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EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, March 6, 1997

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[English]

The Chairman: Order, please.

Pursuant to Standing Order 108(2), we are conducting a review of section 14 of the Patent Act Amendment 1992 (Chapter 2, Statutes of Canada, 1993). The committee resumes its work by hearing witnesses from the Pharmaceutical Manufacturers' Association of Canada.

As I said to the witnesses before, we'd prefer your brief to be to the point so we have lots of opportunity for questions. The committee will proceed from now until 5:30 p.m., if we need to, when the bells will begin to ring for a vote in the House of Commons.

I assume the Honourable Judy Erola, as president, will be the quarterback for the presentation.

You can introduce the witnesses with you and we'll take it from there.

Hon. Judy Erola (President, Pharmaceutical Manufacturers' Association of Canada): Thank you, but the honour will fall to the chairman of our association, Mr. Nelson Sims.

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The Chairman: Okay. Please introduce your witnesses and then give your opening statement.

Mr. Nelson M. Sims (Chairman of the Board, Pharmaceutical Manufacturers' Association of Canada; President, Eli Lilly Canada Inc.): Thank you, Mr. Chairman and members of the committee.

My name is Nelson Sims. I'm the president of Eli Lilly Canada and chairman of the board of the Pharmaceutical Manufacturers' Association of Canada.

I would like to mention to the committee and to the audience that our text is available in both French and English on the table.

With me today is the Honourable July Erola, president of PMAC; Mr. Paul Lucas, president and chief executive officer of Glaxo Wellcome Inc.; Mr. André Marcheterre, president of Merck Frosst Canada Inc.; and Ms Emma Grell, a partner with the law firm of Gowling, Strathy and Henderson, who is available to committee members as our expert witness on issues of patent law.

We will present a short statement of about 20 minutes and will be pleased to answer your questions following our opening comments.

There are five key points we would like to bring before this committee today.

First, Bill C-91 has led to billions of dollars in new research and development, thousands of new jobs, fair and reasonable patented drug prices, a thriving generic industry, and an emerging biotech sector, as you heard last evening.

Second, PMAC has kept its commitments to Canada and to Canadians for new investment in research and development that has led to new jobs and innovation.

Third, patented drugs and the innovative pharmaceutical industry are playing and will continue to play an important role in providing cost-effective, evidence-based health care solutions to the treatment and management of diseases affecting Canadians.

Fourth, an intellectual property gap exists between Canada and its major industrialized trading partners that must be closed by bringing Canada up to truly world-class patent protection standards, thereby ensuring new investment in research and development, innovation, and jobs.

Fifth, adequate and effective enforcement of intellectual property rights represents a fundamental requirement of our patent system. Without the mechanism as currently provided in the patent notice of compliance linkage regulations, there simply is no patent protection. Improvements that strengthen the provision to prevent infringement that linkage provides we believe are possible. At the same time it is important to reduce the amount of litigation time involved in the current process. We believe these improvements are both desirable and possible.

July Erola will now speak with you about our association's record of achievement in meeting its ongoing commitments to quality health care in Canada and the good health of Canadians.

Ms Erola: Thank you, Nelson.

Good afternoon, members of the committee and Mr. Chairman.

This committee has been provided with independent, documented evidence of our association's commitments and how these have been met by our member companies. We are extremely proud of what these commitments have meant to both providing new drug treatments for Canadians and new job opportunities for many young, talented scientists and researchers right across our country.

We're most excited, however, about our role in working with other health care partners, including the Government of Canada, in bringing cost-effective solutions to health care reform. The National Forum on Health has provided useful information and advice on the need to move to a more integrated, evidence-based health care system in Canada, and we agree.

Last month's federal budget provided new, concrete initiatives in the areas of population health, pharmacare, research, and innovation. We applaud these initiatives as enhancing accessibility and accountability within our health system, and we offer the government our cooperation and commitment to working with them as a dedicated private sector partner in the delivery of health care solutions in Canada.

Our goal has always been improved health care outcomes. We know that can only come about through research and education - research into new treatments and education about how medicines can be most appropriately used to ensure better health outcomes.

That's why we're supporting a number of projects aimed at bringing about optimal drug therapy and more appropriate use. These include our consumer information campaign, called ``Knowledge is the Best Medicine'', which encourages patients to talk with their physicians and pharmacists about their medications to ensure they truly understand how best to take them. That campaign is targeted in particular at seniors, who, as Minister Dingwall pointed out earlier in the week, take more medicines than any other age group in our society.

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An exciting new initiative we are undertaking is our Port Perry project called ``Pilot for Appropriate Anti-infective Community Therapy'' or PAACT. This unique, community-wide, multi-stakeholder initiative is aimed at demonstrating how cooperative education can achieve optimal, low-cost, antibiotic therapy at the community level, a very important health issue in Canada today.

Mr. Chairman, patented medicines represent only 2.5% of total health care expenditures in Canada. Generic and other non-patented drugs represent 3.7%. Since 1988 patented drug prices in Canada have increased at an average rate of about one half of the inflation rate, 1.6% versus 3.1%.

The fact remains that neither patented drug prices nor the Patent Act itself are responsible for increased drug costs in Canada. The PMPRB itself stated this week that federal regulation of patented drug prices has saved between $2.9 billion and $4.2 billion from 1988 to 1995, with savings in 1995 alone of between $846 million and $1.1 billion.

It is true that overall drug costs have increased, but they have done so in recent years at a vastly reduced rate than that of the past. Of the factors impacting on these issues, like price, new medicines and utilization, the last factor, utilization, is the major factor.

Utilization is a function of many factors, ranging from taking more medicines, not taking them appropriately, and inappropriately prescribed medicines in the first place. And I believe you'll be hearing from some experts later on during the hearings.

We will continue our initiatives to educate Canadians about the drugs they take, and we will continue to work with government, physicians, pharmacists and others to ensure more effective utilization of prescription medications.

As the World Health Organization says, for countless patients around the world the administration of a medicine or a vaccine is the embodiment of health care. Without drugs, a health service has no substance and no credibility.

As health care restructuring seeks to reduce expensive in-patient hospitalization, and with advances in technology and medical practices making long hospital stays unnecessary, medicines take on a new importance in helping to reduce the overall health care budget.

Mr. Chairman and members of the committee, we are committed to reducing health care costs in Canada and to bringing health care solutions to Canadians. Intellectual property is key to our ability to research and finance new innovations in the treatment and management of disease.

Mr. Lucas.

Mr. Paul Lucas (Representative, Pharmaceutical Manufacturers' Association of Canada): Mr. Chairman, Glaxo Wellcome Inc. is one of Canada's largest research-based pharmaceutical companies. We employ more than 1,100 people in Canada, operating from facilities in Mississauga and Montreal.

Glaxo Wellcome invests more than $50 million annually in research and development in Canada. Construction of our new $120 million manufacturing and product-development facility in Mississauga has been completed and will be fully operational this year.

Since 1990 we have had a strategic alliance with a internationally leading Canadian biotechnology firm, BioChem Pharma, to research and license new drugs related to AIDS and anti-cancer therapy. This alliance has resulted in the discovery here in Canada of 3TC, an AIDS drug, a product whose research team was awarded the prestigious Prix Galien last year for their ground-breaking work.

My company operates in a fiercly competitive global business environment. Intellectual property rights are a basic but fundamental component behind worldwide investment decisions. No country can safely ignore what other countries around the world are doing with their intellectual property laws and still continue to attract new investment in the high-growth, knowledge-based industries that are the driving fuel for today's global economy.

To compete in a world economy and to ensure world-class research, we must have world-class intellectual property standards.

The importance of world-class standards becomes clear when you consider the cost, risk and time associated with new drug discoveries. The cost of discovering, researching and developing a new drug today is about $500 million and is rising. The time spent discovering, researching and developing a new drug is, on average, ten years. On a twenty-year patent, this leaves only about one-half of the original twenty-year patent term to recoup these enormous costs. This means the true effective patent life for a new patented medicine is, on average, ten years.

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The risks associated with innovation are enormous. Only one in every 10,000 pharmaceutical discoveries successfully makes it to market. Only three out of ten marketed products actually recoup their R and D costs or yield profits to the innovator. The other seven products generate revenue, but not enough to recover the initial investment. These, then, are the stakes involved in innovative pharmaceutical research, and the stakes are just as high for Canada's pharmaceutical industry.

There is a gap today between our current patent laws and those international standards of patent protection found within our major industrialized trading partners. The United States, Japan and the European Community - our G-7 partners - all offer greater pharmaceutical patent protection than Canada. This gap affects our ability to compete worldwide for investment, growth and jobs.

That competition extends to emerging markets such as Brazil, which strengthened its patent laws only last year, resulting in $400 million U.S. in new investments by pharmaceutical companies since those changes were made. Canada clearly must take steps to ensure that we do not remain behind. World-class patent protection means we can compete with the world. If improving the international competitiveness of Canada and the innovative pharmaceutical industry is one of our goals, then ensuring international standards of patent protection is key to achieving that goal.

Two gaps stand out most: patent term restoration and patent early working by generic companies. Let me briefly touch upon each.

Patent term restoration, or PTR, provides additional patent life as compensation for the years lost during the lengthy testing and review period required for new drugs. New medicines face a unique and expensive set of research and regulatory hurdles not faced by any other invention. As noted, about one-half of the total patent life is taken up in researching, testing and reviewing the drug for eventual market approval.

In terms of patent term restoration in the U.S., Japan and the European Community, they all provide up to five years additional patent protection as compensation for the clinical testing and review time necessary before a new drug can come to market. The net result is that effective patent life for a new medicine in Canada can be up to five years less than in these countries. This makes these jurisdictions more attractive investment environments.

Now, it's important to understand that PTR is not applied on an across-the-board basis for all drugs, and it does not result in automatic increases in patent protection. Companies must apply for it, demonstrating on a case-by-case basis the time lost in an individual drug's testing and review.

By contrast, we do provide the generic sector with a unique competitive advantage in its regulatory process by exempting it from certain types of patent infringement. This is known as patent early working, and it allows Canadian generic products to come to market as soon as possible after the patent expires.

Patent early working exempts the generic companies from patent infringement in two important ways. First, they can begin producing their version of the product before patent expiry in order to secure regulatory approval by Health Canada. Second, they may begin manufacturing and stockpiling quantities of the product so that it can enter the market immediately upon patent expiry.

Together, these two patent early working provisions allow a generic company to enter the market as much as sixty months earlier than it would have without these provisions. The U.S. is the only country that has a regulatory exception provision, and no other country but Canada has a manufacturing and stockpiling provision. This creates a major patent protection gap in Canada when compared to the international standards of our key industrialized competitors.

Now I'd like to turn it over to André Marcheterre.

Mr. André Marcheterre (President, Merck Frosst Canada Inc.): Thank you very much, Paul.

[Translation]

[English]

[Translation]

First I would like to take a few minutes to talk to the members of the committee about Merck Frosst Canada Inc. This Canadian business is among the five companies that lead the way in research and development in this area. In 1996, we invested more than $65 million in R&D. We also spent$75 million modernizing and expanding our manufacturing plants in Kirkland, Quebec as well as $13 million expanding our research facilities. Since 1987, we have invested more than $450 million in research in Canada.

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We employ over 13,000 Canadians, 40 per cent more than in 1987. We operate the largest biomedical research facility in Canada, the Merck Frosst Therapeutic Research Centre.

[English]

Our commitment to research and new medicine goes well beyond the products themselves. It goes to the issue of how these products can be best used to provide longer, better lives for Canadians and, at the same time, manage health care costs. That is why we have pioneered and are putting into practice an evidenced-based approach to pharmaceutical care, called patient health management. Patient health management is a comprehensive, seamless process of care that collects scientific evidence to determine which health practices will deliver the best care at the best cost.

Only last month we launched a $6-million patient health management initiative in Nova Scotia called ICONS - ``improving cardiovascular outcomes in Nova Scotia''. This is the most comprehensive study on heart disease ever undertaken in Canada. And with up to 50,000 people participating in it, Nova Scotia will become the centre of one of the largest clinical research projects in the world. It has the support and participation of the Government of Nova Scotia and other health care partners, demonstrating that partnership in bringing health care solutions to Canadians is the best solution to better managing our health care system.

[Translation]

I want to point out that without an adequate, effective and enforceable system of laws governing patents, we do not have the necessary means to protect our patents. All we have is a system of patent rights on paper.

And yet, adequate and effective enforcement of intellectual property rights is one of the requirements expected of the countries which are party to the NAFTA and WTO agreements, which Canada did sign.

Through the notice of compliance regulations, Canada meets the requirements of those international agreements.

What is the purpose of the notice of compliance regulation? In simple terms, its purpose is to prevent the illicite marketing of copies of medications whose patents have not yet expired. It allows parties to go to court to settle conflicts on patent infringement at the same time as - let me insist on that point - Health Canada is studying the notice of compliance filed by the general drug manufacturer. During that resolution period which can extend to 30 months, no notice of compliance can be issued by Health Canada before the patent in question has expired, before the Court has handed down its decision, or before the two parties have come to an agreement, or the 30-month period expires, whichever comes first.

In the course of this important review of the Patent Act, six essential aspects of the notice of compliance regulations must be taken into consideration.

Firstly, the process provided for by the regulations only comes into play when a generic drug manufacturer decides to challenge the validity of a legal patent. The licensee then has 45 days to respond to this challenge in order to protect his patent rights. His response marks the beginning of the 30-month process.

Secondly, the notice of compliance regulations do not extend the patent protection period by a single day. Indeed, the duration of these patents is set by law for a period of 20 years from the date the request is filed and cannot be extended under the terms of existing Canadian legislation.

Thirdly, the process takes place in parallel to the processing of approval applications filed with Health Canada by generic drug manufacturers. Thus, the process does not delay the marketing of the generic drug since it allows Health Canada to continue its study leading to the issuance of the notice of compliance while the courts are dealing with the issue. In fact, the marketing of a generic drug was only delayed in four of the 58 cases which have been settled to date. However, court decisions in no less than 21 cases came down in favour of patent holders and thus prevented the marketing of illegal generic copies.

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Fourth, court cases are settled more quickly as the people concerned become more familiar with the process.

Fifth, the notice of compliance regulations do not give patent holders new rights not found elsewhere in Canadian legislation. The regulations in fact result from a clear gap in Canadian legislation, which does not allow for the normal recourse to interlocutory injunctions upon patent infringements. The burden of proof is so erroneous that it is practically useless to go to court to have patent rights enforced.

Sixth, patent rights in effect throughout the world are based on the same fundamental principal, namely that it is incumbent upon the party that manufactures or sells the generic drug to demonstrate that he is not infringing patent rights and that the patent has expired, and not the opposite.

Without the notice of compliance regulations, Canada would have no effective means of enforcing patent rights and our industry would be deeply concerned. We believe that the current unsure nature of the regulations should be rectified by incorporating the principles and fundamental mechanisms of the regulations into the Patent Act.

Together with that change, the process itself could be improved in order to reduce the number of legal disputes. The improvements proposed have been submitted to you in another document, and we would be happy to discuss them with you.

[English]

Mrs. Erola will now conclude our presentation.

Ms Erola: Mr. Chairman, we submit to you that the present legislative framework, which was struck four years ago, is reasonable. Innovative R and D, jobs and investment have all increased; patented drug prices are fair and reasonable; and the generic sector is thriving, with 15% to 21% annual sales increases.

We also submit to you that as legislators you must consider how Canada's patent laws today compare to international standards of pharmaceutical patent protection elsewhere, and what this means to achieving our mutual objectives of balance and of ensuring a world-class pharmaceutical industry in Canada.

Our industry has lived up to past commitments, and will continue to live up to them. As long as Bill C-91 remains in place, we are committed to maintaining the present ratio of R and D to sales. Between 1996 and 2000, this will mean $2.5 billion to $3 billion in research and development investment.

We are committed to fair and reasonable drug prices for Canadians. We remain committed to innovation and to the participation of Canada in global pharmaceutical research leading to new advances benefiting the health of Canadians. We remain committed to working with governments and other health care providers to find evidence-based, cost-effective solutions to our health care problems through new disease management programs and other health education initiatives.

With these commitments, we offer two core recommendations for the consideration of this committee and the Government of Canada. First, current levels and standards of patent protection must, at a minimum, be maintained. As part of this, the linkage regulations should be both strengthened by placing the principles and the key mechanisms in statute, and improved procedurally to reduce the amount of litigation involved. And second, as a country, we must move to first-class, internationally competitive standards of patent protection to ensure continued investment in R and D, innovation and jobs.

Patent term restoration is key to ensuring that Canada remains an attractive location for global pharmaceutical investment. At the same time the patent early working provisions should be revoked to make Canadian patent laws consistent with most of our international competitors.

In conclusion, we wish to thank the members of the committee for their attention. Of course, we are now here at your mercy to answer the questions that I'm sure you're eager to put forward.

The Chairman: Thanks very much, Ms Erola.

Before I begin with the questions, I just remind the audience that I don't want any cellular phones going off, and that's including those of professional staff. Just pretend you're passengers in the back of a 747 with a nervous pilot, and that will help you through it.

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Voices: Oh, oh!

[Translation]

The Chairman: Mr. Brien.

Mr. Brien (Témiscamingue): Is that what we should think of the pilot?

First, you claim that the effective duration of patent protection, on the basis of international comparisons, is shorter in Canada than in several other countries, including such major competitors as the United States, Europe and Japan.

Should that hypothesis prove true and the government decide to improve protection and bring it in line with international standards, would you be willing to make additional commitments, among other things with regard to research and development expenditures? If you want to make international comparisons, you must compare all points. We note that in other countries, research and development expenditures represent a higher proportionate share of corporate proceeds.

According to PMPRB data, approximately 12 per cent of your proceeds go to research and development whereas in other countries that compete in this area, the figure is 20 per cent. Would you be willing then to make additional commitments in that regard if you were given greater protection?

[English]

Mr. Lucas: Maybe I can answer that question. First of all, just to talk about international standards of research and development, the average international standard of research and development as a percentage of sales is about 15%, not 20%. Certainly in the United States, for example, the level of R and D investment as a percentage of sales might be in the range of 19%.

When we look at the investments we've made in Canada from an R and D perspective, PMAC companies have invested 12.5% of sales in R and D to date on an annual basis. But when you add in the companies that don't have any sales and you add in their R and D, that number comes up to about 14%. Then when you take a look at how those other countries calculate their R and D and make adjustments for that - for example, they include depreciation on certain R and D investments - when you make those kinds of comparisons, it actually brings our research and development as a percentage of sales up to 15.3%. In effect, we are at the global average now.

I think we're very proud of the fact that in a very short period of time we've been able to get to that world level. Actually, I think it's quite an extraordinary story.

And we believe that with improved patent protection in Canada we'll be able to continue to go out as companies and attract more investment to Canada so hopefully we can lower it.

Ms Erola: Can I make an additional statement about that?

The definition of R and D in Canada is narrow. We recognize that the scientific research and experimental tax credit is extremely generous in Canada, but the definition is fairly narrow and differs somewhat from the OECD definition that is used, which is much broader. That might be something the committee would want to look at in terms of the thrust of the government in health delivery systems and population health, because at the current time within the tax act that is not considered research.

[Translation]

Mr. Brien: You state that you already meet international R & D standards. However, some people hold a different point of view. If you were granted improved protection, we would require that you comply with international R & D standards. It would then be up to us, on the basis of information provided, to see whether you are in fact meeting those standards.

My second question is about the balance of trade in the area of pharmaceutical products. The existing climate is very conducive to research and development, what with mechanisms such as tax credits, but we note that we have a negative balance of trade and that it is deteriorating from year to year.

This leads us to believe that many drugs are manufactured elsewhere, leaving Canada overall as a drug importer. How do you explain that? Isn't there a problem for us as a society when we subsidize research and fail to reap the benefits that flow from manufacturing drugs, since we are in reality an importer?

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[English]

Mr. Lucas: On that issue of balance of trade, the numbers we have, which I believe come from Statistics Canada, suggest that exports are actually growing much faster than imports are. The trade balance that does exist is starting to shrink. And if we continue to see the same trend over the next decade, we should see an elimination of that trade deficit. It won't happen overnight, but certainly as we continue to make the investments we're making, we're optimistic that the trade deficit will continue to shrink.

[Translation]

Mr. Brien: How do you explain the current situation? The export growth ratio is higher than the import growth ratio, but in spite of that, the overall trade balance was worse this year than last year. The deterioration has been arrested somewhat, but the overall balance is still negative. How can we expect this trend to reverse itself if they are no major incentives, and no constraints, if it comes to that?

[English]

Mr. Lucas: I think the incentives have been in place now for the last few years with improved patent protection in Canada. Again, remember that we're coming from a base in 1987 with no patent protection and no incentive for investment in R and D or in any component of the business. Over the last ten years we have had that incentive and I think what you're seeing now is some very positive investment that is leading to world mandates, for example, for manufacture.

