Free Trade and Intellectual Property Rights: Implications for the Canadian Pharmaceutical Environment Joel Lexchin MD School of Health Policy & Management York University Emergency Department University Health Network

Presenter Disclosures Joel Lexchin (1) The following personal financial relationships with commercial interests relevant to this presentation existed during the past 12 months: No relationships to disclose

Points to Cover Background EU negotiating position Canadian pharmaceutical market Canadian intellectual property rights EU negotiating position Potential impact of CETA Drug expenditures Affordability R&D by the brand name industry Economics of the generic industry

Background Canada is currently negotiating a comprehensive economic and trade agreement with the European Union – CETA Large pharmaceutical companies (e.g., GlaxoSmithKline, AstraZeneca) are based in Europe & are major contributors to the European economy EU is pushing for enhanced intellectual property rights in Canada for pharmaceuticals

Current Drug Spending in Canada $5.1 billion $26.1 billion

Inflation in Drug Spending

Domestic Lawmaking vs. Treaty Negotiations Domestic legislative change is often marked by interest groups competing to negotiate trade-offs in respect of a specific issue In the trade context, states are negotiating over a broad range of issues through trade officials Canada could trade an agreement on IP that satisfies European interests in return for agreement in a separate area that advances Canadian interests Trade officials may give a particular subject area less weight than the officials directly responsible for that area Health officials not directly involved in negotiations Trade officials may not consider social welfare loss due to increased IP protection

Data Protection In order to market a brand name drug company must produce evidence that drug is safe and effective Once a drug is known to work and be safe it is unethical to ask a generic company to repeat the same tests When Health Canada received a submission from a generic company it would rely on safety and effectiveness data from the brand name company

Data Protection Until 2006 Health Canada gave 5 years of protection for data Since 2006 Health Canada is prohibited from using this data for 8 years after the brand name drug appeared on the market Generic companies cannot submit an application for 6 years Companies given additional 6 months of data protection if they study drug in children Doesn’t matter how useful drug is for children Only applies to “innovative” drugs, i.e., drugs with molecular entities not previously available on the Canadian market

Canadian Patent Legislation Canada is a member of WTO Patents valid for 20 years from date of application as per TRIPS agreement Currently no additional patent time available for time medication spends in the approval system Average period of market exclusivity once drug is approved is about 10 years

Notice of Compliance (NOC) Regulations “Balance effective patent enforcement over new and innovative drugs with the timely market entry of their lower priced generic competitors” Before generic company allowed to market a drug all patents have to be expired If brand name company claims an existing patent there is an automatic 24 month delay on marketing drug Stay expires either at the end of 24 months or when a court decision has resolved the issue No NOC regulations in EU – only other country with similar provision is US

Comparative Summary of Pharmaceutical Intellectual Property Provisions: Canada and EU TRIPS requirement EU (now) EU (after CETA) Canada (now) Canada (after CETA) Patent term 20 years NOC requirement No Yes Patent term extension N/A 0 – 5 years Data exclusivity Allowed 8 + 2 + 1 6 + 2 + 0.5 Modified from: Grootendorst and Hollis

What the EU Wants Additional data exclusivity in Canada From: 6 + 2 + 0.5 years To: 8 + 2 + 1 (for new indication) years Would apply to all pharmaceutical products such that minor changes to existing drugs might be eligible for data exclusivity Patent term extension in Canada From: 0 years To: 0 – 5 years

What the EU Wants Customs officials at the Canadian border could impound imports on the suspicion that they violate a patent Currently generic companies are allowed to import active ingredients before patent expiration in order to begin to do regulatory work necessary for approval once the patent has expired

Impact of CETA - Drug Expenditures Average period of exclusivity for patented medications is currently 10 years Out of the total of $26.1 billion spent on prescription drugs Patented medicines: $13.3 billion Generic medicines: $5.7 billion Off-patent brand-name medicines: $7.1 billion Average generic price is 39% of brand-name price Based on sample of 15 drugs that were first genericized in 2010 CETA provisions would extend patents for an average of 3.46 years Modified from Grootendorst and Hollis

Impact of CETA on Drug Expenditures Grootendorst and Hollis

Impact of CETA – Drug Affordability 40% covered through public drug plans (mostly those 65 and over + those on social welfare) $12.1 billion 45% covered under private plans (through employment) $9.4 billion 15% uncovered (students, working poor) $4.6 billion out-of-pocket Most vulnerable to any increase in drug prices

Impact of CETA – Brand-Name R&D Expenditures From: Iacobucci

Impact of CETA - Generic Industry Apotex (second largest Canadian generic company) top pharmaceutical R&D spender in 2009 - $189 million Sanofi-Aventis top brand-name spender $182 million Generic sales in Canada $5.2 billion To the extent that increased IP protection decreases generic revenue companies may invest less in R&D If generic companies delayed in being able to produce products there may be declining investment in R&D and generic exports Currently $1 billion in exports to 115 countries

Conclusions Ongoing trade and economic negotiations between Canada and the EU may lead to enhanced IP rights for pharmaceuticals Potential impacts: Higher overall drug expenditures Less affordability for those without insurance No change in brand-name R&D Poorer economics for the generic industry

Further Reading Grootendorst P, Hollis A (2011) The Canada-European Union comprehensive economic & trade agreement. An economic impact assessment of proposed pharmaceutical intellectual property provisions. February 7, 2011. Available from: http://www.canadiangenerics.ca/en/news/docs/02.07.11CETAEconomicImpactAssessment-FinalEnglish.pdf Canada’s Research-Based Pharmaceutical Companies (2011). Reality check: analysis of the CGPA’s Economic impact assessment of proposed pharmaceutical IP provisions. March 31, 2011. Available from: Iacobucci EM (2011). Innovation for a better tomorrow: a critique. May 30, 2011. Available from: