INST Committee Meeting

STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY

COMITÉ PERMANENT DE L'INDUSTRIE, DES SCIENCES ET DE LA TECHNOLOGIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 29, 2001

• 1533

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I'm going to call the meeting to order. This afternoon, we're here to discuss Bill S-17, an act to amend the Patent Act.

We have a number of witnesses with us this afternoon. We have with us from the Arthritis Society, Mr. Denis Morrice, the president and chief executive officer; from the Canadian Chamber of Commerce, Mr. Michael Murphy, the senior vice-president of policy; from the Coalition for Biomedical and Health Research, Dr. Barry McLennan, the chair, and Charles Pitts, the executive director; from BIOTECanada, Janet Lambert, the president; and from R_x&D: Canada's Research-Based Pharmaceutical Companies, we have Terry McCool, the vice-president of corporate affairs for Eli Lilly Canada, and, instead of Jean-François Leprince, we have James Mills—is that correct?—counsel for R_x&D.

What I would propose is that everyone do their opening statements first, and then we'll move to questions all together. I would propose that we do it in the order that the witnesses are listed, unless there was a different agreement.

That being said, I'd like to begin with...I don't see the Arthritis Society.

Mr. Michael N. Murphy (Senior Vice-President, Policy, Canadian Chamber of Commerce): We're going to start.

The Chair: You're going to start, Mr. Murphy? Okay.

We'll let Mr. Murphy start, and he's from the Canadian Chamber of Commerce.

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[Translation]

Mr. Michael N. Murphy: Thank you, Madam Chair. My name is Michael Murphy and I am Senior Vice-President, Policy, for The Canadian Chamber of Commerce.

[English]

Madam Chair, it is a pleasure indeed to be here today representing the 170,000 business members of the Canadian Chamber of Commerce. The Chamber of Commerce is pleased to have the opportunity to make representations to the standing committee on Bill S-17.

As the members are aware, the primary purpose of this bill is to amend the Patent Act in order to make it compliant with the requirements of the Trade-Related Aspects of Intellectual Property Rights agreement with respect to patent term. It is imperative that Parliament pass this bill as quickly as possible. This issue affects a broad range of businesses and research interests in Canada, and it is directly related to our competitiveness and standard of living as a country, and to the quality of life of all Canadians. Early action to preserve patent rights is essential for a number of key reasons.

First, Canada must live up to its international obligations. We cannot afford to be cutting corners in patent protection or be failing to live up to our international obligations in this important area. Last year, the World Trade Organization, the WTO, ruled that Canada's 17-year term of patent protection from date of issue for patents filed before October 1, 1989, is inadequate and inconsistent with the requirements of the TRIPS agreement. This agreement requires WTO-member countries to provide a term of patent protection of at least 20 years from the date of filing. There is no basis for continuing to allow patents to expire in violation of those rules. To do so is unfair to patent owners, and it's damaging to Canada's image and reputation internationally.

Second, Canada must foster an environment conducive to innovation. For business, the capacity to innovate—which is essentially the transformation of knowledge and ideas into new products, processes, and services—is a top priority. Innovative capacity is central in determining who will prosper in an increasingly globally competitive environment. Countries that are innovative invariably have laws that foster innovation. These laws encompass separate and distinct types of intangible property, whether they be patents, trademarks, copyrights, industrial designs, or circuit topography, collectively referred to as intellectual property.

The Canadian government is certainly correct in promoting an innovation agenda for Canada, and the Canadian Chamber of Commerce strongly supports this initiative. For that agenda to be credible, however, Canada must demonstrate that it is committed to world-class standards of patent term protection.

Patent protection enables innovators to capture the returns of their investments and to undertake further investment in R and D. Moreover, it is only within that assurance of protection and recognition that most inventors, whether they be scientists, industrial engineers, or software writers, find the courage and inspiration to freely innovate and take risks. The results of this innovation and risk-taking will have a direct bearing on what standard of living we will have in the future, and therefore on what quality of life Canadians will enjoy.

Third, strong and effective patent protection encourages the diffusion of knowledge throughout our economy. Patent laws give the inventor the exclusive right to prevent others from making, using, and selling a patented invention for a fixed period of time. In return, inventors must disclose the results of their work, often even before it's published in a peer review journal. In turn, disclosure enables others to understand the advances made and to extend those advances, both in the original field of technology as well as in other fields.

Finally, my fourth point is that strong and effective patent protection encourages the development of local industry, and it certainly acts as a magnet for foreign direct investment. Strong patent protection not only encourages domestically based firms to invest in innovative activity, it also makes a country more attractive for location of foreign direct investments. A country that offers strong and effective patent protection is far more likely to attract and retain intellectual capital that is so critical in today's knowledge-based economy.

Finally, Madam Chair, progress in patent term protection worldwide has occurred because countries have recognized that such protection encourages investment in research and development, which leads to greater innovation, productivity, economic growth, and benefits for all those living in the country. It is time that Canada lives up to its international obligations under the TRIPS agreement.

Thank you.

The Chair: Thank you very much, Mr. Murphy.

We're now going to turn to the Coalition for Biomedical and Health Research, and Mr. Charles Pitts.

[Translation]

Mr. Charles Pitts (Executive Director, Coalition for Biomedical and Health Research): Thank you, Madam Chair. As Executive Director of the Coalition for Biomedical and Health Research and in the name of the coalition, I wish to thank you for the opportunity to appear before your committee today.

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[English]

I wish to thank you for the opportunity to comment on the Bill S-17. The chair of CBHR, Dr. Barry McLennan, could not be here today because of his involvement on a committee chaired by Dr. Henry Friesen, Shaping the Future of Health Research and Economic Development in Western Canada. Dr. McLennan feels that, given the importance you all accord to western Canada, you will understand his absence today.

However, Dr. McLennan did set the stage for my remarks when he stated in 1993, in the context of Parliament's substantive amendments to the Patent Act, then Bill C-91:

If we do not provide a competitive environment in Canada for such [research-based] economic activity, the money will go elsewhere and so will the highly-skilled jobs and training opportunities....

The Coalition for Biomedical and Health Research represents the collective interests of Canadian academic and industrial health research communities. As such, we have a great deal of interest in ensuring that Canada's patent legislation is at least as favourable as, and we hope even more attractive than, that of Canada's major trading partners. In fact, we hope Bill S-17 is just a minor, first step toward a much more thorough modernization of Canada's intellectual property protection regime. In time, we look forward to participating in the anticipated debate related to a more comprehensive review promised by Minister Tobin recently.

It is not my intention to read our brief to you today, although I hope it will be of service to you in understanding our position and the importance we place on adequate patent legislation. Instead, what I wish to accomplish today is to personalize the discussion somewhat, avoiding a recitation of statistics and a description of the myriad benefits that increased or improved patent protection would provide, by providing you with what we hope is a compelling, real-life example of what we're trying to achieve with patent protections.

If you'll allow me to introduce my colleague, Dr. Lisa McKerracher has come from her laboratory and research in Montreal to be with us today. Dr. McKerracher is a member of a new breed of researcher-entrepreneurs who, because of improved funding and a decent patent legislation environment, are becoming part of the academic and industrial landscape. Their impact is being felt here in Canada and abroad. In fact, Dr. McKerracher was recently honoured as a recipient of the Christopher Reeve prize for her ground-breaking work in rehabilitation of the spinal cord after severe injury.

Dr. McKerracher is an associate professor in the Faculties of Medicine at the Université de Montréal, an adjunct professor at McGill, and a member of the CIHR's advisory board for the Institute of Neuroscience, Mental Health and Addiction. She heads a team of ten researchers at the Faculties of Medicine at the Université de Montréal, and is the founder of Bioaxone Therapeutics, a biopharmaceutical company established to manage the commercial development of therapeutics based on her discoveries on neural protection and regeneration when the spinal cord is severed.

We believe Dr. McKerracher personifies the people whose work will benefit from creating and maintaining an internationally competitive environment for innovative research in Canada. She and other men and women like her in research represent the people and brain power we will lose if we fail to protect our best and boldest.

Dr. McKerracher is an internationally recognized expert in her field who is sought after as a teacher, a scientist, and a mentor. She has helped the universities with which she is affiliated to carve out an important scientific niche in the field of spinal cord injury. This has allowed her to attract funding, recognition amongst her international peers, and new research to her lab.

Her studies have led to the discovery of an important drug that may help neurons reknit a broken body that is paralysed due to physical trauma to the spinal cord. Having applied for patents appropriate to her discovery, Dr. McKerracher has negotiated a technical transfer arrangement with the universities, identified initial capital support, and formed a company. This company is promoting her technology development and the vital patents associated with it to potential investors.

New funders will support the long-term research and development of new medications based on her work. As this process unfolds, it will generate substantial high-quality employment opportunities and additional research that will lead to opportunities for many Canadians. It will also help to support the research centre and, by extension, the universities and hospitals with which Dr. McKerracher's team works. Most importantly, if the drug proves to be as positive a development as it appears to be at this stage, it will give hope to people for whom there is no therapeutic option now.

The key point in all this, however, is that without effective patent protection, Dr. McKerracher could not afford to stay in this country to pursue her work. The university would not be able to attract the funding necessary to support the Centre for Research in Neurosciences, she would be unable to negotiate a reasonable technology transfer arrangement and the capital necessary to build her company, and the necessary support to bring new treatments to fruition would not occur. Without decent patent protection, Dr. McKerracher and countless talented scientists like her would migrate to jurisdictions where conditions and resources would be available to permit her to pursue her passion.

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The substantial benefits that accrue from active investment in research activities and the Canadian government's explicit support for innovation as a core strategy to ensure national prosperity in the 21st century are very compelling reasons to comply with the recent WTO rulings related to Canada's patent legislation. In fact, there is ample justification for the government to give active consideration to even enhancing the current legislation to position Canada as one of the most favourable locations in the world for intellectual property protection.

On behalf of our constituents at CBHR Canada—16 medical schools and their 8,500 medical faculty members; the Association of Canadian Medical Colleges; the 600 clinical researchers of the Canadian Society for Clinical Investigation; the 34,000 medical specialists of the Royal College of Physicians and Surgeons of Canada and the 15,000 family physicians of the College of Family Physicians of Canada; and the researchers of the Health Research Foundation of R_x&D and IMS Health Canada—CBHR recommends that the committee pass this bill, and that, in future, it seeks ways to improve patent legislation to support the innovation agenda that government has been promoting over the past several years through such innovations as the Canadian Institutes of Health Research.

We thank you very much for your consideration. Dr. McKerracher and I will be more than willing to participate in questions.

The Chair: Thank you very much, Mr. Pitts.

We're now going to turn to BIOTECanada, and Ms. Janet Lambert, the president.

Ms. Janet Lambert (President, BIOTECanada): Good afternoon, bonjour, honourable members of the standing committee. By way of introduction, I'm Janet Lambert, president of BIOTECanada.

I'm here today to communicate why Bill S-17 is important to biotechnology, and I encourage you to pass this legislation. In many cases, due to products not yet on the market, a biotech company's patents are its single most valuable asset.

BIOTECanada is a national association of biotechnology industry and research. Our members include Canadian health care, agriculture, food, research, and other organizations that seek to improve the lives of Canadians through biotechnology.

Canada holds the number two position in the world in biotechnology on several parameters: number of companies, revenues, and number of employees, to name a few.

Defined, biotechnology is the use of living organisms to develop and improve food and medication. Modern biotechnology uses our understanding of biotechnology at the level of the gene.

The biotechnology industry comprises close to 400 companies investing nearly $1 billion per year in biotechnology research and development. Larger biotech companies invest almost 50% of total revenues in R and D, while smaller firms average more than 100% of their R and D spent as a percent of revenue.