I can speak for my own company. Specifically, we have just invested in a new $120 million manufacturing facility. We are now exporting more than half of our volume out of that plant, and we now have two world mandates, which we were able to gain in just the last six months.

We're making good progress. And certainly if the environment remains the way it is and if things improve, we're optimistic that we'll be able to continue to pursue those kinds of mandates.

[Translation]

Mr. Marcheterre: With your permission, I would like to add a few words to that reply. It is obvious that the innovative pharmaceutical industry was based mostly in Europe and in the United States. It would of course be possible for most of the pharmaceutical companies to carry out a great deal of their research, development and production solely in the countries where they are based.

The challenge for a country like Canada consists in attracting its fair share of investments in research, development and production, investments which otherwise would go to other countries. It is by offering a competitive climate, in terms of protecting intellectual property among other things, that we can succeed in creating an environment where international companies can hope to generate competitive returns. We could then in turn attract our fair share of research, development and manufacturing investments.

I would simply like to say that by improving protection through C-22 and C-91, we managed to attract $3.2 billion in new investment to Canada in the area of pharmaceutical R&D. Further, we created a research and development network in our universities, companies and hospitals.

We trained researchers and witnessed the emergence of a biotechnology industry which employs about 11,000 employees in total, invests important sums in R&D and is beginning to market its products not only in Canada, but also throughout the world. Things progress in stages. When you improve your competitive position, you also attract better investments.

Mr. Brien: Linkage regulations are one of the topics which will be discussed at length during the committee's work. You stated in your background material that this process was necessary in view of the lack of possible recourse to interlocutory injunctions in Canada. Some people feel that we could introduce a different mechanism to allow recourse to interlocutory injunctions so that there would be no need for linkage regulations in order to protect patents adequately.

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Thus, it would be possible to define differently the criteria necessary to obtain an injunction. In that way, we would avoid all the difficulties related to the current regulations. I would like to hear your views on that. If you are open to the idea of introducing a different mechanism, then I would like to hear about it.

Mr. Marcheterre: Absolutely. Regulations on compliance notices are a critical and essential component of patent legislation. If we don't have adequate enforcement mechanisms, we can't protect intellectual property. Is the existing mechanism the best there is? Is it perfect? No, it is not perfect, but we know that it works. In 21 cases, it prevented the marketing of products which would otherwise have been put on the market illegally.

However, you are right to say that this leads to a large number of court cases. We would be quite open to discussing ways of improving the current system with the government, or to examining others in an effort to enhance the protection afforded intellectual property here, in Canada.

[English]

The Chairman: Mr. Schmidt.

Mr. Schmidt (Okanagan Centre): Thank you, Mr. Chairman.

I'd like to refer you to page 5 of your submission. At the end of the second paragraph, you say you want to ``move to a more integrated, evidence-based health care system in Canada''. Could you elaborate a little more fully on what you mean by ``integrated, evidence-based''?

Ms Erola: Firstly, each province of course has a health care system that is operated basically in what we call fallows. There is a budget for hospitals, there are budgets for the drugs, and there are budgets for nursing homes, and the whole system is not integrated; it's not what we call a seamless system. So very often decisions made in one part of the health care system have unintended effects on the other part of the system.

A very good illustration of that is the drug budget. Our ability to close hospitals is due in large part to the fact that we now have medications and technologies that allow patients short-term care. Even day surgery and cancer treatment, for instance, are now done basically on an outpatient basis, because of some of the new drugs. I believe Zofran is your particular product, which allows a patient to be treated out of the hospital.

So it follows, without an awful lot of mathematical engineering, that the proportion of hospital beds is very closely related to rises in drug costs, because these people move from hospital patients to outpatients. But these drug costs and the whole system are not integrated to a degree, using all of the information we have available to us to understand what the appropriate decisions are, based on the evidence given at the time.

An enormous amount of evidence is now coming through the system. We have guidelines and we have studies that indicate that certain procedures and certain therapeutic changes can produce in large measure very real savings to the system. It applies throughout the system.

It's time - and Mr. Dingwall made this very clear in his response to the Health Forum, and the Health Forum examined all of this - that we move to a system where we integrate our knowledge and put in the knowledge-based technologies that are now available to us to make the best decisions based on the evidence of the day. That's the way we think Canada should be moving and there is every indication that's the way we are moving, and we applaud that.

Mr. Schmidt: So integration would not include alternate forms of treating medicine, outside of the surgical approach or the treatment by chemical compounds of one kind or another? It would not include the treatment by certain other naturopathic or other holistic treatments of disease?

Ms Erola: All the evidence should be examined in a systematic way.

Mr. Schmidt: So you would include that?

Ms Erola: It would include whatever evidence is out there to say this is the best way to treat a patient, this is the best way -

Mr. Schmidt: What would you accept as irrefutable evidence?

Ms Erola: Well, we have very good scientific bodies in Canada that will run the appropriate trials and who have the methodology and the scientific rigour to run these trials, and that is happening in Canada.

Mr. Lucas.

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Mr. Lucas: Maybe I could give you an example in the field of asthma, in which we're very much involved. The medical community knows how to treat asthma effectively. Many clinical trials have been done to show that the best way to treat asthma is by using inhaled steroids and increasing doses and so on. It's then a matter of applying that knowledge, that best practice, of treating asthma to the population so that you actually get the results that you get in the clinical trials.

We've consulted with a number of multi-stakeholder groups across the country through what we call our community asthma-care centres and with those groups we've been able to show some very dramatic improvements in disease outcome for those asthmatics, as well as decreasing costs and improving patient satisfaction with their care. Again, it's very much a multi-disciplinary approach, an approach of applying best practice.

Mr. Schmidt: Thank you very much.

I'd like to move on to another area. It seems to be that patent recovery, if you like, is where there's an excessively long period of time for getting approval. The whole period at the moment is twenty years. If the approval period lasts say fifteen years, it effectively reduces the protection of actual marketability by five years. And you want that extended to another five years, let's say. That, I think, seems to be your maximum position.

If the approval period were five years, would you then be prepared to reduce the protection period to fifteen years?

Mr. Lucas: The key there is that the intent of patent protection is to provide twenty years patent term to all inventions.

Mr. Schmidt: [Inaudible-Editor].

Mr. Lucas: That's right, because again, drugs are very unique in that we have this long extended development and approval time. Any other inventions actually get twenty years of effective patent life because they don't take as long to develop. So the concept of patent term restoration, of adding back those two, three, four or five years -

Mr. Schmidt: Okay. But the real question is what you want the protection for. Should the marketability time periods be ten years? What protection are you looking for? Are you looking for twenty years? Are you looking for ten years of protection in the market?

Ms Erola: I think it would be important to look at what the other countries have done. The maximum patent exclusivity that has been provided by our competitors is a total of fourteen years at this stage, because what we are talking about is not an automatic extension. It has to be done on a case-by-case basis, and in many cases -

Mr. Schmidt: To me, you want it one way but not the other way.

Mrs. Erola: No. We are asking for harmonization with our trading partners, and those trading partners -

Mr. Schmidt: So if they do that, you'd like that too.

Mr. Sims: I could cite a specific example. My firm's biggest-selling product was recently genericized. The product was Prozac, which I'm sure most members of the committee know about. Canada was the first G-7 country to experience a patent expiration because this country does not offer patent term restoration. We were at the health protection branch for five years trying to get that drug approved. Other countries experienced the same phenomenon but those countries have patent term restoration. So I compete for global research firms against my internal competition within my own company that still has a patent on that product out through 2001 and in some cases up to 2004, whereas Prozac was on the market for seven years in Canada.

Mr. Schmidt: Okay.

I'd like to move into another area now, which has to do with the interlocutory injunction. I think the threshold at the moment is irreparable damage. If that threshold were dropped I think the courts might be inclined, perhaps, to grant these kinds of injunctions a little more readily than if you have to prove irreparable damage, because that is almost impossible to do, and I think that's one of the reasons that provision has never been used. If that were reduced, would you be prepared, then, to shift the direction of the claim of the notice of noncompliance or compliance, whichever way you want to look at this?

Mr. Marcheterre: The important concept is the concept of having an enforcement mechanism for intellectual property protection. What we knew at the time of Bill C-91 was that the requirements when we were talking about interlocutory injunctions were such that practically speaking they were impossible to get in Canada. Then another system was required, and this is what got us to the linkage regulations.

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We now know the linkage regulations do work in order to enforce protection of intellectual property for pharmaceuticals. As I said earlier, the regulations are not perfect; they could be improved upon. If there were another system of enforcing intellectual property protection that would work well with maybe less litigation, we would certainly be willing to consider it and discuss it with the government.

Mr. Schmidt: So you're not dismissing it out of hand. If it could be shown that it would be a more effective and efficient system, you would go with it.

Mr. Marcheterre: If it could be shown, we would certainly be interested in considering it.

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

The Chairman: One last point.

Mr. Schmidt: Okay. It has to do with initial pricing.

You mentioned somewhere in your report here - I can't cite the exact place - that one in 10,000 ideas ultimately ends up in some kind of marketable drug, and then 3% of those actually end up recovering their R and D costs. When you determine the cost of a breakthrough or a new drug, does it include that full cost of R and D from the 10,000 that started over here? And then is there enough profit generated by this 3% to pay for all of this?

Mr. Sims: That's a very good question.

Our businesses are obviously very complex. Complex accounting principles are applied to the treatment of R and D and what year you can write it off.

The short answer to your question is no, that is not how we price our products. Our products are priced strictly by the guidelines of the Patented Medicine Prices Review Board.

Mr. Schmidt: That's initial pricing, not the subsequent pricing.

Mr. Sims: That's what I'm talking about. Our introductory prices of new products strictly follow the guidelines of the Patented Medicine Prices Review Board.

There are three categories. One is a new product dosage form, which is category one, and that's been explained to you. It's a milligram-per-milligram comparison. It's very clear how that product would be priced.

I'll skip to category three, those products that are deemed moderate improvements. In Canada, even though it's a new technology that would provide better patient care, if it is labelled category three, it has to be priced within the prices of existing old technologies already on the market. So it's very clear how we price our products in category three.

Then there is category two, which is designated the breakthrough category, and it's important to keep that in perspective, because between the years 1992 and 1995, that only represented 9% of all new medicines in Canada. So again, if patented medicines represent 2.5% of the total health care spending and of those products between 1992 and 1995 this category two only represented 9% of those new products, we're talking about a very small number in terms of total percentage of drug pricing.

There is no comparator in Canada, because it's deemed breakthrough, so the guideline that has been given to us by the Patented Medicine Prices Review Board to follow is that we cannot exceed the international median of our comparator countries.

The Chairman: Thank you. Mr. Schmidt, I'll make sure you have time to pursue this.

Mr. MacDonald.

Mr. MacDonald (Dartmouth): Thank you, Mr. Chairman.

I feel as though I'm in that movie I saw recently, The Usual Suspects. I guess I'm one of them and a lot on the other end of the table are as well. We've been here before.

I want to welcome the association and Ms Erola, who has been a very forceful, influential spokesperson for the industry.

I want to talk about a couple of things. We're clearly trying to figure out if some of the commitments given by the industry and some of the things the government thought they were doing in Bill C-91 have actually taken place. If you've been watching my questioning over the last few days, I've taken four or five different points that I think we need information on to make some reasoned decisions.

The first one I want to raise deals with R and D. The commitment that was given by the PMAC industry on research and development appears to have been fulfilled. However, I'd like some comment on two things.

First of all, is it the desire of the industry to try to raise the percentage, up the R and D expenditure that goes into basic research? When I looked at some of the charts that we saw yesterday, I noticed that although the overall dollar figure in R and D has gone up, the percentage of those dollars spent seems to have slid a bit away from basic research and development.

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On the second thing, we don't have the data yet, but I'd be interested to see it. Since the PMPRB seems to use a basket of seven countries - if I can call it that - to arrive at the median price for new drugs in Canada, I'm just interested to find out whether anybody here from the association knows exactly what the ratio of R and D to sales is in some of those countries. In the industry in Canada overall in 1995, I think it was 11.8%, and 12.5% for the PMAC companies. We don't have any data available yet that is comparative, although I do I think the PMPRB is going to give it to us. Back in 1990, however, I think the Canadian industry was only at about 8.2% in terms of its ratio of R and D to sales. Italy was at 9.5%, the U.K. was at 18.2%. In both Sweden and Switzerland, it was at 17.4%. For Germany, the figure was 16.4%, and the U.S. was at 11.8%.

Have those numbers gone down in those other countries? Are you aware of that? Are we seeing a change in Canada? Are they going up in Canada in actual fact? Is it your understanding that we're in the middle? Or are we at the top?

Mr. Lucas: I'll try to tackle the basic research issue first. Basic research as a percentage of the total R and D that we do in Canada now ranges between 25% and 30%. When you do it on a comparative basis with the United States and some of the other major G-7 countries, that 25% to 30% is again very consistent across those countries.

The reality is that basic research typically only does represent that percentage of total R and D. The big costs of R and D are on the development side. I think sometimes we undervalue the clinical research component of the investment, though, and I'll give you a couple of examples. Although you may have discovered a molecule through basic research that is designed to treat HIV, for example, once you get that product developing for HIV, the basic research is done. You then do clinical work to try to demonstrate that the product is effective in hepatitis B. Do you call that clinical development or do you call that research? I think most people would say it is really research, because it is a very valued clinical development that leads to the discovery of the use of this product in another indication. So sometimes we undervalue how much actual research we do, but the numbers are very comparable between Canada and the other major countries when you split basic and clinical development.

Mr. MacDonald: Could I have the undertaking for you to check back? We may be able to get it more easily from another source, but do you think you could source that within your association for us?

Ms Erola: Yes, we certainly can. We have OECD figures, and I'd also be very happy to provide you with the various interpretations and definitions as they vary from country to country.

Mr. MacDonald: In the report they gave us, and in their annual report, the PMPRB indicates that the percentage of R and D done as basic research in 1990 was 27.2%. It decreased each subsequent year to 26.5%, 26.4%, 25.3%, 21.9% and 22.2%. That was the reason I asked the question, because there seemed to be a bit of a slide there.

The other questions I have deal with the entry-level pricing of drugs, and I know I've spoken to a few of you on this. One of the things that just bedevils Canadians is trying to figure out what a reasonable entry-level price for a prescription or patented drug is. The nature of your business is one of the reasons that even the PMPRB has difficulty when asked the question, ``Do you think the data available gives you a reasonable snapshot of a reasonable rate of return on investment for the development of that product?''

You have research facilities in many countries. We don't know what the input cost to develop a drug is. The PMPRB doesn't know what it is. I've heard there are only a few new drugs that come on the market, but it's important that the public knows. How can we be reasonably assured that when a company comes forward and it does this in the other seven countries in the basket and says this is the median price, it's not 200% higher than what it should be; that it only cost $10 million or $30 million to develop the drug, and that your worldwide market is worth a billion dollars a year and you expect to get twelve years of market exclusivity?

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How can the PMPRB ascertain with any degree of certainty what is a reasonable entry level price of drugs? Do the drug companies make available some of the data with respect to the actual R and D cost to develop a drug?

Mr. Lucas: I think that is available through Tufts. They've done an extensive study on the cost of developing a drug, which I quoted earlier as $500 million and rising. They're predicting that it will rise to $1 billion by the turn of the century.

Mr. MacDonald: I'm talking about a specific drug, because the PMPRB has to look at the price of a new pharmaceutical coming on the market and make a decision as to whether or not they believe that entry level price of a drug is excessive. The only measure they have now is to look at the other countries and to say it can't be the highest, it should be in the middle. But if you're entering that drug in each of those other markets at a price that's 500% or 200% higher than it should be, it still means it's higher than it should be in Canada.

Mr. Sims: Mr. MacDonald, let me give you one fact that I hope will bring some comfort to you.

Mr. MacDonald: We hope.

Mr. Sims: Even after we price a breakthrough drug it has to stand up against the cost of alternate therapies, which were discussed earlier, whether they're drug or other health care therapies - i.e., surgery or physician intervention. So they have to stand up to the rigour of a pharmaco-economic analysis. If they don't they will not be accepted by either the provincial or private formularies.

That's why you see most brand-name, innovative-based companies now developing significant pharmaco-economic research groups within our R and D teams. By the time a new drug comes to market, that clinical pharmaco-economic database is available to payers and the public.

Mr. MacDonald: I have a couple of other questions. I'll try to be quick. I want to find out where PMAC is heading on this.

When we were here back in 1993, one of the things that was said repeatedly was that if this extension was given, if Bill C-91 went through, there'd be certain levels of R and D and jobs created in Canada. I remember asking specifically at the time, ``What else?'', and I remember being told, ``That's it''. If you got Bill C-91 through, that was all you were looking for.

But I hear disturbing things. One of the presenters indicates that Canada must not remain behind. Brazil was mentioned.

Is it the intention of PMAC to pursue an agenda that would see effective patent term restoration as an international norm? I think we need to know that. Three or four years ago what we were dealing with was a change in the law that was supposed to stabilize the industry and cause growth in the industry in Canada. Is it now the view of PMAC that really what you want is patent term restoration as an international norm?

Ms Erola: I recall those changes. As a matter of fact, I took the liberty of reviewing the testimony at the hearings the last time around. With your indulgence, I'll tell you what went on and repeat some of the testimony.

To the question, ``Do you define Bill C-91 as being effective patent protection?'', the response was:

So, yes, Bill C-91 gives us basically a level playing field, but that was the response. We made it very clear at that time that Bill C-91 was the first building block and it was an essential building block.

Mr. MacDonald: But when we looked into Bill C-91 there was about a 40-month period, on average, to get through the regulatory process. The industry seemed to be pleased to make commitments based on the abolition of compulsory licensing with Bill C-91. Over the last four years we've seen, on average - and there are the exceptions; they should be dealt with - that the approval period goes from 40 or 41 months down to 20 months.

Effectively, there's almost an increased year and a half of market exclusivity, which by my recollection is pretty good compared with the rest of the world. Do you not think where we're at right now -

Ms Erola: That's absolutely true. If our regulatory system reaches the levels of world harmonization, then there would be no need for patent term restoration or extension.

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Mr. Lucas: I'd like to add one point to that. It's important to understand that the time it takes to get to market is the regulatory approval time, but it's also the clinical and development time that goes into that. It's the combination of the two that has shrunk the effective patent life.

A study we've just completed looking at molecules that were introduced in the 1990s in Canada has demonstrated that the effective patent life on those products has shrunk to 8.5 years. That's why we're looking for patent term restoration: the effective patent life continues to shrink. And again, that applies to selected products.

Ms Erola: But again, if there is an improved regulatory system, that plays into the formula.

The Chairman: We'll have a chance to come back to this.

Mr. Volpe has to leave, so would the opposition kindly allow him to be next?

Mr. Volpe, you can take your five minutes and then we'll go to the official opposition and then to Mr. Schmidt.

Mr. Volpe (Eglinton - Lawrence): I appreciate the effort there, and thanks to my two colleagues from the Bloc for this kindness. I'll try to conduct myself in a diplomatic fashion, just in deference. Thank you very much.

I'd like to deal with two issues you raised. One is the patent term restoration and the other one...you didn't use the term, but I guess you're talking about the Bolar provisions. Before I do, I'd like to talk about Closing the Intellectual Property Protection Gap in Canada, something you alluded to and sent around to all the offices. You say Canada must reach international standards.

Last night an organization that I think all the people at the table remember produced this for us. I think you have it. It's entitled Biotech in Canada: Economic Indicators. Chart 1 is ``Revenue Growth in Core Public Biotech Companies in Canada, U.S. and Europe''. Canada had 45% growth over the previous year, the U.S. had a 29% increase, and Europe had an 18% increase. If the conditions are so poor in Canada, why would we experience such great growth rates?

The second chart is ``Increase in R & D Expenditure in Core Public Biotech Companies in Canada, U.S. and Europe''. Year over year in Canada the increase was 24%, in the U.S. it was 10%, and in Europe it was 20%. Comment?

Mr. Marcheterre: I'd be pleased to comment on that. What you're observing is the exact impact of improving patent protection in Canada and creating an environment where we can be more competitive with other countries.

Mr. Volpe: I have with me a letter from the president of Monsanto, who says these biotech companies are largely made up of small, venture capital-sensitive companies. It has nothing to do with patent protection.

Ms Erola: He didn't say it has nothing to do with patent protection.

Mr. Volpe: I added that for him.

Some hon. members: Oh, oh!

Ms Erola: I don't think he'd appreciate that.

A voice: No, he wouldn't.

Mr. Volpe: But what you have now is a matter of opinion. The fact of the matter is the funds are flowing in and the rate of increase is high and you have conditions that you're deploring. I don't understand the logic.

