The C-91 Review Balancing in Pharmaceutical Patent Policy in the Interests of All Canadians

Head Table Guests

Monty Larkin, Associate Director, The Ireland Fund of Canada and an Honorary Director, The Empire Club of Canada; Jack R. Mills, Professor of Chemistry (Retired) and Vice-President, United Nations Association; Rabbi Arthur Bielfeld, Temple Emanu-El; Dr. Michael Dan, Chief Executive Officer, Novopharm Biotech Inc.; Alicia Drinkwater, OAC student, Humberside Collegiate; Brenda Drinkwater, President, Canadian Drug Manufacturers' Association; John McNaughton, President, Nesbitt Burns and a Past President, The Empire Club of Canada; Rose Wolfe, Chancellor, University of Toronto; Anne Libby, Co-owner, Libby's of Toronto Art Gallery and a Director, The Empire Club of Canada; Jack Kay, President, Apotex Inc.; Dr. Charles Tator, Professor and Chairman, Division of Neurosurgery, University of Toronto; Anna Dan, Mr. Dan's charming and lovely new bride; Deszo Horvath, Dean, York University; and Donald Johnson, Vice Chairman, Nesbitt Burns.

Introduction by Julie Hannaford

If it is true that one of the elements of a democratic society is its tolerance for and maintenance of an atmosphere in which the free expression and exchange of ideas and debate will flourish, then it must also be true that the hallmark of a truly civilised society is that society's enthusiasm for the expression and exchange of ideas and debate over issues of the day. The Empire Club of Canada, having served as a public forum in which national and international leaders in business, science, politics, and the arts have addressed audiences for the last 93 years, serves as an enduring sign that Canadians and in particular those who make up our audience continue to place the importance of debate, the free exchange and expression of ideas, and the addressing of critical issues of the day as a priority in the maintenance of a civilised and democratic society.

The issue which our guest addresses today, the regulation of drug patents at the federal level under Bill C-91, is an issue which is surely one of the most critical issues affecting our society today, particularly as demographers tell us the baby boomers, who once thought in their twenties they were immortal, are now facing in their late forties and fifties the ever-increasing prospect not of mortality but rather sickness.

Our health industry therefore has placed upon it demands created by a scientific research community that allows us to get better faster, and the countervailing demands of a society preoccupied with fiscal responsibility and restraint, to make us better not only faster but in a manner that is economically efficient.

Hence the debate over Bill C-91 explores not only the differences between the generic and the ethical pharmaceutical interests but it explores the frontiers of that which we regard as pillars of our society: the rewards for innovation in research, the demand for competition, and the demands of the evermore empowered consumer to be treated fairly, but at the same time, to receive the best that a competitive global economy can offer.

The Empire Club of Canada is honoured and privileged to have our guest Leslie Dan address the issues raised by and surrounding Bill C-91, not only because of his well-established expertise and reputation in the field of pharmaceutical manufacturing and research, but also because of his leadership in the Canadian community.

Fifty years ago, in 1947, Leslie Dan arrived in Canada as a young war refugee. Within seven years, he had graduated from the University of Toronto School of Pharmacy and in 1959 he completed a Masters Degree in Business Administration.

Leslie Dan founded Novopharm Limited in 1965, with a mandate to produce high-quality moderately priced pharmaceuticals for the Canadian market. Today, more prescriptions are filled with Novopharm products than those of any other pharmaceutical company in Canada. Novopharm now has five divisions: a generic manufacturing division which distributes across Canada, Europe, Central America, the Pacific Rim and the Middle East, a consumer-products division, a biotechnology division, which is engaged in research in the field of cancer treatment, an innovative pharmaceutical division (Eldan Pharmaceuticals), and a vaccine and blood derivatives division located in Hungary.

Novopharm employs over 3,000 people worldwide, including a staff of over 235 people devoted to research and development. Leslie Dan should not however be known solely for his leadership in generic pharmaceutical manufacturing and research development. Rather he should be equally well known for his personal philosophy which treats giving as an integral element of his life. In 1985, Leslie Dan founded the Canadian Medicine Aid Programme, an organisation which provides life-saving medicines and aid to the sick in the third world. He has been a supporter and donor to a wide range of health-related programmes, including the Dan Family Chair of Neurosurgery at the University of Toronto, the Novopharm/Stanley Chair in Pharmacy at the University of British Columbia, the Samuel Lunenfeld Research Foundation at Mount Sinai Hospital, Casey House, a Toronto AIDS hospice, and a number of other pharmacy-oriented programmes in Canada.

Mr. Dan sits on the Board of Governors of Doctors Hospital, and Mount Sinai Hospital, and on the Rotman Research Institute Committee at the Baycrest Centre for Geriatric Care.

He is a Member of the Order of Canada, he is the recipient of an honorary Doctorate of Laws Degree from Dalhousie University and the University of British Columbia, and he is the recipient of the Award of Achievement from the Canadian Pharmaceutical Association.

Mr. Dan addresses The Empire Club of Canada today not only from the perspective of a leader in the pharmaceutical industry, but as a true leader and example of dedication to the larger society in which we as Canadians all live.

Please join me in welcoming Mr. Leslie Dan, Founder, Chairman, and Chief Executive Officer of Novopharm Limited to The Empire Club of Canada.

Good afternoon ladies and gentlemen.

I would like to thank you, The Empire Club, very much for giving me the opportunity to speak to your members on the issues facing Canada's generic drug industry, in particular the upcoming parliamentary review of the federal drug patent legislation, known as Bill C-91. My presentation conveys the views of the Canadian Drug Manufacturers' Association.

The upcoming review, currently scheduled to begin in February, will mark another turning point for Canada's pharmaceutical industry, and the future of our healthcare system. It represents an important opportunity for the government of Canada to take action in order to balance the interests of Canadian consumers, the generic drug industry--which is primarily Canadian-owned--and those of the foreign-owned multinational companies which manufacture brand-name drugs. We all recognise that balancing these diverse interests is very complex and I will try to explain it to you so that you get a clear understanding of the main issues. First let me explain what I mean when I use the term "balancing."

The pharmaceutical industry in Canada, both brand-name and generic companies, produces important medicines which are an essential component of the Canadian health-care system, together with physicians, nurses, pharmacists, hospitals and long-term care facilities. Our health-care system is one of our greatest achievements and it is needed for the social well-being of our people and our country. It must continue to be accessible and affordable to all citizens regardless of their income. You might say that it is virtually enshrined in the Canadian constitution. Our universal health-care system has taken many years to develop and it is admired by many countries around the world. It must not be lost.

The task of our federal and provincial governments is to see that the upcoming review of Bill C-91 will fairly and equitably balance the interests of the four major parties which will be affected by the changes of any new pharmaceutical legislation. Who are the four parties?

First, the Pharmaceutical Manufacturers' Association of Canada (PMAC) representing the views and interests of the innovative brand-name pharmaceutical manufacturers, virtually all of which are foreign-owned. Second, the CDMA representing the views and interests of the generic pharmaceutical companies, most of which are Canadian-owned. CDMA members consist of 13 companies most of which are comparatively small in size with the exception of Novopharm and Apotex which are large operations. Third, the governments which are the payers of medications supplied to the senior citizens and the welfare patients, representing about 44 per cent of the total medications consumed. And the fourth party, private payers, employers who pay for drugs through employee-benefit plans representing about 44 per cent of drug costs and the non-insured consumers buying the medicines directly at about 12 per cent.

It is important to understand that under proper balancing none of these four parties should be favoured at the expense of the other three parties. For example, if we allow medications to be too expensive, the public will have limited access to them. Alternatively, if the price of the medicines is excessively depressed by the government, then the pharmaceutical manufacturers will operate at a very low profit or even at a loss and cannot expand or continue their research activities.

The thrust of my presentation to you will be to explain and prove to you that the current legislation, Bill C-91, favours excessively the large brand-name pharmaceutical manufacturers at the expense of Canadian consumers and the generic industry. Consequently this anomaly has to be rebalanced so that the public will have access to affordable medicines and the generic pharmaceutical industry can continue to develop into a fully integrated national pharmaceutical industry and make its important contribution to the health care of our citizens. This will be the task of the committee members who will review Bill C91 and we hope that they will redress the imbalance which presently exists.

Let me also state clearly that the members of the CDMA believe that brand-name companies which invest funds in developing new and effective medications are entitled to receive a fair return on their investments. The fundamental questions are the following: "What period of time does it take to recover their R and D investments, realising that most drugs have worldwide sales--and Canada represents only two per cent of the total world drug market? Should the manufacturers be allowed to recover excessive returns as a result of extended patent protection?" We believe, and according to a 1996 Environic survey two-thirds of Canadians share our views, that five to 10 years of exclusive market monopoly is adequate to recover R and D expenses although we recognise that the PMAC companies want much more.

Let me briefly consider the health-care system in Canada. It is generally known that the health-care system in Canada is under great stress. Its costs are rising dramatically--you might say alarmingly--for we have designed a system which we simply cannot fund adequately. The Ontario government has decided to close a large number of hospitals, reduce the number of hospital beds, and reduce hospital operating budgets and is currently engaged in a dialogue with the physicians to roll back their fees and place doctors in geographic districts where medical care is lacking. The total health-care bill in 1994 amounted to $72 billion in Canada of which about $9 billion represented medications. What is somewhat disconcerting is that the cost of drugs is rising significantly faster than the annual inflation rate, due to the aging population, greater use of drugs and the high cost of new medications being introduced by the brand-name companies. Many new drugs cost $1-2 per tablet and we have now one product used by patients with migraine headache which costs $15 per tablet. It is recognised that many of these new drugs are not necessarily better or more effective therapeutically than the older medications. They are more-0r-less a desire by the brand-name companies to come out constantly with new drugs in order to increase market share and increase their annual sales. Let me give you some statistics. In the province of Quebec, the provincial drug programme in 1986 amounted to $300 million. Nine years later, in 1995, it skyrocketed to $900 million. The average cost of medicine in 1986 amounted to $8 per prescription and in 1995 it increased to $22. Similar drug-cost increases occurred for other provinces.

Well, one does not have to be a rocket scientist to figure out and extrapolate that within 10-20 years, or even sooner, something drastic has to be done to lower drug costs. I might add that prices of generic drugs are constantly decreasing due to the severe competition among the generic companies and also due to the price ceilings set by the provincial governments which have not allowed any price increases for the past four years.

Let me say a few words about the history and the impact of the generic industry in Canada. Generic pharmaceuticals represent medications which are put on the market after the various pharmaceutical patents have expired. Generic pharmaceuticals are not new since even before 1965 several products appeared on the market such as phenobarbitol, digoxin, quinidine, and many others and nobody paid much attention to them. They become a concern to the brand-name manufacturers when a large number of generic products appeared on the market and the pharmaceutical patents were challenged in the courts by the generic manufacturers. The real importance of generic drugs became evident in the early 1960s when several governmental studies took place to prepare our nation for a universal health-care programme. This resulted in the famous Harley Commission hearings during 1967 and 1968 which studied drug costs and prices. I personally attended most of the sessions. The substance of the findings was, in the words of David Henry, the Director of Combines Investigation, that "drug prices were higher than need be" and to correct this anomaly Bill C-102 was passed by Parliament which introduced compulsory licensing. This legislation, in essence, allowed the generic companies to petition the Commissioner of Patents to issue a legal document, or a compulsory license, to allow generic companies to market medicines which were still under patent by paying royalty to the patentee to compensate for research investments. The amount of royalty was determined by the Commissioner of Patents. As a result of this legislation there was an unprecedented boon to the generic companies to expand rapidly and make available good quality generic pharmaceutical products to the public at affordable prices, usually at half the cost of the brand-name drug prices or less. To say that the brand-name manufacturers did not like this legislation is an understatement.

The Liberal government at the time was convinced that drug costs needed to be lowered, Canada needed to develop an indigenous industry and this should be accomplished by competition among the generic and brand-name companies rather than by setting drug prices. Yes, the brand-name companies did not like this legislation but let's face it, it worked and drug prices were reduced resulting in cost savings to the public amounting to hundreds of millions of dollars as demonstrated by later studies. The Eastman Commission estimated generic drugs saved Canadians $211 million in 1983. This figure had risen to $420 million in 1992 according to respected pharmaco-economist Dr. Stephen Schondelmeyer. Savings in 1995 due to generics were an impressive $800 million according to a study just released by the Canadian Drug Manufacturers' Association.

One can easily guess that the brand-name companies exerted relentless pressure upon the subsequent governments to regain their patent protection. Eventually they were successful when the Mulroney Conservative government passed Bill C-22 in 1987 and later Bill C-91 passed in 1993. These two pieces of federal legislation gave extra patent protection to the brand-name companies. Bill C-22 provided 20-year patent periods and assured market monopolies of seven years under specific circumstances and in most cases 10 years of protection. As an added stimulus to Canadian innovation, pharmaceuticals discovered in Canada, enjoyed full 20-year patents exempt from compulsory licensing. However, virtually no drugs were discovered during this time and little basic pharmaceutical research of any importance was carried out in Canada. Research that was carried out consisted primarily of clinical studies to clear medications at the request of HPB. Compulsory licensing, however, was still in existence, albeit under specific restrictions.

Bill C-91 passed in 1993 was a major blow to the generic industry and to Canadians since it totally abolished compulsory licensing and did so retroactively. This means that compulsory licenses issued from December 1991 and February 1993 were retroactively revoked without any compensation to the generic companies which spent considerable funds to obtain the licenses and carry out clinical studies on generic products for regulatory clearing purposes.

Bill C-91 introduced several restrictive legislative features which strongly favoured the brand-name companies at the expense of the consumer and our national generic industry. One of the most odious aspects were the special regulations under Sect. 55-2 of the Patent Act, or "linkages" as they call them, which were literally slipped in quickly without any parliamentary debate or consultation with the generic companies, the provinces and others who pay for drugs. This section can delay the launching of generic pharmaceutical products by two and a half to three years by simply allowing the brand-name companies to state that the generic products about to be launched are violating existing patents. Launching is therefore delayed until the legality of the patents is cleared up in the courts. Since we all know how slowly courts operate, we can all guess how long it takes to resolve legal issues.

According to studies carried out by Professor Schondelmeyer the impact of Bill C-91 legislation over a period of 20 years will come to about $4-7 billion, a significant extra sum to be paid by the users of medications.

To illustrate the importance that the generic industry is playing in the pharmaceutical market let me provide you with some basic statistics. The most recent IMS figures available show that for the 12 months ending in September, 1996, generic drugs accounted for 39.5 per cent of all prescriptions filled in Canada. From a cost point of view, they accounted for only 15.2 per cent of expenditures on prescription drugs illustrating the cost differences between generic and brand-name pharmaceuticals. Today generics are, on the average, 40 to 60 per cent lower in cost than their brand-name equivalent.

Let me deal briefly with the position of the PMAC companies as it relates to the upcoming review of Bill C-91 and how it will affect the development of the generic industry.

The foreign-owned brand-name companies presently received 20 years of patent protection as a result of the current Bill C-91. They argue that they promised the government to bring their R and D spending up to about 10 per cent of their sales. Therefore they are entitled to receive additional patent protection. Interestingly, multinational companies abroad spend as much as 15-18 per cent of sales on R and D. Now the brand-name companies are requesting a patent term extension of an additional five years. They further state that the innovative pharmaceutical industry is responsible for the development of new medications which offer us better health care, less hospital costs and because of this they deserve additional protection to recoup their investments. In addition they have indicated that if any negative changes take place in the review of Bill C-91 they may reconsider and decrease their R and D investments in Canada.

The CDMA members, understandably, do not agree with the PMAC views and their request for additional patent protection. Nor do most Canadians, 75 per cent of whom think drug prices are already too high, the length of patent monopolies should be reduced and overwhelmingly believe that patent policy should support domestic drug manufacturers over foreign-owned multinationals according to Environic data.

Furthermore, PMAC does not mention that during the last few years some 16 companies have shut down their manufacturing activities, eliminating jobs and have turned their operations into sales, marketing and warehousing facilities as a result of the worldwide restructuring programmes. Interestingly, the majority of the additional jobs in the pharmaceutical sector have been created by Canadian-owned companies.

There are several tactics which PMAC companies are utilising to extend their patent protection and to delay the entry of generic products into the marketplace. In our opinion, the most damaging, as mentioned before, is Section 55.2 or "linkages" which can delay the entry of generic drugs by 30 months or more by simply stating that generic drugs violate drug patents.

Perhaps at this point it might be useful to give you what we consider a more balanced picture of the use and impact of patents in the pharmaceutical industry.

As I mentioned before, when a manufacturer invests funds and talents to discover new drugs, in our view they are entitled to receive a reward and consequently drugs should be patented. What concerns the members of the CDMA is the abuse of the patent system. Patents provide a monopoly in the marketplace. They are a privilege, not a right. While theoretically they offer exclusivity for a product for 20 years, in reality a medicine has not one but several patents each expiring at different times. We call this phenomenon "evergreening." This means that additional patents can be issued for a single drug and they may be anywhere from 5-10 years over and above the original 20-year patent. Generic products are then delayed from entering the market, thereby stopping competition. Once the main patent expires then new patents may appear for the same drug such as the use and composition patent. This is not the end of this fascinating game. When all the important patents expire, the manufacturer may reformulate the drug and create a new dosage form with a new set of patents. For example, if tablets were on the market, the new formulation may be soft or hard gelatin capsules. Alternatively, if the original tablet was to be taken three times a day, now a new form of delayed-action medication may be developed allowing the tablet to be taken only once a day. Again a new set of patents is possible. In many cases the new form does not offer therapeutic advantages. It is merely a means to extend market exclusivity and delay the entry of competitive generic products. Obviously legislative changes to Bill C-91 are desirable to discontinue this charade.

It is important to understand the significance of the research activities proudly claimed by the innovative brand-name companies. Of course, they are entitled to reap benefits but how much is a fair amount that a consumer can afford to repay the real R and D costs. Let us admit that all industrial concerns have to conduct research otherwise they fall behind in the industrial race. The question is: "Who pays for the research?" When a company has a market exclusivity the research costs which maybe 10 to 15 per cent are factored into the price of the drugs. In addition, governments offer extra incentives so that R and D expenses can be written off, not at a rate of 100 per cent but at 120 per cent or even more under some circumstances. Thus the $1 research expense can cost 40-50 cents or less which is attractive to all manufacturers. The Canadian taxpayer is footing the bill for much of this research through a generous tax- credit system. It is important to note that less than one per cent of patents are held by Canadians. In addition, Canada has top-quality research scientists so that Canadian R and D work is accepted in every country.

Let me discuss briefly the CDMA position and our concerns. The PMAC companies claim that the generic industry is constantly expanding; therefore they are doing well. A closer examination reveals a different picture. Yes, it is correct that the generic pharmaceutical market is expanding on a worldwide basis; yet the generic companies find themselves in a difficult position and in many countries it is a profitless growth. In our view, the position of the generic companies has significantly deteriorated during the last few years. This was caused by the inability to increase drug prices since the provincial governments have not allowed any price increases in the last four years despite the fact that our operating and raw material costs are rising each year. Competition among the existing and newly entered generic companies has constantly reduced and eroded drug prices without adequate additional new-product releases which will be more apparent for 1997-1998 and in future years. The full impact of Bill C-91 will balloon between the years 2000-2010. In fact, all future sales forecasts indicate the slowing down of generic drug sales. The current Section 55.2 makes it difficult, if not impossible, to release generic drugs on the marketplace in time and as many as 100 court challenges effectively delay the entry of generic products. Canadian-owned generic companies will have

difficulty in maintaining their R and D expenses which also may affect their innovative new drug programme.

It is significant to point out that the two largest generic companies, Novopharm and Apotex, are engaged in important innovative research activities. Novopharm's research expenses in 1996 amounted to about $35 million whereas Apotex spent about $56 million. Novopharm has 235 employees in its research department. A division of our company is engaged in innovative research to develop methods in cancer treatment. We believe that, in the not-too-distant future we shall come up with a more effective treatment for various forms of cancer ailments which will benefit patients worldwide.

Earlier this year, Apotex strengthened its biotechnology-based business with the acquisition of Cangene Corporation. One of Cangene's leading innovative products, WinRho SD has been used for several years for the prevention of hemolytic disease in newborns and has virtually eliminated that condition and now has new indications in the treatment regimen for AIDS patents.

It is an interesting observation that generic companies on a worldwide basis create a new market segment which has been recognised by the brand-name companies so that they are now slowly taking over and buying up generic companies on a worldwide basis. So now you have an interesting phenomenon whereby innovative brand-name companies are moving into the generic industry while the generic companies are moving into the innovative field.

Having reviewed the Canadian pharmaceutical industry, the position and the views of the brand-name and generic companies, let me present you with the recommendations of the CDMA member companies to the Canadian government and the special Review Committee on Bill C-91:

• The repeal of 55.2 should be addressed in February through an expedited review of the regulations;

• The government should not extend monopolies further through Patent Term Extension.

• The right to do research prior to patent expiry (Bolar provisions) must be maintained;

• The government should incorporate an export exception into the Patent Act to preserve Canadian jobs, i.e., adopt a "can do" rather than "can't do" approach to this problem. We understand this too to be a political decision;

• Health Canada should find a solution to preserving the right of Canadians to have products with the same active ingredients to be available in similar size, shape and colour;

• Restore the retroactivity of licenses which were issued between December, 1991 and February, 1993 and which were taken away.

In conclusion, let me say that we, the CDMA members, recognise the contribution of the PMAC companies launching new drugs in the marketplace and we believe that they deserve to recoup their financial investments.

It is our view that the present Bill C-91 excessively rewards the brand-name companies by offering too much and too extensive patent protection which adversely affects the consumers and the provincial governments by limiting the availability of important medicines at affordable prices. Bill C-91 seriously hampers the expansion and the viability of our nascent national generic industry. The time has come to rebalance this inequality and we urge the federal government to accept our recommendations as mentioned before.

I would like to thank you very much for your patience listening to my presentation which conveys to you the position of the CDMA, the generic industry which we hope will also guide our federal government in reviewing Bill C-91 during the forthcoming month of February.

The appreciation of the meeting was expressed by John McNaughton, President, Nesbitt Burns and a Past President, The Empire Club of Canada.