longer Launch delays
(Danzon, Wang and Wang 2003)(Danzon, Wang and Wang 2003)We analyzed launch of 85 We analyzed launch of 85 NCEsNCEs in 1994in 1994--1999199914 EU countries, plus Australia, Canada, Czech, Japan, 14 EU countries, plus Australia, Canada, Czech, Japan, Mexico, New Zealand, Norway, Poland, South Africa, Mexico, New Zealand, Norway, Poland, South Africa, Switzerland, USASwitzerland, USA55% of the potential launches occurred 55% of the potential launches occurred
most in countries with unregulated pricesmost in countries with unregulated pricesUSA (73), Germany (66) and UK (64)USA (73), Germany (66) and UK (64)
fewest in Japan (13), Portugal (26), New Zealand (28)fewest in Japan (13), Portugal (26), New Zealand (28)
FindingsFindings
Countries with lower prices have longer Countries with lower prices have longer launch lags and fewer launches launch lags and fewer launches
EU countries that are major PI exporters EU countries that are major PI exporters have longer delays, controlling for expected have longer delays, controlling for expected price and volumeprice and volume
KaplanKaplan--Meier estimates of cumulative Meier estimates of cumulative launch probability for selected countrieslaunch probability for selected countries
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Month since Global Launch
Cum
ulat
ive
Laun
ch P
roba
bilit
y
USAGERMANYUKSPAINFRANCEITALYPORTUGALJAPAN
Countries with a significantly longer Countries with a significantly longer delays/fewer launches, relative to UK, delays/fewer launches, relative to UK,
controlling for price and volumecontrolling for price and volume
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Japa
nPort
ugal
New Zea
land
Poland
Czech Ita
lyFran
ceBelg
iumAus
tralia
South
Africa
Spain
Greece
Mexico
Hollan
dNorw
ayCan
ada
Switzerl
and
Haz
ard
Rat
io (v
s U
K)
Price Differentials with Other Countries Price Differentials with Other Countries Largely Reflect Income Differences Largely Reflect Income Differences
Danzon and Furukawa, Health Affairs (Oct, 2003)Danzon and Furukawa, Health Affairs (Oct, 2003)
Sample: 249 leading molecules in US 1999, by volumeSample: 249 leading molecules in US 1999, by volume61% of US sales61% of US sales
IMS data, all products in each molecule, 9 countriesIMS data, all products in each molecule, 9 countriesBrands and generics, all formsBrands and generics, all forms
ManufacturerManufacturer--level prices level prices We adjust for manufacturer discounts in USWe adjust for manufacturer discounts in US
reduces US prices by 8reduces US prices by 8--10 percent on average10 percent on averageUS volume weightsUS volume weights
67%78%
70%86% 87%
127%
80%94%
0%
20%
40%
60%
80%
100%
120%
140%
CANADA
CHILE
FRANCEGERM
ANY
ITALY
JAPAN
MEXIC
O UK
Molecule
Price Indexes, Relative to the US: Price Indexes, Relative to the US: All Matching Products All Matching Products Exchange Rate ConversionExchange Rate Conversion
Note: United States equals 100%.
Price Indexes: Price Indexes: OnOn--Patent Versus Generic DrugsPatent Versus Generic Drugs
Note: United States equals 100%.
64%
94%
76%
101%
61%
102%
72%
124%
61%
195%
138%
205%
76%
130%
74%
113%
0%
50%
100%
150%
200%
250%
CANADA
CHILE
FRANCEGERMANY
ITALY
JAPAN
MEXICO UK
Originator-single source drugs Generic drugs
67%
104%78%
528%
70%93%
86%110% 87%
141% 127% 118%80%
529%
94%125%
0%
100%
200%
300%
400%
500%
600%
CANADA CHILE FRANCE GERMANY ITALY JAPAN MEXICO UK
Price index (molecule-indication) Price index normalized by income
Price Indexes Relative to Per Capita Price Indexes Relative to Per Capita IncomeIncome
Note: United States equals 100%.
Conclusions on Average Price Differences Conclusions on Average Price Differences US Market Basket, 1999 prices and exchange rates US Market Basket, 1999 prices and exchange rates
Most other countries’ prices are 6Most other countries’ prices are 6--33% lower than the US, 33% lower than the US, on averageon average
Price differentials are roughly reflect income differentials, Price differentials are roughly reflect income differentials, except Mexico and Chile except Mexico and Chile
Foreign prices differentials are larger for other medical Foreign prices differentials are larger for other medical services than for drugsservices than for drugs
Foreign countries are unlikely to pay higher drug pricesForeign countries are unlikely to pay higher drug prices
US has relatively high originator prices and high use of new US has relatively high originator prices and high use of new drugs, relatively high generic volume and low generic prices, drugs, relatively high generic volume and low generic prices, compared to countries that regulate pricescompared to countries that regulate prices
d. Middlemen will Capture Some of d. Middlemen will Capture Some of Any SavingsAny Savings
If only a fraction of US demand can be sourced If only a fraction of US demand can be sourced abroad, who will capture the savings?abroad, who will capture the savings?
Pharmacy chains and Pharmacy chains and GPOsGPOs if buy directif buy directPBMsPBMs may “may “clawbackclawback” average pharmacy savings” average pharmacy savings
AWP AWP –– X% X% -- z%z%
CashCash--paying customers are unlikely to benefitpaying customers are unlikely to benefitEU experience EU experience
2. The Worst Case Scenario2. The Worst Case Scenario
US constrains supply limitationsUS constrains supply limitationsAntiAnti--trusttrustLegislationLegislation
US requires registration of foreign formulations US requires registration of foreign formulations Foreign countries apply compulsory licensing ifForeign countries apply compulsory licensing if
high priceshigh pricesNonNon--launchlaunch
Policy Conclusions: Price Differentials Policy Conclusions: Price Differentials for Drugs are Good, Not Badfor Drugs are Good, Not Bad
Free trade and uniform prices crossFree trade and uniform prices cross--nationally are not appropriate nationally are not appropriate policy for products with significant R&D costspolicy for products with significant R&D costs
Charging higher drug prices in high income countries is an efficCharging higher drug prices in high income countries is an efficient ient and equitable way to pay for R&D and equitable way to pay for R&D
R&D is a global joint costR&D is a global joint cost
Current price differentials roughly reflect income differentialsCurrent price differentials roughly reflect income differentials, except , except for Mexico and Chilefor Mexico and Chile
Importation would reduce access abroad, reduce manufacturer Importation would reduce access abroad, reduce manufacturer revenues and reduce R&D, with little or no gain to US consumersrevenues and reduce R&D, with little or no gain to US consumers