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Quebec Seeks Competitive Bids on Drugs After Talks Collapse

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(Bloomberg) — Quebec will seek lower generic drug prices through a bidding process starting July 1 after negotiations over a compromise plan with pharmaceutical companies fell through, according to the government.

After months of discussions that brought parties close to a “balanced” agreement, the companies withdrew their offer, Health Minister Gaetan Barrette said in a phone interview Wednesday. He declined to give the names of the targeted drugs and said bidding will focus on manufacturing, leaving distribution out at this stage.

Related: Jean Coutu Slumps Most in 7 Years on Proposed Drug Reform)

The move sent shares in Jean Coutu Group Inc. down 2.8% to C$20.79 by the close of trading in Toronto, the biggest drop in two months. The Quebec pharmacy chain, headquartered outside Montreal, also runs a generic drug business, Pro Doc.

“We’re expecting substantial savings,” Barrette said of the decision. “The only way this wouldn’t bring results is if companies weren’t participating, and that would be a slap in the face of the Canadian people.”

Canada’s second-most populous province spends about C$800 million ($614 million) on generic drugs each year and has been trying to get a grip on health care costs by shaking up the system with reforms affecting everyone from doctors to pharmacists. In a March interview, Barrette warned he would enable the competitive bidding unless pharmaceutical companies made a convincing case to reduce the cost of medicine.

Closely Watched

The competition will be closely watched in Canada, where there’s been only a handful of similar attempts. Given Quebec’s market size it could make a difference, especially if foreign manufacturers line up, said Marc-Andre Gagnon, a professor of public policy at Carleton University in Ottawa.

An initial agreement “was very beneficial for Quebec’s population,” Barrette said. “At the last minute they withdrew the offer without any warning, nor any explanation.”

The Canadian Generic Pharmaceutical Association offered a different version of events. It said Barrette walked away from the industry’s latest proposal, which would have allowed Quebec to save C$1.5 billion over five years and lowered prices in the province to or below international levels. It’s calling on the minister to resume discussions.

“Instead of accepting these guaranteed savings and negotiating a sustainable agreement, the government is planning to initiate a risky tendering scheme with unknown savings results that could threaten the current and future supply of cost-saving generic pharmaceutical products,” Jim Keon, the association’s president, said in an emailed statement.

Industry Impact

The impact on pharmaceutical companies would be felt beyond just the government-financed drug plan, Keon said in an interview, because in Quebec manufacturers have to offer the same price for all residents — including those with private insurance.

The government’s move is the latest sign of tension between the province and the industry, which flared earlier this year when the Coutu family publicly criticized Quebec’s approach to legislation aimed at cutting health care costs. Still, the company had raised hopes for a break in the impasse as recently as April. Jean Coutu spokeswoman Helene Bisson declined to comment Wednesday.

For the company’s Pro Doc unit, “the certainty of a negotiated agreement may possibly, in our view, have been preferable to the increased uncertainty surrounding tendering,” Keith Howlett, an analyst at Desjardins Capital Markets, wrote in a note to investors. “Should tendering be successfully implemented in Quebec, Pro Doc may be at a disadvantage in bidding against the larger generic drug manufacturing companies.”

— Check out What if the ACA makes people healthier? on ThinkAdvisor.