THE MARKET FOR GENERIC DRUGS IN SPAIN Current situation and future prospects. Report by SOIKOS S.L. Joan Rovira (director)

Transcription

1 THE MARKET FOR GENERIC DRUGS IN SPAIN Current situation and future prospects Report by SOIKOS S.L. Joan Rovira (director) Guillermina Albarracín (researcher) Most recent version: 25 April 21 Carrer Sardenya , 6º 4ª 813 Barcelona España. WEB: Tel: Fax:

2 EXECUTIVE SUMMARY... 3 PRESENTATION DEFINITION OF THE CONCEPT OF GENERIC DRUGS INSTITUTIONAL FRAMEWORK OF PHARMACEUTICAL POLICY MEDICATIONS SECTOR LEGAL FRAMEWORK Medications Act (Law 25/199 of 2 December 199) Health registration Laboratory sales price (LSP) TYPES OF MARKETS Production Distribution Marketing SUB-MARKETS Hospital market Prescription drug market Over-the-counter market GENERIC DRUGS IN SPAIN MEASURES TO PROMOTE THE GPS MARKET Registration of GPS Mark-ups Reference price Substitution by the pharmacist GPS MARKET EVALUATION OF THE PROCESS OF INTRODUCING GPS IMPORTANT CONTACTS CONCLUSIONS OPPORTUNITIES FOR THE FOREIGN GENERIC DRUG INDUSTRY BIBLIOGRAPHY ANNEX 1: TABLES ANNEX 2. CIRCULAR No. 3/

3 ANNEX 3. LINKS TO URLs USED AS SOURCES EXECUTIVE SUMMARY Carrer Sardenya , 6º 4ª 813 Barcelona España. WEB: Tel: Fax:

4 THE MARKET FOR GENERIC DRUGS IN SPAIN Current situation and future prospects The policy on generic drugs in Spain forms part of a package of measures to contain spending on medicine. Legislation has been amended to adjust existing requisites governing pharmaceutical specialities to the new generic pharmaceutical specialities, with regard to effectiveness, safety and bioavailability. Regulations and incentives were introduced to promote the substitution of doctors prescriptions with generic pharmaceutical specialities, establishing financial incentives for pharmacists, particularly with respect to permissible mark-ups. The supply of generic pharmaceutical specialities (GPS) on the market at December 2, according to the database of the General Council of Official Colleges of Pharmacists, came from 69 laboratories that marketed 67 active principles in 1,184 presentations. Eighty percent of all presentations are marketed by 23 laboratories and just nine offer more than 1 active ingredients on the Spanish market. According to information reported by the National Health System, 46 active principles prescribed over have generated the highest spending on drugs in the System. The top 1 (measured in retail sales prices and ranked by value and number of units) were Omeprazol, Ranitidine, Amoxicillin, Enalapril, Budesonide, Paroxetine, Atorvastatin, Captopril, Fluoxetine and Diltiazem. Just 2 active principles had generic presentations at December 2. The remainder can only be found in brand name presentations. Of the 114 homogeneous groups whose reference prices have been defined, 46 presentations have the following active ingredients: Aciclovir (5), Amoxicillin (7), Captopril (4), Cefonicid (4), Cefuroxime (1), Diclofenac (3), Diltiazem (2), Enalapril (3), Famotidine (2), Fluoxetine (4), Nifedipine (2 in retard), Nimodipine (2), Omeprazole (1), Piroxicam (1) and Ranitidine (4 ). The regions where GPS are most widely used according to IMS are Madrid with 22.3% of the total market for generics, Cataluña with 21.2% and Andalucia with 9.8%. The factor with the most weight when it comes to using generics is the resistance of physicians to allowing pharmacists to substitute their prescriptions. Although the measure on commercial mark-ups is intended to act as an incentive for substitution, in practice, its impact on pharmacists is negligible, since the high prices of brand name products compensate for the lower mark-ups on them. A third factor is the existence of a market of original drugs, off-patent, with relatively low prices, which limits the impact of the reference prices. Generally speaking, the market for generics will tend to grow in Spain in the coming years. The speed of the process will depend on policy decisions, particularly the commitment to controlling costs and industrial objectives. The entry of foreign companies into this market has contrary effects: on the one hand, it

5 would increase competition in the sector and, on the other, it would force prices to fall. This would be harmful to the interests of the domestic industry. As for incentives for demand, they can be expected to increase in future as new forms of compensation for institutions and physicians are introduced, which encourage them to be aware of costs and prescribe keeping them in mind. Carrer Sardenya , 6º 4ª 813 Barcelona España. WEB: Tel: Fax:

6 PRESENTATION The inclusion of generic drugs in official Spanish terminology generic pharmaceutical specialities (GPS) in the legal framework that establishes the policy governing medications in Spain is recent, dating back to 1996, when the Medications Act (Law 25 of 2 December 199) was amended as part of a general strategy to contain spending on drugs. However, it was not until the end of 2, with the entry into force of a system of reference prices, that the policy governing generic drugs received a substantial boost. Over those years, a large number of decrees and regulations have attempted to clarify the rules of the game governing the market for generic drugs, in the presence of a debate that is not new and which has special features in Spain, stemming from an historical situation marked by the absence, until recently, of product patents and the consequent proliferation of products that are copies produced by the domestic industry. The objective of this study is to give a detailed description of the market for generic drugs in Spain and its foreseeable trends, in order to visualize the opportunities it offers to manufacturers of generic drugs in Canada and other countries interested in marketing their products in Spain. The document is mainly intended to describe the drug policy guidelines in effect at present and the specific regulations that spell out the requirements and conditions for marketing generic drugs in our country.

