THE STANDING SENATE COMMITTEE ON SOCIAL AFFAIRS, SCIENCE AND TECHNOLOGY
EVIDENCE
OTTAWA, Wednesday, May 12, 2010
The Standing Senate Committee on Social Affairs, Science and Technology met this day at 4:15 p.m. to study Health Canada’s Proposal to Parliament for User Fees and Service Standards for Human Drugs and Medical Devices Programs, dated April 2010, pursuant to the User Fees Act, S.C. 2004, c. 6, sbs. 4(2).
Senator Kelvin Kenneth Ogilvie (Deputy Chairman) in the chair.
[Translation]
The Deputy Chairman: I would like to welcome you to the Standing Senate Committee on Social Affairs, Science and Technology.
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I will ask each senator to introduce themselves. I will start on my left.
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Senator Champagne: I am Andrée Champagne, from Quebec.
Senator Eaton: I am Nicole Eaton, from Ontario.
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Senator Martin: I am Yonah Martin of British Columbia.
Senator Raine: Nancy Greene Raine from British Columbia.
Senator Seidman: Judith Seidman, Montreal.
Senator Merchant: I am Pana Merchant, and I am from Saskatchewan.
Senator Dyck: Senator Lillian Dyck, also from Saskatchewan.
Senator Cordy: I am Jane Cordy, and I am from Nova Scotia.
The Deputy Chair: I am Kelvin Ogilvie and I will chair today's meeting.
Today, we start our study of Health Canada's proposal to Parliament regarding user fees and service standards for human drugs and medical device programs.
We have three witnesses with us today, led by the Assistant Deputy Minister. I will ask our witnesses to identify themselves, starting with Ms. Ballantyne.
Meena Ballantyne, Assistant Deputy Minister, Health Products and Food Branch, Health Canada: I am Meena Ballantyne, and I am the Assistant Deputy Minister of the Health Products and Food Branch, which is the regulator of all sorts of health products and the food side, as well.
Dr. Supriya Sharma, Director General, Therapeutic Products Directorate, Health Products and Food Branch, Health Canada: I am Dr. Supriya Sharma, the Director General of the Therapeutic Products Directorate. Our directorate has the regulatory responsibility for drugs, pharmaceuticals and medical devices.
[Translation]
Étienne Ouimette, Acting Director, Strategic Horizontal Policy Division, Health Canada: My name is Étienne Ouimette and I am director of the Branch’s cost recovery initiative.
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The Deputy Chair: We will begin hearing from our witnesses. It is my understanding that Ms. Ballantyne will make a presentation. During the answers, she will determine among her colleagues who will focus on the answer.
Ms. Ballantyne: Thank you for the opportunity to provide an overview of Health Canada's proposal to update current user fees charged to industry for regulatory activities related to drugs and medical devices. These user fees are charged to industry as per the User Fees Act of 2004.
As mandated by the Food and Drugs Act, the Health Products and Food Branch of Health Canada is responsible for regulating the safety, efficacy and quality of therapeutic products. To give you an idea of the range of products we regulate, we regulate cancer and cardiovascular drugs; vaccines, such as the H1N1 vaccine approved last fall; and medical devices, which can range from toothbrushes and Q-tips to pacemakers. We regulate a range of products in this branch.
[Translation]
Our regulatory activities include scientific evaluation before products are authorized for sale, monitoring products once available to Canadians and inspections to assess compliance by industry.
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Since the mid-1990s, we have been charging user fees to industry to cover a portion of the costs of our services. Regulators in other countries also charge user fees for similar services. However, the fees to industries have not been updated since they were established over a decade ago, even though the costs have increased.
In today's regulatory environment, Health Canada is dealing with an increased volume and complexity of products. This situation has increased our costs of doing business and placed pressure on our ability to deliver services.
Since 2003, our increased costs have been covered by governments through time-limited funding, pending the modernization of user fees. However, we found in recent years that the absence of a stable and predictable funding base has prevented us from eliminating persistent submission backlogs. This absence results in delayed access to Canadians of safe and effective new therapies. Moreover, the initial 50:50 cost sharing ratio between the government and industry has eroded over the years to a point where taxpayers fund 75 per cent of our activities compared to 25 per cent shared by industry.
Unlike our international counterparts, Canada is the only country that has not kept fees up to date. Revenues from fees cover 100 per cent of the similar costs for regulatory services in Australia and the United Kingdom. Revenues cover 60 per cent to 70 per cent in Europe, and 50 per cent in the United States.
In 2004 and 2006, the Auditor General expressed concern about Health Canada's capacity to protect the health and safety of Canadians under the existing user-fee framework. The user-fee proposal before you addresses these issues. Guided by the process outlined in the 2004 act, this proposal sets out updated fees based on the costs of our regulatory activities. They are linked to performance standards and they are internationally comparable. In addition, the way we use our fees will be reported annually to Parliament to ensure accountability to Canadians.