Companies involved in biotechnology are found in a broad range of economic sectors, such as human health, agriculture, food, environment, and aquaculture. Amongst those companies, 40% are oriented towards health care, 25% focus on agriculture, and 10% focus on the environment. Biotech companies are found in every province in Canada. More than 75% of biotech companies have fewer than 50 employees—that small, entrepreneurial company—but together the sector employs more than 60,000 people. Biotech's exports represent more than one-third of its total revenues.

[Translation]

Biotechnology is a high technology, research-intensive industry that relies on well-educated staff and an entrepreneurial spirit to sustain itself. It is precisely the type of industry to which the Prime Minister refers when he speaks about creating “one of the most innovative economies in the world”. Supporting biotechnology research will help to ensure that Canada will be a leader in the new knowledge-based, global economy.

[English]

BIOTECanada appreciates the opportunity to participate in the debate related to Bill S-17. As a research-intensive industry, strong and effective patents are vital to the long-term success of our member organizations. Patents represent an important incentive for those companies and their financial backers as they engage in very complex, high-risk research designed to improve lives.

BIOTECanada understands that the legislation under consideration was prompted by two recent decisions of the World Trade Organization's appellate body. Specifically, the WTO ruled that Canada was not meeting the standards related to intellectual property protection. As a signatory country to the WTO, and as a responsible member state, Canada must take appropriate steps to meet those international standards.

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Biotechnology product approval typically takes seven to ten years to get a new invention to the point of a commercial launch. Just to give some context, there are more than 2,500 applications every year in Canada for patents related to biotechnology. On average, that's about 100 inventions every working day.

Perhaps the most difficult challenge faced by the biotech sector is access to capital. Canada has infrastructure in place to support scientists at the early stage of their research effort, but there's a scarcity of financial vehicles to help an inventor through that lengthy development phase of the process.

[Translation]

Canada's goal is to be one of the most innovative economies in the world. Therefore, this process must be supported by a thorough examination of how the key incentives to promote innovative pursuits are being managed in this country.

[English]

We seek a comprehensive intellectual property protection debate. Without trying to take the current discussions off track, BIOTECanada does wish to state for the record some of the issues that, in our view, are related to competitiveness and the current intellectual property protection regime in Canada: for example, patenting of higher life forms; timeliness of patent application review and regulatory review; and patent application fast-tracking.

[Translation]

BIOTECanada believes strongly that Bill S-17 must be supported to ensure that Canada can compete in the field of biotechnology. As such, BIOTECanada urges the committee to support Bill S-17.

[English]

Canadian biotechnology pursuits are consistent with the major priorities of our government. Implementing policies that will ensure the sector's future success and its capacity to compete internationally will help to achieve many of the government's key objectives.

[Translation]

We thank you for your consideration.

[English]

Thank you very much for your consideration.

The Chair: Thank you very much, Ms. Lambert.

We're now going to turn to Canada's Research-Based Pharmaceutical Companies, Mr. McCool and Mr. Mills.

Mr. Terry McCool (Vice-President, Intellectual Property Committee, R_x&D, Canada's Research-Based Pharmaceutical Companies): Thank you, Madam Chair.

Mr. Mills and I will be representing R_x&D, which is Canada's Research-Based Pharmaceutical Companies. Mr. Mills is legal counsel to R_x&D and has represented many of our companies on issues involving intellectual property. My background is in pharmacy, having practised in Alberta for several years before joining the industry.

This first slide represents the evolution, moving from a 17-year patent to a 20-year patent. Bill S-17 is really a technical change that is needed to bring Canada into compliance with international trade obligations, which Canada agreed to a number of years ago.

As you can see by the slide, the impact of Bill S-17 affects 30 products, with limited sales, by an average of less than six months. So it's a very minor technical change. The impact of the ruling will be less than 1% of pharmaceutical sales in one year. The stockpiling regulations have already been removed, and all Bill S-17 does is revoke the authority to introduce such regulations in the future.

But over the last several weeks, others have suggested broadening the debate. Well, let's take a look at the broader issues. This slide represents new drug development. The drug development process for an innovative pharmaceutical product is very long and very expensive, thereby preventing pharmaceuticals from enjoying the full 20 years of patent life. It takes an average of up to 10 years to get a product on the market. In fact, for some products it takes actually longer than that. So the effective patent term is probably, on average, around 10 years.

The process is also a very risky one. For every 10,000 molecules discovered, only one product makes it to market. Of those products that make it to market, it's still no guarantee of success. For every ten products marketed, only three will generate enough revenue to cover their development costs.

One of the points of contention has been the purpose of the linkage regulations. Linkage is needed because of lack of injunctive relief in Canada to offset the early workings by generics. It is very easy and inexpensive to copy a pharmaceutical drug.

The linkage process occurs concurrently with Health Canada's regulatory review of a generic submission. The generic initiates the process and controls its timing. Linkage in no way extends the 20-year patent term. Only certain patents are eligible for the patent register. While the innovator is also subject to price controls on all patented drugs, it is the only innovative sector in Canada that is subject to price controls. The fact that patentees have won at least half of the proceedings and there have only been two damage proceedings in the 200 cases demonstrates that the linkage regulations are not being abused and are working as they should.

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This slide represents one of the issues that was also discussed, which is the protection of ongoing innovation. One of the purposes of the linkage regulations is to promote the protection of ongoing innovation. Ongoing innovation is a fundamental occurrence in all industries and is especially important in high-tech industries. The patent system is designed to reward innovation, even incremental innovation, as long as it meets the criteria of patentability.

To obtain a patent, the innovation must be new and workable. The original pioneer patent may be very broad; however, subsequent patents protecting ongoing innovation are much narrower in scope. Any subsequent patent issued on a new form of product does not impede the generic's ability to produce and market the original form of the product. The generics can always copy the original product when the original pioneer patent expires.

