SUMMARY OF TESTIMONY
A. The Role and Importance of Pharmaceuticals to Health
The Committee heard about the role and importance of pharmaceuticals to the overall quality of our health care system from a variety of health and consumer groups. Many witnesses felt it was important to position pharmaceuticals within this wider context in order to emphasize the interrelationship and importance of drugs to the overall quality of the health system. Canada's health care system is seen as a source of collective values and identity. It was argued that the health system has always engendered strong support among Canadians. In recent years, however, its significance has broadened into a symbolic and defining national characteristic.At the same time, many witnesses told the Committee of their concerns that health care would not remain the same in the future. A significant number of witnesses believed that health care in Canada was not as good as it had been because of cuts in health care funding, longer waiting lists for doctors or procedures and the ever increasing cost of prescription and non-prescription drugs. Many witnesses noted that they worry about the future viability of the system and understand that their pride in the health system may be strained by rising health costs, especially for such items as drugs and new technologies.
It is within this wider context that the Committee heard many witnesses argue that pharmaceutical reform should be guided by the same values that underpin our health care system. The values of equity, access, efficiency, collective responsibility and accountability should form a solid and stable foundation for the future of pharmaceutical policy. To many witnesses, the debate came down to ensuring an appropriate balance between the right of the pharmaceutical industry to recover its research and development costs and to make a fair return on its investments and between the needs of the broader society for accessible and affordable medicine and the containment of health care costs.
When developing a national strategy (through consultation with provincial governments) the federal government must address the question of how to create a balance between public interest and corporate interests. A concept of the public good and the role of government in defending the public good is at the heart of Medicare system. Equal access to quality health care for all Canadians depends upon fairness and balance in our laws and government policies, and never is consideration for the public good more pressing than when our health is at risk.
The Committee heard that Canada's health care system is going through enormous change, and pharmaceutical policy must be in step with the positive goals of health reform. Drug policy has an important role to play. As we attempt to move from institutional to community-based care, prescription medicines will be a crucial resource in enabling patients to achieve a good quality of life outside of acute care facilities. But this can only be accomplished if prescription drugs are accessible, affordable and used appropriately. Their high cost was a concern for of a majority of witnesses.
If maintaining our health care system is a priority for Canadians, then controlling drug prices becomes a necessity. At present, it is the only area where costs are not under control. . . . A sign of how much patent-protected drugs contribute to health care costs can be seen in the fact that, while they make up 62% of all prescriptions, they account for 86.7% of all drug costs in Canada (1995). . . . Over half of the rise in prescription costs is due to the introduction of new drugs, specifically new (since 1987) patented medications. Prices for prescriptions containing new patented medications rose at a rate of 13.4% per annum since 1988 compared to 7.6% for prices for prescriptions using non-patented drugs.
The high price of drugs (particularly new drugs) is a growing problem for Canadian citizens. Traditional therapies and hospital care are being replaced by expensive drug therapies delivered in the community. These expenses are creating barriers and burdens for Canadian families. Both targeted provincial plans and employer benefit plans have seen their drug expenditures rise significantly and many have reduced their coverage. Furthermore, many of the growing number of unemployed individuals and temporary and contract workers in today's economy cannot afford premiums for individual private drug plans
On the other hand, the Committee heard arguments that patented medicines have mistakenly been labelled as the primary drivers of increased health care costs:
Some stakeholders have positioned rapid generic access to patented medicines as a simple means to lower health care costs. Although this may seem appealing, it is not a solution to the challenges facing Canadian health care.
In Canada, total national health care expenditures have grown from 12.2 billion dollars in 1975 to more than 72 billion dollars in 1994, the last year for which documented data are available. However . . . . patented medicines accounted for only 2.5% of total expenditures, while non-patented prescription medicines, including generics, represented 3.7%. Thus taken together, ex-factory prescription medicines represent only 6.2% of total health expenditures.
Because of their cost effective role, the use of medicines is increasing as health care providers seek to reduce the utilization of other more costly forms of intervention. Through their increasing reliance on pharmaco-economic evaluation of medicines, provincial governments have recognized that the costs of new medicines can be more than offset by reductions elsewhere in the health care system.
[T]here is a need to distinguish clearly between drug prices and drug costs. Drug prices are the cost of the pharmaceutical supplied by the manufacturer, and include the manufacturer's mark-up. Since 1987, prices of patented medicines have risen on average slower than the rate of inflation. In 1995, average prices for patented medicines declined by 1.75% as compared to an increase of 2.14% in the Consumer Price Index (CPI). Most drug prices have been constant or actually are declining. . . . It is of considerable importance to note that the major increase in drug costs which has occurred in recent years is not due to drug prices, which have actually declined, but due mainly to increased utilization. If there is a genuine need to reduce drug costs, which is at best a tenuous argument, clearly it will not be achieved by reducing drug prices, and the only practical target for achieving such a goal would be to reduce utilization.
The Committee also heard from a number of witnesses that the pharmaceutical industry and its products are unique and that drugs should not be viewed as merely another consumer good. Numerous witnesses stated that to view drugs as a mere commodity is inconsistent and irrational with the continuum of health care. To many witnesses, drugs are as much a part of "medically necessary" care as are the services of physicians and hospitals.
Drugs can obviously be defined partly as marketable goods. But medicines, like so many other of the integral components of health care, are not only market commodities. The lives and health of real people depend upon the availability of drug therapies. Unequal access to needed medications is unjust, and causes unnecessary suffering and pain, if not loss of life. The provision of drugs should, therefore, be seen as a public service, and in many cases a medically necessary one. It is an unacceptable reality that many Canadians do not have access to medications that they need, or their access is limited for financial reasons. The market, as it currently operates, is failing the needs of many, and this problem is growing in the context of rapid changes to the way we deliver health care. With same-day surgery, dramatically shortened lengths of patient stay, and hospital bed closures, drugs once provided through inpatient care are now the responsibility of the patient. At the same time, prescription costs are rising, even as provincial governments cut drug coverage.
Medicines are an integral part of our health care system; they represent a "public good " from which all members of our society benefit. They contribute to improved health and productivity of our paid and unpaid workforce and to our quality of life. Taxpayers, both workers and businesses, and governments benefit from our increased productivity and, to the extent that medicines are used effectively in providing health care, from reduced health care costs and taxes.
Moreover, the Committee was reminded that the pharmaceutical industry is unlike any other in that not only is the choice of a drug therapy often made by a health professional, not the consumer, but that when a drug is needed, its purchase can seldom be deferred. For this reason, consumer demand for pharmaceuticals may be highly insensitive to price changes. Furthermore, if financial considerations prevent a consumer from obtaining a drug, the delivery of appropriate medical care may well be impeded. It was noted that because many new drugs have replaced insured medical services under Canada's health insurance system, many treatments involving pharmaceuticals pose a financial burden on consumers. The Committee heard from a number of witnesses that this financial burden has created inequitable access to medical care violating one of our most important values. The Committee heard repeatedly how Canadians should have equal opportunity both to achieve health and well-being, and to receive health services according to their needs. The system must be fair and reinforce our abiding sense of equality of opportunity.