In preparing this proposal, we consulted extensively with over 5,000 stakeholders from industry as well as health professionals, patients and consumers. We also had recommendations made to us by independent advisory panels.
The updated fees will restore the 50:50 government-to-industry cost-sharing formula by increasing our revenues from $47 million currently to $112 million per year. By retaining these revenues and maintaining our current level of public funding, we will be better positioned to carry out our health and safety mandate within established performance standards.
Modernizing user fees makes sense. It means greater access for Canadians to safe and effective therapies to maintain and improve their health. It means greater predictability for industry in the regulatory process.
Before we take your questions on the proposal, I want to close by squarely addressing a perception that, by charging user fees, Health Canada's decisions will be driven by the fee payers. Nothing could be further from the truth, senators. We work for Canadians and not for drug or medical device companies. The health and safety of Canadians remains, and will continue to be, our top priority at Health Canada. We do not authorize products whose safety efficacy and quality cannot be scientifically substantiated. Our decisions are rigorous and independent, and fees are paid, even if a drug or medical device is not approved.
Our commitment to regulating in the best interests of Canadians is important. We are well respected as a regulator internationally and here at home. Canadians expect and deserve no less.
[Translation]
Thank you once again for the opportunity to present Health Canada’s User Fees Proposal. We welcome any questions this committee may have.
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The Deputy Chair: Thank you very much. We will now begin our questions.
Senator Cordy: Thank you for being here to educate us on the user fee system.
You said that you run a wide gamut; you said Q-tips, for instance. We have information about disinfectants, medical devices and drugs all under the umbrella of user fees that have not been updated in a decade. How do you determine what the fees are; does every organization pay the same fee or does someone selling Q-tips pay less of a fee than someone selling a medical device or drugs?
Ms. Ballantyne: I will invite Mr. Ouimette to answer your question in terms of the fee structure itself.
There is a range of ways to calculate the fee structure. It is based on risk and the amount of time we have to spend in reviewing the products. The activities are costed out based on the amount of time we spend.
Mr. Ouimette: Back when we consulted with the industry, the fees that we consulted on were set according to our costs of doing business. We worked with a contractor to determine those fees. The approach we used was an activity-based costing model. Over a period of one fiscal year, we costed every activity our branch is involved with in regulating the safety and quality of products.
Senator Cordy: Did you calculate the cost of all the activities per category? I am still not clear on this calculation.
Does someone selling Q-tips pay the same fee as someone selling a medical device?
You said it is activity-based. Do you put them all together in a pool and say this is the average, or do you have different categories?
Dr. Sharma: There is such a huge range of products and a huge range of types of submissions. Looking at medical devices as a group might help to provide an example. Looking at all the medical devices, we are talking about hundreds of thousands.
Q-tips, for example, is a Class 1 device. They do not go through a review process, but we have to ensure the place they are manufactured is inspected. There is a fee for that inspection. For a pacemaker, manufacturers have to ensure they are manufacturing their product in an appropriate facility, but also, before they market it, they come in and submit data to us. We conduct a full review of that product.
That is a Class 4 device, which is the highest risk device, and a Q-tip is the lowest risk device. There are also Class 2 devices, and we do not conduct a full review of those devices, but there is a process by which the company comes in and give us an attestation as to the quality of manufacturing of the product as well as additional information. There are also Class 3 devices.
Based on the risk of the product, we have different activities associated with them. Each activity then has a cost. However, fees are definitely risk based. If the product is lower risk, they pay fewer fees in general.
Senator Cordy: Thank you; that was clear.
I received information, and I am sure all committee members received it, from the Canadian Consumer Specialty Products Association. I will read what they sent to me. They support the principle of cost recovery but "we believe the fees should reflect costs associated with that service and not provide a subsidy for other products, unrelated." They are speaking specifically about household and institutional disinfectants.
Can you comment on what they have said? They said it is inappropriate to spread the costs across all regulated products, when low-level disinfectant products are less than 1 per cent of the products. We receive information from people. What do we say to them about it?
Dr. Sharma: Disinfectants belong to a category that places them in the drug category if manufacturers make certain claims. If it is a cleaner or sanitizer, different classifications are based on what is in the product and the claims made. If a disinfectant comes in as a drug, a review happens for those products, and depending on the level of review, it can be something quick or something more in-depth. I will not speak for CCSPA because they can speak for themselves.
Referring to what we call the authority to sell, each company will pay a standard fee on a yearly basis, and we have standardized that fee across a number of product categories. That fee is partly for us to take the submission and make the annual notification and the entries in the database, and that fee is the same for all products. It also covers some activities, should there be an issue that might come up in the post-market environment, and absolutely, disinfectants fall within a category that in general have less complications associated with them, but they are not completely risk free. Issues around sterilization of products have come up.
It is striking the right balance, setting a separate fee for every single category and then bringing them together. To give context, that authority-to-sell fee has gone up, but it has been $720 for the last decade or so. It is moving to approximately $3,000. The scope of that fee in terms of the overall product is still not a large dollar amount although the percentages can be perceived as a big jump.
