Thank you very much for the invitation. I am very sorry about the PowerPoint presentation. As I was given very short notice, I prepared it at the last minute.
I am going to talk to you about the Canada-European Union Comprehensive Economic and Trade Agreement and its consequences on the cost of patent medicines. I am going to try to demonstrate that here, unfortunately, we have a clear case of what can be called corporate welfare for parasitic enterprises.
The graph showing the total expenditure per capita on prescription drugs for 2011, or the last available year, shows that in Canada, we are paying much more than in the vast majority of OECD countries, except for the United States. One could think that that is because in Canada we have better access to medications and that consequently people consume more of them. However, that is not at all the case. All of the European countries have a universal drug insurance program of one kind or another, and they have better access. In Canada, 10% of the population does not buy prescription drugs for financial reasons.
Let us now review prices. In fact, the group of countries Canada is normally compared to includes the four countries where the cost of patent drugs is the highest in the world, that is to say the United States, Germany, Switzerland and Sweden. I would also like to direct your attention to another fact. In Canada, we pay from 25% to 30% more for patent medicines than in other countries that are more comparable, such as France and the United Kingdom.
There is this tendency to inflate the cost of prescription drugs somewhat. There was logic to this in the beginning. In 1987, when the Conservatives amended the Patent Act in a way that favoured the pharmaceutical companies, they did so the right way, that is by stating that they were going to put in place a better piece of legislation and a method of setting the cost of patent drugs that would benefit the industry. In exchange for granting privileges, they required that there be economic and industrial spinoffs. The level of research and development can be measured by the money spent on R&D as compared to sales. Thus, the government required that 10% of money generated by sales in Canada be spent on R&D.
This worked very well for a few years, but toward the end of the 1990s, the system collapsed. The ratio whereby the funds devoted to R&D were supposed to be in proportion to sales collapsed in Canada, and rather than penalizing the industry for not having respected the 1987 agreement, the government put in place a series of measures to attempt to provide more assistance to the industry. They increased tax credits and granted direct subsidies, particularly in Ontario and Quebec. There was the 15-year rule. A series of measures were put in place that benefited the industry even more, so as to curb the drop.
Despite all that, the decline continued inexorably. In Quebec, we lost half of the members of the patent drug industry that used to allocate funds to R&D. We lost 50% of the jobs in that area over the past 10 years. In the rest of Canada, the figure is 18%, is a little less serious.
As for the level of research and development as compared to sales, Canada is almost dead last, behind Cyprus, Croatia and Romania, among others. So no one can say that this experience has been a success, or even close to one.
According to the industry, the problem is due to the fact that the intellectual property regime in Canada is not competitive. In the opinion of the industry, the system needs to be changed. The industry suggests that we use the free trade agreement with Europe to put in place provisions that will increase the protection of patent medications.
So, broadly speaking, the industry would like the government to increase its revenues, and in return it is ready to commit to spending more money on research and development. However, no conditions are imposed. The industry's logic is to say that if it has greater revenues, it will have more money to invest.
From 2000 to 2012, patent drug industry revenues in Canada increased considerably. However, investment in research and development stagnated or even declined. The claim that the higher the industry's revenues, the more it will invest, is magical thinking.
Indeed, in its last annual report published in October, the Patented Medicine Prices Review Board clearly stated that we had to stop believing that inflating drug prices would lead to an almost magical increase in investments. That logic is faulty; there is no cause and effect relation.
Regarding patent drugs, the free trade agreement with Europe started from the principle that being more generous with the industry would generate more spinoffs. There were three demands: restoring the duration of patents, extending data exclusivity, and a right of appeal under the notice of compliance regulations for both generic drugs and patented drugs. The extension of the data exclusivity was set aside, the length of patents was reset at a two-year period, although Europe was asking for five years, and the right of appeal was put in place.
With Joel Lexchin, I examined the meaning of these requests. We considered drugs from 2010, that is to say the available sample .
First of all, we wondered how much additional time would have been needed to put the generic version of these drugs on the market if the free trade agreement had been in place in 2010. In summary, we felt that for the 2010 medications, if that clause had been in place, generic drugs would have taken one to two years longer to reach the market. This one-to-two-year variance depends on whether exclusivity of data should apply to non-innovative drugs. That was one of the requests, however the agreement in principle presented by the government is not clear on that matter. That is why the additional delay to get these generic drugs on the market varies from one to two years.
On the basis of this sample, we estimated that if the provisions had been in place in 2010, the increase in the prices of patented drugs in Canada would have been on the order of 6.2% to 12.9%. Clearly, the CETA provisions will not have an impact before approximately 2023, but this gives us some idea of the increase in the cost of patented drugs.
What will the consequences of this be on the Canadian pharmaceutical sector? No conditions have been imposed on the industry this time. There will be no clear request requiring spinoffs from the industry. I do not believe in magical thinking. In my opinion, investment will not increase as a result of this, nor did it previously, as we saw during the past 15 years. In Canada, the increase in the industry's revenues did not lead to an increase of investments in that sector.
Here the privileges granted to the industry have been broadened and exclusivity increased, but we have nothing in return. I feel this is the very definition of aiding corporate welfare parasites. What to do?
First, let's make sure we do not extend data exclusivity to non-innovative drugs. If we did do so, we would create an incentive for those medications, on the one hand, and the costs would be much higher, on the other.
Secondly, we have to revoke the patent linkage system. I think the NDP tabled a private member's bill in 2003 or 2004 concerning this. At the time, it may have been somewhat premature. But now that the right of appeal has been granted, the patent linkage system becomes much more costly and presents few advantages. I think that the time has come to carefully reconsider it.
You will remember that in 2012 Italy attempted to introduce a patent linkage system similar to the one in effect in Canada. Europe then said to Italy that it did not have the right to do that, because it would cause too long a delay in the arrival on the market of generic drugs. At the same time, Europe asked Canada to not repeal its patent linkage system, but to strengthen it by adding a right of appeal. Let us simply imitate Europe and revoke the system, as it did.
Then, what to do next? Here is a very simple idea: if we want to compare ourselves to Europe, then let's compare ourselves to Europe. The price of patent drugs there are 20% to 25% lower than those in Canada. There is no reason to explain why Canada does not enjoy the same prices as those in France or in the United Kingdom, for instance.
If we want to encourage the industry to invest in the country, that is all well and good, but let's do so through other means, not by artificially inflating prices, which is costly and has no impact on investment.
Thank you very much.