Unequal access to needed medications is unjust, and causes unnecessary suffering and pain, if not loss of life. The provision of drugs should, therefore, be seen as a public service, and in many cases a medically necessary one. It is an unacceptable reality that many Canadians do not have access to medications that they need, or their access is limited for financial reasons. The market, as it currently operates, is failing the needs of many, and this problem is growing in the context of rapid changes to the way we deliver health care. . . . We as nurses are suggesting that more needs to be said about how to meet the needs of our patients, and less said about the operation of the global marketplace.
The Canadian Pharmaceutical Association reports that public plans cover about 44% of Canadians. Private plans are provided for or purchased by another 44%. . . while 12% are without any drug insurance coverage and must pay out of pocket the full charge for each prescription drug required. . . . A survey in 1995 (CROP Conseil, 1995) found that 75% of Canadians earning more than $60,000 a year had private insurance, dropping to 68% in the range $40-$60,000, 42% in the $20-$40,000 range and 7% below $20,000. Partly as a result, per capita out of pocket drug expenses of higher income households are on average lower than those of lower income households, and much lower as a share of income (Lexchin, 1996).
The equity the federal government should be seeking lies in taking into account the facts that:
- the provinces currently bear a major share in the costs of public drug programs (without assistance from federal transfers since medications outside of hospital settings are not covered under the Canada Health Act),
- the provinces do so without having any control over the setting of patented medicine drug prices, (though they can give input, they have no decisional power), and weigh this in light of Canada's interest in fostering investments, job creation and sustainability of industrial concerns, home grown as well as those resulting from foreign investments.
The Committee also heard from many witnesses that provincial governments and other drug benefit providers have responded to escalating pharmaceutical costs by passing some of the costs back onto the patient in the form of cost-sharing. The Committee heard how cost-sharing is now used in one form or another by every provincial drug benefit plan in Canada. Some witnesses noted that cost-sharing is advocated by those who believe that increasing the patient's cost will cause them to consider whether the drug is necessary, thus reducing the use of only marginally effective drugs. However, as the Committee also heard, this rationale relies heavily on the mistaken assumption that consumers have adequate information and judgment to weigh the benefits of alternative drug therapies. Furthermore, even if consumers had sufficient medical knowledge to choose which purchases are cost-effective, cost-sharing mechanisms are seldom designed in ways that improve efficiency. The end result is that individual Canadians are increasingly asked to shoulder the high cost of drug benefits often causing greater financial hardship.
For the poor and elderly the escalating drug costs cause an even greater hardship because most of them don't have the good fortune to be part of an extended health benefits plan. . . . In Saskatchewan, the poor are only partially protected by the provincial drug plan. Elderly Saskatchewan residents, even if they qualify for the guaranteed income supplement, are still faced with a $200 deductible for medication every six months. Younger residents who are living below the poverty line are also faced with a deductible. A single parent with one child, for instance, who is earning a poverty line income would be faced with a $260 deductible every six months. That is a lot of money for someone living at the poverty line.
The uncontrolled rise of drug costs is increasingly a financial strain on families and individuals in communities that [Community Health Centres] serve. For example, a low income family should not have to choose between buying medicine or food nor should a senior with very limited income have to choose between getting her medication or paying the rent on time.
Bill C-91 that engenders the lack of affordability and access to drugs may result in:
poorer health outcomes for clients who have not filled needed prescriptions because they or their family cannot afford it,
a greater health care cost due to Health Centre staff spending time finding needed drug therapies for clients, or
hospitalisation which is costly to clients and the health care system.
Nearly 70,000 CUPE members have no drug coverage at all or are covered by a percentage in lieu provision. How do they find the money to pay for prescription drugs. They must pay for drugs "out-of-pocket" and make choices between not buying the drugs at all or forgo other amenities in their lives. It seems like a straightforward choice, but it isn't when you consider that the amenities they may choose to forgo contribute to their overall health status. . . .
At the bargaining table we face employers who are increasingly unwilling to shoulder the high costs of drug benefits. They pass these costs onto our members by demanding concessions which result in individuals paying more for their health benefits, drugs included. Higher deductibles on drug plans are being proposed at many bargaining tables. These costs place an additional burden on workers as they struggle to make ends meet in this time of job insecurity and wage freezes. These costs are barriers to improving social and economic determinants of health for millions of Canadians.
Across Canada, governments have continued to restrict access to new medicines by not listing them on provincial formularies or delaying listing. They have also forced seniors to bear additional cost to gain access to current and new medicines. We believe these policies are short-sighted when you consider that medication is often the most cost effective medical intervention and can help seniors maintain their independence, reduce or eliminate hospital stays and improve and lengthen life.
High drug prices affect the poor in two ways. The working poor typically have "bad" jobs that are low-paying without benefits such as drug insurance plans. For the most part, they pay for their drugs out of their own pocket. The impact on the non-working poor is indirect. They sometimes receive financial assistance from provincial drug plans to help pay for drugs. However, as drug prices increase, more and more provinces are drastically reducing the number of drugs that they will cover (de-listing) and they are introducing (or raising) prescription fees and deductibles for social assistance recipients. . . . The poor have not seen the benefits that patent protection is supposed to bring to all Canadians. The main issue surrounding C-91 is about ensuring access to adequate health care for all Canadians, not just those who can afford it. . . . High drug prices have jeopardized the health of low-income Canadians. This is not a fair balance. C-91 has led to the violation of one of the fundamental principles of health care - accessibility.
Even small increases in prices of drugs have a significant impact on seniors with limited incomes, especially those with lower incomes, as every dollar they spend is the purchase of some basic requirement or service. Consequently, seniors are forced to give up some other necessity, in the context of their limited financial resources, and be deprived of a basic need.
[F]or people on low incomes, cost is the overriding factor in their decision to fill or not to fill a doctor's prescription. When people can't afford to buy their medication, they must make extremely difficult choices:
For some the choice is between the purchase of medicine or food. This is a no-win situation since poor nutrition is a contributor to ongoing poor health.
In other cases, people faced with beginning a drug treatment that must be permanently maintained, such as some HIV medications, make the choice to delay starting the treatment until they will be able to afford to continue it. This means that they are much sicker when they eventually start treatment and it is less likely to work. Their lives are effectively shortened because they cannot afford the high price of medication. . . .
Another recurrent theme is lack of access to drug benefit plans for working people in the middle and lower strata of Canadian society. According to the material prepared by Industry Canada and Health Canada for this review process, 12% of the population have no drug plan. Other sources have indicated to us that this figure is, in fact, higher. In addition, people with high incomes can afford private drug plans and those at the bottom have access to provincial Pharmacare. Large employers sometimes have a drug plan as an employee benefit for full-time jobs. However, people working part-time, for smaller employers or in `Mcjobs' normally do not have access to any drug plan.
B. Prescribing-Practices and Procedures
The Committee heard from a number of witnesses that while Bill C-91 does not address pharmaceutical utilization, prescribing, and promotion, it was argued that by its nature a comprehensive review of pharmaceutical policy should examine these issues. The Committee heard that Canadians are both over-utilizing drugs and using them inappropriately. Inappropriate use includes taking drugs in the wrong dosage, at the wrong time, not long enough, not at all, or in combination with other drugs or substances. This can occur as a result of either inappropriate prescribing or failure of the patient to comply with the prescription or both. The latter may be a consequence of lack of information, inadvertence or carelessness. Inappropriate prescribing, on the other hand, raises questions about the behaviour of clinicians and pharmaceutical manufacturers and the incentives to which they respond.