Senator Cordy: The user-fee panel's recommendations was to keep the authority-to-sell fees at the 1995 levels, but you have not adhered to that recommendation, and I know you have adhered to a number of panel’s recommendations. Was there a reason why you accepted some recommendations but not this specific one?
Ms. Ballantyne: It goes back to what Dr. Sharma said. For every submission we receive, there is some work involved. Some sort of review takes place, and all of these products have some kind of risk. They might be low risk but they are not risk-free, so there is work we have to do. We felt that this fee may be a big percentage increase, but if we look at it in the context of the last 10 to 15 years when it was approximately $700, it warrants a flat fee structure. We make sure we allow access to the market of some product that is safe, and we are able to monitor any kind of adverse reactions that occur.
For example, in disinfectants last fall with the H1N1 vaccine, we had issues with some products that we had to look at and monitor adverse reactions. There is always work, and we cannot predict what will happen in a year, so the post-market surveillance has to continue. We felt that instead of figuring out differences in the various products, we would go toward a flat-fee structure and that would be acceptable. We recognize that the panel said not to do that, to maintain the same structure of fees, but we felt it was time to modernize and go toward this regime.
Senator Cordy: Who would have thought hand sanitizers would be this popular?
Senator Merchant: My questions were almost identical to Senator Cordy's, so I will not go to the flat-fee rationale since you explained it.
Your presentation gave us the impression that what we do here in Canada is similar to what was done in the major European countries and Australia, and our fees are the same, the percentages that we charge.
Ms. Ballantyne: In terms of the overall picture, as I said in the remarks, the U.K. and Australia charge 100 per cent. Industry pays 100 per cent; government does not pay anything. In Europe, it is 60 per cent to 70 per cent, and the United States is going through another review of their user fees act, and it is about 50 per cent.
It is hard to make international comparisons of the way they calculate because of legislative structures, regulatory structures and what activities they put under which costs, so it is hard to say. In some cases we are lower than the U.S. and some of the other countries, and in other cases we are a little bit higher. However, overall we are comparable, and all of us are using the same international performance standards, so everyone adheres to the same standards. Industry pays the same sort of fees in other countries as they would in Canada under this new proposal.
Senator Eaton: Are natural health products or veterinarian products included in your mandate?
Ms. Ballantyne: No, they are not. This proposal is only for human drugs and devices. This proposal does not add any new fees. The fees are the same fees we were charging in 1995, and we have updated them to reflect the current costs of doing business.
In natural health products and vet drugs, we have been working on the backlog reduction, which we have had for a while and continue to have in the natural health products side. In vet drugs, we cleared the backlog at March 31, 2009, and we have set performance targets now to ensure we review the vet drugs according to international comparable timelines. As part of this proposal, we felt our major cost drivers were the human drugs and medical devices so this proposal updates only those existing fees to reflect the current cost of doing business.
Mr. Ouimette reminded me about our mandate. Is that your question or the proposal itself?
Senator Eaton: Were they included in the proposal and are they part of your mandate?
Ms. Ballantyne: They are definitely part of our mandate, so we regulate natural health products and veterinary drugs as well. They are not part of this proposal. This proposal looks only at human drugs and medical devices.
Senator Eaton: Will we see you again next year coming before us for the same restructuring of vet and homeopathic products?
Ms. Ballantyne: That is something we will have to assess. Part of this proposal is that we should not wait another 10 years or 15 years before we update the fees. As we clear the backlogs and meet performance standards, we will look at the ratio of government to industry. For Canadians, in terms of health and safety, timely access to these products is important.
Senator Eaton: I agree completely. Thank you very much.
Senator Martin: Looking at the thickness of these documents, it is evident that you have done extensive work on this proposal. You mentioned that your consultations involved about 5,000 stakeholders. We have heard in other committee sessions from witnesses that appear before us — stakeholders that may not have had a chance to be at the table — about the question of adequate consultation. Can you expand on the consultative process undertaken? I imagine it was extensive but can you give us more in-depth information?
Ms. Ballantyne: Yes, absolutely: The first step in the cost-recovery proposal was to cost it out. As Mr. Ouimette said, we costed out the proposal with external consultants. Then we took that proposal and put it on the web and invited comments. We also went to a number of face-to-face meetings across Canada with a number of folks. We have the list; we can provide you with a complete list of who was consulted when, even as recently as preparing this proposal to Parliament, so we have all that information.
We had the intense consultations in 2007-08. As part of the User Fees Act, the stakeholders were invited to submit complaints — that is what they call them — issues they feel are important. We have had a number of issues. The complaints have come in and we have the numbers.
We then convened an independent advisory panel for human drugs and for medical devices. The three-part panel included one member from industry and one member from government who collectively chose a chair. We went through the proposal, and the panel made recommendations. We reviewed those recommendations and made our decisions, such as the one on disinfectant that we talked about earlier. The proposal was ready but we were not able to share it until we were ready to bring this proposal forward for consideration by this committee as part of the parliamentary process.
