Strengthening Canada's Economy Within the Globl Healthcare Environment: The Need For Vision

Head Table Guests

Graham W.S. Scott, Senior Partner, McMillan Binch and Board Member, Baycrest Centre for Geriatric Care and the Advisory Council for Health and Policy Analysis, McMaster University; Margaret Samuel, Portfolio Manager Supervisor, RBC Dominion Securities Inc. and a Director, The Empire Club of Canada; Ashley Botting, OAC Student, North Toronto Collegiate Institute; Rev. Ian McLean, United Church of Canada; David Lindsay, President and CEO, Ontario Jobs and Investment Board; The Hon. Jim Flaherty, Minister of Labour, Government of Ontario; Laurence J. Russ, Ph.D., President and CEO, Nanodesign Inc.; The Hon. Cameron Jackson, Minister Responsible for Seniors, Government of Ontario; Patricia Christie, Board Member and Head of Fundraising, Schizophrenia Society of Canada, Toronto Chapter; Gerald P. McDole, President and CEO, Astra Pharmaceuticals Inc.; and Eric Jackman, Ph.D.,

President, Invicta Investments Inc., Chairman, The Jackman Foundation and The Art Gallery of Ontario, Chancellor of The University of Windsor and a Past President, The Empire Club of Canada.

Introduction by Gareth Seltzer

Hans Wader

Ladies and gentlemen, The Empire Club of Canada is recognised as one of this country's most prestigious forums. It is an honour for me to have this opportunity to talk to you about Novartis and our industry. More specifically, I propose to do two things: first, to give you a progress report on Novartis, the company formed by the merger of Ciba and Sandoz; and, second, to discuss some of the major issues currently facing Canada's research-based pharmaceutical industry. I hope to demonstrate that these issues impact on our health-care system, our whole economy, and especially on our vision of what kind of a country Canada should be to conduct business.

Pharmaceutical mega-mergers are much in the news these days, what with the dramatic merger announcement by Glaxo and SmithKline Beecham and their even more dramatic about-face. Despite their change of mind, let me say that I am convinced the merger trend will continue in our industry. It provides the best response to managing risk in an environment where research and development are becoming ever more costly and time-consuming. To increase our R and D strength was the main reason for the creation of Novartis. As Dr. Marc Moret, our Honorary Chairman, said so well: "It is our firm belief that in the long term only companies endowed with the greatest research and innovation potential will be among the leaders. The elite will consist only of those companies that can manage several large projects at once, shoulder the long-term investment burden for research of growing complexity, duration and riskiness and--in the event of failure--sustain all the financial risks."

Today, after Novartis' first full year of operations, I am pleased to report that it has succeeded in its merger and established itself as one of the world's largest life sciences companies. The Novartis Group concentrates on three core areas: health care, nutrition and agribusiness. It employs about 87,000 people and operates in more than 100 countries. During 1997, Novartis increased its total sales by 10 per cent to more than $31 billion. It is safe to say that the worldwide Novartis Group achieved its first-year objectives and is poised for future growth with an annual $3-billion R and D budget.

In Canada, Novartis is also clearly established through eight new companies in its core business areas: in health care: Novartis Pharmaceuticals, Novartis Consumer Health, and Ciba Vision; in nutrition: Gerber Canada and Novartis Nutrition; in agribusiness: Novartis Animal Health, Novartis Crop Protection and Novartis Seeds. I should point out that seven of these eight companies have their head offices in Ontario.

Turning to the prescription pharmaceutical sector, I am pleased to say that Novartis Pharmaceuticals Canada has also had a successful first year, marked by the launch of four new medications. These included Diovan, a new treatment for high blood pressure, and Apligraf, a living skin equivalent which heralds our entry into the world of biotechnology. Apligraf is attracting worldwide interest to this province because Ontario is leading the way as an international platform for medical training in the use of this truly revolutionary therapy. Apligraf, however, is still not reimbursed in Ontario.

Thus, it is also safe to say that Novartis Pharmaceuticals Canada is now firmly established as one of the top four companies and a leading force within Canada's innovative, research-based pharmaceutical industry.

I would like to take a moment to change a persistent misconception regularly presented in the press here as a reality: This is the notion that the generic drug business belongs to Ontario while the brand-name industry is concentrated in Quebec. The facts show no such thing. The research-based pharmaceutical industry has more of its companies, employees and research activities in Ontario than in any other province. Of the 60 member companies belonging to the Pharmaceutical Manufacturers Association of Canada (PMAC), which represents the brand-name industry, 34 have their head offices in Ontario and 24 in Quebec. PMAC reports that the innovative industry has 8,506 employees in Ontario and 7,350 in Quebec.

Although our head office is in Quebec, Novartis Pharmaceuticals Canada also provides a good example of how active the research-based industry is in Ontario. In research, we are conducting more clinical trials in Ontario than in any other province, with a planned investment of $8 million in 1998--an increase of 27 per cent over last year. In manufacturing, we are in the process of consolidating all our production at our plant in Whitby.

The Whitby story is a good illustration of the strength of globalisation and the need to work together in this fiercely competitive environment. Out of 10 Ciba and Sandoz plants in North America, Novartis wanted to eliminate six. And because the American market is so much larger than ours, there were strong arguments based on economies of scale that all four remaining plants should be in the United States. For our relatively small Canadian centres, it was a real David and Goliath struggle. And I sometimes felt as if I even had one hand tied behind my back, given the different levels of government support of intellectual property protection that the pharmaceutical industry enjoys in the two countries.

However, as Canadians, we mustered every other argument we could, and David eventually won. The Whitby plant remains open and is even undergoing considerable expansion as it consolidates production not only from Dorval but also from plants in the U.S. The result of this consolidation is that production levels will increase significantly in Whitby from, for example, 150 million tablets in 1996 to 650 million in 2001. To meet this increased demand, the Whitby work force will grow from 250 to 300 by the end of 1998.

What's important about these figures on our activity in Ontario is that you as influential business people here should realise that the innovative pharmaceutical industry is important for Ontario, contributing greatly to its economic strength. This industry annually injects $1.4 billion into the Ontario economy and pays more than $75 million in provincial taxes.

In 1996, Murray Beynon, President of the Board of Trade of Metropolitan Toronto, said: "The benefits and importance of a thriving pharmaceutical sector to Ontario are obvious and far-reaching."

The question naturally arises then as to what will create a thriving pharmaceutical sector in Ontario. The innovative pharmaceutical industry is fully integrated into the new, knowledge-based, technology-driven global economy. The emergence of knowledge-based industries, combined with increasingly liberalised capital and technology flows worldwide, are intensifying the race for jobs and investment among nations. To thrive in this new environment means that you must have a vision of what it takes to be internationally competitive. It is, above all, a question of vision.

In the pharmaceutical sector, four factors make us internationally competitive: 1) excellent medical researchers; 2) a timely drug approval process; 3) international standards of patent protection; and 4) open patient access to new medicines. I will briefly discuss each of these.

Canada can be proud of its medical researchers. The Ottawa newspaper, Le Droit, recently reported that Canadian scientists have discovered or contributed to the discovery of genes responsible for more than 20 diseases. Some of the brightest and the best of Canada's researchers are working right here in Ontario. There can be no doubt that Canada possesses the brain power needed to compete with the world.

What it also needs is the vision to see that internationally competitive health research requires globally competitive levels of funding. The pharmaceutical industry is increasing its share significantly but, in recent years, the federal government has been doing the opposite, to the point where U.S. funding of basic health research per capita is eight times greater than in Canada. We hope that the Government of Canada will make a serious investment in Canadian brain power through increased funding for the Medical Research Council, and we are encouraged by the measures announced in the federal budget last week.

Another major component of Canada's competitive stance is a timely approval process for new drugs. New medicines are approved in Canada by the Therapeutic Products Directorate (TPD) of Health Canada, which has recently been able to dramatically decrease approval times overall, and for this we commend them.

In certain therapeutic areas, however, the improvement has been uneven and much less than satisfactory. Because international pharmaceutical companies must get their products to market as quickly as possible to begin recouping the hundreds of millions of dollars it costs to develop a drug, they naturally favour those countries with the most timely drug approval practices as places to invest and conduct R and D. It is our view that the Therapeutic Drugs Directorate is, to say the least, under-funded; we call on the federal authorities to make sure all therapeutic areas benefit from timely drug approvals.

The third key to Canada's international competitiveness in pharmaceuticals is a globally competitive stance with regard to patent protection. On January 21, 1998, the federal government announced changes to Canada's drug patent regulations following a comprehensive parliamentary review. In brief, the results of this review maintained the status quo in terms of 20-year patent protection for pharmaceuticals. Within the details of this complex question, the government also reduced from 30 months to 24 the review period for disputes on patent infringement, a move favouring the generic industry.

However, enough is never enough and the generic industry has been bombarding you with advertisements denouncing the government's decision. What is important to note is what it doesn't tell you. Its complaints relate to a practice called early working, through which a generic company can begin stockpiling a copied drug so that it has immediate market access when the patent expires. What it doesn't tell you is that this Canadian advantage for the generic industry doesn't exist in any other industrialised country. In fact, the World Trade Organization has taken Canada to task for this unusual practice, regarded as intolerable by the global trading community.

Another thing the generic industry doesn't tell you is that, even with the confirmation of 20 years of patent protection, Canada still lags far behind its major trading competitors. This is because most industrialised countries use patent term restoration to provide additional patent life for time lost in the lengthy approval process. In fact, the effective life of a pharmaceutical patent in Canada is about 10 years, as compared to 14 or 15 years in the United States, Japan and the countries of the European Union.

Any objective analyst would conclude that the generic industry here has unheard of advantages. But that is not enough. The generic manufacturers would reduce Canada's level of patent protection to that of a Third-World country. To a young Canadian who has invested in 10 years of university training to become a scientist, this is the same as saying: "Go work in the United States, because we don't want a research-based industry here." To Canadians suffering from incurable diseases, this is like saying: "Wait a few years; eventually we'll import that new medical technology from somewhere else, and you might just live long enough to benefit from it."

The vision of the research-based pharmaceutical industry is quite different. We don't want Canadians to be hewers of wood and drawers of water. We have made promises to establish a dynamic, research-based industry and we have kept those promises. In response to improvements in Canada's Patent Act in 1987 and 1993, our industry since 1988 has increased its R and D expenditures by more than 276 per cent to exceed $3.2 billion. That represents an average annual increase almost double the world average for the pharmaceutical industry. At the same time, since 1987, the price increases of patented medicines have been on average about half the rate of inflation. People and countries with vision realise that greater patent protection--in the form of patent term restoration--would lead to an even greater investment in jobs, research and new medicines to cure disease.

The fourth factor relating to Canada's international competitiveness in the health-care sector is patient access to new medicines, a notion which requires a bit of explanation. The federal government approves new medications with regard to safety and efficacy. However, more than 85 per cent of Canadians do not pay for medicines out of their own pocket because their drug costs are reimbursed by private insurance plans or provincial governments. Few doctors will prescribe a medicine if it is not reimbursed. Therefore, what patient access to innovative medicines really means is having those medications inscribed on the provincial and insurance company lists of drugs approved for reimbursement. These lists are called formularies.

Facing budget restrictions, provincial drug plans have a tendency to block the listing of new innovative medicines, largely based on acquisition cost, an approach which is short-sighted in the extreme. After all, the acquisition cost of a typewriter is less than that of a computer but not many of you would now want to be tapping away on an Underwood.

Rather than the acquisition cost, what we should be measuring is the overall utilisation cost, because this global vision of the impact of new medicines on health care is both more cost-effective and more in line with a sound investment and job creation strategy. As always, it's a question of vision.

Provincial drug plans which unduly block or delay the listing of new medicines are known as restricted formularies. Ontario Drug Benefit's data clearly shows that from January to September 1997, out of the 320 requests reviewed by the Drug Quality and Therapeutic Committee, 191 were recommended for general listing, 25 for restricted listing and 104 were not recommended.

The sad part is that 89 per cent of the products recommended for general listing were generic products, while 100 per cent of those recommended for restricted listing and 71 per cent of the non-recommended products were innovative, single-source products.

I see a real dichotomy here. I mentioned earlier that, contrary to popular belief, the innovative pharmaceutical industry is more active in Ontario than in any other province. However, when I see such figures for formulary listings, I cannot help but question the return on investment our industry receives here. In our view, a restrictive formulary policy represents both poor health care and bad economics because it fails to recognise the true value of innovative medicines.

It provides poor health care because it underestimates the role that new medicines play in dramatically changing people's lives. I am a businessman and most of my speech deals with facts and figures. However, I want to say that the biggest thrill I get from my job is meeting patients who have been helped by our medications. Throughout most of my career with Novartis, I have been involved in one way or another with the development and marketing of cyclosporine, the drug now available in an improved form called Neoral which essentially made organ transplantation possible. Although my contribution was very modest, I have a great feeling of satisfaction whenever I meet a previously sick person who now is living a full life thanks to an organ transplant.

Or when I hear, as I did a couple of weeks ago, about Deborah Summers, that Vancouver woman who just became the first Canadian heart transplant recipient to give birth. Just four years ago, Ms. Summers didn't expect to live, never mind become a mother! But her son, Brandon, was born healthy on February 13. Without companies having a vision of the importance of research and development and the value of new medicines, this wonderful, heart-warming story could not be told today.

With regard to bad economics, a restrictive formulary policy is penny-wise and pound-foolish. It illustrates a lack of understanding about how improved investment in drug therapy can assist in achieving longer-term cost containment goals within the health-care system. There may be an increased cost as a result of a new drug therapy, but there are also economic benefits to society through fewer hospital admissions, fewer out-patient visits and increased productivity in the workplace.

Examples abound. New medicines to treat schizophrenia have greatly reduced the need for hospitalisation and, according to the Canadian Coordinating Office for Health Technology Assessment, can, with greater access, save $660 million in health-care costs across Canada. New cholesterol-lowering medicines have been shown to reduce the incidence of fatal and non-fatal heart attacks, lower the rates of heart surgery and angioplasty, and reduce the need for and costs associated with hospitalisation.

A recent analysis of hospitalisation trends in Ontario shows that between 1990 and 1996 the use of acute-care hospital beds dropped by 29 per cent. During the same period, the average length of a hospital stay in Ontario declined by 18 per cent. These results are significant as they represent a huge overall savings to society.

New medicines researched, developed and manufactured by the innovative pharmaceutical industry in Ontario are key components for the improvement of the quality of health care in the province and the management of the overall health-care system costs. Traditional health-care programme management with its focus on individual "silo" budgeting fails to recognise this.

Our industry has a great deal to offer government as it develops policies to contain health-care costs and improve patient care. Unfortunately, we find that the provincial government is not working closely enough with us as crucial cost-containment programmes are developed.

In the final analysis, it's a question of vision. The creation of Novartis arose from a clear corporate vision of how to be globally competitive. What we need in Canada is for more governments to share that vision. The federal government must see that lengthy drug approvals reduce the very sales that finance research, and that uncompetitive levels of patent protection drive investments away to more favourable destinations.

The Ontario and other provincial governments must understand that reducing patient access to new medicines simply increases costs in the long run. Both provincial and federal authorities need to see that they have everything to gain by working in partnership with the pharmaceutical industry to make Canada a success in the new global economy.

This is another way of saying that partnership between governments and the pharmaceutical industry to increase the level of R and D investment in this country represents a win-win approach for everyone. And the biggest winners of all are those most in need--those people suffering from disease who can benefit from the new medicines that research provides.

Thank you.

The appreciation of the meeting was expressed by Eric Jackman, Ph.D., President, Invicta Investments Inc., Chairman, The Jackman Foundation and The Art Gallery of Ontario, Chancellor of The University of Windsor and Past President, The Empire Club of Canada.