As front line care providers in the health care system, nurses witness daily the results of misuse of prescription and over the counter medications. We are aware that it has been estimated that 200,000 people are hospitalized each year because of improper use of pharmaceutical products. Four thousand seniors die every year from the effects of prescription drug misuse.
In 1991 the National Advisory Council on Aging reported that approximately 40% of hospital emergency room visits and 10% of all hospital admissions of seniors are directly related to the improper use of medications. Seniors have three times the incidence of adverse reactions to drugs when compared to young people.
Drugs are prescribed more frequently for the elderly than any other group. Although the elderly constitute about 10% of the Canadian population, they consume between 20% and 30% of the drugs prescribed each year.
It would be wonderful in fact if the drugs they were taking are going to translate into longer life, better life, better quality of life. The reality is we have a huge problem between what's known about a drug and what gets put into practice. The problem isn't over-medication only, it's under-medication and misuse of medication and all that amounts to approximately 12% of hospital admissions per year being created by problems that were created by the drugs themselves and half of that's avoidable.
If we look at two major problems. One is medication that should be used in fact isn't being used. A good example of that is a medication that was known to be effective for heart attacks, in preventing secondary heart attacks. That medication was identified in 1951. By 1970 it was known it worked. It took another ten clinical trials to actually convince everybody it worked. By 1980, guidelines were present that it should be used for all people who had myocardial infarction or heart attacks. In 1990, only 21% of people were getting that medication.
[I]nappropriate prescribing is very widespread. It's a much more serious problem than . . . .up to 50% of antibiotic prescriptions are inappropriate. This is based on a great deal of research. It's a serious concern for everyone in the medical community. . . . In the elderly, for example, it's extremely common for especially elderly women to receive inappropriate prescriptions for these drugs, which winds up costing a great deal of money for the Canadian economy, because people wing up being institutionalized when they needn't be. When they fall, they wind up having hip injuries when they needn't, and so on. . . . Inappropriate prescribing involves writing prescriptions for things that aren't needed but it also involves not writing prescriptions when they are needed. . . .
It is well established that old people often use drugs inappropriately, and even that a rather high percentage of hospital admissions (and increased costs) result from such misuse. The misuse itself often occurs because physicians prescribe without adequate knowledge of the drug itself, or adequate follow up of its effects on the patient, and also because seniors often cannot afford the prescription, or fail to take it properly. A special duty of a review agency would be to review the uses and costs of medication by certain groups that are heavy users of drugs, especially older people, and those with high-cost illnesses or disabilities, such as AIDS, in order to suggest ways of ensuring that their use of medicines is appropriate.
There are three main methods to reduce the problems of inappropriate prescribing. First, physician education is important, and it can be cost-effective. However, the scale of action needed posed a challenge. Second, computerized prescription monitoring systems can be extremely useful in identifying possible prescribing problems. However, to be effective, these systems should be accompanied by feedback systems which educate and inform physicians and pharmacists of problems. Third, patient education is essential, to help reinforce the need for patients to inform physicians and pharmacists of all the medications they are taking, and to learn how to ask for more information if they are doubtful about a certain prescription.
C. Information Systems
The Committee also heard from a number of witnesses that one of the first steps to improve access to pharmaceuticals is better information to monitor and evaluate utilization at the individual level. Such information would facilitate decision making at the federal and provincial levels. The Committee heard from a number of witnesses that better information is the key to better management and that the potential for the public system to control costs and utilization will not be fully realized without a comprehensive, population-based health information system which allows for analysis at the regional and provincial levels. A number of witnesses spoke about the need for drug monitoring systems which would link information between physicians, pharmacists, government paying agencies and the public. Disease management information tools could be developed to respond to questions likely to be posed by those who could benefit from more comprehensive information than is now available. Consumers might inquire into the side effects of a particular medication, while physicians would wish to guard against contraindications and interactions with the other medications.
Patient's don't want to get ill. Physicians want to make their patients well, so why is it that in fact this information that would be so beneficial in improving people's health experience is not getting out into the front lines of practice? And part of the problem is that there are at least 24,000, if not more than, that drugs approved by marketing. Any person at the front line in this day and age has to know that there are 33,000 different drug interactions, that there are 65,000 drug disease contra-indications, and another 3,000 or so drug allergy combination that should be avoided.
No one's equipped to know that. That rate of increase in terms of drugs has been exponential. . . . It's just impossible for people to keep up to date. If we do not solve the gap between what is known and what we get to put into practice, then it doesn't matter how much you spend on drugs, it is that you're not realizing the benefit in the population. . . .
We know that it's very difficult for physicians to keep on track - the same as pharmacists - of what medications their patients are taking. We know that as you get older you see many different physicians, receive prescriptions from many different physicians. It is possible in every single province in Canada to have that information accessed by physicians who are in practice, given to that physician they can make the best decision for their patient to know what drugs they're on. . . .
[W]e have the ability to do is actually to take advantage of providing that information, which we can through electronic means, to provide guidance to people in practice to say here's the latest and the greatest. This is what you need to know about the problem, this drug, and what to prescribe next.
[T]o take advantage of new information technology and access to population level databases will provide us with the means of getting information out into practice and potentially realizing I think the benefits that drug therapy can provide the population, particularly for seniors.
That the reform process begin with the implementation of comprehensive, population-based drug information systems. These must be publicly run databases, capturing all prescription information regardless of payer, such as now exists in Saskatchewan and British Columbia. They can serve to link physicians, pharmacists, patients and provincial payers, and can then support improved clinical decision-making. . . .
Health Canada should find ways to encourage the development of information programs directed to physicians, pharmacists, and other health professionals, as well as to the public, that would provide comparative information on the uses, costs, benefits and limitations of drugs on the market. This should include assessments of new drugs, both those offered by patented drug manufacturers that are modifications of earlier patents, and those provided by generic manufacturers.
[T]hat the federal and provincial governments develop a comprehensive program to evaluate, on an on-going basis, the cost/benefit and effectiveness of new drugs against available, cheaper products (either generic or off-patent innovative drugs) in order to provide information on which physicians and other health care providers, together with Provincial Health Departments and Insurers can make informed prescription decisions.
[I]n purchasing a prescription drug, consumers need to be able to rely on a knowledgeable intermediary to act on his or her behalf by informing the him or her of the risks and benefits associated with the drug. Finally, drug products are becoming
increasingly complex and are prescribed for an ever-widening range of medical conditions, making information increasingly more vital.
The Committee heard that better information necessarily leads to better decision making - evidence based decision making. It was noted that some centres are actively working towards assessing new and exiting drug therapies by the standards of the best evidence of clinical effectiveness and using these assessments to establish cost-effective first choice drugs and recommendations for their optimal use. Using rigorous principles, evidence for the clinical effectiveness of each drug is reviewed and compiled. From this evidence, recommendations for the practical use of the drug in relation to other available therapies is developed and new drugs are specifically evaluated as to whether they represent a proven therapeutic advantage over available similar therapies.