I invite Mr. Ouimette to give you details about who was consulted at the time, if that will be helpful.
Senator Martin: Thank you.
Mr. Ouimette: As Ms. Ballantyne said, this process started in 2007. By way of background, we reached about 5,000 stakeholders. We developed a consultation document and through consultation activities, such as face-to-face meetings or surveys, we requested and received comments in the documents. The User Fees Act requires that an official notice be published as a result of the consultation. In July 2007, as a result of the extensive consultation, Health Canada published an official notice of fee proposal. The User Fees Act is clear such that at that point in the process, if there are complaints about the official notice, independent advisory panels should be established to hear complainants and address them through recommendations to Health Canada and provide options to Health Canada as to how to address these complaints.
Our official notice received complaints about both human drugs and medical devices. While we disagree on the recommendation about the authority-to-sell fee, we agree with most other recommendations. We had to go through each recommendation and assess its feasibility from a financial and policy perspective. We received the report of the panel at the beginning of 2008, after which we started the development of a parliamentary proposal.
Senator Martin: You answered my second question as well about the period beyond the initial consultation and whether stakeholders were able to give continuous feedback throughout the rest of the process. Hearing complaints and addressing them was an effective approach.
Mr. Ouimette: The Health Products and Food Branch is definitely involved in ongoing discussions not only with the industry that we regulate but also with patients and consumer groups. We are involved in regular meetings to provide updates on our cost recovery proposal and our user-fee proposal. When we came closer to knowing that our user-fee proposal would be tabled, we engaged more actively in providing updates to our consultees — the companies that pay the fees. This proposal is solely about updating current fees. We have been pro-active in providing information and have been transparent since then.
[Translation]
Senator Champagne: I do not think that anyone would challenge the usefulness of the work you do. I would even go so far as to say it is essential. In your presentation, you raised an issue that is a recurring theme. It takes a long time to get new drugs approved in Canada. In you presentation you say the following:
[English]
It placed " pressure on our ability to deliver services" and it "prevented us from eliminating from persistent submission backlogs."
[Translation]
Therefore, the length of the certification process for a drug, surgical device and the like is problematic. Are the delays and long processing times due to a lack of money?
Mr. Ouimette: I will have first crack at answering that question and then will ask Ms. Sharma to fill in the details. The reality is that our regulatory activities cover areas such as the review of drugs and medical devices. This all requires money. A significant portion of our budget is allocated to experts who review these submissions. One of the main reasons is that fees have not been updated. The current drug-fee level dates back fifteen years to 1995 when fees were first implemented. While our fees have not been adjusted, the cost of our activities has risen. This increase has not necessarily been due to inflation but also to volume of submissions and inspections as well as the complexity of products we have been dealing with since the 1990s. Ms. Sharma is in a better position to provide more details.
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Dr. Sharma: Often, the binders of data for one new drug submission or one new medical device would fill this room. That is why it takes such a length of time. Depending on the product, it can take a different amount of time.
As Mr. Ouimette said, we are based on people being able to evaluate the safety, how the product works and the quality of the product. At times, we see an increased number of products coming in. Over the past few years, we have seen a 57-per-cent increase in the numbers of submissions for new drugs, a 143-per-cent increase in submissions for generics and a 30-per-cent increase in submissions for medical devices. Including all the other things that come along and the additional information requests, the total increase has been 93 per cent. On volume alone, we have seen many more and, because we shoulder a higher percentage of that volume than other jurisdictions, we feel it.
As well, the complexities are changing. It is safe to say that the submissions for products coming through a number of years ago were smaller. Today, we see studies on different populations, more geriatric studies, more paediatric studies and more studies on pregnant women. We also see new types of cardiac studies. Internationally, one new cardiac study requires certain kinds of products.
The work that we are doing costs more because it is more intense, while we maintain the same standards in terms of protecting the health and safety of Canadians. It is a resource issue for us because of the salaries and the work required to perform the reviews.
[Translation]
Senator Champagne: You have hit on a key term for someone from Quebec. You mentioned the difference between patented and generic drugs. As you will be aware, there is a huge battle going on between the two in Quebec. Generic drugs are supposed to be equivalent to patented drugs once the latter’s patent has expired. Do you have to go through the process again in cases where there is a difference between the generic and the previously patented drug? Are there any times where the process would have to be repeated?
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Dr. Sharma: For a new drug submission, it usually takes from 15 to 20 years, depending on the development, from the time it is a molecule, until it goes through all the lab testing, animal testing and human testing.
The information we see for that product to go on the market is much like what I showed you. If it is a generic product, it goes through a different pathway.
A company that wants to sell the generic product does not have to conduct all those studies all over again, but it does have to show that the drug it wants to manufacture is basically the same as another drug; that it contains the same active ingredient, the same basic medication and, if someone uses it in the body, that it performs in the same way. That is called bio-availability.
