Evidence of meeting #36 for Industry, Science and Technology in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was technology.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Ian Hargreaves  Professor, Digital Economy, Cardiff University, As an Individual
Erica Fraser  Manager, Technology Commercialization, Engineering/Sciences, Industry Liaison and Innovation, Dalhousie University
Lianne Ing  Vice-President, Bubble Technology Industries Inc.
Marc-André Gagnon  Assistant Professor, School of Public Policy and Administration, Carleton University, As an Individual

9:35 a.m.

Conservative

The Chair Conservative David Sweet

Thank you very much, Madam Ing.

Now we'll move on to Marc-André Gagnon pour cinq minutes.

9:35 a.m.

Dr. Marc-André Gagnon Assistant Professor, School of Public Policy and Administration, Carleton University, As an Individual

If it is okay with everyone, I'm going to present in English. I think it will be easier.

I'm going to be discussing policies to encourage innovative R and D in the Canadian pharmaceutical industry and basically show how these innovation policies right now are very costly and also very ineffective. I'll give just a brief overview of the political economy of the sector and then a better understanding of these innovation policies in terms of costs and benefits.

In terms of the overview of the political economy, we have to keep in mind that we have core companies, basically, what's called “big pharma”. They represent two-thirds of world market share. At the same time, two-thirds of the Canadian market is controlled by 15 companies. I think the focus must be more on these companies.

Over the last 30 years we have seen that in terms of increasing profitability, there has been an important increase in profits for these companies. If you compare them to dominant companies in other industrial sectors, you'll see a differential accumulation, so basically an increase in the gap in profits for the pharmaceutical sector. Now, this could be normal, but the problem is that when you look at what has been going on in the pharmaceutical sector in the last 20 years or so, everybody agrees that we have this huge innovation crisis. In terms of therapeutic innovation, right now the situation is a bit of a catastrophe. So how can we explain this paradox of having increasing profits while at the same time decreasing therapeutic innovation?

We need to understand that basically the dominant business model of the pharmaceutical sector right now, not only in Canada but globally in the pharmaceutical sector, is way more focused on promotion, for example, than on real innovation. The patent system right now allows these companies to focus more on promotion, because they have large protection for the very little innovation they bring to the market, for example, with metered drugs.

The dominant business model is based on heavily promoting new medications that are insignificant in terms of therapeutic innovation. The existing financial incentives encourage large-scale promotion, not innovation.

On the question of innovation policies specific to Canada, we must keep in mind that patent policy is one of them, but we do have other innovation policies that are important for the sector. First, there are tax credits and the SR&ED program, but we have other tax credits as well. More or less, companies benefit from a 48% tax credit on R and D expenditures.

We have a system in Canada with the Patented Medicine Prices Review Board that sets the price for patented medicines in such a way that we always aim to be the world's fourth or fifth most expensive country, which is very problematic. This is something that is very costly. There is just no reason, for example, that when we compare ourselves to France or to the U.K., we spend 10% to 15% more for patented prescription drugs. The overall cost of that basically is that if we had a price comparable to that in France or the U.K. we would save around 12%, or $1.5 billion.

We have other innovation policies, such as the 15-year rule in Quebec and also some direct subsidies in Quebec and Ontario. If we do the math on all of this, basically, if you look at pharmaceutical R and D in Canada, the total gross private R and D expenditures are $1.2 billion, but if you take into account the tax credits, it means the net private R and D expenditure to the pharmaceutical sector is $640 million that is being spent by the companies.

If you add up the amounts, a conservative estimate of the cost of direct and indirect subsidies is $1.7 billion. So right now we have a system where Canadians pay at least $1.7 billion in different direct or indirect public financial subsidies to the pharmaceutical sector in order to generate a total of $614 million, for a rate of return of negative 65%. If you were running a company with this type of result, you would be fired on the spot, but this has been going on for at least the last 20 years.

In terms of innovation policy, the problem is that it's not working. The common measure to look at R and D intensity in the pharmaceutical sector for a country is the ratio of R and D to sales. It has been declining since the mid-1990s. It was 6.9% in 2010, and in 2011 it was still declining.

When we compare ourselves to other countries, we're not part of the leading countries in terms of the ratio of R and D to sales. We're more on par with Cyprus and Romania right now.

How can you solve the problem? My take on the issue is that we must not plow more money into the system. I have three very simple recommendations.

First, we need to change the way we set prices, for example, to aim at countries like the U.K. or France in terms of prices, so it would save us at least $1.5 billion.

There's discussion with the CETA agreement right now, Canada and Europe. My take on this is that you need to scrap the patent linkage regulations. This is costly, it is ineffective, it is a waste in patent litigations, and it creates real insecurity for brand-name companies in terms of the length of market exclusivity.

Finally, if we want to go for a patent term restoration--for example, the delay for approval--to get it back in terms of extended patent protection, it's not a problem. It's just a patent. It's not a right. It's a privilege granted by the state, and the state can require specific conditions to grant this privilege. The idea would be to impose the condition that a significant portion of these additional revenues because of patent term restoration be reinvested in Canada. I think you would really create a knowledge-based economy.

9:40 a.m.

Conservative

The Chair Conservative David Sweet

Thanks.

Now we'll move to our questions. They're all five minutes.

Mr. Carmichael, for five minutes.

9:40 a.m.

Conservative

John Carmichael Conservative Don Valley West, ON

Thank you.

Welcome to our witnesses.

I'd like to begin with Madam Fraser. We've heard from other educational institutions, and we've been told specifically that Canada is the second choice of IP registration--the U.S. being first--in our market, in our sphere. I wonder if you might elaborate a bit on that.

From the perspective of Dalhousie, is that a good thing? Should it be a reverse, should we be working to correct that in any way? Or does it serve the purpose in terms of meeting the needs for those who are innovative in creating IP?

9:40 a.m.

Manager, Technology Commercialization, Engineering/Sciences, Industry Liaison and Innovation, Dalhousie University

Erica Fraser

Well, I think the first thing to note is that it's not so much that Canada is a second choice; it's that under the current patent system you file in one place, and then you have 12 months to file either internationally or pick your other countries. The U.S. just offers that added advantage with the provisional applications. It's quicker, it's less formal. It can be less expensive, but not necessarily. So when I say that Canada is our second filing, it's not so much that it's a second choice. We will file in Canada when it makes sense to file in Canada--for example, do we have commercial partners who have a market in Canada?

That being said, if Canada had a provisional system or another competitive system that made it advantageous to file in Canada first, we would be happy to do so. It's purely a matter of.... Oftentimes we have a publication coming up quickly, so it's where can we file that makes the most sense first.

9:45 a.m.

Conservative

John Carmichael Conservative Don Valley West, ON

Right. Quite frankly, I think that was the intent of the other educational institutions. They alluded to this issue.

You talked about the three challenges that you face at your university, and I would think that's consistent across the country.

9:45 a.m.

Manager, Technology Commercialization, Engineering/Sciences, Industry Liaison and Innovation, Dalhousie University

Erica Fraser

I would think so, yes.

9:45 a.m.

Conservative

John Carmichael Conservative Don Valley West, ON

Many academic institutions face the same challenges.

As we study this as an issue, obviously innovation is something we're clearly focused on, our government is focused on. We want to find a way to better assist or enhance the opportunity for innovation to ultimately commercialize, so how do we pave that road a little more smoothly so that we can assist in that, or at least take the objections or the hurdles out of the way?

I had a question to you specifically. Do certain IP policies increase incentives for business to invest or partner in research projects with university researchers? I understand the issue, for example, of the undeveloped technologies, the rush to market, and maybe we'll talk later about the valley of death—I'd be curious to hear more on that. I wonder if you could just address that as a question.

9:45 a.m.

Manager, Technology Commercialization, Engineering/Sciences, Industry Liaison and Innovation, Dalhousie University

Erica Fraser

Sure, but just to clarify, by IP policies, do you mean at the government level or internal to the university?

9:45 a.m.

Conservative

John Carmichael Conservative Don Valley West, ON

No, I think I'd like to know from the government level, more importantly.

9:45 a.m.

Manager, Technology Commercialization, Engineering/Sciences, Industry Liaison and Innovation, Dalhousie University

Erica Fraser

Sure.

I think within certain applied research grants these days there is provision for IP funds for filing. For example, the NSERC I2I is a great example of having funding available for patenting. I think that's great.

I think where there is a little bit of a disconnect is perhaps with a lot of funding available through NSERC—and we love this funding, don't get me wrong—such as the Engage grants, the Interaction grants, and the CRDs. All of these are ways of connecting industry with the university and promoting that collaborative research. But there is no IP funding at the end of it. One of the things we often hear from companies is that it's great that this has been developed, but they don't have the money to protect it either.

If there were IP funding available to help with the protection of those technologies and those innovations developed through collaborative research, I think that would go a long way to helping companies work with the university even further to bring those innovations to market.

9:45 a.m.

Conservative

John Carmichael Conservative Don Valley West, ON

Clearly, then, your third challenge is defence of the portfolio when there is no IP money at the end. Neither the business partner nor the academic institution has the ability to step up and do what's necessary to protect that IP technology.

9:45 a.m.

Manager, Technology Commercialization, Engineering/Sciences, Industry Liaison and Innovation, Dalhousie University

Erica Fraser

I would say that's correct. I would say that there is another aspect to it too. If we consider IP developed at the university, and our goal is to commercialize that intellectual property, enforcement is the way we will have power to license it to a commercial partner, as opposed to it just going out into the ether where anybody can get a kick at it.