Mr. Lucas: You'll have an opportunity to speak to other members of our association next week, and I think you'll clearly find that Biochem Pharma, for example, is in Canada and invested in Canada because of the patent laws that have been put in place. I'll let Dr. Bellini talk to that issue next week, but clearly -

Mr. Volpe: We'll ask him when he comes in.

Let me ask you some more about patent, because you talked about eliminating patent litigation. Yesterday we heard that the Patent Office received patent lists to block competition that included169 patents that shouldn't have been there, including patents for a bicycle brake, a compact disc storage service, a lens for a cathode ray tube, and so on.

Secondly, we were provided some information from the Department of Health that summarizes NOC, notice of compliance, cases. Of the 103 they note, they give an indication of wins and losses. The thing that's disconcerting to members around the table is that 24 notices of prohibitions or objections to notices of allegation were withdrawn after the litigation had commenced.

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Is that an indication of rather frivolous court action on this, or are you serious when you're talking about illegal products coming on the market?

The Chairman: This will represent Mr. Volpe's last question, so just formulate your answer accordingly.

Mr. Marcheterre: I'd like to answer that question. When the notification of allegation first comes, there is usually very little information available for us to judge whether or not there is an infringement. Therefore, we have no other choice but to say that we think it is infringing. When more data is submitted, we can make a clearer decision by having the information to do that. In some instances, we agree that it's not infringing.

To provide more clarity, I would ask Mrs. Grell to answer as well.

Ms Emma Grell (Legal Counsel, Pharmaceutical Manufacturers' Association of Canada): With regard to those cases that are withdrawn, we don't always know the precise reasons. For example, some of the reasons are as André mentioned. In other cases, there is some information available from the court record.

You could tell for example in one case - this should be on Industry Canada's list - that the generic withdrew the notice of allegation that caused the proceedings to be launched in the first place. In another case in which a proceeding was withdrawn, an order of prohibition had been granted against that same generic in an earlier case. In fact, there are three cases of which I'm aware that were withdrawn because the generic that launched the proceedings withdrew the allegations.

There were two cases in which the generics filed new evidence and -

Mr. Volpe: We can go through the detail. We have it from Industry Canada already.

Ms Grell: Yes, I think the facts do speak for themselves.

The Chairman: I'd appreciate it if you would allow the witness to respond. Give them their time to speak, please.

Go ahead, Ms Grell.

Ms Grell: Of course we have about 32 cases that were withdrawn on consent in that manner for one reason or another. I think some of those withdrawals might tie in to some of those patents that were reviewed and found for example to be process patents. This was something that occurred after the courts had an opportunity to review the precise meaning of the regulations as to what patents should have been listed and what patents should not have been listed under the wording of the regulations.

For example, by 1995 you had a decision from the Federal Court of Appeal that said pure process patents should not be listed. It's reasonable to assume that there is a percentage of cases that might have been withdrawn because of that.

There were a couple of cases in which the generics filed no evidence and agreed to withdraw the cases.

There's one thing that's important to stress with regard to any patents that have been found that should not have been listed in the patent list. I do not think there's one case before the courts in which any patentee in asserting a patent against a generic, once the courts have made clear what kinds of patents are within the regulations, has proceeded to a hearing against a generic based on that patent.

For example, you may have some cases in which more than one patent was asserted in the proceedings. Maybe one is a process patent and you will find that the patentee makes it quite clear to the court they do not require a decision on that patent because of the earlier rulings of the court itself.

The Chairman: Thank you very much for your clarification.

Ms Erola: With your indulgence, I would like to bring -

The Chairman: I'm sorry, I'm really trying to make sure all the witnesses get a chance. We'll have lots of time at the end.

Ms Erola: This is in response to Mr. Volpe.

The Chairman: We'll come back to Mr. Volpe.

Mr. Ménard.

[Translation]

Mr. Ménard (Hochelaga - Maisonneuve): Like you, Mr. Chairman, I would like to welcome the witnesses. I know that at least one of them is fairly familiar with this forum.

You implied on several occasions that the definition of research and development applied by the Review Board was in some way harmful. I took part in an intensive briefing session where the definition of "research and development" was explained to us, and I will read it to you briefly:

A bit further on, we are told that this is the standard definition used by OECD countries.

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I will ask my three questions one after the other, but I would like you to explain, for our greater enlightenment, in what way the definition I have just read has a negative effect on the assessment that is done of research and development levels.

Here's my second question. The clearer your answer to this question, the better friends we will be. You know that I tabled a bill concerning humanitarian access to drugs. I know that Glaxo Wellcome Inc. has every reason to be proud of its record on this account. Would you be willing to commit the PMAC to supporting that bill and to further improvements in this area? Where humanitarian access to drugs is concerned, we see both the best and the worst reactions. Some of the members of your association are extremely open and generous, while others have reacted very negatively.

Do you feel that the Review Board should intervene and make inquiries when it has reason to believe that reasonable and fair humanitarian access is being denied?

Perhaps you could answer the first two questions. I am sure that our chairman will indulge me and allow me to put a third question.

[English]

The Chairman: Are you familiar with the projet de loi of Mr. Ménard?

Ms Erola: I think the question he has put is really dealt with through the compassionate use program of Health Canada. In fact, I believe the last time I looked, that program was accessed by something like 10,000 people. Obviously, it's a program that is working.

The second issue really deals with the whole issue of access to drugs in Canada. I think that is a larger question put forward also by the health forum in saying that drugs should be accessible to all who need them. We would support that. As to how it's done, it is not for us to decide that here. I'm not suggesting that it shouldn't be the work of this committee, but I don't know that it is the work of this committee.

[Translation]

Mr. Ménard: Ms. Erola, there are two factors I would like to remind you of. Firstly, the bill I introduced would grant powers to the Review Board so that when a person is seriously ill... Our viewers and the people in this room should know that when we are talking about humanitarian access to drugs, we are referring to drugs which have not yet been approved officially, but which physicians think might save the life of certain people.

Some members of your association such as Glaxo Wellcome Inc. have a very good record in this regard. Other corporate citizens whom I will not mention out of a sense of basic decency have refused to provide humanitarian access to drugs and my bill proposes that the Board be given the power to investigate, following a report to the minister, in cases where some companies... You will agree with me that we are dealing with companies that posted profits of $5 billion last year and that it would be reasonable to ensure decent humanitarian access to drugs.

Secondly, please explain to us clearly how the definition of "research and development" used by the Board, which the board says is a standard definition used in OECD countries, somehow works to the detriment of your organization when the level of research and development you have done in the past is assessed?

[English]

The Chairman: We now have paragraphs 3(a) and (b).

[Translation]

Mr. Ménard: Mr. Chairman, all things are possible with you.

[English]

Mr. Lucas: First of all, R and D is defined by the Income Tax Act in Canada. Whatever is ourR and D is defined there. As I think I mentioned earlier, other countries do define R and D somewhat differently at times. For example, some countries do allow R and D expenses to include depreciation for certain R and D investments.

Ms Erola: I have a definition I'll table for the benefit of all members of the committee. In Canada it is defined this way:

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The OECD, on the other hand, says:

So it is a much broader term, and includes what we call research into the behavioural sciences and population-based research, which is not included in the Canadian definition today.

[Translation]

Mr. Ménard: Before you leave can you clarify two things for the committee? As responsible corporate citizens, both in the past and today, could you tell us how much more research you would be willing to do to further developments?

Secondly, may I rest easy tonight, confident that the PMAC supports my bill which gives the Board additional powers when it comes to humanitarian access, yes or no? I would appreciate an answer, because there should be no secrets between us.

Ms. Erola, your political career is behind, not in front of you.

[English]

Ms Erola: It would be very difficult to give unequivocal support to a bill that we have not studied in the first place. I think it should be open to debate.

I think the whole issue of compassionate access is something that should be studied, because the situation as it exists now is very dependent on the physician who is in charge of the patient. There are all sorts of variables. I don't think it's fair to say that we are totally satisfied with the compassionate access program as it exists.

I would ask my colleagues to comment on that.

Mr. Lucas: On the whole, I think what we're trying to do as an industry is to continue to work with Health Canada to reduce the amount of time it actually takes to review and approve drugs in Canada, which will take a little pressure off the need for compassionate use. It will always be there.

As Ms Erola mentioned, we need to make sure that we find a way of delivering drugs at the right time, when they're truly needed.

Again, I can't comment specifically on your bill either, because I don't know it in detail.

Ms Erola: But is it the role of the Patented Medicine Prices Review Board to do that? Frankly, I'll be very honest with you, I don't think so. I think it might be something that Health Canada would like to look at within the Canada Health Act.

The Chairman: That's for our committee. It's whether or not we understand Mr. Ménard's legislation before we finish here.

Mr. Schmidt: I have essentially two questions.

The first one has to do with your first recommendation and conclusion. This has to do with placing the linkage regulations, which are the principles you're talking about, and the key mechanisms for the enforcement of those principles. Virtually the whole pharmaceutical industry, whether it's biotechnology or whatever, is going to be the major beneficiary. What are the principles that you would want to have enshrined, if you will, or included in legislation and the key mechanisms you would recommend to us? I think there are pretty specific kinds of things that we have to look at.

Mr. Marcheterre: I'd like to answer the question. First of all, let me establish one point of principle. We are investing hundreds of millions of dollars in research and development over a very long period of time. Because of that, we need to have a predictable environment.

Specifically to answer your question, we need to make sure that what is currently a regulation and could be changed becomes legislation or becomes entrenched in the legislation in order to not be changed so easily, which means without the democratic process of changing the legislation.

Having said that, I would like to ask Ms Grell to specifically answer the question as to what the elements would need to be.

Ms Grell: There are some principles that could be enshrined in an act rather than by way of regulation. I'll start with the fundamental one, which is simply that there should be a link between the issue of a notice of compliance to a second market entrant and the status of the patent. Have it set out in the act that the status of the patent and the second entrant's position as to whether it's infringed or invalid should be ascertained before regulatory approval is given to that second entrant.

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Other fundamental things that could usefully be enshrined: ensuring that a process is set in place, as it now is under the regulations, for notice to be given by the second entrant, the generic, as to just what its case is; giving the patentee a reasonable opportunity to study that case; and giving the patentee a reasonable time period, if the decision is to commence litigation, to get that litigation sorted out.

Again, this is the type of thing we do have in the regulations at the moment. That's not to say you'd want every aspect of what's now in the regulations in the act, but you'd want the key principles and have the key points fleshed out in the regulations rather than having everything simply in the regulations themselves.

Mr. Schmidt: The overriding principle, then, is that the onus lies on the second entrant to prove that it is not infringing rather than the patentee or the holder of the patent alleging that its patent has been infringed upon. The onus rests with the second entrant rather than with the holder of the patent.

That seems to be the principle you're enunciating, which is the overriding principle even beyond the two you've enunciated. Is that correct?

Ms Grell: That is correct.

Mr. Schmidt: Why did you take that position?

Ms Grell: It is a fundamental principle of patent law in Canada and throughout the world.

Mr. Schmidt: In some districts, perhaps, but not in other areas.

Ms Grell: No, in all areas.

Mr. Schmidt: In all areas?

Ms Grell: Once a patentee can establish, on a prima facie basis, that what the alleged infringer is doing is within the scope of the patent it infringes upon - in the pharmaceutical context, for example, that the generic is seeking to sell the same substance... As you know, that is in effect what happens. The generic is always comparing itself to the product marketed by the patentee, which is covered by the patentee's patent.

So once you as a patent holder can show that what is being done appears to be within your patent, the onus shifts under patent law. You have a new substance. It is up to the alleged infringer to show that what it is doing is not made by the particular process the patentee has protected.

The onus also is upon any infringer who alleges that the patent is invalid to prove otherwise. A patent, once granted, is examined by the patent office. Sections of the Patent Act say it's presumed valid unless the person contesting that proves otherwise. So to ask the second entrant, who wants, by definition, to come onto the market before the patent expires, is entirely consistent with normal principles of both domestic and international patent law.

Mr. Schmidt: I now have a question in a completely different area. I'll shift gears rather substantially.

What is an integrated pharmaceutical industry or company?

Mr. Marcheterre: I can try to answer that. I was surprised to learn yesterday that Merck Frosst was not an integrated pharmaceutical company.

Some hon. members: Oh, oh.

Mr. Marcheterre: Our definition of an integrated company is a company that does research and development. We do have more than 200 people in Kirkland doing research and development for Merck Frosst, and people doing manufacturing. We have 350 people doing manufacturing at our site in Kirkland. We have about 500 people in Kirkland involved in the dissemination of information to sell and market that product.

So as far as I am concerned, this is the definition of an integrated pharmaceutical company - one that does research, development and manufacturing and that's involved in the process of selling and marketing.

Mr. Schmidt: But would it also include copying your own drug?

Mr. Marcheterre: You're making reference to...?

Mr. Schmidt: You might have a generic subsidiary copying maybe your own drug or another company's drug.

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Mr. Marcheterre: Oh, okay. Well, as soon as the patent has expired on one of our products, you know we will normally lose about 90% of the sales of that product to the coming of a generic. If this is a $100 million product and you lose $90 million of the $100 million over two or three years, this is a substantial loss. You would try, as a businessperson, to recoup some of it by participating in an environment that allows competition once the patent has expired.

Mr. Lucas: However, being in the generic business isn't a necessary part of the definition of being an integrated pharmaceutical company.

Mr. Schmidt: You would not exclude that though?

Mr. Lucas: No, I wouldn't exclude it necessarily.

Mr. Schmidt: Would it also include being involved in the biotechnical area?

Mr. Lucas: Not necessarily.

Mr. Schmidt: But it could.

Mr. Lucas: Yes.

Mr. Schmidt: Okay.

Mr. Lucas: I would agree with Mr. Marcheterre's definition: it's discovery, development, manufacturing, and commercialization.

Mr. Schmidt: But then you have these other adjuncts, if you will, which also add to this holistic approach. You're in the money-making business, and that makes money.

The Chairman: Mr. Discepola followed by Mr. Murray.

Mr. Discepola (Vaudreuil): Thank you, Mr. Chair.

As I sit through these hearings, I realize we're never going to get any answers. One group tells us it costs Canadian taxpayers and the health system $4 billion and another group tells us it saves; one group tells us we're integrated and another group tells us we're not.

The only thing I can think of, Mr. Chairman, is maybe what we should do, since there's this element of commonality between yesterday and today, is revoke early workings, revoke stockpiling, revoke linkage, and upset everybody. Then we'll have done our job.

I started this committee thinking we could really achieve something and satisfy everybody, but right now I'm getting the sense that we're not going to be able to.

There are allegations that the notice of compliance and the linkage tend to actually give you patent term restoration in the sense that you can prolong through delays. You can actually get up to36 months more patent protection than you can actually have, and that's with market exclusivity.

I understand if that happens and the notice of compliance is issued prior to the original patent extension, then it won't occur. But what happens in the case where you're only one year before patent expiry, for example, and you then, through the notice of allegation, challenge it? Don't you in actual fact then get an extra two or three years of exclusivity?

Mr. Marcheterre: I'd like to answer the question.

If the process of litigation is going through and during that process the patent expires, the process of litigation is automatically stopped and the generic copy can come to market and the NOC will issue.

What I would like to do is use a visual to show you specifically how these processes work in parallel and what will make them stop.

If you look at the monitor, you will see that year zero in the development of a product is when we do the patent application. That is, as soon as we have a discovery, we will apply for a patent, because this is a very competitive environment. We cannot wait; we apply immediately.

Over the course of a period of 10 years, we will then further the development of that product, do the clinical work, and file with the health protection branch. This process will take about 10 years. After 10 years, on average, our NOC will issue to the patentee. After the NOC has issued, we start marketing the original brand.

At some point - and I've used year 14 in the example - the generic will apply for a notice of compliance and they will also serve us with a notice of allegation.

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Typically, it now takes about 32 months for a generic NOC to be ready and issued. It is in parallel with that review that the court proceedings will happen. Therefore, the proceedings should be concluded by the time the NOC is ready to issue, not delaying in any way the entry of a generic if they were to be given permission to enter.

If you were to move the process closer to year 20, when the patent expires, if the proceedings are still going through when we hit year 20 the proceedings would automatically stop and the NOC for the generic drug would issue, because the patent would have expired. So it does not delay by one single day the entry of the generic on the market.

Mr. Discepola: Perhaps at a future time you could bring forth your recommendation to this committee on how we as a committee could take steps to change the law to accommodate that. I think the system itself seems to be very cumbersome. There are allegations on each side that it's abusive. Therefore, if you could help us in any way to streamline that, I'd appreciate it.

On the question of injunctive relief, it seems to me that Canada, United States and Great Britain, I believe, all use the same test for injunctive relief. My understanding is that there's very little patent infringement in the United Kingdom, for example. It seems to work well there, so why do you claim it can't work in Canada?

Mr. Marcheterre: Interlocutory injunctions are available in Canada, as you know. Practically, however, they're unavailable to the patentee of pharmaceutical products. The plaintiff must prove, by non-speculative evidence, that irreparable harm will occur to the patentee, which is almost impossible to prove. Therefore, the courts are not going to be giving the interlocutory injunction. Because they are not going to give the interlocutory injunction, we therefore do not have an enforcement mechanism for the interlocutory property right.

Mr. Discepola: If it were to enshrine the principle of triple damages into the injunctive relief, would PMAC be more open to the use of injunctive relief, or do you see problems there also?

Mr. Lucas: Unless the courts are somehow directed to find interlocutory injunction on different grounds, we'd still have the same problem.

I can speak to a very specific example in my company today. The product is AZT. Before the linkage regulations came into effect, both Novopharm and Apotex were able to get an NOC before their products came to market. We tried to get an interlocutory injunction and could not do that. We are now in an infringement case with them. Here we are, four years later, and that case has not been resolved.

That's a good example of why we need those linkage regulations, why they need to be in place and why interlocutory injunction just doesn't work in Canada today.

The Chairman: Thank you very much.

Mr. Murray.

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

I'd like to return to this question of patent term restoration. It obviously existed in other countries at least as far back as the last debate in this Parliament. Ms Erola was quoting from earlier discussions.

Are you aware of the history of PTR in these other countries, in the United States and Japan, for example? Was it a hard-fought battle to achieve it or was this something that naturally came about in those countries?

Ms Erola: The answer is the latter. These are countries with a long history of pharmaceutical research development and fully integrated operations. They keep a very careful watch, and they nurture their industry very carefully. I think Britain is the best example. They make sure that the infrastructure, in the regulatory sense and in others, is there to encourage the development and the growth of the industry. That's what happened in the European Union and in the U.K.

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They've also taken extraordinary measures in the drug-approval business. We talked about that earlier. The drug approval system in the United Kingdom is considered the world's finest because it was part of that infrastructure package they put together to make sure they had an absolutely world-class, competitive pharmaceutical industry.

This is something that I think Canada is slowly evolving to in terms of making sure that all the systems in place are conducive to the growth and development of a strong industry.

I suppose, going back to 1992, they were just at that evolutionary stage. They were just bringing these regulations in. We were aware of them, but it was an almost impossible task to bring about Bill C-91 plus the issue of the new developments all in one fell swoop.

But I think it points out the necessity of making sure that our patent laws and all of the regulatory systems remain competitive. We can't be satisfied with the notch being here. We have to always be aware of what the competition is doing and making sure that we're part of that evolution.

Ms Grell: The U.K. at that time took a hard look, saw they were falling behind the U.S., which had patent term restoration from 1984, and Japan, which had patent term restoration from the mid-1980s, and saw that they had to do something to reduce their gap.

Mr. Murray: Switching subjects, it has been suggested to us that the generic manufacturer should be allowed to export product to countries where a patent has expired. I understand that it's not something that you might necessarily support, but I'd be interested in your views on that: why should it or should it not be allowed?

Mr. Lucas: I'll take that question.

I think there are a number of things that need to be considered here. First, there's the intent on the part of the generics in trying to obtain an export exemption. Second, there are the benefits and costs of doing that.

I'll quote from a speech by Leslie Dan, if I can. This is a from his speech to the Yorkton life sciences conference in October 1996:

That's what I mean when I talk about what the intent is.

Mr. Murray: How does that relate to exporting?

Mr. Lucas: I'm going to get to that.

The early-working provisions the generics have give them an opportunity already to early-work our patents. The export exemption would give them one more opportunity to work our patents and to actually bring those products to market in another country. I think one of the questions that has to be asked is: how are we going to ensure the product is not sold within the Canadian market and infringing a patent there? That's the issue of intent.

There's the cost issue. What is the cost to Canada? First of all, an export exemption would be contrary to our international trade agreements. The only way we could do that is to allow that export exemption for all products in all industries under our World Trade Organization agreement.

I would think that if we were to do that as a country - this is something for the committee to think about - is this something we would want to do in trying to operate in an industrialized world? So there would certainly be a cost to our international reputation in terms of allowing the export exemption.

On the benefit side, I think we have to seriously look at what the benefits of that exemption would actually be for Canada. Take, for example, export into the U.S. market.

So the concept would be this. If a patent had not expired in Canada but had expired in the U.S., they would be able to export. The reality, when you look at patents and their expiry dates, is that the vast majority of patents expire in Canada one year earlier than in the U.S., so there's no real benefit there for Canada to allow exports into the U.S. The same applies to most of the G-7 countries.

Mr. Murray: I'm sorry, but again, if these companies are setting up plants in the U.S. to address that market, doesn't that argue against what you just said?

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Mr. Lucas: Let me use another quote to answer that one. This is a quote again from the same speech by Leslie Dan. He states:

And secondly,

That's why they're building plants in the United States. In fact in our own case, with ranitidine, Novopharm is building a plant in the United States in order to get a competitive advantage against other generics in the U.S.

When you look at the benefits of allowing that export to other countries that virtually have no patent protection, those markets are very much low-price markets. In order to sell in those markets you pretty well have to be a local company, and in order to be able to sell into those markets you have to compete on a price basis. Those prices would be significantly below Canadian prices.

By allowing generics to export into those markets, we would be basically subsidizing their activities in those very low-price markets. That's why I suggested we have to look at the intent, the costs, and the benefits and make a decision as to whether or not that's the right thing to do.

The Chairman: There might be some time at the end to come back to this.

Mr. Brien.

[Translation]

Mr. Brien: The Minister of Health testified before the committee. We could discuss the process at considerable length, but the objective was to set up an organization that could also control the cost of non-proprietary drugs. A number of your members also produce non-proprietary drugs, whether generic copies or other types of drugs. I would like to know what you think of the suggestion made by the minister that the organization also control the price of non-proprietary drugs through a monitoring mechanism comparable to the Patented Medicines Price Review Board.

[English]

Mr. Sims: The PMAC clearly believes we need to know more. The data does not exist; therefore we need to know more. We certainly feel further study is warranted, and we would support that further study to determine if that were the right thing to do.

[Translation]

Mr. Brien: Since we are persistent people, I will put a question that both my colleague from Hochelaga - Maisonneuve and myself have already asked. In exchange for greater protection, would you be willing to make a commitment to spend more on research and development?

[English]

Ms Erola: I think you'll have to define ``extra''. We have clearly said that we are at world-class levels now and that we would continue to function at world-class levels given the same level of protection.

[Translation]

Mr. Brien: I will rephrase my question, if you wish. That is the level in the current context. If the protection framework were improved, wouldn't it be normal to have higher expectations? Would you be willing to commit yourselves not only to being among the best, but also among the best in research and development?

[English]

A voice: Good question.

[Translation]

Mr. Marcheterre: Our record is fairly indicative of what goes on when there is a competitive environment as compared to other industrialized countries, an environment that allows us to attract R & D investments here to Canada. We don't need to be coerced into doing research and development. It is the mission of innovative companies to do R & D in order to discover new drugs and market them.

Here is proof. We were provided with a competitive environment. We had committed to giving a 10 per cent effort and we now do research and development in the order of 12.5 per cent. We also committed to investing a further $2.3 billion between 1997 and the year 2000. So, by maintaining international competitiveness, we will continue to have an important incentive to attract R & D investments.

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I'd also like to mention something about restoring pharmaceutical patents. If Canada decides to improve the protection so that it is equal to that of other industrialized countries, restoring patents would apply in several years and not immediately.

Since our protection is not quite at the level of that of the countries that compete with us, we think that we should now review our industrial development policies in order to remain competitive in the years to come and to ensure a level of protection that is the same as in other industrialized countries. We would certainly reap the rewards of such a policy, just as we have reaped important rewards since 1987, namely $3.2 billion in pharmaceutics R & D.

[English]

Ms Erola: Also we should add that there is an annual process by which our commitments are measured. It is the Patented Medicine Prices Review Board report, which as you know is tabled annually in the House of Commons. It tracks very carefully what those expenditures are. Members of the House would take very serious looks at any decline and would certainly look at what the growth is. So I would suggest to you that with internationally competitive patent legislation, one could expect that growth to continue.

For the benefit of those members who were here before, particularly Mr. MacDonald, there were a number of doubting Thomases at the time who thought we would not be able to reach the 10% figure. That was 10 years ago, and certainly that was reviewed four years ago. We have reached that and gone way beyond that.

Again, looking at the definition as we see it in the broader context of our competitors, we're way beyond that. I suggest that you have the methodology by which to measure it annually.

[Translation]

Mr. Brien: I agree and I don't challenge the fact that you have respected your past commitments. There is no doubt on that account and you say that there is growth. So, since we will enjoy greater protection, even if the results are only seen later, additional commitments may be defined in the same way, using the same time frame. You say that this will happen in any case. That being so, I have trouble understanding why you are not willing to make that commitment. You say that more will be done in any case. So according to your own logic, there would be no risk in making that commitment.

There are also other types of commitments, such as the funding provided to the Medical Research Council of Canada. There was a commitment, not necessarily a renewable one, to providing $200 million within two years. Thus far, you have committed $110 or $115 million. Are you willing to continue to contribute and to make other commitments of this nature?

[English]

Ms Erola: The answer is yes. I think I made that very clear in the opening statements.

Just to bring you up to date on the Medical Research Council program with PMAC, we are now at $130 million. We were committed to $200 million over five years, and we still have about 18 months to go. So we're absolutely confident that we will reach those objectives.

The program has been an outstanding success, I might add. Just this week we at the board confirmed that we would continue this program on the current basis on an annual basis, if we maintain the internationally competitive standards of patent protection.

Mr. Lucas: I want to reinforce something Mr. Marcheterre said. Over the last number of years many of our companies have been able to invest in and create some very strong R and D operations in this country, whether it's in basic research, intramural or extramural, in product development, in bio-statistics, or in clinical research. We have developed those infrastructures now. We've made those investments.

We have a real opportunity now, if we can remain competitive as a country, to build on that infrastructure and to be able to bring in more investment for Canada. We're all committed to doing that. We want to bring in more investment. We don't need to be forced, as Mr. Marcheterre indicated.

Ms Erola: A very good example of Canada's leadership is the breast cancer study that was just announced last week. It's a $15 million, worldwide study coming out of the University of Calgary. It gives you some examples of how Canada leads in this whole area of clinical studies. We do some outstanding work, not just in breast cancer, but also in heart. Mr. Marcheterre will tell you Canada is probably one of the leading countries in this area.

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The Chairman: [Inaudible - Editor]...in for promotions on this, so we know the point you're making.

I think I'll go to Mr. Lastewka, Mr. Schmidt and Mr. MacDonald. If any committee members, including Ms Parrish, want to make a final point there'll be time for that.

Mr. Lastewka.

Mr. Lastewka (St. Catharines): Thank you, Mr. Chairman.

I want to make sure we get a copy of the slide that was shown.

The Chairman: Okay. It will be tabled with the clerk.

Mr. Lastewka: Thank you, Mr. Chairman.

I want to go back to the discussion you had earlier on research and development. It's my understanding that Canada has one of the best research and development...in the G-7 nations. Would you confirm that?

Mr. Lucas: I'm not quite sure what you mean by that.

Mr. Lastewka: Our research and development tax credits.

Mr. Lucas: Yes, I think it's fair to say that the tax credits in Canada are very competitive.

Mr. Lastewka: What I hear you saying here today is that you would like to have the parameters of research and development expanded in terms of our competitors and the other OECD countries.

Ms Erola: Just in definition, yes.

Mr. Lastewka: When we had the PMPRB group here we talked about how they price introductory products and use the G-7 nations as a guideline. That was my understanding. Would you at the same time say it would be all right for the PMPRB to use the OECD countries in comparing price introductions?

Mr. Sims: If my memory serves me correctly, five years ago I had lengthy discussions with the PMPRB on behalf of the industry on what were the right comparator countries. The analysis by the PMPRB was that they have picked the appropriate seven countries. That was debated at length.

If the committee feels we should reinvestigate what those countries are, perhaps that's the case, but that has been looked at in great detail.

Ms Erola: At that time, one of the principal factors in deciding what those countries were was that they had to be countries of a similar nature with the same type of health care system in place. You then would be comparing apples with apples rather than a whole basket of countries where the similarities in terms of the delivery of the system and the economic conditions of the country were completely different.

Mr. Lastewka: I think we'll need to revisit that one.

You mentioned earlier - and this why I wanted to ask those questions - that once a patent expires you lose 90% of the business. That seems to tell me that the prices were too high. Why, when the patent is lost, do you lose 90% of the business?

Mr. Marcheterre: If I may, I'd like to answer that, because it is also the reason why it is so important to have an appropriate enforcement mechanism in Canada.

I'd like to use the example of an invention other than a pharmaceutical product to show you exactly what happened. Think of a company that is producing cameras. If that company is investing in research and development to develop a new technology, when they finalize their research and have a product to market they will immediately be able to come to market and get the benefit of the protection they have and of the invention they produced.

There isn't, in their case, an industry waiting and ready to copy that invention. In addition, there isn't a mechanism such as provincial government formularies that will mandate the use of that generic camera.

That's how pharmaceuticals differ tremendously from other types of inventions: there is a group in industry waiting to copy them and there is mandatory use of the copy once the copy is available in the marketplace. That's how we differ. That's why it is so critical that we have appropriate enforcement mechanisms for intellectual property protection.

There's another difference as well. When we have a new compound, and when we patent that compound, it takes hundreds of millions of dollars to finalize the development. It takes up to ten years to finalize the development and get a notice of compliance to get that product on the market.

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So we make very long and expensive investments. However, what we produce at the end is a piece of high technology that can be very easily copied. That's how we differ from other inventions.

Mr. Lastewka: I don't think you've answered my question. I come from the honourable veal industry. The last time I was there, it was very competitive. But I've never seen a 90% shift in market. I'm either missing something or -

Mr. Marcheterre: [Inaudible - Editor]...provincial government that will mandate the use of your automobile or the automobile of another company.

Mr. Lucas: What happens, basically, is that all of the provincial drug plans in Canada say they will only reimburse that lowest-priced product, so they automatically shift to the generic product. All the drug plans now cover a significant proportion of the population. You very quickly lose that business.

Mr. Lastewka: One more short question, Mr. Chairman, if I may.

When you distribute your research on a global business...and I realize that you have a global business. If this is in the book, by the way, just point me to the page. You have a chart showing R and D versus sales by country. Is there also something on this in your text?

Ms Erola: I believe some of the background documents give you a pretty good indication, yes, but if you find you need further information we would be happy to provide it.

