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Bottles filled with generic drugs are packaged on an assembly line at Pharmascience manufacturing facility in Montreal on Dec. 8.Christinne Muschi/The Globe and Mail

Negotiations between government and industry on access to generic pharmaceuticals have reached an impasse over whether drug prices should go lower despite rising production costs.

The pan-Canadian Pharmaceutical Alliance (pCPA) – which represents major government buyers such as provincial health ministries and the federal veterans’ affairs department – and the Canadian Generic Pharmaceutical Association (CGPA) – which represents drugmakers – are in the midst of negotiations for a multiyear agreement on access and pricing for generic pharmaceuticals.

The agreement is significant because it covers a substantial portion of the drugs that Canadians are prescribed. Generic pharmaceuticals, which are sold for a fraction of the price of patented medicines, make up about three-quarters of all prescriptions filled in Canada.

It is the third time the two parties have negotiated, after previous agreements were signed in 2014 and 2018. The current deal expires March 31, 2023.

The agreement pegs the cost of the generic form of a drug to the reference price of its brand-name counterpart. For example, the price that government buyers will pay for Atenolol, which is used to treat high blood pressure, is set at 15 per cent of the brand-name price.

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An employee checks packaged generic drugs before boxing them on an assembly line.Christinne Muschi/The Globe and Mail

Industry representatives say the current round of negotiations is going poorly because the government is focused on further lowering the cost of generic drugs.

The companies say this is unworkable because prices have already gone down on an absolute basis. Data from industry research group IQVIA show the average retail price of a generic drug has fallen from $23.58 in 2012 to $20.29 in 2021.

The companies say that, at the same time as their prices are fixed or declining, they have faced record inflation in the cost of raw materials and labour.

“We can’t expect to burden 100-per-cent of the inflation,” said Mike Dutton, vice-president and general manager of Pharmascience Canada, a division of Pharmascience Inc., a Montreal-based pharmaceutical company. “We’re one of the only industries that have. I’m sure your grocery bills have gone through the roof, as have mine. We can’t pass on even a portion of that inflation cost.”

Generic drugmakers say further restrictions on their revenue could lead to more product discontinuations and exacerbate supply shortages.

“Any further reduction in prices will further fragilize the supply in Canada, I can guarantee you,” said Michel Robidoux, president and general manager of Sandoz Canada. “We have already reached that point where some of our molecules, we’re selling at cost or below our cost.”

The CGPA says it is asking at this time for prices to at least remain flat and for there to be a mechanism for modest price increases during periods of high inflation.

The pCPA, which negotiates for government buyers, said it could not comment on its position or industry concerns because it had to maintain the confidentiality of the negotiations.

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An employee watches as bottles are filled with generic drugs.Christinne Muschi/The Globe and Mail

The organization said it has a mandate to enhance patient access to drugs and that the agreements have been positive for Canadian taxpayers because they helped contain costs.

“These initiatives have provided significant savings to the Canadian health care system and provided a stable, predictable market environment for generic pharmaceutical manufacturers,” the organization said in a statement on behalf of its members.

Michael Law, a health-policy professor at the University of British Columbia and Canada Research Chair in Access to Medicines, said generics play an important role in provincial health budgets because they cost a fraction of brand-name drugs. In fact, he said, Canada could be using even more of them – according to the U.S. Food and Drug Administration’s Office of Generic Drugs, 90 per cent of U.S. prescriptions are filled with generic drugs.

However, he said, the whole framework of collective bargaining between industry and government buyers is flawed because it sets blanket prices that could be beat if contracts were put out for individual products, as is done with other areas of government procurement.

He pointed to a 2017 Ontario Auditor-General report that found some hospitals were, on their own, able to purchase a sample of generic medicines for 85 per cent lower than what the provincial ministry had. “Although there is no guarantee that the ministry could obtain the same prices for these same drugs, it indicates that opportunities exist for further price reductions on generic drugs,” the report said.

Prof. Law said that, while the government and industry may favour the current collective bargaining system, there could be value in getting companies to compete against each other for contracts.

“If you were doing government procurement for automobiles, you’re not going to sit around a conference table with Ford, Chevrolet, Toyota and Subaru and ask them all what the price we should pay for cars is,” he said. “You would go to each of them and get offers.”

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