The Committee also heard how the Government of British Columbia has implemented a number of initiatives to provide independent science-based information about drugs:
First: The therapeutic initiative brings together physicians and pharmacists to assess new drugs and provide physicians with independent information on their clinical effectiveness based on the best scientific evidence.
Second: We have initiated a pharmaco-economics initiative designed to independently assess the relative cost effectiveness of different drug therapies.
And Third: We have supported a demonstration project - the North Shore Community Drug Utilization Program - that offers physicians an unbiased alternative to drug industry marketing to enhance the quality of prescribing.
D. Research Funding
The Committee heard from various witnesses that an unforeseen consequence of the pharmaceutical industry commitment to increased research funding in Bill C-91 is that the drug industry now has become a predominant source of funding for biomedical research in Canada. Many witnesses stated to the Committee their concern that the industry research efforts and priorities are ultimately driven by the prospect for developing profitable products and favourable marketing environments.
Do we want most of the money available for pharmaceutical research to be just narrowly directed into the development of new patentable medications, the main priority of the pharmaceutical industry, or do we also want to prioritize areas such as improving patient compliance with medications or reasons for inappropriate physician prescribing practices?
The Committee also heard that the whole direction of biomedical research, and of health research more generally, will be narrowed in focus and skewed in the direction of drug- and product-related research. It was argued that research to improve our understandings of the determinants of health, or of the management of health care services, is unlikely to be pursued.
[A]s it currently stands the pharmaceutical industry is funding something in the order of 30% of all health research in our country, which is more than is spent by the federal government, which is twice as much as is spent by universities and three times as much as spent by provinces. Now, at one level of success, those expenditures on research appear to be very fine results of Bill C-91 but as a consequence of what we believe is a steering effect the health research agenda has now moved far more towards product related research and pharmaceutical preparation development. . . .
Statistics indicate that the pharmaceutical industry is now the leading funder of medical research in Canada and doubtless much of this work is important. However, this research needs to be considered in a larger population health context. What of research to improve our understanding of the determinants of health? What of research to expand our knowledge base in the managment of health services? Have we developed a strategy where pharmaceutical companies direct too great a proportion of the research agenda in Canada? Will the industry fund the type of research needed to enhance the cost-effectiveness of Canada's health care system or will the industry drive medical research in Canada to meet its own priorities?
Moreover, as many witnesses told the Committee, the pharmaceutical industry's commitment to basic or fundamental research is low compared to clinical research.
In our view, the innovative pharmaceutical industry has met its commitment to increase research and development spending in this country. However, the Faculties of Pharmacy would like to see greater support of basic research from the industry, as well as from Government. In terms of support for basic research in Faculties of Pharmacy, the industry's commitment to date has not been reached in the eyes of most Deans of Pharmacy.
It is apparent that the increase of gross R&D internal spending incurred by pharmaceutical companies resulted in changing the subsidy plan of health research in Canada: the break-down of research monies shows that most of these monies are invested in clinical and applied research. Fundamental research, on the other hand, remains underfunded at a level of 22.2% of the total current R&D spending, even though fundamental research has led to the recruitment, past, present and future, of high calibre researchers who build the foundations on which new clinical and applied research can emerge.
Canada's competitive Research and Development (R&D) position with respect to its G-7 partners is slipping. As we approach the next millennium, it is of paramount importance that we provide and maintain an attractive environment in Canada with respect to all types of global R&D investments, but especially in the biomedical, clinical and health research sectors. . . . [F]unding for direct costs of basic research is in a tailspin for the first time in Canada's history, while all our G-7 competitors are increasing their investment in this sector. . . . In general, the overall innovative pharmaceutical industry report card is quite respectable.
On the other hand, the Committee also heard evidence of the importance of the clinical research currently undertaken by the pharmaceutical industry.
[T]here is a common criticism that clinical research is of little value to the Canadian medical community. However, clinical trials rest on the hypotheses generated by basic research. Failure to show efficacy in a clinical trial results in a return to basic research activities. Thus, clinical trials are a pivotal point in the new knowledge generation process and the instrument by which technology is transferred from the laboratories bench to bedside. . . .
. Clinical research is an important source of funding for university laboratories and for training the next generation of medical researchers. . . .
. Clinical trials foster improvement in the overall quality of health care through the development and implementation of better diagnostic, treatment or preventive measures.
Furthermore, the Commitee heard testimony that international research and development comparisons must be interpreted with caution, given differences in statistical methodology and inherent biases.
On the other hand, the definition used by the Organization of Economic Cooperation and Development (OECD) is broader because the fundamental concept is innovation. It is therefore not limited to science or engineering, and includes research in the social sciences. . . . Obviously, the breadth of the OECD specification permits the inclusion of a greater number of specific expenditures in the research and development definition. . . .
[If] Canada were to base its calculation of research on definitions used in other industrialized nations. . . . the PMAC member companies invested 15.3% of annual sales revenue in R&D in 1995. While this ratio does not match the US at 19.4%, it is comparable to global pharmaceutical sales to R&D ratios of 15%. . . . Despite a number of obstacles, Canada's innovative pharmaceutical industry R&D-sales ratio compares well with US and exceeds the global level. Moreover, the% of basic research versus the total research in Canada is comparable to that of the United States.
The Committee also heard from various witnesses of their concern for the low level of extra-mural basic research that is carried on by the pharmaceutical industry. Many witnesses noted that it is important to ensure that universities and public research institutes receive adequate funding. It was argued that Canada's strong academic base is its most compelling comparative asset to secure pharmaceutical industry investments. Strengthening academic research and university-industry links would increase Canada's competitive advantage.
The good news is that total (intra-mural and extra-mural) basic research support has grown by over four-fold in only seven years, from a $30 million investment in 1988 to over $132.2 million in 1995. However, it is disappointing that the vast majority of basic R&D is conducted in industry laboratories. This means that while universities are expected to provide training and to produce researchers for the industry, they have not benefited substantially from industry's investment in basic research.
Our academic health sciences centres, affiliated teaching hospitals, and research institutes are at the core of Canada's health care system. They educate health specialists and deliver quality health care to Canadians on the basis of state-of-the-art research that they perform. Pharmaceutical R&D investments provide not only actual discoveries, but additional health professionals, enhanced training and supplementary equipment as well. These represent incremental benefits arising from enhanced R&D activities, if these activities are undertaken in the health system within our teaching hospitals, universities and affiliated research institutes.
While policies that encourage private corporations to conduct more R&D in Canada are desirable, it is also important to ensure that universities and public research institutes, such as the National Research Council and the research branch of Agriculture Canada, receive adequate funding . . . . This public service perspective on research and development has particular merit in the health care field. The contribution of publicly funded universities and research laboratories should not be overlooked since many new discoveries are made in these institutions.
Given that our universities represent an enormous untapped resource of talent available to the innovative pharmaceutical and biotechnology sectors, this training ground for future scientists should be ensured a greater opportunity to participate in pharmaceutical R&D. A substantial increase in support for extra-mural research carried out at universities, hospitals and affiliated research institutes is clearly required. . . .
