Trade negotiations with EU poised to increase drug costs in Canada

As explained in this article by the CBC, a recent study, commissioned by the Canadian Generic Pharmaceutical Association (CGPA), has found that proposed changes to Canada’s drug patent system suggested by the European Union as part of trade negotiations would add billions of dollars per year to Canada’s prescription drug plan.

The Negotiations

Negotiations toward a Canada-EU trade agreement, which is designed to reduce tariffs and trade restrictions in a number of industries, have been under way since 2009, and the Canadian government hopes to finalize the agreement by the end of 2011.The most recent round of negotiations took place in Brussels, Belgium, in January 2011. The next round is scheduled to take place in Ottawa in April of this year.

As part of the negotiations, the EU is requesting three major changes:

• That the term of patent protection for pharmaceuticals be extended by up to five years if drugs are stuck in the regulatory approval process;
• That the period of data exclusivity, which prevents generic companies from using data from clinical trials to create similar drugs, be lengthened from eight years to ten years or more; and
• That notice of compliance regulations, which help ensure that generic companies are respecting patents, be strengthened by adding an appeals process.

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

Impacts on Canada

The CGPA’s report asserts that the proposed changes would “considerably lengthen” the period of market exclusivity for brand-name drugs and lead to higher costs for both consumers and public and private drug plans. The report’s authors, Aidan Hollis of the University of Calgary’s Department of Economics and Paul Grootendorst of the University of Toronto’s Faculty of Pharmacy, estimate that the annual increase in cost will be approximately $2.8 billion per year, including a $500-million rise in Ontario alone. It predicts that a “substantial share” of those costs would fall on government drug plans, which are already struggling to contain skyrocketing drug costs- medications have been the fastest-growing component of Canadian healthcare expenses for several years, and in 2010, drugs, both prescription and over the counter, accounted for $31-billion of Canada’s $192-billion in health spending. Another interesting finding in the report is that if implemented, the changes would not lead to a significant increase in investment by brand-name drug companies in Canada. Further, the report states, they would delay the availability of generic drugs in Canada by approximately three and a half years, and would result in the most extensive regulatory protection for innovator drugs of any country in the world. At present, innovator drugs typically enjoy about nine years of market exclusivity.

Pharmaceuticals are one of the EU’s top exports to Canada, valued at over $5 billion per year, and the EU is Canada’s second-largest export market, after the United States. Jim Keon, the president of the CGPA, has said that the changes would not assist in eliminating trade barriers, as pharmaceutical products from the EU already have “unfettered access” to the Canadian market. He claims that they will “simply increase profits for brand-name drugs companies at the expense of Canada’s health-care system”. On the other hand, Russell Williams, president of Rx & D, the organization that represents brand-name drug manufacturers, argues that implementation of the proposals is essential if Canada is to maintain or increase the $1.2 billion per year spent on drug development and trials in Canada.

The Canadian Chamber of Commerce, supports the proposals, saying Canada risks losing out on the next wave of lucrative pharmaceutical investment and jobs unless it matches the patent protection regimes in the European Union and the United States, which provide greater protection for innovator drug companies.

While it is currently unclear what the terms of the final trade agreement will be and what their impact will be on the Canadian healthcare system, it is evident that these negotiations could have major ramifications for Canadians and will be important to watch in the coming months.