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37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Tuesday, June 3, 2003

1600

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.))

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.)

The Chair

Mr. Jim Keon (President, Canadian Generic Pharmaceutical Association)

The Chair

Mr. Jean-Guy Goulet (Chair, President and Chief Executive Officer of Ratiopharm Inc., Canadian Generic Pharmaceutical Association)

1605

1610

The Chair

Mr. Rob Merrifield (Yellowhead, Canadian Alliance)

Mr. Jim Keon

Mr. Rob Merrifield

Mr. Jim Keon

Mr. Rob Merrifield

Mr. Jim Keon

1615

Mr. Rob Merrifield

Mr. Jim Keon

Mr. Rob Merrifield

Mr. Jim Keon

Mr. Rob Merrifield

Mr. Jim Keon

Mr. Rob Merrifield

Mr. Jim Keon

Mr. Rob Merrifield

Mr. Jim Keon

Mr. Rob Merrifield

The Chair

Mr. Andy Savoy (Tobique—Mactaquac, Lib.)

Mr. Jim Keon

Mr. Ed Hore (Legal Counsel, Canadian Generic Pharmaceutical Association)

1620

Mr. Andy Savoy

Mr. Ed Hore

Mr. Andy Savoy

Mr. Jim Keon

The Chair

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ)

1625

Mr. Jean-Guy Goulet

Mr. Paul Crête

Mr. Jean-Guy Goulet

Mr. Paul Crête

Mr. Jim Keon

Mr. Paul Crête

Mr. Jim Keon

Mr. Paul Crête

Mr. Jim Keon

Mr. Jack Kay (Past-Chair, President and Chief Executive Officer of Apotex Inc., Canadian Generic Pharmaceutical Association)

Mr. Paul Crête

1630

Mr. Jack Kay

Mr. Paul Crête

The Chair

Mr. Serge Marcil (Beauharnois—Salaberry, Lib.)

Mr. Jean-Guy Goulet

1635

Mr. Serge Marcil

Mr. Jean-Guy Goulet

The Chair

Mr. André Bachand (Richmond—Arthabaska, PC)

Mr. Jim Keon

Mr. André Bachand

Mr. Jim Keon

Mr. André Bachand

Mr. Jim Keon

Mr. André Bachand

Mr. Jim Keon

Mr. André Bachand

1640

Mr. Jim Keon

Mr. André Bachand

Mr. Jim Keon

Mr. Ed Hore

Mr. André Bachand

Mr. Ed Hore

Mr. André Bachand

Mr. Ed Hore

Mr. André Bachand

The Chair

Mr. Dan McTeague

1645

The Chair

Mr. Dan McTeague

The Chair

Mr. Dan McTeague

Mr. Jim Keon

Mr. Jack Kay

Mr. Dan McTeague

Mr. Allan Oberman (Vice-Chair, President and Chief Executive Officer of Novopharm Limited, Canadian Generic Pharmaceutical Association)

1650

The Chair

Mr. Brian Masse (Windsor West, NDP)

Mr. Hank Klakurka (President and Chief Executive Officer of Genpharm Inc., Canadian Generic Pharmaceutical Association)

Mr. Brian Masse

Mr. Jim Keon

1655

The Chair

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)

Mr. Jean-Guy Goulet

Mr. Brent St. Denis

Mr. Jack Kay

1700

Mr. Brent St. Denis

Mr. Jack Kay

Mr. Jim Keon

Mr. Brent St. Denis

Mr. Jack Kay

Mr. Brent St. Denis

Mr. Jim Keon

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

1705

Mr. Jim Keon

Mr. James Rajotte

Mr. Jim Keon

Mr. James Rajotte

Mr. Jim Keon

Mr. James Rajotte

Mr. Ed Hore

Mr. James Rajotte

1710

Mr. Ed Hore

Mr. James Rajotte

Mr. Ed Hore

The Chair

The Hon. Gilbert Normand (Bellechasse—Etchemins—Montmagny—L'Islet, Lib.)

1715

Mr. Jim Keon

Mr. Ed Hore

The Chair

Mr. Gilbert Normand

The Chair

Mr. Gilbert Normand

The Chair

Mr. Paul Crête

Mr. Jack Kay

Mr. Paul Crête

Mr. Jack Kay

Mr. Paul Crête

Mr. Jack Kay

Mr. Paul Crête

Mr. Jack Kay

Mr. Paul Crête

Mr. Jack Kay

Mr. Paul Crête

1720

Mr. Jack Kay

Mr. Paul Crête

Mr. Jean-Guy Goulet

Mr. Paul Crête

Mr. Jean-Guy Goulet

Mr. Paul Crête

Mr. Jean-Guy Goulet

Mr. Paul Crête

Mr. Hank Klakurka

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

1725

Mr. Jim Keon

Mr. Larry Bagnell

Mr. Jim Keon

Mr. Larry Bagnell

Mr. Jim Keon

Mr. Larry Bagnell

Mr. Jim Keon

Mr. Larry Bagnell

Mr. Jim Keon

Mr. Jack Kay

Mr. Larry Bagnell

Mr. Jim Keon

Mr. Hank Klakurka

1730

Mr. Larry Bagnell

The Chair

Mr. André Bachand

Mr. Jim Keon

Mr. André Bachand

Mr. Jack Kay

Mr. André Bachand

Mr. Jim Keon

Mr. André Bachand

Mr. Jim Keon

1735

Mr. André Bachand

Mr. Jim Keon

Mr. André Bachand

Mr. Jim Keon

Mr. André Bachand

Mr. Allan Oberman

The Chair

Mr. Joseph Volpe (Eglinton—Lawrence, Lib.)

Mr. Jim Keon

Mr. Joseph Volpe

Mr. Jim Keon

1740

Mr. Joseph Volpe

Mr. Jim Keon

Mr. Joseph Volpe

Mr. Jim Keon

Mr. Joseph Volpe

The Chair

Mr. Joseph Volpe

Mr. Jack Kay

Mr. Joseph Volpe

Mr. Jim Keon

1745

Mr. Joseph Volpe

Mr. Jim Keon

The Chair

Mr. Brian Masse

Mr. Jim Keon

Mr. Jack Kay

Mr. Brian Masse

1750

Mr. Jack Kay

Mr. Hank Klakurka

Mr. Brian Masse

Mr. Hank Klakurka

Mr. Brian Masse

Mr. Hank Klakurka

Mr. Jack Kay

Mr. Brian Masse

The Chair

Mr. Mac Harb (Ottawa Centre)

Mr. Hank Klakurka

1755

Mr. Mac Harb

Mr. Jim Keon

Mr. Ed Hore

The Chair

Mr. James Rajotte

1800

Mr. Jim Keon

Mr. James Rajotte

Mr. Jim Keon

Mr. Dan McTeague

The Chair

Mr. James Rajotte

The Chair

Mr. Jim Keon

The Chair

CANADA

Standing Committee on Industry, Science and Technology

NUMBER 050

2nd SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, June 3, 2003

[Recorded by Electronic Apparatus]

º (1600)

[English]

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): I call this meeting to order pursuant to Standing Order 108(2), consideration of the automatic injunction provisions in the patented medicine (notice of compliance) regulations of the Patent Act.

Today we have witnesses from the Canadian Generic Pharmaceutical Association, represented by Mr. Jim Keon, president. Because of the delay and voting in the House, this session will go on until 6 p.m.

Mr. Keon, I would ask you to begin by first introducing your colleagues and then going on with your report. Then we'll go on to questions.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Mr. Chair, on a point of order, might it be possible for us to get some extra seats for some of the seniors in the back?

The Chair: Mr. Keon.

Mr. Jim Keon (President, Canadian Generic Pharmaceutical Association): Thank you, Mr. Chair.

Mr. Chairman and members of the committee, I am the president of the Canadian Generic Pharmaceutical Association. I've had the opportunity to meet with many of you one on one and we're looking forward today to having a good airing of our issues before all of you.

With me today are Jean-Guy Goulet, the chair of the Canadian Generic Pharmaceutical Association and president and CEO of ratiopharm Inc.; Allan Oberman, the vice-chair of our association and president and CEO of Novopharm; Jack Kay, our past chair and president and CEO of Apotex; David Goodman, the executive vice-president of Pharmascience; Hank Klakurka, the CEO of Genpharm; and Ed Hore, legal counsel to the Canadian Generic Pharmaceutical Association.

The executives here before you are all representatives of some of the top generic pharmaceutical manufacturers of the world. They are here because the issue of evergreening and the automatic injunction is key to them in terms of their company's future growth, their investments and their job creation here in Canada.

For the purposes of our presentation, I will now turn the floor over to our chair, Jean-Guy Goulet.

The Chair: Mr. Goulet.

Mr. Jean-Guy Goulet (Chair, President and Chief Executive Officer of Ratiopharm Inc., Canadian Generic Pharmaceutical Association): Thank you, Mr. Chairman.

Members of the committee, it is with great pleasure that my colleagues and I are here today to talk about and discuss the important issue of the patent medicine regulations and, in particular, the practice of evergreening.

[Translation]

The CGPA represents manufacturers and distributors of finished generic pharmaceutical products and active pharmaceutical chemicals, better known as raw materials, and suppliers of other goods and services to the generic pharmaceutical industry. The CGPA membership represents more than 90% of Canada's generic pharmaceutical industry.

[English]

No other industry makes a greater contribution to affordable health care in Canada than the generic pharmaceutical industry. While generic drugs fill more than 40% of all prescriptions in Canada, generic accounts for less than 14% of Canada's $13 billion annual prescription drug expenditure.

Data from IMS Health, a leading international source for prescription drug sales information, shows the average cost of a brand-name prescription has increased by 76% in the past 10 years to about $56 in 2002. During the same period, the average cost of a generic prescription increased by only 32% to about $22. Last year alone, the use of generic pharmaceuticals saved Canada's health care system more than $1.4 billion.

Unfortunately, the generic industry's continuing ability to deliver affordable medicine is being hampered by ongoing abuses of regulations. Let me explain.

Since the passage of Bill C-91 in 1993, Canada has 20-year patent terms for pharmaceutical products, which is the international standard. However, in addition to what is required by Canada's international trade agreements, Canada also has the patent medicine regulations, better known as “the regulations”. The regulations allow a brand-name drug company to commence an application in the Federal Court of Canada, triggering an automatic 24-month injunction against the marketing approval of a lower-cost generic competitor. The application to the court is begun after the generic company has had to give notice to the brand-name company of its intention to come to market.

This provision is extremely unfair to generic drug makers. In no other industry is a company forced to reveal to its competitor in advance which product it intends to bring to market. The automatic injunction is a special tool given only to the brand industry. It is not available to patentees in any other industry in Canada. The automatic injunction has led to a practice commonly known as evergreening, which I'm sure is something the legislators and regulators did not foresee or intend. The term “evergreening” captures a variety of strategies, all involving abuse of the regulations. To limit competition, patentees can use the automatic injunction to extend their market exclusivity beyond the expiry of their basic 20-year patent on a drug. A common strategy involves listing and litigating additional patents after the main patent on the active ingredient has expired. This is done to trigger additional automatic injunctions and prolong the patentee's monopoly.

As a result, evergreening keeps non-infringing generic products off the market. In fact, recent case law in Canada has removed all effective limits on evergreening. It is becoming virtually impossible to market a generic version of a drug available in Canada if a brand company chooses to employ evergreening tactics.

º (1605)

[Translation]

The regulations are modelled after the Hatch-Waxman Act passed by the U.S. Congress in 1984. The United States is the only other country in the world with an automatic injunction for patent disputes in the pharmaceutical industry.

As in Canada, brand-name drug companies in the United States have employed evergreening strategies to trigger multiple automatic injunctions in order to stifle competition and prolong market monopoly. But unlike Canada, the federal government, state governments and government agencies have taken action to stop this anti-competitive behaviour and help control prescription drug costs.

For example, in 2001, the U.S. Federal Trade Commission (FTC) launched an investigation into evergreening strategies by brand-name drug companies, which found such tactics to be anti-competitive, and importantly, to be bad public policy. The FTC issued a strongly worded report, in July 2002. The FTC's first recommendation was to permit only one automatic injunction per drug.

The use of the automatic injunction has also been the subject of anti-trust lawsuits filed by 29 state governments, consumer groups and others against Bristol-Myers Squibb over the cancer drug Taxol and the anxiety medication BuSpar. In January 2003, Bristol-Myers Squibb announced it would pay $670 million to settle the litigation.

Late last year, U.S. President George Bush announced he is taking action to close loopholes in U.S. drug patent laws that brand-name drug manufacturers have manipulated to unfairly delay the approval of competing generic drugs. President Bush's solution is to allow only one automatic injunction for a generic submission, as suggested by the FTC. The FDA regulation change is imminent.

[English]

We believe that after 10 years of regulation the time has come for parliamentarians and, in fact, all Canadians to look at the damaging effects of this regulatory regime that has been described by the Supreme Court of Canada as draconian. It is clear that the regulations are not saving the interests of Canadians. Innovation is being replaced by litigation and this litigation is unfairly delaying generic competition in adding hundreds of millions of dollars in unwarranted costs to Canada's already cash-starved health care system.

The CGPA estimates that delays caused by evergreening strategies involving the automatic 24-month injunction on the regulations have cost Canadians more than $1 billion since the implementation in 1993.

I want to make it clear that the generic industry supports patent rights, supports intellectual property protection, and supports the right of any pharmaceutical company, brand or generic, to recoup its investment and make a reasonable profit. However, unreasonable market exclusivity stifles competition, thereby removing the incentive for true innovation.

We also remind members of this committee that minor tinkering cannot stop the abuses of the regulations. Minor tinkering was the result of the 1998 review of the regulations, but that only resulted in more confusion, more litigation, and has not stopped sophisticated evergreening strategies.

In our view, the regulation must be scrapped to end abuse of the drug patent laws. We strongly encourage this committee to recommend the regulations be eliminated. If the regulations are eliminated, it is important to note that brand companies will still have 20-year patent terms. They will still be able to seek multiple patents on the same medicine if they make improvements to it. They will still have full legal recourses to defend their patents under the provision of the Patent Act, used by every other industry in Canada, and Canada would be in full compliance with its international trade agreements. The only thing the brand companies will no longer have is the automatic injunction.

In conclusion, we believe that for Canada's pharmaceutical policy to best serve the interests of Canadians, the brand name and generic companies should be encouraged to do what they were intended to do. Instead of being given special patent rules that invite sophisticated legal manoeuvring to prolong monopolies, brand companies should be encouraged to develop new medicine that makes a real difference to the health care of Canadians.

After a 20-year patent expires, generic companies should be allowed to produce a less expensive equivalent in order to control health care costs, help keep drug plans viable, and ensure more people can afford to benefit from these discoveries.

Thank you very much for this opportunity. My colleagues and I will be happy to answer any questions you may have. Thank you for your attention.

º (1610)

The Chair: Thank you very much. We will now proceed with questioning.

Mr. Merrifield.

Mr. Rob Merrifield (Yellowhead, Canadian Alliance): Thank you very much.

It's an interesting dilemma we're in, in the sense that we're trying to deal with patent law and the protection of new drugs and incentives so we have research and development in the country, while at the same time trying to make those affordable to the citizens of Canada. I think therein lies why I, as a health critic, am sitting on this committee, an industry committee that deals with patent law.

You know, we try to strike that golden balance, which is what I think we're trying to do in Canada. It's interesting to see how this is all transpiring. I have a couple of questions, just trying to get a handle on exactly what is happening, because I hear conflicting stories.

First, as I understand it, you're saying that you have no problem with the 20-year patent law that exists in Canada and that the problem becomes the NOC.

I have a problem trying to understand that. You say that it's the evergreening and the linkage that happens when a product advances toward the end of the 20-year patent time. Does that prohibit you from developing the existing product that is under patent law in that 20-year period, or does it not?

Mr. Jim Keon: The problem is with the automatic injunction, yes. What happens is--

Mr. Rob Merrifield: But does that extend the 20 years of the original patent?

Mr. Jim Keon: It does in many cases, yes. The reason is that there can be variations to the product for which patents have been granted. Under our automatic injunction system, those patents can be added to a list at Health Canada and the generic is not allowed on the market until it addresses all the patents on the list, regardless of the relevancy to the product it wants to make. The problem we face is that you have these several patents attached to an automatic injunction and they are keeping generics off the market after initial patents expire.

Mr. Rob Merrifield: So you're saying the advancement of the technology changes the original patent, and to be able to comply you have to comply with the new list. Is that what you're trying to say and is that how it happens?

Mr. Jim Keon: Each time a patent is added to the list, the generic company has to address that patent before it can come on the market. If the original patent has expired, I would say it is misleading to say that the generic is free to use that product as soon as the patent expires, because what happens, time after time, is that there are several patents on the list and the generic is tied up in court in complicated legal issues over whether it's going to infringe other patents. That is what comes with the evergreening and the automatic injunction.

º (1615)

Mr. Rob Merrifield: So is the problem the NOC rules or is it the patent office that is putting patents, which could be what you would term as frivolous, on the original patent and the original molecule?

Mr. Jim Keon: By far the biggest problem is the automatic injunction, because the patent office may grant these patents, and without the automatic injunction the generic drug company would assess those patents and would have to make a determination on whether to go to market or not, knowing full well that it could be sued for patent infringement.

Under the automatic injunction, however, the brand name companies have every incentive to keep adding patents to the list because they know they get this automatic injunction, and as long as they can make the situation complicated, the generic cannot go to market.

So the answer to your question is that it's the automatic injunction under the regulations.

Mr. Rob Merrifield: Let me just get this straight in my own mind. You're saying that as a product develops over the 20-year period, technology advances and they put on another patent for that technology. You cannot come onto the market until you comply with that new technology. Is that what you're saying?

Mr. Jim Keon: We're saying that those extra patents have to be addressed by the generic in court before we can come on the market.

What has happened recently is that the brand name companies have become more and more sophisticated at adding the patents at late dates, just as the generic is in court on other patent issues, and then they are restarting this 24-month injunction. We have several examples of that listed in our paper, and that is the problem we're facing.

Mr. Rob Merrifield: So you're telling me that if you wanted to duplicate the product as it was originally patented, you cannot do that at the end of the 20-year period.

Mr. Jim Keon: Not without addressing all those other patents. That's correct.

Mr. Rob Merrifield: And by addressing them, is--

Mr. Jim Keon: And during that time, we're off the market.

Mr. Rob Merrifield: Okay. And what do you mean by addressing them? By complying with those or by--

Mr. Jim Keon: When the generic seeks its approval from Health Canada, it has to make what's called a notice of allegation against each patent on the patent list for the product it wants to make. Until it gets to court and demonstrates to the court that it's not going to infringe any of those patents, it is blocked from going on the market.

The evergreening strategies that we've seen recently are that during that litigation new patents can be added to the list and they restart the 24-month period again. So we see this continual litigation, new patent, 24 months, and it goes on and on.

Mr. Rob Merrifield: Yes, I understand the notice of compliance and what's happening there.

The Chair: I'm sorry, but I have to cut you off. Thank you very much. We'll be back.

Mr. Savoy.

Mr. Andy Savoy (Tobique—Mactaquac, Lib.): Thank you very much, Mr. Chair.

Welcome, gentlemen. Thank you for that presentation.

I'd like to discuss an issue I brought up yesterday on strategic litigation as a profitable business strategy. What is your impression of the section 8 regulations right now, as we sit?

Just by way of background on the issue, looking at strategic litigation as a profitable business strategy, it comes about when, of course, you go into litigation and you have to look at the issue of lost sales versus forgone profits.

In your opinion, do you think that strategic litigation is, in fact, presently a profitable business strategy under the NOC regulations?

Mr. Jim Keon: Yes. I am going to ask Mr. Hore to answer that in detail, but the fact of the matter is that the damages and the loss of profits for the generic will always be less than the brand name companies' extra sales and therefore there's no disincentive whatsoever under the current regime to engage in these activities.

Ed can explain in detail how the system works in the courts.

Mr. Ed Hore (Legal Counsel, Canadian Generic Pharmaceutical Association): The way it works basically is that the regulations impose an injunction automatically, and that is in addition to the normal remedies that any patentee would have. So the regulations are above and beyond what you would normally have. You can get an injunction in normal litigation, but you have to go before a judge and convince him that you're entitled to that remedy. But under the regulations a brand doesn't have to do that.

What section 8, to which you referred, Mr. Savoy, does is try to duplicate what would happen in real litigation, if I can call it that, or the usual system, which says that if you, the brand, the patentee, get that injunction and it turns out later that you were wrong, then you should have to pay damages. That section was brought in with the 1998 amendments.

There are a number of cases now where generics are seeking those damages. They have to bring a separate action to get them. All those cases are being vigorously litigated now. The brands, in fact, say that the damages section is unconstitutional, that it is ultra vires the statute, that kind of thing. It'll be many years before any of those cases are decided and it's unclear at this point what the quantum of damages will be, whether it will be the generics' lost sales or the brands' lost profits or what. We just don't know at this point.

What I think we can say with some certainty is that if the brands' interpretation of the section is correct, then any damages the generics will ever get will certainly be smaller than the benefit that the brand got from getting the injunction, because all that time, of course, they had a monopoly basically to charge a monopoly price.

The other point about section 8 is that the people of Canada--that is, the provinces and private payers who pay for these drugs--never get any damages under the regulations. They just pay more money and it's gone forever.

º (1620)

Mr. Andy Savoy: Looking at section 8, it says “the regulations or court may make such order for relief by way of damages or profits as the circumstances require”. Presently, we don't know how that's being interpreted, because it's in process, but if the generics and the brands both knew before going into litigation exactly how this issue would be addressed, or, for example, if the legislation were changed to reflect that so we knew exactly what you were looking at, could we eliminate strategic litigation as a profitable business strategy?

Mr. Ed Hore: Well, the devil is in the details, as they say. I would say that the answer is probably no, because the benefit to the brands of having a monopoly for many years on end is so great that they would probably do it anyway. Whatever change is made, it is going to be complex. It's going to be litigated for years and years. There's going to be a huge gap, no matter what it says, between the damage that's incurred and the actual payment of those damages, and as I said before, the people of Canada are never going to get the money back anyway.

Mr. Andy Savoy: I have a second issue. Looking at what has occurred recently in the U.S. and the initiatives that President Bush and the FTC took, they were basically twofold. One was to limit the number of automatic injunctions that they could look at, and second, there were clarifying rules.

In terms of their efforts and the direction they took, do you think this committee should look at a similar direction in terms of limiting the number of automatic injunctions available?

Mr. Jim Keon: You're correct, in the United States President Bush announced changes to the regulations and published changes last fall, and there's been a comment period. The industry and the public are waiting now for the final regulatory changes, which we understand will be published this month.

The proposal that the President had was that there would only be one stay, so that regardless of the number of patents a brand name company had on its equivalent list in the United States, they would be litigated all at once and there would be no ability to strategically list late patents and start the 30-month or 24-month stay again. Clearly, that would be an improvement over what we have in Canada now, but our view is that any time you give one side in an industry an automatic block or injunction against a competitor, you're inviting abuse.

These are well financed, aggressive companies that have every incentive to keep out competitors. So our position, and what we're asking the committee to consider and to hopefully recommend, would be to remove the automatic injunction and allow the normal patent litigation process to take place. That's what we're asking today.

[Translation]

The Chair: Mr. Crête.

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): Thank you, Mr. Chairman.

In your presentation, before talking about the regulations as such, you state that no other industry makes a greater contribution to affordable health care in Canada than the generic pharmaceutical industry.

How do you square that with the article in today's edition of La Presse that says that generic drugs are more expensive in Canada than in nearly any other industrialized country and with the fact that a policy has been updated regarding gifts to pharmacists, in Quebec and elsewhere, a policy that is absolutely against the law?

º (1625)

Mr. Jean-Guy Goulet: I can answer that question. With respect to the study that came out, we also produced a study which is in the report that you have and which mentions that when you compare the main pharmaceutical products sold here and in the U.S., in other words, when you compare apples with apples, according to IMS Health, our prices are 28% lower. That is the study we did and the information we have. The reference for that information is IMS Health. Anyone can check that information and validate it. That is our response to your question.

With respect to the other part of the question, we are here to discuss the regulations. Regarding the situation in Quebec, the issue is before the courts and so we cannot make any comments on it.

Mr. Paul Crête: No, but it is because that statement in your presentation suggested that you were making extraordinary efforts to make prices more affordable. That idea is in flagrant contradiction with what is happening out there, since the gift policy results in people paying higher prices than they should.

Mr. Jean-Guy Goulet: The only answer we can give you is that the generic drug industry offers certain prices. We sell our products for 45% less on average than the brand-name companies and we do that, obviously, with a lot more competition and no regulations. Without evergreening, there would obviously be more competition and Canadians could benefit from lower prices for a larger number of products.

Mr. Paul Crête: In your recommendation to eliminate the regulations, do you automatically accept the idea that the current practice of patent infringement that allows generic drugs to be prepared in advance would be abolished? There is a balance in this legislation. That is what the Deputy Minister of Industry presented to us yesterday.

Would you be willing, in return for the regulations being eliminated, to give up the possibility of starting production of pharmaceutical products before the 20-year patent expires?

Mr. Jim Keon: The current policy under the act that allows manufacturers of generic products to work on their products before the patent expires is a policy that applies to all patents. It is not a special policy that applies to drugs. Our problem is the linkage regulations. The notice of compliance applies only to drugs. So we suggest that drugs be treated like all the other patented products in Canada.

Mr. Paul Crête: Have you examined the economic impact of such a decision, that is, in terms of the number of jobs created and the economic benefits for you? Have you looked at whether the negative consequences for research and development of eliminating the regulations would be offset by savings elsewhere?

Mr. Jim Keon: In fact, it is not up to us to measure the impact on the industry.

Mr. Paul Crête: It is our job to do that, however.

Mr. Jim Keon: But we can discuss what the effects of eliminating these regulations in Canada would be. Perhaps our company president could speak to this. Perhaps Jack can answer that question.

[English]

Mr. Jack Kay (Past-Chair, President and Chief Executive Officer of Apotex Inc., Canadian Generic Pharmaceutical Association): I'm not sure what comment to make, except that if the regulations were not in place, there would be more generics introduced into the Canadian marketplace at a faster rate. That would mean more savings.

[Translation]

Mr. Paul Crête: My question deals with the overall impact of this measure. What will be the overall impact of what you are suggesting on the economy, on job creation and investment throughout Canada? I am not just talking about the benefits for you, but the benefits for society as a whole.

º (1630)

[English]

Mr. Jack Kay: I think society would benefit, because if we had to pay less for prescription drugs, there would be more money in use in the Canadian economy for the purchase of other goods and services. The economy would benefit by having lower-priced prescription drugs available at a faster rate.

[Translation]

Mr. Paul Crête: No, I was talking about the economic impact of this whole situation, because we were told yesterday that these regulations were put in place to maximize the spinoffs of the entire pharmaceutical industry for Canada's economy. If you are making another proposal to us, we need to see, not only that your company will benefit, but that society in general will benefit because of the overall economic impact. I must say that the comparison in today's La Presse of generic drug costs in Canada and in other countries, where they are less expensive, does not bode well for the future.

[English]

The Chair: Mr. Crête, I'm going to have to stop you there because of the time.

I'm going over to Mr. Marcil. Maybe you could ask some of the ensuing questions. Remember that this session is the consideration of the automatic injunction and not prices. It's about evergreening. It's about NOCs. I would ask you to focus your questions on those items for the committee.

Mr. Marcil.

[Translation]

Mr. Serge Marcil (Beauharnois—Salaberry, Lib.): Thank you, Mr. Chairman.

I understand your clarification. However, the basic premise is unfortunately that the ability of the generic drug industry to continue to provide Canadians with affordable drugs is jeopardized by the inappropriate use of the regulations. What you are alleging, in reality, is that these practices allowed under the regulations result in higher drug prices. That is your basic premise in the discussion.

You have surely read and heard what the Industry Canada people told us yesterday about the pharmaceutical industry as a whole, including the generics. They said that, overall, our pharmaceutical patent policy actually seems to serve Canada's interests well. Drug manufacturers have increased their activities year over year. In the generic drug sector, the number of employees has increased 100% and sales 240% over the same period. They also asked whether generic drug manufacturers and brand-name drug manufacturers will come to an agreement about what constitutes a fair balance. Their answer, of course, is no, since the two sides will always be at war.

The current system was set up as a result of an enormous study in 1997 that involved round tables and consultation with hundreds of groups and that was aimed specifically at finding a reasonable balance between the two industries. According to Industry Canada, what we have seems to be the best system in the world right now, since it does promote the generic drug sector while protecting the brand-name sector at the same time.

Given that both sides seem to be doing well, both the brand-name companies and the generic companies, what more needs to be done to satisfy the generic sector, knowing that this is the only industry...? I ask the question because you also mentioned in your report that no other industry requires companies to reveal in advance to their competitors what products they intend to put on the market.

But imagine! This is the only industry in Canada where companies can copy patents or an invention. This can only be done in the pharmaceutical industry and the generic sector. In any other industry, whether we are talking about commercial activities or not, that practice would be illegal. So what more needs to be done to satisfy the generic drug industry, that is, to give you even more of a boost internationally as well, since one supposes that you are exporting a lot?

Mr. Jean-Guy Goulet: On the last part of your question, that is the ability or the possibility for our industry to develop products before or during the patent period, that also applies to other industries. So it is not specific to the pharmaceutical industry. That is the first point I would make.

As for the contribution, if it were not for automatic stays in our business model... Our challenge—I can speak for my own company and I will invite my colleagues to add their comments after—is that right now evergreening makes it impossible for us to know when we will be able to put a product onto the market. So if the principle is taken to its logical conclusion, evergreening never ends and so we can develop a product without knowing whether we will ever be able to market it. What we are talking about here is the possibility of adding other patents. Can those products, after the patents expire....? But when the basic patent expires, we face this problem. We do not know when we can market the less-expensive generic version and make it available to all Canadians. That is our major problem.

º (1635)

Mr. Serge Marcil: Your proposal to eliminate the regulations would enable... So the situation would be as it was before the regulations were passed. So what you are proposing really is to go back to the way things were done before the regulations were designed and written. You want to turn back the clock.

Mr. Jean-Guy Goulet: Our basic position is that we believe that the balance has shifted to one side, especially recently, with the various court rulings against our industry. Now, as managers and executives of companies working for international divisions where we too have to justify our research and development, we cannot say right now whether we will be able to market a product which we are developing and investing in. I can speak for my company; I believe that my colleagues have the same challenge. So when we look ahead, will we have low-cost generic drugs? With the present system, we do not know.

[English]

The Chair: Thank you very much, Mr. Marcil.

I must move on. Mr. Bachand.

[Translation]

Mr. André Bachand (Richmond—Arthabaska, PC): Welcome. By the way, you talk a lot about the United States in your document. I have not had time to read it all, but I would have liked to have more information about Canada.

That said, we will look at the situation in the United States, as we did yesterday with Industry Canada and Health Canada. By calling today for the regulations to be eliminated, knowing full well that the United States is not doing this, what do you feel would be the impact on the brand-name pharmaceutical industry? I would ask you to be objective. I know that it is difficult, but if the United States is maintaining a certain form of protection and we remove it in Canada, as you are requesting, what would the economic impact be? My question is along the same lines as the one asked by my colleague in the Bloc Québécois. If our neighbour to the south maintained this regulation in part and we eliminated it, what do you think would be the impact on the brand-name industry?

Mr. Jim Keon: I think it is important to understand what we are suggesting. We are suggesting the elimination of the automatic injunction, but we do support the 20-year patent, the possibility of having a number of patents to cover improvements to products, the possibility of legal recourse against any patent infringement and the fact that Canada must comply with trade agreements.

Mr. André Bachand: I am sorry, Mr. Keon, to interrupt you. I do not want to be impolite, but what Senator McCain is calling for is... What President Bush said is that he would not eliminate everything. You are asking for everything to be eliminated.

Mr. Jim Keon: Senator McCain's bill suggested eliminating the injunction.

Mr. André Bachand: But that is not what President Bush said.

Mr. Jim Keon: Yes, the president suggested allowing only one injunction, allowing companies to have legal recourse only once.

Mr. André Bachand: You would not be satisfied with that.

Mr. Jim Keon: We would obviously prefer the approach proposed by Senator McCain, who is a Republican, and Senator Schumer, who is a Democrat.

Mr. André Bachand: So even if the committee suggested the Bush solution, you would not be satisfied.

º (1640)

Mr. Jim Keon: It would be better than the way things are right now, but it would not be enough.

Mr. André Bachand: There has been what you call minor tinkering. I would remind you that the act came into force in 1993 and the committee did not wait 10 years before reviewing it. So there has been what you call minor tinkering, but in your document—and Industry Canada acknowledged this yesterday—especially since 1998, you have won 75% of the court cases. The 1998 regulations were therefore helpful to you and so cannot be considered minor tinkering. I noticed that, and the same thing is true in the United States.

Mr. Jim Keon: Very well. I will ask Mr. Hore to answer that question.

[English]

Mr. Ed Hore: It's an excellent question and it goes right to the heart of the issue. The way I'd like to answer it is by talking about a particular product, and the particular product is called paroxetine. It's in our brief in appendix A and in diagram form.