Given that our universities, teaching hospitals and affiliated research institutes are core elements in Canada's health care system and perform nearly 25% of all R&D in Canada, it is reasonable to expect that at a minimum, 25% of the total basic pharmaceutical R&D should be conducted within the academic and hospital sector.
There should be an increase in the funds injected in R& D through MRC and NSERC. The limited availability of research funds allocated to these agencies is such that the rate of success of applications presented before them is unacceptable. . . It would be advisable to consider a substantial increase in R&D monies allocated to fundamental research since facilities are available, employment will be created and university laboratories constitute an ideal environment for the training of highly qualified manpower, to Canada's benefit.
[A]n area of concern relates to the level of extra-mural basic research that is carried on outside the pharmaceutical industry in university, hospital and other companies' laboratories supported by the private sector. Basic research as defined by the PMPRB and Revenue Canada is research undertaken with no immediate practical application envisaged, while applied research is directed towards some practical application.
The Committee heard from a number of witnesses that the only way to mitigate the effect of expanded industry support for research is to move the administration and allocation of those research funds away from the control of the industry itself, and into the hands of the public granting agencies.
Have the biomedical research agenda set by publicly accountable bodies. A proportion of the sales of every company should be returned to public research agencies so the money can be allocated to Canadian researchers by peer-reviewed organizations according to Canadian priorities.
[T]he commitments to increased funding for research made by the pharmaceutical industry at the time of passage be converted into specific required contributions to a fund for health research broadly defined, at full arm's length from the industry, to be administered by the national research granting agencies and allocated through the normal peer-reviewed granting process.
I would refer to another recommendation of the National Forum - that the administration and allocation or research funds be moved away from the control of the industry itself and into the hands of public granting agencies. I would also suggest that the committee seriously consider the recommendation that would see the pharmaceutical industry required to contribute to a national fund for health research. The fund should be broadly defined and - at full arm's length from the industry - adminstered by the national research granting agencies and allocated through the normal peer-reviewed granting process, with regional equity factors built in. The National Forum has rightfully suggested that this is a reasonable outcome given that additional funding has been "Purchased By Canadians" through the privileges conferred by C-91.
E. The Pharmaceutical Industry in Canada
In Canada, most makers of pharmaceutical products are largely represented by either the Pharmaceutical Manufacturers Association of Canada (PMAC) or the Canadian Drug Manufacturers Association (CDMA). The former has some 60 members, all innovative pharmaceutical firms, and the latter has 13 members. CDMA strength grew in the 1980s as generic manufacturers succeeded in breaking into the monopolistic pharmaceutical products market, previously controlled by the brand-name manufacturers.
We have strong brand-name and generic manufacturing sectors and a rapidly emerging biopharmaceutical sector. Patent policy has an important impact on their respective businesses.
Another industry association that testified before the Committee was the Industrial Biotechnology Association of Canada (IBAC), which represents the interests of the 67 biotechnology companies working in the agriculture and health sectors, or about one-quarter of the biotechnology companies in Canada. Its members may also belong to either PMAC or the CDMA. In general, IBAC's position is very close to that of the brand-name manufacturers.
Canada can lead the way, or we can allow other countries to take the lead. We really feel that strengthening the patent laws will reflect Canada's economic development and job creation priorities, which are central to leadership. The decision is ours.
The PMAC brand-name companies employed nearly 18,000 Canadians in 1995, and more than 3,000 of these were in highly skilled R&D jobs. According to IMS Canada, brand-name companies account for over 60% of the number of prescriptions filled in 1996. Although significant in numbers, they are only one of the players in the pharmaceutical industry in Canada.
The generic industry is also an important player. It is mostly Canadian-owned, and saw substantial growth under the compulsory licensing environment. The two leading generic companies, Novopharm and Apotex, have become significant international players in their field. They have created jobs for Canadians and have helped the health care system by providing lower-cost, high-quality generic drugs. The benefits that this sector of the industry brings to Canadians should not be underestimated.
The generic industry remains vibrant today, four years after Bill C-91. Member companies of the Canadian Drug Manufacturers Association, CDMA, which represents most generics, employed 3,630 Canadians in 1995. That is double the number of jobs in 1990. According to IMS Canada. . . sales of generic drugs in 1996 amounted to $973 million, an annual increase since 1993 of more than 25%. In 1996, generic companies accounted for nearly 40% of all the prescriptions filled in Canada, making generic penetration in Canada among the world's highest. . . .
[T]here is another sector of the industry - a key third player whose interests were less clear when C-91 was passed, because the sector was then in its infancy. This is the biopharmaceutical sector. Industry Canada has compiled data on 64 companies that are directly involved in biopharmaceutical drug development. These companies are mostly Canadian-owned, innovative SMEs. They rely heavily on patent protection. Last year these companies employed nearly 4,000 Canadians, with over 1,600 in R&D [in which] the sector invested $251 million in 1995.
The importance of the pharmaceutical industry lies in its strong use of science, its leading-edge technologies, its high salaries, the opportunities it offers of increasing Canadian exports, and its contribution to the health and well-being of Canadians. The average annual salary in the industry is $48,000, which is 30% higher than the average salary in the manufacturing sector. The pharmaceutical companies are responsible for 10% of all R&D done in Canada, although, in size, they represent only 1% and 1.2% of total shipments and employment in the manufacturing sector.
In addition, the industry supports research in universities and hospitals.
The Medical Research Council of Canada (MRC) is the federal funding agency for a network of biomedical and clinical scientists in Canada. The agency promotes and supports basic, applied and clinical research in the health sciences.
In 1995-96, the MRC's budget from the federal government was $251 million, most of which was used for grants in support of specific research projects and awards in support of specific researchers. As part of its work, the MRC has developed partnerships with industry, government and non-profit organizations. These partnerships facilitate investment in research and training programs through a peer review process. For example, an agreement between the MRC and the Pharmaceutical Manufacturers Association of Canada (PMAC) committed the latter to spending $200 million over a five-year period. Generic companies also engage in joint projects with the MRC. For example, Apotex has contributed to a fund worth up to $1 million in the first year and $50,000 in each of four subsequent years for the Toronto Cell Cycle Group.
Within the federal government, the National Research Council of Canada (NRC) is active as a research partner with industry in biomedical research in life sciences, including biotechnology. Collaborative research is concentrated in five institutes dedicated to specific sectors of life sciences/biotechnology. . . . Established by the federal government, Networks of Centres of Excellence (NCEs) provide the pharmaceutical industry with a link to leading basic, applied and clinical researchers throughout Canada on key projects organized around a common area of interest. . . . Canada has a strong university medical research base that encompasses 16 medical faculties in Canadian universities that are affiliated with a network of over 100 teaching hospitals and research institutes. . . .
Canada has private sector Contract Research Organizations (CROs) that offer integrated packages of all the major services required by pharmaceutical and biotechnology companies to take a new drug through the developmental and regulatory process. Canada has a well-developed capacity to perform clinical trials.
The Canadian pharmaceutical industry has two main components: the brand-name drug manufacturers, which tend to be branch plants of multinationals, and the firms that produce generic drugs, which are more likely to be Canadian.
The brand-name and generic firms are showing a tendency to converge, in that generic manufacturers are currently undertaking certain innovative research, and both groups are involved in the research-based biopharmaceutical sector. Nevertheless, the producers of patented medicines and the makers of generic copies differ on what pharmaceutical policy should be.
