EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 4, 1997

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[English]

The Chairman: Pursuant to Standing Order 108(2), we'll recommence our review of section 14 of the Patent Act Amendment 1992, Chapter 2, Statutes of Canada, 1993.

I would like to thank the witnesses for being patient. In the parliamentary system it always takes patience when we break for votes, and that was one of those occasions. It's hard to set a schedule if the vote is at the same time. So again, my apologies, and thank you for staying around.

We're going to begin tonight with the Patented Medicine Prices Review Board. Mr. Robert Elgie, the chairperson, can introduce his other witnesses.

I would like to add that members are within earshot. Some of them are just at the back of the room. They're just finishing up a bite to eat, and they'll be joining us in a minute. So don't be waylaid by their not being here.

We'll try to proceed without haste - but in an hour and a half - with your presentation. Then if committee members wish to have you back, I'd like to reserve the right to call you again later in the process, as another witness is following you at 9 p.m.

Without further ado, I'll call upon Mr. Elgie to make an opening statement, and then we can turn to the members for questions.

Mr. Robert Elgie (Chairperson, Patented Medicine Prices Review Board): Thank you very much. Well, I was going to say good afternoon, but I'll choose to say good evening if that meets with your pleasure, Mr. Chair.

Some hon. members: Oh, oh.

Mr. Elgie: With me this evening are Monsieur Réal Sureau, our vice-chair; and Wayne Critchley, the executive director of the Patented Medicine Prices Review Board.

We're pleased to be here today to talk to you about the impact of federal regulation on patented drug prices. You have our written submission before you. You also have the board's latest study, entitled Impact of Federal Regulation on Patented Drug Prices, and a copy of the 1995 annual report.

My presentation is set out to meet two main objectives: first, to describe the key features of the federal regulation of the prices of patented drugs; and second, to report on the impact of price regulation on the Canadian health care system.

The year 1997 marks the tenth anniversary of the board. It was created under the amendments to the Patent Act as an independent, quasi-judicial entity, to protect Canadians by regulating the prices of patented drugs. The board also reports annually to Parliament on the price trends of all drugs in Canada, including non-patented drugs, and on the ratio of research and development spending to sales by pharmaceutical companies.

The board is composed of up to five part-time members appointed by the Governor in Council for terms of five years. It regulates the price of patented medicines, which account for 44% of manufacturers' sales of all drugs.

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The remaining 56% of drugs is broken down between generics, which account for approximately 12% of sales of all medicines, and non-patented, brand-name drugs, which account for the other 44% of sales of all drugs.

You'll hear some variation in those numbers from time to time, because Health Canada today released the data on 1995 and 1996. The data I'm talking about will cover 1994 and 1995. But generally there hasn't been too much change.

Our message to you is that we believe price regulation works. It's important to note that only patented drug products are subject to price regulation. The board has fulfilled its mandate as established by Parliament in 1987, and revised again in 1993, and we believe it works.

The board helps make health care in this country more affordable by ensuring fair prices for patented medicines.

I don't make these claims lightly. The impact study, which was released last week, and which you have before you, shows that drug price regulation in 1995 alone saved Canadians about $1 billion that year. That means that in that year Canadians paid somewhere between 24% and 29% less for patented drugs than they would have paid if there had been no price regulation and no Patented Medicine Prices Review Board.

I hope you'll agree that this is a significant achievement for an agency that costs Canadian taxpayers about one-tenth of 1% of the total sales of all patented drugs in this country.

Well, what is fair? I'll come back to the study later in my remarks, but first I'd like to tell you more about the board's mandate, and how it operates. The board's primary function is to ensure that Canadians do not pay excessive prices for patented medicines, and I think you'll agree that's an important mandate.

We know something about Canadians, most recently confirmed in the report of the National Forum on Health. In this country we place a high value on our health care system, and with good reason, for we believe it's the envy of much of the world.

The forum tells us that the principles of universality and access to medically necessary drugs are particularly high on the list of Canadian priorities. Applying the notion of fairness to the health care system means, in large measure, protecting health care consumers from excessive prices for the medical products and services they need, including drugs.

During your review, parties appearing before you will no doubt deal with the need either to increase or decrease patent protection, or alter it in some way. However, because of the importance of health care and the vulnerability of consumers, it also is appropriate - whatever is done - to impose this extra accountability on patented drug manufacturers. Why? The reason is that we recognize that drugs are different from other consumer products, and health is not an option for the Canadian public.

The Patent Act does not define what is a fair price, or what constitutes an excessive price. In applying that standard - the price not to be excessive - the board is guided by the act in the form of factors that are set out in the statute. These include the fact that we shall pay attention to the changes in the consumer price index, we shall look at the prices of other drugs used to treat the same disease, and we shall look at the prices of drugs in other countries. This standard has been interpreted by the board in detailed guidelines prepared in consultation with stakeholders: consumers, provincial health ministries, the pharmaceutical industry, and health care associations. Here's what those guidelines say:

First, the introductory price of most new drugs may not be higher than the price of other drugs already on the market that treat the same disease.

Second, in the case of breakthrough drugs, or drugs that offer a substantial improvement over existing medicine, prices may not exceed the median prices of other industrialized countries.

Third, the price of a drug that is already on the market may not go up faster than the consumer price index.

Fourth, and as an added protection, the price of a drug in Canada - any drug - can never be the highest priced drug compared to those other countries.

These guidelines have protected consumers from excessive prices.

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To evaluate the impact of our system of price regulation, we need to look back at the mid-1980s, before the board was created. At that time Canada used a system of compulsory licensing to stimulate competition in the drug industry, and to keep drug costs down by providing lower priced alternatives. Compulsory licensing did not guarantee consumer protection in all cases, because generic copies were not available for all drugs.

Brand-name manufacturers were free to set the introductory prices at whatever level they wanted, and to raise it at will. For the larger-selling drugs - but again, not for all drugs - generic copies at lower prices would become available after a few years. This did not necessarily result in lowering of the brand-name price, but it did provide consumers with lower-cost alternatives for those drugs, once they came on the market.

When Parliament was considering proposals in 1987 to alter the system of compulsory licensing to improve patent protection for drugs, there were concerns that the result would be higher prices to consumers. Therefore, the board was established to protect consumer interests by ensuring that patentees did not abuse their additional protection by charging excessive prices.

Bill C-91 continued the board, and indeed gave it enhanced remedial powers. The purpose of these amendments was best described in the 1996 ruling of the Federal Court of Appeal, which said:

The purpose of these changes [was] to empower the Board to influence the pricing of patented medicines to much the same extent that the competition fostered by compulsory licensing used to influence it.

Has this price regulation system worked? Yes, it has. The board has been protecting consumers on two fronts: first, by limiting price increases to the rate of inflation; and second, by regulating introductory prices of new medicines.

Let's look at price trends. The evidence shows very clearly that there was a dramatic change in price trends for all drugs in Canada in 1987. Prior to that time, drug prices were going up much faster than the consumer price index.

That situation reversed itself in 1987, and in fact patented drug prices now are going up at a rate that is much below the consumer price index.

Prior to 1987, drug prices in Canada were going up faster than drug prices in the United States, but that trend, as well, was reversed in 1987, and Canadian prices are now increasing at a much lower rate.

We see the same trend when we look at the breakdown between price trends for patented and non-patented drugs. Although prices for both groups of drugs are going up more slowly than they did in 1987, the prices of non-patented drugs are rising faster than the prices of patented drugs.

Now, let's look at the impact on introductory prices for new drugs. The price of most new drugs must be no higher than the price of those drugs that are already on the market that treat the same disease. What happens, however, in the case of a breakthrough drug or one that offers a substantial improvement, is that the board relies on factors in the Patent Act, looks at the introductory price of the same drug in other countries, and applies a guideline that states that the price must not exceed the median price for the drug in those countries.

Canada has not always fared well in comparison with drug prices in other countries. As you will see from the impact study and last year's annual report, in 1987 Canadian prices for patented drugs were on average 23% above the median international price. In 1987 our prices were higher than those in all other countries, except the United States.

Eight years later, Canada's position has improved considerably. Today, our prices are lower than prices in Germany, Switzerland, and the United States, and we are at about the same level as prices in Sweden. In other words, we have improved from being second highest to being in the mid-range of the seven industrialized countries that are used for price comparison purposes.

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It's worth noting that Canada was the only country to change its ranking between 1987 and 1995. In other words, all of the other countries maintained the same position in 1995 that they had in 1987, but Canada was moving down towards the middle.

Canadians have enjoyed these improvements in drug price trends not because of the elimination of compulsory licensing but in spite of it. The Canadian health care system now benefits from a unique combination of price regulation of patented drugs, exercised by the PMPRB, and competition in the form of a generic drug industry.

We should not assume that these outcomes would have occurred in the absence of a vigorous regulatory body. We have obtained compliance with our guidelines by using the tools we have to enforce them. Over the years we have obtained more than 100 undertakings from patentees to lower their prices. These specific undertakings saved Canadians almost $33 million in 1995 alone and $107 million on patented drugs since 1990.

The board has been thorough, responsible, and assertive in applying its guidelines. Since receiving new and stronger remedial powers under Bill C-91, the board has succeeded in requiring patentees to offset 100% of excess revenues in every case where prices were found to be outside the guidelines.

With one exception, we achieved those remedies without expensive and lengthy public hearings. That exception came last year, after the board found that ICN Canada Limited had raised the price of one of its drugs, Virazole, used to treat respiratory pneumonia in neonates and infants, to an excessive level.

Using the full remedial powers available to it as a result of Bill C-91, the board ordered ICN to lower the price of Virazole and to take steps to offset an amount equal to double the excess revenues it had received, because it was doing this as a result of a policy to sell those drugs at an excessive price.

The order required ICN to pay the Government of Canada $1.2 million and to lower the price of the drug to half of what it would have been had the company not raised it - in other words, from $400 for treatment to $200 for treatment - until the year 2000. That lower price is in effect until the company has offset another $2.3 million.

ICN appealed to the Federal Court of Appeal on the grounds that a patent related to Virazole had expired in 1993 and therefore the drug was no longer under the board's jurisdiction. The federal court rejected the appeal after examining the question of whether certain other patents held by ICN did or did not pertain to the drug Virazole.

The court declared that there need only be the merest slender thread between the drug in question and the invention or product for which these other patents were granted. The court then went on to say:

To require more would provide a window of opportunity for pharmaceutical companies to avoid the jurisdiction of the Board and would limit the ability of the Board to protect Canadian consumers from excessive prices.

The Virazole case showed that Bill C-91 has put real teeth into the Patent Act, and the board has not been hesitant to apply those tough measures when necessary.

The case has also demonstrated that regulating the price of patented medicines is a complicated job. Some manufacturers have used a variety of creative tactics to avoid the PMPRB's jurisdiction. The board has dealt with these challenges as they have confronted them, but not always without a struggle. Voluntary compliance is seldom voluntary in the true sense of the word.

Complex and difficult jurisdictional issues are inherent in regulating prices of medicines based on their patent status. Because the board's jurisdiction is tied to patent status, there will always be the potential for some patentees to try to find creative interpretations of a very complex law. As a result, the board will continue to devote resources to defending any such challenges.

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Based on past experience, it expects that the jurisdiction will be upheld by the court. If at any time problems should arise that require legislative amendment, we are confident that this Parliament will make the necessary corrections in order to ensure adequate consumer protection.

Let me turn once again to the impact study. We have demonstrated that price regulation works. Let's quantify what this effect has been. This goes well beyond the $107 million in direct savings that I mentioned to you early on was a result of our compliance and enforcement activities.

The impact study uses three models to estimate total savings from limiting price increases during this period. A fourth model is used to show savings as a result of preventing higher introductory prices for new drugs.

In all cases, the beneficial impact on prices increased from year to year. By 1995, the savings in that year alone were between $800 million and $1.1 billion. The study pegs total savings to the Canadian health care system from the federal regulation of patented drug prices at between $2.9 billion and $4.2 billion in 1988-95, a period of eight years.

The value of these savings needs little explanation or interpretation, however they are derived from a study that is unparalleled in its comprehensiveness. These savings represent an enormous benefit to Canadians in a world in which patent protection has been extended, which is a benefit that we would not have enjoyed without price regulation. Let me bring this closer to home: in 1995, the board cost each Canadian 10¢ and saved each Canadian $30.

Although I'm pleased to be able to present you with this picture of price regulation in Canada today, I would be less than honest if I said that I was satisfied with the drain that drugs represent on our health care system. Canadians continue to spend more on drugs every year than they did the year before. Although manufacturers' prices for patented drugs have come down - indeed, they're now below the zero line - spending on all drugs has gone up at a greater rate than expenditures on other components of the health care system.

To understand why this is happening, we have to look beyond the price of the drugs, which is, in other words, the manufacturer's price at the factory gate. Our own analysis points to the same conclusion: several non-price factors drive up the cost of drugs. In other words, this is what the system pays for the drugs at the consumer stage. These are factors such as inappropriate prescribing and the increasing utilization of drugs.

The provinces have adopted a variety of cost-containment measures for their drug plans that complement federal price regulations. They have difficult choices to make, but federal regulations ensure that they have patented drugs to choose from that are less expensive than they might otherwise have been.

Private insurers have been and are also trying to control rising costs, but questions remain: are we using the right drugs in the right circumstances and in the right amounts? Can we make better use of prescribing guidelines, as the U.K. is doing by having established a national prescribing centre? Are we satisfied that consumers pay fair prices for all brand-name medicines and generic drugs?

I'd like to conclude by summarizing four statements taken from the board's formal submission to the committee, which you have in your possession.

First, we believe that patented medicines are under control. Manufacturers' drug prices increased at a rate well above inflation before the board came into effect. Since the board has been here, patented drug prices have grown at half the level of the CPI. Canadian prices on average are now below median international prices, whereas they once were second.

Second, despite the elimination of compulsory licensing, patented drug prices have not been excessive, due to PMPRB regulation. Total savings to the Canadian health care system from the federal regulation of patented drug prices are between $2.9 billion and $4.2 billion over an eight-year period. Canadians paid 24% to 29% less for patented drugs in 1995 than they would have in the absence of price regulation.

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Thirdly, the board has protected all consumers from excessive pricing of patented medicine. From 1990 to 1995 the board has obtained more than 100 formal undertakings by patentees, resulting in savings of $107 million. With one exception, this has been achieved without expensive and lengthy public hearings.

This consumer protection has not sacrificed R and D spending. Research and development spending by patentees regulated by the PMPRB has grown from 6.1% of sales in 1988 to 11.8% in 1995. Prices have been brought down to levels comparable with those of our trading partners. The PMPRB has not been a disincentive to investment.

