Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 7 - Evidence

OTTAWA, Thursday, March 29, 2001

The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-17, to amend the Patent Act, met this day at 11:05 a.m. to give consideration to the bill.

Senator E. Leo Kolber (Chairman) in the Chair.

[English]

The Chairman: Honourable senators, we are here to hear testimony on Bill S-17, to amend the Patent Act. Our first witness is Mr. McGlynn, from the Ontario Teachers Insurance Plan.

Mr. Randy B. McGlynn, Chief Operating Officer, Ontario Teachers Insurance Plan: I would like to thank the committee for the opportunity to be here today to share with you the position of the Ontario Teachers Insurance Plan on Bill S-17.

Founded in 1977 by the then five teacher affiliates of Ontario, OTIP/RAEO's exclusive focus is the province's education employees. We provide a diversified range of employee benefits and insurance and financial services tailored to meet the specific needs of more than 110,000 active and retired education workers in Ontario.

Our concern with Bill S-17 is that it will add to the skyrocketing prescription drug costs paid by patients, provincial governments and insurance plans such as OTIP/RAEO, through patent extensions for brand name drugs and delays in competition by the repeal of the stockpiling extension.

The Canadian Institute for Health Information reported two weeks ago that spending on prescription drugs has soared almost fivefold in Canada over the past 15 years and that Canadians spent an estimated $11.4 billion on prescriptions in 2000, up from$2.6 billion in 1985.

Clearly, something needs to be done to get these costs under control. We realize that the legislation has been introduced to bring Canada in line with two WTO rulings. We acknowledge that the Government of Canada must comply with our international trade obligations. We are simply here to ask that, while the Patent Act is now being amended, other changes be made to help counteract the effects of these changes on drug costs.

The astronomical cost of prescription drugs has now created social inequities in Canada's health care system. It is a fact that six million Canadians have inadequate insurance for prescription drugs. By permitting this outcome, this government is failing to acknowledge the therapeutic importance of prescription drugs in treating and preventing illness. Clearly, the altering of this legislation is an opportunity to make more money available for Canadians to buy drugs, without any financial impact on government resources. The role that prescription drug therapies play in Canada's health care system is key to alleviating the utilization of government-funded physicians and hospitals.

It is important to look at the impact of escalating drug costs on Canada's business sector. Insured drug plans provided as part of collectively bargained employee benefit plans are expected to increase over 80 per cent in cost in the next five years. Salaries will increase by an expected 10 to 12 per cent. Will employers continue to fund these programs or will the cascading effect come into play, causing employees to have reduced formulary coverage or increased deductibles or larger co-insurance payments or, worst of all, not be able to afford the particular prescription drugs that they may need. I submit that none of these outcomes is good for workers in Canada and their families.

We are concerned that Bill S-17 is continuing down a legal and regulatory path that, over the past 15 years, has contributed to the growing cost of prescription drugs in Canada. Some of you may have seen the article in last Saturday's Globe and Mail on these hearings. I thought the writer summed it up well; I have included a copy of it in my handout for your reference.

The patented medicines regulations introduced in 1993 gave the brand companies the automatic right to prevent Health Canada from approving a cheaper generic drug for two years simply by alleging patent infringement. The brand name companies have been abusing this automatic injunction and initiating legal proceedings under the regulations, regardless of the merits of their case. Obviously, an extra two years or more without competition can mean millions in extra profit. I point out to members of the committee that this extra profit is coming directly out of the pockets of hard-working Canadians. In particular, let us not forget the Canadian families that cannot afford to buy the drugs that they need to sustain their health.

The Canadian Drug Manufacturers Association, representing the generic drug industry in Canada, told this committee last week that there have been more than 200 court cases started under the regulations and that the delays caused by these cases have cost Canadians more than $300 million in extra drug costs. It gets worse. In some cases, the brand drug companies can keep the generic off the market longer through a process known as "evergreening," in which new patents are put on minor variants of the same drug.

These regulations mean that getting cheaper generic drugs on the market routinely becomes an expensive, protracted legal battle with the only goal being to lengthen monopolies beyond legitimate patent terms. Some of you may have been members of the House of Commons when these regulations were passed. It is hard for me to believe that it was the intent of Parliament that a number of patents would be applied to a single drug.

On behalf OTIP and the more than 110,000 teachers we insure and their families, I recommend that this proposed legislation be amended to repeal the regulations that provide for the automatic 24-month injunction. The pharmaceutical companies do not need their own special set of rules for patent disputes, especially if they are going to abuse them and Canadians have to pick up the tab for the abuse. Short of that, there must be a limit of one patent that can be listed per drug. The brand names cannot be allowed to constantly re-start the clock by legal manoeuvring.

We at OTIP do not dispute that there must be patent protection or that Canada should meet its international obligations. After those patents expire, however, there must be competition so that Canadians can have access to less expensive drugs.

Senator Lynch-Staunton: Where do you get your figures for the spending on prescription drugs? Why do you limit your costs to prescription drugs only? Do you have the whole picture, that is, patent drugs, prescription drugs, all drugs? Why is this related to prescription drugs and where do the figures come from?

Mr. McGlynn: The figures come from the Canadian Institute for Health Information. My numbers did exclude over-the-counter drugs. They have only doubled in that timeframe, from 1985, and that could be interpreted in different ways. You could say that perhaps there was an opportunity for more over-the-counter prescriptions and maybe that number should have increased. Over-the-counter drugs cost less and therefore reduce this large outflow of funds. That is one way to look at it.

Senator Lynch-Staunton: We hear over and over again about soaring costs, but there is not much supporting evidence presented. What is the forum that you just mentioned? Who are they? I would like to see figures on this from Statistics Canada, or some impartial body.