7 1. DEFINITION OF THE CONCEPT OF GENERIC DRUGS Conventionally, the Spanish pharmaceutical market grouped pharmaceutical specialities into four categories from the standpoint of ownership (or property rights): 1 innovations, licences, copies and generics. 2 Current legislation classifies and defines them as follows: Innovation or original: A new medication obtained through research and complete development, from the synthesis of its active principle to its clinical use, which has been registered and marketed by the laboratory that produced the innovation. Licences: Original medications manufactured and/or marketed under a licence from the laboratory that produced the innovation. Copies: Medications manufactured and/or marketed by laboratories different from the laboratory that produced the innovation, without a licence, which can be sold under a trade name or the official Spanish name (DOE) or the international nonproprietary name (INN). Generic drugs: The concept of generic drugs is linked to the amendment of the Medications Act by Law 13/1996 on Fiscal, Administrative and Social Measures. Article 8, section 6 bis, was added and reads textually as follows: Generic Pharmaceutical Speciality : The speciality having the same pharmaceutical form and the same qualitative and quantitative composition in medicinal substances as another reference speciality, whose effectiveness and safety profile is sufficiently well established by continued clinical use. Generic pharmaceutical specialities must demonstrate therapeutic equivalency with the reference speciality through bioequivalency tests. The different forms of oral pharmaceuticals with immediate release may be considered the same pharmaceutical form, provided their bioequivalency has been demonstrated. The same law adds the following paragraph to Article 16 of Law 25/199 on medications: In the case of a generic pharmaceutical speciality, the name will be the Official Spanish Name or, if there is none, the common or scientific name, accompanied by 1 Díez MV, Errecalde MF. Clarifications on the concept of generics. Therapeutic Information from the National Health System. Vol 22 No Copies sold under the International Non-Proprietary Name or the Official Spanish Name, followed by the name of the owner or manufacturer, regardless of whether the speciality was the bioequivalent of the innovation, were previously considered generic drugs. Under current legislation, they are called false generic drugs. Carrer Sardenya , 6º 4ª 813 Barcelona España. mina@soikos.com. WEB: Tel: Fax:

8 the name or trade mark of the owner or manufacturer. Generic pharmaceutical specialities are identified by the letters GPS on the package and main label. This unified the definitions, although there are still pharmaceutical specialities on the market that do not bear the mark GPS and therefore cannot be legally considered generic, but rather specialities that are essentially similar to others. 2. INSTITUTIONAL FRAMEWORK OF PHARMACEUTICAL POLICY Article 43 of the 1978 Spanish Constitution establishes that all Spaniards have the right to health care and makes the State responsible for legislation governing pharmaceutical products. Later, with the General Health Act (Law 14/86), heath legislation was updated under the new constitutional framework by defining the National Health System (SNS), which is responsible for guaranteeing equitable access to health care for all citizens through public financing. In some cases, powers over the management and administration of health services can be delegated to the regional governments. The National Health System is composed of the National Health Institute (INSALUD), the health services provided by each regional government and an inter-territorial council (coordinating body) composed of a representative of each regional government and an equal number of members from the central government. The law also establishes health services divisions in different zones, known as health areas, responsible for managing the health centres and establishments of the regional governments. The areas are divided, in turn, into basic zones where primary care teams are established. Today, the seven regional governments which have full powers over health care serve 61.8% of the population and INSALUD serves the remaining 38.2%. Its role is to be phased out gradually until all responsibilities for health care are transferred to the regional governments. Health care, which covers virtually 1% of the population, has been financed since 1999 exclusively through a general tax, which mainly takes the form of transfers from the central government s budget. Previously, part of the funds came from employer and employee contributions. The legislative framework establishes that all citizens have the right to medications and other health products necessary to promote, preserve or restore health, under the terms established by the government. As a result, the National Health System covers the complete cost of medications in hospitals and over 9% of ambulatory care treatments, for which a co-payment system exists, whose amount depends on the type of membership of the user and the product. The co-payment system is governed by the following principles:

9 _ Employed persons and their families are required to pay 4% of the cost of medications. _ The chronically ill pay 1% of the cost, up to a maximum of 439 pesetas per prescription. _ Medications classified in certain groups or subgroups (Annex II of Royal Decree 83 of 1993) require a small payment of 1%, and that percentage may not exceed an amount updated annually based on the consumer price index. _ Pensioners and some types of patients, such as those suffering from toxic syndrome, disabilities, workplace accidents and occupational diseases are exempt from payment. Until 1993, the SNS guaranteed access to all presentations of pharmaceutical specialities sold in Spain, except for over-the-counter drugs, dietetic and diet products, mineral-medicinal water, cosmetics and similar products. Since that year, 1,2 pharmaceutical presentations were listed as exceptions and another 834 were added in These lists are known as negative lists. Article 4 of the General Health Act of 1986 also establishes that the government will regulate, authorize and register medications for human and veterinarian use and other health products, owing to the risk they could pose for humans. Article 95 also establishes the conditions for authorizing the sale and use of medications, which cover effectiveness, tolerance, stability and information, and makes special mention of the need for controlled clinical tests. One important aspect is that the Act recognizes the temporary nature of authorization of medications and other health products (Article 98), which means this is a dynamic process, subject to permanent review and validation. 3. MEDICATIONS SECTOR The importance of the Spanish pharmaceutical market is evident from the fact that it is the seventh-largest in the world in terms of spending and the fifth-largest in Europe. Its size in absolute terms was US$5,524 million according to data published by IMS. In recent years, drug consumption by the National Health System (SNS) has grown on average by 1%. In 1999 it amounted to 1,41.1 billion pesetas (Scrip ), which fully justifies the interest of the central and regional governments in designing suitable strategies for controlling spending on drugs strategies that take account of the different processes in the system for supplying medications, particularly those covered by the SNS and mechanisms intended to act on the price variable. A chronological review of the most important regulations that reflect these concerns will give an idea of the rules of the game mentioned at the start of this document. 3.1 LEGAL FRAMEWORK Carrer Sardenya , 6º 4ª 813 Barcelona España. mina@soikos.com. WEB: Tel: Fax:

10 3.1.1 Medications Act (Law 25/199 of 2 December 199) The objectives are this law are basically health-oriented, since it is intended to ensure that medications are safe, effective and of high quality, properly identified and accompanied by appropriate information for all users. However, economic and business objectives can also be identified in the law. Some of the components of this legal framework are described below Health registration The requisites and procedures for obtaining health registration of all pharmaceutical specialities were established in Royal Decree 767/1993 of 21 May 1993, amended by Royal Decree 2/1995 of 7 December If an evaluation of the application whose nature in the case of GPS is examined in another section of this document is favourable, the laboratory is required to apply to the Directorate General of Pharmaceuticals and Sanitary Products for authorization of the laboratory sales price, which when issued, is a final authorization for marketing. For medications financed under the National Health System, an offer must then be made to Social Security Laboratory sales price (LSP) Administrative involvement in setting the prices for medications is defined in the 199 Medications Act (Royal Decree 271/199) and the Order of 17 December 199 on reorganization of the prices of pharmaceutical specialities for human use. These measures adapt Spanish regulations to the requirements of European Directive 89/15/EEC of 21 December 1988 on the transparency of measures to establish the prices of medications for human use and their inclusion in national health insurance systems. The Ministry of Health and Consumption is responsible for establishing the LSP by combining the industrial price and the costs of marketing. The Directorate General of Pharmaceuticals and Sanitary Products, which is responsible for price evaluations, has issued guidelines in circular 4/91 to the effect that the laboratory should propose the price of the medication once it has been registered. The formula used to establish the price includes: _ The production costs to be included: raw materials, labour, and other inputs in the manufacturing process. _ A percentage of overhead and administrative costs, based on the estimated sales volume of the new product out of the laboratory s total sales. _ An estimate of promotion and publicity costs, which are limited to 12-16% of the laboratory sales price. _ Spending on R&D (does not apply to GPS). _ An estimate of industrial profits, established at 12-18% of the capital used to develop the drug. The price calculated using this official procedure is not generally the final price. The legislation establishes the option of considering other factors, such as:

11 _ The therapeutic value of the drug. _ The cost of similar treatments. _ The market price of the drug in other countries. The administration has broad discretion in applying these last parameters and consequently an ample negotiating margin, which makes it difficult to foresee the final price that will be authorized for a new drug. Spain has generally used the prices charged in Greece, Portugal and France as reference prices, since they are among the lowest on the European market. The above-mentioned factors are defined as corrections that modify the price calculated using the formula, which means that the final authorized price may be different from the price obtained using the basic formula. However, there is no law that makes it compulsory to consider these additional factors. In the past, Spanish prices were lower than in the other European countries, but in recent years, the differences have shrunk as the result of the fear by laboratories of parallel imports, which considerably reduces the negotiating power of the health authorities. Spain s legislation allows for the possibility of price increases and general price reductions. The authorized price can also be increased through an individual administrative decision, but this is not common. A price increase can be requested if the economic conditions or the production costs that justified the initial price have changed. In such cases, the manufacturer is required to provide evidence of the changes in costs and the Delegate Government Committee on Economic Affairs (CEGAE) is responsible for drawing up an annual list of products or groups of products whose prices may be increased individually. This price authorization process can take between two and three months from the time the application is made. In the case of GPS, the procedure for price regulation is identical to the procedure followed for any pharmaceutical speciality, except that the costs of R&D are not included in the calculation. 3.2 TYPES OF MARKETS The following aspects should be considered when describing the structure and operation of the market: Production Distribution Sales Consumption Carrer Sardenya , 6º 4ª 813 Barcelona España. mina@soikos.com. WEB: Tel: Fax:

