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PHARMACEUTICAL POLICY

Canadian drug patent policy has always sought a balance between the conflicting objectives of maintaining affordable access to health care and developing a Canadian pharmaceutical industry.

In 1923, the Patent Act was amended to allow for compulsory licenses, which allowed generic manufacturers to produce a patented drug before the patent had expired in exchange for royalty payments. This policy did not work as expected. Between 1935 and 1969 only 22 compulsory licences were granted, and, as might be expected, a number of studies showed that drug prices were higher in Canada than abroad.

In 1969, the Act was amended to allow for compulsory licences to import. Between 1969 and 1985, 306 compulsory licences to import had been granted. The evidence on the economic effects of this policy are mixed. There had been adverse effects on some patent holders leading to plant closings, but, according to the Eastman Report, the innovative drug industry as a whole had not suffered. Drug prices were kept at a reasonable level, with the Eastman Report estimating savings of $211 millions in the year 1983.

In 1987, Bill C-22 restricted the scope of compulsory licences by guaranteeing patent owners a period of market exclusivity before a licence could be granted to a generic company to market a copy of the product. If the active ingredient was made in Canada, the period of exclusivity was ten years, and if the active ingredient was imported from abroad, the period of exclusivity was seven years. These periods would start from the date Health Canada made a public notification that the drug had complied with all the health and safety requirements. In addition, Bill C-22 created the Patented Medicine Prices Review Board (PMPRB) as an independent, quasi-judicial body to ensure that the prices of patented medicines were not excessive, to report on price trends and on the patentees' research and development (R&D) expenditures. In return, the brand-name pharmaceutical industry made a commitment to substantially increase the level of R&D carried out in Canada.

In 1991, as part of the GATT negotiations, the "Dunkel Text" was released. The direction of international policy for the protection of intellectual property was clear to the government of the day. The movement was towards 20-year patents based on patent-filing dates, and discrimination based on the field of technology was not allowed. Drugs could not be subject to exceptional provisions.

In 1993, Bill C-91 was introduced. Drug patents were for 20 years from the patent-filing date, not the date when Health Canada issued a notification that the drug was approved for sale. No new compulsory licences were to be issued, and recently-issued compulsory licences were revoked.

Removing compulsory licensing as an instrument to control prices required that the operations of the Board needed to be altered. The Board was given the power to order fines and price rollbacks.

Price control was to be now based firstly on ensuring that the introductory price was not excessive and secondly on monitoring any subsequent price increases to check that these changes were less than the rate of inflation. The PMPRB applies different rules for the introductory price of a drug depending on which category the drug is in. A new drug could be (a) a breakthrough drug that offers significant therapeutic improvements or cost advantages to the health system, or (b) a me-too drug that offers a less than significant therapeutic improvement or (c) a reformulation of an existing drug. Breakthrough drugs cannot be priced higher than the median price in a group of seven comparison countries. Me-too drugs cannot be priced higher than the most expensive drug in that therapeutic class. The remaining drugs are priced in relation to the current prices for the different sizes or formulations of the same drug.

Two exceptions to patent infringement were introduced in C-91. Small amounts of the patented drug could be produced for regulatory approval, and, in the last six months of the patent life, larger amounts could be produced for stockpiling. Taken together these provisions allow the generic drug to be shipped for sale the day after the patent expires. Quite controversially, C-91 linked the NOC or Notice of Compliance, which certifies that the generic drug has passed Health Canada drug approval process, to the patent status of the drug.

On the passage of C-91, the Pharmaceutical Manufacturers Association of Canada wrote to the government to detail the collective commitments of its members. These commitments were:

These commitments assumed that the "international and national business and regulatory environments . . . . will not undergo substantial change." This list includes such provincial matters as pricing regulations and access rules to formularies.

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