Mr. McGlynn: Perhaps the officials from Health Canada can answer that.

Senator Lynch-Staunton: There are here for other things. You raised the matter, so I would like you to answer it.

Mr. McGlynn: Are you asking for the source and why are there not Statistics Canada figures?

Senator Lynch-Staunton: I am asking who your source is.

Mr. McGlynn: The Canadian Institute of Health Information.

Senator Lynch-Staunton: Who are they?

Mr. McGlynn: They are a non-profit body that monitors health costs in Canada.

Senator Lynch-Staunton: On page 2, you talk about insured drug plans. That includes all drugs, is that right?

Mr. McGlynn: It includes all prescription drugs.

Senator Lynch-Staunton: Exclusively?

Mr. McGlynn: Yes, because insurance plans do not cover over-the-counter drugs.

Senator Lynch-Staunton: Okay. I just want to get a better feel for your presentation. I do not fault your conclusion. Many of us are troubled by this technical extension of a patent - it is not a legal extension but a de facto extension. To my mind, the thrust of your paper was good; it is just that some of your figures were not backed up. Perhaps we will get the information another way.

Senator Meighen: On the page 1 of your presentation, you say that spending on prescription drugs has soared almost fivefold in Canada over the past 15 years.

Is there any way of telling to what extent that is attributable - perhaps because of an aging population, perhaps because of an increased use of prescription drugs. How much is attributable to an increase in drug prices?

Mr. McGlynn: Exhibit 2 in my handout addresses that question. About 30 per cent of increase in cost is due to increased volume, which would be demography based; 25 per cent is addressed through price increases; and 45 per cent is addressed through the introduction of new products or evergreening of existing products.

If you look at numbers from 1985 forward, in the makeup of prescriptions today versus 1985, only 13 per cent of the prescriptions prescribed today by doctors existed in 1985. The rest are new drugs, and that trend obviously will continue with the research that is being undertaken.

Senator Hervieux-Payette: I was with the ministry of health in Quebec until 1978. In 1978, the figure for Quebec for $1 billion. So if it was $1 billion then, 10 years later the figure cannot be $2.6 billion. The "fivefold" would not be correct.

I was in the minister's office and I remember how we were approving the drugs. In the tranquilizer sector alone, $250 million was spent. It was a $1-billion budget at that time.

Mr. McGlynn: I would be pleased to forward the data to the committee.

Senator Meighen: There is not much we can do about true innovation; however, I take your point about evergreening.

Mr. McGlynn: We would welcome true innovation.

Senator Meighen: True innovation is built into this45 per cent; correct?

Mr. McGlynn: That is agreed.

Senator Meighen: There is not much we can do about getting older and taking prescription drugs. In your submission, the only thing we can do anything about is the cost.

Mr. McGlynn: We need to look at both the cost and the cascading effect. It is easy for each level to say, "We have done a good job. If we are to meet constraints, we cannot do any more." It then reaches down to the level of the employer. The employer today is dealing with 15 per cent, plus increases in employee benefit programs. They will say "Enough." Many of them have said that. They then say, "There is one more level to cascade down to, and that is the employee or the retired person." It is easy to deal with the retiree. You simply say, "Under the new legislation, we cannot fund that, so we will stop that program." Retirees are then left with their hand outstretched. Many of those retirees are under 65 years of age. In Ontario, for example, they cannot go to the Ontario drug benefit plan and say, "I am 65. Look after me." Thus, there is a gap.

Senator Meighen: Can you tell me how Canadians sit relative to other jurisdictions? I read about American seniors coming up to Canada by the busload to buy drugs. You used the term "astronomical pricing." American pricing must be astronomical squared.

Senator Angus: It is because of the value of the Canadian dollar.

Mr. McGlynn: The price differential is about 40 per cent higher than in the U.S. We are number two, so we will not get a flood of Europeans coming here to buy prescription drugs.

Senator Angus: Certainly not busloads.

Mr. McGlynn: No. That is our relative position.

Senator Meighen: On the evergreening question, stated that way, it would seem inequitable to have minor variance. Do you think it is possible to define what is minor and what is not? Presumably, a true variation on a drug, perhaps, would not result in the same side effects to you or to me as the original drug.

Mr. McGlynn: The main argument that the brand companies make is side effects. They talk in terms of, "If we repackage this with timed release, it is easier on your stomach," as an example. Is that major or minor? My wish is for this committee to say, "You have one patent, my friends, you have one chance, my friends. Put your patent out, and then after 20 years there is a free market."

Mr. McGlynn: That is my position.

Senator Angus: I read an ad that appeared in The Hill Times of March 12, 2001. The ad reads, "Patent Extensions and Drug Costs - An Open Letter to Liberal MPs." I am a Progressive Conservative senator and felt somewhat left out, so if you do not mind me reading their mail I see that it lists a variety of companies, one of them being the Ontario Teachers Insurance Plan.

Mr. McGlynn: That is correct.

Senator Angus: Your organization helped to pay for this ad; is that correct?

Mr. McGlynn: That is correct.

Senator Angus: What is the relationship between the nine organizations listed there?

Mr. McGlynn: We have one common concern and that is the affordability of prescription drugs either for active or retired employees.

Senator Angus: Is the Ontario Teachers Insurance Plan a member of the Canadian Drug Manufacturers Association?

Mr. McGlynn: No, we are not.

Senator Angus: Are the nine organizations listed here a coalition of diverse groups around the country? Do you have another body that you are commonly a member of?

Mr. McGlynn: No, we do not.

