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Competitive Agreement Ontario
July 11, 2008

On July 4, 2008, the OPDP announced their new initiative for “Competitive Agreements”, a follow-on to the features of Bill 102, The Transparent Drug System for Patients Act, that were directed at reducing reimbursed amounts for generic drugs under the OPDP. As we have reported elsewhere, the 50% generic price reduction contained in Bill 102 was a starting point in government efforts to capture a larger part of the potential generic savings.

Competitive agreements will be made with manufacturers of selected multi-source drugs who respond to Calls for Application. In principle, the molecules selected would have multiple generics available, have high volume with a high public share and have lower prices in other jurisdictions. (It is unclear whether this means in Canada or internationally). There are four molecules in the first wave with an unspecified number of molecules and waves to follow in the months to come. For each molecule, two winners will be named based on a combination of security of supply and lowest net price. Brand manufacturers are free to submit an Application.

The first four molecules along with the ODB reimbursements for 2007-08 are:

Enalapril maleate (Vasotec) $31.6 million*
Ranitidine hydrochloride (Zantac) $23.5 million
Metformin hydrochloride (Glucophage) $24.0 million
Gabapentin (Neurontin) $7.5 million

*generics available from Q4 2007, amount represents brand + generic reimbursements for Enalapril Maleate and Enalapril Sodium.

Price reductions will be implemented by a rebate paid quarterly direct to the government. The price listed in the formulary will be the normal generic price of 50% of the brand price. Maintaining the generic list price at 50% is sound policy making for the province since it removes a disincentive for generic manufacturers to compete. If the actual price were known, there would be pressure for this to become the price in other provinces. However, some provinces require manufacturers to provide them the lowest price at which their products are sold to retail.

If the brand manufacturer is one of the two winners, the brand price will be lowered to the generic price in the formulary. This may discourage brand manufacturers from competing for this business; this was understood by the OPDP but the regulations are such that this was unavoidable at this time. However, there are recent events which suggest brand companies are becoming more aggressive on pricing and more competitive versus generic manufacturers.

Security of supply constitutes 50% of the evaluation of the bid with bidders required to demonstrate experience in the Ontario marketplace and an ability to supply the entire OPDP requirement of the drug. In addition, a quantity of drug sufficient to supply three months total requirements of the OPDP shall be held as safety stock.

Price will be the other 50% of the evaluation. No volume guarantees are being made; rather the bidders have the ability to offer higher rebates at higher market shares using a four-tier structure. Detailed evaluation criteria are set out in the OPDP briefing available at:

http://www.health.gov.on.ca/english/providers/program/
drugs/opdp_eo/notices/stakeholder_briefing.pdf

Calls for Application will be issued on July 25, with a deadline of August 22. A decision will be made on September 12 and the contract will start by January 1, 2009 or earlier depending, partially, on ability to supply. Each molecule is a stand alone agreement; no “bundling” is permitted.

Only the successful applicants’ products will be listed in the formulary and be eligible for reimbursement; others will be listed as “not a benefit”. One exception is that should two generics be successful, the brand drug will be maintained in the formulary to allow for “no substitution” prescriptions at the prevailing brand price.

The contracts will run two years with the OPDP holding one-way option for an additional year. Interestingly, in New Zealand where tending has been used for several years, the winning company rarely tenders in subsequent years. This one-way option may be a very difficult hurdle for the risk-adverse company.

The OPDP has committed to openness and transparency in this regard and is holding a follow-up session on July 15th to hear concerns. In addition email comments are being received at competitiveagreements@ontario.ca. An Applicants’ conference is being held on August 1. It was mentioned that the initial wave was an opportunity to refine the process so that future waves would be trouble free. The openness of the process seems intended to gather as much input as possible to ensure success.

The naming of two winners of the Calls for Application is in keeping with the OPDP’s commitment that it would not implement “winner take all” agreements when the competitive agreement concept was first mentioned during the run-up to Bill 102’s proclamation. It remains to be seen if this feature will prompt the kind of competitive bidding among the generic firms that is sought and encourage brand manufacturers to participate as well.

To estimate the potential savings to the OPDP it is noted that the Saskatchewan Health Drug Plan currently reimburses Metformin and the most commonly used strength of Ranitidine at 30% and 25%, respectively, below the current OPDP cost on their Standing Offer Contract system. Given the larger OPDP expenditures, the relative savings could well be greater in Ontario if the manufacturers participate as intended. Based on the estimated current value of the four molecules savings on the order of those realized by Saskatchewan Health would net the OPDP about $20 million in savings over a year.

This initiative on the part of the OPDP is a continuation of the activities of public payers to reduce the cost of generic product to levels more in keeping with those seen in other countries and that was part of the National Pharmaceutical Strategy and that first materialized with Ontario Bill 102. The Ministry must be congratulated for its diligence in initiating new programs to contain costs and for the openness of this process. There will, inevitably, be unintended consequences and as with any other public policy, there will need to be close scrutiny of the results to evaluate the outcomes and adjust the process as subsequent waves are rolled out.



Tom Brogan
President