Thanks very much. I'd be pleased to respond to any questions.

The Chairman: Thank you for that overview, Mr. Elgie.

I'd just remind committee members, since some of you came in a little later, that we have set 9 p.m. as a tentative time for finishing this presentation. We'll invite them back if need be, because there's another group of witnesses coming after that. So that's your guideline.

[Translation]

Mr. Ménard, you are always very brief.

Mr. Ménard (Hochelaga - Maisonneuve): You know me, Mr. Chairman. You know that that is one of my trademarks. But on the other hand, we have to talk about these things. That is what we are here for.

I understand that one of the positive aspects for consumers, and for society generally, I would say, is that since the Board was established, you have been assessing, year after year, the efforts made in the area of research and development by drug companies that hold patents. You know that this will be a key part of our work.

It is important that you give us a clear explanation of what you mean by research and development. In your annual reports, you say that you use the same credits required by the Department of Finance and by Revenue Canada for people who claim the research and experimental development tax credit. People sometimes think that research includes not only research, but also conventions held by drug companies or expenditures that are very far removed from the more limited concept we may have of research and development. I would like you to start by telling us what you mean by research and development.

I will ask three questions and then turn the floor over to you. I will come back later with three other questions, because, of course, I know how generous the chairman is.

You assess the R & D efforts made by drug companies, which have to table an annual report. If they do not do so, they may even be fined. This is an offence that is clearly set out in the Act. I think that on average there are about 60 companies that table reports annually, and that about 40 of them are members of the PMAC. Can it be said that most of the companies that belong to the PMAC make an above-average effort? What do you do about companies that do not submit reports? If a company does not submit a report, does that mean that it does not have any active patents? Does it sometimes happen that companies may have an active, public patent, but not do any research? Would you advise us, as members of Parliament, to provide for some type of punishment? What should be done about drug companies that have patents and that are not doing any research and development work?

I come now to my last question before turning the floor over to you. You said at the beginning of your brief that a manufacturer should be given more responsibility. What did you have in mind? Let us imagine for a moment that one of you becomes a minister some day. What would you be inclined to do? What extra powers does the Patented Medicine Prices Review Board need to continue doing such a fine job?

I did not mean to insult any one by saying that some day you might be actively involved in politics.

[English]

The Chairman: You have three questions in front of you. Mr. Elgie, would you like to begin and direct it to the officials you wish?

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Mr. Elgie: Well, like Alice, I'll try to begin at the beginning, if I may.

First of all, with respect to compliance with the requirement that reports as we require them must be submitted annually, we have not encountered a situation where we couldn't obtain those reports either by persuasion or by the possibility of some other actions. Of course, if a company did endeavour to withhold information we would hold a hearing, and any judgment that's issued by a panel is enforceable in any court.

You will know from the annual report, however, that there was one situation we faced last year which had to do not with a patented medicine company but with a generic company, Novopharm, which was selling a product under a licence from a patented company. It was our belief that under that voluntary licence, they came within our jurisdiction. However, that patent was to expire in October 1996. It was only about three months away.

We were able to gather enough information to determine that their prices were not excessive; they were within the guidelines. I as chair made a determination that the public interest involved and the expenditure on that issue were not justified, but I wouldn't want that to be interpreted in any way as indicating that we lack the desire and the willingness to make certain that we provide you with the best information possible.

Now let's go to the next question, which had to do with what R and D research is all about. In the annual report you have before you, on page 24 there's a table that sets out basic, applied, and other qualifying research. It shows you that in 1995 there was a total expenditure of $596.2 million. That does not include some capital costs and some depreciation, which go on top of that. All of these amounts are allowed under the 1987 Income Tax Act for investment credits for scientific endeavours. All of these things we receive information on are in line with the Income Tax Act.

[Translation]

Mr. Ménard: What I would like you to comment on clearly for committee members is the myth to the effect that research and development, for which you use a definition similar to that of Revenue Canada, includes your agency's travel expenses, convention costs, and other related items. Am I correct in saying that things of this type are excluded from your definition? Marketing is not part of research.

[English]

Mr. Elgie: No, that would not be part of their research and development. Let me just go over what sorts of things would be covered.

In 1995, for example, there were two amounts for basic research. The first would be chemical basic research and the second would be research based on biological studies. The total basic research amount was $94 million. This is spent by the patentees alone.

On the other hand, companies purchased time from them to do the research for them, and that came to $13.6 million. Universities were paid about $12.2 million for research. Hospitals were paid $8.2 million. Others came to $3.4 million. That's a total of $132.1 million. That's the basic research we're talking about, chemical and biological research.

When you get into the applied type of research, which is research into manufacturing methods, pre-clinical trials phase one and phase two, and clinical trials phase one, two, and three, that brings you to the total applied research. Other R and D involves things like what are called phase four clinical trials and some further evaluation of bio-availability of the drug itself, which means how much of the drug is released at certain time intervals. Those are just follow-up studies before final approval is given for listing. Those are the types of things that are included in research and development.

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The Chairman: There was a third question put forward too.

Mr. Elgie: I can't recall it. What was the third question?

[Translation]

Mr. Ménard: There were two other points. We would be interested in knowing whether companies may hold active patents without doing any research. I know, for example, that the members of the PMAC have an above-average performance in this regard. Do you have any statistics on companies with an active patent that do not do any research? Do you have any doubts in this regard? What new powers would you like your Board to have?

[English]

Mr. Elgie: As you know, there are some companies listed in the annual report that have patents but do not list any research and development expenditures. Yes, they do exist. They still have to file that information with us, and I presume that is one of the things you'll be looking at. That's not a determination I am prepared to make. There are companies - some, not many - that do file but do not do any research and development.

[Translation]

Mr. Ménard: What new powers would you like the Board to have? Earlier, in an unusual burst of generosity, the minister seemed to suggest that it might not be bad if the Board were to look after generic drugs and have increased powers. As a manager, do you think there are some powers you need in order to carry out your mandate? I will come back to my private member's bill on the second round.

[English]

Mr. Elgie: I think our job here is to make sure we've pointed out the things we are having difficulties with and let you wrestle with them. The determination of how the statute should be changed, I'm afraid, will have to be yours, not mine as a quasi-judicial agency that's been given a job by you to do.

The Chairman: Thank you very much. Mr. Schmidt.

Mr. Schmidt (Okanagan Centre): I am very concerned about a lot of the things that are happening. I am very pleased that you did the impact study. I think it augurs well for the future development of the board itself. It's a very impressive record. But there are some things I would like to ask about.

The word ``median'' appears. That's the mathematical number you use in determining the price for a new drug that appears. You use seven countries to study this. When you do the median, when you do this comparison of the seven countries, what is the range of prices you generally find? Just give an example of one you've had.

Mr. Elgie: Mr. Critchley, could you respond to that?

Mr. Wayne Critchley (Executive Director, Patented Medicine Prices Review Board): Our experience has been that there is considerable variation in the range of prices for patented drugs between different countries. We don't have any analysis of the extent of the range for different drugs. We could always try to get some of that information, not on a drug name basis but on an aggregate basis, but we haven't tried to do it that way.

We use the median because it represents a midpoint that is not going to be affected by the extremes at either end. You see from the information comparing Canadian prices to foreign prices generally that there is a wide variation amongst the countries. You can have even greater variations on individual drugs. Using the median at least means we're not using an average that might be influenced by an extreme price at either end.

Mr. Schmidt: There is no question that the average would aggregate on an extreme basis. I'm quite aware of that. That's exactly why I picked up on the median - to see just how that works out.

You say that at no point will it ever take the extreme; it will never be the highest. Would it ever be the lowest?

Mr. Elgie: Will the median ever be the lowest?

Mr. Schmidt: No, no. This is the contradiction I find in your report here. You use the median, yet you say it will never be the highest. Well, how could it be if you take the median? I'm not quite sure why you put that in there.

Mr. Elgie: The guidelines were developed in consultation with the pharmaceutical industry, consumers' groups, ministries of health throughout the country and so forth. It was determined that for breakthrough drugs, and only breakthroughs and substantial improvements, the price could be no greater than the median international price. Then we added on top of that the requirement that no price in Canada shall be at the highest price.

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That's had a dramatic effect. If you look at the impact study on page 15, you'll see the effect of all those changes, including the other changes I mentioned to you. Canada has moved down from 1987, when it was ranked at 100, to the midpoint, tied with Sweden. Germany, Switzerland and the United States are now paying significantly more. So it's had an impact.

Mr. Schmidt: There's no doubt about that. Your impact study is very clear. I read it and I'm very impressed by what's happened there.

The question I have, though, is still about that median. The brand-name manufacturers are international or global in scope, so there are not that many players among the seven countries. The same players could be operating in several of those countries. Is it possible that the median itself could be influenced by the fact that the same companies are operating in various countries?

Mr. Critchley: The short answer is yes, although six of the seven countries are European countries that have universal pharmacare types of plans and other measures that serve to control drug costs and prices in those countries. To the extent that those influences are there, we benefit when we look at the median as the comparison.

Mr. Schmidt: But we are talking about breakthrough drugs now. Would they be contained under pharmacare, for example? If they are, why would they be there in the European countries you are referring to?

Mr. Elgie: There is no other drug as adequate as that drug to treat the condition.

Mr. Schmidt: The other question I'm going to ask is the same one I asked the minister or his deputy earlier this afternoon.

Essentially your R and D reporting system is a self-reporting system. Even though you are using the definition of the Income Tax Act as it applies, the income tax returns are not necessarily the same as the returns that come to you, unless you use exactly the same numbers. So my questions are these: do you use those same numbers or do you simply rely on the self-reporting system and say they are accurate? Do you do any verification of those numbers?

Mr. Critchley: Members of my staff do verification with individual companies with respect to their filings. The filings are very detailed, and they review them carefully. If they have any questions or problems with them, they review them with the companies and seek clarification and adjustment if necessary.

The board, as you know, has no regulatory power over R and D spending, but we do report quite extensively in a detailed way on the aggregate spending and the individual ratios of R and D to sales for each company. That publication provides a vehicle for people in the community, for example in the academic community, to verify how much money is being reported by the industry in spending in universities, for example, and to ensure that it is valid.

Generally speaking, we have found that our officers are very familiar with the individual companies they're responsible for and their pattern of research spending over the years. So they go back and see what has been going on and verify in this way that the reports are accurate.

Mr. Schmidt: I am really leading to another point completely, which has to do with the reported R and D spending by the generic companies, which are not under your jurisdiction. As a consequence, do you believe that the R and D figures reported there have the same veracity as the figures on R and D that are reported to you?

Mr. Elgie: I don't think we have the answer to that, except we know that one particular company did not want us to have access to that information.

Mr. Schmidt: Mr. Chairman, this is the question I think we should address to this board. If they are really serious about controlling the health costs of drugs in Canada, we should ask whether they ought to have access to that kind of information so that a comparison can be made between apples and apples, rather than some arbitrary number that somebody has imagined.

Mr. Elgie: That's something I'm sure you will debate here.

Mr. Schmidt: What do you think?

Mr. Elgie: Those are issues you will have to struggle with and resolve yourselves.

Mr. Schmidt: And we will.

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Mr. Elgie: That is the role you play, I assume.

The Chairman: Spoken as a true doctor.

Mr. Elgie: Just take an aspirin and go to bed.

Some hon. members: Oh, oh!

The Chairman: Thank you very much, Mr. Schmidt. There is another minute, if you have one more question.

Mr. Schmidt: Oh yes, I have another question, Mr. Chairman. It has to do with the operation of the NOC regulations, or the notice of compliance regulations, and their implications on your work.

Mr. Elgie: I'm not aware of any implications on our work.

Mr. Schmidt: None whatsoever? Okay, thank you.

That was it, Mr. Chairman. I'll come into another round later.

The Chairman: Mr. Volpe.

Mr. Volpe (Eglinton - Lawrence): Thank you very much.

Dr. Elgie, I had occasion to follow the presentation you made to the press in preparation for coming before this committee. I must say your rehearsal went well.

Let me pick up on one of the issues you raised both then and today, and that is the question of fair and excessive prices and costs. Those are four terms with which I'm trying to wrestle.

First of all, I assume from your presentation and from the report that the prices are somehow related to R and D and the commitments made by pharmaceuticals with respect to spending on R and D. You make that relationship when you compare prices with the basket of drugs in the various countries.

As I looked through page 27, I noticed that only 23 of 69 patent-holders actually met or exceeded the 10% R and D-to-sales ratio. As I looked through them, I noticed that some of those 23 had ratios that went 103%, 159%, 75%, and so on. I'm just wondering whether the reflection you gave is a really true statement, that the commitments made by the patent-holders had been met by 1995 with respect to R and D, and those commitments were made as part of the negotiations for Bill C-91.

Mr. Elgie: On average, yes, they had been met.

Mr. Volpe: Including...?

Mr. Elgie: Including all of these where there were no contributions.

Mr. Volpe: The key word there is ``average''.

Mr. Elgie: Yes.

Mr. Volpe: I want then to take a look at the word ``excessive'', because the phrase ``excessive price'' really bothers me. As I understood from your presentation to the press and from your report and your testimony today, you're taking the median of prices in a particular basket over which you have no critical authority. You take the prices as they are accepted in those countries and say this is the reference point, but we don't know if those prices are justified or justifiable in those countries, do we?

Mr. Elgie: No, we don't have that information, but let me go over this, because it's an issue that causes most people some confusion.

We have no detailed information about the cost of getting that drug manufactured, researched, and to the factory gate, no.

Mr. Volpe: Should we have that?

Mr. Elgie: That would be a very interesting and very difficult task. I don't know of many countries that have tried it.

Mr. Volpe: What if I give you an example, doctor?

Mr. Elgie: In the U.K., for example, they look at it from the other end; they simply set profit margins for companies. They don't get them to get down to the cost of the individual drug, because that would be quite an incredible task, having gone through the ICN hearings.

Mr. Volpe: Let me interrupt you, Dr. Elgie, because I only have another six minutes.

Mr. Elgie: Well, I have a lot of time; don't worry.

Mr. Volpe: But I don't.

Some hon. members: Oh, oh!

Mr. Volpe: I was looking at the Ontario formula, just as an indication of how some of these prices are arrived at. One particular drug caught my eye. A five-milligram tablet is $1.28. It just so happens that the raw materials for that product only cost about $300 per kilo. In my very rough math, that comes out to about a 1,000% mark-up over the raw materials. Do we do any kind of analysis on that through the PMPRB when we take a look at whether prices are excessive or not?

Mr. Elgie: No, we don't look at the costs that have gone into manufacturing the drug. We do not.