9:45 a.m.

Conservative

The Chair Conservative David Sweet

Thank you.

We'll have Madame LeBlanc for five minutes.

9:45 a.m.

NDP

Hélène LeBlanc NDP LaSalle—Émard, QC

Thank you very much.

I would like to thank all the witnesses for joining us.

My question is for Professor Gagnon.

Does extending the lifetime of patents, like it was done in 1987, drive innovation up in the pharmaceutical sector?

9:45 a.m.

Assistant Professor, School of Public Policy and Administration, Carleton University, As an Individual

Dr. Marc-André Gagnon

First, we have to establish what “innovation” means. This word can have various meanings. If we talk about innovation in terms of economic performance, we can say that economic performance went up until the mid-1990s. But if we talk about therapeutic innovation in the pharmaceutical sector, meaning results in terms of health, the answer is no.

Patent policies do not necessarily improve therapeutic innovation. They may increase research and development funding, but, if the primary purpose of the funding is to have access to research that has already been done and that is protected by a patent, that does not contribute to increasing therapeutic innovation.

9:50 a.m.

NDP

Hélène LeBlanc NDP LaSalle—Émard, QC

The intellectual property model that has been and is probably still being used in the pharmaceutical sector is rather restrictive and rigid. There was a lot of distress, especially in the Montreal area, when pharmaceutical research centres were shut down.

How do you see the future? We are talking about a more restrictive intellectual property model and stricter protection rules. What type of intellectual property system do you see for the future, be it in the pharmaceutical sector or other sectors?

9:50 a.m.

Assistant Professor, School of Public Policy and Administration, Carleton University, As an Individual

Dr. Marc-André Gagnon

In the pharmaceutical sector, and even in other sectors, players are constantly in conflict. That is why the idea of integrating a culture of collaboration is no easy feat. However, when we talk to researchers from companies, we see that they are on board to try to increase collaboration. They see the importance of having access to each other's research. Business-wise, that is not necessarily the most profitable option for companies. That is why steam sometimes builds up on the topic.

As I said, there is very little therapeutic innovation with the current model. It is less risky and less expensive for a company to use the molecules it has already created and to continue working on that. It actually has all the patents and the intellectual property on those molecules. The company can try to make slight improvements to what it has rather than undertake a completely new and different type of research.

Right now, a lot of me-too drugs are being manufactured. Therapeutic innovation is often quite insignificant. Instead of encouraging major research that could lead to great discoveries, the current restrictive system leads to this business model based on insignificant innovation.

9:50 a.m.

NDP

Hélène LeBlanc NDP LaSalle—Émard, QC

You have made some recommendations. How could the government or lawmakers encourage this type of collaborative intellectual property in order to promote innovation in our country?

9:50 a.m.

Assistant Professor, School of Public Policy and Administration, Carleton University, As an Individual

Dr. Marc-André Gagnon

I have collaborated with Richard Gold, who came to make a presentation here, I believe. We work a great deal on patent pooling for various diseases, among other things. It is one of the nice ways to encourage researchers to collaborate and to make interesting discoveries.

We have to understand that the current model granting intellectual property rights for ongoing research is becoming more and more of an obstacle. So, based on the current model, extending those rights is a roadblock to discovery rather than an incentive.

9:50 a.m.

NDP

Hélène LeBlanc NDP LaSalle—Émard, QC

You talked about patent-linkage regulations. Could you expand on that and tell us why that is not necessarily a benefit for Canada?

9:50 a.m.

Assistant Professor, School of Public Policy and Administration, Carleton University, As an Individual

Dr. Marc-André Gagnon

We compare ourselves a lot to Europe, given the agreement negotiations that are under way. Europe does not have patent-linkage regulations. This is basically a system that allows generic manufacturers to have access to patented research from companies. However, as soon as generic companies want to market their product, they have to send a request to the patent holder for authorization.

In Canada, our patent system is very lax; we issue patents very easily. We start with the premise that generic manufacturers will challenge patents before the courts. Our system is very lax in terms of issuing patents and it allows companies to challenge it before the courts. The patent-linkage regulation system grants up to two years of additional protection to make it possible to demonstrate in court that the company's patents are not valid and that they were issued all too leniently. It is too expensive and it is not useful.

9:55 a.m.

Conservative

The Chair Conservative David Sweet

We're quite a ways over the time. I let you go for a while there to try to get the detail out of your answer.

9:55 a.m.

Assistant Professor, School of Public Policy and Administration, Carleton University, As an Individual

9:55 a.m.

Conservative

The Chair Conservative David Sweet

Mr. Albrecht, for five minutes.