12 Financing Production A distinction must be drawn here between the production of raw materials and the production of pharmaceutical specialities. The Spanish market has grown steadily in recent years. Total pharmaceutical production was worth 1,127,363 million pesetas in 1999, with 97,363 million corresponding to pharmaceutical specialities, according to FARMAINDUSTRIA estimates (see Table 1). Almost all domestic production is sold on the domestic market, which explains Spain s permanent negative balance in foreign trade in pharmaceuticals, which was 231,427 million pesetas in 1998 (at current exchange rates) for PS (see Table 2). This production, which includes domestic production and exports, is almost completely manufactured by 2 laboratories. Fifty percent of those laboratories account for 83% of the market in value and 76% in units (see Table 4). Supply in 1999 was composed of 8,245 authorized PS in normal packaging and 2,148 in clinical packaging, offered on the market in 11,463 and 2,52 presentations, respectively (see Table 3 a and b) If the supply is broken down by therapeutic groups based on the ATC classification, the largest number of registered PS sold in normal packaging corresponds to group J (general antiinfectives with 1,324 registered), followed by group A. (alimentary tract and metabolism with 1,247) and group N (nervous system with 1,39). Most of the medications registered in clinical packaging also belong to group J, with 695, followed by group B (blood and blood forming organs with 354) and group C. (cardiovascular with 283 PS). (see Table 3 a and b) Distribution Production is distributed through government agencies (1%), hospitals (12%) and wholesalers (84%). The latter distribute to pharmacies (83%) and to hospitals (1%) (see Diagram 1).

13 Diagram 1. Drug distribution and dispensing (see original for figures) Laboratories Government entities Wholesalers Pharmacies Patients Hospitals Source: IMS in The Pharmaceutical Industry in Figures. Edition 2, page Marketing The marketing channels are hospitals, pharmacy wholesalers and pharmacies, with the latter being responsible for dispensing drug with prescription and nonprescription or over-the counter drugs (see 1). In 1999, the market structure for pharmacies showed prescription drugs accounting for 94.4% by value and 85.2% of the units sold, with over-the-counter drugs accounting for just 5.5% (see Table 5 and 6). Mark-ups by wholesalers and pharmacists are proposed by the CDGAE and subsequently approved by the government. Royal Decree 5/2 revises the mark-ups for pharmacies and pharmaceutical wholesalers. The following rules apply to mark-ups by pharmacies for dispensing and sale to the public: _ 33% on the sales price net of taxes for generic pharmaceutical specialities. _ 27.9% on the sales price net of taxes for specialities whose laboratory sales price is 13,35 pesetas or less. For drugs costing more than 13,35 pesetas the mark-up is 5,58 pesetas per package. _ For over-the counter drugs, pharmacies can apply discounts of up to 1% of the suggested sales price appearing on the package, which is considered the maximum sales price, tax included. The mark-up for authorized pharmaceutical wholesalers is: _ For specialities whose laboratory sales price is 13,35 pesetas or less, the Carrer Sardenya , 6º 4ª 813 Barcelona España. mina@soikos.com. WEB: Tel: Fax:

14 mark-up is 9.6% of the sales price net of taxes. _ For pharmaceutical specialities whose laboratory sales price is above 13,35 pesetas, the mark-up is 1,384 pesetas per package. The Royal Decree in question enables the government to update pharmacy and pharmaceutical wholesaler mark-ups annually, based on the consumer price index, GDP and sales increases, respectively. 3.3 SUB-MARKETS A closer look at the Spanish pharmaceutical market points to the existence of three types of sub-markets: - Hospitals - Prescription pharmaceutical specialities - Over-the-counter pharmaceutical specialities Hospital market The hospital pharmaceutical market (see Table 7) is chiefly financed by the SNS. Hospitals do not have a rigid budget to buy drugs. Instead, they finance their purchase from their discretionary funds, which gives them greater flexibility and more bargaining power than other cost units. The volumes they purchase become a relevant factor in price determination Prescription drug market The prescription sub-market is the largest and is financed jointly by the SNS and users, under the reimbursement or co-payment system explained earlier (see Tables 5 and 6) Over-the-counter market This is the smallest of the three sub-markets and is financed completely by consumers (see Tables 5. and 6). 4. GENERIC DRUGS IN SPAIN The relative weight of generic pharmaceutical specialities on the Spanish market was completely negligible for a long time. A study on the use of generic drugs in SNS ambulatory services between 1991 and 1993, 3 which defined generic drugs as medications sold under an international non-proprietary name, reached the surprising conclusion that they accounted for less than.1% of total SNS spending on medications (measured in units and costs). The process of their introduction has been slow and difficult, partly because of the legislation itself, since by speaking of false generic drugs (which were described with the international nonproprietary name) and true generic drugs (defined under existing standards), it caused great confusion and mistrust, particularly among physicians. 3 Boletín Club of Farmaeconomía, Vol 4 No 1, January-February 1999.

15 As mentioned, generic drug policy forms part of a package of measures to contain spending on medications and it was necessary to amend the legislation in order to adjust the requisites for pharmaceutical specialities to the new generic pharmaceutical specialities, in the areas of registration, action, effectiveness, safety and bioavailability. It was also necessary to establish regulations and incentives to encourage pharmacists to substitute generic pharmaceutical specialities for prescribed drugs, by allowing larger mark-ups. The first step taken by Spain in adjusting its legislation to reflect its generic drug policy was to amend the Medications Act through Law 13/1996 and Law 66/1997. Law 13/1996 introduced the concept of generic pharmaceutical specialities (GPS), their non-proprietary names and identification and authorized the government to restrict public financing for medications to specialities not costing more than given amounts. Law 66/1997 complements this amendment by stipulating the cases in which pharmacists can substitute a generic drug for a prescribed medication. Royal Decree 5/2 on urgent measures to contain public spending on drugs and rationalize the use of medications changes the mark-ups that pharmacies can charge for sales to the public and the to National Health System, and the mark-ups of pharmaceutical wholesalers. The new legislation includes a series of measures to promote the prescription and sale of GPS, including: _ Special conditions for the registration of GPS _ Definition of mark-ups _ Reference prices _ Incentives for pharmacists to use them as substitutes _ Changes in the methods of paying physicians (overall budgets) and introduction of incentives linked to drug prescriptions. 4.1 MEASURES TO PROMOTE THE GPS MARKET Registration of GPS There is no specific legislation that distinguishes between GPS and the other pharmaceutical specialities with respect to authorization procedures or with respect to the requirements and obligations they must comply with as pharmaceutical specialities on the market. However, the short authorization procedure established in Article 11 of Royal Decree 767/1993 of 21 May, amended by Royal Decree 2/1995 of 7 December, can be applied for, which applies to medications already on the market, such as GPS. There are two types of applications to register a GPS: _ National, which implies country-by-country registration. _ Mutual recognition, which requires that a GPS be approved in one of the EU Carrer Sardenya , 6º 4ª 813 Barcelona España. mina@soikos.com. WEB: Tel: Fax:

16 countries, whereupon the laboratory can apply for recognition of the registration in the other EU countries. The problem is that all the countries do not always coincide on the nature of the technical fiche for the GPS approved for an innovative product. Applications of this kind, like the applications for evaluation, authorization and registration, must be make in accordance with the procedure established in Circular 3/97 of the Directorate General of Pharmaceuticals and Sanitary Products (see Annex 2). To apply for evaluation, authorization and registration of a drug as a GPS, the original pharmaceutical speciality must have been on the market for 1 years in Spain, or authorized as a generic pharmaceutical speciality in a EU country. Just as for all pharmaceutical specialities, if the application and documentation are approved, the laboratory must apply to the Directorate General of Pharmaceuticals and Sanitary Products for authorization of the laboratory sales price (LSP), which is the last stage in authorization for marketing. For a drug eligible for financing under the National Health System, an offer must be submitted immediately to Social Security. The EGA (European Generic Association) has asked the European Union to introduce a short procedure for approval of its products, based on the European procedure for centralized registration which thus far only covers certain brandname drugs Mark-ups As mentioned, GPS are allowed a mark-up of 33%, net of taxes, on the price at which they are sold to the public. Other prescription PS are allowed mark-ups of 27.9% net of taxes, when they are specialities whose laboratory sales price is 13,35 pesetas or less and of 5,58 pesetas per package when the cost is above that figure. In the case of over-the-counter drugs, pharmacies are entitled to apply discounts of up to 1% on the recommended sales price appearing on the package, taxes included Reference price Reference prices were first applied in Spain on 1 December 2, as one of the main mechanisms for rationalizing spending on drugs. They are the maximum that will be paid by the SNS for the specialities in each of the homogeneous groups that have been established, out of Social Security funds or other government spending on health care. Homogenous groups are composed of all presentations of pharmaceutical specialities that have identical: _ quantitative and qualitative compositions of medicinal substances _ dosages

17 _ pharmaceutical form _ method of administration _ therapeutic equivalency Each of the presentations must be classified as bioequivalent 4 and each homogeneous group must contain at least one generic pharmaceutical speciality in addition to PS sold under brand names, provided it is classified as an equivalent. Reference prices have been defined for 114 homogeneous groups in the Order of 13 July 2 (Table 8). Reference prices are calculated as stipulated in Article 2 of Royal Decree 135/1999: Article 2. Calculation of the reference price for each homogeneous group. 1 In establishing reference prices, criteria will be used that apply to all presentations of authorized pharmaceutical specialities with the same qualitative and quantitative composition of medicinal substances, dosages, pharmaceutical form, method of administration and presentation, regardless of whether they have been classified as bioequivalents. The criteria are as follows: A reference price will be calculated for each homogeneous group, which will be the average, weighted by sales at retail prices (PVP), taxes included, of the minimum number of presentations of lower-priced specialities needed to reach a market share in units of 2%. In cases in which the difference between the price obtained and the most expensive presentation in the homogeneous group is less than 1% of the group price, the reference price will be established by deducting 1% from the highest price. If the difference between the price obtained and the most expensive presentation in the homogeneous group is more than 5%, the reference price will be established by deducting 5% from the highest price. The reference price may never be lower than the price of the generic pharmaceutical speciality which has the lowest price in the homogeneous group. 2 To calculate the weighted average, consumption in units by Social Security through pharmacies according to data for the last 12 months and the sales prices in effect on the last day of the same period will be taken into account. The following examples illustrate how this rule is applied: 4 The director of the Spanish Medications Agency will determine bioequivalency. Carrer Sardenya , 6º 4ª 813 Barcelona España. mina@soikos.com. WEB: Tel: Fax:

18 Example 1. Hypothetical homogenous group: Tolterofina 3 tablets x 1 mg. Product Units Market share (%) Accumulated market share (%) Price A ,1 B ,5 C ,6 D ,9 E , F ,2 G 1, ,5 H ,7 Total market 2,996 1 Initial reference price: 3,754 =(3,1*126+3,5*25+3,6*234+3,9*8+4,*456)/( ) Maximum price (.9*4,7): 4,23 4,7 3,754 = 946 > 47 =.1 * 47 Minimum price (.5*4,7): 2,35 4,7 3,75 = 946 < 235 =.5 * 4,7 Reference price = Initial reference price: 3,754

19 Example 2. Hypothetical homogenous group: Tolterofina 3 tablets x 1 mg. Product Units Market share (%) Accumulated market share (%) Price A ,1 B ,5 C ,6 D ,9 E , F ,2 G 1, ,5 H , Total market 2,996 1 Initial reference price: 3,754 Maximum price (,9*1,): 9, 1, 3,754 = 6,246 > 1, =.1 * 1, Minimum price (.5* 1,): 5, 1, 3,754 = 6,246 > 5, =.5 * 1, Reference price = Minimum price: 5, Carrer Sardenya , 6º 4ª 813 Barcelona España. mina@soikos.com. WEB: Tel: Fax:

20 Example 3. Hypothetical homogenous group: Tolterofina 3 tablets x 1 mg. Product Units Market share (%) Accumulated market share (%) Price A ,1 B ,5 C ,6 D ,9 E , F , G 1, ,2 H ,2 Total market 2,996 1 Initial reference price: 3,754 Maximum price (.9*4,2): 3,78 4,1 3,754 = 346 < 41 =.1 * 4,1 Minimum price (5% 4,2): 2,1 4,1 3,754 = 346 < 2,5 =.5 * 4,1 Reference price = Maximum price: 3,78

21 4.1.4 Substitution by the pharmacist Current legislation allows the pharmacist to substitute the prescription in the following cases: When the drug is included in the reference price system and the presentation of the pharmaceutical speciality that has been prescribed costs more than the reference price, unless the patient opts for the prescription. In that case, he will have to pay the difference between the reference price and the sales price if he is a pensioner, and if he is employed, the difference will be added to his co-payment. Regardless of whether the drug is included in the reference price system, substitution can be made on legitimate grounds, for example if the prescribed drug is not available at the pharmacy. The substitute can be a generic drug or a brandname drug with the same composition, pharmaceutical form, method of administration and dosage. In the event that the physician stipulates a GPS in the prescription, it can only be replaced with a different GPS. Specialities with special bioavailability characteristics and narrow therapeutic range, as determined by the Ministry of Health and Consumption, may not be substituted. 4.2 GPS MARKET According to data published by Iñesta (1999), after the concept of GPS was introduced into the legislation, only 14 active principles in 52 presentations were approved in 1997; in the following year, 22 active principles in 18 formats were approved and by January 2, 4 active principles had been approved in 351 presentations, including Captopril, Fluoxetine, Ciprofloxacin, Amoxicillin and Ranitidine, which illustrate the scant dynamism of this market. The companies offering products on the generic drug market in January 2 were: Normon (41 specialities sold), Ratiopharm (3), Bayvit (23), Geminis (18), Cinfa (18), Alter (18), Combino Pharm (17), Mundogen Farma (14), Qualix (11), Merck (1), Edigen (9), Bexal (9), Pharmagenus (9), Esteve (7) and Pharmacia Upjohn (7). 5 Using the databank of the General Council of Official Colleges of Pharmacists as the reference, at December 2 there were 67 active principles in 1,184 presentations on the market (see Table 9). Of the 1,184 presentations that appear 5 Anonymous (2): Spain failing generics industry. Scrip 2517, 3. Carrer Sardenya , 6º 4ª 813 Barcelona España. mina@soikos.com. WEB: Tel: Fax:

22 in the catalogue, 74% are sold by 2 of the 69 laboratories included in the sample (see Table 1). At first glance, these figures suggest that there is substantial concentration in the supply of GPS. Only nine laboratories sell more than 1 active principles on the Spanish market: Normon (21) Bayvit (19), Rathiofarm (18), Cinfa (17), Edigen (15), Geminis (14), Merck-Farmaquimica (13), Esteve (12) and Alter (1). The vast majority of pharmaceutical companies market only one or two active principles (see Table 11). The only accessible data on consumption comes from outpatient prescriptions by the SNS for the period , i.e. consumption of pharmaceutical specialities through authorized pharmacies. This consumption at retail sales prices (PVP) with the VAT included accounted in the last three years for 77% of total consumption (Table 12). According to the information reported by the SNS, 46 active principles prescribed over the period accounted for the highest drug spending in the system, with the first 1 (measured in retail prices and ranked by size and units) were Omeprazol, Ranitidine, Amoxicillin, Enalapril, Budesonide, Paroxetine, Atorvastatin, Captopril, Fluoxetine and Diltiazem (see Tables 13 and 14). Of the 46 active principles that accounted for the highest percentage of SNS spending on drugs ( ), just 2 had GPS presentations as of December 2. The rest only had brand name presentations on the market (see Table 14). Of the 114 homogeneous groups for which reference prices have been defined, 46 correspond to presentations of the following active principles: Aciclovir (5), Amoxicillin (7), Captopril (4), Cefonicid (4), Cefuroxime (1), Diclofenac (3), Diltiazem (2), Enalapril (3), Famotidine (2), Fluoxetine (4), Nifedipine (2 in slow release), Nimodipine (2), Omeprazol (1), Piroxicam (1) and Ranitidine (4 ) (see Tables 8 and 14). The data presented by the Association of Manufacturers of Generic Substances and Pharmaceutical Specialities (AESEG) in February 21 report on the scant dynamism of the market for generic drugs in Spain. According to the association, the market share for GPS was less than 2% of all government spending on drugs in 2, which is much lower than the average in the EU countries, where generic drugs obtain 15%. The regions where GPS sales are highest according to IMS, are Madrid, with 22.3% of the total market, Cataluña with 21.2% and Andalucia with 9.8% (El Global, Feb/21). These data confirm the impression that there is major potential on this market that can be tapped by producers, above all given that Spanish health authorities are keenly interested in consolidating the use of generic drugs in the country to contain spending on medications. In November 2 in preparation for the introduction of reference prices, the Ministry of Health undertook an intensive publicity campaign to promote the use of GPS, stressing bioequivalency, quality and effectiveness, which is expected to

23 raise user awareness and therefore demand for GPS could increase significantly. There is a large segment of the market for drugs in highest demand that has not been served so far by the pharmaceutical companies, which corresponds to active principles for which there are no GPS presentations at present or which, even though their patent protection has expired, are not offered in this type of speciality. Therefore, this market segment could hold interesting potential for producers and marketers of GPS in the future (Table 13). 4.3 EVALUATION OF THE PROCESS OF INTRODUCING GPS Although it is too early to evaluate the use of generic drugs in Spain because the measure is so recent, some specific comments can be made on the market for these medications and a series of projections can be made on expectations for its future behaviour. The first thing to note is that the introduction of generic drugs was very slow at the outset and has only achieved an acceptable pace very recently. One of the factors that has held back the use of generic drugs is resistance by physicians to substitution of prescriptions by pharmacists. Despite the measure on mark-ups intended to be an incentive for substitution, in practice, it has very little impact on pharmacists, since the high prices of brand-name products can compensate for their lower profits from them. A third factor is the existence on the market of original drugs that are off-patent, with relatively low prices, which limits the impact of the reference prices. 5. IMPORTANT CONTACTS According to the Catalogue of Pharmaceutical Specialities, 69 laboratories (see Table 1) market 67 active principles (see Table 9) in 1,184 GPS presentations authorized in Spain and sold at authorized pharmacies. The list is given in Table 15. Spanish companies that manufacture active principles and generic drugs are represented by the Spanish Association of Manufacturers of Generic Substances and Pharmaceutical Specialities (AESEG), a non-profit organization with a countrywide presence, with headquarters in the city of Barcelona (Balmes 45 5º 4ª E Telephone: Fax aeseg@encomix.es). 6. CONCLUSIONS The main reason for the limited role played by generic drugs in Spain is the Carrer Sardenya , 6º 4ª 813 Barcelona España. mina@soikos.com. WEB: Tel: Fax:

24 absence, until very recently, of a committed strategy for their promotion by the health authorities. In that situation, there were no incentives for national or foreign industries to produce and market them in the country. For the domestic industry, it was more interesting given the absence of product patents to produce specialities under licences and copies marketed under brand names. In this context, competition takes place largely through commercial promotion rather than prices. The situation has been changing since Spain joined the European Union. First, its membership implies recognition of product patents. In view of the time lag between a patent and its registration, it can be expected that by 21, virtually all new medications registered in Spain will be patent protected. This could force a growing number of companies to turn to the market for generic drugs. Second, membership in the European Union has had a major impact on Spain s pharmaceutical policy. In the past, policy to control spending on drugs was chiefly based on price controls. In Spain, as in other European countries, with an industry that is not very innovative, prices were relatively low compared to the European average. This was not a serious problem for innovative industries that accepted the price differential as a lesser evil. However, the removal of tariff barriers to trade in medications and the maintenance of national price control systems and in consequence of price differentials, led to the rise of parallel trade. For new drugs, the multinationals adopted a strategy of a single European price (or of accepting only relatively small differences) to avoid that parallel trade. The result has been price convergence which for Spain has means a relatively higher increase than in European countries whose original prices were higher. The capacity of the Spanish authorities to negotiate relatively lower prices has been noticeably limited. Companies can opt, in some cases, not to market their products in Spain, rather than selling them at a price that generates parallel trade. In view of this limitation on what used to be the main tool for curbing spending, Spanish pharmaceutical policy has moved toward alternative strategies involving selective financing and the promotion of generic drugs. The increase or extension of co-payments for example to pensioners is an option that has been repeatedly mentioned, but which is strongly opposed by society and would have a high political cost, which makes it unlikely that it will be introduced in the coming years. Something similar could be said about expanding the negative lists: the two exercises excluding drugs in recent years have been limited to low-cost products with limited therapeutic importance and have had a secondary impact on the evolution of costs. It seems unlikely that the negative lists will be expanded to include important, high-cost drugs in the near future. In short, it appears likely that future cost-contention policies will focus on the promotion of generic drugs and on incentives for consumers (reference prices) and doctors (monetary or other incentives linked to the use of generic drugs and cost-