Mr. Lastewka: I'm interested in the R and D to sales ratio. Pick the G-7 countries, if you wish.

Ms Erola: Yes.

Mr. Lastewka: Thank you.

The Chairman: Mr. Schmidt.

Mr. Schmidt: I'd like to go back to the research question. The whole pharmaceutical industry is really a ``knowledge-based'' industry, one of those catch-all phrases we like to use these days. There are a whole number of components to this. We heard about the bio-pharmaceutical element yesterday, and how biotechnology would serve as an adjunct and as a service in the whole pharmaceutical area.

The research that you report as having done is really a self-reporting system on which the PMPRB bases whether you did or didn't do the research. So it depends on your numbers. My question is, are all these numbers separate and easily distinguishable?

For instance, the money you put into the MRC is I think pretty clearly identified. What about the money given to a bio-pharmaceutical industry that requires the infusion of capital for them to carry on their research? Is that part of your expenditure? Is that part of their expenditure? How many different ways does this money actually appear?

Ms Erola: There's no double counting.

Mr. Lucas: No, there's no double counting.

Maybe I can give you an example. We have a strategic alliance with Biochem Pharma. When they first discovered 3TC they needed a partner who could help them develop that compound. Glaxo Wellcome created a collaborative research agreement with Biochem Pharma. We put in a certain number of dollars and they put in a certain number of dollars. From an R and D count point of view, we counted what we put in, they counted what they put in and that's what gets recorded.

Mr. Schmidt: The point I am really trying to make, though, is that if we are going to become globally competitive in the pharmaceutical industry or any other knowledge-based industry, the whole concept of research and development has to be foundational, because that's the basis on which breakthrough drugs happen in the first instance. So this is not money that is poured down the drain, as so many people think, even though there are ten thousand issues taken and only three of them ultimately get to be commercially profitable.

The point is, why are we restricted, then, to only 10% of sales when in fact the future growth and development of your whole industry, not only the specific companies but the industry as such, depends on this very basic foundational research? Why wouldn't you increase that component to expand this so that you can indeed become the globally competitive industry we could become? A leader is what we could become.

Mr. Lucas: As I think we talked about earlier, we made a commitment of 10% -

Mr. Schmidt: What was the minimum?

Mr. Lucas: Well, we are at 12.5%.

Mr. Schmidt: Why didn't you go to 20%?

Mr. Lucas: We have a business to run.

Some hon. members: Oh, oh.

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Mr. Schmidt: I'm quite appreciative of that, but future business depends upon what you put in now. You know very well that we have to invest money earlier in order to make later money. You'd make even more money.

Mr. Lucas: As corporations, we obviously have to look at where we invest. One of the things we have to look at is how much we invest in R and D. Certainly, because this has become a higher-risk business and because the costs are so high, we've changed the way we look at R and D investments as well. We can no longer, as you suggested, spend money on R and D that isn't going to be productive. We are very critical now of our own R and D spending to ensure that it is going to be effective and efficient and that it's going to produce something.

It probably wouldn't be efficient for the whole industry to spend at 20%, but if you come back to that 12.5% average, keep in mind that this is an average. As you look at Canadian companies, some companies are spending 100% of their sales or more because they're starting up and trying to invest in R and D to deliver some commercial benefits.

Ms Erola: Those are the companies that are not counted in the PMPRB price report.

Mr. Schmidt: I appreciate that very clearly, but the thing that really intrigued me last night when the biopharmaceutical people were here is that this is virtually a whole new orientation toward pharmaceutical care that is totally different from the chemical pharmaceutical industry, which is essentially where you had your beginning.

If that is a new direction and if those two can be combined - that's the integrated health care now, rather than just simply pharmaceuticals - then this becomes a totally new ball game, if you like. Who knows what the next step will be? That comes from the symbiotic relationship between... I'm sure you realize that, which is why you put some money into these biopharmaceuticals.

Why wouldn't we increase that rather than put some restrictions on it? That's really the point I was trying to make.

Mr. Lucas: We certainly don't have any restrictions.

A voice: The sky's the limit.

Mr. Lucas: In fact, I can probably talk for all of these gentlemen. If we can find good research opportunities that are going to be productive, we'll invest in them. Hopefully we're going to find more in Canada.

We've been finding more. As you saw last night, there are more to invest in. Hopefully there will be lots more that we can invest in.

Mr. Schmidt: That's nice to hear, Mr. Chairman. That's very encouraging.

The Chairman: I'll give Mr. MacDonald a chance.

Mr. MacDonald: I need some clarification, Mr. Chairman. We're hearing different figures from both major sides in this debate. I don't know if the department has the correct figures, but I think it's important.

When we did the debate the last time, you used to talk about seven to nine years to get a product to market. I got some data the other day after a briefing that indicated that the average period of time of market exclusivity in Canada today is between 12 and 13 years. I heard that this was one year more than what it is on average in the United States, yet the chart that was put up there said that it takes 10 years on average to get a product to market, which means 10 years of market exclusivity.

We have some confusing data, and it's important. It's important, Mr. Chairman, because each extra year that a product has market exclusivity means that it doesn't have competition.

We already heard that when competition comes in, the price of the product generally on the market goes down considerably. It can go down by 25% to 40%, which is real money saved by Canadian consumers.

I'd like to know, so we can try to frame this debate, what the average length of time of market exclusivity is. Is it 10 years, as PMAC has just indicated? Does it take 10 years to get to market on average? Is it eight years? Two years makes a big difference. Is it what we heard from the department in a briefing we had or is it indeed what we heard from the CDMA, which is about 14 years? They're important factors.

Mr. Lucas: The 12, 13 or 14 years that the CDMA quoted is based on a study out of Queen's University.

There are some serious flaws in that calculation. One is that they actually take the concept of what they call ``evergreening'' and say that this adds to a patent's effective life.

That's absolutely not correct. You can't add to a patent's life beyond the 20 years. That's a total miscalculation in calculating effective patent life.

I quoted earlier a study that we did - we'd be happy to share that with you - of molecules introduced to the Canadian market in the 1990s. The average effective patent life is eight and a half years, or to be exact, eight years and seven months.

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Again, it's important to realize that when we talk about effective patent life, we have to look at individual products as well. Some products will have 10 years; some products will have 11 years; some products will have seven years. The concept of patent term restoration is designed to deal with those products that are on that low end of the effective patent life scale.

Mr. MacDonald: This is the difficulty we have. The CDMA has basically funded a study that says one thing, and your organization has perhaps funded a study that says something else. If you could table it with us, it would be helpful.

The last question I have deals with an answer we got earlier. I ask specifically because the pricing issue is the key issue here. For me it is, and I think it is for Canadian consumers. It is also key to determine whether or not the level of research and development that you get in exchange for giving an extended patent period bears some reasonable relationship.

In other words, if you get an extra two years in market for a product and that means for that product or group of products you make an extra $50 million in profit, and you say you'll do an extra $10 million in R and D, you still walk away with $40 million. That's still $50 million more than what Canadian consumers may have otherwise had to pay. You have to balance it. The R and D is very important, but we have to look at the balances.

So what I'd like to find out is this. When a new product goes to the PMPRB on entry-level pricing, do the individual companies provide to the PMPRB details of the input costs of that particular product? Or does the PMPRB simply - I go back to the question - have to look at what is the median price in the seven countries looked at?

The reason I ask that is usually when you're dealing with a monopoly product, such as a public utility that provides electricity, like Nova Scotia Power, when they come and look for a rate increase as an increase, they have to justify it based on their input costs, because it's a monopoly and the Public Utilities Board feels it's in the public interest to regulate it.

The PMPRB's mandate is to regulate entry-level prices as well as price increases. So I want to know what data is available to them. When a new product comes along, do Glaxo and Merck provide all that data to the PMPRB?

Mr. Sims: We provide the data they ask us for.

It is important to clarify the definition of a monopoly, though. The utility is a classic monopoly, but I can assure you that if my company markets a new product in a particular therapeutic class - and I'll use an antibiotic as an example - those two gentlemen sitting to my right are vicious competitors. So even though I may be the only one with that particular molecule, they have other products in that therapeutic class that I have to compete with. Therefore it's not the classic utility monopoly that you are referring to.

We do supply the PMPRB with the data they ask for. They do not ask us for costing data. I can only speak for one company. I don't have that -

Mr. MacDonald: Okay. Can I just stop you there? This is very important to us, because we also have to report on whether or not we think the PMPRB's rules of operation should be changed. Quite frankly, if they're not asking for that information... I want to know, if they asked, would it be made available? Is it easily made available?

Mr. Sims: No.

Mr. MacDonald: Why isn't it?

Mr. Sims: The answer is no. It's a very -

Mr. MacDonald: If you develop a drug, your company knows the cost of the development of that drug. You have to know the cost, because that's how you price it. You price it based on the amount of money that goes into the R and D, the amount of money going into the marketing, and the amount of money it costs to produce the drug. So it has to be something that's readily available. You don't pull a price out of the air, I hope.

Mr. Lucas: I can try to address that by giving you an example of a drug going through the development process. I think we have a document on drug development. You really need to understand how drugs are developed.

Take a product such as Zofran, for example, which is a 5-HT3 antagonist for nausea in cancer patients as they're being treated by anti-cancer agents. That product was a breakthrough product in the Canadian market, and therefore compared to the other international markets.

The way that product got developed was we had numerous researchers in the lab looking at receptors in the human. Millions of dollars went into looking at and identifying the 5-HT3 receptor. So that's part of the cost of developing the product.

We were then, through our chemistry, able to develop thousands and thousands of molecules that might work against that receptor. One ended up being effective and safe. We were then able to take it into the lab, then into animal models, then into healthy volunteers, then into patients, and then into a broad-based clinical development.

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The average cost of developing a compound like that - and I come back to the data we quoted earlier - is $500 million.

I can give you an example of a product we are about to launch into the Canadian market.

The Chairman: I'm sorry; I don't mean to be rude, but the bell has some significance for us sitting here on this side.

I'm very sorry, Ms Parrish. We're simply out of time. This was such an important point I just had to let you have this exchange and begin it.

I know members want to thank you personally, but I want to formally thank the witnesses for their time. It's been a long session and I appreciate the efforts you've put into coming to us today.

I'd like to thank you for making Ms Grell available to us privately. I hope she can continue to be available to us publicly and privately. It's a big help to the researchers on our committee.

This is important for the people in the audience who follow this public policy area. The list of witnesses for next week is available through the clerk.

The committee is adjourned until Tuesday, March 11, at 3:30 p.m. in Room 237-C.

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