But you're not quite accurate in saying we always look to the median international prices. If the drug is what we call a category one drug - namely a line extension, an increase in the dosage from 50 milligrams to 100 milligrams - there has to be a close relationship between the two. It can't cost more than twice what two pills would cost you. So they can't exceed a reasonable relationship for category one.

.2020

Category two is the breakthrough drugs. That's where we set the median international price, and it has resulted in decreasing prices for this country.

Mr. Volpe: But there's only been a handful of those in the last five years.

Mr. Elgie: No, since 1988, I believe there have been about 33. And I was reading -

Mr. Volpe: That is out of a total of 21,190 drug products on the market?

Mr. Elgie: That's right. I was reading the other day that it's the same in Italy. There have been 33 prototype drugs over that same period of time.

Mr. Volpe: That's the poorest country with which to make a comparison, because it's the one that has the lowest prices in that group, in that basket of countries with which you make a comparison.

What struck me is that in your report you point out that when we talk about the patent drug prices we're referring to, they really only represent 4.2% of the entire market, of drugs on the market. That's 4.2%. I did the math from the figures you gave, and they account for 44.1% of all the costs.

Now, I realize you're making a distinction between cost and price, but as far as the consumer and the health care system is concerned, if the question of excessive price must be addressed properly, then we have to take a look at where we spend our money.

If 4.2% of all the pharmaceutical products on the market account for 44.1% of all of the money dispersed, you'll forgive someone like me, who's a layman in this area, for thinking that perhaps there is an excessive price to be paid.

Mr. Elgie: The mandate we've been given and have is to look at excessive price with respect to the prices of other products on the market, and the international basket we've been given. I don't think that 44%, which is the total value of patented sales, 44% of... What did the minister say today? I would think that 44% of 14.7% would be more than 4%,

Mr. Volpe: Well, I'm just going by the figures listed in your report; I didn't invent them.

Mr. Elgie: No, I know, but your minister told you today that he had changed the way they calculated that information, and we didn't have that in our 1995 report.

Mr. Volpe: I'm impressed that there's a holding of the line on price increases, and I accept that under the circumstances in which you operate, you've accomplished your task. But you also very rightly indicate both in your report and in your annual report that you're only a complementary factor in holding the line on prices. I think you've pointed to the practices of the provincial governments, and their policies.

In Ontario, for example, as you well know, no generic can come on the market unless they start... The first one must start with 75% of the cost of the current price. The second one comes in with a further reduction of 10%. But more importantly, in Ontario specifically because of the cost-cutting the province is engaged in, it laid down the law. It said, I'm sorry, we don't care what price you think you deserve for your product. This is what we're going to pay you. So that's really quite an effective way of controlling a price.

The other thing is that I guess that when they're going to be balancing the question of fairness and excessiveness, maybe members around the table are going to wonder whether, as I said a moment ago, you take a look at raw material costs, research and development costs, or a free market, a free market competitive price, as a reference point for determining whether a price is excessive, or whether it should be fair, and in which direction we should be going. Do you do a comparison in a competitive market environment?

Mr. Elgie: As Mr. Critchley said to you, we look at the prices established in that basket of countries. All of them have very stringent health expenditure policies and in their view endeavour to control the final price of the drug very effectively.

So we're simply looking at the efforts of those countries to control the price of their drugs, and translating that into our market to try to make certain we aren't excessive in the light of that.

The Chairman: Thank you very much, Mr. Elgie. Thank you very much, Mr. Volpe.

[Translation]

Mr. Brien.

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Mr. Brien (Témiscamingue): This afternoon, the minister spoke about possibly expanding your mandate by asking the provinces to delegate a power to enable you to monitor the price of non-patented drugs. I would like you to tell us, first, whether to your knowledge there are any monitoring procedures in place at the moment and whether they are applied by the provinces. We just spoke about this briefly, but I would like you to tell me what sort of procedures are in place for monitoring the price of non-patented drugs at the moment. If any such procedures existed, could you take them over satisfactorily and fairly quickly?

[English]

Mr. Elgie: I'm not aware of any price control activities in the province other than the kind of thing Mr. Volpe referred to, namely, this is all we will pay for a product. If you want to list it, that's fine.

So those things are going on. How would we go about managing it? We have in place all the guidelines, all the information required by companies to provide... I can't tell you how much of an increase in budget would be required, but it would simply be an extension of the type of activities we're doing now.

Of course the determination would be whether you wanted to see what happened from a monitoring process first, or whether you wanted to get right into the regulation of prices.

Don't forget that when you're looking at that basket outside the patented drugs we've talked about, you're looking at a large number of non-patented products that are products of the brand-name companies, as well as the generics that represent 12% to 14%.

[Translation]

Mr. Brien: I believe that among non-patented drugs there are four types of product, not just the generic products. You described this in your paper. We often hear from two rather well organized associations that give us figures on research and development. The figures supplied by the generic companies are based on trust only - they cannot be checked.

Are there any ways of giving you the power required to check how much companies are investing in research and development?

[English]

Mr. Elgie: Not that I'm aware of. This board has no authority to require them to produce that information for us.

[Translation]

Mr. Brien: We're talking about private companies. If we wanted to, could we, through our legislative powers, ask the companies to provide this information so that you could tabulate it?

[English]

Mr. Elgie: I think you'd have to discuss that with your minister and the provinces. But my uninformed opinion would be yes, I think that sort of information could be gathered.

I mean, I'm a lawyer, but you're not paying me for that opinion.

Voices: Oh, oh!

[Translation]

Mr. Brien: You are a real lawyer!

Some honourable members: Oh, oh!

[English]

Mr. Elgie: It's okay, I'm a surgeon too, so watch yourself.

Voices: Oh, oh!

[Translation]

Mr. Brien: When the Board decides that a company's prices have been too high, you ask it to pay compensation to the federal government or to reduce the price of the drug. Let us take the example of ICN, where this happened, and where you asked the company to reduce the price of the drug for the next three years. I am wondering why a company would continue to produce the drug if they have to market it at a price bellow that normally required for a decent return, as is the case here.

How can this procedure work in the ICN case after the 1999 deadline? Will the patent continue to apply and will the companies be able to make some profits after this day? If the procedure applies to the last years of effective patent protection only, companies will not be inclined to manufacture the product and sell it at a loss for a few years. Is this procedure effective if it is applied during the last few years of the life of a patent?

[English]

Mr. Elgie: There was much debate during that hearing process among accountants who endeavoured to set out the costs involved. Let me say that there was little agreement. On one side there was a view that there was no problem with a profit. On the other side there was the view that there was a problem with the profit. At the end of the day, they're still providing the product.

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I guess the other factor in that case was that there were clear instructions from their head office in another country that they were to raise it so that their price would not be out of line with the price in that other country. And that's the policy they had that I talked about.

[Translation]

Mr. Brien: A number of times in your paper you talk about court cases in which you are confident about winning clarification. Would you not want the legislation amended now in order to make certain things clear? Finally, rather than telling us you think you can win court cases, you could say: these are specific areas or points in the Act that could be clarified so that we would not have to go to court. This would avoid the legal dispute between the Board and the company. Are there any specific points in the Act that you would like clarified?

[English]

Mr. Elgie: In the report to you we've tried to point out areas where we had problems. One was the issue of patent dedication where it was becoming what we saw as a very difficult issue for us in an endeavour to avoid our jurisdiction. We were able to deal with that very effectively with a change in policy, and the courts upheld that position.

The other issue in the same ICN case was whether or not a patent pertained. That's now been resolved with the courts saying that the slenderest thread of connection is sufficient to retain our jurisdiction.

So generally I've gone on the supposition that if it walks like a duck, looks like a duck and gets the benefits of being a duck, it's a duck. And I don't think we'll have problems dealing with most of those problems. But if we had difficulties, what I'm trying to say is that we'll come to you and make it clear that something has to be dealt with.

The Chairman: Thank you very much. Mr. MacDonald.

Mr. MacDonald (Dartmouth): Thank you very much.

I'm going to restrict my questions to some of the pricing matters. I've always been very concerned about the fact that when you deal with introductory pricing, it really is a mug's game here.

When you deal with introductory pricing of a drug, there is absolutely no way the PMPRB is able to figure out with any great degree of certainty exactly what it costs for the patent of the innovative drug to be produced. In many cases the research is done in a number of countries, and you simply cannot gain access to the information.

So I well understand that in the basket of drugs you look at, the increase over the last few years has been less than the rate of inflation. I think that's great. But the question still begs to be asked, are we starting too high with the price of the drug?

Keep in mind that these large patent-holders, the large pharmaceutical companies, are not just operating in the Canadian arena; they sell all over the world. So one would have to ask the question, what is a reasonable price for this drug to be introduced, which would reasonably compensate for the investment that went into the development of the product? Then you have to ask, what would be a reasonable rate of return on that investment and over which period of time? And let's say you would come up with what is a fair introductory price for a drug.

I remember well that when we did Bill C-91, one of the concerns raised at the time by the health care professionals and consumer groups was that if you extend a patent for drugs that were currently in the system, you effectively were allowing them to reap additional profits for the extended period of time. I think we called it the billion-dollar bonus at the time. At least that's what I called it. I still harbour those concerns.

Is there anything you can tell me that would allay my concerns that these drugs are not coming into this market at too high a price? Specifically, can you tell me why we just look at seven industrialized nations? Why wouldn't we look at something like the OECD countries, and see where we would fit in that? My understanding is that if you look at the OECD countries, the prices would probably be 20% lower.

I mean, are we starting off not knowing at all? You're saying, oh, if seven countries say that this is what that drug is being sold at, then I guess we have to say, well, if we're somewhere in the middle, it must be okay. Is there any way to quantify that?

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Mr. Elgie: I'm not saying it's okay. We've only begun to go down. I think we're seeing a trend that's going to continue, but we'll have to wait and see with our follow-up study.

To be precise, as I've mentioned to Mr. Volpe, we do not have the capacity to analyse all the costs that go into each drug to justify the manufacturing costs, the R and D expenses, the marketing, all the things that go into it. No, we don't have that capacity.

But if it's a category one drug, simply more of the same, we say it has to bear a reasonable relationship to the first one. If it's a 100 milligram tablet when you could buy two 50 milligram tablets, the price can't be higher. So they can't increase the price simply by changing the dose.

What I think concerns you a great deal is international prices when we look at substantial improvements or breakthrough drugs. There we're saying to you that our imposition of the median international price as the goal and that a Canadian drug cannot be the highest in the world have achieved dramatic results.

Overall I would ask you to look at the report I put in your hands, on the impact of federal regulation. Page 16 dramatically shows what our Canadian prices have done since 1987 with respect to the international median price. We went from being 23% higher to 7% lower than the median. Indeed, for the top-selling drugs, we're 11% lower. So we're not doing badly.

Mr. MacDonald: No, I recognize that, but my question is, if you start off with a product coming into the market here and in six other industrialized countries that bears no relationship to the investment into the product, if the product costs $100 million or $50 million to develop, if it's going to have market exclusivity for a very long period of time so that it has a monopoly situation in the market, shouldn't there be a better way?

When a product comes on the market, shouldn't they have to prove that the price they are charging is not gouging the consumer? Why do we have to accept that if there are six other countries, all we have to be is in the middle?

Do you not think there's a better system we can come up with where, when they put their product on the market, the patent companies would have to justify the price they're asking instead of us saying, well, as long as you're in the middle of what you do in six other countries, it's okay with us.

The Chairman: This is the final response.

Mr. Elgie: Well, you asked about the basket, and I'll start with that question.

The basket was put in the regulations by the government in 1987. It was not a basket selected by this board. However, in 1993, when we were reviewing our guidelines with a view to changing some things to tighten up the guidelines, after looking at the issue of changing the basket, a task force consisting of provincial ministry of health representatives, ministries of this government, pharmaceutical representatives, consumer representatives, representatives of pharmacist groups - all of them - suggested that this was probably the best basket that could be found.

Now, that doesn't mean we shouldn't look at it again. But if you go out and talk to one group, I'll tell you, they'll want to have Japan added, because they have very high prices. Somebody else will want to have some other country added. You have to take all of that into account, and if at the end of the day you're not going to have any substantial change, ask if it was worth the exercise. However, we're always prepared to do that if this committee thinks it's worth doing.

But in the present circumstances I'll never - nor will anybody - be able to answer the question you've asked me about whether we can get at the real cost of each drug. I think that's a very huge undertaking. You may want to get some advice about that from cost accountants.

The Chairman: Thank you very much.

Now, for the committee members, we have Mr. Schmidt, Mr. Patry, Mr. Lastewka, and then brief interventions from Mr. Solomon and Monsieur Ménard. That will take us right to 9 p.m. If everyone cooperates, we should be able to get through it on time.

Mr. Schmidt.

Mr. Schmidt: Thank you very much, Mr. Chairman.

I have two questions. They both refer to your report, Dr. Elgie. The first one is on page 4 of your remarks to the committee earlier this evening, your presentation, ``Notes for an Address by Robert G. Elgie''. On page 4, at the top, I noticed you saying that:

Although prices for both groups of drugs are going up more slowly than in 1987, the price of non-patented drugs are rising faster than the prices of patented drugs.

On what basis do the generics determine their price structure?

.2040

Mr. Elgie: I guess it depends on what province you're in and how you look at it. In B.C., it would be on a reference-price basis. There's a therapeutic comparison.

I have no way of knowing how they set their prices. I know that Dr. Eastman and his royal commission of inquiry went into that in some detail. He found that, on average, where there was one drug on the marketplace, it was usually 70% to 75% below the brand-name price. If there were two drugs, it dropped to about 65% or something like that. The more there were on the market, the more they decreased. Generally, it seems that he found there was some percentage relationship to the price of the brand-name drugs.

Mr. Schmidt: That's quite right. I'll pursue that a little later. In the interest of time, I won't pursue it now.

I do want to get into another area at this point. This has to do with the other one on page 6. It has to do with inappropriate prescribing and increased use. I understand increased use, but I don't understand inappropriate prescribing.

You've made this statement here that this is the basis on which you explain something. So could you give us a little more information of what you mean by inappropriate prescription?

Mr. Elgie: That's prescribing a drug that interacts unfavourably with another drug the patient's already taking. It therefore has to be abandoned and not used, so it has been a cost to the system to have drugs set aside and thrown out.

That's also prescribing a drug when there's an equivalent drug available at a much lower price, prescribing a quantity of drugs that goes beyond the needs required to treat a patient, or allowing repeat prescriptions without verifying that there was a need to have the prescription repeated. It's that sort of thing.

Mr. Schmidt: So that's what you mean by it.

You've made the statement that it results in higher costs to the health care system.