The opinions presented to the Committee during this review of the 1993 amendments to the Patent Act tended to fall into one of two camps represented by CDMA or PMAC. In general, the witnesses active in health promotion tended to support the CDMA because its lower prices make medications more accessible to the general public. Newly developed patented medicines usually are more expensive. Because of their common interest in research, university medical researchers tended to favour the PMAC position, although many of them wanted more basic research to be supported by the pharmaceutical companies.
We have a tendency to talk about pharmaceutical research and development as if it is primarily a question of money and jobs. These aspects are certainly important, but the truly critical end product of biomedical research is to find cures for the diseases that afflict humanity.
Some companies brought their health care initiatives to the attention of the Committee. Astra Pharma described its efforts in health promotion and cost containment. In early 1995, it launched a health education initiative called Sharing A Healthier Future, a program promoting greater health and well-being through partnerships with such organizations as ParticipAction. With two other pharmaceutical companies, Astra formed the Canadian Pharmaceutical Distribution Network, aimed at reducing the cost to hospital pharmacies of ordering prescription drugs. Through the Network, innovative and generic drug companies have joined forces in order to offer hospital pharmacies an all-in-one system for ordering, invoicing and delivering drugs with no separate service fees. Astra pointed out that this consolidated method of distribution made possible by the Network has allowed hospitals to save up to 30% of those costs. Another Astra initiative was to donate products worth $1.4 million to Canadian patients under an emergency drug assistance program last year. A wide variety of different companies identified difficulties that are creating obstacles to their activities.
My business is bulk pharmaceuticals derived by fermentation. In this business, the only way you can survive is to use the economies of scale and sell to international markets. That's why I need such a large plant. If the plant is to be in Canada, I simply can't get into a situation where I have to stand idly by and watch my Chinese, Indian, or in the case of biotech products, American, competitors move in and dominate markets for newly genericized products whose patents have expired across most of the world except in Canada. They usually expire later in Canada than elsewhere.
CDMA tells me they have a strong legal opinion that Canada can enact export exemptions without being in conflict with international trade agreements. I urge you to consider these deeply.
The long-term growth and survival of my company and other fine-chemical companies in Canada depends upon it.
We ask that our ability to export products not be curtailed in any way. This is an important point.
Our sales in this sector are growing strongly, but the current regulatory regime of Bill C-91 hampers us considerably and prevents us from exporting products under patent here in Canada, even if these products are no longer under patent or never were in the first place in the countries they are destined for. It should be remembered that developing countries have an urgent need for less expensive pharmaceutical products, which explains the rapidly expanding export markets for generic drug manufacturers. . . . We do not want to be restricted by the patent standards in Canada when we develop, manufacture and export a product to a country where the patent has already expired or where the product was never under patent in the first place. It is important that our actions not be curtailed. As things now stand, if the product is under patent here in Canada, we cannot develop and manufacture it. We must form partnerships with other countries to develop these products and export them to these markets.
By allowing generics to export into those markets, we would be basically subsidizing their activities in those very low-price markets. That's why I suggested we have to look at the intent, the costs, and the benefits and make a decision as to whether or not that's the right thing to do.
Now many small companies are looking at contract manufacturing with foreign companies and the shipment of the product back to these countries. In many cases they have no intention to develop this product in Canada, and as such they do not become subject to review by Health Canada.
Many biotech patents in Canada are issued much later than elsewhere, and this will restrict our small companies from potentially developing and manufacturing these products in Canada while our competitors in other parts of the world get a head start. We would also like to see the government develop a strategy that encourages export of products and allows export of products to jurisdictions where there are no patents or the patents have expired.
What has to be appreciated is that pharmaceuticals are probably the only class of product in the intellectual property field that has such a lengthy review process. It's not fair to lose all the patent life of your product so late into the patent time.
Canada is what you call a hard country for regulatory submissions, as hard as the US, with the FDA, which is the hardest. In Canada, the HPB requires the top amount of research to be done for a drug to be approved for the market-and high quality. That takes a long time. At the same time, we have no PTR. So you put those two together and the spread increases and the cost increases. That is the big problem. With what we have in Canada, we can never compete against the US, which is a huge country with a big economy. But Canada has top-notch researchers.
I want to point out that without an adequate, effective and enforceable system of laws governing patents, we do not have the necessary means to protect our patents. All we have is a system of patent rights on paper. . . . Without the notice of compliance regulations, Canada would have no effective means of enforcing patent rights and our industry would be deeply concerned. We believe that the current unsure nature of the regulations should be rectified by incorporating the principles and fundamental mechanisms of the regulations into the Patent Act.
Drug companies make large investments in R&D. In Canada, the pharmaceutical industry is responsible for only 1% of shipments of manufactured goods, but carries out 10% of all industrial R&D. Although successfully marketing a drug can be very lucrative, the chances of success are small and the expenditures considerable. Most research is carried out internally by patent-holding pharmaceutical companies, and in recent years there has been more R&D spending by generic drug companies. According to the CDMA, in 1993, the generic drug sector spent $79 million on R&D; two years later, this figure had risen to $127 million. The 64 companies directly involved in developing biopharmaceutical drugs last year employed nearly 4,000 Canadians, 1,600 of them in R&D. In 1995, they invested $251 million in R&D. Some witnesses explained to the Committee what research means to them and to Canadians.
Indeed, what most distinguishes the patent drug industry from the generic drug industry is the extent of R&D carried out for new drugs. In this field, the very young biotechnology industry already invests twice as much money, but without adequate intellectual protection, corporations such as Biochem, Algene and Haemacure would certainly not have been founded.
This R&D spending also has indirect economic benefits, some clear and some less clear, but nonetheless real: all R&D efforts involve highly qualified employees with higher salaries than in the generic drug industry, and thus naturally, higher consumer spending in the local economy.
Every year is precious for a product. Having seven and a half years versus having 13, 14, or 15 years represents a significant loss in revenue for our company, much of which would be poured back again into R&D. . . . Bill C-91 has allowed Pfizer Canada to compete much more successfully within our own global corporation for a greater share of investments in both research and manufacturing facilities. This success is reflected in the growth of total research and development spending by Pfizer Canada.
In 1993, for example, the year Bill C-91 was proclaimed, our total R&D spending was $6.9 million in Canada. This year, it will be seven times as much: $41.3 million. Our R&D spending in 1996 equalled 18% of our human prescription pharmaceutical sales, far in excess of the 10% commitment made when Bill C-91 was passed. This research spending has been distributed to many centres across Canada. In fact the clinical research programs sponsored by Pfizer directly contribute to helping talented and skilled Canadian researchers stay in smaller centres, where they can both serve Canadian patients and fulfil their career aspirations by conducting world-class research.
As the head of Novartis Pharma here in Canada, I must continually sell this country to my superiors as a better place than others in which to invest and conduct pharmaceutical research and development. In this regard, Canada has certain competitive advantages: a growing pool of highly qualified biomedical researchers; a network of hospitals, universities, and research centres willing to cooperate with industry, and with the experience in doing so; as well as federal and provincial tax policies to support R&D. The quality of research dossiers completed in Canada is of such high quality that those dossiers are in demand for international registration purposes.