Let me tell you what has happened with that product. First of all, it's an anti-depressant, and what has happened with it is that there were patents on the list that the generic Apotex had to address. It did so subject to the automatic stay and won the case. Meanwhile, there were other patents listed. It then addressed those patents as well and, again, it won the case. So it has now won twice on patents. In one case the patent was found not infringed, in the other case invalid. Then more patents were added and cases were started that triggered the automatic stay. What you have is a situation where a generic has won cases, so that's good news for us, but it's not able to market the drug.

Regulatory approval was in 1999, and health and safety requirements have been satisfied. It's won a number of cases on the patents that have been listed, but it still can't get on the market because there are more patents on the list. Each one has to be addressed. Each one can then result in another 24-month stay. So this is also a drug that was identified in the FDC report as a problem.

[Translation]

Mr. André Bachand: How many drugs have more than three or four patents? How many drugs have 4, 5, 10, 15, 25, 150 patents? How many are there on the list? Is it the majority?

[English]

Mr. Ed Hore: It's in Health Canada's evidence yesterday, and I believe it was a range. In my recollection, there were about 25 drugs that had four or more. Some had as many as 11 or nine or that number. That's just at the present. Many of these drugs--

[Translation]

Mr. André Bachand: But you have to be careful how you present your numbers. Most drugs have at least one or two patents. You need to be careful how you present things.

[English]

Mr. Ed Hore: That is true right now, but they can have more when genericization becomes an issue, and one day there will be more.

[Translation]

Mr. André Bachand: Thank you.

[English]

The Chair: Thank you, Mr. Bachand.

That chart is in Health Canada's testimony, which was given out yesterday.

I'll move on now to Mr. McTeague.

Mr. Dan McTeague: Thank you, Mr. Chair. It's very timely.

Thank you, Mr. Bachand, for giving an opportunity.

Lipitor is the number one drug in this country. It sells in excess of $625 million. That won't be made generic. Its original patent will not come off for some time. However, we know the number two and number six, number two being Losec. On that point, I'm rather interested because we know that admittedly there are at least 11 subsequent patents that have been added to Losec. It represented $428 million in annual sales last year. It should have come off in 1999.

We understand that because of this gaming of a system, if I'm to use Industry Canada's figures provided yesterday, an average of 11.5 months for each one of those stays has been triggered.

Mr. Bachand, this is important. Your constituents are going to be faced with this problem, certainly when it comes to paying at the desk, certainly in terms of pharmacies.

The average time of the stay times is 11.5 months. That equals, if my math is correct, about 12 years. So effectively patents, which may be 10 or 20 years, as we've seen over the past period of time, may wind up in fact being 20, 25 or 30 years.

Given Mr. Bachand's concern about our propensity to look at what's happening in the United States, I too am interested in the United States, since it's the only other jurisdiction that has triggered the need for committees in the past to discuss, based on Hatch-Waxman, the notion of automatic injunctions. They're getting rid of theirs, and we seem to be stuck in this idea that somehow the problem doesn't exist here.

Yesterday, gentlemen—and thank you for being here—Industry Canada made a rather interesting revelation. I thought it was most interesting. It suggested that in terms of those years—I think it was a rosy picture of the status quo—two-thirds of all the cases since 1998 have wound up being dismissed as bogus claims.

In light of the Lilly and Ferring cases, and the early workings balance that Industry Canada held out as the real balance yesterday--and I think if you look at some of its comments here, it boldly said this was a great thing--I think it's pretty clear to some here on the committee that this balance has been undeniably upset. Obviously, you simply cannot go to market, as proven by Losec, as a result of these never-ending listings, and certainly as a result of the listings that have come on the patent.

Given Industry Canada's reluctant admission of the two-thirds--and I'm going to say it's probably with reluctance that they came out with that, because it took a little bit of working to get them to say that--I'm wondering if, short of the remedies that are being proposed in the United States, you might want to not only give at the same time a question of removing the NOCs, but perhaps also shed some light on the true picture of R and D investments in Canada.

Right now I hear a lot about the R and D that they're putting out. We see thousands and thousands of dollars in ads, including wonderful commercials that show someone stopping a football and having a heart attack, and we have all these clinical people working on front lines. We know that much of that is clinical research, and they turn that into, of course, 50¢ dollars because the Government of Canada and the provinces are picking up the bill. Are there areas here that you believe should be identified, particularly the much vaunted claims about research and development?

Before you answer that question, I wish to table, of course, Mr. Chair, with your indulgence, the report that says Canada lags in pharma R and D, which comes from the PMPRB--

º (1645)

The Chair: I just want to warn you, Mr. McTeague, you're past halfway through your--

Mr. Dan McTeague: That's correct. That's fine, Mr. Chair. There's a lot to put on the record here to counter some of the concerns that have been raised by members of Parliament.

I note that the Bloc and the Conservatives here have had an interest in talking about what appeared in the National Post and La Presse yesterday. It's funny they forgot what was reported by the PMPRB, as opposed to the PMPRB's--

The Chair: I'd ask you to go to your question, please.

Mr. Dan McTeague: Thank you, Mr. Chair. I know this is a very important issue for all Canadians, but I think it's important that we understand, Mr. Chair, that we have an opportunity here today to put a spotlight on this.

How much R and D do you in fact do in this country? How many pills do you produce in this country and sell to Canadians and sell around the world? Can you give us an explanation of where the big pharmaceutical companies are not doing the same?

Mr. Jim Keon: I think again I'll ask some of our companies to specifically tell you the research and development that they're doing, but on average the generic companies are spending about 15% of their sales, which is going back into research and developing competing generic products to help lower the cost of drugs in Canada. Virtually all the generic medicines on the market in Canada are researched and developed, the clinical trials are done in Canada, and they are manufactured in Canada. So when the generic industry grows, when the rules are made more equitable, the jobs, the investment, and the growth is in Canada.

Perhaps I could ask some of my colleagues to discuss their own research and development within their companies.

Mr. Jack Kay: If you look at Apotex as an example, we're spending close to 20% of our revenues on research and development. The research and development we're doing is not only on generic products, but we also have a division that is now looking at innovative products.

The research we do in Canada is not only for the benefit of Canadians, but we export to 115 countries of the world products that are manufactured in our various facilities in Canada. We have in excess of 3 million square feet of research, development, and manufacturing facilities in Canada to serve the world's need. Canada is a very important country for the rest of the world because Canada has an excellent reputation for the high quality and the affordability of generic drugs produced in the Canadian market.

Mr. Dan McTeague: Will you be blocked effectively from doing your job and you will not be able to do early workings if there is a continuous gaming of this system?

Mr. Allan Oberman (Vice-Chair, President and Chief Executive Officer of Novopharm Limited, Canadian Generic Pharmaceutical Association): Let me just add that as a subsidiary of the world's largest generic pharmaceutical company, Teva Pharmaceuticals, I compete with all other countries around the world for investment.

Today I do invest 15% of sales in R and D in Canada. But one must remember that when I go before our management and I'm fighting for those investment dollars, they ask the questions around reading articles around a draconian system, which is what our Supreme Court has called the regulations. They look around the world, and in no other jurisdiction, other than the U.S., are there regulations that allow for evergreening, and they begin to question whether they should continue to invest in Canada.

I think, as you look at some of my colleagues, many of us have to fight that same fight. So our job is to protect and ensure future investment in R and D in Canada, and the best way we can do that is by eliminating the ability to evergreen and to eliminate these regulations.

º (1650)

The Chair: Thank you very much.

Mr. Masse.

Mr. Brian Masse (Windsor West, NDP): Mr. Chair, to continue on the effects of evergreening in a practical sense, what are the obstacles when you actually want to get the drug out on the street in terms of the product, also the manufacturing, also the facility development, employment hiring and all those different things? What type of impact is this having to actually get a product on the line? Have we had difficulty with, I guess, either plant expansion or with even creating new opportunities because of the uncertainty of a particular product coming on stream? And can you provide an example of that, if there is one?

Mr. Hank Klakurka (President and Chief Executive Officer of Genpharm Inc., Canadian Generic Pharmaceutical Association): I think that's an excellent question because really it speaks to one of the most serious problems we have, and that is the inability to predict at all what is going to happen. And for a business that is owned by shareholders who need to be satisfied--public companies, as most of us are here--the incredible uncertainty as to whether a new patent will be listed gets in the way of making any sort of projection as to whether or not you'll be able to predict sales or whether you have earnings expectations; in fact, you're handcuffed.

Genpharm is owned by Merck in Germany, the oldest pharma company in the world, founded in the 1600s. We run a business, which speaks to needing to make investments against expected returns on those investments. With the patent situation here in Canada, despite the fact that we support fully patent protection, we're totally unable to predict what is going to happen.

I have the distinction, I guess, of probably one of the few in the room who has spent 20 some odd years on the brand side of the business and then the last quite a number of years as well on the generic side of the business, and I can tell you that my brand big pharma colleagues have very little difficulty predicting what's going to happen next year and being able to make investment decisions based on what is going to happen. We don't have that ability.

I can tell you that as a company we have very recently made two important decisions. One is to build a factory in Brazil. That plant should have been constructed in Canada. A second decision, a serious one, was made to expand an all-solids tablet plant in Spain. Again, that's in preparation for early working capability that's expected to come soon in Europe, but also because of the uncertainty here on the return on investment in this country.

Mr. Brian Masse: And that's what I hear a lot from the business community I represent, that some sense of stability is required for them to be able to plan out and map out things.

Now, with R and D, I mean this is one of the things that I think we keep leaning toward here. The concern is that if we change anything, all of a sudden R and D is going to dry up and we won't have any new drugs produced here in Canada, which, ironically, would also be bad for the generics because you wouldn't have new products entering years in advance and you'd be stuck relative to the stagnant pool of products.

I'm told that the pharmaceutical companies regularly rank number one in Canada in profits as a percentage of their revenues, as a percentage of their assets, and as a percentage of equity, and are often leaps and bounds ahead compared to other industries, including banks. We have right now in Canada, I guess, more increase in R and D since 1995, but it's still well below that in the U.S. and Europe.

Is that something you can substantiate or are those numbers somewhat accurate?

Mr. Jim Keon: Regarding the research and development spending by the brand name companies, my first point is that you're right, ultimately you need a balance. You need new products, you need incentives for new products, and I think that's why we've tried to be careful in what we've said today. We're talking about evergreening and eliminating the automatic injunctions. We support 20-year patents and patents on improvements, if there are improvements, and abilities to enforce those patents.

What we've seen in Canada--and this was reported by the Patent Medicine Prices Review Board in the report that Mr. McTeague is tabling--is that brand name companies have had significantly improved patent protection now for 15 years, since the time of Bill C-22 in 1987, more than 15 years. And according the PMPRB, Canada ranks sixth out of seven countries that we compare ourselves to in terms of pricing.

The research and development as a proportion of sales is declining. The proportion of basic research in Canada is declining. All the indications are that the research and development that's coming to Canada has not lived up to expectations. And I think what you will hear tomorrow from the branding companies is, “Just give us a little more protection. If we had a little more, we'd do a lot better”.

Well, I don't think the evidence demonstrates that they have followed through in the way they indicated on several occasions in the past that they would. We have the highest-increasing drug costs in the world, according to IMS. We've got health costs being driven primarily by rising drug costs, and we've got declining research and development.

We're saying that the generic industry has been providing good-quality products and can do a lot more. We think eliminating the regulations would put us in a place to do that, and the evidence is not there that the brand companies have been holding up their side of the bargain.

º (1655)

The Chair: Thank you very much.

Mr. St. Denis.

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): Thank you, Mr. Chair.

Thank you, gentlemen for being here.

I think it's obvious that everybody in the room wants to be sure we have the right balance in all of this, and the question is where is that balance between having the right amount of research and development that keeps Canada at the forefront and, at the same time, having prices that are consumer friendly and keep our health system affordable for all? So it isn't our job to decide who should be more profitable than others, but simply to make sure the system allows the companies to make reasonable returns on their investment.

First, I have a couple of questions that I haven't seen anywhere in the notes. Do Canadian generic companies sometimes copy non-Canadian drugs? If generic company X decided it saw a drug produced in the U.S. or Europe that it liked, for whatever reason, and decided it wanted to pursue that, do you deal with jurisdictional issues in those countries or is there a Canadian connection as well? I'm just wondering, do you exclusively pursue Canadian brand drugs?

Mr. Jean-Guy Goulet: Not necessarily. As we've described, as ratiopharm, we are the fourth largest company in the world and the largest in Europe. So in our plants in Mirabel, what we did is develop an R and D centre at which we do development for our European head office. So we do development for that; we also do development for the U.S. market.

But as for your question on ability to sell, we do come into some issues because of export provisions that are also tied up...which are not today's subject.

So to answer your questions, yes, we do development for other markets. Are we able to sell those products? It depends on when a patent expires in these other markets.

Mr. Brent St. Denis: I assume there are none, but I'll just ask the question for the record. Does the generic community have any requirements that you have generic for all brand drugs, or do you simply choose those for which you have some capacity to find a generic replacement? Would there be brand drugs for which there are no generics?

Mr. Jack Kay: Yes, there are. There are several brand products for which there are not yet generics, and there are not because in most cases we just haven't got to them. We will eventually get to all of them, but there is nothing mandating us to make a generic of any particular product.

» (1700)

Mr. Brent St. Denis: But the system works now in such a way as to at least encourage you to look at everything, to look at all brand drugs as potentials for generic form.

Mr. Jack Kay: I'm not sure the system encourages it. If you look at some of the products for which one wants to make generics and you look at the number of patents on the list, that actually might be a disincentive,because you say to yourself, “I'm going to have to fight 25 different patents before I'm ever going to get any revenues. I might as well forget it and not make a generic.

Mr. Jim Keon: But the intent of the patent system is to provide an incentive during the 20 years and then it's intended that there be vigorous competition after that.

Mr. Brent St. Denis: It's an important question for us to consider, the things that encourage or discourage the making of generic forms of brand drugs.

Mr. Jack Kay: It's also important for the committee to realize because there have been discussions in comparing the Canadian system to the United States system. In fact, they are very different systems. In the United States there is an incentive for generic companies to challenge patents. If you're successful, they give you a period of market monopoly. The first generic company to successfully challenge a patent has 180 days of market exclusivity before any of its generic competitors can come on the market.

Mr. Brent St. Denis: You mentioned in the presentation, Mr. Keon, a scale of--I don't want to use the word “damages”--what could have been had the regulatory world been different, brand versus generic and availability of drugs to consumers. Can you give us an idea of scale in terms of what percentage of generic drugs you're trying to bring to market bump up against this automatic injunction? Is it every generic that you propose? Where the U.S. is talking about limiting automatic injunctions to one, you're asking for zero. What is the average number of injunctions per generic drug that you're trying to bring to market? Is it clustered in 5% of the drugs, where you have a whole bunch, and the other 95% have zero, one or two? Can you scale it that way for us?

Mr. Jim Keon: As for the answer to the first question, how many generics face automatic stays under the regulations, it is virtually 100% of the first generics. The first generic to apply for approval faces these patent actions and the automatic injunction.

Sometimes people point to statistics and say that it's only 50% of the cases that actually go to court, but obviously if you're the fourth generic, the issues have already been settled and the brand company is no longer attempting to maintain a market monopoly. What is really critical is understanding what happens to the first generic, because that's when the competition is going to start and the prices are going to get lower. That's where we face the automatic injunction in virtually 100% of the cases.

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, gentlemen, for appearing before us today.

Following along the theme of my colleague in terms of striking a balance between discovering new drugs that address serious illnesses and ensuring that drugs are affordable and accessible to Canadians, you mentioned in your presentation that the NOC regulation “is extremely unfair to generic drug makers. In no other industry is a company forced to reveal to its competitors in advance which products it intends to bring to market”. This fails to address the issue of early working in Canada, something that was discussed extensively by Mr. Sulzenko yesterday. Also, we did not mention that we do not have patent term restoration in Canada, something the brand name companies want, as well as data protection.

Mr. Sulzenko, yesterday, described the early working exception and the NOC regulations as “two sides of the same policy coin”, meaning that if you amended one or repealed one, you would obviously have to deal with the other one.

Just as a suggestion or as a possibility in an attempt to reduce the amount of litigation, which I would assume both sides would want to do, and to strike the balance I talked about, would you be amenable to the end of early working, data protection, and patent term restoration in exchange for the repeal of the NOC regulations?

» (1705)

Mr. Jim Keon: There are several points there. First of all, it is not in the interests of the brand name companies to reduce litigation; it is in their interests to increase litigation, because under the automatic stay, as long as the litigation is underway, we're not on the market and we're not competing with them.

On early working, what Industry Canada failed to say yesterday is that this is a provision of general applicability. It applies to all sectors.

If I'm making a medical device, a heart probe, I can, for the purposes of seeking regulatory approval at Health Canada, develop the product, conduct tests, and submit that to Health Canada. That is perfectly legal in Canada. It applies to that product. If I'm developing an agricultural pesticide and I need to submit it to Agriculture Canada to see if that product is going to be able to be marketed, I can develop that product during someone else's patent. I can conduct tests. I can submit it to Agriculture Canada.

The early working does not just apply to generic pharmaceuticals. That is just incorrect. It is a rule of general applicability. But the regulations, the automatic injunction, apply only to generic and brand name pharmaceuticals, so we do not see this as a trade-off.

Mr. James Rajotte: What about patent term restoration and data protection?

Mr. Jim Keon: We do not have patent term restoration in Canada. I think the real point we would make is, what is the actual period of market exclusivity before a generic comes on the market? In our materials, we indicate that. Again, if we compare ourselves to the United States, because that's what people always compare us to, according to President Bush last October, new drugs on average are sold for 11 years under patent protection and then generic versions become available. That's according to the President. I assume he had his data right.

In Canada, when we looked at the numbers, and again I think our numbers conform more or less on this with Industry Canada's, the data show that the average period of exclusivity is actually longer in Canada for brand name companies; it's 13.7 years. So we think that in terms of how the overall system actually works right now, the brand name companies are able to keep generics off the market longer now in Canada than they are in the United States.

Again, we would not want to see patent protection increased in Canada. We believe it's already more than adequate.

Mr. James Rajotte: Can I get you to address another comment Mr. Sulzenko made yesterday. He said:

We observe first and foremost that the Regulations remain a viable and necessary component of Canada's drug patent regime. Our reason for doing so is that generic companies continue to challenge innovator patents early and often and therefore, absent the protection of the Regulations, infringing generic drugs would routinely enter the market soon after the innovator and well before the expiry of the original product patents.

Obviously you disagree with this. Are there any examples whatsoever in which a generic has attempted to infringe on a patent? Are there any examples you can point to, or has a generic never tried to do this in Canada to this day?

Mr. Jim Keon: I'll make a brief comment and then I think Mr. Hore should comment, and I think our company should comment too, because that's a very important question.

The bottom line is that generic companies do not want to go to market with infringing products because they are very afraid of being sued for patent infringement and facing massive damages. So absent the automatic injunctions, they will not go to market without being very careful about patent infringement.

Mr. James Rajotte: And have they in the past?

Mr. Ed Hore: There have been cases they have lost and cases they have won. I think the point is if you get rid of the regulations, you get rid of the automatic stay and you have a situation that is the same as in other industries. What that means is that the patentee can sue for infringement if he or she feels their patent has been infringed. Then it gets decided in a court case. It gets decided at trial whether there is infringement or not. If infringement is found, then there are remedies. The remedies are damages. It's now clear that there can be punitive damages, also costs. The amounts of money involved can be extremely large. There are these remedies that are available and are adequate apparently in every other industry.

Mr. James Rajotte: Can I follow up on that? The brand names will be here tomorrow and I'll ask them the same question. The answer they will give is that there have been cases in the past and the generics have dragged them out so long that the generic has been on the market for, say, up to five, ten, eleven years, and this has basically ruined the patent that they have, because the patent has obviously expired. That is what they're going to say.

So is this true or not? That is what I'm trying to get the essence of.

» (1710)

Mr. Ed Hore: I think it's not true, because if infringement is found, they get damages. The court assesses what damages they are entitled to get.

The flip side of the coin and what we actually have is that we basically say we're going to keep all generic drugs off the market for a long period of time whether they're infringing or not. The downside is that non-infringing generic drugs are kept off the market for a long time. And that doesn't make any sense.

What does make sense, I would submit, is that you have the drug go on the market. If the brand wants to get an interlocutory injunction and it convinces the court that it's entitled to that, then it would go for it. The court may decide that it's not appropriate. Eventually there would be a trial. There have been cases where, in drug patents, infringement cases have gotten to trial in under two years. There have been cases where it has taken longer. The cases where it has taken longer have usually been where the brand has a de facto injunction for regulatory reasons in the provinces, for example.

Mr. James Rajotte: The injunction meaning the generic has been kept off the market.

Mr. Ed Hore: Yes, kept off the market for some reason.

The Chair: Thank you very much.

Mr. Normand.

[Translation]

The Hon. Gilbert Normand (Bellechasse—Etchemins—Montmagny—L'Islet, Lib.): I would like to come back to the issue of early production. The Industry Canada officials explained to us yesterday that that right had been made available to allow the Canadian generic drug industry, in particular, to have access to foreign markets before other companies, since we are the only country that allows this practice. You did confirm earlier that you sell your products in approximately 130 or 135 countries. I think that this early production right has been very beneficial for the generic drug industry.

I would like to come back to the automatic stay issue, since the Health Canada officials told us yesterday that automatic stays as such did not exist and that a new patent could not be awarded unless the company proved that the improvement to the drug or the new use being proposed was really essential. I do not want to cite particular cases—I could do so, being a doctor—but I would give the example of Losec, which everyone knows. You asking for the elimination of an automatic stay that does not exist, according to Health Canada.

You seem to want the best of both worlds. You want to keep the early production right and you want to see the elimination of this injunction that you call automatic. You have benefited by being able to begin production before the patent expires, but you are now asking for this change. In two years it will be something else.

I come back to what my colleagues said a bit earlier. We have to strike a balance. We need to keep in mind that the companies that obtain patents pay huge amounts in research and development. Take the example of Cipro. Apotex was ready to distribute this drug in Canada but it did not yet have its compliance certificate. That means that it had had the time to produce it and to work a long time on it beforehand. The company benefited by being able to do that.

I was in Germany in my capacity as Secretary of State for Science, Research and Development when that incident happened, and a number of German investors questioned their investments in Canada and Quebec because of that incident, which gave the impression that Canada did not adequately protect its patents.

I find it hard to see how we could eliminate something that does not exist, that is, the automatic stay. Moreover, the current protection enables companies with patents to make gradual improvements to their products to improve their efficacy and better protect the public.

Are you prepared to make a choice? Should we go back to having strict 20-year patents? That would mean no more early production, with companies having to wait 20 years before starting to work on a product. The present situation enables you to market a product between three and a half and six years earlier than generic drug companies in other countries.

» (1715)

Mr. Jim Keon: I first have to say that the regulations provide for an automatic stay of 24 months. That is clear and it causes a problem for almost all first generic drugs that companies try to put on the market.

I would add that the right to prepare a copy or a generic drug while a patent is pending exists in a number of other countries as well. It exists in the United States—it is included in the Hatch-Waxman Act—Australia, Israel, Hungary, Argentina, Brazil and a number of other countries. So it is not just Canada that offers this right, but it is only in Canada and the United States that the automatic stay exists.

My colleague from Apotex may want to discuss the Cipro case and what happened last year.

[English]

Mr. Ed Hore: I have a brief comment to add. Although Mr. Sulzenko yesterday made much of early working and said that the two are two sides of the same coin, what he didn't mention, and I don't know why not, is that early working did not originate in 1993. It arises from a 1972 Supreme Court of Canada decision called Micro Chemicals. It had existed for 20 years before the regulations ever came into existence.

The other point I would make is that if the early working defence is available in a particular case, a court at trial in the ordinary patent litigation system will be able to determine whether it applies or not. You do not need litigation under these regulations to determine whether early working applies in a given case or not.

The Chair: Thank you very much.

[Translation]

Mr. Gilbert Normand: I would like to ask another question, Mr. Chairman.

[English]

The Chair: Monsieur Crête.

[Translation]

Mr. Gilbert Normand: Mr. Chairman, I would like to ask another question, please.

[English]

The Chair: I know you do, but if you take more than half your time asking the question, I can't help it if you run out of time. I must move on.

Mr. Crête.

[Translation]

Mr. Paul Crête: I would really like to understand the Losec example. An initial 20-year patent was issued in 1979, I believe. So it was in effect until 1999. After that first patent, the producing company obtained other patents for improvements to the product. Are people producing a knock-off of the original Losec today, since that patent expired in 1999?

[English]

Mr. Jack Kay: No, there are not.

[Translation]

Mr. Paul Crête: Why?

[English]

Mr. Jack Kay: Because there are seven patents on the list that have to be addressed before we can get our approval. The notice of compliance regulations are stopping us from marketing a product. Of the seven patents, we have already fought four of them, have been found to be non-infringing on those four, and we still have three more that have to go through the process.

[Translation]

Mr. Paul Crête: Are you talking about the 1979 product for which the patent expired in 1999? I am not talking about the improvements that were made after.

[English]

Mr. Jack Kay: But that is the difficulty of the regulations. It is not--

[Translation]

Mr. Paul Crête: Answer my question. Could you market today the 1979 product whose patent ran out in 1999, without any problem?

[English]

Mr. Jack Kay: No.

[Translation]

Mr. Paul Crête: Why not?

[English]

Mr. Jack Kay: Because there are patents on the list that block the Minister of Health from granting us our approval.

[Translation]

Mr. Paul Crête: If I understand correctly, even though the patent on this product has expired, even though it is not perfect—since it was improved afterwards—you could not produce it?

» (1720)

Mr. Jack Kay: That is right.

Mr. Paul Crête: All right, I understand.

I want to come back to the economic benefits, since we are talking about an entire industry. So that aspect is of major importance. In addition to helping people, drugs are also products made by an industry that has a major impact in Quebec, Ontario and the other provinces. I am very surprised that you are unable to tell us what the economic impact of your recommendation would be. Is it that you cannot tell us today and you would be able to give us the information later? We have to examine that impact in any case. It is not enough to know whether these are good regulations or not, we also have to understand the economic and social impact. Do you not have any data on that? You are making a recommendation that will have a major economic impact, but you are unable to talk to us about that impact.

Mr. Jean-Guy Goulet: I want to make sure I understand your question. Are you asking what the additional costs would be? We are talking about extending patents through evergreening.

Mr. Paul Crête: I am talking about eliminating the linkage regulation, which is what you are officially asking for here. What kind of impact would that have on the economy, in particular on the whole research and development sector in Canada?

Mr. Jean-Guy Goulet: We favour maintaining the current regulations, that is, we support the 20-year application of patents, and if there are innovations, the companies concerned should be able to benefit from innovations to their products. I think that the example you gave earlier is important. That needs to be clarified.

Take the example of a slow-release drug—there is a doctor here—that can be taken once a day instead of three times. If a company wants to market the product whose patent has expired, the idea is not to market the improved product but the initial product.

Mr. Paul Crête: That is not my question, sir. My question concerns what will happen if we eliminate the linkage regulations. If that happens, the United States will still have the same system, and we do not know what will happen there. Would there not be a short-term impact, such as a transfer of research and development capital?

Mr. Jean-Guy Goulet: I think that we as an industry cannot say what will happen in the United States.

Mr. Paul Crête: I am not asking you what will happen in the United States; I am asking you what will happen in Canada if we make these changes and the Americans do not do so right away. Will American subsidiaries not have a major comparative advantage that will help them and result in capital flight in the short term?

[English]

Mr. Hank Klakurka: Perhaps I could try to answer that question. From my experience in the brand side of the business for over 20 years, I believe there would be absolutely no impact whatsoever to R and D investments in this country.

I think it's known by most people in the room that the vast majority of R and D expenditures are involved in what are called marketing trials, for the purpose of ensuring that products compare favourably to other brand products. It is very unlikely that you'll see reduced investment in R and D, or what is called R and D in this country, with the repeal of the regulations.

If anything, I would expect that a more competitive climate for a generic attack on innovative products should spur investment in R and D, and hopefully Canada will be able to secure at least its fair share, because certainly over the past many years this country has failed at securing its fair share. If you look at the data comparing Canadian R and D investment against sales of pharmaceutical products, Canada has fared very poorly, and that is really on the back of extremely favourable brand product intellectual property protection in this country.

So I firmly believe there will be no adverse impact.

The Chair: Thank you, Mr. Crête.

Mr. Bagnell.

Mr. Larry Bagnell (Yukon, Lib.): If anyone in the room wonders why we're having this investigation, here's a letter I got yesterday, along with a bill for drugs for $192, in the shakiest handwriting I've ever seen: “Re drug costs, I'm enclosing the drugs I need since my heart attack. To me 20 or 30 pills are not worth this. It's time the government does something about prices”.

Related to early working, I think this is sort of a red herring. If you look at the Canadian generics compared to the world, here we're in a horse race to get on the market faster and better. For the first 20 years we can do early working, so for half the companies in the world, as Mr. Keon mentioned, we're at least equal to them when we get to the 20-year mark, and we're ahead of a bunch of the other half, which is great because they don't have early working. Then, at the 20 years, if we put this barrier of 5 or 10 or 15 years on you when the rest of the countries in the world don't have that, of course you're way behind the other countries in the world.

My first question is on my understanding from the one discussion I have had with the brand companies, which was that they don't have a problem after the 20 years with you starting off. Is there a way we can get rid of the automatic injunction but not get rid of linkage, so that we still have the linkage protection, and if you had a bad actor they'd have their approval from Health Canada and couldn't go off selling it and cost the brands a whole bunch of money to take you to court and everything? Can you envision a way in which we can keep the linkage in place--because it makes sense and you should have a patent before you get approval of a drug--but not cause this unnecessary delay that you have in being able to produce because of the automatic injunctions?

» (1725)

Mr. Jim Keon: What we are asking for is the elimination of the automatic injunction. We believe it is completely unfair to give one side an automatic block against a competitor.

Mr. Larry Bagnell: I agree with that.

Mr. Jim Keon: Any system you have that involves an automatic block will lead, in our view, to manoeuvring, strategic use of patents, strategic use of litigation--

Mr. Larry Bagnell: I agree with all of that.

Mr. Jim Keon: --to keep generics off the market.

Mr. Larry Bagnell: I agree with all that, but can we keep linkage so that, in the 20 years, the drug companies have to get their patent before they can get their Health Canada approval?

Mr. Jim Keon: The linkage currently involves an automatic injunction, so I don't believe there's any linkage you could have without an injunction.

Mr. Larry Bagnell: We do special things for drugs now. We could do something special in that regard related to patents.

Mr. Jim Keon: Perhaps what you're suggesting is that they would have the benefits of the linkage only for one patent, only for the first patent. That is a second best option, clearly. It would stop using the automatic injunction for evergreening purposes, but it would still introduce an automatic injunction where none exists for any other sector.

Mr. Jack Kay: But more important than that, it's not only the automatic injunction; it's the fact that as a business I have to advise my competitors, not only the brand company where I'm seeking to put out a generic equivalent but my friends around the table, of exactly what I am planning to do. That is totally unfair and it makes this industry unsustainable.

Mr. Larry Bagnell: Okay. I am not necessarily saying that you use the regular system where you have to advise your competitors, but if you have to get a patent before you get your Health Canada approval and no one knows, then you can't go on the market and somehow the brands have to take you to court and all of this and everyone will be happy.

Anyway, let me go on to my next question. It's for Hank.

I don't necessarily agree with your answer to Mr. Crête. Obviously if we fix this problem where you're getting stuck for years and you can't go on the market through this inappropriate regulation, it is going to be less profitable for the brands and more profitable for you, which is fine. Investment-wise, that is just economics. To make it simpler, here is what some other people were asking.

Do you think there would be more of an increase to the Canadian economy by generics being more profitable and having more reasonable opportunities so you could increase in a reasonable manner, compared to the amount we would lose from the natural proclivity for some reduction in investment of brand companies in Canada? It is not that great as it is, said The Globe and Mail on March 27. It said we're behind in R and D anyway. Obviously they're going to go down if they don't have this great scheme for increasing their patents.

Do you think we're going to make more by what you're going to have the advantage from compared to what the brands will lose?

Mr. Jim Keon: One of the things we've always said with these regulations is that they are really an incentive for the brand companies to litigate, not to innovate new products, and that's the problem we have with them.

There is nothing that focuses the minds of brand name executives like the expiry of a patent. They've had exclusivity, they've been making excellent profits, and now the patent's going to expire. They need new products. They will do everything possible under that system to develop new products.

Under our system, they hire the best law firms and the best regulators and they devise complicated strategies as to how they can keep those products under patents. That is what this system is doing now. It is not really increasing true innovation and true development of new products.

Mr. Hank Klakurka: I would also argue that removal of the regulations would in fact improve our profitability as businesses, because really we would be bringing to Canadians higher-quality, more modern medicines at more affordable prices, earlier. Whether we make money on those products specifically--

» (1730)

Mr. Larry Bagnell: Hold on a second. You still avoided answering the question. Are we going to get--

The Chair: Thank you, Mr. Bagnell.

Mr. Bachand.

[Translation]

Mr. André Bachand: Thank you, Mr. Chairman. We will check on your answer. We are getting all types of information on meprazol, on Mr. Kay's answer. We will check to make sure we have the correct information on the 20-year period, the expiry date of the first patent, the legal possibilities, and so forth.

You spoke about the 20-year patent. First of all, everyone must understand that this does not mean that the company with a patent is the only one that markets the product for 20 years. All it means is that the company enjoys protection for 20 years. As you were saying, Mr. Keon—and I rely on your figures—in the United States, the waiting period is 11 years on average; while in Canada it is roughly 13 years. Do you agree with the officials from Industry Canada who said that, generally speaking, generic drugs are available in the Canadian market 22 months before they are available on the American market?

[English]

Mr. Jim Keon: Je vais répondre en anglais.

No, I have a problem with our data. First of all, I think they didn't talk about the average periods of exclusivity that you've just mentioned, which in Canada are about 13 years and in the United States about 11. Also, on the comparison they gave us, they gave us examples where the generic drug is on the market in Canada and perhaps not yet on the market in the United States. They did not present data showing the opposite, where the drug is already on the market in the United States but not yet in Canada.

We've been talking a lot about Losec today. Losec is on the market in the United States as a generic. Omeprazole has been on the market in the United States since last year. Enalapril, a heart drug, has been on the market in the United States for three years, but not in Canada. That wasn't in their data yesterday. I have a problem with that. I've indicated that to them today. I think that study needs to be redone, looking at products already on the market in the U.S. but not in Canada.

[Translation]

Mr. André Bachand: That is why we met with representatives from the Departments of Industry and Health yesterday. They told us a number of things. Today we are meeting with you and you sometimes agree and sometimes disagree with what they said. Tomorrow, we will hear from the drug companies, and they will sometimes agree and sometimes disagree with these statements. As the officials from Industry Canada said yesterday, on the whole, we may perhaps have found a good balance among all these diverging interests. It is very difficult to get at the truth on the basis of the evidence we have heard so far.

I have another question. Financially speaking, how has your industry been since 1993? We have not been able to read all the information we have available, as Mr. Volpe mentioned. How are the Canadian generic drug companies doing, generally speaking?

[English]

Mr. Jack Kay: I'll answer that. Apotex is the largest Canadian-owned generic company. For our fiscal year ending March 31, 2002, we lost $60 million from our operations in Canada. For the last fiscal year, which just expired on March 31, 2003, we lost $25 million from our operations in Canada. The current model in Canada is not sustainable for the generic industry operating in this country.

[Translation]

Mr. André Bachand: How is the Canadian generic drug industry doing, generally speaking, Mr. Keon?

Mr. Jim Keon: The presidents of the five largest companies in Canada are here. I think they could answer the question.

Mr. André Bachand: But you do represent the industry. You have presented some figures. You tell us that you are creating more and more jobs, or, at least, that you are investing more and more in research and development. Things seem to be going well for Apotex, even though I don't know whether that is true of its subsidiaries as well. You have some figures, so how are things going for your industry in general? Are things going rather well? Very badly? If things are going very badly, we might ask the Business Development Bank of Canada to step in. I am sure that we could find some way of...

Mr. Jim Keon: I think the others would give you the same answers Mr. Kay. We cannot continue this way because of the regulations and the automatic injunction. It is becoming more and more difficult to market generic drugs in Canada. If the automatic injunction is not abolished, there will be fewer generics in the future. It will be very difficult.

» (1735)

Mr. André Bachand: You tell me that the committee must look into this. We are talking about the Standing Committee on Industry, Science and Technology. We should bear that in mind. You say that if the committee does not change the regulations quickly, there will be massive job losses in the generic drug industry. We would have to check on that.

Mr. Jim Keon: It is clear that the level of investment will be much lower in the future.

Mr. André Bachand: Would you go so far as to say that there would be a massive reduction in investment?

Mr. Jim Keon: I think so.

Mr. André Bachand: To follow up on the question asked by my colleague, please give us the figures so that we can look into this and try to determine the impact of this measure.

[English]

Mr. Allan Oberman: To add to what Mr. Kay has said, Teva Pharmaceuticals bought Novopharm three years ago, and in the last three years Teva has received a zero return on their investment. There has been no return on the investment they had made here in Canada. So the future investment in Canada is in somewhat of a crisis and definitely must be addressed.

We are here talking about one way of allowing generics to get to market in a more expedient fashion in order to earn a better return on the investment. We're not here to address the whole industry, and it is an issue that we have to face. Certainly the automatic stay, keeping generics off the market for 24 months with an alleged infringement, is much too draconian for any global company to continue to do business.

The Chair: Thank you very much, Mr. Bachand.

Mr. Volpe.

Mr. Joseph Volpe (Eglinton—Lawrence, Lib.): Thank you, Mr. Chairman.

The committee, for my purposes, is here to consider whether the regs are being abused. I just want to keep my mind focused on that. To me, “abused” means that somebody is using them to gain an advantage that was not envisaged by the regulator, the regulator being the Department of Industry.

I see that some of the officials are still here. They got me rather upset yesterday. I hope they've been taking notes, because we'll be at it again on Monday.

Help me to understand something, because the facts didn't come out of the folder yesterday. They still didn't come out last night when I started to read it. Is the reason that not all of the patented brand medicines have multiple patents because not all of them are getting close to the end of their patent period?

Mr. Jim Keon: We saw the list from Health Canada, which showed--and I forget the number--250 products with only one patent. First of all, that's a snapshot in time. If patents had already expired on that product, that's not shown, and you have to go back and do a more complete analysis.

Absolutely, with many of those products that continue to be popular towards the end of their initial patent, we expect that we will see several extra patents coming onto that list. That has been the trend, particularly with the large-selling products where the savings from generics would be the greatest.

Mr. Joseph Volpe: The other thing I wanted to get at is, if this allegation of infringement becomes part of a strategic industrial plan--and you heard me ask the question yesterday, because I know you were in the crowd--what has been the cost to the taxpayer as a result in additional health costs? I was given the number of $16 million. I want to go over some figures for you and I'm going to ask the brands the same sort of question.

According to the documentation here, a generic attracts for the Canadian taxpayer an average saving of 29%, although I see figures as high as 37%. A product that's still under patent is attracting 100¢ dollars and a drug that has competition from generics attracts 70¢ dollars. How many such products have been kept off the market over the course of the last five years?

Mr. Jim Keon: I think you heard in the opening statement by Monsieur Goulet that we have estimated the costs of the regulations, and these are past costs, at over $1 billion.

» (1740)

Mr. Joseph Volpe: There seems to be a difference here. I don't want to be sarcastic, but you're getting my ire up just a little bit more, because if you're sticking with that $1 billion figure, then somebody is not telling this committee the complete truth. Yesterday our own officials, who are sworn to truth, said it was $16 million.

So how many products and how much is the difference?

Mr. Jim Keon: I'd like to table with the committee our list of products that have been delayed.

Mr. Joseph Volpe: Will you receive them, Mr. Chair, on behalf of the committee?

Mr. Jim Keon: You can see that for each product we have calculated the lost savings from that product. There are several dozen products on the list. All of our assumptions as to how we made the calculations are there. I'd be happy to table that.

Mr. Joseph Volpe: Thank you.

The Chair: I think the key thing here is we want to compare apples with apples. So if you provide that to the clerk, then we'll be able to do that.

Mr. Volpe, carry on.

Mr. Joseph Volpe: The other question I have is on this business of allegations of infringement. Correct me in my assumptions. If I have a strategic plan and my product is coming towards the end of its patent period, correct me again, but that doesn't necessarily mean the period of market exclusivity. It just means the period that I have this product for my exclusive use, whether I market it or not. So I'm coming down to the end of my patent period. Under our current regime, would my competitor expect that I would be innovative enough to come out with additional patents on the product? Is that a normal expectation for your industry? If so, how many times has that not happened?

Mr. Jack Kay: Really, it is company specific. If you take a look at some products that are highly successful and highly profitable, what the brand industry will do is change the dosage form that it is available in. They will go from a regular released product to a modified released product to a super-modified released product and get the physician to prescribe the newer presentation.

This is the subject of the debate. It is secondary and tertiary patents that cause us the angst, because these are formulation patents. We can manufacture without infringing on their patent, yet we are kept off the market strictly by their allegation that we will infringe.

Mr. Joseph Volpe: Your presentation and that of Industry Canada indicate that your industry, the generic industry, has about 14% of the revenues in the pharmaceutical marketplace, but accounts for about 40% of the sales. I think, because you are both using the same figures, that is more or less it.

However, what it didn't say in either brief is that there are off-patent sales, products that are off patent, pharmaceutical products that their proprietor has decided for one reason or another not to keep under the patent regime. My recollection from PMPRB, and I stand to be corrected, is that they account for approximately half of the rest of the revenue. For example, if we are looking at 86% of the revenues, about 40% to 42% of those revenues are coming from off-patent products. Does that mean for the uneducated public that some companies are selling pharmaceutical products, medicines, for which they do not think they need patent protection?

Mr. Jim Keon: One of the interesting things about the 14% of the market accounted for by generic drugs is that actually about a quarter of that is accounted for by brand name companies that have licensed a generic version of their product. When they finally see that they are going to lose the litigation, one tactic that is often used is to license their brand product to a generic company to sell in competition with the independent generic.

At the same time, they keep their brand product on the market for those programs that aren't sophisticated enough to realize that they should be buying the generic. In that case you have the brand selling two versions at different prices.

» (1745)

Mr. Joseph Volpe: Your association represents only three-quarters of the generic sales, or are you also representing the brands?

Mr. Jim Keon: We do not represent the brands, no.

The Chair: Thank you, Mr. Volpe.

Mr. Masse.

Mr. Brian Masse: Mr. Chair, I have two questions. The first is, how well do brand names do against a generic? Maybe within the first five years after you finally can compete and the brand name is still out there on the market, what does it mean to them in terms of sales? Do they have an actual steep decline or do they still have a pattern of good, sustainable use of the product, especially with population growth and exporting the product abroad?

The second question is to comment on the United States. The U.S. government has aggressively pursued credit card companies on behalf of consumers. As well, we know that with the drug Taxol, 29 state governments intervened with regard to the automatic injunction with an anti-trust suit. Are we at the stage where our government should look at that as a potential investigation point to protect consumers? You have submitted a document on the length of time and the costs associated with that. Is that something our government should be considering to protect consumers?

I don't want to put you on the spot, but in your document you do say that it is becoming virtually impossible to make a generic version of a drug available in Canada if a brand name company chooses to employ evergreening tactics. That is a very strong statement.

Mr. Jim Keon: Well, how do brand name companies do? One of the interesting things is when a product goes off patent, when a generic finally comes on the market, the brand name company stops promoting that product to doctors. So one of the things that happen is--let's say there were a million prescriptions being written for Prozac when it was on patent. What we find is that six months later there might be half of those prescriptions still being written for Prozac. And what we find is that the market has been switched to newer medicines in the same therapeutic category where the promotion and marketing is continuing. And that is a major problem, I think, for drug programs across Canada, this switching to new products at very high prices and switching from products where there is competition, where prices have come down, and new products where there may or may not be significant improvements. But there certainly are very high increases in costs.

So the brand companies typically lose market share on the product that has become generic. The problem is that the number of prescriptions for that medication usually drop significantly, and that's driving up costs.

On the point about Taxol and that, we have as an industry gone to the Competition Bureau. We have presented the evidence to them. And they have come back with what we find a very timid, tame, lame response saying, well, we think you have some interesting points, but we don't have any power to look at those issues in Canada.

Mr. Jack Kay: They actually made the comment, when you're put out of business, then we'll examine it.

Mr. Brian Masse: That's what sometimes happens to patients when they don't get their drugs.

» (1750)

Mr. Jack Kay: That's correct.

Mr. Hank Klakurka: Perhaps I could add just one point to that. Really the damages provisions that generics supposedly have against brand companies for improperly listing patents or doing things that are anti-competitive, really as we said earlier, don't represent any sort of a concern because the profits they will lose represent a small portion of their sales and the profits they would generate with those continuing volumes.

In the United States, of course, brand companies have taken a very sober look at those kinds of tactics, the same ones employed here in Canada, because when they stand to pay hundreds of millions or larger--$500 million, $600 million--settlements for anti-trust, whether action is brought by FTC or whether they be class action lawsuits brought by citizens, states, and so on, that then represents really a good balance in terms of forcing both sides to consider very carefully.

I can tell you, as a business, I would not launch a product at risk in this country, because the small profits I'm going to earn are nowhere near the size of the profits that are lost by the brand, which they will in fact want to recover from me. So if I were to make the wrong call on that sort of a decision, I know I would be putting myself out of business.

Mr. Brian Masse: When you start to select to bring a new product on now, do you actually calculate litigation into that cost? Is that happening in terms of bringing in new?

Mr. Hank Klakurka: Absolutely.

Mr. Brian Masse: So that's one of the reasons for the difference in profits and--

Mr. Hank Klakurka: We as a business will run into legal expenses before we get to court of upwards of a million dollars just in terms of preparation. And at that point we have no idea how it's going to turn out.

We do know--and I talked earlier about uncertainty--with certainty that the costs associated with developing the product and the legal process that we're going to be experiencing is going to generate huge costs to our business. The problem is, of course, we have no idea what the outcome might be and really can't predict it.

Mr. Jack Kay: I also think that it's very important--I don't want to leave the committee with the wrong impression--that not all of the brand name industry gain the system. Several of the bigger companies have made the decision that when the patent on the original molecule expires, that's the end of it, that generics are free to come and reduce costs to consumers.

My fear on a go-forward basis is, because of the success of some of the companies in listing multiple patents, that the rest of the industry will follow suit, and that's why we say if the regulations are not eliminated, we question the sustainability of our industry.

Mr. Brian Masse: Thank you.

The Chair: We'll now switch over to Mr. Harb. Welcome to the committee.

Mr. Mac Harb (Ottawa Centre): Thank you very much. I'm not a member of this committee but I'm quite interested in what's taking place today.

I'm sure our witnesses would agree that whatever we do, it would have to be fair to everyone, fair to those who spend billions of dollars on innovation in order to introduce a product to the market, and fair to those who, by law, have a right at some point in time to come in and reproduce and put on the market a product.

I suppose, Mr. Chair, I have two questions and they're quite simple, both of them.

Mr. Keon was making a reference to the exclusivity of a product here on the Canadian market as compared to that of the United States, and I'm not sure whether or not he has taken into consideration the period for patent approval in the United States, something like up to six months, while here in Canada it would take up to about two years.

So if we were to take those additional two years and add them to what happened between the United States and Canada, we would find that in Canada in fact a company has an exclusivity of approximately 10.8 to 11 years while in the United States they have something like 12 years. In the United Kingdom they have 15 years. In France they have 19 years. At least, those are the figures that I am aware of. I suppose if we were to take those figures, wouldn't the witnesses, Mr. Chair, agree that under those circumstances the generic pharmaceutical companies already have a chance to get on the market faster here in Canada than in the United States or than in the United Kingdom or France?

I wanted to ask the witnesses, how do their generic products compare when you introduce a product on the market? Do you introduce it faster here or do you introduce it faster in the U.S. or in France? How do you compare in terms of new products that you put on the market?

Mr. Hank Klakurka: As part of a global generic company in fact owned by a global brand company, I would say that if you look at the example of omeprazole, or Losec, the largest-selling ulcer drug in Canada, in the U.K. the product was launched last year. In the United States the product was launched in December 2002. I would say for that product and several others like it, which are blockbusters, we see no prospects whatsoever of this product coming to market.

We continue to litigate against a formulation that's been off the market since 1995. I don't know if everyone understands that today Astra vigorously defends a formulation that was removed from the market eight years ago, the product in a capsule form, which has been launched in the United States and then in the U.K., and today that product cannot be brought into the Canadian market. We cannot get through the legal process for Losec, omeprazole capsules.

So I would say that we can look at the average, and of course it all depends on what's in the mix to determine those averages. But certainly it's clear that on many of the very important blockbuster drugs, the ones that represent a lot of money to the health care system and of course to brand companies and represent potential earnings for generics, those are the ones we seem to be having the greatest difficulty with.

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Mr. Mac Harb: Just a small question. Would the witnesses agree that once their product is on the market and that of the brand name, the system in fact does support the generic, that the system is in fact a lot more sympathetic to the generic than they are to the brand?

I know personally. I have had a number of experiences, and I'm sure my colleagues have too, where when you want to buy a drug on the market, it seems to me the pharmacists seem to really want to pull out the generic, because the system as such sympathizes with you more.

Wouldn't you think that, in essence, it works to advantage in the situation where a brand name pharmaceutical wants to protect the integrity of their invention? Of course, then I would want to give you a hard time too, because I spent a lot of money trying to create a product and I want to make sure nobody copies the product. I'm going to do everything at my disposal to keep those who want to copy my product for the duration of the time I'm allowed by law.

So you may find yourself frustrated in one area, but at the end of the day you are in pretty good shape, don't you think?

Mr. Jim Keon: I think one point to remember is that after a generic is finally successful in all the litigation and comes to market, the reason the pharmacists suggest the generic is because it costs less; it's equivalent and it costs less. There is no rule in Canada that says a brand company cannot lower its price and compete on price. It chooses not to because it maintains some market share for drug programs that will continue to buy brand name products even after a generic is on the market, but they could reduce their price.

Mr. Ed Hore: I'd like to add, if I may, that when you say the environment is good for generics in Canada, what we've said in our materials is that we seem to have reached a point now where it has become impossible to be able to do a generic product. That arises from these regulations. The situation has become worse in the last few months as a result of a number of decisions of the Federal Court, which unfortunately we haven't had time to discuss. I would ask the committee to look at our materials there, in particular pages 11 through 15.

In a nutshell, this is what has happened. There was a decision in January of this year of the Federal Court of Appeal which said that the brand can list a patent that is on a formulation--that is, a version of its drug that it's not selling. So we can have a patent on the formulation that it is selling and any number of other formulations as well. It's like a chocolate chip cookie. You can make a chocolate chip cookie a lot of ways. If there's any way of making it, you can get a patent and you can put it on, then you can put the patents on again and again and again.

We seem to have reached a state now, as a result of that decision and some other decisions, that effectively means that the gaming--which we've tried to describe, and the details of it are somewhat complex--means that you cannot genericize a product if the brand chooses to employ these strategies. That, I would suggest, is a very serious public policy problem because it means you have perpetual monopolies, and that is not a sustainable situation.

I would ask that this committee seriously consider that issue, which the President of the United States has said is a problem. The President of the United States is not a radical, he's not a left-wing nut, I don't think. He says that this is a problem. I would suggest that--

The Chair: I don't think we should be going there.

Mr. Rajotte.

Mr. James Rajotte: Thank you, Mr. Chairman.

I would like to ask a question, again just comparing your presentation with Mr. Sulzenko's presentation from yesterday. On page one of your presentation you talk about no other industry making a greater contribution to affordable health care in Canada than your industry. You say while generic drugs fill more than 40% of all prescriptions in Canada, generics account for less than 14% of Canada's $13 billion annual prescription drug expenditure.

Yesterday Mr. Sulzenko talked to us about how the Patented Medicine Prices Review Board obviously controls the prices of patented medicines in Canada. He says that PMPRB figures indicate that the price of patented drugs in Canada has risen by less than the consumer price index in almost every year since 1988. Even more telling is the fact that over that same period the price of patented drugs in Canada has gone from being 23% higher than the median international price to 5% below the median and 40% lower than in the U.S.

Finally, just quoting from a recent article in the papers, it talks about a recent PMPRB report from November 2002. It states:

While government regulation keeps prices of brand-name, patented medications below the international average, generic medications are usually cheaper abroad...the [study] concludes. Compared to Canada, top selling generic drugs are 26% cheaper in the United Kingdom, 32% cheaper in Australia, 68% lower in New Zealand and 24% less expensive in Germany.

Only Switzerland charges more for generics than Canada.

Is this study correct? If so, why does your industry, to address the issue of health costs, not lower your drug prices?

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Mr. Jim Keon: The study that you refer to in the newspaper article has not been released. We have asked the PMPRB for it and they told us it's not yet ready for release, so it's very difficult to comment on the specifics of that.

In our study and in our report--and the table is there--we took the top 28 selling generic products in Canada and compared them to the prices in the United States, and those were actual prices paid at the pharmacies, according to IMS data. We found Canadian prices were lower than in the United States.

Mr. James Rajotte: What about with respect to other nations, the U.K., Australia, New Zealand, and Germany?

Mr. Jim Keon: In your list you indicated our prices were lower than in Switzerland and higher than in the others. Unfortunately, I can't tell you how our prices compare to products in Italy, Sweden, or Switzerland.

The comparison everyone always makes is with the United States, and our products on average are priced lower than in the U.S. On Internet pharmacies, people in the United States are buying generic products because the prices are lower. They buy them from Internet pharmacies out of Canada to take them back to the U.S. because the prices are lower.

Mr. Dan McTeague: I have a point of order, Mr. Chair, and it's important.

Neither the committee nor any person in the Parliament of this country has had an opportunity to see this report. The PMPRB has said that it has not been released, that it has been leaked. I don't think it's fair for the witnesses to answer something that they're not privy to, other than a newspaper article that suspiciously wound up on the front page of the National Post.

As long as you're prepared to hear it, Mr. Chair.

The Chair: Okay, yes.

Mr. James Rajotte: With respect, I will change. What about the recent OECD report that said essentially the same thing, which was that the cost of generics in Canada was generally higher than those in other OECD nations? That's a public report. You can go to the website and download it.

The Chair: I know we're running out of time and some are running out of patience. I would ask if you could respond to the committee on Mr. Rajotte's question as far as comparison of the pricing goes, for the good of the committee so they understand where you compare in Canada, okay?

Mr. Jim Keon: As I said, in our report we have provided you with evidence on Canada-U.S. price comparisons. On the other countries, we will see what we can do and get back to you.

The Chair: Thank you.

Before I conclude, I want to thank the audience at the back for being so quiet and allowing us to do our committee work. Thank you very much. You've been patient for waiting.

I want to thank the witnesses. I'm sure we'll have more questions, and we might even want to invite you back to explain some of the questions that haven't been answered. There were a few more people who wanted to ask questions, but we ran out of time.

Thank you very much. This meeting is adjourned.