International Trade Committee on May 31st, 2016

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Thank you.

For all the witnesses who want to contribute to this next question, we had Mr. Michael Geist at this committee, who has been a very vocal critic of the TPP. He has said that the drug prices can escalate and that research and development funding is going to go down and increasing this pattern in the TPP will only further amplify these problems. Do you agree or disagree? Would any one of you want to respond?

Yes, please, Mr. Fleming.

[Mark Fleming]

Yes. Thank you for the question.

First of all, I think it's important to recognize that any changes in intellectual property are ensconced in CETA, the agreement between Canada and Europe. The TPP mirrors CETA. If and when CETA is ratified, that meets the requirements for the Trans-Pacific Partnership agreement.

I bring up CETA because it's important to look at the European health care systems and compare them to the Canadian health care systems. Currently, Europe has a more robust intellectual property regime than Canada does, and yet Europe does not experience significantly increased drug costs in that environment. In fact, their overall health care costs and their percentage of drug costs as part of their overall health care costs are lower than what we're currently at here in Canada. It's a misnomer to think that intellectual property changes will in fact increase drug prices.

What we are experiencing, from our company's perspective, is that we're able to leverage the changes that are forthcoming in CETA to help attract research and development investment to our country. I chair the committee for inward investment for my company, and I know that we have been able to leverage that at our head office to attract, as I mentioned earlier, over $1 billion of life sciences investment in the last two years. That's keeping Canadian jobs in Canada.

[The Chair, Liberal, Mark Eyking]

Mr. Elliott and Mr. Keon can answer that if their answers are quick.

Go ahead, Mr. Keon.

[Jim Keon]

Very quickly I'd like to make a distinction between drug prices and drug costs. Drug prices won't necessarily go up; drug costs will go up. When you have to buy a product at 100% of the cost of a brand-name product instead of 18¢ or 25¢ for a generic, for an extra two years, that drives up costs. I think we should be clear on the terminology. Clearly costs are going up. R and D by research-based companies is at a historical low in Canada despite many increases in intellectual property over the last two decades.

The third thing is that I'm very pleased to hear that CETA and the TPP have the same provisions indicated by Innovative Medicines Canada. We've seen, however, pressure on other countries that are trying to do what Canada is trying to do. For example, New Zealand has said it wants a two-year patent extension. The brand-name pharmaceutical industry internationally is saying that's not good enough under the TPP and they expected much more than that.

I think we should all remember that in Canada, the two-year patent extension under CETA meets our TPP commitments as well.

[The Chair, Liberal, Mark Eyking]

Mr. Elliott, could you give us a quick answer on that one?

[Richard Elliott]

Yes. I have two quick points.

It's important to remember that one of the commitments made by the originator pharmaceutical industry when NAFTA was adopted with more stringent IP provisions and less policy space for Canada was that they would commit to 10% of sales spent annually on R and D.

Interestingly, according to the figures reported by the Patented Medicine Prices Review Board for the first period of time and until the review of NAFTA that was mandated by law was completed, those commitments were met. The minute that review was completed and every year since then, they have consistently dropped. So the notion that somehow adopting ever more stringent IP provisions will necessarily translate into more R and D certainly hasn't been borne out in Canada's experience with NAFTA.

The second point I would make is that if, as we've heard, the IP provisions in the TPP aren't really anything particularly new or different, then why have they been negotiated for so hard? If that's true, there shouldn't be that much opposition to removing them, if they don't actually add that much. I suspect the answer is that they are seen by the originator pharmaceutical industry to be giving them something of significant benefit and that's why they're there.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Elliott.

We're going to move to the NDP now.

Madam Ramsey, go ahead.

[Tracey Ramsey, NDP, Essex, ON]

Thank you so much.

Your presentations have been just fantastic, and unlike my colleague, I won't say that you're trying to trick us. I think you represent different views, and certainly we've heard concerns across this country about pharmaceutical costs.

I'd like to address my first question to Ms. Pullen.

You represent nurses, front-line health care professionals. I know that in my community, people cannot afford their medication as it is. People are skipping doses. People are not able to afford their medication whether or not they have extended health care coverage, so when there is an increase in the costs....

I thank Mr. Keon for highlighting to us that this is an increase in the costs. It's not an increase in individual drug prices; it's the cost over the period.

If we're talking about the costs and about patients not being able to afford their pharmaceutical drugs, can you speak to us about the health outcomes for Canadians who are unable to afford their medication?

[Dr. Carolyn Pullen]

Thank you for that question. It's an important component of this discussion.

My personal strength is not in economic analysis. What we've been able to bring to the table are the unbiased and non-business interested analyses by other groups. These analyses are those in which we have trust. When we cite increasing costs or our drug prices, we are relying on those analyses and we perceive that the consequences of the TPP and potentially other agreements are severe.

At the front line, every day nurses see individuals not filling prescriptions or they are skipping doses of medications. The numbers have been cited as being in excess of one in five Canadians or as low as one in ten, but that's still significant. That translates into higher costs for managing chronic disease in Canada, more admissions to hospital, longer lengths of stay, and essentially poorer health outcomes for many Canadians from coast to coast.

You are also well versed, I'm sure, in some of the challenges in communities that live under conditions of vulnerability, such as first nations populations or low-income communities. In those communities you would see even more severe consequences. It is very common for nurses to see the same patients readmitted time and time again for the same simple health conditions that could be very easily managed by proper filling and proper compliance with simple generic prescriptions.

[Tracey Ramsey, NDP, Essex, ON]

Thank you for that.

My second question is for Mr. Elliott.

You talk about this policy space. For us as parliamentarians, this is incredibly important if we're actually going to improve public health and advocate for public safety. Eventually, I would love to see a pharmacare program happen. That public space is going to be limited under these trade agreements, and certainly under the TPP.

At the end of your presentation, you started talking about how it will lock us into certain things. One of the things you mentioned was linkage regulations. Could you expand on some of those things that we'd be locked into?

[Richard Elliott]

Certainly. Thank you for the question. There are others from the industry here, I think, who can also speak to direct experience of how those things operate in practice, those linkage regulations.

The existing notice of compliance regulations under the Food and Drugs Act allow for an originator pharmaceutical company to file what's called a notice of allegation, alleging that a generic manufacturer that is seeking marketing approval of its generic equivalent version of an originator drug will infringe its patent. The automatic effect of filing that notice of allegation is that an injunction is issued against the federal health minister preventing the health minister from giving marketing approval to that generic product for up to 24 months. So merely by filing an allegation, you can buy yourself up to two years of additional market monopoly as an originator manufacturer.

You may lose, at the end of the day, with your claim that your patent would be infringed, but of course during that time, you've made a significant amount of extra money, so there's obviously an incentive to game the system. That system is one that Canada and the U.S. have, but to the best of my knowledge, no other industrialized countries have. It's the system that the Supreme Court of Canada has described as draconian; that is the Supreme Court's word, not mine.

There's a good example of how we're basically making the health regulator, Health Canada, which is supposed to be looking at the quality, safety, and efficacy of medicines, into patent police. We're using one system to try to enforce claims of patent validity, which are sometimes in the end shown to be overbroad. There is an example of regulatory chill that already exists in our current legislation. It's the sort of thing that a number of other TPP countries would now have to introduce under the TPP, which is not particularly helpful. TPP would help to lock in that kind of mechanism.

[The Chair, Liberal, Mark Eyking]

Thank you. Your time is up, Ms. Ramsey.

We're going to move to the Liberals and Mr. Peterson for five minutes.

Go ahead, sir.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Thank you, everyone, for your very informative presentations, and thank you for taking the time to be with us today.

I have a couple of questions. I'm going to start with Innovative Medicines Canada.

In your opinion, what would be the impact on Canadian pharmaceuticals' ability to compete in this market if the TPP were ratified without Canada at the table?

[Declan Hamill]

Well, it's an interesting question. Thank you for your question.

In terms of the ability to compete internationally, I think you would need to be linked not just to the IP provisions but to the symbol that might send internationally. At this juncture, unless the TPP does not move forward for reasons beyond Canada, I have a hard time seeing the agreement not including Canada. I think it would be difficult to see that that would be in Canada's national interests overall.

With respect to the IP provisions, as we've already discussed, there really aren't a lot of differences in terms of IP provisions. In fact, they're somewhat more lax and less stringent than those which have already been negotiated with the European Union in the context of CETA. It's sort of a multivariable question. If CETA moved forward and the TPP didn't move forward, if the opposite occurred.... That said, the strengthening of the IP provisions is really being driven by the treaty with the European Union, not by the TPP.

The TPP does have one or two interesting aspects which are not found in CETA. There is, for example, a provision relating to patent office delays. These are delays where the Canadian Intellectual Property Office takes too long, an unreasonable delay, to process a patent. That delay standard is set to five years. Right now it takes about 19 months, so it's more a question of principle than an actual practical effect.

Overall, what drives the changes in terms of the IP environment which will require, as Mr. Keon mentioned, some very complicated negotiations, and the devil really is in the detail on implementation, is CETA as opposed to the TPP in Canada.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Thank you.

I have a question for Mr. Keon.

I appreciate this, but you highlighted the difference between cost and price. I'm just going to make sure I'm clear on what that distinction is. The cost is the cost of the production of the product and the price is what the consumer pays, right? Is that the distinction you're trying to make?

[Jim Keon]

I meant the cost to payers, for example, provincial governments. For example, the cost of Lipitor, a brand-name product, is about $2.20 a tablet. When the generic comes on, it's down to around 38¢. You can now pay for about five prescriptions for the price of one, so the costs have come down. The price of Lipitor itself may still be the same $2.20, but the costs to the program are either reduced with generics, or go up because generics aren't available.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Thank you for clarifying that. I wasn't quite clear on what that distinction was, so I appreciate that.

You mentioned that your organization and your members invest heavily in R and D. Do you have that as a percentage of your sales?

[Jim Keon]

Yes, we report on that.

Our companies do not report to the PMPRB, the Patented Medicine Prices Review Board, as the patent drug companies do, but it's in the range of about 12% to 14% of our revenue. The reason for that and why it's actually higher than the patent holding companies is that a lot of the development is actually done in Canada. There are large manufacturers, like Apotex and Pharmascience, that are Canadian-based companies. Apotex has been the largest spender on research and development in pharmaceuticals for many years.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

That leads to my next question.

In your opinion, what impact would our participation in the TPP have on that R and D investment here in Canada?

[Jim Keon]

Again, I think I'll come back to the comments others have made. It's CETA and the TPP in combination.

We were very concerned about the patent extension, that the two years would mean that development and manufacturing in Canada would put you behind the curve, that you're not going to be able to develop it as early as possible. An important element for us in that patent extension is that there will be an export clause, meaning companies.... Even though you're not going to be able to sell it in Canada for two more years and drug costs will stay high in Canada, you would be able to manufacture it for export to countries where patents have expired.

That's an important element for us in CETA and in the TPP.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Thank you.

[The Chair, Liberal, Mark Eyking]

That pretty well wraps it up, and thank you.

That ends the first round. Before we start the second round, I'll just remind everybody, if you're not fully bilingual, put your headphones on, because questions or answers could come in both languages at any time.

We're going to move to the second round.

The Liberals will start off for five minutes. We have Madame Lapointe.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Thank you, Mr. Chair.

Welcome to the witnesses appearing before us today. I hope you understand me because I will be speaking in French.

Mr. Labonté, I want to continue talking about the issue raised by my colleague earlier.

If Canada doesn't ratify the TPP, and Mexico and the United States do, what do you think will happen to the price of medications in Canada?

[Ronald Labonté]

I will have to leave that to other people to try to answer.

Looking at the pharmaceutical industry is not the major focus of the research work that I undertake. However, I would point out a few things around the issues that have been discussed around intellectual property rights and pharmaceuticals. One of them is that the original TRIPS agreement, with its 20-year term, was actually designed to take into account regulatory delays. By putting in patent term extensions, that's a kind of new provision that goes over and above what had already been anticipated as being a sufficiently long period of time of patent protection.

My major concern is less to do about how it's going to affect us if Canada doesn't ratify. I'm concerned that if Canada does ratify, it goes back to more questions about how we extend our public health insurance programs. We've talked about the necessity of trying to create some sort of pharmacare. My concerns about pharmacare would be less about what the drug patent legislation or the chapter in the TPP provides, and more about what the chapter in ISDS provides. That would leave us vulnerable if we extended into a public monopoly program to cover the costs of pharmaceuticals, or it could be dental care, eye care, home care. If we negotiated that in collaboration with the different provinces, we could be vulnerable to an investor-state suit because of how we foreclose the potential of foreign-invested private health insurance in that market.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Thank you very much.

I will now address the question I asked earlier to Mr. Fleming or Mr. Hamill.

If Canada doesn't ratify the agreement, and Mexico and the United States do, how will it affect the prices and investments of companies that research and develop medications?