25 effective prescriptions). However, the conflicts between the objectives of the health authority and industrialists in a policy of this kind should be kept in mind. In most countries where reference prices have been introduced, there has been a reduction in the prices of the groups of medications involved and a substantial increase in new products protected by patents, which are excluded from the reference price system. In the case of Spain, this means that the domestic industry would be hardest hit, owing to its limited capacity for innovation. This is probably why the authorities have opted for a system of reference prices (the definition of homogeneous groups and determination of a reference price for the group) that does not have a very sharp effect on prices. As new generic drugs are registered at prices that will be lower than those in effect at present, and as the number of active principles affected by reference prices increases, reference prices will tend to fall. Some authors maintain that the reference price system cannot have a similar impact in Spain as it has had in other countries, since prices in Spain are relatively low. This argument is valid with respect to the prices of older products. However, products that have been marketed more recently and those that will be in the future generally have higher prices that are comparable with those in countries with historically higher prices. Therefore, the system of reference prices will tend to have a greater impact on costs as time passes. OPPORTUNITIES FOR THE FOREIGN GENERIC DRUG INDUSTRY In general, the market for generic drugs will tend to grown in Spain in the coming years. The speed of the process will depend on policy decisions, particularly the compromise between the objective of controlling spending and industrial objectives. The entry of foreign companies into this market will also have contradictory effects. On the one hand, it will increase competition in the sector and, on the other, it will force prices down. This, again, would be detrimental to the interests of the domestic industry. Incentives for demand can be expected to increase in future, as forms of payment to institutions and for prescriptions are introduced that lead doctors to be aware of costs and prescribe in function of them. A more in-depth analysis of the opportunities offered by the Spanish market for Canadian industry would require more detailed information that is more difficult to obtain and more costly than the data used in this report. It would be necessary to know which drugs the Canadian industry produces or can produce and the prices or production costs of those drugs. Carrer Sardenya , 6º 4ª 813 Barcelona España. mina@soikos.com. WEB: Tel: Fax:

26 Those costs should be compared with the prices of equivalent Spanish products that are predominant on the market. Ideally, information would be required on prices and on consumption of a given active principle in each speciality. Information on prices is easy to obtain, since Spain basically has a single price for each speciality, at least for non-hospital medications. However, information on quantities is less accessible. The Ministry of Health and Consumption and the regional governments that have been transferred health care responsibilities have that information, which comes from billing for prescriptions, which has been fully computerized for many years now. However, access to that information is discretionary and, in general, information on individual products or companies is not forthcoming. In the best of cases, it might be possible to obtain the average price (weighted) for each presentation of an active principle. Another source of information on consumption are the market studies conducted by private companies, particularly by IMS, which has a virtual monopoly over that information. Access to it would be very expensive. A third type of relevant information would be the dates on which patents expire in Spain.

27 7. BIBLIOGRAPHY 1. Law 25/199 of 2 December, the Medications Act. (Boletín Oficial del Estado, No.36, ) 2. Díez MV, Errecalde MF. Clarifications on the concept of generics. Inf. Terp. del SNS. [on line] 1998 [date of access 2 March 21]; 22 (3): URL available at 3. Law 13/1996, of 3 December on Fiscal, Administrative and Social Measures. (Boletín Oficial del Estado, No. 315, ) 4. Law 14/1986 of 25 April, the General Health Act (Boletín Oficial del Estado, No. 12, ) 5. Royal Decree 83/1993 of 22 January, regulating the selection of drugs to be financed by the National Health System. (Boletín Oficial del Estado, No. 43, ) 6. Anonymous. Spanish pharma spending up 1%. Scrip 2; (259): Royal Decree 767/1993 of 21 May, regulating the evaluation, authorization, registration and dispensing conditions for pharmaceutical specialities and other medications for human use, manufactured industrially. (Boletín Oficial del Estado, No. 157, ) 8. Royal Decree 271/199 of 23 February on the reorganization of reference prices for pharmaceutical specialities for human use (Boletín Oficial del Estado, No. 53, ) 9. Order of 17 December 199 establishing parameters for the application of Royal Decree 271/199 of 23 February (Boletín Oficial del Estado, No. 32, ) 1. Ministry of Health and Consumption. Directorate General of Pharmaceuticals and Sanitary Products. Information circular 4/91 of 18 January. Instructions for the application of Royal Decree 271/199 of 23 February. 11. Gaspar M. Dolores. Study on the consumption of pharmaceutical specialities through the National Health System and estimate of potential saving through the use of generic specialities and reference prices. Master s Thesis, Department of Health Economics and Management, University of Barcelona Pompeu Fabra University.. Barcelona López Bastida J.: The Spanish pharmaceutical market. An overview. In: Señarís J del Ll, Ortún V, Martín JM, Millán J, Gené J, dirs. Gestión Sanitaria. Carrer Sardenya , 6º 4ª 813 Barcelona España. mina@soikos.com. WEB: Tel: Fax: