[Recorded by Electronic Apparatus]
Tuesday, April 8, 1997
.1942 
[English]
The Vice-Chairman (Mr. Walt Lastewka (St. Catharines, Lib)): Ladies and gentlemen, the committee will now resume its hearings.
I will remind our witnesses that we've been trying to make sure we adhere to the time limit by getting the presentations in at five minutes each in order to allow enough time for questioning. If there are additional points that you want to make, I'm sure you can make them during questioning. We have found over and over again that the more information that is shared during a question period, the more valuable it is for this committee.
I will begin with Lenczner Slaght Royce Smith Griffin. Mr. Slaght, will you be speaking first?
Mr. Ronald Slaght (Lenczner Slaght Royce Smith Griffin): Yes.
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much. I would ask you to begin.
Mr. Werner Schmidt (Okanagan Centre, Ref.): Does Mr. Slaght's group have a written presentation?
Mr. Slaght: Yes, we do.
Mr. Werner Schmidt: Has it been distributed?
Mr. Slaght: We have copies at the front in both languages, and we have three pieces of paper with some notes that provide a summary. There are also two lengthier memoranda that should be available to members of the committee and other interested parties.
The Vice-Chairman (Mr. Walt Lastewka): Okay. Well, we will begin and we'll try to sort it out as we go. I would ask you to make your presentation and your time will start now. Thank you.
Mr. Slaght: Thank you, Mr. Chairman.
.1945
My name is Ronald Slaght. With me is my colleague Timothy Gilbert. We are from a Toronto law firm, and we are essentially commercial litigators who are active in the courts. We're really here representing the CDMA this evening, but just to give you some perspective, I should also say that I have acted from the other side of the street as well over the years, if you like, for the multinationals.
What we are here to address, and what the material that we have provided to you does address, is this vexing issue of remedies, particularly whether or not the extraordinary remedy now available in circumstances where a party believes its rights have been infringed should remain, or whether these particular commercial interests should be treated in the same fashion as every other segment of Canadian society is, commercial and personal. That's the subject of our paper and of the couple of minutes that I have to just introduce you to the views we have taken. As I said, these views have been formulated over a few years of battling in the trenches on both sides of these issues.
Generally injunctions are something that occur very frequently in commercial matters. This may be coming from somebody who is just a litigator, but I must say that over the years, I don't think anything in the judicial system has been more finally balanced or honed than the tests one must meet in order to obtain an injunction. Without going into any of the details of it - it's in our material - what has happened over centuries is that the courts, who are independent, have developed a fine balancing test to try to meet the needs of both sides in a dispute.
What's remarkable about the current circumstance is that for one particular group, that centuries-old development of having an independent party sit and weigh the balance between the one side and the other side when one party alleges that its rights have been infringed has been put aside. In its place is a system in which one party must only allege that its rights are infringed in order for it to secure what is in essence an injunction.
Having been through some of these cases, it is our submission that it is not necessary for this one group to have special rights that no other group has. The reason is that the rights of this one group that can now simply obtain an injunction by alleging infringement really shouldn't be valued any more greatly than the rights of any other group. For determining on an interim basis whether or not the rights of one party have been infringed, the tests in place in the courts are adequate - or even more than adequate - to deal with all the issues that arise between the two competing groups in this particular instance.
Contrary to other research that you have seen, the research we have done - it is in our material - shows that it's a sort of a win some, lose some proposition. In fact, the courts have adequately dealt with the issues of injunctions in these cases. They're equipped to deal with them, and in summary, the best protection and the best justice that can be done to both sides in these cases is to leave the issues to the people who are trained to deal with them - the judges. The judges will apply a test that determines the answer based on the circumstances of the particular case, not on an overall decision that will have some good and some bad. Each case is determined on its own merit, and that is really the essence of our whole justice system.
So our view of it, as we express in our material and as we state here, is that the extraordinary remedies that are now available are simply unnecessary and fly in the face of the whole history of our judicial system, which has developed these very sophisticated and very fair manners of dealing with the question of one party alleging that its rights have been infringed and the other party saying let's have a determination of that issue.
.1950
Without going into any more of the details, Mr. Chairman, that is the strong view that we hold. We're certainly ready, and I hope able, to answer any questions that may arise. Thank you very much.
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.
From Goodman Phillips & Vineberg, we have Mr. Johnson.
Mr. Jon R. Johnson (Goodman Phillips & Vineberg): Mr. Chairman, I have given the clerk a submission. In the submission, I refer to a number of provisions in the North American Free Trade Agreement, the WTO TRIPS agreement, and some cases. I have copies of these here. If I can bring them forward, perhaps they might be useful.
The Vice-Chairman (Mr. Walt Lastewka): You can file them with the clerk.
Mr. Johnson: Okay.
My name is Jon Johnson. I'm a partner with the law firm Goodman Phillips & Vineberg. I am appearing here as a result of some opinions that I did for the CDMA, but I have a fairly extensive background in trade law.
I don't come here as an intellectual property lawyer, and I don't come here as a litigator, but I do have an extensive background with the North American Free Trade Agreement and, to a lesser extent, with the agreements that comprise the WTO agreements, the TRIPS agreement in particular. I was involved with various aspects of the NAFTA negotiations, acting for the Canadian government. I wrote a book on the North American Free Trade Agreement. I've given consideration to these various issues over the years.
I'm going to confine my remarks to two sets of provisions of Bill C-91. The first set of provisions is the so-called Bolar Provisions, and the second set is the NOC regulations thatMr. Slaght was directing his comments to. I'm going to comment on these solely from the standpoint as to whether or not they are consistent with Canada's obligations under NAFTA and the WTO TRIPS agreement.
Just by way of background, the NAFTA provisions and the TRIPS agreement provisions essentially first require that effect be given to certain international conventions - which I'm not going to get into here because I don't think they're relevant - the Paris Convention in particular. But they also set out positive requirements that apply to a number of categories of intellectual property, including patents in particular. Among those provisions, they require that effective remedies be given in the event of infringement, and they also provide for limited exceptions.
With respect to the Bolar Provisions, these are essentially set out in subsections 55.2(1) and (2) of the Patent Act. Essentially, they permit a prospective manufacturer to carry on approval activities and to produce product within a very limited timeframe before the expiry of a patent on the product that's held by a patentee.
The NAFTA and TRIPS both require that an owner of a patent shall have the right to prevent other parties from making, using, selling and so on, the subject matter of a patent without the patent owner's consent. However, both agreements also permit limited exceptions so long as the legitimate interests of patentees are not prejudiced, while also taking into account the legitimate interests of other persons.
.1955
Very briefly, I think these provisions are essentially transitional provisions. They facilitate the product's transition from its monopoly position when the patent applies into the public domain. They really cover a very small period of the term of the patent. I submit, for the reasons set out in my submission, that they fall within the limited exception provisions of both the TRIPS agreement and NAFTA.
I'll deal very briefly with two aspects of the NOC regulations. First, I considered some time ago whether the repeal of these provisions would be consistent with NAFTA and TRIPS. Basically, both NAFTA and TRIPS set out a code of procedure. One of the objectives of the negotiators was to provide for effective enforcement of intellectual property rights. Really, both agreements set out a textbook set of civil procedures providing for injunctive relief and providing for damages in the case of infringement.
Patents aren't singled out. These rules apply to all intellectual property rights. As I say, patents aren't singled out and there are certainly no special rules that apply to pharmaceutical products.
The Patent Act makes provision for damages in the event of infringement. It also makes provision for injunctive relief. The rules of civil procedure and the general law of all our provinces also make provision for interlocutory injunctive relief. There is no particular reason why you should have special procedures relating to pharmaceutical products that are NAFTA-consistent or TRIPS-consistent. The repeal of the provisions would not be inconsistent with either the North American Free Trade Agreement or the TRIPS agreement.
The other question is whether the NOC regulations themselves are consistent with NAFTA and consistent with the TRIPS agreement. In my view, there is one significant aspect that shows they are not.
As I said, the civil enforcement provisions of either NAFTA or TRIPS are really textbook civil procedure codes. Amongst other things, they provide that in the event that an interlocutory injunction is obtained and the person who obtained it ends up being wrong, the defendant is entitled to damages. I've cited the various provisions in my brief, but I'll just read one of them to you.
It's out of the TRIPS agreement. It comes under the provision dealing with so-called provisional measures. An interlocutory injunction would be a provisional measure. The provision that I'm reading from is article 50(7):
7. Where the provisional measures are revoked or where they lapse due to any act or omission by the applicant, or where it is subsequently found that there has been no infringement or threat of infringement of an intellectual property right, the judicial authorities shall have the authority to order the applicant, upon request of the defendant, to provide the defendant appropriate compensation for any injury caused by these measures.
I have quoted from two cases dealing with section 8 of the NOC regulations which, without going into the details of it, do not accomplish that purpose. Just to read briefly from Bayer AG et al. v. Minister of National Health and Welfare et al., the court says:
- By merely commencing the proceeding, the applicant obtains what is tantamount to an
interlocutory injunction for up to 30 months without having satisfied any of the criteria a court
would require before enjoining issuance of a NOC. In particular, no liability as to damages
arises from the application as would be imposed by the undertaking any court would require
before making an interlocutory injunction.
I submit that is an accurate assessment of section 8. And I submit that by that reason, section 8 and the NOC regulations do not meet the requirement that an applicant who obtains an injunction for which there subsequently turns out to have been no basis should be required to pay compensation.
.2000
Those are my comments. Thank you.
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.
We'll now hear from Mr. Halewood, from the Law Union of Ontario.
Mr. Michael Halewood (Representative, Law Union of Ontario): Good evening. I'm with the Law Union of Ontario. The brief I've supplied, as the name suggests, has to do with the fact that it's the position of the Law Union of Ontario that in fact the government could pass legislation that would enforce some degree of ``local working'' of patents in Canada as well as compulsory licensing of patents in Canada.
I should say at the outset that what I have distributed is not our whole paper. It's two-thirds of the paper. The one-third that's missing has to do with legislation that I don't think is particularly relevant to this body.
Very briefly, then, with respect to mandatory working, the Law Union position is this. It would seem that those who would have us believe that there is no possibility of enforcing mandatory working or compulsory licensing in Canada base their opinion - and perhaps the experts on the panel can differ with me on this later, but I think it's a safe assumption - on article 27(1) of the TRIPS agreement and article 1709(7) of NAFTA, wherein it's stated that patents are available whether or not they are a subject matter that has been imported into the patent granting country.
The statement is that patent and subject matter can be imported and therefore all the obligations of a patentee can be satisfied by importing all of their patented subject matter into the country. If that were the case, obviously we couldn't pass legislation that requires mandatory working and we wouldn't have much of a basis to require or grant compulsory licenses as a remedy for non-working.
My argument, obviously, is that such is not the case and that articles 27(1) and 1709(7) don't in fact create the possibility of a patentee satisfying their requirements completely by 100% importation.
My paper goes into much more detail than I have time to do now, but I would like to draw your attention to appendix I at the back of the paper. It's the Paris Convention. The Paris Convention was first passed in 1883. It's a multilateral document and was revised several times up until 1967, when it was last revised in the Stockholm Conference.
Article 5(1) of the 1883 Convention says that importation shall not in itself be a grounds for forfeiture of a patent. It then goes on to say in article 5(2), however, that a patentee shall remain under the obligation to exploit his patent in due accordance with the laws of the country into which he introduces the patented articles.
In a sense, as far back as 1883 we have a parallel set of provisions much like what we have in TRIPS and NAFTA now, wherein it's recognized that a patentee can import some subject matter that is patented. But, I would argue, Canada and other signatories to both NAFTA and TRIPS still retain the ability to pass legislation that requires local working in exactly the same way that the 1883 Paris Convention allows for in 5(1).
And you'll notice that throughout of all the revisions up to 1967, the Paris Convention has the same structure, whereby it states in 5A(1) in the 1967 agreement that importation by a patentee in itself is not sufficient grounds to entail forfeiture of the patent, but each country has the right to pass legislation providing for grants of compulsory licences.
So what does one make of these provisions?
I draw your attention to page 10 of my paper wherein I mention G. Bodenhausen, who in 1968 when he wrote this opinion was the director of the International Bureaux for the Protection of Intellectual Property, which is the historical predecessor to the current WIPO. He stated that we could interpret these provisions in the Paris Convention with respect to the failure to work as saying that the working requirement necessitated domestic working of a patent inside the country.
.2005
So in the end, what 5(1) and 5(2) set up is a system whereby importing patented subject matter in itself does not attract a remedy such as forfeiture of a compulsory licensing. However, that does not mean that patentees can satisfy all of their obligations qua patentees by importing 100% of the subject matter.
The reason I've gone into the Paris Convention in such detail is that both TRIPS and NAFTA explicitly incorporate the provisions of the Paris Convention and say that both conventions have to be read correlative to and in conjunction with the Paris Convention. Nothing in either NAFTA or the TRIPS agreement is contrary to the prior jurisprudence pursuant to the Paris Convention that I've just urged upon you.
Consequently, I would say that the case is still that pursuant to 27(1) of the TRIPS agreement and 1709(7) of the NAFTA agreement we're obliged to allow patentees to import some of their patented subject matter, but we are not under any means obliged to allow them to import 100% of their patented subject matter. This isn't necessarily 100% obviously relevant given the practice in Canada thus far up to now, but it will be, I assure you.
The practice in Canada has recently been such that we haven't required a working requirement. However, this is important if we want to say that compulsory licensing is not possible, because if we accept the thesis that we cannot grant compulsory licences and that our obligations in international law make it such that we can not grant them, we still have the possibility of passing laws that require mandatory working.
I now see that the patented time has passed much quicker than I thought it had. The second part of my paper, very briefly, goes into why it is -
The Vice-Chairman (Mr. Walt Lastewka): You'll have to -
Mr. Halewood: Two sentences, please.
The Vice-Chairman (Mr. Walt Lastewka): Two sentences if they're right to the point. Please help me to get through this.
Mr. Halewood: Absolutely.
Compulsory licensing is possible under both articles 30 and 31 of the TRIPS agreement and under 1709(6) and 1709(10) of NAFTA. My paper goes into why that's the case.
The two theses - that we can still have a mandatory working and a compulsory licensing - work together. They reinforce each other in a way such that if we can't have one we can have the other.
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much. I should remind you that each of the texts are gone over quite thoroughly by the members and the research staff so if there are some points in the text that have not been made during your witness presentation...they are gone over by our researchers and by the members.
I'll now go to Mr. Peter Martin, from McCarthy Tétrault, Barristers and Solicitors.
Welcome.
Mr. Peter Martin (Partner, McCarthy Tétrault, Barristers and Solicitors): Thank you, Mr. Chairman. I appreciate the opportunity to appear before the committee. I have a prepared submission which I believe has been circulated to members of the committee. I don't intend to go through all of it, although it's not particularly long.
In the first part of my comments I do want to perhaps explain why I'm here and what I might be able to offer by way of assistance to the committee. I'm not a civil litigant and I do not pretend to have any degree of expertise in international trade matters. My responsibilities inside the Quebec region of our firm are for the biotech and pharmaceutical practice. I sit on the boards of a couple of pharmaceutical companies and I am involved in commercial matters that relate to those industries.
Accordingly, I have had my submission reviewed by a number of people in the firm in order to save myself from errors, but it is certainly as much an individual submission as it is one for the firm at large. I think I should make that clear.
.2010
Accordingly, I have tried to set out comments with respect to various elements of the principal amendments brought to patent legislation by Bill C-91. I have tried to do that from the context of the practice I have and from the experience I've had the opportunity to gain as a director of pharmaceutical companies, dealing with biotech companies funding themselves and organizing themselves to conduct research and development.
I have relatively few submissions, in fact, to make to the committee, but I do suggest that the importance of the work you do makes it important not only that you look backwards with respect to what has happened since Bill C-91 was brought into force four years ago but also that you think equally about ways in which you can make this bill work better. I have tried to suggest in the paper some things that might be helpful in that regard.
The first thing that I argue in favour of is patent term restoration. I do that on two grounds. First, I am not able to understand why pharmaceutical patents with respect to drugs for human consumption, which, because of the very long development and regulatory approval process, end up with effective patent protection of much less than 20 years. These should not be provided with the opportunity on a selective, individual basis to be provided with patent term restoration of up to five years.
Committee members, I expect, will know that all of our major trading parties provide that entitlement. It is not automatic. It has to be applied for and granted on merit and on an individual basis.
The second reason I advocate patent term restoration - and it comes directly from my background as a director of pharmaceutical companies - is precisely because these types of issues are in fact requested of us in terms of analysis with respect to the relative merits of one jurisdiction as opposed to another when you are considering making investments.
I think that is particularly true not only of R and D facilities - I'm thinking, for example, of Astra, the Swedish pharmaceutical company that has recently set up a major facility in Montreal - but also of biotech companies, which in fact specifically and very systematically go through an analysis of the various advantages and disadvantages. I am prepared to say to you that the issue of patent term restoration is one that is always asked about.
The second recommendation by way of improvement that I make in my submission,Mr. Chairman, is that if the principles of the NOC link system are to be retained, and that is the recommendation of the committee, then I am not able to understand the obvious anomaly between having, on the one hand, the patent early working provisions set out in the act itself, whereas the principles of the NOC link system were found in the regulations. It seems to me that it makes much more logical sense that if you're going to have that kind of system in the law it should be in the act itself.
The third thing I advocate is to the extent that the link regulations are retained, I think there are some things that could be easily recommended by this committee in order to overcome some of the difficulties that have quite obviously arisen with respect to getting to know how a new set of provisions involving very significant amounts of time and money and opposing parties can be improved.
I think it is only common sense that it would be appropriate that the committee recommend, if the regulations are to be retained in their present general format, that there be provision for full disclosure and full cross-examination in order to make a better defining, if you want, of the issues between the parties. I don't take a position as between one party or the other on that matter.
Second, I think it would be appropriate to suggest that there be automatic confidentiality protection of information provided. Again, I would do that with respect to all of the material that's provided.
The last thing I would like to say on that subject is that certainly in my reading of the cases - again, I'm not a litigant, but I have taken the trouble to read a great many of the cases - it seems very obvious to me that the bag of litigators' tricks on one side or the other is certainly employed in order to turn the procedural process provided by the NOC link regulations to one's advantage.
The other thing I would like to say about that is that I do think it is important to ensure that the regulations, the way they are drafted, provide the courts with the ability to control their own process and safeguard the rights of the parties.
I say that purely from an equitable position. I'm not, as I say, taking a position as a witness here with respect to being in favour of the generic industry or the innovative industry.
.2015
Those are the basic comments I make, Mr. Chairman. I would like to make one other comment if I may, which is that a lot of the information and public press that has been forthcoming over the period of your committee's hearings seems to focus a great deal on the pharmaceutical industry. I would like to say a word or two, if I could, about the biotech industry, where I spend a great deal of my practice.
What I would like to say is that I was absolutely astonished, frankly, by some of the comments I heard from the previous set of witnesses with respect to the lack of, if you want, success of the biotech industry. I can tell you as one practitioner in that area that the degree of activity and opportunity for employment, for research and development and for cost-effective spending of moneys towards innovation is absolutely exploding.
In my personal experience, it's not exploding only with respect to domestic industries. I can tell you that I have biotech companies that come to consult with our firm, and with me, from many more jurisdictions than Canada, and not just North America as well. So I would like to take issue with that, because it is totally at odds with my experience and my practice.
With that summary, Mr. Chairman, thank you very much.
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much. That's always the advantage of having many, many witnesses. We get many points of view, but we get a chance to formulate what work we have to do for the end of this report.
Yes, Mr. Volpe.
Mr. Joseph Volpe (Eglinton - Lawrence, Lib.): As a point of clarification first,Mr. Chairman, if you don't mind, Mr. Martin was very balanced in his approach, but I wonder whether he would tell us what companies -
Mr. Martin: In the pharmaceutical industry, I'm a director of SmithKline Beecham, which I think you would identify as an innovative multinational.
I'm also a director of a company called ICN Canada, which I think in the black-white tendencies I've heard with respect to public reports would probably be considered a generic company, but in fact I don't believe it's a member of either of the principal groups of pharmaceutical companies in Canada.
Mr. Joseph Volpe: Thank you.
The Vice-Chairman (Mr. Walt Lastewka): Thank you. We'll begin with questioning, and we'll start out with Monsieur Brien.
[Translation]
Mr. Pierre Brien (Témiscamingue, B.Q.): I will begin by asking Mr. Martin a question concerning the link regulations. There has been a great deal of debate about the usefulness of this regulation. What is your opinion on the effectiveness of the usual interlocutory injunction mechanism or the payment of damages in the event of patent infringement?
I will give you an example. In the United States, damages can represent three times the value of the real costs. Therefore, this acts as a deterrent to infringement, since one would have to pay triple the damages. If we were to adopt a similar regulation, would this be enough? Would this not render useless the entire link relation process?
Mr. Martin: I must tell you from the outset that I will limit my comments on that question by telling you that I do not practice litigation.
That being said, as a director of a pharmaceutical company, I can tell you that at the present time we have a tendency to examine court case outcomes. The clear impression that exists within this industry is that the remedy is not effective. But I would like to point out that we are far more interested in the result rather than the fairness with which the courts apply the rule.
If a remedy allowing treble damages were added in the case of infringement, it would still not change in any substantial way the appropriateness of the regulations. If it is something that the committee recommends, I must tell you quite honestly, that as a lawyer, I would assume that, when people adopt a particular procedure, they have a careful and serious look at the matter so as to see whether infringement is possible. Of course, if you have a provision dealing with treble damages, the stakes will be higher, but I don't think that would have any fundamental bearing on the way the company in question views its activities.
.2020
I don't know if that answers your question.
Mr. Pierre Brien: Yes.
Mr. Martin: That is how I would see the problem.
Mr. Pierre Brien: I would like to hear Mr. Slaght on that. You said at the outset that you wanted the link regulation to be removed. In your opinion, would an act stating that damages paid must represent three times the actual damages, as is the case in the United States, be something more satisfactory?
[English]
Mr. Slaght: I have a particular point of view about that, which is Canadian as opposed to American. Not just in these circumstances, but in most, I've been opposed in my views about the imposition of treble damages in any circumstance. I think it imports an unrealistic aspect into any litigation, where it encourages litigation as opposed to discouraging litigation.
So on that point, I wouldn't favour changing the remedies to incorporate a treble damage or some sort of special damage provision as an alternative to the linkage regulations.
My theme about all of it, and listening to Mr. Martin talk about trying to rewrite the regulation to provide a code and some way of avoiding all the difficulties that have come from the litigation aspect of the regulation... My approach to that is that it's not necessary, because it's already there.
Our civil litigation systems in all the provinces already have the tools that govern all disputes, not just these disputes where we're now navel-gazing about this one, but all of them. In my view, there just isn't enough that makes this different to justify a whole set of regulations or some provision like a treble damage provision. There are the tools there now. Let the parties have access to those tools like everyone else does and be subject to the general law.
[Translation]
Mr. Pierre Brien: We often hear talk about the specific nature of the pharmaceutical industry. In your opinion, is hasty production allowed in other sectors? The specific nature of the pharmaceutical industry allows for the stockpiling of a product before the patent expires. Therefore, that represents a special treatment for the pharmaceutical companies. That is why there are other, more stringent, regulations, to prevent infringement. The product exists. It is stored and it has been manufactured. Therefore, it is perhaps only normal that special treatment exists.
[English]
Mr. Slaght: Yes, and I think the distinction I would make in answer to that is that what we're talking about in these regulations, from the litigation aspect, is an allegation that a patent has been infringed. We're not talking about stockpiling, or working up to, or times that parties may be permitted to come into the market or not. What we're talking about here is whether or not there has been infringement, and I think that's a different issue.
So my remarks and our paper are really directed to the circumstance where someone says their patent rights have been infringed, and having said that, what should follow from that? What should follow, in our submission, is what follows for everybody else. You go and put your case before the court. The court is there for that purpose. You don't simply have to file a notice of motion, and there's no independent scrutiny of the infringement issue.
So I would say the focus we have is slightly different from the question.
[Translation]
Mr. Pierre Brien: Could the mechanism used to establish damages be defined in advance?
[English]
Mr. Slaght: Yes, they could, and the obvious one is the one you raised. You would provide that there would be treble damages.
I don't think it's effective and I don't think it's something we should encourage in Canada, but you'd have to contrast it with what exists now, where there are no rights for the generic companies to damages flowing from the compulsory injunction that can be obtained by the patent holder just by filing a notice of motion.
Somewhere in the middle there has to be the proper course. I keeping coming back to it, but surely the proper course is to let what the law has developed for a few hundred years govern these circumstances too. This just isn't that different from the rest of the commercial world.
.2025
[Translation]
Mr. Pierre Brien: I have a question for Mr. Martin. You didn't speak about compulsory licensing. Other witnesses, including Mr. Halewood, spoke of the possibility of returning to a system of compulsory licensing. Some groups have told us that we should come back to compulsory licensing, etc. Have you examined this aspect? In your opinion, can that be done in the present context of the North American Free Trade Agreement and the World Trade Organization?
Mr. Martin: I would hesitate to answer that, but I have examined the problem and have consulted some of my colleagues at the office. We concluded that it would be difficult to reconcile a system like the one that we had before Bill C-91 with our international obligations. That is our opinion.
Mr. Pierre Brien: The generic drug sector is requesting authorization to export its products to countries where there are no patents. For example, the countries that are not members...
Mr. Martin: Drugs are exported from Canada to countries where the patent has expired?
Mr. Pierre Brien: That's correct. If the patent has expired in the United States, you can export to that country, or Africa, which has not signed any of the agreements to which we are party. Would that comply with our international obligations? Could we allow those companies to produce here and to sell to those markets?
Mr. Martin: Perhaps Mr. Johnson should answer that question. I have an opinion on that, but I will let him answer.
[English]
Mr. Johnson: I'm sorry, but I really haven't considered the matter properly enough to give you an answer. My apologies.
[Translation]
Mr. Martin: I have two things to say, if I may, Mr. Brien.
First of all, it is clear that if you include such a right in the Act, that would represent another type of exemption to infringement. In order to export, you would still have to manufacture here, in Canada, a product which is now under patent in Canada, even if the patent has expired in the country to which you are exporting. Therefore, this would clearly require an amendment to the legislation.
With respect to the possibility of establishing such a right, personally, I see no reason why you could not include such a provision in the Act, but from a logical point of view, I would ask myself one question. Would the country to which you are exporting, for example the United States, not immediately retaliate by exporting in the same way to Canada?
Perhaps I chose the wrong country. Let's take South Africa. I think that the authorities in that country, in seeing such an export trend towards their country, would immediately think of instituting a reciprocal system towards Canada. I'm not sure that is what we want. To my knowledge, the effects have not been measured.
[English]
The Vice-Chairman (Mr. Walt Lastewka): Thank you, Mr. Brien.
I will now ask Mr. Schmidt -
Mr. Werner Schmidt: Someone else has a comment first, Mr. Chairman.
The Vice-Chairman (Mr. Walt Lastewka): I'm sorry, Mr. Johnson. Go right ahead.
Mr. Johnson: In terms of the question, I'd just like to say this: What are the relevant places to look? For example, article 1709(5) of NAFTA is the basic infringement provision. It provides that:
5. Each party shall provide that:
- (a) where the subject matter of a patent is a product, the patent shall confer on the patent owner
the right to prevent other persons from making, using...
- So if you were going to export, you'd run into that as a problem.
Now, the one thing I have not given consideration to, and I can't answer, is whether that proposal would properly come under that exception or not. If you go through the TRIPS agreement, the provisions are almost identical. The infringement provision is in article 28, which is almost identical to article 1709(5) and the limited exception provision in article 30.
So that's where you have to look.
.2030
The Vice-Chairman (Mr. Walt Lastewka): Mr. Schmidt.
Mr. Werner Schmidt: Thank you, Mr. Chairman.
I'd like to pursue your presentation a little bit further, Mr. Slaght, and ask you whether the drugs should have more than one patent to cover them. At the moment there are numerous or multiple patents that could cover a particular drug. Would it help if there were only one patent allowable per drug?
Mr. Slaght: Do you mean in the circumstances where the current regime would remain, or generally in enforcement circumstances?
Mr. Werner Schmidt: Let me go back. You're a litigation lawyer, and in order to pursue a particular litigation successfully, what would be easier?
Mr. Slaght: Certainly that would be easier, although in my experience it might not help the industry all that much because there are legitimate reasons for multi-patents. The thing I would say about that is you shouldn't underestimate the ability of the system to work through problems, such as multi-patents.
Mr. Werner Schmidt: So should these multi-patents be registered at the same time, or would it be possible for them to be registered at different times, so that a given product may have a patent at one point and another registered at another time and still another patent registered at another time? Or should they all be registered at the same time?
Mr. Slaght: No. I think they could be registered at other times, because the issue would be which one is being infringed, so you could have co-existence with others.
Mr. Werner Schmidt: Okay. My next question comes from that. Where should the actual allegation be lodged? At the present time a notice of compliance has to be given by the generic company saying they are not infringing on your patent. Then the allegation comes back, yes, you are. At the present time, in other instances, I believe the patents are existent and the person who owns the patent must make the allegation as to whether you are infringing on it. There's no onus on the part of the copier, if you will, to do this. Would that order, which is the reverse of what exists at the present time in the pharmaceutical industry, change the way litigation is done?
Mr. Slaght: My colleague, Mr. Gilbert, has been dealing with that subject. Perhaps he could comment on that.
Mr. Tim Gilbert (Lenczner Slaght Royce Smith Griffin): Yes, it would change it from the way it is presently done under the regulations. What it would do is put it back in the regular civil world where someone who is making a complaint against someone, a plaintiff, has to prove their case. It shifts the burden back to the patentee, in this case, to prove their case against the other person. That, again, is the same rule that applies to everyone in Canada for every type of dispute. An anomaly is, why is there a special rule putting the onus on the defendant in this case? I don't understand it.
Mr. Werner Schmidt: I don't understand it either, and I'd like to know what your recommendation is.
Mr. Gilbert: Our recommendation is quite simple. You do not need any regulations, period.
Mr. Werner Schmidt: Thank you.
Mr. Chairman, I have another set of questions that have to do with this whole business of following up, on this whole matter of interlocutory injunctions. At the present time, the 30-month rule is really, in effect, an interlocutory injunction. That's its practical impact. It's not call-back, it doesn't go through judicial procedures, it's simply there. All you have to do is make an application and you have a 30-month protection from the marketplace.
There's no limit. That can be extended, and I'm sure you're all aware of this case. On March 25, 1997, the Federal Court dismissed the patent protection case involving Merck Frosst's Mevacor product, lovastatin, citing Apotex's generic product as not violating the process patent held by Merck. The thing was carried on and it's now 45 months, so in fact you've got now an interlocutory injunction that has extended the period from 30 months to 45 months. What you've got here is a patent protection, if you will, that's extended almost indefinitely. What do you think about this particular provision in the act?
.2035
Mr. Gilbert: Again, that is really the heart of one of the primary unfairnesses in the act, that there is this automatic presumptive injunction. What would happen, if there were no regulations, is that the plaintiff would go to court on an urgent basis and say that until we can get this dispute settled - the 45 months it may take to get this sorted out on the merits - we need protection. If it can convince the court that it will suffer harm that can't be compensated for in damages if it is right at the end of the day, it will get that injunction, the same as now exists in the regulations. And if it is wrong, as in the Apotex case, it has to pay Apotex money. The court then says you were wrong, you shouldn't have had that protection, so now you have to compensate the person who was held off the market.
The way it is now, there isn't that requirement to compensate Apotex. So why wouldn't every patentee file every notice he can and pursue everything until the ends of the earth, clog our courts and hold people off the market, at cost to consumers as well? That's the other thing. There's nothing in the regulations to compensate consumers, where a shortage of health dollars in this country... We're talking about shortages and cutbacks everywhere, yet where is the compensation to the public treasury, the public purse? Every individual in this room pays money and, because of that decision, won't be compensated.
Mr. Werner Schmidt: There are two aspects to this, Mr. Chairman. It seems to me that this interlocutory injunction time period involves tremendous legal costs - they're costs to product - and it seems to me that ultimately the consumer pays for all of this. The pharmaceutical companies aren't in this for their health but for the profit that's to be made and the costs must be recovered. There's only one way to do this and that's through the product and the marketing of products in the future.
Would it be correct to say that here we have not only a basic unfairness in the system, in terms of justice and fairness between the parties that are at loggerheads, but also a tremendous increase in the cost to the health care system which has nothing to do with serving the people and looking after their health? Mr. Chairman, that's a pretty serious indictment.
Mr. Slaght: One of the extraordinary things about this regulation system is that it has turned the whole process of injunctions right around. The idea of an injunction is that there's urgency. Therefore, what's happened in the courts over the years is that they've developed a way of dealing with urgent cases - injunctions are urgent - and what it means is that it gets done more quickly than any other kind of litigation. Parties rush to court because it's so important that this be decided. It's amazing what lawyers can do if they really have to do it.
What does happen in most cases -
Mr. Werner Schmidt: I've half suspected this for some time.
Mr. Slaght: - is that these things get decided. In all other parts of our commercial world there are injunctions being decided every day that started 10 days ago and are over 10 days later. In this one, it's never over. You can't even get a date because there are so many cases in the courts. You have the 30-month thing, then you have the date on which everybody appeals everything, and it's turned the whole idea of getting these things decided quickly totally on its ear. They never get decided.
Mr. Martin: I think there is some comment that needs to be made with respect to the way the regulations - on my reading of them at least - are intended to operate. I don't pretend that the regulations are perfect, but I certainly think that on a fair reading of the NOC link regulations, the issues of patent infringement we're discussing are intended to be determined while the generic drug is in regulatory approval process and during the period of patent protection for the innovative product. The intention, at least as I understand it, is to suspend issuance of an NOC for the generic product until the innovative product patent expires. The court decides the status of the patent or30 months expire, whichever comes first.
Now, if the regulations operated the way they read, then I think it is arguable that in fact they are intended to deal with those issues in a balanced way. I think the difficulty that has arisen, as I said in my original submission, is that you have very significant amounts of money at risk here as between the opposing parties first, and secondly they employ talented counsel in order to take every advantage they can of the regulations and of the court's time and process, and that's one of the reasons why I've made the comments I've made with respect to trying to focus the energy of the courts on those things.
.2040
The second point I'd like to make is just a matter, if you want, of context. I actually called the Federal Court in Montreal and asked what their caseload for a year would be. Extrapolating it outwards, I think I'm not wrong in saying there are about 110 cases under the NOC link regulations that have been commenced that are of a substantial nature, and the caseload over a four-year period, unless I'm mistaken, would be about 5,000 cases. So I'd like to just keep a sense of proportion about that.
The Vice-Chairman (Mr. Walt Lastewka): Time's up, Mr. Schmidt.
Mr. Werner Schmidt: Sure. Next time.
The Vice-Chairman (Mr. Walt Lastewka): Mr. Volpe.
Mr. Joseph Volpe: I'd like to pick up on the question of talented lawyers. Have any of you offered your opinion to the federal government either through the Department of Justice or Industry, or have either Justice or Industry asked any of your firms for a studied opinion?
Mr. Slaght: We haven't directly -
Mr. Joseph Volpe: On this issue, by the way. I'm sorry.
Mr. Slaght: Our firm has not, nor have we been asked.
Mr. Joseph Volpe: Again, I see a couple of QCs before me.
Mr. Slaght: Well, you see one QC, one of us here.
Mr. Martin: Speaking for my firm, I don't believe we've been asked to provide any opinions to justice at all in this area.
Mr. Slaght: We'd be happy to package these ones up and ship them over.
Mr. Joseph Volpe: I asked for a very specific reason, but obviously, since we have these already, I'm assuming they're all ready for public consumption.
I wonder if we could pursue for a moment the issue of compliance with international obligations, which is a question that of one of my colleagues opposite has asked. Working under the premise that Bill C-91 was put in place to comply with international obligations, perhaps I might ask you first, Mr. Johnson - I hope you'll be patient with me and give me a really quick answer if you can - in your estimation, did Bill C-91 comply with NAFTA and WTO before they came into place? If so, what is your view of those cases - I think there are 36 of them - that involved notices of compliance that were eliminated retroactively with the passing of Bill C-91?
Mr. Johnson: As far as whether Bill C-91 complies with NAFTA and TRIPS, on one of the subjects I spoke specifically about, the NOC regulations, firstly, that method of enforcement has nothing to do with NAFTA or TRIPS requirements. I've also expressed my view with respect to the NOC regulations in that they do not provide for compensation, or adequately provide for compensation. I think it's fair to say that they don't really provide for compensation at all for that compulsory injunction. They directly offend provisions of each of the TRIPS agreement and NAFTA. I've indicated what those are in my paper and I've given copies of them out.
With respect to the compulsory licensing question, I haven't really considered it in detail. One thing I might point out, however, is that on the question of use without authorization of the rightholder, article 31 of the TRIPS agreement sets out a whole regime on that. Similarly, article 1709(10) of NAFTA follows along the same vein. In effect, they do allow for compulsory licensing in a very limited sort of way with, amongst other things... For example, in NAFTA 1709(10)(h):
- the right holder shall be paid adequate remuneration in the circumstances of each case, taking
into account the economic value of the authorization;
.2045
Mr. Joseph Volpe: If I could take it just a little bit further, my colleague Mr. Brien is leaving for a moment, but I thought what he was doing with one of his questions was asking all of you to comment on a balance.
If I recall correctly, he asked you if there was a taking away of the regulations. Would it be fair then to take away the rights to preparation and stockpiling for a generic? From your answer I'm gathering that the two are not necessarily linked.
Mr. Johnson: I'd put it stronger than that. I'd say the two aren't linked, period. The only commonality they have is that they deal with the transition period, but I don't think they're linked.
As far as NAFTA and TRIPS are concerned, for the Bolar Provisions, the question is do they or do they not fall within the limited exception? I contend that they do, because as I say, they merely ease the transition from the monopoly position of the patent into the public domain. Consequently, when you look at those limited exception provisions, those provisions fall within them.
As for the question of the regulations, the regulations have to do with enforcement, and the issue there is totally different. You're looking at a whole different set of provisions in NAFTA and TRIPS: those relating to the civil rights provisions, or at least civil remedies provisions. My position there is that these regulations are not required to implement those TRIPS and NAFTA requirements, because our law already does it. We have remedies in the form of damages for infringements specifically in the legislation and also for injunctive relief both in the legislation and in the general law.
So they are not connected.
Mr. Joseph Volpe: Is that your view as well, Mr. Halewood?
Mr. Halewood: I'm not qualified to talk about the second part, but as to your first question, Bill C-91 with respect to compulsory licensing certainly exceeds our international obligations.
Mr. Joseph Volpe: The other question that was asked earlier that I would like some clarification on - and you kind of hedged on it - was the business of the export provisions or the export exceptions. Mr. Martin expressed a view on it and said it's an opinion. You defined the opportunity, but you didn't have a studied opinion.
Mr. Johnson: I hedged. I admit it.
Mr. Joseph Volpe: I guess I'm in a little bit of a quandary, because with all the respect I have for all the people around the table, the one who's offered an opinion expressed an interest initially, and again, I hope I'm not misquoting him, but I think Mr. Martin said you'd have some difficulty with the legislation. You're going to have to build in another exception.
If you allowed someone to manufacture for the purposes of export, you'd probably be in some difficulties with our international obligations, and he cited the example of the United States. But if a company were to export in another area - one of the developing countries that is not a member of WTO - what would be the implications for us then, from a legal perspective, an international obligations perspective?
Mr. Martin: If that question's directed at me, I can tell you frankly I don't know the answer to it. I will just say, to reiterate, it is clear that if you wish to set up an export exception, as it's called, in order to export the product to a country where there is no patent protection, you must first manufacture it in Canada, and manufacturing in Canada quite clearly involves something a patentee has exclusive rights to do.
So if you want to set up an export exception, you have to start with giving them yet another right by way of exception to the normal rights of the patentee.
Mr. Joseph Volpe: While we allow generics to stockpile.
Mr. Martin: Yes, but that's only within the six months prior to expiry of the innovative patent under section 55.2 of the act.
.2050
There is some sense of balancing here, and I'll make one comment with respect to the innovative as opposed to the generic industry and my personal view. On any fair view of the patent early working provisions, they give a very significant advantage to the generic companies in terms of optimizing the return on investment they're able to make. Obviously if you're able to manufacture and prepare the product for regulatory approval first, and secondly, you're able to manufacture and stockpile the product within the six months before the expiry of the innovative patent, that optimizes your ability to get to the market the day the patent expires.
In some ways these are exactly the same kinds of costs, in terms of opportunity and uncertainty, that are lost to the innovative manufacturers when they do not get a real, effective patent protection that spreads out over the full 20 years. If you look through the whole range of things that are the objects of patents, it's only in the case of drugs for human consumption where you have this uniquely long development and regulatory approval process that reduces effective patent protection. You can argue whether it's 8 years or 12 years, but the fact of the matter is it's a significant reduction.
Mr. Joseph Volpe: I appreciate that, but it's also -
The Vice-Chairman (Mr. Walt Lastewka): Mr. Volpe, I must conclude.
Mr. Joseph Volpe: Just very briefly -
The Vice-Chairman (Mr. Walt Lastewka): No, I've given you an extra few minutes as it is. I must go on to Mr. Patry for two short questions and Mr. Schmidt for one short question and then we will terminate this.
Mr. Bernard Patry (Pierrefonds - Dollard, Lib.): Merci, monsieur le président.
The first one will be very short. Many witnesses have talked to us about market exclusivity for drugs, and they've talked often about four years of market exclusivity. My question is the following: could our international obligations, without any reference to possible exceptions, permit as little as four years of market exclusivity?
Mr. Martin: Is the question directed towards the legal position?
Mr. Bernard Patry: Yes.
Mr. Martin: I don't think so. The international obligation is to provide a patent term of20 years. As I just said in my remark before, everybody else gets 20 years. I personally have a lot of difficulty understanding why it is simply equitable for that particular category to suddenly have effective patent protection that is significantly less. That's why I argue for patent term renewal.
I might go one step further and say this is the very range of things that has the opportunity of saving lives. Speaking as a consumer, if there were one area of patent innovation where I would want to have the maximum incentive in order to provide for innovation, it would be there. It would not be in industrial devices.
The Vice-Chairman (Mr. Walt Lastewka): Mr. Halewood.
Mr. Halewood: There are certain circumstances under which we could justify compulsory licensing, one of which, I would urge you to conclude, is not working a patent locally. If we don't have patentees manufacturing in Canada, we have the right to grant compulsory licences.
The Vice-Chairman (Mr. Walt Lastewka): Mr. Johnson.
Mr. Johnson: Article 33 of the TRIPS provisions says:
- The term of protection available shall not end before the expiration a period of twenty years
counted from the filing date.
- And the relevant NAFTA provision is 1709(12):
- Each Party shall provide a term of protection for patents of at least 20 years from the date of
filing or 17 years from the date of grant.
Do you have any opinion about whether anyone will agree to go back to compulsory licensing with 10 years of exclusive marketing and without any exception such as early working and stocking?
Mr. Martin: Let's start with the proposition that there is at least some sort of sense of evolution in terms of the way patent legislation has evolved through Bill C-22 and Bill C-91. We can argue about whether it's favourable or unfavourable depending on our perspective, but I think it's clear that what you're suggesting is an about-face, a turnaround.
.2055
It seems to me, speaking if I may from a director's perspective, that you want certainty in terms of the way you make investments. You want to be able to know that the framework in which you're proposing to make an investment that may extend over many years is in fact a framework that's going to be there during that period of time.
If I'm allowed to make an example, I can think of lots of investments in my home province of significant amounts of money with respect to R and D and very significant employment that in my opinion would not be made if you had a patent protection regime in this country that was being changed every three or four years.
International investment is very competitive for R and D in the pharmaceutical and biotech industry. I can tell you that personally. If you continuously change the rules of the game, you're creating a framework within which there is only uncertainty.
Mr. Halewood: I'd like to answer this question. I disagree. If we're talking about policy, there are a number of arguments that can be made. But at law, there's the possibility of granting compulsory licences for a number of different reasons: it's not working, there are other abuses, and it's not sufficiently working.
It's still open to interpretation as to whether or not we can grant compulsory licences - this is even when there's no abuse on the part of the patentee - for public policy purposes. It's still open. It's in the paper. Obviously I don't have time to do it now, but please consider it. It's not closed at law.
Mr. Werner Schmidt: Mr. Chairman, I'd like to ask Mr. Martin and Mr. Slaght to answer this question. I'd like them to speculate a little bit.
Mr. Martin, I think you made the point that under current legislation there are some 110 cases before the Federal Court. I would like to ask this question of both of you: if the regulations were not there and if it did go in the usual way that patents are done, would that in fact reduce the cases rather than increase them?
Mr. Slaght: In our experience, it certainly would decrease the number of cases, because the trigger now is simply the filing of a document. The trigger under the test of the law for everyone else is substance, an affidavit, or proof. It's something with which you can stand up and look a judge squarely in the eye and say this is what they've done to me. Then you can have it tested.
Now there is none of that. I have no doubt that time, expense and numbers would decline.
The Vice-Chairman (Mr. Walt Lastewka): Mr. Volpe, one short question.
Mr. Joseph Volpe: I just wanted to close off my dialogue with Mr. Martin. He doesn't need to comment at all.
One of the reasons why we have a regulatory period that's considered tough by international standards is that we take seriously our obligation to make sure that all products going on the market with a medicinal claim are both safe and effective.
What comes to mind for me is thalidomide. If any of the companies that want to go on the market are going to ask the Canadian government to allow the Canadian public to hold them liable and at risk for ineffectiveness or damage, I'd be prepared to consider that kind of proposal in exchange for shortening the regulatory period for the purposes of getting something on the market.
Mr. Martin: I'd be the last person to ask for any relaxing of the regulatory standards to issue an NOC. You won't get that from me.
Mr. Joseph Volpe: You disagree, then.
Mr. Martin: You won't get that from me.
Mr. Joseph Volpe: Good.
Mr. Martin: The simple fact of the matter is that in drugs for human consumption, effective patent protection is a very different thing from the term under the Patent Act. That's a unique situation here. That's why I say I think there should be the opportunity to apply for patent term restoration.
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much. I must conclude this session and get ready for the next one.
I want to thank the witnesses. Thank you for being straight to your point on your presentation. Thank you for the Q and A period. I know it has been of benefit to the committee. Thank you very much.
We'll take a three-minute break until the new witnesses take their seats, then we'll reconvene.
.2059
.2103
The Vice-Chairman (Mr. Walt Lastewka): We'll reconvene this portion of the review of Bill C-91. Pursuant to Standing Order 108(2), this is a review of section 14 of the Patent Act Amendment 1992, chapter 2, Statutes of Canada, 1993.
I would like to welcome the witnesses and ask them to make their presentations. We've been allowing everybody at least five minutes, although you might have much thicker reports. I want to assure you that the members of the committee, including the research staff, will be going through each of the reports.
I would advise the group that some have come in for the next session. I apologize that we are late, but we are carrying on. For the witnesses at the table now, one of you is the one hundredth witness this group has seen.
We will begin with the Royal Canadian Legion, and James Rycroft. Welcome.
Mr. James Rycroft (Coordinating Secretary, Legion Seniors and Veterans Services Committees, Royal Canadian Legion): Thank you, Mr. Chairman.
The Royal Canadian Legion represents approximately 500,000 Canadians, many of whom are seniors and all of whom are concerned about drug prices. On behalf of the dominion president of the Royal Canadian Legion, Joe Kobolak, I am pleased to have the opportunity to address the committee. I'm Jim Rycroft, the coordinating secretary of the legion seniors and veterans services committee. Mr. Ralph Annis is chairman of the committee, but is unfortunately unable to attend due to illness.
Since our report is tabled, I don't intend to go through it. What I would like to do is read the summary, and with that I'll leave the legion open to any questions that you might have.
.2105
We're at a turning point now, and the issues at hand today are not just about drugs. They concern the whole health care industry and job creation, which today are major political issues. In that light, the Royal Canadian Legion expects the Government of Canada to:
- lead in the development and implementation of a computerized tracking system to monitor drug prescriptions;
- ensure no steps are taken to force generic drugs to have a different size, shape and colour than their patent counterparts, in order to minimize confusion to the public;
- review patent medicine notice of compliance regulations, and keep them consistent with the intent of enabling statutes;
- balance the interests of consumers and the various parties to the pharmaceutical industry;
- expand the mandate of the Patented Medicine Prices Review Board to include generic drugs and drugs after they come off patent;
- and assess export restrictions and take steps to create more Canadian-based manufacturing facilities.
Canada's health care system has been an example for many other countries. Although we are a small country in terms of numbers, we do have impact in certain areas. This is one area in which we believe we could have that impact not by following what other countries are doing, but by leading the way.
We thank the committee for the opportunity to be heard. It is important that this happens in any parliamentary review process. I'd be pleased to take any questions on behalf of the legion when you think it's appropriate.
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much. I will next proceed with Pierre Paquette of the Confédération des syndicats nationaux.
[Translation]
Mr. Pierre Paquette (Secretary General of the Confederation of National Trade Unions): Good afternoon. I would like to introduce Ms Andrée Lapierre, who is a union advisor and who may participate in the debate.
I would like to thank the Standing Committee on Industry for inviting us to participate in the review of the Drug Patent Act.
The CNTU represents 2,250 unions and more than 230,000 members in all sectors of activity and all regions of Quebec. Half of our members are in the health care sector, which is why we are always very concerned about health policy, and anything involving health. We also represent a few thousand members in the pharmaceutical industry, both the generic and brand name sectors.
We have always been concerned with reconciling considerations involving health and employment. That is why in 1987, the CNTU supported Bill C-22, just as 1993 we also supported Bill C-91, providing, however, that a Patented Medicines Prices Review Board be set up, and that there be a regular revision of the Patent Act.
With the pressures being felt at this time by our health system, our concerns now encompass three main areas: first, to better control drug expenditures; secondly, to render more democratic the process for health care regulation, which, for us, includes the pharmaceutical industry, and improve the accountability of the partners, in particular the partners in the pharmaceutical industry; third, ensure the creation of good jobs and maximize the socioeconomic spinoffs resulting from the development of the pharmaceutical industry.
On the first point, to better control drug expenditures, in the present context of budget cuts to health care, and the reduction in federal transfer payments, it is completely unacceptable that drug spending, of all health care expenditures, would increase as has been the case over the past years. I might remind you that at the present time, more than $10 billion dollars is spent on drugs. That is equivalent to the earnings of the entire medical profession. Between 1975 and 1996, the cost of drugs within health care expenditures has increased from 8.7% to 14.3%.
We have a certain number of suggestions to control drug expenditures. The first one involves controlling the sale of all prescribed medication, be it patent or not, including drugs that are supplied in the hospitals. This would therefore broaden the mandate of the Review Board.
This is our second proposal. The Board's method to control prices should include a comparison on an international basis so as to benefit from efforts at price control in other countries. In the long term, we also feel it would be important to compare the price of drugs by therapeutic category, and not only do a product by product comparison. More globally, we have noted that even if price increases are relatively low, drug consumption has greatly increased. As a society, we must take a close look at the evolution in the sale of drugs.
For example, between 1988 and 1995, the annual sales average increased by 1.9%, while the prices for the same time period, increased by 1.6%, which means that the total cost of drugs has increased.
.2110
Our third recommendation would therefore be to agree on provisions that would minimize the risk of inappropriate prescribing and consumption as well as the wasting of drugs. The pharmaceutical industry must co-operate. Up until now, we have felt that the industry was not concerned with the overconsumption and waste of drugs, which is extremely costly to individuals in terms of their health, and is also costly for society.
We are witnessing a true war of figures between the associations of generic drug manufacturers and those who manufacture patented drugs. We don't intend to become involved in that area; however, we think it is important to make two recommendations.
With respect to patents, we should seek protection which is equal to the average in the G-7 countries, without harming the development of generic industries in Canada. More globally, we feel it is important to put an end to this useless dispute between the two industries, which is very costly, both for consumers as well as for the taxpayer, since this serves to increase expenditures of various types that are often considered to be tax expenditures.
Our fifth recommendation, along the same lines, is to clarify the status of the drug as a treatment, so as to distinguish it from the simple over-the-counter medication available without a prescription. Drugs must no longer be considered as consumer goods. They are part of a health system, and that is how they must be treated.
On the second point, accountability and democracy, there is a problem with the quality of the information, and we feel that the work of the committee has shown this. We find it necessary to have more coherent and detailed information on the pharmaceutical products and practices that are available to the population at large in order to facilitate debates such as the one we are involved in at this time. The National Forum on Health had proposed a type of integrated information system that we do agree with, but we wouldn't simply want the prescription and consumption profile of individuals to be studied, but also data on costs, profits, and the breakdown of costs among the pharmaceutical companies.
With respect to accountability, we believe it is important to make amendments to the Patent Act and to its regulations in order to prepare the ground for a necessary reform of the pharmaceutical industry, coupled with the evolution of the Canadian public health care system, and a true public participation. With that in mind, we would like the money obtained from penalties imposed by the Review Board to be used to favour public participation in the debates surrounding the evolution of the pharmaceutical industry and the use of drugs.
As for employment issues, we feel that our research and development sector must be kept under the control of the Canadian government and, in the case of Quebec, under the control of the Quebec government. We recommend the creation of a public fund to control research and development investments so that they are more in step with true public health care needs. This will enable the public sector to compete in the evolution of research and development.
Finally, we recommend that options to control pharmaceutical company profits and advertising be studied and made public, as was done in Great Britain. Overall, a pact between the two sides in the pharmaceutical industry must be reached to promote the development of the health of all Canadians, by protecting and developing high quality jobs in both pharmaceutical sectors.
Thank you.
[English]
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.
With us, from Citizens Concerned About Free Trade, is Mr. David Orchard.
Mr. David Orchard (Chairman, Citizens Concerned About Free Trade): Thank you,Mr. Chairman.
I'm the chair of Citizens Concerned About Free Trade, a national, non-partisan organization. I'm also the author of a book on the Canada-U.S. Free Trade Agreement and the NAFTA. Our organization fought Mr. Mulroney across the country prior to his free trade agreement in 1988, and now we find ourselves fighting the new Mulroneyites who have replaced him in the PMO.
This bill, C-91, is portrayed by proponents as taking us forward into a new world of privatization and international trade. In fact, it takes us backwards. In the 1960s, we had similar patent protect for these large companies, and it resulted in the highest drug prices in the world. We had five official inquiries that culminated in the Restrictive Trade Practices Commission in 1963, which issued a 500-page report that recommended that patents on drugs in Canada simply be abolished.
.2115
In 1969 a Liberal government - a Liberal government with some courage, I might add, something that is profoundly lacking in that party today - amended the Patent Act to permit compulsory licensing of patented drugs.
In 1985 the Eastman Commission of Inquiry found that under compulsory licensing, drug prices had dropped sharply in Canada and industry output had grown, as had research and development, by some 400%, as had investment and employment, and no harm had been done to the profits of the industry as a whole.
In fact, the multinational drug companies were making profits at a level of about three times the national industrial average. Eli Lilly, one of the largest companies involved from the U.S., was the most profitable company in Canada in the mid-1980s at a 100% return on equity.
Eastman strongly suggested continuing compulsory licensing. So where did this Bill C-91 come from? Mr. Mulroney gave the big U.S. drug companies Bill C-22 for the Canada-U.S. Free Trade Agreement and then Bill C-91 in 1992. He extended it to a 20-year patent protection and enshrined that guarantee in article 1709(12) of NAFTA.
Ralph Nader, speaking here in Ottawa last year, described the background. He said:
Come back now to your Bill C-91, when the U.S. drug companies, with the help of your government, engaged in what was virtually a gangland takeover of the Canadian drug market. ...before C-91 was passed, Canada had the lowest pharmaceutical prices in the Western world! ... The drug companies were still making lots of money, but not as much as they could if their monopoly patents on new drugs was extended to 20 years.
So the multinational drug companies, with the support of the White House, went to Prime Minister Mulroney and told him that, if he wanted to get into NAFTA, he had to scrap your compulsory drug licensing laws, which were the envy of the world. And he did...
What was the reaction of the Liberal Party? Your party, Mr. Chairman, condemned this bill completely as a Mulroney sell-out on the backs of the sick and the elderly, financed by the Canadian taxpayer through medicare. Now we have ministers of the Crown, the Minister of Health and the Minister of Industry, telling us that the Liberals can no longer change the 20-year monopoly gift to Eli Lilly and the others because of NAFTA and the WTO.
Your party, the Liberal Party, fought against the FTA. They stood shoulder to shoulder with us in this fight. In the House of Commons Mr. John Turner said Brian Mulroney was giving this country to the Americans without the firing of a shot. Your party called the FTA the ``Sale of Canada Act'' - correctly - and you promised to rip up the deal.
In 1988 the majority of Canadians voted with you against Mulroney and his free trade agreement. The only reason Mulroney got into power is because the votes were split between two parties opposing the free trade deal, but Mr. Mulroney lost his referendum on the Canada-U.S. free trade deal. He only got in because we have an antiquated, first-past-the-post electoral system.
In 1993 Canadians had another kick at the can and left no doubt where they stood. They threw Mulroney out in the most sweeping repudiation of a government in a western democracy.
The Liberal position was clear. You voted against NAFTA and against Bill C-91. Mr. Chrétien, in his best-selling autobiography, said Canada would be clobbered under free trade. Those who support free trade, he wrote, ``have either given up on the idea of a unique and independent Canada or haven't thought about the consequences''.
In your red book you promised to renegotiate or abrogate both the FTA and NAFTA. Mr. Chrétien assured our organization that if they couldn't renegotiate, they'd abrogate it.
What happened? The Liberal Party ratified NAFTA without changing a single comma in it.
The Vice-Chairman (Mr. Walt Lastewka): Could I ask you to relate what you're going to be saying specifically to Bill C-91.
Mr. Orchard: It's all related to Bill C-91, sir. It was the Liberals, your party, that ratified NAFTA. So when you ask me to relate it, to stand and wring your hands and say you can't change this monopoly protection because of NAFTA is, I'm pointing out, sheer hypocrisy. This NAFTA agreement has a clause in it that it can be terminated at any time, as your party promised to do in 1988.
So it was your party that ratified NAFTA. It wasn't Kim Campbell. It wasn't Preston Manning, although he probably would like to have done so. It was the Liberal Party. So if it's the NAFTA, the FTA, the Sale of Canada Act, as you called it, that's preventing you from doing what you promised, then cancel the NAFTA agreement. That was the key promise in 1988. Your promise was to renegotiate it in 1993.
.2120
All you have to do is give six months' notice. As Mr. Mulroney said in his immortal words when debating with the Liberal leader in 1988, it's a commercial transaction cancellable on six months' notice. This document is, of course, turning us into a satellite of the United States, and it needs to be cancelled.
The biggest driver of drug costs in Canada's health care system today is drugs. This government is concerned about the cost to the taxpayer and it swore in the 1993 election an unwavering commitment to medicare. Drug costs to medicare are now $9 billion and rising, thanks to this bill. It's the only area of our medicare system where costs are not under control.
The entire federal contribution is only $9 billion, so the entire federal contribution will be taken up by drug costs. The promise by your party to protect medicare is a sham as long as we're locked into Bill C-91, the FTA and NAFTA.
Again, to quote Ralph Nader in 1992 when he was in front of the same House of Commons hearings on C-91 held in 1991 and 1992, he said:
- The destruction of compulsory drug licensing in Canada is the first wedge toward undermining
and bringing down the universal health care system as you know it here in Canada.
- What will NAFTA do to the health care now available to every Canadian? The harsh but
realistic answer is Medicare will be replaced by a US style profit driven [system]...
- He also said:
- There are only two options: cancel the Agreement or accept it and become Americans.
Your party was not elected to continue Mr. Mulroney's policies of selling out our country. You promised to end Canada's junior partner relationship with the United States, as you put it in the red book. Instead you've extended it, and this Bill C-91 is a prime example. You promised to get out of the Canada-U.S. FTA, and you extended that to NAFTA.
We are going to be watching to see if the once great Liberal Party has the capacity to be something more than a mouthpiece for Brian Mulroney and American interests.
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.
We shall now go to the National Federation of Nurses Unions, Kathleen Connors. Welcome.
Ms Kathleen Connors (President, National Federation of Nurses Unions): Thank you, Mr. Chairman. The National Federation of Nurses Unions currently represents approximately 47,000 union nurses in Canada in six nurses' unions. Our membership consists of unionized Canadian nurses who work on the front lines of health care delivery. We work in acute care and chronic care facilities, provide care to the disabled and the elderly in nursing homes, and work in the community as public health and home care nurses. Our members provide care for aboriginal peoples and the armed forces, and work with veterans and prisoners.
It is by the very nature of our direct contact with health care consumers that we feel we're particularly well equipped to discuss the kind of health care Canadians should have now and in the future, including pharmaceuticals. As nurses, we make up more than 50% of health care providers, and the care we provide is hands-on care. We're in the front lines of health care every day, 365 days a year.
In addition to providing that health care, NFNU's members and our families' health depend on having secure employment with good wages and benefits, and a health care system that provides universal, quality, single-payer health care when we ourselves need it. That health care has included access to effective and affordable drugs.
The review of Bill C-91 and the issue of pharmaceutical costs is one of the most important issues facing the Canadian health care system, and the cost of pharmaceuticals affects all Canadians and their families.
I might remind the committee members that the savings that resulted from Canada's 1969 patent legislation have been partially responsible for the fact that Canada has been able to afford its health care system. It has also meant that many provincial governments were able to offer drug subsidy plans for senior citizens, the disabled and low-income people.
A large percentage of the pharmaceutical market comes from the provinces that purchase drugs and provide them through their provincial pharmacare programs. At the same time, the provinces continue to witness changes to the federal-provincial fiscal arrangements through the Canada health and social transfer, which has already affected provision of health care services. We would say that if health care dollars are squandered on more expensive drugs, NFNU members know there will be less money for other health care services.
.2125
On the issue of a national strategy, when the federal government talks to the provinces, it needs to look at how we create a balance between the public interests and the corporate interests. As nurses, one of the first things we are educated to be is advocates for those we care for. That is the purpose of our being here today. We would ask that the 10 recommendations attached at the front of the brief be given very careful consideration.
I'd like to highlight four of those recommendations very quickly. I've had the opportunity to hear many of the presentations before the committee because this piece of legislation is so important to our members. The issues inherent in Bill C-91 are being reviewed, but we understand this is a comprehensive review of pharmaceutical issues, so I think we also need to look at things outside the premise of what is in the legislation.
Recommendation 4 is that the federal government commit sufficient public resources to monitor the safety and effectiveness of private research. A publicly administered research fund should be established, with money for such a fund coming from a compulsory contribution by all pharmaceutical companies operating in Canada, based on a percentage of their Canadian sales.
Recommendation 5 is that the federal government make the drug approval process publicly accountable, give the health protection branch the resources necessary to carry out its mandate, and develop stricter standards to prevent conflicts of interest.
Recommendation 7 is that the standing committee on health undertake an examination of the promotional activities of pharmaceutical companies to ensure that the commercial objectives do not violate the ethical and scientific goals of promoting, and weaken the manner in which the current self-regulatory codes are enforced.
The committee should also examine the establishment of an independent body with legislative authority to control advertising and promotion, and improve prescribing.
Recommendation 8 is that the federal, provincial and territorial governments cooperate in strengthening educational systems and programs to address pharmacology and specific pharmaceutical products. Information on pharmaceutical products should come from independent medical and pharmacy professionals, and not from the industry itself. Further, the federal, provincial and territorial governments should cooperate in the development of medication awareness programs.
I want to also indicate that the last two are very important to us. The government should maintain current regulations restricting the advertising of prescription medications directly to consumers. We don't want you to go down that road.
The federal government should regulate the practice of marketing generic drugs in sizes, shapes and colours similar to the brand-name equivalents.
We'd be pleased to answer any questions of the committee members.
The Vice-Chairman (Mr. Walt Lastewka): Thank you, Ms Connors. We appreciate that being right to the point.
We'll now hear from the Canadian Labour Congress, Mr. Bob White.
Mr. Bob White (Canadian Labour Congress): Thank you, Mr. Chairperson, and members of the committee. Thank you for hearing us even though it's late in the evening.
With me today is Mike McBane of the Canadian Health Coalition and Cindy Wiggins of our staff. We are part of the Canadian Health Coalition and it has already made a presentation here. We have submitted a brief to you. Let me just deal with some highlights.
Bill C-91 is an issue of concern to workers for several reasons. The vast majority of Canadian workers place a high value on the whole health care system in our country. Medicare is facing incredible cuts and severe strains. There have been cuts in funding by the federal and provincial governments, high-quality jobs have been lost, services have been cut, and the threat of privatization continues to rise.
The rising costs of prescription drugs as a share of total health care spending is a relevant issue here. If this trend continues, decision-makers in the system will have to balance the availability of needed medications against other health services, and the trend of increased costs for drugs has the potential to displace jobs and services.
Canadians, including workers, of course, don't resent taxes toward the funding of medicare, but if the costs of patented drugs is a burden on an already strained system, the issue is clear. If there is a way to provide medicines at a lower cost to the system, it's incumbent upon the government to ensure this is achieved.
The latest National Forum on Health recommended the implementation of a national pharmacare program. We want to say on behalf of the Canadian Labour Congress and our large membership across the country that we support this to ensure universal access to medicines, but we think it will only be sustainable if there's a mechanism to ensure lowest cost available for medications.
.2130
Compulsory licensing provided that mechanism in Canada for 22 years until Bill C-91 ended it, which leads to a discussion of international trade obligations.
Let me say we have not changed our position. We were there in the opposition to Bill C-91, and we're still there today.
The committee has been made aware of exceptions to patent protection as defined in both NAFTA and the TRIPS code of the WTO. The Canadian Health Coalition has made the argument that legal opinions on patent exemptions put forward to the committee allow the government to introduce a national drug plan. Drugs would be deemed to be a non-commercial public use. This would allow for a return to compulsory licensing for the public purchase of drugs under the plan, and we really think this committee must view this matter seriously and not just accept Minister Manley's pronouncement that the return to compulsory licensing is not possible because of our commitments under international trade agreements.
The cost of drugs also has implications at the bargaining table. About 60% of workers have some portion of prescription drugs covered by an employer-sponsored health plan. As our brief shows, employers are greatly concerned about the rising costs. In a study by the Conference Board of Canada, 401 businesses showed that between 1990 and 1994 drug costs rose by 26%. Most employers cite the rising cost of drugs, especially new patented drugs, as the number one cost driver. I might say the cost of drugs has an incredible impact on hundreds of thousands of our retirees as well.
For most working people, that means intense pressure at the bargaining table to lower employer costs, which will mean less coverage and greater out-of-pocket expenses for those workers. Many of our affiliates are reporting this at the bargaining table.
I think it's worth noting also that employers are increasingly turning to generic substitution as a means of controlling costs, but for the future these gains will be short-lived as the full impact of Bill C-91 will be felt as new patented drugs for which there will be no generic alternatives come on the market in future years.
It was acknowledged by the government when Bill C-91 was introduced that one result would be higher costs for prescription drugs, but there would be a trade-off in terms of investment and R and D, the creation of highly skilled, better-paid jobs and new world product mandates for the production of new drugs in Canada.
While investment in R and D has increased since the introduction of Bill C-91, it's clear that the type of R and D done by the brand-name companies remains in the category of changes to existing drugs, with moderate or no improvement in therapeutic value, and much of the research needs to be done in any event to get regulatory approval.
A recent editorial in The Toronto Star revealed a startling figure that puts the proper perspective on the importance of brand-name pharmaceutical R and D in Canada. It said in return for world prices, multinationals devote six one-hundredths of one percent of worldwide sales into basic research. I don't think that's worth jeopardizing our public health care system for.
Our balance of trade in pharmaceuticals just gets worse. The U.S. trade commission cites Bill C-91, the end of compulsory licensing, as the prime reason for that.
The jobs have not appeared either. In fact, plant closures and mergers have meant a drop in employment in the brand-name industry from 19,491 to about 17,400 today.
In our brief we have raised other important issues, one being the restrictions on the generic industry from exporting to countries where the patent has expired there but not here in Canada. It makes no sense to us to force generic companies to export jobs rather than drugs.
Secondly, notice of compliance regulations would extend the life of a patent up to 30 additional months and would offer windfall profits of brand-name companies, severely damaging the generic industry.
We talk in our brief about the Patented Medicine Prices Review Board. We think their credibility is a great deal at stake here. We urge the committee to call on the Auditor General to conduct an audit of the PMPRB, and we ask the committee to recommend the development of a new mandate for the board that would ensure the effective regulation of drug prices and provide a transparent and accountable process.
What's more important, that Canadians have access to affordable drugs or that multinational drug companies have access to greater and greater profits? Is it more important that Canadian pharmaceutical policy ensures the sustainability and development of a Canadian-owned and -based generic drug industry, or that of foreign-owned multinational companies with access to greater profits? What is more important, that the pharmaceutical policy ensures that jobs stay in Canada or that they be exported so that multinationals have access to greater profits?
We have outlined - and I won't read them for you - ten points in our presentation that we think should be followed by the federal government with respect to Bill C-91.
.2135
Again, I want to say that we think it is a very important issue. We think the bill is broken and needs to be fixed. We think the people who stood with us in opposing the bill in the first place should stand with us again.
Of course, we are prepared to answer questions any of the committee members may have. Thank you very much.
The Vice-Chairman (Mr. Walt Lastewka): Thank you, Mr. White.
We'll begin questions with Mr. Brien.
[Translation]
Mr. Pierre Brien: I would like to thank all of our witnesses. I will start with some questions for Mr. White.
Would your position be different if the generic sector were also owned by foreign interests? You are asking if you should promote, on an economic level, a sector controlled by multinationals that come from abroad or a sector based in Canada, the generic sector. Would your position be different if, over the years, more and more of the generic sector were owned by multinational corporations that sell on the Canadian market?
[English]
Mr. White: Not if, as a result, it would lead to higher drug prices and an exclusive market.
[Translation]
Mr. Pierre Brien: In recommendation no. 8., you call for an independent audit of the Patented Medicine Prices Review Board. I would like you to explain the rationale behind such an audit. I imagine that that implies that you do not have confidence in what currently comes out of the PMPRB.
[English]
Mr. White: Yes, I'll let Mr. McBane answer.
Mr. Michael McBane (Coordinator, Canadian Health Coalition): The reason we are calling for an independent audit is that I believe the public has no confidence in the figures and in the reporting, the claims the Patented Medicine Prices Review Board is making in its reports, specifically in the report tabled with this committee claiming to save billions of dollars.
That has not been substantiated. The methodology has not been substantiated. There are serious flaws in their international price comparisons and in their drug index figures. When questioned, they just point to the need for secrecy. I think it's outrageous for a public regulator to be hiding its methodology and not to have any transparency at all.
Because of that lack of public confidence in this important government agency, the only way to clear it up is to bring in the Auditor General. Going to a corporate consultant is not going to clear up the mess or re-establish credibility. We need the Auditor General to look at the validity of the methodology.
[Translation]
Mr. Pierre Brien: I do not share your view when you say that a credibility problem is being resolved, that the general public has no confidence in the process. Let's not exaggerate. There are people who have confidence in the Board. There are perhaps people who do not have confidence in it, but there are others who do. It seems somewhat exaggerated to say that the general public has no confidence in it.
If the Board's mandate were tightened up and redefined and if the audit you are calling for were conducted, would it be possible to broaden its mandate so that it could look into the levels of research and development conducted by generic companies? Generic companies provide us with figures, but no one verifies their investments in research and development.
[English]
Mr. McBane: I think that's a very good point.
The PMPRB does not examine the figures that the drug companies give it. It doesn't examine any figures that PMAC companies provide it on research. The company just sends in the report. Nobody examines if they're actually doing the research or what kind of research it is. Of course, if we expand the mandate, it should be examining generic research as well.
[Translation]
Mr. Pierre Brien: I would like to ask Mr. Paquette from the CNTU a question. In recommendation 9, you talk about a public fund for controlling investments in research and development. Do you have something more specific in mind? At present, companies have to make a financial contribution to the Medical Research Council of Canada. There is a commitment. Would you like the time line to be extended? Would you like to see a fund that is managed differently, by different people? I would like you to explain that please.
Mr. Paquette: I will ask Ms Lapierre to answer.
.2140
Ms Andrée Lapierre (Adviser, Research Services, Confederation of National Trade Unions): We do want to see more. In fact, the industry in general has invested in a research and development fund. The problem is that we do not know exactly how the fund is monitored or managed.
In Quebec, there was a report on research, the Deschamps report, which clearly outlined how badly the costs were broken down. There is a great lack of precision. There is a major conflict of interest problem between the doctors, the researchers, the consultants, and the industry, etc.
Research must be more closely monitored, especially since government investments in research and development have declined considerably. So industry is guiding biopharmaceutical research. We need an independent organization that will truly know what is going on in terms of research and development. At present, we rely totally on industry data and it is not verified later on.
The joint research project with the Medical Research Council is a step in the right direction, but we recommend going a bit farther, in keeping with the National Health Forum report.
Mr. Pierre Brien: Several people have talked about levels of research and development in basic and applied research, and have said that there has been a decrease in basic research. Would you like to see more of this money go to basic research and be under less control by the industry?
Ms Lapierre: These issues are very closely linked. People often say that the research and development that the industry is so proud of is research that it has to conduct anyway in order to obtain the authorization to manufacture products. The type of research Canada needs to be more innovative is basic research.
At this point, it is interesting to note that we ranked last among G-7 countries in terms of our contribution to research and development. If we let industry take over research and development, we won't be very sure of the results.
Mr. Pierre Brien: Are you also talking about a larger financial contribution from government?
Ms Lapierre: The committee report must emphasize Canada's responsibility, because as it actively promotes innovation, it is decreasing its own investments.
Mr. Pierre Brien: Ms Connors, you also mentioned a public research and development fund in your brief. I saw that you were following the last part of the discussion very attentively. Do you agree with this analysis?
[English]
Ms Connors: I think the simple answer is yes. The concerns we have as nurses in this...I think I've heard it described before this committee in other presentations as some of the ``unholy alliances'' that exist between the industry and the ability of the industry to drive the kinds of research around pharmaceutical issues and a desire on the part of the public to have research around pharmaceuticals that addresses the very legitimate needs of Canadians, not the needs of the industry to get a me-too drug onto the market to explore changing the dosage, perhaps, or whether it's in pill or liquid form, but rather to focus the research and development on health care needs. Perhaps rather than developing and researching a pharmaceutical product the research should be done on alternative therapy, on perhaps the cost-effectiveness of having a nurse available to provide care, comfort and support rather than a medication to an individual.
Well, if it isn't removed from the pharmaceutical corporation's control, the possibility of having that kind of research done is somewhat limited, I would suggest, under the current market.
[Translation]
Mr. Pierre Brien: My last question is for the representative from the Royal Canadian Legion. I would like you to explain your recommendation no. 2. What is your objective in proposing that? Are you afraid that the various types of products would get confused?
[English]
Mr. Rycroft: In effect, yes. The elderly population in particular is very used to doing things by rote. It's come to our attention that if there is the possibility of, for example, receiving a generic drug while in hospital and then coming out and having another generic drug or another drug that's confusing, you're liable to induce over-medication, polypharmacy, by a simple accident.
.2145
For example, people are used to taking a small pink pill and will continue to take the small pink pill as well as perhaps the green one, which is the same thing. It's this type of confusion we're designed to try to correct.
[Translation]
Mr. Brien: Thank you.
[English]
The Vice-Chairman (Mr. Walt Lastewka): Mr. Schmidt.
Mr. Werner Schmidt: Thank you, Mr. Chairman.
I want to thank you all for appearing. I think it's very interesting, the range of witnesses we hear and learn from.
I would like to ask a couple of questions with regard to your presentation, Mr. White. The first one is on the establishment of a national universal drug insurance plan. Do you think the establishment of such a plan would reduce the total health care costs for Canada?
Mr. White: I think if it's going to work it has to be combined with changes in Bill C-91, which does not allow the drug costs to continue to escalate. I think overall it could result in reduced health care costs in Canada.
Mr. Werner Schmidt: In terms of your fourth recommendation, the repeal of section 55.2(4) in Bill C-91, the NOC regulations, could you tell me what your rationale is for that recommendation?
Mr. White: I can't, but I'm sure somebody can.
Cindy.
Ms Cindy Wiggins (Senior Researcher, Canadian Labour Congress): The regulations, as you heard before in discussions, offer an effective way for brand-name pharmaceutical companies to basically have an automatic patent extension of 30 months and more in some cases. That being the case, it really is a way of discriminating against the viability of the generic drug industry in Canada.
So it seems to us to make sense to provide a better sense of balance between the two industries, the brand-name industry and the generic industry, to have a different mechanism that would not allow brand-name pharmaceutical companies to take advantage of that the way they have in the past. Many of the allegations against the generic drug industry have been frivolous. They've been shown at the end of the process not to have had validity from the beginning.
We really think something needs to be done about those regulations.
Mr. Werner Schmidt: Would you go so far as to change the whole system of initiating the infringement process? At the moment, it's up to the copier, if you will, of the generic drug to insist that they are not infringing on their rights, and that actually the patentee should be the one who would make the allegation and use the usual redress available through the courts to all other patent holders.
Would you subscribe to that process?
Ms Wiggins: Yes.
Mr. Werner Schmidt: Okay.
With regard to recommendation six, the issue of evergreening, I'm not entirely sure I understand. I think I know what ``evergreening'' means, but I'd like to know exactly what it is you're referring to here.
Ms Wiggins: Basically, it refers to the changing of a brand-name pharmaceutical in very small ways, whether it's how the drug is manufactured, for example, the size or shape of the pill or the dosage. In that way, every time a small change, even the combination of how the drugs are put together, can be a reason for issuing another patent. What it effectively does is that you start off with drug X, which has a 20-year patent, and somewhere along the road you have drug X-1. Then the effective patent might be 25 years and 30 years and so on down the road.
Mr. Werner Schmidt: Thank you. I thought that's what you meant, but I wasn't positive.
I'd like now to get to the PMPRB. This is for every one of you. I know you've talked about the transparency of this group, but I'd like to go beyond that. I know the recommendation in this particular presentation is that it be a median of all the OECD countries.
I notice two things here. First of all, you use the median rather than the mean. I'd like you to tell us why you would use the median rather than the mean.
.2150
Second, how should this base be established? Ought it to be done strictly on the basis of a median or a mean, or ought it to have something to do with a verifiable composition of costs? Ought there to be some empirical evidence provided as to how much it will cost in basic research and all the way up until it actually becomes a product on the market?
Mr. McBane: Those are good observations. One of the problems in this whole industry is the lack of reporting information, which is essential to government. We don't really know what the costs are for development. We can assume they're inflated, according to the most independent medical researchers, Joel Lexchin in particular, who's clearly illustrated flaws in some of the industry-funded studies that try to justify research costs.
There's a problem getting at what the real costs are.
Mr. Werner Schmidt: Would you support some sort of intrusion, if you want, in the form of a demand that these numbers be made public by the pharmaceutical companies and manufacturers?
Mr. White: Again, this whole argument really strikes me as very funny. We live in a world in which the free market is supposed to determine everything. When you talk about an intrusion, it's an intrusion for companies who have incredible protection, so it's not really an intrusion. If you're going to give these companies years and years of protection in which to make up profits, it's not too much to expect an intrusion as to how those costs are established for drugs.
These people are not operating in the free market system. When you look at this, it's completely contrary to the free market system. Our argument is of course that there should be less patent protection and more opening of the system, still with some rules.
I would certainly argue you have the right to intrude, especially when so much of these costs are going into the public purse.
Mr. Werner Schmidt: How does this then relate to your presentation and your paper, which suggest we use the median of OECD countries? How do those two things come together?
Ms Wiggins: There are an awful lot of problems in gathering the correct information. We know pharmaceutical companies, for example, have discounts within various countries for medicaid in the United States or other pharmacare programs.
Mechanisms could be devised that would allow for better gathering of data on which to base the initial price on the entry of the drug into the market. However, if you take all the OECD countries, western industrialized countries, and take the median or an average, you -
Mr. Werner Schmidt: [Inaudible - Editor]
Ms Wiggins: No, the median would give you the lower price.
Mr. Werner Schmidt: Maybe. You don't know that. It's the middle price.
Ms Wiggins: It's the middle price.
Mr. Werner Schmidt: The median is quite different. It's an average price.
Ms Wiggins: Yes, that's right.
Mr. Werner Schmidt: Never mind. That's just a detail, but it's significant.
A voice: I wonder if I could comment on this.
The Vice-Chairman (Mr. Walt Lastewka): Mr. Paquette wanted to comment first.
[Translation]
Mr. Paquette: I think that the median or the mean of the seven countries will probably yield a result that involve roughly the same amount of time. Bear in mind that at present, the length of the patent is an issue, but it is not the main issue for us. We were talking about costs earlier, but industry practices are also a very major issue and the Board should examine that.
For example, pharmaceutical companies are now starting to buy businesses to provide home care and set up networks to influence drug consumption; such measures have an impact on the overall drug cost envelope, and the price can be very stable. If demand increases because of practices and particular promotional means, we will end up facing the same problem, regardless of whether we can stabilize the cost of a drug through controls or competition. So we think we need to broaden the debate to include pharmaceutical industry practices and not limit it to price issues.
The other element that it is important to remember is that only 28% of drugs are currently covered by the Act and under control of the Review Board. Our proposal would increase that to 70% of all drugs. That too is an issue for society that was raised by several stakeholders.
.2155
So the debate on patents is important, but information on pharmaceutical industry practices and the transparency of the public debate on these issues are also fundamental.
[English]
The Vice-Chairman (Mr. Walt Lastewka): Thank you, Mr. Schmidt. Your time is up.
Did you have a short remark to make, Mr. Orchard?
Mr. Orchard: Yes. I'm sure you followed in the media recently the accusations that they are a toothless watchdog, simply taking the prices that the drug companies are giving them. So our position is they have to get some objective information about what is actually being charged, not just what's being said to them. That's the first step. So yes, there should be an intervention, in your words.
Beyond that, on the question of the national plan, about which you asked in your first question, the B.C. -
The Vice-Chairman (Mr. Walt Lastewka): I have to cut you off, because his time is totally up. I have to go to the next -
Mr. Orchard: I'll just finish my one sentence.
The Vice-Chairman (Mr. Walt Lastewka): Okay, very quickly.
Mr. Orchard: Joy MacPhail, the B.C. Minister of Health, said recently that as long as Bill C-91 is in place there will never be a national drug plan in this country. I want to refer you back to the Eastman commission, which did all of the groundwork on this. What they found out then is just as relevant today, and it's being totally ignored.
The Vice-Chairman (Mr. Walt Lastewka): Dr. Patry.
[Translation]
Mr. Bernard Patry: Because time is of the essence, and we have to hear from another group of witnesses, I will be quite brief.
Mr. Paquette, I congratulate you for your brief. It is excellent and covers all aspects of the issue. I greatly appreciated it. To repeat what you just said, I'm going to go back to the first conclusion. You talked about price controls that must govern the sales of all prescription and non-prescription drugs, including in hospitals, and you say that the PMPRB's mandate should be broadened.
As you know, the price of non-patented drugs comes under provincial jurisdiction. As you stated in your first recommendation, in light of this committee's conclusions, would your organization be willing to make representations to the Quebec provincial government, since the CNTU is in Quebec, to the effect that all drugs should be subject to the PMPRB?
Mr. Paquette: Of course, there is always...
Mr. Bernard Patry: We are not talking about duplication and jurisdiction. We are talking about Bill C-91.
Mr. Paquette: Exactly. A little earlier we mentioned a universal drug plan. Quebec now has such a plan. It is not perfect, but it has one. One of the criticisms was the fact that without some type of control over the price of drugs, even with the universal plan, there might well be a sharp rise in spending. So we feel that control over patented and generic products is important.
As for administering it, if expertise develops, it must be used. I am aware of the jurisdictional issue; powers can be delegated, but the idea for us is to control the changes in drug prices, whether they are patented or not, especially in the hospitals, where taxpayers generally foot the bill. That is important to us.
[English]
Mr. Bernard Patry: Mrs. Connors, do you have an opinion about this question?
Ms Connors: There are certainly some similarities of opinion around the issue. One of the keys, from our perspective, goes back to this whole true cost of research and development. We need to know what the true cost is. The Patented Medicine Prices Review Board has to get at that area in order to give us some realistic basis from which to operate. Previous witnesses before this committee have surely raised questions in the mind of the committee about just what are the real costs of research and development.
Then the comparative prices, not just of seven but of all the OECD countries, need to be in there for the examination - not the price that is listed and then the U.S. goes and negotiates a lower rate for veterans and things like that. Let's have the true cost so it isn't market-inflated.
Mr. Bernard Patry: Mrs. Connors, do you agree or disagree that generics should be included in the PMPRB?
Ms Connors: Absolutely, the drugs need to be.
One of the issues I have spoken about in this is that we are supportive of the creation of a national pharmaceutical program, but we are not supportive if all it is going to do is be social assistance for drug companies. Our organization will not be supportive of that move at all. There has to be equity and justice in that public system. Medicare has proven that it is cost-effective because of the single-payer aspect. That is why we are supportive. Let's eliminate all these private plans and those sorts of things.
.2200
[Translation]
Mr. Bernard Patry: My second question, for Mr. Paquette, is along the same lines, and Ms Connors will perhaps want to answer it as well.
In recommendation 7, you talk about the need for a pharmaceutical reform that is in keeping with the public health care system in Canada. You know that the National Forum on Health highlighted the international dimension of drug policy.
In the Minister of Finances's most recent budget, the government announced the injection of 150 million dollars over three years to help provinces launch pilot projects. Since Quebec is the leader in the field and has just set up a drug insurance plan, could you tell us how the CNTU could envisage anything but a national drug plan? You see how our health care system is evolving and are proposing a pharmaceutical reform. How do you see the consistency or the links?
Mr. Paquette: Ms Lapierre could perhaps answer your question. One thing that seems essential to me is that it must remain under provincial jurisdiction. For us, that is clear. However, with respect to federal government responsibilities and transfers in particular - and we did raise this when Minister Martin was preparing his budget - we would have liked transfers to the provinces to have been frozen at the 1995-96 level. So the federal government's main responsibility in this respect is to ensure adequate transfer payments to the provinces.
As for consistency, I do not know if Andrée would like to comment.
Ms Lapierre: As we explained, as respect to consistency, we want research and development to be more in keeping with the needs of the health system; that would be one thing.
We also talk about advertising, and now about information systems. In our brief, we pointed out that the current state of information does not allow us to hold the discussions we are holding, because we really don't have any idea of the real cost of adopting Bill C-91. We have no idea of the cost of the various proposals before us, for example to amend regulations on NOCs or on patent extensions. We don't even have this information. However, we are prepared to support the major proposals that we need to improve drug use and information systems.
We are clearly saying that we want more developed information systems, but the industry must also be more accountable. We feel that these information systems must be run by the health systems so that inadequate nomenclature for the various categories of drugs can be developed.
If we adopt the spirit of the pharmaceutical reform being advocated by the National Health Forum, we have to stop treating drugs in two ways: as commercial products and as treatments. All prescribed drugs must be monitored, which leaves over-the-counter drugs, or roughly 30% of all drugs. That is what consistency means for us.
[English]
Mr. Patry: That's okay, Mr. Chairman.
The Vice-Chairman (Mr. Walt Lastewka): Thank you, Mr. Patry.
Mr. White, did you want to comment?
Mr. White: I just want to make a point, because I know we're running out of time, that obviously this committee is not going to deal with the whole health care system, and there's a limited scope here in terms of what you're dealing with. I just think the issues are pretty clear on the table.
The vast majority of presentations, I understand, have been for significant changes in the patent protection and compulsory licensing, and now the committee has a decision to take. We really urge the committee to take a decision to recommend significant changes here. There are a lot of other health care issues that need broader discussion, but on these issues before this committee, a body of evidence has been presented, the vast majority of which is recommending changes.
As Mr. Orchard said, we were there when this came in, and a number of Liberals including the Prime Minister were there when this came in. I don't think the picture has changed. The evidence is now clear that what we suspected would happen has in fact happened.
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.
I want to thank the witnesses. I do have to conclude, because our next set of people have patiently waited for us.
I want to thank you for being so patient and understanding, and for bringing your presentations here today. I'm sure a lot has been gained by all the people on the committee.
We will take a two-minute break and resume with the next set of witnesses.
.2205
.2208
The Vice-Chairman (Mr. Walt Lastewka): We will reconvene this next session, the review of Bill C-91.
First of all, I want to thank the witnesses for being patient as we proceed with our hearings. As you probably heard in the last session, we've had well over 100 witnesses come to this committee, and we have been trying to cover as many as possible.
I would like to remind you to keep your presentations right to the point, because the exchange during the question and answer period is very important to the members.
I'd like to begin with Dr. Lorne Tyrrell from the University of Alberta in Edmonton.
Dr. Lorne J. Tyrrell (Faculty of Medicine and Oral Health Sciences, University of Alberta): Thank you very much, Mr. Chairman. I'm pleased to be here before the Standing Committee on Industry to review Bill C-91.
Let me say at the outset that I'm a very strong advocate of the national health care system and of Bill C-91. I've heard the discussion tonight about $9 billion going to the cost of drugs, and I would just like to point out, from the National Forum on Health, that of that $9 billion, $2.5 billion goes to the patented drug industry, $3.7 billion goes to non-patented medications, and $2.3 billion goes to over-the-counter medications.
.2210
The implications here are frequently that it is entirely the patented medicines that have cost $9 billion, and that's simply not true.
I am deeply concerned about Canada's position in the world as we move into a knowledge-based economy. Education and research are our most important investments for the new millennium. Knowledge-based economies require patent protection. I am here today primarily to outline the effects of Bill C-22 and Bill C-91 on the University of Alberta and our province.
Mr. Lougheed was far-sighted in 1979 when he established the Alberta Heritage Foundation for Medical Research. Since the foundation's establishment, both the University of Calgary and the University of Alberta have been very successful in recruiting excellent scientists to the province. It is at this time that we are seeing much of this research transformed into biotechnology and the development of a biotechnology industry.
The nature of the foundation is that it provides only establishment grants and personnel awards, and offers no operating funds. We continue to see an erosion of operating funds from our national agencies - the Medical Research Council and NSERC - and other national and provincial funding agencies.
The effects of Bill C-22 and Bill C-91 have been vitally important in the last few years. We have seen a dramatic increase in the funding from industry to the university since 1988 - an increase of more than 500%. We've all seen a dramatic increase in spending by industry in our province in general.
With the advent of Bill C-91 our university has seen a marked increase in spin-off companies. We've had 18 spin-off companies in the last five years. They employ over 1,000 people in the Edmonton region, outside of the universities.
Since 1991 Canada has faced the national debt crisis and we've slashed funding to basic research through all of its major funding agencies. In comparison with the other G-7 governments, Canada has steadily reduced its basic research funding, at a time when other G-7 countries have substantially increased theirs. We desperately need to restore basic research funding in Canada as soon as possible, or we'll continue to slide in comparison.
A criticism of the pharmaceutical industry is that it has not funded basic medical research more actively. The pharmaceutical industry, in partnership with the Medical Research Council, has increased spending in biomedical research and has been one of the sources of funding that scientists have desperately needed during these times of decreased funding. It is not perfect, and it is unlikely industry funding for basic biomedical research in universities will ever be considered a substitute for government funding of basic research. In a recent editorial in Science, Drs. Aguayo and Murphy from McGill summarize it very succinctly:
- It must be recognized that funding of university sciences is both a government responsibility
and a long-term investment. Without strong government support, Canada's university science
infrastructure will erode, and along with it the country's competitiveness in a world economy
which is increasingly based on knowledge.
The phase of research that involves industry is often too expensive for these agencies, and that's the development phase. It is important to recognize the role of government funding and the role of industry in that cycle that goes from discovery to development to market, and back to discovery.
Canada has excellent science, skilled clinician investigators, and a high quality of clinical trials. This I think accounts for the fact that the pharmaceutical industry has spent more than the required 10% and is up near 12% or 13% of their gross sales in research in Canada.
I strongly advocate full patent protection for new discoveries in the pharmaceutical industry and biotechnology industries in Canada.
I also endorse a strong method of enforcement of patent protection, whether that be through linkage or substitutions for it that will ensure patent protection is recognized.
I also advocate patent registration for drugs developed in Canada, and this should also be linked to the funding spent by those companies; a continued requirement for at least 10% of the sales spent on research in Canada; better distribution of the extramural funding in Canada so that it is spread across the country; encouraging companies to continue to enhance their extramural funding rather than intramural funding, which I think would form a better partnership between industry and universities in these areas; maintain the MRC-PMAC partnership; maintain the Patented Medicine Prices Review Board, with an increased mandate over the expenditures of both patented and generic drugs; and encourage industry to partner with universities in all regions of this country, to take full advantage of the Canadian Foundation for Innovation and its potential impact on infrastructure for biomedical research. This would require a change in the tax credits to allow infrastructures to qualify for scientific research and experimental development tax credits.
.2215
I want to finish by saying I have benefited from both Bill C-22 and Bill C-91. I began working in 1986 on the development of anti-viral therapy for hepatitis B, a disease that affects approximately 350 million people worldwide. Every 24 hours, 1,500 to 3,000 people die of liver cancer, the most common cancer in the world, secondary to hepatitis B. Every 24 hours, between 3,000 and 5,000 people die of cirrhosis of the liver, secondary to hepatitis B.
Canada has made a huge difference in the treatment of hepatitis B, and I'm sure you'll see that in the next two or three years. Working with Glaxo Wellcome Inc., Biochem Pharma Inc. and the University of Alberta has led to the development of a new drug that will treat this disease. I am sure this would not have happened without the support of the government and the passing of Bill C-22 and Bill C-91, and I'm sure there are many other examples. I know of many other examples that are just beginning to evolve in the collaboration between scientists and universities, and industry. I'm a strong advocate of this bill.
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.
I had the pleasure of visiting your university just last fall. I'm sure you welcomed the infrastructure program for the improvements there.
Dr. Tyrrell: Yes, I did, very much. If we can get basic research back up, then I'll be very happy.
The Vice-Chairman (Mr. Walt Lastewka): I was going to make a remark on the provincial funding, but I won't at this time.
Next, from Queen's health policy research unit, we have Malcolm Anderson, senior associate.
Mr. Malcolm Anderson (Senior Associate, Health Policy Research Unit, Queen's University): Thank you very much.
I just want to outline Queen's health policy a little bit before I talk about the study we undertook with Bill C-91.
Queen's health policy undertakes a wide range of research on health-related issues. We have several core research staff and we team up with other members of the university, depending on the specific research project we're involved with.
Some of our recent projects include evaluating the alternative funding plan for the Queen's medical faculty, examining the nature and extent of research transfer to community social service organizations, reviewing telephone referral systems, and developing an evaluation framework for integrated delivery systems.
We've conducted research for the Ontario Ministry of Health, Industry Canada, the National Forum on Health, industry associations, and local health care delivery organizations. Some of us, unfortunately, are also involved with the hospital restructuring currently sweeping Ontario.
Last summer, we were approached by the Canadian Drug Manufacturers Association to see if we'd be interested in looking at the economic impact of Bill C-91 on the cost of pharmaceuticals in Canada. We received a grant from the CDMA to carry out this research, and finished our study in late December. This was subsequently written up and presented at a conference in January.
We were interested in doing the project because it's a critical time in the Canadian health care system, given the budgetary pressures and the rapid and substantial restructuring that's occurring. Drugs, as we all know, play a vital role in the provision of health care, and we saw the study as an opportunity to better understand the potential effect Bill C-91 could have on the cost of health care in Canada.
We had some initial discussions with the CDMA and used, as the basis for our study, a similar approach to that which was used by Dr. Stephen Schondelmeyer, who conducted a study on the economic impact of Bill C-91 in 1993.
We looked at three different models to gauge how Bill C-91 could affect the costs of drugs in Canada, and projections of the cost impact were made over a 20-year period to the year 2016. We did this study using IMS data and writing a 200-line program to do the econometric analysis. A considerable amount of time and energy was spent developing the data base by the core researchers from QHP and a couple of econometricians involved in this project.
.2220
The current Bill C-91 environment was compared to a scenario where drugs would have seven years' market exclusivity and ten years' market exclusivity, and where there might be a five-year extension of the current patent term for all patented drugs.
To do the study we had to develop a number of assumptions. These included the sales growth for drugs, and we based this on the IMF sales data in the 1990s. We also had to establish the market penetration rates for generic products, and we did this based on earlier studies and also a recent analysis by the CDMA. We had to look at price discounting for generic products, and again we based this on earlier studies and a recent analysis by the CDMA.
We used two different scenarios for both the market penetration and price discounting, to reflect historical and current rates for these in the industry. We also assumed that new drugs were placed on the market over the 20-year period.
A number of different results came from the analyses that were conducted. In all cases there are considerable costs incurred when comparing the models with the current Bill C-91 environment. The figures range from $3.7 billion up to $9.4 billion over the 20-year period, depending on which model and which scenario you are looking at. These results are comparable to those produced by Dr. Schondelmeyer in 1993, in that there appear to be some substantial costs incurred by consumers when comparing our models with the Bill C-91 environment.
Last but not least, we were very surprised and a bit disappointed that other studies looking at the potential cost impact of Bill C-91 haven't been conducted. Given the importance of the legislation, we were expecting and anticipating other studies would be done by the federal and provincial governments and other associations in the research community, but we understand, with the exception of two relatively limited studies currently being developed in Health Canada and Industry Canada, no other studies like this have been completed.
That's it for now. Thank you.
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.
We'll now hear from JGH Consulting, Mr. James Heller.
Mr. Heller.
Mr. James G. Heller (JGH Consulting Inc.): Thanks very much, Mr. Chairman.
First let me introduce myself. I am an independent health economist working in Toronto. I've been working for about five and a half years as a private consultant. I do front-end work: risk evaluation work for the biotech industry in the investment area, and back-end work in the pharma-economics end for the pharmaceutical and biopharmaceutical sectors in general.
I'm going to follow an opening statement and I hope you have copies of it. It is based on a briefing paper I prepared, thanks to the funding of the Canadian Drug Manufacturers Association, in December. That briefing paper, in turn, is based upon a larger study - some 300-plus pages - I prepared on behalf of Industry Canada and Environment Canada about a year and a half ago. That large study is entitled Background Economic Study of the Canadian Biotechnology Industry.
Copies of the briefing paper and the larger study, in both English and French, have been filed with the clerk of your committee. If you wish to read them they are available to you.
Turning to my opening statement, I just want to give you a couple of business facts I'm aware of, associated with patents. The first is what I call the importance of a drug patent. A patent confers a monopoly to the owner of an invention for its exploitation, in exchange for the full and complete disclosure of that invention 18 months following the patent's filing. That's important because there is a give and take right there at the very beginning. This disclosure allows competitors to invent close approximations to patented inventions, and is the main reason why the market entry of so-called breakthrough drugs is nearly always followed closely by the entry of one or more competitive ``me-too'' drugs.
.2225
Some studies in fact have found that being first to market is more important in maximizing a company's profits than intellectual property protection. That's fact number one.
The second fact is what I call the business interests of foreign pharmaceutical MNEs, multinational enterprises, which are different from Canadian economic interests. To the extent that MNEs have national interests, those interests reside in their home countries.
I'll give as an example a condition for a foreign country's approval of a recent merger between two global pharmaceutical MNEs based in that country. It was that the manufacture of a Canadian global biopharmaceutical would take place in that country, not in Canada. As a consequence, valuable jobs and biopharmaceutical manufacturing capacity were lost to Canada.
That's one example. I've not named the company, but people in the industry know whom I'm speaking about. That is where business interests of foreign MNEs are different from Canadian economic interests.
On the next page, I try to depict what I think is the situation surrounding patents in this country.
The first point I make is in the form of a question: how can the standing committee's recommendations foster the development of of the Canadian biopharmaceutical sector? I suggest to you that the current status quo favours the largest companies: foreign MNEs.
The consequences of that status quo are fourfold from an economic perspective: a growing trade deficit, decreasing consumer welfare, fewer value-added contributions to the Canadian economy, and disadvantages to the Canadian ownership of Canada's own pharmaceutical sector.
If Canada chose to resume developing its Canadian-owned biopharmaceutical industry, there would be a reversal of this situation. We would have reductions in the trade deficit, increasing consumer welfare, and more value-added contributions to the Canadian economy. We would also be promoting the Canadian ownership of our own pharmaceutical sector.
I provide recommendations in my briefing paper in bullet form in this opening statement that I believe will achieve that end. The first of these is to abolish the linkage regulations in section 55.2, which led to 122 frivolous and anti-competitive challenges through to the end of 1996, contrary to the intent of Bill C-91. That's my first recommendation.
Second, practices at the Canadian Intellectual Property Office should be reformed to combat the anti-competitive effects of what is called in the trade broad-blocking patents. This would be done first by reforming review practices at CIPO on those patents, reducing the deferral period for patent applications, and publishing CIPO policies on the breadth of claims for biotechnology inventions. That's my second recommendation.
My third one is instituting an inexpensive challenge process that can be done... It has been done in fact in the European patent office.
The next bullet point is to ensure that older and pending patent applications at CIPO are placed under the patent terms of current legislation to even the playing field concerning effective patent terms. That's my fourth recommendation.
On the next page, it says to restore the section 39.1 practice of CIPO so as to benefit Canadian biopharmaceutical companies in this niche. Again, that recommendation is spelled out in my briefing paper in a fuller sense and is expanded in full length in the larger report I prepared for Industry Canada. That section 39.1 amendment existed under Bill C-22 and is sometimes referred to as the Cangene amendment.
The next one is to create a Canadian orphan drug act patterned on the U.S. model to benefit developing Canadian biopharmaceuticals. Furthermore, it would provide additional benefits in newly emerging ag-food bio areas, such as ``nutriceuticals'', which is something that I would like to draw to your attention here tonight.
.2230
My next recommendation is to establish an advisory body for the Minister of Industry concerning the impacts of foreign protectionism on Canadian biopharmaceuticals.
Next, allow manufacturing for the export of pharmaceutical products still under an existing patent in Canada to countries where the corresponding patents have expired or are not in force.
Finally, prioritize Canadian patent applications at CIPO and licensing applications at the HPB.
Let's turn to R and D. Although R and D is not directly a patent issue, it's nevertheless on the table. It's on the table for many reasons, including the fact that PMAC has made informal commitments in that area.
What I'm saying here is that the Canadian government's formal agreement concerning R and D investments by foreign MNEs is having serious impacts throughout the country. The first one is the erosion of academic independence resulting from industry sponsorship of research in Canadian universities. This is a very serious problem, and it's getting worse.
There are losses to the Canadian economy of the inherent value that's added of industry-sponsored discovery research commercialized outside of our country.
The third item is the losses to the cost-effectiveness of provincial drug formularies when R and D investments are used to induce the favourable consideration of an MNE's product.
There's the misuse of R and D investments for clinical trials whose principal objective is to win the support of opinion leaders in the Canadian physician community to an MNE's products.
I provide several better choices on my last page.
Establish a quasi-public federal agency funded by a very small tax on the pharmaceutical sector directed by the best minds in the Canadian biotechnology community to make arm's length R and D investments with the greatest commercial potential across the country.
Assert the ownership of Canadian biopharmaceutical R and D tax credits to induce commercial exploitation in Canada or to ensure that a reasonable amount of the inherent value of Canadian intellectual property whose ownership is transferred out of the country accrues to Canadian taxpayers.
Finally, adopt the U.S. commensurate-with-income approach to establish what is a reasonable amount in the value of transactions involving intangibles, such as intellectual property.
That completes my opening statement, Mr. Chairman.
The Vice-Chairman (Mr. Walt Lastewka): Thank you, Mr. Heller. Mr. Brien.
[Translation]
Mr. Pierre Brien: Thank you for your presentations. I would like to ask Mr. Anderson a question on evergreening. When a product does not represent a significant improvement, the Commissioner of Patents does not normally grant a patent. Do you think that some patents are granted when they should not have been?
[English]
Mr. Anderson: I'm sorry. Could you repeat that question?
[Translation]
Mr. Pierre Brien: There is talk of evergreening a patent's life cycle. Several people, like you, say that minor improvements can be made. When a new patent is obtained in this way, the patent protection is extended somewhat artificially.
However, the Commissioner of Patents must ensure that the product represents a significant improvement before granting a patent. Do you think that some patents are granted when they should not have been?
[English]
Mr. Anderson: I know what you're talking about now.
In part of the study we did with the CDMA we looked at the practice of ``evergreening'', which is essentially a phrase that has been in the industry for quite a few years, whereby additional patents may be taken out to extend the product cycle of a given drug product. I think that's what you're referring to.
.2235
That has been looked at by a number of different organizations. It has been referred to in The Financial Times of Canada. Other people have done a little bit of research on it. It has also been mentioned in some of the trade publications, in SCRIP in particular.
The study we did was really an exploratory look at evergreening. It was just on what it was all about. A particular concern was looking at an effective patent life and how multiple patents may be put on particular products to extend the product's cycle.
Obviously it's a perfectly legal practice if the patent is granted. Obviously it's quite legal. There's no doubt about that. But in some cases it seems there is an ability for the life cycle of products to be extended. That extends the amount of time that they have protection and decreases the ability of the generic drug manufacturers to enter a product into the market.
[Translation]
Mr. Pierre Brien: Generic companies do have the option of copying the first patented product. For example, when product A is replaced by product B, which represents an insignificant improvement, generic companies can copy product A when its patent expires after 20 years. So consumers will end up with a generic version of a product, which is perhaps less sophisticated, but which has a beneficial effect. If that is not the case, it is because the other product has significantly different therapeutic value.
Generic companies can nevertheless copy the initial patent, but perhaps not the second, which has different dosages, etc. But there is the possibility of copying the first product as soon as the patent expires.
[English]
Mr. Anderson: That's right, but I wouldn't say they're less sophisticated. They have to be bi-equivalent, which means they meet the requirements for safety and efficacy as required by the federal government and also by the provincial governments.
[Translation]
Mr. Pierre Brien: I would like to know what your other economic impact study consisted of. You say it is entitled "The Economic Impact of Bill C-91 on the Cost of Pharmaceuticals in Canada". It does not deal with the impact on the cost of the health care system.
[English]
Mr. Anderson: It's the cost of pharmaceuticals. There's the implicit notion that it's impacting on health care system.
[Translation]
Mr. Pierre Brien: As part of your study, did you think about analyzing the impact of the fact that a drug can replace an alternative treatment? For example, I can stay at home with a drug treatment, whereas in the past, I would have had to have been hospitalized to obtain treatment for the same disease. So savings are made. Savings can even be made thanks to new drugs. Did you analyze that aspect?
[English]
Mr. Anderson: That wasn't incorporated into the analysis, but I don't think anyone would disagree with you that drugs actually do reduce costs, because people don't have to be hospitalized. That's well known, but that was out of the realm of this particular study.
[Translation]
Mr. Pierre Brien: Mr. Tyrell, from the University of Alberta, you listed 9 recommendations. You said that there should be a continued requirement for pharmaceutical companies to spend at least 10% of their sales on research and development. If we were to provide protection that was more in keeping with international standards, i.e. longer effective protection, could we then expect the proportion of sales that is invested in research and development to be comparable to what is invested elsewhere, in other words, more than 10%?
Could we require new and higher commitments if the protection provided was more in keeping with international standards?
[English]
Dr. Tyrrell: My impression is that our protection is similar to that of many international standards, so I'm not sure that... I know that in discussion with some people in other countries, they're envious of the fact that Canada has been able to establish a compulsory amount of funding from sales going back into research in the pharmaceutical industry. So I think we've done that part fairly well, at least on the percentage basis.
.2240
There is still a lot of concern about whether more of it should go into basic sciences to support basic science, and I'm an advocate of that if we can see ways in which to do it.
[Translation]
Mr. Pierre Brien: Would you like more specific commitments to basic research?
[English]
Dr. Tyrrell: I think we could be more specific. I think the Medical Research Council of Canada is an excellent example of the quality of science we do in this country. We've been seeing some of the money from industry being reinvested through MRC/PMAC or, as we've recently seen, some money has been going in simply to support young scientists in training. I would like to see more of that type of support from industry.
Many of the people we train in universities end up in industry, and I would like to see greater support of scientists, scholars and students through the MRC system.
[Translation]
Mr. Pierre Brien: Mr. Heller, you say that we should allow generic companies to export their products when the patents are expired or into markets where the patents do not apply. Some people think that this type of commercial practice would expose us to some kind of retaliation. In acting this way, do you think we might face retaliation in other sectors?
[English]
Mr. Heller: It's possible that there may be repercussions and threats in other sectors. You can't predict that. That could happen politically. For instance, in NAFTA we could be threatened in the agriculture sector by the U.S. if we adopted this provision, but is that a reason not to go ahead? Is there not something inherently fair in the recommendation that I'm proposing? And if there are threats of retaliation in other sectors, aren't there other remedies available to deal with them using NAFTA itself?
The Vice-Chairman (Mr. Walt Lastewka): Mr. Schmidt.
Mr. Werner Schmidt: Thank you, Mr. Chairman. I'd like to tie two areas together.
First of all, Mr. Heller, you make the suggestion in your paper that the Canadian government's informal agreement on R and D has the effect of eroding academic independence as we rely on industrial sponsorship. And I notice that Dr. Tyrrell suggests that the MRC-PMAC partnership continue.
It strikes me that here we have a university research group and we have you saying this means the university can't do independent research, that its academic independence is threatened. Could both of you please comment on this particular observation?
Dr. Tyrrell: I am happy to comment. I don't want it to be misinterpreted that I said this is a substitution for the basic research and independent thinking that needs to go on in universities, but that type of research must be primarily supported by the government.
There are many discoveries made in universities that have the potential to spin off in biotech and be developed, and you can't do that through the national funding agencies. They require a lot of money and they do require developmental money that can come in through this PMAC partnership.
Getting a Canadian industry in this area is extremely important to me. When we made our initial discovery, I purposely went out to find a Canadian company to be a partner and could not find one. In 1986 there were none that we could have partnered with. I tried with Connaught, but Connaught was in the middle of looking at a major sale.
I could have gone to Sweden and picked out four major pharmaceutical companies in a country of 7 million people, a socialized country that believes in looking after its people as well as they can but that has had patent protection all of those years and has allowed those companies to develop. I could have gone to Switzerland and got six companies. We ended up with a multinational company.
.2245
But that was the reality in 1986. Today I could go out and find several biotech companies in Canada that would take on this industry and take on a project like this. There has been some development of biotech spin-offs in Canada, which now gives us that potential.
I think it's very important for universities and industry to work together, but I also want to stress that there has to be control. The universities must remain independent with respect to their basic research. I agree with that completely. There is concern that as our basic research funding dollars are eroding people are forced into partnerships with industry. That's not what I want. I want to see universities and industry form partnerships where there is a benefit to both.
Mr. Heller: I endorse all the remarks made. I don't think there's any disagreement. PMAC does fund through the MRC, and in that respect the funding is at arm's length from industry. Therefore, there is respect for the integrity of academic independence.
The proposal I've put before you is an alternative to that. I don't suggest that you end the MRC's role. I think it should be continued and in fact expanded, but I believe there's an alternative role here that could also accelerate the commercialization of promising basic research across the country. It's dealt with at great length in my large report to Industry Canada. It's an idea that was initially put forward in a theoretical paper by Paul Romer, who is one of Canada's well-known international economists.
So I don't think there's any fundamental disagreement between us on this issue.
Mr. Werner Schmidt: I'm grateful for the clarification.
The relationship of the Medical Research Council and the PMAC is a reasonable partnership. But what about the partnership or potential partnership that could exist for the Canadian drug manufacturers, for a generic association? Would that also work?
Dr. Tyrrell: I believe it would. When I was here in 1992 testifying on Bill C-91 there was major concern that the generics would disappear. In fact, generics have grown to be our second-largest and third-largest companies in Canada. They are not bound by any of the requirements to put this money back into research. We could also say the same thing for some of the other aspects, for artificial hips that are being put in in the country or for artificial valves. There are many things we could look at and then ask for a percentage to go back into research...and not from just the PMAC companies.
Mr. Werner Schmidt: That really raises the last two questions I had, Mr. Chairman. They have to do with the developing of the whole biopharmacology area, which is really a whole new biotechnology area that is quite different from PMAC and so on. You've introduced that here as another element.
If we're going to move into Bill C-91 and set it up right, there is going to be an overlap as this other area develops. What will the implications be of writing legislation here to cover this area while this new development is going to come? How can we bring in this legislation so that in fact we don't put in jeopardy new innovations and new developments that may be more cost-effective than what we have today?
Mr. Heller: I do feel more vigilance is required on the part of the federal government in this area. I've provided some recommendations for a strategy. I think more could be done. I endorse the idea of the generic drug industry playing by rules similar to those for PMAC companies. They are moving in that direction anyway. For instance, I understand that Apotex's current R and D spending in this country is running at around $55 million or $60 million a year. I think it's about the twentieth largest R and D spender in the country across all industrial sectors. It's now rivalling the top PMAC companies in that respect.
.2250
I've been out to Winnipeg to see Cangene, the former Rh Pharmaceuticals company, Apotex Fermentation, Novopharm and Biotex, all of which are biopharmaceutical companies owned by the generic drug industry, and they are moving in an innovative direction.
I'm also an executive member of the Toronto Biotechnology Initiative, another networking organization for biotechnology centred in Toronto. I know there are opportunities for small biotech companies in this country to begin to form strategic alliances with these large generics.
We could grow our own Canadian-owned multinational industry with a little support from the federal government. The ingredients are there. The compulsory licensing regime that we've had in place for the 25 years has given us a start, but some further nurturing is required. It would be foolish in the extreme to abandon the generics and the biotech industry in this country to global competition without some additional protection and nurturing.
The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.
Thank you, Mr. Schmidt. Mr. Patry is next.
Mr. Bernard Patry: Thank you. I will now speak in English.
Dr. Anderson, my question is about your study. I have a few small problems understanding it and I would like some clarification.
Your study has gross products at a rate of 7% and seems to fail to take life cycles of products into consideration. It assumes that a product never declines in sales. On top of that, your study forecasts twenty years into the future. Is it reliable to forecast so far into the future? That is my first question.
Mr. Anderson: The growth rates that were established were based on the data for the 1990s in the industry. That is where those figures come from.
You're quite right. Normally a product life cycle dies, but I think you will find in the drug industry that products just don't die. They are always there.
Forecasting twenty years into the future is one of the hardest things to do. Maybe that's why other groups haven't done a study like this. The further you go in time, the harder it is to get some reliable estimates and the more assumptions you have to put into place. However, just because it's hard to do shouldn't mean that you don't at least try to do something, particularly if you have legislation that says there should be twenty years' patent protection. You're introducing that, and on what basis, then, are you introducing it in terms of a cost component? That was part of the rationale for extending it as far as we did.
The other thing is that with no compulsory licensing, it means that the cost impact of Bill C-91 will be greater farther down the road than it will in the next few years because there won't be as many generic products on the market.
Mr. Bernard Patry: Okay.
I have a second question, Mr. Chair.
Your study is based on the assumption that all pharmaceutical products on the market are eventually genericized or copied. Even if it is virtually true in the United States, where everything is getting a generic quite quickly, in Canada traditionally less than 10% of all eligible products have been copied by generics. Why do you base your study on every product being copied when the rate is less than 10% in this country?
Mr. Anderson: As I said, there are a number of assumptions that we put in place and that was one of the assumptions. There are pros and cons for putting in different assumptions. We left that as it was because the model was getting fairly complicated anyway.
What we didn't put in as an assumption was the fact that there is a growing and aging population. We didn't factor that in. We also didn't factor in a number of products that appeared on the patent registry but didn't appear on the IMS data. There were 49 products, I think. As well, we didn't put in some products that still have process patents on them and didn't appear on the patent registry.
.2255
So it's kind of a swings and roundabout type of thing. On the one hand, you may say that the figures might look inflated, but on the other hand, we didn't take into account a number of other things as well. It's just that the complexity would start to get overwhelming.
Mr. Bernard Patry: This is my final question, Mr. Chair.
I don't know if you're going to give me the same answer, but in your study you're talking about the five years of patent term restoration. It seems that in your study it's applied to every product. We know it's not all the products. Just a few products with very long regulatory review times qualify for patent term restoration.
Can you explain why to me, or are you going to give me the same answer?
Mr. Anderson: No, actually, we didn't regard it as patent term restoration at all. I don't think we've mentioned that anywhere in the document. We've just said a five-year extension.
We've looked at both sides of the coin, I suppose. We've looked at if you had in Bill C-22 compulsory licensing of 7 to 10 years, and then flipped it over and said, well, what if you extended it further, not just 20 years but 25 years of patent protection? We never said this was trying to reflect some sort of patent term restoration at all.
Mr. Bernard Patry: Thank you, Mr. Chair.
The Vice-Chairman (Mr. Walt Lastewka): Mr. Volpe.
Mr. Joseph Volpe: Thank you, Mr. Chairman.
I want to direct my questions to all three if I can keep your attention for as long as the chairman will allow me to speak. Maybe I can start with Mr. Heller.
I found your first comment most interesting, that studies have found that first-to-market is more important in maximizing a company's profits than is intellectual property protection. We've been talking about patent protection all the way along, and I think you're the first who has come forward to say that this is more important than patent protection. In fact, I think that's a position that directly contradicts Mr. Tyrrell's, who spoke ahead of you tonight.
I don't mean to pick on you, but you're the one who's here tonight.
You made me consider the PMPRB's findings that only 4.2% of all drugs on the market are patented and yet they're responsible for roughly 45% of all the drug costs in the country. What studies, other than the one I've referred to, leads you to make that conclusion?
Mr. Heller: There are studies of the importance of patent protection in different knowledge-based industries, including the pharmaceutical industry and also including information technology, aircraft industry and so on, in which they've actually looked at various strategies for achieving profitability. They stacked up patent protection against issues like first-to-market. One of these studies is referenced in this document, the large document. I know I shared it with Industry Canada bureaucrats.
Mr. Joseph Volpe: Was one of the reasons they went off-patent to market their products the first time, or dedicate patents, to avoid scrutiny by the PMPRB?
Mr. Heller: Let me keep my focus here. You're trying to grab as much of the market as you can. The first one into the market with a new drug, a new product, particularly in the health care system, is going to grab the physicians and get them using their product. When the next one comes along, even if it's only in a year and a half, you've already acclimatized the physicians to the use of your product. Getting them to shift is a monumental task for that second company.
So patent protection is important, but first into the market is viewed as being even more important in those studies.
If you're interested, I can send you a copy of the study that actually comes to that conclusion.
.2300
Mr. Joseph Volpe: I guess my point was that the plural use of the word ``study'' includes more than one, obviously, and they're not frivolous, off-the-wall -
Mr. Heller: No, they're not. They're peer review journals.
The Vice-Chairman (Mr. Walt Lastewka): I wonder if I may comment on your last statement, Mr. Volpe.
Mr. Joseph Volpe: Okay.
Dr. Tyrrell: I'd like to comment on that. I do not agree that necessarily first to market is the most important. I think there are some very good examples where first-to-market has led to the development of new drugs that have been patentable that have been much more successful. The best example might be Tagamet, which was the first to market as a H2 blocker in the treatment of ulcer disease. It was soon replaced by Zantac and is now replaced by other drugs. But the drug that had the best results was Zantac.
So if you can improve on it and come up with a drug that has fewer side effects and is more effective...and I would say that as patients become informed of what's going on out there, the patients surf the net and pick up much more information than they ever did. I deal with AIDS patients and they come in with the latest in the AIDS information and some of the drugs that are changing in that area. First-to-market isn't so important any more; what is the best drug is the most important.
Mr. Joseph Volpe: Doctor, I think it was Robyn Tamblyn, who appeared before this committee earlier on and before the health committee some time before that, who suggested that probably patient ignorance and consumer ignorance and careless prescribing methods - I think the last one is the one that PMAC companies and CDMA and others have also pointed out - are responsible for a lot of serious abuse and misuse of drugs that probably negate some of the benefits that you're suggesting. I don't mean to diminish them, but -
Dr. Tyrrell: I think there has been some abuse. I think the biggest problem we've had is the polypharmacy and the elderly, which is a clear example of where we haven't been careful enough in how we use drugs. But I can tell you there are many examples where the patients are becoming very knowledgeable and coming in with a lot of knowledge and putting in a lot more critical assessment of what they're using.
Mr. Joseph Volpe: Let me turn to item two from Mr. Heller. Maybe you might want to comment on that one, too, because it relates specifically to Canadian policy and some of the consequences that Mr. Heller points out in the subsequent pages.
He makes reference to a biopharmaceutical from Montreal. It starts off with the same kind of names that claims to have discovered 3TC. I say ``claims'' because the company that's actually putting it on the market, in its literature, claims to have discovered it along with, I guess, a lot of other people. Anyway, they're the ones that are doing it, and valuable jobs and biopharma manufacturing capacity are lost to Canada.
I'm wondering whether continued patent protection, because I suspect Mr. Heller is going to say something different, is going to encourage people who are profiting from Canada's R and D infrastructure program - $800 million for the next couple of years up to the year 2000 - plus all of the money that is being put in by the Canadian governments in research and development through universities and such...are going to result in situations like this, where people who manage to get themselves together with a small innovator will look for a developer offshore and transfer Canadian expertise, Canadian innovation, eventually Canadian jobs in research and development, Canadian jobs in manufacturing, in distribution, in exports, to some other place.
Dr. Tyrrell: I'll just point out that since Bill C-91 we have a lot of manufacture and distribution and selling from the multinational pharmaceuticals that are now processing and producing drugs in Canada that are sold offshore. They do some of their manufacturing and some of their packaging and sales directly out of Canada, so it has happened both ways.
Mr. Joseph Volpe: I acknowledge that some of that is -
The Vice-Chairman (Mr. Walt Lastewka): Mr. Volpe, could you get to your conclusion?
Mr. Joseph Volpe: I'm looking at these
[Technical Difficulty - Editor]. This is the first time this committee has seen the advantages and disadvantages on the biopharmaceutical sector. We've had others, even Mr. White and his group that came before us earlier on, suggesting there is a growing trade deficit, notwithstanding the positives you've mentioned. There's a growing trade deficit in biopharmaceuticals and pharmaceuticals if we maintain the status quo.
.2305
The status quo is something that you advocated. To tell you the truth, I was a little confused initially because I heard you say that basic science research and development should be done by the MRC, or through the MRC primarily, that government should support, and then unequivocally you said we should maintain a PMAC partnership, a PMAC partnership that some of your colleagues find rather inhibiting and others think is inhibiting scholarly research because it focuses that scholarly research. It deprives them of the freedom to do what they need to do, though they welcome the money, and God bless them, I think they need it.
Dr. Tyrrell: I would point out that in my university we have three major PMAC grants, and we have 150 researchers. So I don't think PMAC has contaminated that group. I think there are some opportunities to see where development can be fostered and -
Mr. Joseph Volpe: The word I used was ``focused''. I didn't say ``contaminated''.
Dr. Tyrrell: Okay, they're focusing on an opportunity to develop, and they do that through PMAC.
If you look at the number of PMAC grants that go out, they're not that many. They are usually focused on a particular issue and a particular item. Many scientists who are doing basic research do it without having the opportunity to apply to PMAC. But when the opportunity is there, Canada shouldn't lose it.
Mr. Joseph Volpe: Never leave any money on the table.
Mr. Heller: There is one fundamental fact here, though. Industry-sponsored basic research is owned by industry. So if it's a foreign multinational, the right of first refusal of any intellectual property that comes out of that research is owned by that company, and the chances are that if it's commercialized it has promise it will be commercialized in the home country of that MNE, not in Canada.
That's why I suggest some changes to the way you treat R and D and R and D tax credits in this country. I've suggested in my briefing paper that there are three ways you can penalize the Canadian public if you don't make any changes.
The R and D that leads to that intellectual property is paid for with R and D tax credits granted by the Canadian taxpayer. They lose income tax from that forgone income.
If the company transfers that intellectual property back to its home office, the Canadian taxpayer loses a second time if that transfer price is insignificant.
Third, if that intellectual property is developed into a finished product that is high-value and is sold back into the country, we have to pay the high price for that finished product. So we lose a third time.
That is all described in my paper to you, and I commend it to your close reading.
Mr. Joseph Volpe: Do you have that paper for distribution?
Mr. Heller: It's this paper, the 20-page brief entitled Positioning Canada's Biopharmaceutical Sector for the Millennium: An Update on Intellectual Property and Competitiveness Issues.
The Vice-Chairman (Mr. Walt Lastewka): We'll distribute it. Thank you, Mr. Volpe.
I want to thank everybody, the witnesses, the resource staff, the translators and everybody who was very patient today and helped us to get through this.
I now adjourn this meeting to the call of the chair, on Wednesday, April 9, 1997, at 3:30 p.m. in room 253-D, where we'll continue our process.