International Trade Committee on Feb. 13th, 2014

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Thank you for your presentation, Mr. Gagnon.

I was struck by this right from the outset: purchases of prescription drugs are about the same in Canada and in the U.K., but the U.K. has twice as many residents as Canada. I read your article, and there seems to be a faulty perception of the provisions of the legal framework in Canada, almost as if that framework was a hostile environment for the pharmaceutical industry. I would like you to tell us about that perception, which differs from the studies proving that our approval system is not that slow and ineffective.

[Dr. Marc-André Gagnon]

The comparison with the United Kingdom is interesting. Do not forget that the U.K. has a universal, national drug insurance program. In Wales, Northern Ireland or Scotland, patients make no co-payment. Everyone has full or almost full access to that program. There is no problem then with access to medication for financial reasons. And there is indeed greater consumption.

However, the United Kingdom represents 2.5% of the world medication market, and as you say it has about twice the population of Canada. Canada, whose population is half that of the U.K., represents 2.6% of the global medication market. In addition, some say that Canada is not doing its share to help the industry. I think people should be careful. Canada does much more than countries such as the United Kingdom, France or most European countries; they, furthermore, have a universal public drug insurance program which ensures far better access to these drugs.

As for the hostility of the Canadian regulatory framework, of course it is the role of industry to claim that that is the case to try to obtain more privileges. However, we have to take a close look at this: in Canada, we pay much more than elsewhere.

As for the repayments, there is the matter of restoring the length of patents. The regulatory timeframe to get a drug approved can sometimes be several months. So we are extending the length of the patents by that many months, so as to compensate for the regulatory delay that had to be respected to get the drug approved. As a logical argument, the fact that Canada takes much longer to get a product approved has caused people to conclude that our system is slower and less effective. Well, no, we are not less effective than Europeans.

A study was published by Norton Rose, but it was proven that they had used data that made no sense. The Fraser Institute, for its part, published studies with methodologies that seem quite problematic to me.

According to different studies done of the necessary regulatory delay, Canada does not take longer than the others. It is quite simple. In the United States, for instance, when a file is not approved, it is sent back to the industry and the industry takes the time to rework the file and submit it again, and that is not necessarily a part of the regulatory time it needs to get the drug approved, whereas that is the case in Canada. Obviously, if we are comparing apples and oranges, we will say that we need more time in Canada. The United States, we must remember, does not include the time taken by the industry to submit its request again.

In addition, the American market is much bigger than the Canadian market. Consequently, it is clear that the industry will make good time and resubmit its request for the American market, but it will be in less of a hurry to do so for the Canadian market.

So, we have to be careful. I believe that the matter of the long regulatory timeframe for the approval of drugs is not a problem in Canada.

[The Chair, Conservative, Rob Merrifield]

You have a couple of minutes.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

In one of your articles, you talk about what the increase in the cost of drugs could be. We are talking about 32.3% for provincial governments, another figure for the federal, 29% for private insurance companies and 32.9% for patients.

Can you provide some explanations on this? I think the governments are going to shoulder the additional costs we will be facing, and at the end of the line, the same person will pay.

[Dr. Marc-André Gagnon]

We have to be careful here. I think that this study was carried out based on the hypothesis that all of Europe's demands with regard to broadening the intellectual property regime in Canada would be met.

Normally, health is a matter of provincial jurisdiction, just like national drug insurance programs. Consequently and first and foremost, the provinces are the ones that will have to deal with the cost increase. However, by tabling an agreement in principle in connection with the free trade agreement, the federal government committed to offering compensation to the provinces for the cost increases caused by certain provisions in CETA. In this way, this is no longer an obstacle for the provinces.

I am both a Quebec and Canadian taxpayer. This money will come out of my pocket one way or another. I am very conservative on tax matters. If the money is coming out of my pocket, I want it to be of benefit to me. However, that is not the case. Sixty per cent of Canadians have private insurance, but some, among the most vulnerable, have no insurance at all. Not only will they be subject to an increase in the cost of their drugs because of provisions in CETA, but they will receive no other benefit to compensate. This situation seems very problematic to me.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Cannan and Mr. Hiebert, I think you're sharing your time.

Go ahead.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

Thanks to our witnesses.

Mr. Gagnon, I just want you to be comforted to know it's good to be a fiscal conservative. There's nothing wrong with that. We support you on that.

I appreciate your being here today.

I represent the riding of Kelowna—Lake Country, which has a variety of industries in research and development working with our post-secondary institutions, so technology and innovation is a big factor.

My first question is for Mr. Elliott from BlackBerry. Could you share with the committee some of the roadblocks, the barriers that BlackBerry has encountered over the years, as you've tried to enter and do business in the European Union and various countries within the EU?

[Morgan Elliott]

Sure. I won't specifically name countries because we still operate in there, but we've faced all sorts of barriers, from our managing directors being arrested in different countries and being asked to report to the police station every 12 hours to be interrogated, to revenue police showing up at our doors. Unlike CRA, in some countries revenue police are armed, so that often sends a strong message.

In the European Union, to a lesser extent, they believe in the rule of law and it's a little more sophisticated in terms of the way they operate. Certainly a barrier we've faced in certain countries was that BlackBerry wasn't secure, which is kind of funny because in other countries we hear we are too secure.

There are all sorts of different questions, different certification testings, different processes that are not violating the letter of agreements or processes but certainly violate the spirit of them.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Is it fair to say you support the rules-based level playing field that the comprehensive—

[Morgan Elliott]

Absolutely. We're not a military power. We're not the biggest economic power on the globe. We're a small population, so back to my other comments, we need to work smarter and those rules-based trading agreements allow us to really punch above our proverbial belt.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Excellent.

I have one quick question for Professor Gagnon before I pass the floor to my colleague, Mr. Hiebert.

During your comments, Mr. Gagnon, you said you felt there was no correlation between research and development and innovation. I just want to know if you believe in rewarding research and development, and whether you support patent exclusion for innovation.

[Dr. Marc-André Gagnon]

I did not say there's no link between research and development and innovation. I said there's no link between increasing the cost of drugs and increasing the amount invested in Canada by the pharmaceutical industry.

Keep in mind that, yes absolutely, in terms of the whole logic of the patent itself, it's just let's reward innovation so the industry has more incentives to invest for more innovation, which makes good sense, absolutely. The thing is, if Canada decides to pay more for their drugs, foreign companies will not start investing in Canada if they get more money from what they sell in Canada. They're going to continue to sell the same thing whether they invest in Canada or not, so their decision to invest or not is not based at all on the price level that Canada will accept to pay for their drugs.

This is an important point for me. What I think is a huge problem right now, when you look at the way the patent system is organized, keep in mind that 80% of the new drugs driving the market do not provide any therapeutic improvement, as compared to the drugs that already exist on the market. The problem with that is if we provide massive incentives or we organize the patent system protecting the new drugs that are not providing these therapeutic improvements, we're sending a message that industry focuses on me-too drugs, because real breakthrough drugs are more risky to invest in, but will give you the same protection, the same amount of money if you invest in me-too drugs instead and do not contribute to therapeutic improvement.

For me there are problems with the incentives in place in the patent system, yes, but when it comes to having a patent system in Canada versus more investment in Canada, just know you can increase the price of the patented drugs as much as you want; there is no causality in terms of increase of investment in Canada.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

We heard from the Alzheimer Society, I think it was rare disease disorders and others that support CETA. I think there's definitely a reason that we need to support innovation.

Mr. Hiebert.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

I need a short answer, Dr. Gagnon. Why are Canadians paying 20%, 25%, or 30% more than Europeans?

[Dr. Marc-André Gagnon]

It's for different reasons.

One of the reasons is that we don't have the institutional capacity to contain the cost of drugs. For me, one of the main reasons is not having a universal pharmacare system, as compared to European countries. It's a huge issue.

In 1987, the way we decided to regulate the price of patented drugs was to take a basket of seven countries, the ones that had the most intensive research and development as compared to sales, and cap the price based on the median of these seven countries. That was the system in place in 1987 through the PMPRB, the Patented Medicine Prices Review Board. Inside this basket you have the four most expensive countries in the world, so we're capping the price based on the four most expensive countries in the world.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Are you saying we need to change the countries that we average the prices through?

[Dr. Marc-André Gagnon]

Absolutely. It's just if we extend the basket to, for example, 13 comparative countries.... There was a good study by the PMPRB on this, I think in 2007. If we include other countries like Australia, the Netherlands, etc., in the end, if we regulate the price based on this new basket of 13 countries instead of seven, we could save something like 15%, I think.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Why wouldn't the PMPRB do that?

[Dr. Marc-André Gagnon]

They are just in place to implement the legislation that was put forward. They are not there to change legislation. This needs to be done politically at the government level.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Pacetti.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chair.

I thank the witnesses for being here with us today.

Mr. Gagnon, it seems to me that there are two separate issues here that are being mixed up. I would like some clarifications on some of the things you said in your presentation.

The cost of medication is much higher in Canada than in Europe. However, investing in research and development is also at issue. The cost of medication is linked to the factors you have just spoken of, but investment in research and development is also related to other factors. However, in your presentation you did establish a correlation between those two.

Under the free trade agreement with Europe, are these two different things or should we consider them together?

[Dr. Marc-André Gagnon]

This question is important. In my opinion, these are two completely different things. The decline in the industry's investment in the pharmaceutical sector in Canada is due in large measure to emerging economies. In the pharmaceutical sector, developed countries are going to see annual growth of 1% to 2% over the next few years, whereas emerging countries will see growth expressed in two-digit numbers. In their case, we are looking at 14% or 15%. It is clear that the industry negotiates its investments here as though they were chips in a poker game. They offer such and such investments, and ask what will be given to them in return.

At this time, whatever Canada does, it is no longer a strategic market for the industry. It is clear that investments will be focused on emerging markets.

And yet the inclusion of these provisions in the free trade agreement is justified by saying that the real issue is the intellectual property system in Canada. According to the industry, revenues are insufficient in Canada and if they were higher, the industry would invest more in R&D.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

But that is not what you just showed.

[Dr. Marc-André Gagnon]

Well, precisely...

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

It is static. The revenues increase a little, but investment in research and development remains equal or inferior.