EU trade deal could cost Canadian drug plans billions

Provisions in a new trade deal being negotiated between Canada and the European Union could add about $2.8-billion a year in costs to Canadian drug plans if implemented, a new report warns.

The estimate includes $1.3-billion more for public drug plans and $1.5-billion for private drug plans.

“This will create a huge hole in provincial budgets in particular,” Aidan Hollis, a professor of economics at the University of Calgary and co-author of the report, said in an interview.

Ontario alone could see drug costs jump $500-million, Quebec $412-million and B.C. $101-million annually, according to the new analysis.

Drugs, both prescription and over the counter, accounted for $31-billion of the $192-billion in health spending in 2010. Drugs have been the fastest-growing component of health-care spending for a number of years and the provinces have responded with a number of measures including tightening up drug formularies and sharply reducing the price they would pay for generic drugs.

Generics account for 54 per cent of prescription drugs and brand-name drugs 46 per cent.

In the negotiations, the Europeans have asked for three substantial changes in the laws and regulations that govern intellectual property protection related to brand-name drugs:

Extending the term of patent protection by up to five years if drugs are stuck in the regulatory approval process;Lengthening the period of data exclusivity, which prevents generic companies from using data from clinical trials to create similar drugs, from eight years to 10 years or more; andStrengthening notice of compliance regulations, which ensure that generic companies are respecting patents, by adding an appeals process.

“The reasonable inference is that these changes are designed to allow innovating pharmaceutical firms to charge monopoly prices for a longer period,” Prof. Hollis said.

In other words, they are designed to delay the arrival of copycat generic drugs on the market and, in turn, encourage brand-name companies to invest more in research and development.

According to the report, the proposed provisions would delay the arrival of generic drugs on the Canadian market by an average of 3.5 years. Some blockbuster drugs are set to come off patent, which is why the impact would be in the billions.

Generics cost roughly 25 to 50 per cent of the equivalent brand-name drug.

Intellectual property laws are extremely complex but, in brief, brand-name drugs have a 20-year patent in Canada; in the real world, that translates to about nine years of exclusivity on the market before generic companies can produce similar drugs. Virtually every drug goes through a lengthy legal battle before a generic actually hits the market.

Brand-name drugs are one of the leading exports from the EU to Canada. In 2009, Canada imported $5.3-billion in pharmaceutical products from the EU and exported $1.3-billion to European countries.

The 69-page report, entitled “The Canada-European Union Comprehensive Economic & Trade Agreement: An Economic Impact Assessment of Proposed Pharmaceutical Intellectual Property Provisions,” was commissioned by the Canadian Generic Pharmaceutical Association. It will be released Monday in Ottawa.

Prof. Hollis and his co-author, Paul Grootendorst of the University of Toronto’s Faculty of Pharmacy, stressed that while the paper is commissioned, it is not designed to promote the point-of-view of generic manufacturers.

Prof. Hollis said their role was simply to examine the potential economic impact of the trade provisions and they do not take a position on whether the provisions are good or bad.

The Canadian Chamber of Commerce, for its part, strongly backs the new provisions, saying Canada risks losing out on the next wave of lucrative pharmaceutical investment and jobs unless it matches tougher patent protection for drug makers in the U.S. and Europe.

“The world has continued to move on. We haven’t,” said Chamber president Perrin Beatty.

The new report, however, calculates that the EU proposals would cost Canadians $2.8-billion extra for prescription drugs annually, but generate only $345-million of additional investment in pharmaceutical research and development in Canada.

“If the goal is to increase R&D, you have to wonder if extending exclusivity is the way to do it,” Prof. Hollis said.

Negotiations toward a Canada-EU trade agreement – which is designed to reduce tariffs and trade restrictions in a variety of sectors – have been under way since 2009. International Trade Minister Peter Van Loan has said he hopes to conclude a deal by the end of 2011.

The negotiating positions of each side are supposed to be confidential but the EU position on pharmaceutical-related provisions was leaked and has circulated broadly. It is not clear if Canada has made a counter-proposal.

Canadian spent $25.4-billion on prescription drugs in 2009, the most recent year for which detailed figures are available. That includes $14-billion in private spending and $11.4-billion in public spending, according to the Canadian Institute for Health Information.

Russell Williams, president of Rx & D, the organization that represents brand-name drug companies, said he could not comment on the specifics of the new report but insisted that updating Canada’s intellectual property regime – as is being proposed in the new pact – is essential.

“If we want to attract innovation dollars and the good jobs that come along with them, we need a globally competitive regime and we don’t have one now,” he said.

Mr. Williams also said he found it a bit hypocritical that generic manufacturers seem so concerned about drug costs when “we’ve been overpaying for generics for the past 20 years.” (Canada had, until recently, some of the highest generic prices in the world.)

He also noted that “without R&D, without innovative drugs, there will be nothing for generics to copy.”

PROPOSED PLAN'S IMPACT

Under the provisions of an EU trade deal, Canada's annual drug-plan cost increases would be:

Alberta: $211.5-million

British Columbia: $249.1-million

Manitoba: $79.8-million

New Brunswick: $52.2-million

Newfoundland: $46.4-million

Northwest Territories: $2.6-million

Nova Scotia: $95.0-million

Nunavut: $1.7-million

Ontario: $1.2-billion

Prince Edward Island: $10.4-million

Quebec: $772.6-million

Saskatchewan: $72.3-million

Yukon: $1.9-million

Total: $2.8-billion

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PM defends trade talks with Ukraine despite Kiev’s strong-arm tactics

Stephen Harper arrived Sunday to a Ukraine of diminishing freedoms and rising strong-arm tactics. And yet the Canadian government is working to sign a free-trade deal with the regime.

The Prime Minister landed in Kiev from the meeting in Switzerland of La Francophonie, the 70 nations with links to the French language and culture. That group’s final communiqué stressed the importance of protecting human rights and the rule of law no fewer than three times, even though many of its governments are either undemocratic or corrupt or both.

How does this Conservative government square the contradiction of seeking business deals with countries whose governments exhibit varying degrees of unsavouryness, while taking a principled stand on human rights?

The answer, according to the Prime Minister, is to deny the contradiction exists.

The question assumes “that there is an inherent tension between these two issues, between wanting to do business and raising issues of human rights and the rule of law,” he told a reporter Sunday when asked how he juggled the two subjects in conversations with leaders.

“And I will not deny that sometimes there is tension. But in fact these go hand in hand.”

That tension may enter the room when Mr. Harper meets with Ukrainian President Viktor Yanukovych, whose government has tightened its grip since its election in February – even as negotiations proceed on a trade agreement with Canada. An early sign of an agreement is the deal to be signed this week that allows young people to work, study and travel more easily between both countries.

On the first leg of his European trip, the most tangible product of Mr. Harper’s time at La Francophonie was announcing a new $43-million commitment to aid for francophone African countries. But that organization has a reputation for glossing over questions of rights and freedoms simply because there is little of either in so many member countries. Switzerland volunteered to play host to the this year’s gathering of La Francophonie after a last-minute coup in Madagascar, the original host, forced a change of venue.

The next gathering, in 2012, is to be held in Kinshasa, in the Democratic Republic of Congo, a desperately poor nation that is emerging uncertainly from a civil war that, at its height, was killing 45,000 people a month.

Thirty of the 70 member states are designated either Not Free or only Partly Free by the human-rights watchdog Freedom House.

Yet Africa is increasingly attracting investment, with growth rates well above that of the developed world. And Ukraine is also doing better this year, thanks in part to the relative calm that Mr. Yanukovych has imposed on the tumultuous state.

That calm has been imposed by cracking down on freedom of the press and blatantly trying to undermine opposition parties.

Reporters Without Borders, a Paris-based organization that monitors press freedom around the world, downgraded Ukraine in its latest annual ranking from 89th to 131st.

Mr. Harper, whose government is still smarting from the unexpected failure on Oct. 12 to win a seat on the UN Security Council, maintains that he has no difficulty having free and frank exchanges with leaders who don’t like to hear hard truths.

“We raise [human rights issues] frankly with them,” he said. “I tend by nature to be fairly direct and that’s what I am in these conversations.”

Mr. Harper is scheduled to meet with Mr. Yanukovych, but he has also arranged to meet with rival politician Yulia Tymoshenko during his two-day visit.

In a twist on the human-rights-or-business dichotomy, the Prime Minister said he talked about human rights with world leaders in countries where they were lacking because without them, Canadian businesses wouldn’t be able to thrive.

Mr. Harper’s argument is simple: impartial courts, freedom of the press and dignity of the person are good for both parties in a contract.

“Canadian companies … need rule of law and human rights,” he said. “Where those things are problematic they create severe problems for Canadian business.”

Companies, he argued, need reliable and enforceable laws to conduct business, and worry about the impact of consorting with oppressive regimes on “their own self-image.”

Of course, Canadian businesses have been operating in countries with unpleasant regimes for many a year. Each prime minister has balanced the two sides of the rights-versus-business conversation his own way. Mr. Harper started out emphatically emphasizing rights, only to learn to his sorrow that countries like China do not like to be lectured to or to be cold-shouldered.

The dichotomy will become increasingly difficult as the century evolves – and as waning democracies court and confront rising powers.

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