That pathway is about two years in length, but the submission is different, the test we ask them to go through is different and there is a different set of use fees because the type of submission and review is different, as well.
[Translation]
Senator Champagne: I could see why the process would be long in the case of drugs available in the United States or elsewhere but not yet on sale in Canada. In order to avoid having to hike fees significantly from $700 to $3,000, fees need to be updated on a more regular basis. If certification costs are higher, manufacturers will increase the price of their drugs. People will think that it is due to a lack of investment by Government. Anyway you cut it, the Government cannot win. I get what you are saying. You have explained it very well. However, hiking fees from $700 to $3,000 will raise a lot of eyebrows, will it not? I am not denying that an increase is not required but it will undoubtedly come as a surprise to many people.
Mr. Ouimette: I totally agree with you. This will undoubtedly be the reaction despite the fact that fees have remained unchanged for fifteen years. The fact of the matter is that companies have been paying out-of-date fees for all that time while other jurisdictions have automatically adjusted fees on an annual basis. Companies expect annual fee hikes in other jurisdictions. However, these annual increases are a lot less than what we are advocating.
Fees came into force in 1995. A review in 2000 recommended that fees be updated. Great pains were taken to ensure the hike was warranted. The enactment of the User Fees Act in 2004 created a formal fee-update process. We were required to comply with the process. There are reasons for the current situation but at the same time we should have done better.
Senator Champagne: I realize that this increase is necessary but allow me as a layperson to give you a piece of advice on this issue. Do not wait ten years and until there is a huge disparity to increase the fees.
[English]
Senator Raine: This is fascinating. I am curious to know why you chose to set your fees at a level intended to return approximately 50 per cent of the cost recovery, when Australia and the U.K., for instance, aim for 100 per cent. How did you determine that fee percentage?
Ms. Ballantyne: It is an issue about public good and private benefit. According to any user fee act anywhere in the world, it is about trying to find that right balance of what gives that value of public good as well as what equates with private benefit.
We could have gone for 100 per cent. However, in 1995, when the user fees came into place, we, as a country, decided the right proportion in this country was the 50:50 ratio. We felt that balance is the right way to go.
For the public good, Canadians can have timely access to safe products. Instead of waiting for four years for that same product in Canada, we want to ensure the performance standards hold us to timely access. Safety comes first and speed will come second. Canadians can be assured of that.
By the same token, industry is interested in predictability, because industry wants to provide the same product access to Canadians and also have the market share. It is a private benefit that industry also receives through the market access and market share. For this country, 50:50 was chosen in the past to strike the right balance.
This proposal is before you and subject to the will of Parliament. It is up to your consideration to say what the right balance should be in this country.
Senator Raine: I am curious because I am sure, from the companies' point of view, they are happy that they are not paying 100 per cent. We might be criticized for not charging what they obviously are willing to pay in the U.K. and Australia.
Ms. Ballantyne: You are absolutely right, and I am sure you will hear from them tomorrow. However, given the public good and benefit that we derive, we felt that this percentage is the right proportion of government to industry ratio for Canada.
It has worked for the last 15 years. We are only updating it and trying to maintain the same access. However, it is entirely up to you to decide, as part of the parliamentary review process.
Senator Raine: Do you feel this level will raise enough money to allow Health Canada to do the job efficiently and to do it well?
Ms. Ballantyne: Yes, as long as we do not wait another 10 to 15 years, and we ensure that these percentages do not erode over time to where we have come to, which is 25:75. As long as we can do that, we feel this proposal is a rigorous one, as you have noted; it has gone through consultations and we have stuck to the spirit and letter of the law in terms of the User Fees Act. We proposed this percentage to be the right balance for Canada, and we will see what happens when we move forward.
Senator Raine: Is there a proposal in the fee structure for an indexing and a regular adjustment?
Ms. Ballantyne: Yes, we have asked for an annual adjustment of 2 per cent, which is the rate of inflation and nothing more. That adjustment is to prevent us from eroding over time.
I point out, senators, that this parliamentary proposal talks about the 50:50 ratio. After your review of this proposal, the next step is for us to go to Treasury Board and ask if we can retain the money that will be generated by this proposal. That is government policy, and Treasury Board ministers will decide whether they will retain it.
When we increase user fees and increase contributions by the industry, government could claw back the government appropriation, which means we would be in the same place we are now. We are proposing, and we have stated, that we retain this 50:50 balance, which means governments cannot decrease their levels of funding because industry has increased theirs.
That is the important next step in this proposal. Once your review is complete, we will go to the Treasury Board ministers and make the compelling case as to why we need to keep those monies. As we said, this process is all about people. We do not provide grants or contributions. We need people to review these products and we are trying to do things as efficiently as possible. We are trying to generate efficiencies in a number of ways, but efficiencies cannot make up for the actual resource shortfall.
Senator Seidman: We all understand how critical Health Canada's role is in protecting and promoting the health and safety of Canadians, especially as it relates to the development of new drugs and medical devices.
We also understand how critical innovation and research and development are to the future of medical treatment. Can you tell us what measures you are taking to ensure that small research and development companies, for example of medical devices, will not be at a disadvantage, given these increases in fees and these increases will not discourage or be disincentive for such research and development?
Ms. Ballantyne: I will invite Mr. Ouimette to talk to you about the specific mitigation measures, but this proposal took into consideration the fact that some companies will not be able to pay this fee, particularly at the beginning of their cycle, so we have mitigating measures in place. We have reduced the amount, I think we have about $23 million of mitigating measures, for companies who cannot meet these fees, and the companies are particularly in the medical devices sector as well. We are not going by the size of the company but rather by the volume of sales. The company can be small but have a large volume of sales.
Mr. Ouimette can provide more detail on what the specific mitigating measures are.
Mr. Ouimette: As Ms. Ballantyne pointed out, we have a series of fee reduction measures that, as stated, will result in about $23 million worth of money that the branch will not receive in fees from companies. However, we can anticipate this reduction and have anticipated it in our user fee proposal, and we have established the fact that we will be able to meet the performance standards.
Fee reduction measures are usually linked to the products per se based on the volume of sale. It is not because the company is small that the company will not make a profit. That is our rationale. Profit is linked to the sale of that particular product. If a company has 10 products with low sales volumes for each, it can apply 10 times. It can apply for fee reduction for each of its products. There are also fee mitigation strategies for start-up companies. A company within its first fiscal year does not have to pay some of the fees and can have a delayed payment of those fees.
In terms of innovation, with some of our regulatory activities we have clearly decided not to proceed with collecting user fees so as not to affect innovation, such as clinical trials. In any of our activities that relate to clinical trials, such as applications for clinical trials or inspection of sites conducting clinical trials, we will not proceed with fees so as not to impede innovation.
Dr. Sharma: To add a piece on the medical devices sector, according to Industry Canada, when we look at R&D costs for medical devices, Canada has the lowest R&D costs of any country in the G7, so it is a favourable climate to work in. We have a small and vibrant medical devices industry with sales of over $7 billion, and it is actually a trade deficit situation. They are manufacturing and shipping. There is an innovation component; absolutely we have that context, but we still have to perform our reviews. We are trying to finding that balance, and then we have the mitigation measures Mr. Ouimette has gone through.
Senator Seidman: Thank you; balance is important and I am reassured.
Senator Dyck: Thank you for your presentations. I was looking through the material at the different fees proposed, and the really big fees relate to new active substances under the drug categories. You said that you do not apply user fees towards clinical trials. With the high fees associated with approving new active substances, what types of activities are you undertaking? Are they lab based or do you review what the company has done to show that its new drug is safe and effective?
Dr. Sharma: For the new active substances, to give the context, the fee proposed is about $300,000 for the review of the entire submission. If that same submission went to the U.S. Food and Drug Administration, the user fee would be over $1 million, to give context in terms of the review.
We look at information submitted by the manufacturer to support their marketing. They give us the lab studies, the preclinical toxicology studies they conduct, all the studies they have conducted in animals as well, and then the clinical trials held, whether the outcome is positive or negative on that study. We focus on two pivotal trials, the two largest trials often that support the use of the product. Data is submitted by the company, and then we review it and ask a number of questions for clarification and for additional information.
As a result of all of that research, we look at the labelling. We decide what the product will be used for, under what conditions, how it will be labelled, et cetera. Again, we look at three main components of safety in terms of the risk side; efficacy, that it does what it is supposed to do; and quality, which is how the product is manufactured. That whole separate section of the submission is in terms of how it is manufactured and all the facilities that go into producing the product.
Senator Dyck: My second question is with regard to manufacturing. Does the new active substance have to be manufactured within Canada or can it be manufactured in the United States, Germany or wherever?
Dr. Sharma: It can be manufactured in a variety of different places, and the way global manufacturing is going in many places means part of it, the bulk product, may be manufactured in one place and transported to another place to be finished. All these user fees will govern anything sold in Canada; the product can come from other places and we do see that.
Senator Dyck: If our user fees are lower here for a new drug than in the United States, does that lower fee benefit Canadians in terms of more drugs available to Canadians, or is it likely that there may be a larger variety of drugs available in Canada?
Dr. Sharma: It is part of a complex picture of decisions that a company must make to bring a product to market. Part of the other situation in Canada is we are approximately 3 per cent of the global market. When we review a product and it is for sale in Canada, it is available to the population. In the United States, with 10 times the population, the market is different.
When we went through times where we were not able to meet performance standards, that situation was a disincentive for companies coming in because there was no predictability of the process and there might be delays. During a period of time when we met performance standards, we saw companies' submissions coming in at around the same time they were submitting to other countries as well, which meant more timely access for Canadians.
Senator Dyck: With regard to the user fee in new drugs, do you see raising the user fee to 100 per cent, as Senator Raine suggested — getting back more — as a disincentive by industry to produce a drug here in Canada?
Dr. Sharma: If we look at a new drug, for example, and we look at the 20-year development program — and on average the statistics will say investment is over $1 billion for each drug that comes to market — I am not sure how much a user fee in Canada will affect that development. It is a drop in the bucket in terms of the overall development kind of fees. As I said, many factors are involved in a company's decision to bring something to market and to bring it to market in Canada.
Mr. Ouimette: I have a point of clarification in terms of the cost-sharing ratio, especially in the case of drug submissions. When we say that the user fee proposal and the updated fees will bring the cost ratio back to 50-50, it is based on the money the branch will receive from those fees. This money accounts for the fact that companies will request fee reductions, and I talked about the $23 million. It accounts for those fee reductions.
The fees in this proposal will not necessarily cover 50 per cent of our costs. For drug submissions, they might cover about 75 per cent. I believe this is the case for a new drug submission. However, because of the fee reduction and the revenues received by the branch, cost-sharing is 50-50 given that we are accounting for $23 million not coming in because of fee reduction.
Ms. Ballantyne: If I may add to your point, it also depends on whether we perform the lab testing. We also regulate vaccines, which are covered by this proposal. Because vaccines are given to healthy individuals, we perform some of the testing ourselves. For example, in the H1N1 vaccine, the manufacturer GlaxoSmithKline was conducting the testing, but we tested each lot before it went out to the provinces and territories. Dr. Elwyn Griffiths is also here today to answer specific questions on this vaccine. Last fall, we went into backlog on the biological side because we spent so much time and effort on ensuring that the approval process and the rollout of the campaign went smoothly and safely. With vaccines, we often have lot releases, which is our testing as well.
Even now, as part of the post-market surveillance, we are monitoring the vaccine. You might have heard about the shelf life of the vaccine changing. That is because we asked for testing to be conducted by GSK. We continued to perform our own testing, matched the results and found that the vaccine was going down, which normally happens, after which it stabilizes. We needed to dialogue with GSK about the results. We perform that testing because it is a critical area.
Senator Eaton: Can you explain for the record something that Senator Cordy raised? With all the submissions you receive, from Q-tips to floor polish, sanitizers, heart medications, heart devices and medical devices of all kinds, are the submissions grouped according to risk?
Ms. Ballantyne: Yes.
Senator Eaton: I will pick up on a question about the sanitizer. That product falls into one group and medical devices are in another group. Depending on the sophistication of the drug or the medical device, they are all classified, which determines the risk, the time it takes and the tracking needed. Therefore, no group subsidizes another group. Is that right?
Dr. Sharma: Yes.
Ms. Ballantyne: That is fair to say. We are organized such that our scientists are grouped according to their specific expertise. Some are from an academic background, some are physicians, some are toxicologists and others are biologists. For example, Dr. Sharma looks after cancer drugs, others look after gastroenterology and others look after disinfectants and medical devices separately. Within those groups, we divide them based on risk for our review. Disinfectants will not have a big group of people looking after the same products. The volume is different and the risks are different. To be clear in terms of one part subsidizing the other, you can look at it that way but we look at it exactly the way that you articulated.
Senator Cordy: You have been most helpful this afternoon. If we implement the user fees, in some cases they will increase substantially, and I am not arguing for or against that increase. In the published data, the current fee is $2200 and it could increase to $17,000. To change a drug from prescription to non-prescription or over-the-counter could go from $17,000 to $41,000.
I want to know that the additional resources being brought in will be used well. You made me a little nervous when you said that you will have discussions with the government to ensure that their contribution to the Department of Health will not drop significantly. Will you hire more staff to expedite the evaluations and reviews to assess the benefits and risks before they are made available to Canadians?
If I am a company and my user fees increase substantially, I want to feel that I am receiving a benefit from that increase. If I submit a drug, a medical device or a hand sanitizer, I expect that my services from the Department of Health will also increase to the same level.
When you talked about discussing user fees with the department, it made me nervous. Can you expand on that part, please?
Ms. Ballantyne: Under the User Fees Act, the money that we receive has to be spent on the services provided, and we have to report on this expenditure annually. There is no question that the money from user fees will be spent on those services.
Discussions with the government are simply Government of Canada policy. The Treasury Board ministers discuss this and any user fee proposal. Currently, any such proposal has to go through the parliamentary review process and then through the Treasury Board process, which is where we make the case with parliamentary approval and support. It enhances our case to say that we have a program integrity issue in this branch where we need resources and we need to retain the revenues.