Senator Angus: In this ad, you quite correctly say that proposed government legislation, Bill S-17, introduced on February 20, to bring Canada into compliance with WTO rulings, will increase patents, and so forth. On its face, that is what the bill is about. Then you go on to make this pitch to have a concurrent amendment to the Patent Act.

We went through that last week, and this week with the minister. You referred to this article in Saturday's Globe and Mail, and the minister, as I heard him and read the transcript to verify, was quite open. He said he would look into this in the fall.

My question is this: Why are you here trying to reopen a debate that took place in the early 1990s? This is an ad hoc piece of legislation designed to have Canada honour its international obligations. The minister is concurrently saying, "We see your point; there is another issue and we will deal with that in the fall." Is that not sufficient for you, for now?

Mr. McGlynn: No, it is not.

Senator Angus: Why would that be?

Mr. McGlynn: The fall can bring new and different things. This legislation has a time line, based on WTO demands; if there was a will, it could also be amended and still complied with before that deadline is up.

If we pass that deadline and the legislation goes through, we come to the fall and there be will be another series of hearings. Then you will see the brand companies cash out and the lobbying begin and we will be on a long road toward no answers, in my opinion.

Senator Angus: You will be part of the lobbying and you will have a forum. We are here at the Senate to study the legislation and to make, I would hope, reasonable and intelligent recommen dations to the government. As an opposition, if we see something that does not make sense, or that we feel can be legitimately opposed, we try to do that in an effective way.

It takes up a great deal of time. The government has a deadline. The minister has acknowledged that the other points are well made. My sense is that you are trying to take advantage of the process to argue another case.

There is an expression in the law, abuse of process. I am not suggesting that this is a total abuse of the process, but I think it is out of place and I do not believe this is the time for these points. We are certainly ready to listen and have done so. Our fearless leader here is featured in that article in the Globe and Mail and we are listening. That is all I am saying.

I heard your answer that it is not good enough. However, I put it to you that I think the minister is very sanguine to do that.

Mr. McGlynn: If you addressed the issue of evergreening, we would be happy.

[Translation]

Senator Poulin: Clearly, as you indicated, the costs of prescription and other drugs are rising quickly and seem very high. I can tell you that we share your concerns. However, it may not be the right time to address this issue. You're right in saying that this bill is an attempt to make our legislation consistent with our international commitments.

However, I do have a real problem with your figures. Over the last weekend, and because of the level of interest associated with this bill, I decided to check with various sources the costs of drugs in Canada compared with what the situation is in other countries. I checked with people who have no vested interest in this area. What they told me is quite different from what you stated. Some told me that the price of prescription drugs is 11 per cent lower in Canada than in other countries. I would like to hear your comment on that.

[English]

Mr. McGlynn: I think you can tell any story you want with statistics. If you take a 40 per cent increase on a population of250 million and put it against other groups in the world, for example, the European Community, you can get it down to11 per cent, I would assume, statistically. I have not worked it out. I think your advisers are taking advantage of statistics to point out the difference. My information is that we are the second highest country, behind the United States, in the cost of our drugs. That is the information I have. When you word it the way you did, senator, perhaps I can come to that number, too.

The Chairman: Thank you very much, sir.

Our next witnesses are be from Health Canada. I welcome David Lee, Anne Bowes and Barbara Ouellet. I am told that you do not have a statement but that you are here to answer questions.

Mr. David K. Lee, Patent Officer, Legal, Therapeutic Products Division, Health Canada: Mr. Chairman, we thought we could provide you with a five-minute overview of the administration, if that would be of assistance.

The Chairman: Please proceed.

Mr. Lee: Mr. Chairman, an explanation of the administration of the patented medicines notice of compliance regulations is set out in the "Guidance for Industry on the Patented Medicines (Notice of Compliance) Regulations." That is our guideline, which became effective May 10, 2000. We commend that document to you as the detailed explanation of how Health Canada administers the regulations. It is a long document. We will try to pick out the salient aspects.

The primary administrative duties of Health Canada in respect of the regulations are to maintain a patent register and to ensure that a subsequent entry manufacturer, sometimes called a "generic manufacturer," addresses the information on the register when they are seeking to have a drug approved.

The patent register is comprised of a set of binders. When most people see them, they are unimpressed. The binders contain forms that we call patent lists. They are also called "Form IVs." An example of that can be found at the back of the guideline. On those forms, innovator manufacturers, called first persons in our regulations, basically describe the drug that they want protected and the patents they want listed to protect the drug.

Section 4 of our regulations sets out the requirements as to which patents a first person is entitled to list on the patent register, and the timing to be followed in listing them. The wording of the regulations is clear that not all patents granted by the Canadian Intellectual Property Office, Industry Canada, relating to a drug can be listed on the register. Only patents that contain a claim to the medicine itself or a use of the medicine are eligible.

The timing requirements that a first person must observe in filing a patent list are specific. It involves some knowledge of the drug submission process under the food and drug regulations. When a manufacturer initially wants to have a drug approved, the food and drug regulations specify that they must file a new drug submission. These are the big submissions, including the clinical trials and so on. We have a loading bay at Health Canada on which they bring them in on pallets - they are big submissions.

There are other kinds of subsequent submissions. For example, if the manufacturer wants to make a significant change to a drug product that has already been approved, the manufacturer must file a supplemental new drug submission. In both cases, if the regulatory requirements under the food and drug regulations are met, a notice of compliance is issued for the drug. That is their marketing approval to go ahead with the change.

