The 2011 Canada-European Union Comprehensive Economic and Trade Agreement: an economic impact assessment of the EU’s proposed pharmaceutical intellectual property provisions
Restricted accessResearch articleFirst published online April, 2011
The 2011 Canada-European Union Comprehensive Economic and Trade Agreement: an economic impact assessment of the EU’s proposed pharmaceutical intellectual property provisions
Canada and the European Union (EU) are currently negotiating a comprehensive economic and trade agreement. This study examines how the proposed EU language in the draft negotiating text would affect the pharmaceutical market in Canada. Our key finding is that the EU proposals will considerably lengthen the period of exclusivity for innovative drugs in Canada, so that Canada would have the most extensive structural protection of innovative drugs of any country in the world. Payers – consumers, businesses, unions, and government insurers – would face substantially higher drug costs as exclusivity is extended on top-selling prescription drugs, with the annual increase in costs likely to be about $2.8 billion per year. The EU proposals would lead to an average extension of pharmaceutical exclusivity likely to be over 2 years. The purpose of exclusivity rights granted to innovators is to create an incentive for research and development investments into new drugs. However, the amount of additional investment in pharmaceutical innovation that would result from the implementation of the EU’s proposed pharmaceutical intellectual property provisions would likely be a small fraction of the additional costs to Canadians.
Currency figures are taken from European Commission Trade Website – Canada (Bilateral relations) Statistics – September 2010, http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113363.pdf. Canadian dollar figures are based on the Canadian dollar–Euro exchange rate prevailing at December 31, 2009.
Regulatory Impact Analysis Statement accompanying the 2006 amendments to the PM(NOC) Regulations.
8.
In both Canada and the USA, any challenge to a patent involves an automatic injunction preventing the drug regulating authority from approving the generic drug submission. In the USA, approval is prevented for a period of 30 months; in Canada, for a period of 24 months. Any additional injunction sought by a brand company on the basis of a patent must be sought in a Federal Court in the relevant country. Most countries do not link the approval of a pharmaceutical product to the existence of a patent.
9.
“Finality” indicates whether a finding under a patent linkage proceeding (to determine whether approval may be issued to a generic) is determinative of the patent status. In the USA, which has a linkage system, the linkage proceeding is a full-blown patent infringement proceeding that is determinative of patent validity and infringement issues. However, in Canada, as described above, a finding in an NOC proceeding is not determinative, and even if a patent is found to be invalid in such a proceeding, the patent is still valid for every other purpose and the patentee may still sue for infringement. This situation reduces incentives for generic entry in Canada, since a generic that has been successful in entering is still at risk of paying substantial damages to a patentee for infringement.
10.
“First-Generic Exclusivity” is a mechanism for incentivizing generic firms to challenge patents listed in the FDA Orange Book: Approved Drug Products with Therapeutic Equivalence Evaluations (FDA, Food and Drug Administration). If the first-filing generic is successful in showing that the remaining patents are either invalid or not infringed, it is given approval to market its product and no other generic firms are permitted to enter for 180 days. This creates a strong incentive for generic firms to challenge weak or frivolously listed patents. Only the USA has created such a system.
11.
The nature, scope, and extent of the “data exclusivity” regimes across countries differ in various ways. For example, in the USA, companies conducting new and essential clinical trials (other than bioavailability studies) after a product has been approved can obtain 3 years of exclusivity limited to the approved change resulting from the trials; however, this does not prevent generic approval for bioequivalent versions of the originally approved brand product. As well, the USA treats biologics differently from small molecules, providing 12 years of exclusivity for new biologics.
12.
EU member states currently have varying periods of data exclusivity. Directive 2004/27/EC introduced a new data exclusivity extension of 8+2+1, which will not impact generic applications until after October 2013. A 6-year data exclusivity provision is still effectively applied today in the following EU member states for current generic medicines applications: Austria, Denmark, Finland, Ireland, Portugal, Spain, Greece, Poland, Czech Republic, Hungary, Lithuania, Latvia, Slovenia, Slovakia, Malta, Estonia, and Cyprus. Non-EU countries Norway, Liechtenstein, and Iceland also provide 6 years of data exclusivity.
13.
Generics (UK) Ltd v Daiichi Pharmaceutical Co Ltd & Anor [2008] EWHC 2413 (Pat) (October 15, 2008).
14.
Ortho-McNeil Pharm., Inc. v. Lupin Pharms., Inc., 603 F.3d 1377 (Fed. Cir. 2010); PhotoCure Asa v. Kappos, 603 F.3d 1372 (Fed. Cir. 2010); Pfizer, Inc. v. Dr. Reddy’s Laboratories, Ltd, 359 F.3d 1361 (Fed. Cir. 2004).
15.
Food and Drug Regulations, C.R.C, c. 870, Section C.08.004.1.
16.
C.08.004.1 of the Food and Drug Regulations was enacted in 2006 to implement Article 1711 of NAFTA and Article 39 of TRIPS. The Federal Court of Appeal had ruled in Bayer Inc. v. Canada (Attorney General), 87 C.P.R. (3d) 293 that Canada’s pre-2006 data exclusivity regulations met the requirements of both NAFTA and TRIPS.
17.
Food and Drug Regulations, C.R.C, c. 870.
18.
The NOC Regulations created a Patent Register whereby an innovator drug company can have patents listed that are relevant to its various drug submissions. The patents listed on the Patent Register are the patents the generic company must address before it can receive regulatory approval.
19.
Eli Lilly Canada Inc. v. Novopharm Ltd, 2007 FCA 359, at paras 32 and 40–41.
20.
Pfizer Canada Inc. v. Apotex Inc. et al. (2001), 11 C.P.R. (4th) 245 (F.C.A.) at para. 21; application for leave to appeal dismissed with costs [2001] S.C.C.A. No. 111 (S.C.C.); Merck Frosst Canada Inc. v. Apotex et al., [1999] F.C.J. No. 55 (F.C.A.) at paras 4–6; application for leave to appeal dismissed [1999] S.C.C.A. No. 313 (S.C.C.).
21.
Abbott Laboratories v. Canada (Minister of Health), 2007 FCA 153 (F.C.A.).
22.
See for example In re Wellbutrin SR Direct Purchaser Antitrust Litigation, US District Court (ED Pen 2004) (No. 04-5525); American Sales Company, Inc., et al. v. SmithKline Beecham Corporation d/b/a GlaxoSmithKline PLC, No. 08-CV-03149, E.D. Pa.; In re Zyprexa Products Liability Litigation, 493 F. Supp. 2d 571– Dist. Court, ED.
We have attempted to be conservative here; a reasonable alternative assumption on the litigation for one product, dorzolamide, would have increased the average to 3.9 years.
The PMPRB data includes patentees’ total sales of patented drug products in Canada. Patentees are required under the PM Regulations to submit detailed information on their sales of patented drug products, and the figure we use of $13.3 billion is drawn from this data. The dollar value is, therefore, the sales value of the manufacturer, not the retail sales figure. The $13.3 billion includes some products for which the exclusivity period is irrelevant. In some cases, the patented drugs have markets too small to attract generic competition; for them, extending the legal exclusivity period will not lead to delays in generic competition. In other cases, the patented drugs are patented but generics have already entered the market, since the remaining patents are insufficient to block entry. For these products, extending exclusivity is not relevant. Therefore, our estimates of the total impact on costs may be biased upwards. But at the same time, the manufacturer revenues do not include percentage markups by wholesalers or pharmacies, in which case the impact on payers is underestimated. The figure may also be underestimated in that sales tend to be larger for branded drugs later in the life cycle before generic entry.
28.
The average time from first brand NOC to first generic NOC for the 15 products genericized in 2010, as shown in Appendix III of Grootendorst and Hollis (2011), is 9 years. Typically, new chemical entities obtain longer approval periods than other approved drugs. The recently released report by the Canadian Intellectual Property Council titled “Innovation for a Better Tomorrow” assumes (page 8 of the report) that average exclusivity periods in private drug plans are from 7–9 and 5.5 years to 7.5 in public plans. If we were to assume that the average period of exclusivity is 8 years, then extending exclusivity by 1 year implies that we would increase the revenues to the patentee by one-eighth, or approximately $1.6 billion. We have chosen a conservative assumption that one additional year of exclusivity will increase patentee revenues by one-tenth. This “one-tenth” estimate is additionally conservative as it can be expected that products’ annual revenue will be highest toward the end of their exclusivity periods, after physicians have become comfortable prescribing the drug and more information about its effects are known.
29.
See Appendix IV of Grootendorst and Hollis (2011) for detailed pricing assumptions; 61% is the average assumed discount, calculated as the average price discount achieved by different payers, weighted by their share of total prescription drug purchases.
30.
We have assumed that the average price in Ontario and Quebec falls by 65%; the average price in BC, Saskatchewan, and Manitoba, by 55%; and the average price in all other jurisdictions by 50%. While, on average, generic price reductions are expected to be larger than this, these rates also allow for some branded products to continue to be sold at the original high price. We have also assumed that both private and public sectors obtain the same average price in each province; with public reimbursement typically being limited to the lowest generic price; it seems likely that the estimates in Table 4 are slightly understating the cost to the public sector and overstating the cost to the private sector.
31.
GrootendorstPdi MatteoL. The effect of pharmaceutical patent term length on research and development and drug expenditures in Canada. HealthCare Policy2007; 2(3): 63–84.
32.
We recognize that the number of daily doses for a molecule can be affected by genericization of the molecule. On one hand, lower prices can lead to increased uptake of a drug, due to decreased pricing pressure or the use of drug plan incentives. On the other hand, sales force efforts for products still on patent in the same drug class can cause physicians to switch from the recently genericized product to the patented product. This has been the case since genericization of Lipitor (atorvastatin), with patients being switched to Crestor (rosuvastatin) instead. These effects have not been incorporated in the analysis.
33.
We note that Quebec has a “15-year rule” which provides brand companies with 15 years following registration on the Quebec formulary during which the brand product is eligible for reimbursement at its full price. Despite this rule, when generic products are available at lower prices, prescriptions tend to be filled with the generic product, although at a lower utilization rate than in the rest of Canada.
34.
WeissDNaikPWeissR. The ‘big pharma’ dilemma: develop new drugs or promote existing ones?Nat Rev Drug Discovery2009; 8: 533–534.
BIOTECanada has proposed a number of government policies to make Canada “a leading destination for knowledge industries like biotech,” including: exempting investments in emerging tech companies from capital gains tax; reducing corporate taxes; increasing government funding to emerging tech companies; improving relevant educational opportunities; recruiting skilled immigrants; improving the regulatory framework for rapid development and approval of new technologies; and establishing “world leading intellectual property and data protection laws.” Changing the intellectual property laws is only one of many ways to stimulate additional innovative investment in Canada. (The Canadian Blueprint: Beyond Moose and Mountains, available at www.beyondmooseandmountains.ca.).
38.
Teva Pharmaceutical Industries Limited. Form 20-F for Securities and Exchange Commission, February 22, 2010.
39.
Sheraton H and Smith R. (2010) SPCs: Is a simplistic system becoming too complicated? McDermott Will & Emery International News, Issue 3, October 2010.
40.
GrootendorstPHollisALevineDKPoggeTEdwardsAM. New approaches to rewarding pharmaceutical innovation. Can Med Assoc J2011; 183(6): 681–685.