Mr. Elgie: I have not done a study on that. I want to make that clear.

Mr. Schmidt: Okay, but I'm leading to the evidence that proves the point. Prima facie makes sense. It's a common sense kind of conclusion, but on the other hand, unless there's data to support that kind of conclusion, it's a pretty serious indictment on health care professionals, or it could be so.

The question then becomes one of making a broad statement like this that blames the cost on something like this. It may indeed be true, but it may not be true or it may not be a very significant factor. What is the proportion of inappropriate prescription that takes place in the administration of health care?

Mr. Elgie: I don't have a precise answer to that.

Mr. Schmidt: No, I'm sure, but is this an area that would be useful to do a study on? Would this be something you would be concerned with?

Mr. Elgie: Let me just say, first of all, that I'm not saying those things as a criticism of health care professionals, of which I'm one.

Mr. Schmidt: I appreciate that. It's a logical conclusion.

Mr. Elgie: I know health care professionals have been holding conferences throughout the country on the issue of the prescribing practices of physicians. I know that physicians in all clinical settings are being involved in the setting of clinical guidelines for prescribing recommendations for clinical situations.

There are great efforts going on to try to correct these things. They know it's a problem, and I know it's a problem. We haven't quantified it yet.

The minister's task forces he mentioned to you this morning are looking at a number of issues, such as utilization and drug prices. I'm not sure if they're looking at the prescribing issue. I think they are looking at underutilization.

Another issue that we don't have the data on, but we know it happens, is patient compliance. I don't know how many people probably get a bottle of pills but never finish them. That's because they're feeling better by the time it's half through, so out it goes. We also know people who get three-month prescriptions but only use a month of them.

Mr. Schmidt: The prescriptions are much longer than the treatment requires.

Mr. Elgie: Particularly if they're going down south: they tend to like to have a three-month prescription.

The Chairman: Thank you very much, Mr. Schmidt.

Mr. Schmidt: Thank you, Mr. Chairman.

The Chairman: Mr. Patry.

Mr. Patry (Pierrefonds - Dollard): Thank you, Mr. Chairman and Dr. Elgie.

My first question is about the restrictive nature of the research definition used by the PMBRB. Although many products are not classified as a breakthrough or a substantial improvement, they can have a profound impact on a patient's life relative to other medicines previously available. Why do such medicines not gain a substantial-improvement designation?

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Mr. Elgie: I didn't get down to the category three drugs when we were talking. Category one is simply line extension. Category two is substantial improvement.

We have a third category some call the ``me too'' drugs, but I think that's an unfair categorization of them. These are drugs that are present in another packaging mode that may have some improvement or they may have different chemicals.

What we're saying is that unless those other drugs produce some little or modest improvement, it doesn't add much to the system and it's not worth a lot of increase in price beyond the top one in a therapeutic-class comparison. In other words, look at other drugs in the system that might achieve the same result and allow the highest price.

We endeavoured to add some fairness in light of the point you made, but we just don't think it merits anything more than that.

Mr. Patry: I have another question. Many important research contributions are presently being made by fledgling biotechnology companies that are not yet selling any products. Are the research contributions of these companies being recorded by the PMPRB? If not, should they be recorded?

Mr. Elgie: Our jurisdiction is tied to the patent. They're not in the business of selling patented drugs. They're doing research into the development of drugs that may go on to be patented, like 3TC in Montreal and fotofin in Vancouver.

Mr. Patry: Thank you.

The Chairman: Mr. Discepola is replacing Mr. Lastewka.

Mr. Discepola (Vaudreuil): I guess I'm living proof of one of the comments made byMr. Schmidt. I went to see my doctor, along with my wife, on Sunday. The first question the doctor asked us after diagnosing both of us with the same symptoms I'm exhibiting right now was ``Do you have private insurance?'' I was shocked. I then got prescribed medication, similar to that of my wife, that cost us each $125. I have to report that it's working on me, but not on my wife.

Mr. Elgie: You're not reinfecting each other, are you?

Mr. Discepola: No, but I think I want to get away from this line of questioning. I firmly believe that this committee should be focusing essentially on how to make the pharmaceutical industry more competitive internationally.

I think one message you should take back right now is that no one on this committee is satisfied with the level of R and D being done in Canada. If we're going to give patent protection along international guidelines, then we expect international performance when it comes to R and D. We want it done in a home-grown way here in Canada.

However, when we try to get into the debate of pricing and finding out what profits one person or group makes over another, I think we're barking up the wrong tree. We're never going to be able to achieve what we want to try to achieve.

I would probably want you to comment on my first question: what measures should we be introducing to try to make this industry much more competitive internationally? If we could get all of the R and D done in Canada, it's better for us.

Looking on the surface at both generic and non-generic drugs, they're doing quite well. So do we say that everything is going okay? According to your report, the prices are well within control, therefore there's no problem. Should we leave things alone or should we be looking at ways of making ourselves more competitive?

Mr. Elgie: All we're telling you is that you gave us certain directions on how to deal with the pricing of medications in this country. We think we've handled that well, better than you might have expected when the bill was passed.

In terms of R and D, Dr. Eastman reported in his royal commission study that this is a very small portion of the global market. Of the $340-billion factory-gate market in the world, we're at 2% of that, which is about $6 billion. So I don't know how you can endeavour to force R and D to extreme limits.

But we're in the midst now, with the task forces the minister mentioned to you, of looking at the whole issue of the comparison of international R and D with that of Canada. We hope that this material will be available to him before your committee hearings end. It may help you in those deliberations.

Mr. Discepola: Thank you.

The Chairman: Mr. Solomon.

Mr. Solomon (Regina - Lumsden): Thank you, Mr. Chairman.

How does the board establish its prices with respect to international price comparisons? Which price do you look at, the catalogue price or the transaction price?

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Mr. Elgie: In this country, as you know, we look at the transaction price. In other words, if there had been any bulk sales that had reduced the price, that would bring it down below the list price. If there had been any gifts or handouts to physicians, that's taken into account, and so forth. So we look at the transaction price. When it's humanly possible, we endeavour to get that same kind of information from other countries.

So our first goal is to get that. We usually have success in achieving transaction information. If we don't, we have to use the list price, and we tell you so.

Mr. Solomon: What would be the difference between the list price and the selling price? You say you're using the selling price, international prices. What exactly is the difference you see in international prices versus Canadian prices?

Mr. Critchley: On average, our studies have shown that actual Canadian transaction prices, on average, are about 6% lower than the published list prices. That varies depending on the drug, but that's the average.

We're not in a position to know that with certainty for other countries, but we do know that in most of the European countries, the publicly available prices that we are using are similar to those published in provincial formularies, such as the ODB. In that case, if it's an ODB price, that's the price in the province of Ontario for that drug.

We have a lot of confidence that the prices are in fact the transaction prices, as Dr. Elgie indicated.

The U.S. is a little bit different. You don't have the same kind of regulatory systems in place there, but there are a number of databases operated in the U.S. that we can access to help verify information. So we think that's also a pretty good measure of transaction prices in that country as well.

Mr. Solomon: So this would apply as well to category two drugs, the newer drug products, as well as the line drugs?

Mr. Critchley: Yes.

Mr. Solomon: Do the patentees provide that information voluntarily or is there a drug registry at some place in those countries?

Mr. Elgie: As for information about prices, they provide that information. From time to time, we verify it, if we think there's a reason to do so, by going to the other countries.

Mr. Solomon: When did the board decide to make the change in the price per unit of a drug? For example, I think now you compare the tablet, millilitre, inhaler, or whatever. It used to be dollars per kilogram. When was that done and why?

Mr. Critchley: That was done as part of the changes to the guidelines in 1992-93, as mentioned earlier by Dr. Elgie.

I think the use of the price per kilogram was done really more for historical reasons when the board was first established. Using price per tablet is more meaningful to consumers and to provincial drug plans, which also use the price per tablet or per unit. That was also done as part of the consultative process described by Dr. Elgie. It included all stakeholders, who all agreed that this was a good way to go.

Mr. Solomon: Did that have any effect on the prices with respect to the products that were sold?

Mr. Elgie: No.

Mr. Solomon: How are the price comparisons carried out when a drug product sold in Canada is not sold in the countries to which we're referring?

Mr. Elgie: That problem has been presented to us on one occasion. We gave a preliminary agreement to a price on the understanding that when the product came on the market in another country, we would start the comparison and lower the price if necessary.

The Chairman: Do you have a final question, Mr. Solomon?

Mr. Solomon: Just with respect to the report, Mr. Chair.

Obviously your report is showing that you're pleased with your performance. You feel that there has been impact in terms of controlling the prices of prescription drugs.

Consider other jurisdictions. For example, Saskatchewan used to have a drug formulary. It had a lot of drugs on there. There were many examples of how patent drugs had driven up the costs of their drug programs. It's at the point at which they don't even have them any more in a very comprehensive way.

We see other research, whether it's from the health coalition, other medical doctors, or other university research units, that shows very clearly that the price of prescription drugs has skyrocketed since Bill C-22 was brought in. The differences are glaringly different, anywhere from a 93% increase in terms of an average prescription drug price that's filled up to 250% for patented drugs themselves.

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How do you square these differences? How do you comment with respect to other research that's been done which shows that the board really doesn't have any power or authority to roll these prices back?

Mr. Elgie: First of all, you haven't mentioned the specific studies, but I'm often confronted with the statement that drug prices have increased by 13.4% a year when that study really is the Green Shield study and it's a 13.4% cost increase. In other words, the make-up of the basket is changed. There may be more of one drug and less of another and some new drugs that are more expensive. We have to be sure we're talking about the same thing.

If you have to take a patented drug and there's no generic equivalent, it's true that it would cost you more. I don't know where you got the figures of 250% and that other percent when the data we see is that patented drug prices in this country and drug prices generally have been dropping over the past eight years. If you have some data that you think you'd like to share with us, I'd be pleased to have it.

The Chairman: Maybe Mr. Solomon can in fact table this.

Mr. Ménard.

[Translation]

Mr. Ménard: As you can see, Mr. Chairman, some people talk more than I do.

Mr. Elgie, in a few hours, the representatives from the PMAC will finally be appearing before us. Ms Erola and her team are formidable people. They will tell us what level of commitment we can make in order to satisfy you. That is more or less what they will be telling us, because those people will not be satisfied with the status quo. They made a commitment for some 10% or 12.8% for the brand name industry and 13.1% for the PMAC members. If I recall correctly, the Eastman Commission chaired by your predecessor, a very illustrious individual, tried to evaluate the efforts made by various countries by comparing the figures.

Can you give the committee any information about what is being done in other industrialized countries? I know that the effective patent protection is not the same. Let us suppose we have a challenge to give the people from PMAC, who are insatiable. We will not let them go to 25%, but if ever they suggested going to 16, 17 or 18%, do you think you could quote a figure if you had to?

One final brief question, Mr. Chairman. Be magnanimous with me. My bill provides for new powers for your Board in the whole area of access to drugs for humanitarian reasons. I won't go into what this means for people, because I think you already know that. Do you think that if, in a burst of collective enthusiasm, the House were to adopt my bill, you could perform this function? If the answer is no, do not answer the question.

[English]

Mr. Elgie: I'd have to take that one over to My Lord if I may.

The Chairman: That's a good answer. Thank you very much.

Mr. Elgie: You did ask about international comparisons. In 1990 we did do some preliminary work. It's been available but we've never published it because we want to do it in more detail. At that time, from 1988 to 1990, we found that in 1990 the U.K. led in terms of R and D at 18.2%, Switzerland was at 17.4%, Sweden 17.4%, West Germany 16%, the U.S. 11.8%, and Canada 8.2%. That was in 1990 when the R and D wasn't up to its present level. That was behind Italy, which was at 9.5%. I'd hoped that we would be able to update that data in a more thorough way for the minister's task force.

[Translation]

Mr. Ménard: Could we have a copy of that? We will keep it confidential.

[English]

Mr. Elgie: Did you say you want to go to lunch? Is that what you mean?

[Translation]

Mr. Ménard: It would be interesting to have a copy of that.

[English]

The Chairman: I only have one small question of you. When we were kids we used to play scissors-rock-paper, and I'd just like to know how you play surgeon-lawyer-chairperson in your head.

I'd like to thank you very much. We all thought the testimony was first class and we very much appreciate it.

Mr. Bodnar (Saskatoon - Dundurn): I have just one point, Mr. Chairman. Having heard these witnesses and having discussed this with some members, I think it may be appropriate to have them back in the future, after hearing some of the other witnesses.

The Chairman: We all found the time very hurried and we want to make sure that all the members have an opportunity to deal with you again, in writing or in person. We appreciate your straightforward answers today and your presentation of data. Thank you very much.

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Mr. Elgie: I'm not available on May 10; I'm in Dartmouth at a wedding. Is that all right?

Mr. MacDonald: That's fine.

The Chairman: Thank you very much.

We'll take five minutes while we get ready.

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The Chairman: Order, please. The committee is now back in session.

I'd like to call the witness to start. Kathleen Connors is the coordinator of this group from the Canadian Health Coalition.

I'll ask you to introduce yourself and your colleagues and then proceed. Thank you very much for coming. The committee very much appreciates your waiting around. We know we're a couple of hours late. Thank you again.

Ms Kathleen Connors (Chairperson, Canadian Health Coalition): Thank you,Mr. Chairman.

As a nurse, I wondered if I needed to bring a bit of a stimulant to get you people ready for this presentation, but there's some passion at this end of the table, so I don't think you'll need medication. We'll start from that perspective.

My name is Kathleen Connors. I'm chairperson of the Canadian Health Coalition. We have a large delegation with us tonight to show the depth and breadth of the Canadian Health Coalition. At this time I'd like to introduce the members of the delegation.

With me tonight is Dr. Ross Chapman. Ross is here as a senior, but he is more than a senior, because Ross served as a federal civil servant, starting work in 1948. He is a retired assistant deputy minister from the food and drugs branch. He has seen nine prime ministers and many more governments in dealing with this issue. This man brings passion and commitment about affordable pharmaceuticals as well as an understanding of many aspects of the drug industry and departmental considerations.

Also with me are Dr. Joel Lexchin, a physician and an activist in the medical reform group; John Dillon with the Ecumenical Coalition for Economic Justice; Barry Appleton, who is with Appleton & Associates, international trade lawyers; Reverend Bill Jay, a board member of the Canadian Health Coalition from the United Church of Canada; and last but certainly not least, Michael McBane, the executive coordinator of the Canadian Health Coalition.

It is our intent that the bulk of the presentation, the key points, will be made by Joel, John, and Barry, but certainly we're all here.

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As I make a couple of brief opening remarks, I want to start with a quote:

The Canadian public recognizes that C-91's intended effect, as with any patent legislation, is to limit competition and raise prices and industry profits, thus contributing to the overall escalation of health care costs in Canada.

That, committee members, is not a quote from the Canadian Health Coalition. It is a quote from your own Liberal government-created National Forum on Health, from Directions for a Pharmaceutical Policy in Canada, 1997, page 5.

The Health Coalition is a non-profit, non-partisan organization that was founded in 1979. Our membership consists of national, provincial, and local organizations representing seniors, labour, poor people, women, health care providers, students, and churches. Collectively, we as a coalition see ourselves as a social movement working to preserve and improve medicare.

Our goals for health care are outlined in a document that many of you have seen: Ten Goals for Improving Health Care for Canadians. Our current campaign is called ``Protecting Public Health Care from Private Greed''. The campaign has two goals: to build public support for universal drug insurance and to focus public attention on the corporate interests threatening medicare in Canada.

With those kinds of goals, we welcome this opportunity to address the Standing Committee on Industry with respect to the review of the Patent Act amendments of 1992.

In the view of most Canadians, Bill C-91 serves the interests of multinational drug companies at the expense of public interest. Your political party, Mr. Chairman, stood with us shoulder to shoulder. In fact some of the members sitting at this table stood side by side with me in fighting Bill C-91.

Four years later, we have a rare opportunity to restore balance in Canada's pharmaceutical policy. Perhaps more importantly, Canadians, working with their elected representatives, have an opportunity to restore integrity and accountability in this government. We look forward to what Health Minister Dingwall described in his initial appearance before this committee as a comprehensive, thoughtful, and balanced review of Bill C-91.

But we have to say we're concerned that several key departmental studies conducted in preparation for this review have not been made public. In particular the Department of Industry was to have released a study on the cost of Bill C-91 as well as a paper on sector competitiveness. We say to you it is essential that this committee be presented with comprehensive, untainted evidence and analysis that is methodologically sound and comes from the Departments of Industry, Health, and we would suggest Trade as well.

We assume the chair of the committee will act on the health minister's suggestion that officials who worked on the National Forum on Health's study of pharmaceutical policy will be invited for a thorough discussion with committee members of their important recommendations. The national forum conducted a two-year consultation with Canadians and speaks the minds of the public on pharmaceutical issues in general and the damaging effects of Bill C-91 in particular.

We have heard Canadians for the past four years talk about this issue. We know they've been speaking to their MPs. I know I've certainly run into a number of you at airports and in buildings and cornered you and shared the opinions of the Canadian Health Coalition.

We as a coalition heard two successive governments, first the Mulroney government with the free trade agreement and then the Chrétien government with NAFTA, tell us, ``We can pass these pieces of legislation. It's okay; there are review procedures built in. If they're not in the best interests of Canadians, if they do not meet Canadians' needs, we have the ability to tear up the agreement. We have the ability to abrogate and get out of the trade agreement.'' We would like the committee to recall that.

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There are documents accompanying the paper and one of them talks about the intellectual property rights and international trade obligations. I certainly am not a trade lawyer and I would never profess to be, but we believe that following our presentation this evening, it will be clear to the members of this committee that there are options, that you do have options as a government to act on the negative aspects of Bill C-91.

I would first like to give Ross a chance to comment very briefly, and then turn to our other members to provide you with those options. Thank you.

Mr. Ross Chapman (Member, Canadian Health Coalition): Mr. Chairman, as a senior citizen I am acutely aware of the important deliberations of this committee. You are being asked to balance the conflicting objectives of providing appropriate incentives for research and development in the pharmaceutical industry with the equally important need to allow consumers full access to generic drugs at affordable prices.

As you possibly know, seniors make up approximately 12% of our population, but they consume over 30% of prescription medicines. The year 1996 was a watershed year as far as changes to provincial drug plans for seniors were concerned. Now all provinces have deductibles and co-payments in place, which vary from province to province but which amount to hundreds of dollars in extra charges for seniors. They are the result of the soaring cost of drug benefit plans.

The major factors influencing these increases are the higher prices of new drugs coming on the market without the balancing effect of the introduction of new, lower-priced generic drugs since the passage of Bill C-91.

No doubt you have a difficult task, but I am confident that you will meet the challenge. Thank you.

Dr. Joel Lexchin (Medical Reform Group, Canadian Health Coalition): I want to go briefly through the five points in the main part of the brief from the Canadian Health Coalition.

The first one is the establishment of a universal drug insurance plan. Currently the estimates are that between 12% and 15% of the Canadian population doesn't have any kind of drug coverage. We are not dealing here with just a random 12% to 15%. These are people who are generally referred to as the working poor, who make a little too much to qualify for the provincial drug plans but are employed in areas where there is no private insurance being offered.

Because these are low-income people, their health status is also going to be poorer than that of the average Canadian. Paradoxically, people who have a greater need for drugs also have a greater barrier to getting them.

If you look at where Canada stands with respect to the 23 or 24 countries in the Organization for Economic Cooperation and Development in terms of providing access to publicly funded drug plans, you will find that with the exception of the United States, Canada is at the bottom of the list. In other words, the smallest proportion of the population has access to publicly funded plans. The publicly funded plans pay the smallest percentage of the total drug bill.

Currently the provinces do have plans. However, those plans are patchy. They have all now imposed user fees on the population. From work done in the United States, we know that when people have to pay for drugs, when there are user fees, they forgo drugs and spend the money on other things. Unfortunately these people are often unable to distinguish between essential and non-essential drugs, which means that sometimes they give up on essential drugs. That results in more nursing home admissions and more psychiatric hospital admissions.

We think that a universal, publicly funded drug plan is necessary - and not only necessary, but we think it could save money in a couple of respects.

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The first is the purchasing power of the provinces. If they were the single buyer, they could have more control over the prices they pay for products.

Second, the private insurance plans currently have a much higher administrative fee, a much higher overhead, than do publicly funded plans. If we take the example of the United States with its largely private medical insurance system, the overhead there is 14%. In Canada, with medicare, the overhead is about 1%. If that kind of difference can be translated into drugs, then out of the $6.25 billion that was spent privately on drugs, we could probably save about $800 million by eliminating a substantial portion of the overhead.

The second point is to ensure that generic drugs reach the market quickly. Since Bill C-22 was passed in 1987, the cost of a prescription - what the consumer or the province or the private plan pays - has gone up quite considerably. In fact, it went up by about 93% between 1987 and 1993. Most of that is because of the increase in cost of new patented medications. The price for a prescription containing a new patented medication has gone up by about 13% a year.

You might argue that this would be justified if these new drugs were substantial improvements. But based on figures produced by the Patented Medicine Prices Review Board, just over 8% of products that come onto the market in any given year are termed substantial breakthroughs.

The other thing pushing up the cost of prescriptions containing these new patented medications is the lack of any generic competition. Before Bill C-22 came out, there used to be generic competition within five to seven years. The first generic would come on the market at a reduction of about 25% compared to the brand name product. When you got to three or four generics, you were up to a difference of about 50% compared to the brand name product.

We feel that on these grounds we should be getting generics on the market faster. Contrary to what the Minister of Industry has said, we believe there are options without violating either the NAFTA or TRIP agreements. John Dillon will be speaking to those later.

The third point is to monitor the quality and effectiveness of research done by the pharmaceutical industry. The industry has increased the amount of research it's doing and it's now up to $625 million a year. One point the industry neglects to mention, though, is that there is a 40% tax write-off for the research they do, so their expenditures are only about $375 million.

More importantly, there is the question of what kind of research is being done. Only about 22% of the research currently being done is basic R and D. That contrasts with places like the U.K. and the U.S.A., where it's around 40%.

If you look at the commitment from the multinationals to doing basic research in Canada, you can look at the agreement between PMAC and the Medical Research Council. They had formed a program to invest $200 million over a five-year period. That program was announced in November 1994, so currently they should have committed over half of the money. They are below that by at least $20 million, so we have to question their commitment to basic research in this country.

We have to think about whether or not, with government cutting back on the money it is spending for medical research, we want the bulk of the medical research in this country to be funded by the industry. The industry is going to be funding research that has commercial outcomes. Is that the most necessary kind of medical research for this country? Are there things that don't have commercial outcomes that need to be looked into? If the industry is funding the bulk of the research, is it going to be looking into that?

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Finally, there's the question of how much money it really takes to bring a new drug onto the market. The industry quotes a figure based on a 1991 study of $231 million American, but if you look at the study, you find a lot of loopholes.

First of all, it covers only new chemical entities, which were solely researched by the drug companies. It neglects drugs developed in cooperation with government, universities, hospitals, and medical schools. It neglects drugs licensed from other companies. It neglects a wide range of products.

Second, over half of the $231 million is termed opportunity costs. Opportunity costs are the costs of capital invested in drug research instead of being used for something else. These are theoretical economic costs, not a measure of what the company actually spends. They don't appear on the balance sheet, they don't appear on statements of profit and loss, they aren't used in calculating earnings per share, and they're not considered when companies try to attract investors.

Furthermore, although the industry probably does bring the bulk of products to market, when you actually look at the important new products that have come onto the market - and these are defined as important by the Food and Drug Administration in the United States - you see that in a large number of those products substantial government funding was involved.

Therefore, with respect to industry research, the amount of money the industry is actually investing in a new drug is questionable. Also, for the important new drugs, it looks as though the government, at least the American government, is putting a lot of money into that research.

We also ask that you make the drug approval process safe and publicly accountable. We see two serious problems with the Canadian regulatory processes as they currently stand.

The first is a lack of transparency. For instance, information about drugs that are going through the Canadian drug approval process is very difficult to get. The health protection branch does not say whether a product is being considered, whether it's in the regulatory approval process. Even after the medication is approved, unless the company that's marketing the drug agrees or unless the studies have been published, you can't get access to the information.

There's no independent check on the quality of the evaluation that was done by the health protection branch. If a drug is rejected by the health protection branch, that information is not made public, nor is the reason for the rejection made public. So we don't know whether there were safety issues or effectiveness issues.

The Chairman: Perhaps I could interrupt the witness. How you use your time with us is your decision, but generally speaking the committee members can read the written testimony. What we'd like to have is a good interaction between the members and you. I would appreciate your cooperation there. It has been almost twenty-five minutes, so any help you can give us would be greatly appreciated.

Dr. Lexchin: That's fair enough.

A second problem we see with the regulatory approval process is downsizing and deregulation. We'll be happy to discuss the problems we see with the committee.

Finally, we want better control over the price of medications.

You just heard from Dr. Elgie, of the Patented Medicines Prices Review Board. However, the guidelines under which the board operates have a number of serious flaws. One is that when the Patented Medicines Prices Review Board compares products to the international median, they're using only a group of seven countries.

If you compare the prices of products in that group of seven countries with the prices of all the OECD countries, you see that the group of seven countries on average has prices that are 10% to 15% higher than the OECD average. This means Canadian prices are coming in at above the OECD average. We therefore think there has to be serious changes made in the way the Patented Medicines Prices Review Board regulates introductory prices. That kind of thing can be done as a regulatory change and does not require any legislation.

Thank you.

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Ms Connors: John.

Mr. John Dillon (Member, Canadian Health Coalition): Mr. Chairman, the essence of my presentation is that the options available to the government, which this committee should look into, for new drug legislation in Canada are not as limited by international trade agreements asMr. Manley may have led you to believe.

I submit that Mr. Manley and the members of this committee need to re-examine the actual content of chapter 17 of the North American Free Trade Agreement and the trade-related intellectual property chapter of the World Trade Organization in light of the report of the National Forum on Health, where it recommends the decommodification of drugs, and in light of the recommendation that we in the Canadian Health Coalition are making for a universal drug insurance plan. When you look at the details of the trade agreements, you find that although there indeed is a clause that talks about twenty years of patent protection, there are a number of other articles in the agreements. In fact, one searches in vain for any mention whatsoever of compulsory licensing. There's even a debate among trade lawyers around which clause might conceivably cover a regime of compulsory licensing.

What is clear, though, is there are clauses that allow for exceptions. One clause is known as the limited exception clause. Another is known as the other use clause. I submit that if a national drug program were put into place and pharmaceuticals were treated as a public good and not as a commodity to be bought and sold, under these clauses it would be possible to craft a law that would be in keeping with the trade agreements and allow us to have more economical pharmaceuticals and a more just distribution of those pharmaceuticals in this country.

Let's suppose for a moment that option is precluded by a strong reaction by the transnational drug companies. Let's suppose they mount a heavy counter-attack. The question then becomes whether this government is committed to crafting a law in the interests of the majority of Canadians or whether it has been cowed into submission by the transnational drug corporate lobby.

We are not without other options. In a number of the countries we deal with, there are also people who wish to restore justice to their drug-pricing systems. It is not out of the question to think about changes that could be made to international trade agreements. We have allies throughout the world who also would like to restore compulsory licensing.

In short, Mr. Chairman, I think if we talk about going back to Bill C-22, there might be more limitations, but if we talk about moving forward to a comprehensive public national drug plan, there are options under the trade agreements.

I'd like to now introduce Barry Appleton, who is managing partner of Appleton & Associates, International Lawyers, Canada's largest international law firm. He's a member of the bars of Ontario, New York, and the U.S. Court of International Trade, the author of the book Navigating NAFTA, and an expert in international trade law.

Mr. Barry Appleton (Member, Canadian Health Coalition): Mr. Chairman, members of the committee, I'm here tonight to advise you on your international legal options regarding your review of Bill C-91.

This committee and the people of Canada have been told that the government has no option but to keep Bill C-91 as it now stands. International trade law is cited as the reason we cannot make any changes to this law. This is not so. I'm here to tell you tonight that we can make changes to Bill C-91 and be consistent with our international trade obligations. I want there to be absolutely no doubt as to what I'm telling you. Under international law Parliament has options available to reform Bill C-91 in the context of its international trade law obligations.

If there's one message I would like members to take back with them tonight, it is that Parliament has options available to it to protect the health and welfare of Canadians.

Let me briefly take you through the law. This committee has heard that NAFTA and the TRIP code have guaranteed a twenty-year period of patent protection. This period of protection, which is set out in these agreements, is subject to a number of exceptions. My colleague John Dillon has presented a paper to you, which you'll find in your package this evening and which he's just referred to. That paper sets out the law on some of these options. He correctly identifies a number of limited exceptions that are contained in the TRIP code and in the NAFTA, and we would be happy to discuss these and other issues with you as we go on this evening.

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In addition to these limited exceptions, there is another area in the TRIP code and the NAFTA where Parliament can take action. But don't take my word on this; allow me to show you directly. Here's the NAFTA. Just let me read you one small section of it and you can decide. Don't judge it by what I tell you; judge it by what you can see yourselves.