The patented medicines notice of compliance regulations specify that the first person must file a patent list at the time of making a drug submission for a notice of compliance. Generally, we get the form right inside the drug submission. We lift it out to process it. An exception is provided under the PM(NOC) regulations to deal with the instance where a first person has applied for a patent with the patent office. The exception applies where a drug sponsor has not received the patent before making the drug submission. If the patent has not been granted before the filing of the drug submission, the first person submits the drug submission. When the patent is granted, the first person gets30 days to submit the patent list to us.

Whenever we receive patent lists, we conduct what we call a patent audit to ensure compliance with the requirements insection 4 under the patented medicines notice of compliance regulations. We also look at the timing. If there is compliance, we will add the patent list to the patent register when the first person is issued the notice of compliance for the drug submission. We hold on to it. The moment that the innovator or brand name company gets the notice of compliance, that is when we put the form into the binder. It is officially there at that time.

The other side of the equation is the filing of drug submissions by generic manufacturers, called "second persons" in the regulations. These drugs submissions are different from the submissions made by an innovator. They are called "abbreviated new drug submissions" and are much smaller because they are based on showing that the generic drug is bioequivalent, that is, a biological copy of an innovator drug.

Section 5 of the regulations requires that where a second person compares and makes reference to a first person's drug for which a patent has been listed on the patent register the second person has to address all the patents listed for the drug they are copying. It is required that the second person either specifies that they will await expiry of all patents or will serve an allegation on the first person.

There are a number of allegations in the regulations that they can make. If the second person chooses to serve an allegation, the first person has 45 days in which to bring a notice of application to the Federal Court Trial Division. In that 45 days, a notice of application must be filed.

In the application, they seek an order to prohibit Health Canada from issuing a notice of compliance to the generic manufacturer until expiry of the patent. We would like to emphasize that the court, not Health Canada, will determine the potential patent infringement or validity questions relating to the application. Those questions all lie with the court and are at the heart of what we call the prohibition application.

This is where the statutory stay comes in. We look for the Federal Court registrar's stamp on the notice of application and take that as the date. The 24-month period starts from that date specified on the notice of application. This period generally runs concurrently with the review of the generic drug submission. An abbreviated drug submission is looked at by our scientists to ensure that the food and drug requirements are met concurrently with the prohibition case being heard in court. The NOC becomes issuable at roughly the resolution of the court case and the scientific review of the drug dossier.

Senator Lynch-Staunton: Thank you for your presentation. It has shed a great deal of light on how you operate. However, why is the pharmaceutical industry the only industry with the advantage of this 24-month stay?

Mr. Lee: I am sorry, senator, but I would have to defer to my colleagues at Industry Canada on that question, although I do not want to make that a pattern.

Senator Lynch-Staunton: I appreciate that. A question was asked of Minister Tobin's officials last week regarding Health Canada's input into the regulations, and I believe they suggested that there was agreement between the two departments.

Mr. Lee: We certainly try to work closely together. Our input is rather technical in nature. We try to specify what we see happening in the regulation and administration in some the conflicted zones, if you will.

The Chairman: There are officials here from the Department of Industry who are willing to come to the table.

Senator Lynch-Staunton: The question that must be answered is this: Why is the pharmaceutical industry the only one to have the benefit of this 24-month advantage? We asked Industry Canada that and did not get very far, I think because we were not too aware of what it was all about. Now, after hearings, reading documents and hearing your very good explanation, the question becomes even more valid. Is it correct that a patent that is supposed to end in year 17 or year 20 is de facto extended by two years simply as a result of going to court and making a claim?

Mr. Lee: There are some instances in which, as a function of the triggering of the statutory stay, there can be a delay between the triggering of the court cases, and hence the timing may be affected. We have seen circumstances like that.

Senator Oliver: It can be even more than 24 months.

Mr. Lee: It is only 24 months per triggering of the statutory stay. The patent lists are all on the patent register when the second person comes in to copy the drug. They file with us a Form V, which we call addressing the patent. They give us a form identifying which manufacturer they are copying and which drug, then they tell us which patents they are going to go to court on. They send their notices of allegations on the innovators. We try to track that. We have to get proof of service. They go to court and they usually litigate all the patents at once in the same prohibition. That will be resolved then. Only in those instances where another patent list comes on subsequent to the initiation of the court proceeding does it not match up because there is necessarily another triggering of the stay.

I should mention that to some extent it is contemplated in the regulations for patents coming on later. I refer here tosections 4(5) and 4(4) of our regulations. If an innovator does not have the patent at the time of making the drug submission, it is granted later and you bring it over within 30 days. It may be that I had other patents on the register at that time so I will be bringing another patent list on.

The regulations mirror that under section 5 by telling us that in that instance the second person must amend the way they address the patents; therefore, they must amend their Form V and the whole thing starts again.

So there are some instances where that occurs.

Senator Lynch-Staunton: When these court cases begin, does Health Canada get involved? Does it have to go to court and act as a witness for one side or the other?

Mr. Lee: Not with the prohibitions. We are always named as a party because we are bound by the order. It is a very rare instance where we will become involved in the disputes on the prohibition because they are about infringement and so on, and that can only be a hobby for us, looking at the patents and guessing what might happen. The only time we have been an active party is on judicial reviews.

Senator Lynch-Staunton: Do you know how many have been begun, where they are now, how many have been settled and how many have been rejected?

Mr. Lee: We have some rough numbers. As you may have perceived, we are a very active section and our numbers fluctuate quite rapidly. In terms of prohibitions, I would to defer to my colleague, Ms Bowes.

Ms Anne Bowes, Patent Officer - Science, TherapeuticProducts Division, Health Canada: In terms of prohibition cases, there have been approximately 208 cases in total since 1993. I believe that there are approximately 48 active cases right now in either the Trial Division or at the Appeal Level. As Mr. Lee mentioned, we do not typically get involved in those cases. We monitor them for outcomes. Unfortunately, I do not have statistics on the outcomes of the particular proceedings.

Senator Lynch-Staunton: The cases can be appealed to a higher court?

Mr. Lee: There was a Court of Appeal decision on that recently. It is my understanding that there is mixed jurisprudence, so I would beg your indulgence not to comment on that too crisply.

Senator Lynch-Staunton: I think we need other officials from Health Canada to sort this out.

We are troubled by the fact that, by getting these extensions, for whatever reason, the patent is continued for X number of months, if not years, and, therefore, the cost to governments and individuals remain higher than they should be if the legislator really meant 20 years when it said 20 years.

I know this is beyond the mandate that brought you here, but does Health Canada not share that same concern, that by these extensions, de facto as they may be, the cost to the department is higher than it should be, or do you not want to go into that field?

Ms Barbara Ouellet, Director, Homecare and Pharmaceuti cals, Health Canada: Are you asking the cost to the department in terms of litigation activity?

Senator Lynch-Staunton: Both the gentlemen from the Ontario Teachers Insurance Plan and the generics have said that since their inception the regulations have cost Canadianconsumers more than $300 million in higher drug costs as measured by the CDMA. That cost is shared mainly by federal and provincial governments. Is there not a concern in Health Canada that because of the prohibitions the cost to Canadians is correspondingly higher and there could be - and I would think there will be some day - regulation saying 20 years is 20 years? This is similar to having a new snow tire or an invention of whatever sort where you know you are protected for a given number of years. This special exemption or addition to the regulations favours one industry over others. That is what we cannot understand.

Ms Ouellet: In general terms, the overall escalation of drug costs is a major concern to the health system. It is the fastest-rising sector of costs in health care. To answer your question, we would need to know the economic value of the two-year extension for the particular cases that were referred to. Obviously, not all drugs have the same economic value and impact. I do not have figures, and I am not sure if my colleagues do, but we can endeavour if those are available to get them to you, to know what drugs have been subject to these cases and what the financial impact of those drugs is in the market. I would suspect, given the volume of pharmaceuticals sold in Canada, relative to an $8.9-billion expenditure overall in pharmaceuticals, that this would be a relatively small impact as a result of these extensions, but I do not have that data for you today.

Senator Banks: You have fallen on the same question. The suggestion has been made today that that difference, the result of those 24-month statutory extensions, is in the area of$300 million. I believe a moment ago you referred to the expenditures as $9 billion?

Ms Ouellet: Yes.

Senator Banks: Do you think that the suggestion of about$300 million is a reasonable suggestion, that it would be in that realm?

Ms Ouellet: To me, that sounds very high. I do not know on what basis one would have been able to calculate those figures. We would need to look at the total volume of drugs on the market and compare it to the 208, I believe my colleague said, drugs since 1993 that have come forward. My general impression is that that would be a very small number of the total proportion of drugs on the market and one would have to look at the economic value in a two-year window. Sometimes with drugs it takes a period of time to establish a market. Therefore, it would be something that I would question as a figure.

The Chairman: Thank you very much for being with us.

Senator Lynch-Staunton: Chairman, is it possible to get an answer from Health Canada regarding its view on the validity of giving one industry, in this case the pharmaceutical industry, what appears to be an advantage that no other industry in Canada, of which I am aware, has, if it is an advantage? There may be other reasons for it but right now it appears to be allowing an extension of a patent. There may be very valid reasons for that. I am sure those who designed the regulations did not do so capriciously. We have yet to know why this particular feature is only applicable to one industry and so far we have not had the answer to that.

Ms Ouellet: As my colleagues have said, Health Canada's role with respect to pharmaceuticals is to review the safety, efficacy and so on of the drug for the market. Issues with respect to treatment of patents are industrial in nature and I believe we do have to defer to our colleagues at Industry Canada on that point.

The Chairman: May I suggest that the Industry Canada officials come up?

Thank you for being with us. Would Industry Canada like to take a crack at this?

Senator Lynch-Staunton: I am sure you have heard my question ad nauseam. Why did Industry Canada see fit in its regulations to give the pharmaceutical industry what I call an advantage, although it may not be that, but, for lack of a better word, it appears to be advantage, that other industries in Canada, as far as I know, do not have?

Ms Susan Bincoletto, Acting Director, Special Projects Directorate, Corporate Governance Branch, IndustryCanada: I will start, and then I will defer to Mr. Sutherland- Brown.

The regulations themselves should be looked at in the broader context of what came as a result of Bill C-91. Bill C-91 eliminated compulsory licences. There was an additional provi sion included, called the early working exception. In fact, the early working exception was part of the European Union challenge to our patent regime. We fought that early working exception very strenuously because it is a fundamental element of our balanced regime. It allows third parties to work a patent while the patent is still valid. The working of that patent can be done only for regulatory approval. The minister had mentioned that in his address before this committee.

This early working exception is particularly important for the pharmaceutical industry. By allowing generic manufacturers to use the patent, which they would not otherwise be able to use without infringing that patent, they save a number of years, with a view to getting regulatory approval by Health Canada. In exchange for that, or to remain fair, it was felt during Bill C-91 that a mechanism be put in place for those generic manufacturers who do use this early working exception. On the other side, the innovators would have recourse for infringement. Otherwise, what could have happened is that an NOC could have been issued to a generic manufacturer and the generic drug been put on the market without the previous knowledge of the innovator, or the brand name drug in this case, and it would have been infringing had it not been for the early working exception.

We need to look at both the early working exception and these NOC linkage regulations as an ensemble. Otherwise, if you look at them separately, you can identify the question that you are referring to, which is, why would you do this only for one industry?

What is also particular to the pharmaceutical industry is the length of time it takes for research and development to occur. It can take up to 8 to 12 years sometimes to research a product. Therefore, it would be unfair not to have a mechanism that would allow the innovators to recoup their investments.

The Chairman: That is a little over my head. I do not think you answered the question.

Senator Angus: I thought it was a great answer.

Senator Lynch-Staunton: Are you saying that the compliance was designed so that they would recoup their investment in mind with the recouping of the investment in mind? You said it would take 10 to 12 years and that they have to recoup their investment. I do not know why that would be a factor in your assessment. That is their problem, not yours.

Mr. Rob Sutherland-Brown, Senior Counsel, Commercial Law Division, Industry Canada: The theory that underlies patent legislation is that society wants to encourage innovation. It does that by providing a period of marketing exclusivity to inventors who are successful in processing a patent application. The theory in exclusive marketing rights is that the innovator is alone on the market so that they can generate the kind of revenues necessary, both to recoup their expenses for that particular invention as well as to fund further invention.

In the pharmaceutical industry, people can get a patent inyear 1, but it takes them 8 to 12 years to develop the clinical information, et cetera, that is necessary to support the approval of the that drug by the Minister of Health for marketing in Canada. The Minister of Health is interested in the safety and efficiency of the drug for the purposes claimed by the manufacturer. That erodes patent life because they do not have marketing approval. They may have an invention, they may have a drug, but they are not allowed to market until they get the notice of compliance. That erodes their 17 years or 20 years as it now is by the amount of time taken up in the prosecution of approval before the Minister of Health.

When you look at the early working provisions, that allows a generic, or a second entry, manufacturer to use the patent during its remaining life to generate its application for marketing approval from the Minister of Health. If that application is filed early on in the life of a patent and it succeeds before the Minister of Health, the Minister of Health gives the generic a notice of compliance. The generic is then in a position to go to market. The regulations try to balance the advantage given to the generic by being free of infringement liability during the life of the patent by providing a forum where a generic can demonstrate whether or not it is infringing a valid patent or, indeed, whether the patent itself is valid. If it wins its action, or if it wins the prohibition proceeding, it goes to market, and the 24-month stay that we have been talking about disappears. Also, if the patent expires, that stay disappears.

It is a question of balancing the interests of the two sides of the industry in the hope that the generic product will get to market as soon as possible without infringing the patent of the innovator.

Senator Lynch-Staunton: Is this feature found in regulations elsewhere in other parts of the world?

Mr. Sutherland-Brown: The United States has a similar and, perhaps, more onerous regime than ours.

Senator Lynch-Staunton: What about the European Union?

Mr. Sutherland-Brown: You only find this kind of regime where the national jurisdiction has provided an exemption from infringement for second-entry manufacturers. In other words, the legislature seeks to balance the two interests that are at play in the industry.

Senator Lynch-Staunton: You are taking me into a field that has vocabulary with which I am not familiar. I do not wish to hold up the proceedings, but you mentioned early working. Could you explain what that is again, please?

Mr. Sutherland-Brown: Typically, if I have a patent, I can stop anyone else from using my invention. Section 55.2(1) of the Patent Act states as follows:

It is not an infringement of a patent for any person to make, construct, use or sell the patented invention solely for reasonable uses related to the development and submission of information required under any law of Canada, a province or a country other than Canada that regulates the manufac ture, construction, use or sale of any product.

That is what allows generics to use the innovator industries' patents to develop the information they need to persuade the Minister of Health that their version of the patented product is safe and effective for the purposes claimed.

Senator Lynch-Staunton: That is not unique to thepharmaceutical industry, though. Can any other industry make use of that early working?

Mr. Sutherland-Brown: If there is a regulatory requirement that has to be met, yes, anyone else can do that. The condition is that there is some form of law that will regulate the entry into the market of the product at issue.

Senator Angus: What is this business about automatic replacement? I have heard that expression used. There are provincial laws that apply so that, if a generic receives early approval on day 1, after the 20 years have expired the generic can be right there in the pharmacies and replace the brand drugs, basically putting them out of business?

Mr. Sutherland-Brown: Certainly, there are jurisdictions where there are rules about automatic substitution, to substitute a cheaper version of a particular pharmaceutical product for the brand name.

Senator Angus: How does that work?

Mr. Douglas Clark, Policy Analyst, Industry Canada: Typically, in most provinces, the generic would have to wait for the NOC to be issued. They could not bring forward an application to get listed on a provincial formulary asinterchangeable with the brand name drug until the NOC was in fact issued. They would also have to show that they are able to produce industrial scale quantities of the drug. There are a number of other variables that they must meet. Meeting those can take a number of months after NOC expiry. It can vary a great deal. The average is in the order of a year, but there are significant exceptions to that.

Once they do get listed, if a doctor writes a prescription for a brand name drug and there is a generic listed as interchangeable on the formulary then the pharmacist is legally required to substitute. They must consult the patient in most instances, and the patient can insist on the brand name drug. That is how the market share becomes eroded so readily and easily.

Senator Meighen: It seems to me it is an issue of timing. If I avail myself of the early working procedure early enough, and I get approval, putting it in simple terms, the day the 20-year patent expires, I am approved. I have used it under authority of the minister. I can have my product in the pharmacy when the 20-year patent expires; is that right?

Mr. Clark: You can apply to get your drug listed as interchangeable with the brand name as soon as you have your NOC. Some provinces are taking a look at when the NOC is pending. They know it is pending.

Senator Meighen: Whether I have it or it is pending, is there anything to be filed in court to stop me by a brand name?

Mr. Clark: I am sorry, I do not understand the question.

Senator Meighen: I have approval. Forget about the pending.

Mr. Clark: The NOC regulations do not foreclose other civil actions. If a brand name should bring a prohibition order to the court once they find out that their drug is being copied by a generic for the purpose of regulatory approval, and lose before the court, the brand name is still entitled to bring an action for infringement against the generic, once the generic goes on to the market.

Senator Meighen: That does not cause the drug to be withdrawn from the marketplace, does it?

Mr. Clark: No. They would have to seek interlocutory relief, which is pretty much unavailable under Canadian jurisprudence for those situations.

Senator Meighen: The objection we keep hearing from Mr. McGlynn, and other people, seems to be that the mere filing of an allegation of infringement in certain circumstances can trigger an extension, in effect, of the patent. That would depend, would it not, on me, if I am generic manufacturer, not having completed the early working procedure and obtaining the approval? I am in the midst of doing it.

As I understand it, you have told me that if I have done all the early working procedure, I have the approval, I can go into the marketplace the day the 20-year patent expires and -

Senator Angus: Automatically replace the other.

Senator Meighen: Yes, and automatically replace the other. They can take an action against me, or whatnot, and in the rare case they might get an injunction to get me to withdraw, but that is unlikely. So there I am; I am in the marketplace.

Mr. McGlynn's position, if I understand it, is that there is an application that can be filed by the brand name manufacturer that effectively prevents me, the generic, from entering themarketplace. From your explanation, I conclude that that occurs only if I have not completed the early working application and received approval.

Mr. Sutherland-Brown: The premise, senators, is that the patent has expired. These regulation have no application if there is no patent. The whole regulatory process runs during the course of the life of the patent that is at issue. As soon as the patent expires, there is nothing on which the patentee can launch an NOC regulation proceeding.

Senator Meighen: I am totally lost. I thought we got a 24-month extension.

Senator Banks: Is the automatic 24-month injunction, about which we have heard, something that takes place within the time span of a patent?

Mr. Sutherland-Brown: That is exactly right, sir.

Senator Banks: It is an injunction against me working and developing a generic product rather than an injunction against me selling a generic product; is that right?

Mr. Sutherland-Brown: You are allowed to work the patent for the purposes of obtaining the Minister of Health's approval. That is the extent of the exception from infringement liability. That would happen, obviously, during the life of the patent. If you make that application, say in year 8 of the patent, and there are12 years to run, it takes two years for the Minister of Health to examine the generic application. That takes you to year 10. If the NOC issues in year 10, then the generic can get on to the market in year 10 of the patent term.

What the regulatory scheme does is gives the two sides the opportunity to litigate the issue as to whether or not this particular generic product would infringe the patent were the NOC to be issued. If the answer is, yes, it infringes, then the prohibition will lie until the date of the expiry of the patent. If the answer to the infringement question is there is no infringement, the NOC issues and the generic is free to enter the market.

Senator Banks: In no event does the automatic 24-month extension in any way extend the patent.

Mr. Sutherland-Brown: It does not extend the patent.

Senator Furey: Perhaps you can clarify this. The drug companies were, on exploration of drug A, applying for patents that were a variation of that drug. When the generics were going to produce drug A, the companies were using their 24-month injunction to stop the generics, claiming that it was an infringement of this new variation; is that right? This is the thing you got into with the evergreening effect and continued on down the road for more than one drug.

Mr. Sutherland-Brown: There can be more than one invention involved.

Senator Furey: At least the generic is in the position - and this is what we were told - that there was nothing they could do about it for 24 months. Whether they are infringing or not is immaterial. There is an automatic 24-month injunction period.

The Chairman: They also told us they could sue for frivolous action.

Senator Furey: That still did not stop the 24-month injunction.

The Chairman: It does not stop that.

Senator Angus: That is for new products. Variations of the original -

Mr. Sutherland-Brown: It would be a new invention, a new patent.

Senator Furey: It would prevent the generic from using the expired patent. That is the problem.

Mr. Sutherland-Brown: I am not sure that that is the case.

Senator Furey: They were saying, "If we are taking the expired patent, and this is what we are using -"

Senator Angus: And adding two years.

Senator Furey: A drug company had already filed for a different one, which was a variation of that. They are saying that your use of the expired patent is a violation of our new one. That is how they were getting the 24 months.

Senator Angus: That is correct.

Senator Lynch-Staunton: I have done some reflecting and I am getting somewhere. When a generic decides to copy a patented product, must it inform someone that it is doing that? I am talking about within the patent period.

Mr. Sutherland-Brown: It is a business confidence until they go to the Minister of Health.

Senator Lynch-Staunton: And then does it become public?

Mr. Sutherland-Brown: No, it does not become public. If they are seeking an NOC from the Minister of Health, they must comply with the regulations. That is to say, if there is a patent listed with the Minister of Health, they are required to give notice to the patent owner of the fact of their application. That is when the regulation then provides the patentee with 45 days in which to make a decision: Is the generic's allegation of non-infringement valid, or is he likely to infringe? With regard to a significant number of notices of allegations, the patentees do not commence a prohibition application.

Senator Lynch-Staunton: That has become clear. Your colleagues from Health Canada said that there were over208 court cases since the regulations took effect.

Mr. Sutherland-Brown: I believe that that figure isapproximately right.

Senator Lynch-Staunton: Do you have any results of where they stand today, whether they were sustained, rejected, or appealed or whatever?

Mr. Sutherland-Brown: I do not have any specific statistics on that at the moment, but they are public decisions.

Senator Lynch-Staunton: I was wondering if you knew or could tell whether the pharmaceutical industry would make the challenge just to buy time; or are they serious objections and the generic has failed the test and therefore the product had been rejected. Is there a way to get those answers? Because I am not arguing either side I would like to be convinced that there is a balance being struck here, and I think you have made a good case. I would like to see how these court cases have ended up and whether there is substance to the accusation that they are taking, and again I am quoting the generics, that the regulations in effect allow a de facto extension of the patent even though it is not a legal extension. What has been the experience?

Mr. Sutherland-Brown: The extensions are not to patents. It is a commercial reality.

Senator Lynch-Staunton: I realize the extension is not to the patent, but it is an extension of the exclusivity of a particular product.

Mr. Sutherland-Brown: It can be, yes. Like any set of rules, people who must play by them seek to play as close to the line as they can. I think this is true of both sides of the industry. I know they are here in the room and I do not think either side would deny the fact that when you see a set of rules you try to make it work to your best advantage. I do not know when the underlying motives are. I hear on the street that sometimes one side or the other is abusing the scheme. Overall, it seems to be doing what it is supposed to do insofar as it balances the advantages given by the freedom of infringement liability with early appearance on the market after the patent expires.

When the Europeans went after it, they wanted that de facto extension to the patent that occurs because of the need for a pharmaceutical company to get safety approval from the health authorities in the various jurisdictions. The Europeans argued that that was an entitlement to the patentee, that is to say, that they should get whatever the benefit of the delay caused by regulatory approval examinations. We prevailed on that point.

Senator Meighen: Can you put the 208 court cases in some context? If an objection, or whatever word we want to use for what the generic drug producers are objecting to, was filed in every case, how many cases would that be? You say there have been 208. If one were filed every time, how many cases would there be?

Am I making myself clear? Is it a drop in the bucket? Is it208 compared to the possibility of 2 million or 2,000?

Mr. Sutherland-Brown: When the government reviewed the operation of these regulations in 1997 and 1998, something like 40 per cent of the total notices of allegations were not litigated.

Senator Meighen: However, you cannot tell me how many instances since the adoption of the legislation would have given rise to the possibility of filing of a notice of allegation? In effect, 208 were filed?

The Chairman: You are asking how many drugs there are and how many patents lapsed in the last 10 years?

Senator Meighen: Yes. Is it 208.1 per cent or 20 per cent?

Senator Lynch-Staunton: The generics only copy those that are most profitable. They only go after a fraction of the overall market. Is that correct?

Mr. Sutherland-Brown: As I understand it, yes.

The Chairman: That is an important point. The fact is that there are thousands of drugs, but the generics do not want to copy the ones that sell only 10 bottles a week. That is a crucial point.

Senator Meighen: We are told that there is an abuse of process. Perhaps that is too strong an expression. Do you feel there is?

The Chairman: By whom?

Senator Meighen: The generics are telling us there is abuse of process by the brand names. We heard about the balancing act. Do you feel there is an abuse of the balancing process?

Senator Angus: They said it was working well.

Mr. Robert Main, Director, Regulatory Affairs andStandards Policy, Corporate Governance Branch, Industry Canada: The way to look at this is that people play close to the line on this dual rule.

The Chairman: Many analysts will tell you that there are companies in the litigation business. Thank you for your presentation.

Honourable senators, there is one bit of housekeeping. When Rx&D, Canada's Research-Based Pharmaceutical Companies appeared before our committee on March 21, 2001, they started with what sounded like a big commercial. I told them to get to the point so they had to cut off some of their presentation. They are asking if we would agree to append it to our proceedings on the record.

Is it agreed?

Hon. Senators: Agreed.

(For text of document, see appendix, p. 7A:1)

The Chairman: All right. We did not put in our notice of meeting that we would go to clause-by-clause study, so I would ask for a motion to proceed to clause-by-clause consideration, and then you can introduce whatever you like.

Senator Furey: I move that we go to clause-by-clause consideration of the bill.

Senator Kelleher: First, we must see about the motion.

Senator Lynch-Staunton: It was not on the agenda.

The Chairman: That is why we need a motion.

Senator Lynch-Staunton: We are not holding up this bill. We supported its predecessors, so we are quite satisfied with the bill.

If you do not mind, honourable senators, we would like to wait until next week. In the meantime, we would like to develop some observations on the regulation that we would like to include in the report. You will have an opportunity to accept them or not, but we would rather they be a committee observation rather than a minority observation. This is a non-partisan issue here.

The Chairman: I thought you had them.

Senator Lynch-Staunton: I have a draft, but I was waiting to hear from the Health Canada people. The presentation of the first witness was excellent but it was so technical that I could not absorb it. I need the transcript to understand it better.

Senator Angus: I think he makes a good point. I think we need more data.

The Chairman: We do not want to fight with you all the time. Can we have an understanding that we will meet on this on Wednesday and that the notice will call for clause-by-clause consideration and we will do that? If you have observations that you wish to append, we will have to decide whether or not we will do that. Either way, it will get reported either as committee observations or your observations.

Senator Angus: We will get the drafts into your hands.

Senator Lynch-Staunton: Thank you.

The Chairman: We will send out notice of a meeting for Wednesday.

Senator Angus: I think he said he wants it to be a committee observation.

Senator Meighen: It is our interest to get it into your hands early.

The Chairman: You will circulate the observation?

Senator Lynch-Staunton: We will do that Monday afternoon at the latest.

The Chairman: Monday we will do clause-by-clause. Can we have your understanding that if it takes an extra hour to sit we will do that?

Senator Lynch-Staunton: Certainly. I appreciate your courtesy, honourable senators. We will wrap it up next week.

The committee adjourned.