Rather than provide a fixed period of time across the board to all products, in these instances, you look at the length of time it has taken to bring individual products to market. Many countries around the world have a mechanism whereby they reach some formula where there is a maximum number of years that you add on and a total maximum number of years that you would have market exclusivity. That formula then is applied based on the regulatory time for that particular product. In many instances, it would not apply to a product; in other cases it would. . . . What we're saying is that linkage works today. It's not that it can't be improved, because it probably can, and we would be prepared to negotiate or discuss any way to improve it. Other nations use interlocutory injunction laws; that is the mechanism they choose to use. It does not work in Canada and we do not have confidence that it can be changed to make it work here, so I don't have a solution for you. But the current mechanism is the one that works.
With respect to the section 55 regulations, the basis of the regulations is that the generic is guilty until proven innocent. The burden of proof is upon the defendant in this case rather than the plaintiff. That's one aspect of the legislation that is troublesome. As well, I think we're experiencing some echo from the transition from Bill C-22 to Bill C-91, where we find ourselves today, in that we have a hangover, if you like, of a whole set of patents that are not product patents but process patents for which the originator does not have rights to the product, just to the method of manufacture. So I think that's probably inevitable, given the transition that Canada made in 1987 and 1993, but the thing that's not inevitable is the section 55 linkage regulations, whereby we have to go to court to prove we're innocent. To me that's a fundamentally inappropriate act to have to do.
There is a lot of debate about the funding for medical research - the research part of medical research, not the clinical trial and testing part of medical research. We know that the Medical Research Council of Canada and the rest of the granting agencies have had their grants cut. One of the solutions to that is to have the research funded by multinationals or by local companies in Canada. The fact of the matter is that neither multinationals in Canada nor local companies will put a heck of a lot of money into basic research.
When the Act was amended in 1993, PMAC made R&D commitments. Several industry witnesses stated that they wanted to invest in Canada, suggesting that the Committee increase the level of protection for intellectual property. Some witnesses also indicated that if the patent policy climate became unfavourable, there might be an exodus of research and manufacturing activities to countries offering better conditions.
The Canadian industry is determined to step up its activities in the country even more and to invest its profits here. . . . Our investments have increased, and they would have been even greater if Bill C-91 had not been passed.
We are planning to increase our investment in research and development here because Canada is our home. Our goal is to become the premier biopharmaceutical company in the world. Canada is an excellent base for us, with good universities, research hospitals, government research institutions, and favourable R&D tax credits.
A wide range of highly dynamic networks facilitating research and intellectual interaction is crucial in fostering a climate that favours the growth of Canada's pharmaceutical industry.
The Canadian biotechnology sector, which is expanding quickly, is the direct result of research funding by the MRC. In 1994, there were 121 Canadian biotechnology firms. Today there are 224, which create thousands of high-technology jobs and manufacture Canadian products that are distributed and exported abroad. Canada is starting to see the potential of new technology. There is no reason why it could not become a powerful, giant Silicon Valley of biotechnology. With Bill C-91, we can protect the intellectual property that comes from our inventions and discoveries, and we will be able to create Canadian jobs in our universities, our research centres, and our own Canadian industry.
Our biopharmaceutical companies play a very important role today in providing a Canadian capability to translate our scientific discoveries from our universities and medical schools into commercial products. Increasingly, we're seeing the results in industrial and economic activity and new jobs as we capitalize on the massive public investment made over many years in university research, which has largely been paid for by the Canadian taxpayer.
Looking to our future revenues and our commitment to continue investing at least 10% of sales in R&D, Novartis Pharmaceuticals Canada plans, if Canadian patent conditions are favourable, to spend some $200 million on research and development over the next five years. These moneys will be spent both on existing research programs in areas such as transplantation, and on new ones in areas such as xenotransplantation. In basic research, Novartis Pharmaceuticals Canada intends to increase its effort to at least 25% of total R&D, especially through the Novartis Canada discovery research office in Calgary, Alberta, a world-class centre to which we have just renewed our funding commitment for another five years.
We bought our third building last year, invested over $6 million in refurbishing and creating an additional manufacturing facility, and expanded our workforce by 40%. This year, we're commissioning another two manufacturing facilities.
Let me say that much of that growth has been fuelled by our R&D investment over the past three years, which is in excess of $40 million. Last year alone, we spent $16 million on R&D, and I'm amazed to hear from Mr. Mäder of Novartis that that's only marginally less than Novartis' R&D spending. We're tiny; we don't even feature as a blip on the top 500.
We expect to spend marginally more on R&D this year. I'd venture to suggest that as a percentage of sales, we're in the top 2% of R&D spending, and that's in relation to not only any pharmaceutical company, but companies in general.
F. Canadian Drug Patent Issues
The two national associations defended opposing viewpoints during the Committee's review of the 1993 amendments.
The PMAC Agenda
- 1. Many countries recognize that new medicines face a unique set of hurdles to obtain
regulatory approval. The United States, the European Community and Japan
offer patent term restoration (up to five years) to compensate for patent life lost
due to a lenghty period of human clinical trials and regulatory approval,
particularly for breakthrough medicines that require a longer period of
government review. This places Canada at a competitive disadvantage.
- 2. The linkage regulations, namely the set of rules that technically prevent generic
companies from introducing copies illegally by infringing patent, are not included
in the Patent Act. They are added on as regulations, which can be changed by
any government at any time. The rules have worked fairly for both the innovative
sector and the generic sector. They should form part of the Patent Act
- 3. For the past ten years, Canada has undergone regular reviews of its intellectual
property protection policies. Future parliamentary reviews should be conducted
only in order to ensure that Canada's patent laws remain competitive with
international standards.
The CDMA Agenda
- 1. Repeal the Patented Medicines (Notice of Compliance) Regulations.
- 2. Promote exports by allowing the manufacture and export of products to countries
where the product is not under patent.
- 3. Retain the Bolar provisions, which allow for a generic company to test produce prior
to patent expiry for the purpose of meeting regulatory approval, and to stockpile
product for sale after patent expiry.
- 4. Correct the retroactive unfairness of Bill C-91: any compulsory licence granted after
20 December 1991 and prior to the coming into force of the Bill on 15 February
1993 should be reinstated.
- 5. Shorten the period of market monopoly through a return to compulsory licensing;
further extension of patent terms in Canada should be unthinkable.
- 6. Amend the Food and Drug Regulations and the Trade-marks Act to require generic
drugs to resemble (in size, shape and colour) their brand-name equivalents and
that generic drugs be imprinted with a code or logo indicating the manufacturer of
the product.
- 7. Ensure that patents for any as yet unissued biopharmaceutical patent applications
should be given a maximum 20-year term from filing.
- 8. Direct the Canadian Intellectual Property Office to avoid issuing broad-blocking
patents that would harm the development of our domestic biotech sector by
determining the subject matter of the invention and by granting claims that cover
that subject matter only.
- 9. Amend the powers of the Patented Medicine Prices Review Board to include the
power to issue compulsory licences when brand-name prices are found to be
excessive, and to monitor and report on revised company-specific R&D and other
industrial development commitments for the brand-name companies that benefit
from patent monopolies in Canada.
The effects of Bill C-91 are just beginning to be seen. The products that were on the market when Bill C-91 was introduced were what I call the older generic products. It's the new generation of generic products that is being held up and affected by Bill C-91. And I confess to having a self-interest, since Bill C-91 was good for Genpharm, even though it was unfair because it didn't affect the older generation of products, which were those we were working on. As we move into the new generation of generic products, that's where the effects begin to be seen--omeprazole, lovastatin, simvastatin, pravastatin, sertraline; the new products.
The patentees have sent the message that they will make it impossible to profit from investment in generic products, even when there are no relevant unexpired patents. As a result, unless and until the regulations are rescinded, Apotex and others are unable to make further investments in the generic sector. [There will be a] demise of chemical production in Canada, a continuing growth of the trade deficit, and the continuing of monopoly pricing long after the expiry of all relevant patents.
The federal government saw its international trade obligations as limiting the range of policies Canada could undertake.
As the Minister of Health, I think we should attempt to do everything we can to try to maintain a reasonable expenditure for the purposes of drugs. But I don't think Canada can walk away from the World Trade Organization. I don't think Canada can walk away from NAFTA. As much as maybe we would want to in some instances, I don't think we can do that. The regime we do have is one we're going to have to live with and we're going to have to work with. But I think there are many ways in which the committee could make recommendations that would effectuate some positive health goals as well as do some positive things in research and development for the industry as a whole.
However, the advantages of compulsory licensing were very attractive to the generics:
The Canadian system of compulsory licensing that was eliminated by Bill C-91 helped meet this goal. It provided an effective method of controlling drug costs by allowing cost-saving generic drugs onto the market after brand-name companies had received a fair period of market exclusivity. At the same time, it was a strategic tool to foster the growth and development of the domestic pharmaceutical sector. It can be credited for helping the generic industry grow to where it is today.
The generic companies and other witnesses, including a number of legal experts, recommended that the Committee consider exceptions, such as ordre publique, under TRIPS or NAFTA to the exclusive rights conferred by a patent to allow a return to compulsory licensing. This opinion was based on giving a broad interpretation to the particular phrase or article in our international treaties. However, the Committee also heard that, in international law, exceptions tend to be narrowly interpreted.
Sections 55.2(1) and 55.2(2), the early working provisions, are exceptions designed to facilitate the transition of the product from the monopoly status of the patent into the public domain. The NOC-Linkage Regulations substitute a special procedure for drug patent infringement for the usual court proceedings:
This is essentially how they work. To be protected by the NOC link, a patent holder, generally a brand-name manufacturer, must submit to Health Canada a patent list setting out all of the relevant patents to a particular brand-name product and their expiry dates. When a generic manufacturer seeks a NOC, it must indicate whether or not it accepts the patent list. If the generic agrees with the list, the NOC will not be issued until the expiry of the last patent relevant to the product as set out in the patent list. The generic company's application will remain confidential. If, however, the generic manufacturer disagrees with the patent list, it must serve the patentee, the brand-name holder of the patent, with a notice of allegation. By doing this, the generic company makes its application to Health Canada known to the patentee.
The patentee then has 45 days to decide whether or not it will initiate court proceedings. If the patentee decides to initiate court proceedings, at this point, the Minister of Health cannot issue to the generic manufacturer its NOC until the parties reach an agreement, the listed patents subsequently expire, the courts render a decision, or a period of 30 months elapses, whichever comes first. I told you it was going to get complicated.
The court proceedings run in parallel with Health Canada's approval process. A controversial aspect of the regulations is this 30-month stay, described by some as an automatic injunction that is imposed upon Health Canada once the patentee begins a court proceeding. When in court, if the generic company wins, it may enter the market as soon as Health Canada has issued the NOC. If the patentee wins, the generic manufacturer must wait until patent expiry before receiving its NOC and entering the market.
The Committee is grateful to counsel from PMAC and the CDMA for appearing in an extented roundtable to discuss these very technical issues of patent infringement with us.
G. The Provinces
The Committee heard from the provincial governments of British Columbia, Manitoba, New Brunswick, Ontario and Saskatchewan. They are responsible for the health care systems in their provinces including provincial drug programs. The question of striking a balance between health concerns and the economic benefits of a strong pharmaceutical industry was addressed by all four provinces, although they proposed different solutions.Ontario seemed to find the current balance satisfactory on the whole, and felt that caution should be exercised before introducing patent term restoration or an export exemption. Drug costs were a concern for Ontario, and it noted its commitment to working with the federal government, the other provinces and territories, consumers and the industry on initiatives on drug accessibility.
On the other hand, BC, Manitoba, New Brunswick, and Saskatchewan did not find the current balance satisfactory. C-91 had resulted in substantially increased drug costs, and insufficient industrial and research benefits. These four provinces wanted increased competition from generic firms to lower drug prices and they favoured the major items proposed by the CDMA. Rising drug costs were making a viable national pharmacare impossible to achieve or sustain, according to BC and Saskatchewan. They added the question of whether it was possible to restrict 20-year pharmaceutical patents to breakthrough drugs alone, with the me-too drugs having shorter patents.
A number of the provinces felt that a regional distribution of research that reflected relative population had not yet been achieved.
The federal Minister of Health tabled with the Committee a note prepared for the April 1996 meeting of federal, provincial and territorial ministers of health. This note proposed that the provinces delegate power to regulate non-patented drugs to the PMPRB. Some of the provinces would agree to such a request, some not. BC wanted the Board to have powers over single-source, off-patent drugs.
H. The Patented Medicines Price Review Board
The PMPRB received much attention from the public during the hearings. Although limited by legislation to ensuring that prices are not excessive, many witnesses wanted it to fulfil a wider role in a more publicly responsive way.
I think that the mandate of the Patented Medicine Prices Review Board should be expanded. At present it only has jurisdiction over patented drugs, but over half the prescriptions in Canada are for generic or single-source, non-patented agents. The PMPRB should also be given the authority to regulate the prices of these drugs.
At present the board can only consider the price of a new drug in relation to the prices charged in seven other countries that tend to have the world's highest prices. It's like saying that we have a much cheaper health care system than they do in the United States. That's not necessarily the greatest claim in the world. So the PMPRB should consider the price of new drugs in relation to all OECD countries, not just the seven with the highest prices.
At present the board treats category three drugs, so-called ``me-too drugs'', no differently than category two drugs, and this results in higher drug prices within therapeutic classes. Instead, the PMPRB should discount the inception price of ``me- too drugs'' according to the number of existing drugs in that therapeutic class.
At present the board does not consider the overall return on investment of the firms it regulates.
This is in contrast to other federal regulatory agencies, for example the CRTC. I think that the board should also be required to consider the return on investment of drug companies when it regulates prices. The industry has provided the best return on investment of any sector for approximately 30 years.
Most witnesses wanted the Board to be able to look at the prices of generic drugs as well as patented ones. The Board's record of keeping price increases under the rate of inflation impressed many witnesses less than might be expected. Drug costs were rising in spite of falling drug prices. The introductory pricing rules used by the Board were felt to be too weak, resulting in introductory prices that were too high. A series of newspaper reports which were published during our hearings raised serious questions about the Board's statistical methodology.