Article 1709(2) of the NAFTA says:

A Party may exclude from patentability inventions if preventing in its territory the commercial exploitation of the inventions is necessary to protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to nature or the environment, provided that the exclusion is not based solely on the ground that the Party prohibits commercial exploitation in its territory of the subject matter of the patent.

That was quite a mouthful. I didn't write the stuff, I can just read it. Article 27(2) of the TRIP code provides a similar exception.

These clauses allow governments to exclude items from patentability if it's necessary to protect ordre public. What is ordre public? Those members here who speak French as their first language will know what ordre public is. Ordre public is a term of the art in international law and it refers to the ability of governments to take measures for the general public benefit.

This term is the broadest possible type of protection. That's why it wasn't translated in the NAFTA in the English version. It was retained in its French version because it's a broader concept. It's a concept that allows Parliament to judge what is in the national interest and to take measures based upon that. As long as governments take measures for the public interest, very broadly defined, and these measures do not solely prohibit commercial exploitation, then change in Canada's patent laws is possible under this route as well.

In my opinion, a government provided universal drug plan as advocated by the National Forum on Health, for example, could fit within the ordre public definition. There is a range of options available under this exclusion, not just this but other ones as well, to allow Parliament the means of guaranteeing Canadians access to high-quality, low-cost pharmaceutical drugs.

In conclusion, allow me to restate that the TRIP code and the NAFTA both permit Canada to choose how it wants to protect patents. For legitimate public purposes there can be a variation of patent rights or even a termination of patent rights if Parliament so desires.

All I am telling this committee tonight is that international trade law does not totally limit the ability of Parliament to engage in policy innovation in delivering and protecting health and social services throughout Canada. Most importantly, there are options available for this committee to review. Indeed, the only limitation on these options is this committee's creativity and its own desire to protect Canada's unique health care system. Thank you.

Ms Connors: With those comments, we would now be pleased to entertain questions from the various committee members.

The Chairman: Thank you very much.

Mr. Brien.

[Translation]

Mr. Brien: Naturally, I'm going to come back to the issue of international rules. We must start by distinguishing between what we want to do and what we can do. Let us start with what we might want to do. I think there is a rather one-sided point of view in your presentation, whereas it is our task to try to find a happy medium.

I am looking at the issue from the point of view of consumers who want to pay the lowest price possible for drugs. We all agree on this. But we also want access to drugs that offer the best choice of treatment possible. We want access to high quality, constantly updated drugs to treat the new diseases that are being discovered. This calls for considerable R & D spending. Because ours is a mixed economy involving the private sector and government, private companies do not do research for philanthropic reasons, but rather because they want a return on their investment.

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I find it difficult to believe that companies are very likely to spend 250, 300 or 400 million dollars developing a product if they are given very little patent protection.

On the one hand, you want to make drugs available at the lowest available price, but on the other hand, are you concerned that in order to be available, these drugs must first be discovered here? Would you prefer that we copy drugs discovered elsewhere?

[English]

Dr. Lexchin: You're certainly right that there is a trade-off between getting drugs at the least cost and encouraging the development of new products. However, given the size of the Canadian market - the Canadian pharmaceutical market is less than 2% of the entire world market - companies do not make a decision on whether or not to go ahead and develop a new product based on whether or not they will get a patent here in Canada and how long that patent will be valid for.

The Canadian market is too small to affect decisions for R and D. The companies base their decisions for R and D on whether or not they can get this drug into the three major markets in the world, which are the United States, the European Union, and Japan.

Furthermore, if you look at the period before Bill C-22 was introduced - and we refer here to findings in the Eastman commission report - you see that even with compulsory licensing, the generic products had captured only 3.1% of the entire Canadian market.

At the same time, according to Professor Eastman, with the exception of the United States, Canada was the most profitable country in the world for the pharmaceutical industry, next to the United States. So clearly compulsory licensing did not take very much of the market away from the multinationals and they were still doing very well in terms of their profitability.

[Translation]

Mr. Brien: As you know, neither the manufacturers of generic drugs nor the manufacturers of brand-name drugs are broke. Both sectors are making money.

I would like to continue this debate, but I won't have enough time. Consequently, I will move directly to my questions on international law. The ministers of Industry and Health appeared before us and both said that under the WTO agreement and NAFTA, it was not possible to go back to the former system of compulsory licences, as you would prefer. You said exactly the opposite. Clearly, one of you is mistaken. Are you saying that the ministers are voluntarily lying, that they are giving us false information? Do you have a number of legal opinions to back up your stance? If so, could you pass them on to us?

[English]

The Chairman: Who would like to respond?

Ms Connors: I'd like both John and Barry to respond to this.

Mr. Dillon: We are saying it is possible to establish a national drug program that is consistent with the existing international agreements.

Under both NAFTA and TRIP there are the clauses I mentioned that allow for the exceptions, and if you look at the wording of those clauses, they specifically refer to the case of public, non-commercial use, where a government or contractor makes use of a patented medicine or any patented item. Under those clauses, as long as it's for public, non-commercial use, a law could be crafted to establish a national drug program that would be consistent with the existing agreements.

I think Barry wants to comment.

Mr. Appleton: Mr. Brien, the ministers have both made those statements. I showed you one example directly in the NAFTA. You can see for yourself that this gives an exception. The ministers have said explicitly there are no exceptions. You don't have to be an international trade lawyer to see that. I am an international trade lawyer and they are not, but you don't need to be one to see what it says in this.

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That is what I don't understand. The reason I came here today is it befuddles me how the ministers can say that. Have they brought you copies of their opinions? Have they brought you copies of the opinions from International Trade? They can't give you these opinions, because the answers are not what you're getting.

With all due respect, it is very important for this committee to understand in its review that international trade law has these exceptions. There are protections for intellectual property under international law, but there are also exceptions to allow for the sovereignty of Parliament to deal with things in limited and reasonable ways.

The NAFTA establishes one of the most absolute protections for intellectual property in the world. It drove the same type of process in the TRIP codes of the WTO. This protection, though, is not absolute. Parliament is sovereign, but it says how you deal with this.

All I am telling this committee is that the ministers are obviously misinformed if they are telling you that. I am certain that's not what they mean. I'm certain they must mean there are stringent rules but there are some exceptions. If they told you something else, that can't be the same.

In the past other opinions have been brought before this committee and other committees of this House and the Senate that have also dealt with that, but the fact of the matter is it doesn't make a difference if you have a hundred opinions on one side and a hundred opinions on the other. This committee can see for itself, and that's all I'm suggesting. Don't take my word; look at the book. I'm a member of the clergy, so I don't want to refer to this as the Bible, but in international trade, this is the Bible.

[Translation]

The Chairman: One last question, Mr. Brien.

Mr. Brien: In your last answer, you read us an article. In the light of your judgement, I think we'll have to do our work in a more rigorous and methodical manner. It is our responsibility to ask the minister for his legal advice just as we have asked you. We cannot just base our position on the interpretation of an article you draw to our attention. As far as I am aware, international agreements, particularly NAFTA, may be submitted to the Dispute Mechanism Commission, which will make a final ruling relating to such conflicts.

You referred to a clause that may be very wide or very restrictive, namely public order. The government may decide that it is in the national interest to act for the sake of public order. However we do not all have the same definition of the public interest or public order. In my view, it is perfectly clear that should we proceed, this matter will ultimately be submitted to the board responsible for resolving disputes and we will have to present arguments to support our position. So it is not quite as obvious as you claim. We certainly cannot draw any conclusions just because we have read an article.

Do you have any different legal opinions confirming your position? If you have some time, I'd invite you to give us your definition of the public interest or public order as well as what possible state of emergency could justify our intervention.

[English]

The Chairman: Please just deal with one point, because we have to get the other questions in. Just deal with your definition of ordre public for Mr. Brien.

Mr. Appleton: And then I'd be happy to deal with Mr. Brien privately and give him material.

I actually brought material with me to assist in this, because Mr. Brien asks a very good question: What is ordre public? Ordre public is broader than the other terms that are used for the public purpose, and they have been defined. I'd be happy to provide to this committee material published by the World Bank's ICSID, a centre for international investment law, which deals with this.

There's a recent publication on it. It says very specifically that as long as you're dealing with something for a public policy as defined by Parliament, that is exactly what ordre public means. I'd be happy to provide him with material on that.

Ordre public is in fact quite well used in international law, and I'm sure that should be able to satisfy him. But if not, I'm sure we could provide him and the rest of the members of this committee with more.

The Chairman: Mr. Schmidt.

Mr. Schmidt: Thank you, Mr. Chairman. There are a number of questions I'd like to address to this group.

Thank you for coming. It's very good that you are here.

I want to ask you to clarify for me what you mean by improving medicare.

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Ms Connors: That's probably another two-hour testimony.

I think the issue is that medicare was created at one time. It was done with political confinements. The Canadian Health Coalition over the years has always proposed manners in which medicare could be improved, things like the preponderance of physicians controlling the system and all those sorts of things. They are outlined in the ten goals for improving medicare, which we would be pleased to provide you with. We can have some discussion around those issues.

One of the points we talk about in those ten goals is the issue of providing cost-effective drugs that meet people's needs, as well as having a system of balance. The important part the Canadian Health Coalition has picked out at this time is providing the public with the reality that there are ways different from the current way of Bill C-91 to address the cost of pharmaceuticals. There are a number of options. We believe there are alternatives and that is why we are here providing you, as members of the committee, with options to consider on this specific issue.

Mr. Schmidt: The initial quotation with which you start your brief is this:

The Canadian public recognizes that C-91's intended effect, as with any patent legislation, is to limit competition and raise prices and industry profits, thus contributing to the overall escalation of health care costs in Canada.

Does it follow, from what you just defined as your improvement of medicare, that there should be or should not be competition in the delivery of medicare?

Ms Connors: The answer is a simple one. Of course there should be competition. As a country and as citizens, we were sold the North American Free Trade Agreement as being a way of creating competition and making things better, and we know what has happened in the drug industry. There has been the creation of monopoly patent protection for new pharmaceuticals, which has driven the cost of health care, as the brief outlines.

So we believe in competition, yes. We've seen that competition in the pharmaceutical industry has been hamstrung by Bill C-91.

Mr. Schmidt: Do you believe that a national pharmacare system would increase competition?

Ms Connors: There has to be a way. The simple answer is that if this national pharmacare program we envision is simply going to be a maintenance of the status quo and a channelling of public dollars into corporate profits, that isn't the kind of national pharmacare program we want. We want some competition and some cost-effectiveness in the provision of all aspects of health care.

Mr. Schmidt: I'm glad you clarified that.

May I draw your attention to the recommendation you make with regard to the commitment of sufficient public funds to monitor the quality and effectiveness of private research and to establish a publicly administered research fund. The money for such a fund would come from a compulsory contribution from all pharmaceutical companies operating in Canada, based on a percentage of their Canadian sales. How would this differ from the current provision?

Dr. Lexchin: First of all, under both Bill C-22 and Bill C-91, there is no legislative requirement for the companies to commit money to R and D. This was a verbal promise that the companies made. If they break that promise, nothing can be done about it.

Mr. Schmidt: If it were legislated, would that satisfy you?

Dr. Lexchin: No, probably not. Let me come to that.

There is also nothing said about how that money is going to be spent, whether or not that money is going to be spent on clinical trials, which are trials to judge the safety and effectiveness of drugs once they've been developed; whether or not the money is going to be spent on basic research; whether or not the money is even going to be spent on non-commercial goals. Because the industry has a commercial basis, it is naturally going to be spending its money on developing products that it thinks it will be able to make a return on.

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As we said earlier, though, that kind of research may not always be in the best interests of Canadians. There may be areas that should be researched that the industry is not willing to do. For instance, look at infertility. This was raised in an editorial in the Canadian Medical Association Journal by Dr. Patricia Baird, who headed the royal commission on new reproductive technologies. The kind of research that the industry is likely to fund in this area is going to be on drugs to enhance fertility. They are not likely, however, to fund research to look at why infertility develops in the first place - in other words, sexual habits, the transmission of sexually transmitted diseases, and that kind of thing.

What we are saying is that there has to be a mechanism to ensure that the research priorities that are defined by the Canadian public will be met. One of the ways of doing that - and this recommendation echoes material in the report of the National Forum on Health - is that some of the money that the companies are committing to invest should go into a public fund administered at arm's length from the government so that research can be done based on public needs and not necessarily on commercial needs.

Mr. Schmidt: Would contributions to a fund like the Medical Research Council satisfy your criteria?

Dr. Lexchin: I believe so. I haven't studied exactly how the Medical Research Council develops its priorities, but that's one possibility.

Mr. Schmidt: Thank you, Mr. Chairman.

The Chairman: Mr. MacDonald.

Mr. MacDonald: I want to welcome the coalition. You've been stalwarts in the promotion of the protection of health care across Canada and you continue to be. I'm glad to see your voice is still as strong.

This is a very important piece of legislation that we're reviewing. It's a serious review. I think a few members of the media early on asked whether this will be a real review. All you have to do is look at the varied opinions on all sides of this table to know that this is a real review that's taking place.

I'm glad to see that you've picked up one of the issues I've had in the past, on the Canadian Medical Discoveries Fund. I still believe very strongly that the level of basic research that's being done in Canada, particularly by these pharmaceutical companies, is simply not high enough.

I remember the debate, Mr. Chairman, on Bill C-91. One of the things we did endeavour to do, and on which I thought we had the commitment of the industry, was not just to increase the R and D up to 10% of sales expenditures; we wanted to see more in non-commercial research and development, the type of stuff that doesn't necessarily lead to a product entering the market. Those are the types of things you've just indicated.

That being said, I'm looking at a document here, the eighth annual report of the Patented Medicine Prices Review Board. I didn't get the question from PMPRB on this, but when I look at the expenditures they have for 1995, $596.2 million for research and development is listed. Of that, $369.3 million is in applied, but only $132.2 million is in basic.

Indeed, it's interesting if you look at the bar chart; you'll find that as the expenditures have increased since 1990, the actual percentage of annual expenditures on research and development for basic research has gone down. In absolute dollars, it's up, but in the percentage of dollars spent, it's down. In 1990 it was 27.2%, and then it went to 26.5% in 1991, then to 26.4%, 25.3%, 21.9%, and 22.2% in 1995.

The first question I'd like to ask our panel is whether we should be looking at a requirement or have a requirement in law that a higher percentage or a set percentage of those expenditures should be on basic research.

Dr. Lexchin: Let me preface my answer by saying that by giving the industry their 20 years of patent protection, we in effect gave them an indirect subsidy. We gave them the subsidy presumably to engage in R and D. Whether or not that was the most appropriate sector of the Canadian economy to give a subsidy, direct or indirect, for R and D was never an issue that was debated.

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We have no real track record in doing pharmaceutical R and D. You have to go from insulin in 1921 to probably 3TC a year or two ago to look at drugs that have been developed solely in Canada. Was that the best place to invest in R and D, or should we have been looking at giving the subsidy for R and D in areas where we have a good track record, such as mining technology, communications, or agricultural research? We never had that kind of debate. I'm hoping we will have that debate.

Having said that, we have to decide if we want to do pharmaceutical research in Canada. If we want to be doing it on a par with the established countries, such as the United States, the United Kingdom, and Germany, then yes, we have to increase the amount of money we're putting into basic R and D.

Unfortunately, when you look at applied R and D - that is, studies on drugs that have already been developed - there is a strong potential for those studies to be what's termed ``me too'' research. In other words, it's merely duplicating research that's already been done somewhere else, or alternatively it's doing research that would have been required anyway to get drugs through the regulatory approval process.

Mr. MacDonald: I'll ask two or three quick questions.

Some would say the NOC, or notice of compliance, link regulations have effectively added up to two and a half to three years for some products in their market exclusivity. I'm sure we'll hear from some of the generic drug manufacturers throughout these hearings that those regs have been perhaps used in a frivolous way, with a lot of litigation and a lot of lawyers making a lot of money, and that in the end, some products have been kept out of the market for as long as 45 months.

I would like to hear your comments about what we should do with that, what changes you think should be made, and whether or not those regulations should be scrapped.

Dr. Lexchin: This is an area we didn't touch on in our brief, largely because, as you say, I'm sure the CDMA will have a lot to say about this.

From our point of view, the linkages delay the introduction of generic products. Delaying the introduction of generic products, even if it's only a single generic competitor, means delaying the 25% savings that generic products bring into the market. Not only that, but as you delay the introduction of the generic, what usually happens is the total sales of the brand product start to decline as it reaches the end of its patent life. So rather than having a pie this big for the generics to take a 25% share of or make a 25% savings on, you only have a pie three-quarters the size.

So delaying the introduction of generics means delaying the savings and also having fewer dollars to save when the generic finally does appear.

Mr. MacDonald: My last question deals with the PMPRB.

Earlier today the minister certainly surprised me and perhaps some others of the committee by indicating he had written to the provincial ministers of health and encouraged them to give some feedback about an inter-delegation of authority, so the PMPRB would be regulating the price of not just patent drugs but all prescription medications in Canada. Currently we can only do it on the patent side; the rest is a provincial responsibility.

I'd like your comments on whether or not you believe there should be some regulatory regime to try to moderate prices, not just on patent medications, but on prescription medicines generally.

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Ms Connors: Go ahead, Joel, but I wonder if Barry might also have a comment.

Dr. Lexchin: Our point 5 does refer to regulating prices on all products. However, I believe that when the minister made his speech, he was referring to a study done by Broughan Consulting that looked at the price of non-patented products.

By and large, although there are outliers, the price rise for non-patented products is well within the guidelines that the PMPRB would establish. So bringing these products under the authority of the PMPRB might moderate the price of a few of these outliers, products that have gone up more than the rate of the consumer price index, but we don't feel it would have a major influence on the cost of drugs. We really think the significant factor with respect to drug costs is the introductory price of new products.

Mr. MacDonald: The introductory price of new products is something that has bewildered me since the first time I was fortunate enough to deal with drug patent legislation a few years ago. The thing that boggles my mind is the inability of the PMPRB - and it's not because it is not capable - to determine the input cost of the development of a drug.

When you deal with a new prescription medication, the costs of developing the drug may have come in a whole number of jurisdictions. How do we grapple with this to ensure the entry-level price of a drug? You can have a zero increase for five or six years and it looks like the PMPRB is doing its job, but if the entry-level price came in too high and did not bear a reasonable relationship to the cost of the development of the product, it means consumers are paying too much.

Do you have some ideas for us about how we can better arrive at a reasonable entry-level price for a patent drug?

Dr. Lexchin: This is a very difficult area to deal with. It's difficult because as you say, collecting the figures and interpreting the figures on how much it costs to develop a new product is extremely difficult, especially for basic R and D.

Basic R and D may go into developing a number of products, not just a single new drug; therefore, it's difficult to apportion those basic R and D costs. Also, unless you have the authority, it's hard to get the documentation. You may be able to get figures from drug companies here in Canada, but if the bulk of the research was done in the U.K. or Switzerland, will you be able to get figures from the home office?

As a start, we think the PMPRB has to stop using its group of seven countries for comparison with the international price. As we pointed out in the brief, when you average those seven countries their cost of drugs is higher than in all OECD countries. This means that right off the bat the Canadian introductory price is probably going to be higher than the OECD average.

The Chairman: Monsieur Ménard.

[Translation]

Mr. Ménard: I'd like to thank you for your presentation and your brief which are very attractive and interesting. It is a view worth hearing and of definite interest to my colleague.

However generosity does not do away with the need for rigour. I can assure you that I'm very sensitive to this question of access to drugs and I think you are right in raising this issue. I don't know whether the rapid arrival of generic drugs on the market is the solution. If my memory serves me right, you referred to a four-year patent protection in your press conference. I would like our committee to make very positive and concrete recommendations on the matter of humanitarian access to drugs.

I had the opportunity to meet your director general and to present my bill to him. I hope you will also recognize that society does have an obligation to people who make investments.

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Are you questioning the figures we have been given about the cost of the discovery of a drug? You said that only 8% of drugs constitute an actual breakthrough as part of the process leading to the discovery of a drug. Between the time when a molecule is isolated and the moment when the drug is actually available on drugstore shelves, there is an investment cycle amounting to almost $600 million. If we are not competitive internationally, we will have to forego investments. We can philosophize all we want and deplore the situation but all sorts of considerations come into play.

In conclusion, let me give you an example. I work a great deal with people with AIDS for all sorts of personal reasons I won't go into. Over the past eight years there have been two generations of drugs whose effect has been to transform AIDS from a fatal disease to a chronic condition. You mentioned 3TC discovered by BioChem Pharma Inc., an industry based in Laval. You asked us to reflect on whether these are good investments, and I think we must realize that if we want to achieve such results through drugs then we must invest in research. But in order for there to be investments and research, there must be an adequate return.

A number of issues could be looked at to make sure there is more room for generic drugs. I think your call for generosity will be heard. We must go beyond simply interpreting the NAFTA article, as your colleague did. How do you reconcile the objectives you want to reach and the need to provide sufficient protection to those who spend considerable sums on research? Do you agree that it currently costs approximately $600 million to discover a new drug?

[English]

The Chairman: Dr. Lexchin, a response.

Dr. Lexchin: As a physician I am acutely aware that we need better therapies in a large number of areas where we are currently deficient.

With respect to some of the specific points you raised, four years is not a figure we pulled out of the air. That figure was recommended by the Eastman committee when it reported back in 1984 or 1985. They tied that four-year figure to an increase in the royalties that would be paid by the generic company to the originator company.

Second, I want to point out that decisions to develop a new product do not rest on Canadian patent laws. The Canadian market is simply too small to make any difference to whether a company chooses to develop a product. No company would develop a product solely for marketing in Canada. They develop it because they think they'll be able to market it in the three large markets in the world: the U.S., the European Community and Japan.

Having said that, the companies may base their decision on where to put their investment on Canadian patent laws. But the decision to develop a new product has nothing whatsoever to do with Canadian patent laws.

Finally, the amount -

[Translation]

Mr. Ménard: What do you base that statement on? You do not work for the industry. You say you know more about the localization factors than the senior spokespersons for the brand name drug industry. I do not mind your telling us you do not agree with the protection provided and that you were questioning the costs. What do you base your statements on that refer to relocalization factors? Why hasn't the 3TC convinced you that even in a domestic market, some industries may have to invest considerable resources in developing a new product?

[English]

Dr. Lexchin: That's true. A change in the patent laws may influence where a company puts its money. If Canada has better patent laws than Brazil, the company may choose to invest in Canada. But it would not choose to forgo developing a new product simply because it did not get a twenty-year patent protection here in Canada.

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The final point I want to make is that the amount of money that is quoted as being necessary to develop a new product - again, I refer to this figure of $231 million U.S. - is a figure that has a lot of holes in it and that can be challenged in a large number of ways. Let me just give you one of the ways it can be challenged.

In the United States, the companies get a 50% tax credit for developing what are called orphan drugs. These are drugs designed for rare diseases. This is a 50% tax credit for expenditures on clinical trials. Between 1989 and 1993, the industry claimed just over $86 million in tax credits. If it's a 50% tax credit, that means they spent about $170 million in clinical trials. These were clinical trials for 60 products. If you divide 60 into $170 million, what you find out is that for each of these products, it only costs about $3 million in clinical trials to develop them.

Other studies that the industry quotes say it costs $40 million in clinical trials. The figures for developing a new product are highly debatable. We don't have good information.

The Chairman: Can I just interrupt you? There are five more members who have questions, and if I give everybody time, we're going to be going quite late.

Mr. Bodnar.

Mr. Bodnar: Thank you, Mr. Chairman.

I noticed that one of the briefs starts out with a quote saying: ``Like sharks, drug companies are marvelous feeding machines''. I guess it depends on whether you're a healthy person; if you're healthy you may look at them as sharks, but if you're a person who has a terminal disease you may look at them as saviours. I don't like phrases like that, the same way I don't like the phrase of Shakespeare when he says: ``The first thing we do, let's kill all the lawyers''.

That leads me to Mr. Appleton. You indicate that you have your LLB. As a matter of curiosity, that's from where?

Mr. Appleton: It's from Queen's University, and my LLM is from Cambridge University in England.

Mr. Bodnar: Your LLB was what year?

Mr. Appleton: It was 1989, I believe.

Mr. Bodnar: And your LLM?

Mr. Appleton: It was in 1990, I believe.

Mr. Bodnar: What did you study for your LLM?

Mr. Appleton: I took a specialization in international law. Would you like me to give you some more? I'd be happy to. In 1994 -

Mr. Bodnar: Sir, I have limited time.

Mr. Appleton: - I was the adviser to the Ontario cabinet committee -

Mr. Bodnar: I have limited time.

Mr. Appleton: I'd be happy to provide you -

Mr. Bodnar: I'll accept your LLM. The reason I ask you that is that I notice that in your letter, when you make reference to Mr. Dillon's paper you don't endorse his paper. You simply say that he accurately reflects the debate and the issues. You don't say you agree with his analysis. Do you or don't you?

Mr. Appleton: Yes, I do.

Mr. Bodnar: All right. I'm simply trying to get down to specifics because I know others will ask questions when you're gone and then we won't be able to get these answers. You indicate that Parliament could modify Canadian patent laws with the exception. Do you have knowledge of Canadian patent law? Did you study it?

Mr. Appleton: I've studied and have actually written some material on this area.

Mr. Bodnar: On patent law?

Mr. Appleton: On patent law as it relates to international law, yes.

Mr. Bodnar: With respect to your reference to the term ordre public, how many exceptions have been claimed under the international trade agreements under this particular ordre public file?

Mr. Appleton: You have to understand, Mr. Bodnar, that the NAFTA is a new agreement, as is the WTO.

Mr. Bodnar: Okay, so have there been applications under that?

Mr. Appleton: Ordre public is used quite regularly in bilateral investment treaties, in UN declarations dealing with sovereignty of natural resources, etc. It's a very common term and it's been used for several hundred years.

Mr. Bodnar: Have there been any exceptions claimed in these agreements or not? It's a very simple question.

Mr. Appleton: No, Mr. Bodnar, it's much more complicated. Are you asking me whether there have been exceptions done in the past under ordre public or do you mean under the NAFTA?

Mr. Bodnar: Under NAFTA and the WTO.

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Mr. Appleton: There have been no cases under NAFTA, nor have there been any cases under WTO. However, there have been a large number of issues of what they call ``state practice''. That is what creates international law, Mr. Bodnar. That is done quite regularly under the phrase ordre public. It's also used quite regularly by courts when enforcing international agreements in each country. Conflicts of law documents quite regularly deal with ordre public. In fact, it's quite a well-used phrase and is used quite regularly in domestic laws in the United States and Canada.

I'm just answering your question, sir.

Mr. Bodnar: No, you're not. I asked you whether there were applications. You're going further, and I have limited time.

In your letter, you state: ``In our opinion, a government-provided universal drug plan could fit under the ordre public definition.'' I'm not disputing this with you. I just don't see any authority for it in your letter or in the brief, and that's all I want.

Mr. Appleton: Mr. Bodnar, I've already undertaken to Mr. Brien to provide the committee with material. I have the material with me. It details the meaning. This was done by the World Bank, through its ICSID centre, and also by Professor Robert Paterson from the University of British Columbia. I would be happy to provide the material to you.

Mr. Bodnar: Will you provide it to the clerk for distribution?

Mr. Appleton: I'd be pleased to. This is not novel.

Mr. Bodnar: Thank you.

With respect to costs of drugs - and I'm going quickly here, because I'm going to run out of time - one of you used the phrase ``better control over the price of medication''. There's the whole question of cost. I realize that the drug manufacturers, whether they're patent or generic drug manufacturers, charge a particular price for a particular drug, whatever it may be, but other costs to the consumer are added to the manufacturer's price. Those are the wholesaler's price, the retailer's price, the dispensing cost, etc.

Do you have information to indicate the percentage of the manufacturer's price of the final consumer's price? This is important. We have jurisdiction for patent drugs. We have no jurisdiction over all the other costs. Do you know the percentage that they average over the final cost?

Dr. Lexchin: That would depend on the particular product.

Mr. Bodnar: Do you have an average? Do you have a range?

Dr. Lexchin: If you're looking at a new patented medication, the cost of an average prescription in Ontario in 1993 was $24. That's just the drug cost. If it was dispensed under the provincial drug plan, you would add $6 dollars and something cents. If it was dispensed privately, you would probably be adding between $10 and $12 dollars for a dispensing fee.

Mr. Bodnar: What is the mark-up by the wholesaler and the retailer?

Dr. Lexchin: The wholesaler's mark-up is 10%. There is no retailer mark-up.

The Vice-Chairman (Mr. Lastewka): Mr. Murray.

Mr. Murray (Lanark - Carleton): Thank you, Mr. Chairman.

Mr. Appleton, you're essentially telling us that if Parliament has the courage, we can do what you're asking us to do. You come before us with well-established credentials in international law. I would submit to you that international lawyers don't drive public policy in Canada or in the countries of our major trading partners. We have to live in the real world.

If Canada moved to withdraw from what we see as our WTO and NAFTA obligations, as defined by the Minister of Industry, do you really believe the United States Congress or the EU would get hung up on the fine points of international law and things such as ordre public - if they thought for one minute that Canada's actions were threatening the agreements we've made with them?

Mr. Appleton: Mr. Murray, who in this country defines international policy? Is it the Minister of Industry, or is it the Minister for International Trade or the Secretary of State for External Affairs, the Minister of Foreign Affairs? It seems to me that you are right: this world is not run by international trade lawyers. I'm glad you've recognized my credentials. I appreciate that.

The fact of the matter is that you're suggesting to me that we're derogating work, getting away from our obligations. I'm just telling you what these obligations are. All I'm saying to this committee is that you have been told categorically there are no options. I've shown you at least one option. There are other options, there are other exceptions there. In fact, there's a whole section in NAFTA; this part of it is all exceptions.

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All I'm saying to you is that this committee should have more information available to it, not less. It bothers me when Parliament, which is sovereign - and the NAFTA was created to enhance the sovereignty of parliaments - is told that you can't make decisions.

There is an ability within and an obligation upon Parliament to govern, and you have that authority. That is exactly why this was crafted in such a way, so that there is an opportunity for Parliament to make decisions.

You, sir, and you - all members of this committee - decide what is public policy in this country, not me, not some other official of the government, and not even a minister. It is the Parliament of Canada that decides that. And once you decide what you want to do, then you can use this agreement to be able to justify it if it is in fact for the public purpose.

So that's all I'm suggesting. And it bothers me, as someone who deals in international trade every day of my life, when I hear that we have no option, and we have no choice. I put it to you, sir, that we do have options; that's all.

Mr. Murray: Well, perhaps Canada has chosen to join the rest of the world, and be a player in this -

Mr. Appleton: But that's a policy choice. That's fine. If this committee chooses, that's fair -

Mr. Murray: That's right.

Mr. Appleton: - but it's not that you have no choice.

Mr. Murray: I think one of your colleagues was trying to step in here with a comment.

The Reverend Bill Jay (Board Member, Canadian Health Coalition): Yes, I think we're hearing from a number of authorities, and you no doubt will hear from another group of people in the coming days who will pose as authorities. But keep in mind that medicare, as we've known it, and the initial commitment to eventually bring in universal pharmacare into Canadian medicare, were done in response to an authority that came from the grass roots up.

I think one of the reasons churches are pleased to be a part of this coalition is that we are in touch with people and their stories, people who depend upon medicare, people who rely upon the breakthrough discoveries that provide new medications. A sacred trust was established by the Canadian government over 30 years ago to embark on this venture that we know as medicare, and we hope pharmacare is a part of it.

So I think our challenge to parliamentarians is to hear that authority, that of the people of this country, the men and women of this country, their children and their children's children, particularly people in western Canada who were among those who initiated a public health care system. So we want that authority to be heard, as well as international law, medical opinion, and so forth.

Mr. Murray: I'm sorry to interrupt -

A voice: You can't interrupt it; you can't shirk that -

Mr. Murray: - but it's just that we have extremely limited time. We hear from the people of Canada all the time.

I just want to squeeze in another question.

Rev. Jay: I want to remind you of that.

Mr. Murray: No, we're very well aware of it, and appreciate that.

Dr. Lexchin, you were very critical of the brand-name pharmaceutical manufacturers in your comments earlier. I'd just like to know what your opinion is of the generic manufacturers in terms of their pricing, their performance in R and D, and their contribution to medical science through research.

Dr. Lexchin: Unfortunately, because the generic companies are privately held, getting information about them is difficult. So some of what I'm going to say is based on limited information. When you look at their pricing policies, of the first product coming on at a 25% discount, going up to a 50% discount when there are three or four products, I think you'll see that this is roughly comparable to other countries where the generic industry occupies the same status as it does in Canada. So I'm referring here to the U.K. and the United States.

With respect to the amount of research they've done, they have put out figures saying that they're spending about 13% of the sales dollar on research. With respect to the kind of research they're doing, I don't have access to that information.

The Vice-Chairman (Mr. Lastewka): Thank you, Mr. Murray.

I'm being kind to all of you. I've given you all a minute or two extra, but I'll get heck in the end from the chairman.

Mr. Schmidt.

Mr. Schmidt: Thank you, Mr. Chairman.

I have one question. It has to do with the improvement of medicare and the opinion you might have with regard to the improvement of medicare through the development of medical research, medical breakthroughs and medical technology, and the development of that medical research capability.

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I'm just wondering how you would see the development of that research capability and that medical technology and the role of the improvement of medicare and the whole business we're talking about in the review of Bill C-91, which contributes some of the funds into this area, or might...maybe you would say it shouldn't be there. Could you answer that?

Dr. Lexchin: When you talk about the improvement of medicare, when you talk about delivering better health services, you're talking about something larger than simply drug therapy. You're talking about how we deliver the services - what is the best organizational way, who is the best to deliver them, what settings it is best done in when you're talking about the development of new technology.

However, if you look at where the money is coming from to do the research in those areas, you find that government is pulling out of those areas. They're decreasing budgets for things like the Medical Research Council and other funding agencies. Increasingly, that role is being taken up by the pharmaceutical industry, not just here but in the United States and the United Kingdom.

Unfortunately the pharmaceutical industry, because it's a commercially based industry, has research priorities that are different from the priorities that we as Canadians and you as parliamentarians may have. We do not think we should rely solely on the industry to guide where our research dollars are going.

Mr. Schmidt: The word ``solely'', which you introduced in your answer just now, is not what I suggested at all. I didn't for two seconds believe that was the sole contribution. You introduced that dimension. Is that what you mean? Do you want them to contribute but not be the sole contributor?

Dr. Lexchin: Currently the single largest -

Mr. Schmidt: I'm picking up a different message. The message I'm picking up from you is that they shouldn't do it at all; government should do it.

Dr. Lexchin: No, I didn't say that.

Mr. Schmidt: Good. I'm glad you clarified that, because that's what is coming through to me.

Dr. Lexchin: Currently the largest single direct funder for medical research in this country is the pharmaceutical industry. I'm sure PMAC will be happy to confirm that when they speak.

Mr. Schmidt: It would be interesting to find that out. I don't believe that for two seconds.

Dr. Lexchin: Well, I'm sorry you don't, but in fact it's true.

Mr. Schmidt: We'll find out.

Dr. Lexchin: As the direct funder of research - not indirect, when you consider the cost of running medical schools and hospitals, but in terms of direct money spent on R and D - the pharmaceutical industry is the largest single contributor in this country. When you get to that point, who is determining the priorities?

Ms Connors: I would add that while this is true with respect to the direct funder, the research is occurring in our public institutions. The position that we in the Canadian Health Coalition take is that here are private dollars directing the research agenda of this country, having access to diminishing dollars and diminishing public resources in our university sectors. And for whose benefit? It's for the profit margins of these corporations. That causes us some consternation and we would like some examination of that issue.

The Chairman: Thank you, Ms Connors.

Mr. Discepola, did you have a question?

Mr. Discepola: I have two quick points.

One of the panellists made a comment about wanting to get generic products on the market as soon as possible and insisting that there's more R and D being done. I assume that the R and D component, which I want to touch on first, was directed at the brand name manufacturers who in essence do the majority of the R and D.

At first I found that a very startling recommendation. If you're going to try to get more R and D done, the brand-name manufacturing drug companies do the R and D, which then provides the generic companies with the opportunity to copy their drug. Without the brand-name companies you wouldn't have a generic industry. I think we have to be aware of that. However, you then say that if you want to encourage R and D and you don't give adequate protection, where is the balance we're seeking in this committee?

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You've stated that you don't like the 20-year review. If you're going to try to encourage more R and D and give that balance and the protection they need to market their product, to recoup the heavy investment that was alluded to before, then what in your opinion is an adequate period of time, marketing wise?

Dr. Lexchin: I'll go back to the Eastman commission report, which was a quite thorough examination of this entire issue. Eastman recommended a four-year exclusivity period and then a royalty rate that would be tied to the amount of money the company was spending on R and D in Canada. So the more money they were spending on R and D, the greater the royalty rate they would get from the generic licensee.

Mr. Discepola: If you take a look at the fact that there are arguments between eight to ten or ten to twelve years of lead-up to marketing research and R and D and the approval process taking that long, we're talking anywhere from four years' less protection that you're asking. If you take the average of ten to twelve years, as I said before, then you're going to give the developer of the patent a four-year exclusivity. In other words, there's not that much difference from what the current law provides.

Dr. Lexchin: The current law provides for 20 years from the date of filing. However, commonly most of the products that are marketed have more than a single patent and those patents aren't necessarily filed at the same time. So the length of time before all the relevant patents expire can be more than 20 years. Then we have what Mr. MacDonald was referring to with the NOC linkage, which adds on a minimum of two and a half years should the brand name company -

Mr. Discepola: But what are you recommending? Is it just straight four years of exclusivity and that's it?

Dr. Lexchin: We draw on the Eastman report. They recommended four years. That was a thorough -

Mr. Discepola: What are you recommending, not the Eastman report?

Dr. Lexchin: I think four years with an adequate royalty rate based on how much commitment the company is showing to Canada by virtue of how much they're investing in R and D in this country is reasonable.

Mr. Discepola: My last point is that you seem to imply that by getting the generic products on the market a lot faster, we will reduce health care costs. I believe it was Dr. Elgie before you who stated in his brief that although prices for both groups of drugs, generic and non-generic, are going up more slowly than in 1987, the prices of non-patented drugs are rising faster than the prices of patented drugs.

How do you explain that? Maybe the generic industry should be charging less instead of more and forcing the brand name manufacturers to drop their prices also.

Dr. Lexchin: I'm sorry that I didn't hear that point from Dr. Elgie, but if you look at the Green Shield study that was done on the price of prescriptions in Ontario, which was on page 4 of our brief -

Mr. Discepola: I'm not comparing the price of prescriptions here.

Dr. Lexchin: But that's what counts. That's what matters to people. It's not what the manufacturers charge for the drug, it's what people have to pay when they go to buy a prescription. If a drug costs $50 but I never get it, I'm never prescribed it, then I don't care whether or not it's $50. But if I have to go and buy it, then I certainly do care if it's $50.

Mr. Discepola: Then how do we control the dispensary costs and the retail mark-ups?

Dr. Lexchin: The Green Shield study was talking about the cost of the drug itself, the drug component of the prescription, not the dispensing fees, not the other things. They're talking about the drug component.

The drug component of new patented products is going up at 13% a year when you look at the cost of a prescription. When you look at the cost of a prescription for non-patented products, they're going up at a rate of about 7.5% a year. That's what matters to consumers, that's what matters to the provincial drug plans, that's what matters to the private drug plans. It's how much money they have to pay out when people get their prescriptions. That's the important thing.

The Chairman: Because of the late hour, I would like to keep you within your timeframe, if you don't mind, sir.

Mrs. Parrish, for final questions.

Mrs. Parrish (Mississauga West): Thank you very much, Mr. Chairman.

I'm glad the Reverend and Ian brought this back to a level I can function at. I'm not an international lawyer; I'm a housewife from Mississauga. When I'm lectured at I just glaze over and stop listening.

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I'm going to make a couple of points and hopefully you'll make very short answers.

You mentioned that Canada has a unique health care system. I know it's unique, and I hope when you're finished with your battle here today on Bill C-91, as a coalition for health you'll go on and look at the fact that we're second only to the United States for abuse of doctor visits, abuse of non-prescription drugs and abuse of chemicals generally in this country. I can still see that ad where the guy opens the medicine cabinet and says, ``Hi, Bud, how are you today?'' and there's somebody there dispensing medication from the cupboard.

I think we have to stop saying that the patent drug companies are costing us a lot of money. I think advertising, our closeness to the United States and our overwhelming desire to feel no pain, no dizziness, no anything - just pop a pill and fix it - should be your next battle.

The other point is that when you talk about the ordre public and going into four-year protections, we could go one step further and become a total bandit country and say that in this country there are no drug patents, no protection at all; we have only generics. What are you going to do with the 21,000 high-tech jobs we have? Where are those scientists going to go? What are you going to do about the research being secondarily funded in universities? What are you going to do about employing 21,000 kids coming out of university who need high-tech jobs? They don't need low-level jobs.

Second, why should private corporations like pharmaceutical companies be obliged to give 10% or 8% or any percentage of their money to pure research that we direct them to do, when this government is busy putting $2 billion into child poverty and putting billions of dollars into reducing the deficit? We have made a choice not to fund pure research. Why should a private corporation be forced to do that to function in this country? Why are we not forcing General Motors to do the same thing?

I want short answers and I don't want to be lectured at. I'm a former teacher.

Ms Connors: As a nurse, I agree that there are many challenges facing us around these issues. I hear what you're saying. The issue here is an issue of the integrity of a sovereign government. We're saying as Canadians, particularly to the members on this side, that we elected you and we want you to hear our concerns about what's happening.

When you talk about jobs for young people, what about the 45,000 health care workers in Canada who have lost their jobs since 1991? Let's look at what's causing the loss of jobs.

The Chairman: Ms Connors, excuse me. Maybe Ms Parrish's questions set you off, but it's the last question of the day. If you have something straightforward to contribute on the topic, I would appreciate it.

Dr. Lexchin: Let me answer your question about why we should require companies to do R and D -

Mrs. Parrish: That we have chosen as a government not to do.

Dr. Lexchin: Who is paying for a large portion of the drugs that these companies make? The provincial drug plans are. Public money is paying for these products.

You asked about General Motors. We do not fund people to buy cars made by General Motors. If we did, maybe we would ask General Motors to do research into transportation. But we don't fund people to buy cars. We do, however, pay out of public funds for a large number of the products that these companies make. If we are going to do that, if we are going to help these companies be profitable by purchasing their products, then I think we have a right to tell them that they have certain obligations to the Canadian public to invest some of the money we're giving them.

Mrs. Parrish: They are living up to what we've asked them to do. We've asked them to invest 10%.

The Chairman: Thank you very much. We don't end the evenings on arguments.

You'll be happy to know, Doctor, that when we did our science and tech review, the very question we had was why General Motors is not doing more research in Canada.

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I'd like to thank the coalition very much. It's been a long day for the committee, and sometimes final comments are not the best. You've brought to bear, as you can tell by the different people on the committee and as Mr. MacDonald pointed out, a perspective that we need. You're taken very seriously. Thank you for bringing together all these people and staying with us.

The committee is adjourned.

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