That is not under our control because it is government policy. We have to take this step in the process and we will do our best in terms of making the most compelling argument. Then, it is the prerogative of the Government of Canada to make the decision about whether we keep the money. If we are not able to keep the money, then we will be in a tough spot, which is where we are today, in terms of our increasing backlogs and not being able to meet the international performance standards. That situation ultimately means that Canadians are denied access to some of these needed therapies. If it were up to us, we would definitely ensure that we could retain the money. I invite Mr. Ouimette to add clarification.
Mr. Ouimette: We were also nervous about appearing before this committee before knowing whether we were able to keep the money. To be technically correct, we will need the authority of Treasury Board to collect additional revenues.
The concern is more about our public funding. To be fair to Treasury Board and their policy about departments that increase their fees not necessarily keeping the money, it makes sense. The government needs to be sure that a department will not collect more money for the sake of collecting money. They want to see a business case providing the rationale for a department to keep the money.
We are nervous, but we spent the last 18 months working with central agencies and with the Treasury Board Secretariat. We told our story; provided information to make sure that we had a good story line. We believe we have that, but we have to follow due process, which is to seek the views of parliamentarians before proceeding to Treasury Board. We have done our homework.
Senator Cordy: You have been open and I appreciate that. I understand that the money you bring in from fees has to be used and reported annually. That is good common sense because everything should be open and accountable. I hope that if the fees increase substantially, it will not mean the government pulling back their current level of funding. I hope that companies that will pay substantially increased fees will receive enhanced services for their money. Thank you very much for your openness.
Senator Raine: If there is off-label use of a pharmaceutical drug in Canada, is that use somehow reported and does that drug then come back for review again for the off-label use of the pharmaceutical?
Ms. Ballantyne: Off-label use is a practice of medicine. We regulate a drug for a specific purpose. We will say it is used in this population in this way at this dosage, or whatever the case is. Then physicians and other health care professionals use it and they decide — based on whatever other information they have — if they will prescribe it for some other purpose for which it is not intended. That use comes under the practice of medicine, which is regulated by the provinces and territories. We do not have anything to do with that use.
However, we also collect adverse reactions reporting, so when the drug is out in the real world in terms of how is it playing out. Are there significant, serious issues coming up that require hospitalization? It is called post-market surveillance activities.
We gather information from actual usage, and that information sometimes leads us to send out guidance or, as a regulator, use whatever moral suasion, whatever public urging, to say these drugs should be used for their recommended purpose and try to get at the practice that way.
We talk with the provinces and territories to find out why the drug is being used off label and what the issues are around it, but we cannot regulate it. I will invite Dr. Sharma to add more.
Dr. Sharma: As Ms. Ballantyne said, when we look at a submission we receive all this information and then we label it. The labelling reflects the information that we have seen, and the label will talk about how to use the product and the potential side effects. If something happened around off-label use that was negative — that was a risk — it can be reflected in the label.
For example, if we see off-label use of a product and it is not for a certain type of disease and we are seeing adverse events coming in, we may then label that product not to be used in that population.
Conversely, there are situations where there is off-label use for products and that information can be gathered and supported by additional data, clinical trial or other information. That submission comes in to us, and we say, based on this use we think it is a good thing and we think it should be labelled as such.
Unless the submission comes in, and it is related to how the product is used, it is practice of medicine. However, we will step in if there is a safety issue in that off-label use that warrants regulatory action.
Senator Raine: You are regulating a certain use of a product, and if the product is used by the medical field for other uses, there is no obligation on Health Canada to blow the whistle, to do anything or to say, we want to recall and test the product for the other uses?
Dr. Sharma: That is the choice of the individual practitioner, based on the patient he or she has in front of them. If a safety issue came up as a result of that use, then we would step in.
Senator Raine: I think Viagra, if I am not mistaken, started being used as an off-label product.
Dr. Sharma: The vast majority of medications used in children are used off label first before they have an approved indication as well. There are different types of off-label use as well.
The Deputy Chair: In going through your documentation, one thing that impressed me was that the summary documents you prepared, in my opinion, very well reflected the depth of the study that you had conducted.
I realize that whenever there is an attempt to increase the cost to anyone, no one jumps up and volunteers to pay more, but I think we have to recognize that in the issue of regulation in these materials, it is not only an issue of safety to the consumer — which of course is the end importance — but the time it takes for you to deal with these materials affects the competitive position of industry.
With regard to the ongoing issues of the time it takes for products to be approved, which you referred to clearly in the documentation, and we know that not all of your industry clients are happy with the speed of the process, my guess is you have considerable support for the idea that you need the resources to perform the reviews in a timely fashion.
Again, I felt, from my reading of the documents, that you were able to fairly reflect, even in the summary document, the fact that there were criticisms of the idea of raising some of the fees. I have some understanding of this area and I know how important it is, both to the industry and ultimately to the protection of the Canadian consumer.
On behalf of the committee, I want to thank you for the frankness with which you have answered the questions — at least it appears to be frank. We will probably find out tomorrow whether that interpretation is correct. Nevertheless, I thank you, on behalf of the committee, for appearing before us today.
(The committee adjourned.)