Another important consideration is to remember that effective patent life is 10 years or less for pharmaceuticals. Other countries have recognized this and restored some of the lost patent term to recognize the long development process. Our detractors have indicated that Bill S-17 upsets the balance. Industry Canada has already indicated that Canada has one of the best environments in the world for generics. Along with mandatory substitution at the provincial level, we know that 84% of the top 25 generic products get on the market in Canada sooner than they do in the U.S. by approximately two years.

So in conclusion, Bill S-17 is a technical fix to bring Canada into compliance with the WTO. The broader debate around intellectual property would show that innovation is good for Canadians and is essential in order to get treatments for new diseases and for some very complex diseases. Innovation is good for Canada's health care system as many new therapies will help to reduce costs by preventing or avoiding more costly medical or surgical interventions.

Intellectual property is an essential component of innovation. The linkage regulations are necessary to ensure effective enforcement of intellectual property. Effective intellectual property laws have been good for Canada's economy as thousands of jobs have been created in both the pharmaceutical and the biotech sector, and you've heard from many of us and others that Bill S-17 should be passed in a timely fashion by this committee.

Thank you.

The Chair: Thank you very much, Mr. McCool.

We're going to turn to questions, and I want to remind members that the way we were scheduled today was to have witnesses until 5:15 p.m. Then we'll have the departmental officials back to answer some questions, and then we'll move to clause-by-clause.

It appears we're going to have a couple of votes around 5:30 p.m., so there will be a break in between proceedings. We'll go until the bells ring, and then we'll come back after that and finish up. I just want to make sure everyone's aware of that from the beginning.

That being said, we're going to begin our questioning with Mr. Penson.

Mr. Charlie Penson (Peace River, Canadian Alliance): Yes, thank you, Madam Chair.

Welcome to the panel this afternoon. For me and for our party, I think it's pretty clear that we want to have quick passage of Bill S-17 to bring us into compliance with our World Trade Organization obligations. I want to state that.

Mr. McCool, there are other issues, as you've just identified, but I think they are best left for another day. I would welcome you back and I would encourage the committee to take up this issue at some future point, like next fall, to talk about notice of compliance, linkage, the two-year stay, and so on. I think that's an important aspect that needs to be discussed.

But as far as I'm concerned, I believe strongly that we must honour our obligations. Canada has been an original signing member of the GATT, going back to 1947. I think we're well served by trade rules, and when Canada operates outside of that kind of environment, with a small population, we do not benefit. I gather from the presentations that were made that most people at the table would feel the same way.

• 1600

I want to move on to what Mr. Pitts was saying.

I think you identified the need for updates, Mr. Pitts, for enhancement of our intellectual property patent rights. I would be interested if you could give us some examples of where you would like to see Canada move in that direction. Perhaps others might want to comment on that as well, because I think the committee needs to know what you're thinking in terms of where we need that enhancement.

Mr. Charles Pitts: I'm not a specialist in patent protection; however, there are jurisdictions around the world where patent protection is more favourable and it does contribute to facilitating the development of products within those countries. It would be opportune for us to look at other jurisdictions and to see what areas we could learn from.

I'm reminded, and it came back again just today, that several articles on what is occurring in Ireland.... That country has turned toward improving the environment for the development of research and development there, and its spinoff into industry and into academia, to such an extent that the Irish, of whom I'm one of the descendants, are finally going home, probably to the pleasure of many. Notwithstanding, it would be something that we could perhaps look at.

Mr. Charlie Penson: A good tax rate.

Mr. Charles Pitts: Among other things—but it is a good tax rate, and it is good public policy that is encouraging that economic and social development. I think we can look at those areas.

Mr. Charlie Penson: Are you suggesting, then, that our minimum would be our TRIPs agreement for 20 years and that we might want to look at higher levels, higher amounts of time for some patents? I think Ms. Lambert was talking about higher life forms, the need to work in that area. Is that what you're talking about?

Ms. Janet Lambert: Yes, and we have that opportunity in the fall for that discussion, as you mentioned.

Mr. Terry McCool: May I comment. The minister did indicate that in terms of the innovation agenda that he would welcome a review of the role intellectual property plays in innovation. If that's where the debate is, then we would like to participate.

One of the issues for us is that the areas where we try to attract our investment from more often are the U.S. and Europe. As you see by this slide, they have recognized the long development times. They've actually added on a patent term to create an effective patent life of around 14 or 15 years. In Canada it's 10 years or less.

One of a number of things they do is they protect the confidential test data we provide to Health Canada. Canada has a system right now where the generics can actually rely on that data almost at any time. Other countries around the world do not allow that. By the process of early working, Canada can get access to markets fairly quickly.

There is another area that is quite contentious, and it'll probably be contentious for the committee, and we'd like to see it looked at. As I mentioned earlier, we are the only innovation in Canada that is subject to price controls. To the extent that price controls distort a market-based system, it makes it very difficult to actually reward innovation in that kind of a system. That's one of the contentious areas we would like to see looked at.

There are probably a few others, but those would be the major ones.

Mr. Charlie Penson: The working rights were upheld by the WTO, weren't they?

Mr. Terry McCool: Yes, they were, but not every country has implemented that. It was only two countries, Canada and the U.S.

Mr. Charlie Penson: Would they be subject to the same kind of pressure to honour the WTO commitments?

Mr. Terry McCool: Yes, they would. You have to remember that TRIPS is a minimum standard; some countries can go beyond that requirement.

The Chair: Thank you very much, Mr. Penson.

Madame Jennings, please.

[Translation]

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you, Madam Chair, and thank you very much for your presentations.

One of the issues I would like to discuss with you is the number of pharmaceutical or biotechnology products which are patented and come off patent every year. Do you have any statistics? Is the number five a year on average? Is it ten? Is it 10,000? Of those products, how many are there for which producers of generics request the authorization to copy? The associations representing the generic pharmaceutical companies that we heard claim, first, that their products are less expensive and, second, that the passage of Bill S-17 would impose constraints on them and would make the market less competitive and so on.

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I saw other documents that seem to show that there are several products on the market right now for which there is no patent and that generic manufacturers do not produce. This is the first point. The second point is that they cherry-pick. They go after the big sellers so they can maximize their profits. They will ask for authorization to make those products but they will leave aside other products that do not sell as well or that are not as profitable.

I have asked for those statistics three or four times I think. I never got them so far. You might be able to give them to me, Mr. McCool. You must have an idea of the number of pharmaceutical products coming off patent every year and know how many of those the generics ask the authorization to copy.

[English]

Mr. Terry McCool: I may not have the exact statistics you are looking for, but I think they're fairly easy to attain. We can provide that.

There's no question that generics can come to market with cheaper products. Obviously our products are very expensive to develop but very inexpensive to copy. The generic industry will probably assess which are the major compounds they can copy. They will usually go after the bigger products and will come to market.

That doesn't mean they won't, in time, ultimately go after other products. It's their choice. There are other generic companies that can come to market and go after some of the smaller volume products. One thing to keep in mind is that when the patent does expire, they are free to come to market. There's nothing we can do to prevent them coming to market from the original patent.

As we look into the future, there is probably about $1.5 billion in products that'll be coming off patent over the next several years, which means Canadians will get savings from those. They will legitimately come off patent.

Ms. Marlene Jennings: If I'm not mistaken, the majority of those products that come off patent are not reproduced by the generics. That's the first.

Mr. Terry McCool: They are if they're successful.

Ms. Marlene Jennings: Okay. If they're successful, yes, but that's the point.

Mr. Terry McCool: The one statistic I can give you is the WHO's list of essential drugs; 95% of them are off patent. A very small percentage of those 95% off-patent drugs are actually copied by the generics.

Ms. Marlene Jennings: If I look at the history that all of you have given us, from the moment you have an idea and request a patent and then you begin the development, you say it's about 10 years of development before it's actually marketable, etc. So you only have 10 years.

You say that on average about $750 million is invested in that research to get it to market. It's only during a 10-year period that you're actually marketing it. You're able to make a profit. You've made the point that you're the only ones who have price controls on it.

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I compare that to the generics, for which on the average it's about $1 million per product. That's like you asking me to give you $750 million to do research for 10 years, with no return on that amount and a high risk that it will not get to market because there will be some significant problem. Then when it does get to market, you'll have 10 years approximately to actually make profit on it, pay me dividends and repay me my $750 million, and there's a cap on how much profit you can make because it's under price control.

As an investor, I think I would be better served to take my $750 million and put it in the generic, where they're only paying $1 million and when they bring their product to market there's no price control on it.

If I look at the province of Quebec, they actually have a privileged situation where, in the pharmacies under provincial legislation, they're obliged to stock the generics when they're there and they automatically get reimbursed when it goes out. I've actually had pharmacists try to push generics on me when the doctors prescribed a brand drug.

Mr. Terry McCool: Some of the provinces do limit the prices they can charge.

Ms. Marlene Jennings: Yes, but not all. Thank you.

The Chair: Thank you very much, Madame Jennings.

I have actually received a response from the CDMA, but presently it's only in English. We just received it yesterday, and unfortunately it has not been translated yet so I can't really distribute it. If it's okay, I'll read some of the response into the record later on.

Mr. Pierre Brien (Témiscamingue, BQ): Okay.

The Chair: Are you okay with it if we make photocopies, if everyone agrees? Is everyone—

[Translation]

Mr. Pierre Brien: Everybody has to agree. I don't have a monopoly on what is going on here in French or in English but I am tired of always having to carry the load on my shoulders and it is always one way. The French documents are always the ones missing.

Mr. Réal Ménard (Hochelaga—Maisonneuve, BQ): It seems to me that large companies knew it from the beginning.

[English]

The Chair: Is everyone in agreement? Then I'll have the clerk photocopy it and distribute it. Is everyone in agreement?

Madame Jennings? Yes?

[Translation]

Mr. Pierre Brien: But I don't want it to become a habit.

[English]

The Chair: Again, I apologize, Monsieur Brien, there have been short hearings for this bill. Monsieur Brien, it's actually your turn to ask questions.

[Translation]

Mr. Pierre Brien: Thank you.

Of course, there are witnesses I won't have time to question but I am sure that we will hear them when a white paper on innovation will be tabled next Fall. We might have the opportunity for more exchanges during the course of a larger debate on intellectual property.

At one point there was an issue raised here in the committee by one of my colleagues who was questioning the statistics regarding the amount invested by the industry in research and development. We often hear that the research and development you report includes marketing expenses for drugs.

I would like you to tell me if the figure on page 20 where it says that 987 million dollars are spent on research and development includes only research and development or does it include something else than research?

[English]

Mr. Terry McCool: The research and development we report is also reported through the Patented Medicine Prices Review Board, and they follow a very narrow definition of R and D in this country, which is the income tax definition. So everything that occurs under what is called the “scientific research and experimental development”, which is the income tax definition, would apply.

We would view that as a very narrow description of R and D that goes on, and it's certainly not the definition the OECD uses. In fact, their definition is a little broader.

There's an amount of research that goes on in Canada on the area of pharmaco-economics and pharmaco-epidemiology. There's an amount of funding of fellowships and chairs at university to do basic research that does not get included in this number.

We would like to work with PMPRB to be able to at least reflect a more accurate figure for R and D, but to this point we haven't been successful. But it does not include marketing expenses. It's impossible to include marketing expenses.

[Translation]

Mr. Pierre Brien: Thank you.

There is another recurring issue and it is the possibility to bring.... It is being said that the brand drug industry makes rather cosmetic changes to the improvements or patents granted after the first one. What is the process you must follow to obtain patent status? I presume that the Canadian Intellectual Property Office has a mechanism and that it must show rigour. When you are granted a patent, are there strict innovation criteria that you have to adhere to?

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[English]

Mr. Terry McCool: I'll refer to Mr. Mills to clarify that.

Mr. James Mills (Legal Counsel, R_x&D, Canada's Research-Based Pharmaceutical Companies): As I understand your question, you were asking about subsequent patents. Presumably in this context we're talking about a first patent that covers the compound itself, the actual medicine. If we could get the slide back up....

The Chair: No, we just shut everything off. I have to apologize. It's too crowded over there to leave the slide projector on, and it's noisy for the members on that side, so we'll have to do without the slide. I think it's in the book you've handed out. There's a handout inside the thing we all have.

Mr. James Mills: Yes, this is the one I wanted to refer to.

The Chair: Just so all members know, inside the white package there's actually a copy of all the slides that were on the screen.

Mr. James Mills: The slide I wanted to refer to is the one entitled “Protection of Ongoing Innovation”, affectionately known as “the chocolate chip cookie slide” by us.

When a company creates a new molecule, the one in 10,000 that ultimately comes to market, and they get a patent on it, that initial patent is represented by the big orange circle on this chart. That patent covers the medicine made by any process, used in any formulation and for any use. It covers the medicine, no matter how it ends up in the final product.

Subsequent patents that relate to very particular aspects of a drug product that includes that medicine can be patentable in certain circumstances. The most important thing is it has to be new. So if we look at this diagram here, the initial patent is the big circle, and then we have a little red box. That represents the first product the company sells. That product is made by a very particular process. It's used in a very particular formulation and prescribed for a very particular condition typically.

Patents on new processes or new formulations, for example, can be granted by the Canadian Patent Office. The Canadian Patent Office goes through a very intense scrutiny of these things. There are certain criteria that have to be met, but the most important one is it has to be new; it has to never have been done before.

For example, if we look at this big circle, anything to do with the medicine is going to be found in the big circle. But when that initial 20-year patent expires, all that's going to be left are the little blue circles. The little blue circle represents a new formulation patent. The only thing a generic is faced with that they have to get around is what is represented within that little circle. Because that little circle has to be new—it cannot encompass what was done before—it can never include what is in the little red box. So that little red box is always available to the generic in that circumstance.

But the key criterion is that it has to be new. It can't have been done somewhere before.

[Translation]

Mr. Pierre Brien: Can someone contest the decision of the Canadian Intellectual Property Office to grant patent status?

Dr. Lisa McKerracher (Professor, Department of Pathology and Cell Biology, Faculty of Medicine, Université de Montréal): Yes. It often happens.

Mr. Pierre Brien: Yes. Is it a very complex, laborious and difficult process?

Dr. Lisa McKerracher: Yes. It can be very complex. It can also take years. For instance, there can be two companies that followed different processes and that were granted patents and then there is a legal process. They will examine scientific details to see if the second company has really made an improvement.

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Mr. Pierre Brien: My last question, Madam Chair...

[English]

Mr. James Mills: I'm sorry. I'd like to add something to the last question.

Essentially, any party can challenge the validity of a patent at any time, and there are different processes in which it can be done. One of them is in the context of a linkage proceeding, although that one is limited to the linkage proceeding itself. But it is open to parties to attack the validity of a patent by bringing what's called an impeachment action as well. The provision that provides for this is within the Patent Act.

[Translation]

Mr. Pierre Brien: Alright. This is my last question.

We had quite a debate on the numbers, that is the number of times a notice of compliance was not issued by Health Canada following a legal battle. There would be several cases where a generic drug has been approved by Health Canada while the matter was still pending before the courts. Do you have any statistics? Right now, we have rather contradictory versions. We could maybe add a third one to the picture. I would like to have your views on that.

[English]

Mr. James Mills: With respect to the number of cases where the generic sends an allegation, and that's the document that the generic company sends to start the entire proceeding, it is a statistic that is only available to Health Canada. So we have no basis to challenge the numbers they put forward. I think the number they put forward was 393, and Industry Canada put forward that number as well. I think they cited Health Canada as their source. But Health Canada is the only one that has this information available to them.

In other words, if we look in this document here, which was provided, I believe, earlier today by Health Canada, there is nobody who can challenge Health Canada on the 393 notices of allegation and certainly on the 183, which represents 47% where the innovator accepted the allegation and did not start a proceeding. There is no basis anyone could have for disputing those numbers because they are only available to Health Canada.

The Chair: Thank you very much, Mr. Brien.

Mr. McTeague, please.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you, Madam Chair, and thank you, witnesses, very much for being here today.

Your presence here is certainly welcome, notwithstanding the fact that we have a very short time in which to deal with what I believe to be a matter that affects all Canadians, which certainly has been evidenced by the growing cost of drug care in this country and the reports from Green Shields and the Quebec government with respect to people who are underdosing themselves as a result of having to make decisions between putting food on the table or taking drugs to cure themselves, ultimately costing the taxpayer plenty.

Mr. Murphy, Mr. McCool, and others, have referred to their interest with respect to innovation, and Mr. Pitts as well. I too am interested in innovation. I am also interested in the way innovation reflects itself in Canada's trade account balance, in particular the Canadian trade balance as it relates to pharmaceutical and medicine industry values from 1993 to 2000.

Ladies and gentlemen, in that period of time we saw total imports in Canada go from $2.059 billion to $5.86 billion. At the same time exports went from $494 million to $1.84 billion, leaving us with about a $4 billion debt. I'm interested in your definition of innovation as it relates to Canada's appearing to be falling behind the scenes, certainly with respect to the claims your industry made here in 1993, and again in 1997, and I suspect today.

We see a lot of ads on it, and we hear a lot of people talk about Canada's research pharmaceutical companies and the work they do here in this country. Perhaps, Mr. McCool, you would be the best person to respond to this. Can you tell this committee, on a percentage basis, and I emphasize percentage, what percent of new breakthrough drugs are developed here in Canada?

Mr. Terry McCool: It depends on, first of all, your definition of breakthrough. I think we get taken in by PMPRB's pricing evaluation, which tends to put a definition on new compounds where people say, that's not a breakthrough drug, or that is a breakthrough drug. There are very few breakthrough drugs based on that definition. That is not the same definition that Health Canada uses for priority reviews for approving new drugs, which is a streamlined approval process.

• 1625

There are several drugs that have been discovered in Canada particularly. I know of two or three companies that have discovery units in place. One company has been very successful in bringing a couple of products to market. The other company is now just getting its product into the development process, and there are other companies that are trying. I would also ask my colleagues from BIOTECanada to comment, because all of the products they have in development, they would view as being breakthrough and would be very disappointed if they weren't seen as breakthrough drugs.

The Chair: I think Dr. McKerracher wishes to respond.

Dr. Lisa McKerracher: I can comment, maybe not on breakthrough drugs but on breakthrough research that could lead to drugs in the foreseeable future. Those are some of the genes that have been cloned here in Canada. The gene for breast cancer was done in collaboration with McGill University and the University of Toronto. Dr. Tak Mak cloned the cystic fibrosis gene. Huntington's Corea was cloned in British Columbia. Many of these are within the last five years. The drugs have not been developed. I don't know the patent status on this, but when a new gene is cloned and the protein is identified, patents are often submitted. So these are the future products that would come out of Canada.

Mr. Dan McTeague: Mr. McCool, you raised the issue of price controls. I wish we had more time to engage, but we probably don't. With respect to price comparisons, and excluding Italy, if I'm not mistaken, Canada is among the top six countries in the world with the highest drug costs. In fact, lumping Canada in with six of the highest priced countries certainly taints the validity, I suspect, of our domestic drug cost analysis. We know this is a point that the PMPRB still chooses to ignore. Nevertheless, as Canada is included with these pricey countries, can you tell me how Canada stacks up with them with respect to dollars spent on research and development? If I'm not mistaken, I think we're dead last, with not even a company headquarters to show for it.

Mr. Terry McCool: There are a couple of questions there. So let me try to deal with them. First of all, we virtually shut down research in this country for eighteen years until 1987. In 1993, when Canada signed the WTO, research really did start to take off in this country. There are companies with head offices here. Some of them came out of the biotech industry. It's just to say that this doesn't happen here. We're comparing R and D in this country to countries that do have head offices. Most of the head offices in the past have done most of the research in their home countries. Canada is very successful at getting what amounts to about a billion dollars right now out of those head offices to do research in Canada.

When we look at our prices in this country, we currently are 11% below the international median of that basket of countries. We're not very far above countries such as France and Italy, where they have extremely high consumption, but we're nowhere near what the prices are in the U.S., which you've seen as a major issue during the last presidential election.

Ms. Janet Lambert: I would like to add that the vast majority of companies are made-in-Canada companies. I was just speaking to the point that the vast majority of inventions are made-in-Canada inventions, particularly when you look at some of the projects that are commercialized today in the agriculture sector—canola—and also yet-to-be commercialized products.

Mr. Dan McTeague: I appreciate the candour by which we are trying to achieve whether or not Canada stacks up very well with other nations. What I'm concerned about is that part of the mandate of this committee is that we are also concerned about consumers.

It would appear to me that by all measures.... Mr. McCool, you have given a rather interesting definition of research in your comment that nothing, or close to nothing, happened here prior to 1987. I think there are many people who would take exception to that.

That being the case, I'm interested in how you would rate the fact that Canadian drug costs tend to be escalating to such a point that Canadians in various forms—Green Shields and other groups—are not able to afford access to drugs. Yet, at the same time, our trade balance with the rest of the world is on the decline. We're importing more than we're exporting. That gulf seems to be widening. How is it possible for us to proffer the idea of extending patent protection, because it might be an incentive to bring more business here in Canada, when in fact I think the trend is reversed?

• 1630

Mr. Terry McCool: I don't deny the fact that drug costs are going up, but I don't necessarily look at that as a bad thing. First of all, in Canadian society not only is the Canadian population growing, but it's also getting older. And people are actually living longer. The older we get the more drugs there are available to treat some of the chronic diseases.

Mr. Dan McTeague: If we can afford them....

Mr. Terry McCool: I think drugs are fairly affordable, if you compare what the cost of disease is in this country. Drugs are actually one of the cheapest components of the total health care costs. If you just want to look at the prescription drug component, not the 15% or 16% that Statistics Canada says is drug costs, I can assure you this includes distribution costs, dispensing fees, over-the-counter preparations, which include virtually all purchases made in drugstores. It also includes patented and non-patented drugs. Of those drug portions, it's only about 8% or 9% of the total health care cost, not 15%. The patented portion is probably around 5% or 6%. I would think that's fairly good value.

The Chair: Ms. Lambert, do you wish to respond?

Ms. Janet Lambert: In terms of international patent protection and a robust patent environment in Canada, it keeps Canadian biotech companies in Canada. These are flexible entrepreneurial companies, the vast majority being 50 or fewer employees. Patent protection in Canada keeps them in Canada.

Mr. Dan McTeague: My question then to you is this. What is the price of keeping jobs in Canada if the higher price is borne on the health care system, which right now is challenging us as members of Parliament to come up with new and innovative ways? We see that the single most expensive and increasing component of the health care system is indeed rising drug costs. One is confronted with the Jack-in-the-Beanstalk scenario. We get a few beans, but very little to show for it.

I appreciate the fact that the drug industry has done very well in terms of creating jobs, yet we're not getting much for our buck. I'm also concerned about consumers being able to afford at the same time...seeing if there's any innovation.

The Chair: I have three people who want to answer this question, and then we're going to move on.

Ms. Lambert.

Ms. Janet Lambert: To respond, a biotech company's patents are its single most valuable asset. So strong patent protection is critical for that company in order to have that asset. Strong patent protection allows for lower potential risk when it comes to providing financing and capitalization for this company. This can then lead toward faster development and products on the market sooner in order to help Canadians. So there are huge social benefits there as well.

The Chair: Mr. Pitts.

Mr. Charles Pitts: I do not want to belittle any research that occurred in Canada before 1987, and God knows, there were valiant efforts and progress made, notwithstanding the conditions. Notwithstanding improvements as of 1987, it's only now that we're still creeping along, trying to become competitive on the international stage as researchers and as funded researchers. It's to the credit of people like Dr. McKerracher and many others in this country that we do have an international reputation for excellence.

Notwithstanding that, to go back to part of your question, recently the Government of Manitoba published statistics indicating that money invested in health research and in health-related industries in Manitoba produced four times greater value to the provincial economy than any other investment in any other economic sector.

I'll refer you to our brief today in which we make reference to that.

It's an important investment, without getting into the discussion on the health crisis in Canada that is real and growing. If we were to join in the economies of the 21st century, we would have to maintain our health investment, and we believe that appropriate protection of patents is going to be part of that.

The Chair: Mr. McCool.

Mr. Terry McCool: I'd just like to make a couple of points on the cost of drugs.

We always look at cost, but we never look at value and the potential that drugs have to reduce other more costly interventions. And 75% of the health care costs in Canada are probably labour driven. Yet we never attack the labour market in health care, we only attack the technology market. If we have a chance to try to mitigate that growth in health care expenditures, technology might be the best way to do it.

• 1635

The other point is the cost of drugs is a very big issue in the developing world, and both the WHO and the WTO have been able to look at that in depth. They've come to the conclusion that in order for the industry to offer their products for sale at lower prices in the developing world, the expectation is the developed world will pick up more of the burden.

Right now the U.S. picks up most of the burden. When it comes to Canada to pick up the burden on pricing, based on your comments, I don't think you'd be prepared for Canadians to do that.

Mr. Dan McTeague: South Africa and AIDS, Mr. McCool.

Mr. Terry McCool: What about it?

Mr. Dan McTeague: Can I ask another question?

The Chair: Mr. Murphy, do you have anything to add? You've been very quiet down there.

Mr. Michael Murphy: You're getting a lot of good input here. When I listen to the nature of this debate—and, of course, representing a broad-based business organization as I do, we get to discuss the impact of innovation on a cross-section of the economy in a variety of sectors.

I look at it quite simply as a series of building blocks, with respect to what kind of an economy we want to build here. Whether it's the technical amendment being made here or other work that has to be done to build an intellectual property system in Canada that allows us to compete in a knowledge-based economy, the fact that we have an opportunity here to put another stone into the building and to allow this system that we need to have built put together is a wonderful opportunity.

From my standpoint, without getting into the specifics that my colleagues have addressed, there's clearly an opportunity here in our country to promote innovation, and this is one of the steps we can take.

The Chair: Thank you.

I'm now going to turn to Mrs. Desjarlais.

Mrs. Bev Desjarlais (Churchill, NDP): Let me get it out of my system.

I'll make it perfectly clear that probably the lowest paid workers in Canada are health care workers, from the janitors right up to the doctors. Quite frankly, with all due respect, they should rip you to shreds when you leave this meeting. Apart from that, I can't do it, but I hope they would take it to heart.

I believe in response to Mr. McTeague's questions, Mr. McCool, there were other costs associated with the drug costs. You said only 8% to 9% were the pharmaceutical costs, and there were dispensing fees, those kinds of things. I'm curious. Do you not think dispensing fees are fees that should be there? It seems like it was an indiscriminate cost when you mentioned it.

Mr. Terry McCool: No, that wasn't my point at all. My point was to demonstrate that people keep throwing around a figure that drug costs are 15% to 16%, and they're now higher than physician's costs. All I want to do is make sure we are clear on the section of the prescription drug costs that we represent, which is the patented medicine drug price component, not the other components that all get mixed in there. If you just look at what we appear to be attacking here today, it is one small component of total health care costs, and my point is we get fairly good value for that.

Mrs. Bev Desjarlais: I'm just curious. Were you a pharmacist?

Mr. Terry McCool: Yes. Dispensing fees are good.

Some hon. members: Oh, oh!

Mrs. Bev Desjarlais: Dispensing fees when pharmacists had to mix up all the products were accepted. Now the products, in a lot of cases, come already individually packaged, so my question is whether there is a need for dispensing fees.

Mr. Terry McCool: Absolutely. I think pharmacists perform a great service to ensure that drugs are taken properly, that people are educated when they get prescriptions, that they know what side effects to look for and what products to avoid when they're on prescription medications.

The reason they're prescription medications is because they're very complex and they need to be written by a doctor and dispensed by a pharmacist. In terms of ensuring the products are used effectively, you can more often get the right response you're looking for. Without that, people tend not to use the products effectively.

Mrs. Bev Desjarlais: I wanted to make sure we were getting all sides of the coin here. It's only fitting that a pharmacist would stand up for the pharmacists' side, but then would slam the rest of the health care industry, so I just had to get in that dig.

• 1640

My question is for Mr. Murphy. Your report certainly reflected the need for patents. I don't think anybody's going to argue about there being some patent regulations in place. I don't think you'd ever get any argument on that. I think what comes into question is the length of the patent or, in this piece of legislation, the notice of compliance regulations; the patents that go over the 20 years that aren't being brought into question; and the injunctions by the brand-name companies, which more or less extend the length of the patent.

I'd like to refer to Mr. Mills' comment where he said, I don't think anybody can argue with Health Canada's information. In this information from Health Canada that came this morning there is some suggestion that a number of injunctions have been put in place and then removed. I'm just going by the information I was given. There is a suggestion that the brand-name companies are deliberately tying up the system in order to extend the patents and not allow the generics to get on the market. There is a suggestion that the reason the brand-name companies have to do this is because they have to be competitive and be able to make a profit. I recognize that research is expensive.

So my question in a roundabout way to Mr. Murphy is, what do you see as a reasonable amount of profit an industry has to make before it...? Is it 5%, 10%, 20%? Is it like a loan shark where they want to make a 100% or 150% profit?

Mr. Michael Murphy: Speaking of building blocks in terms of putting together your cost structure, regardless of the line of business you're in or the size of the operation, you're obviously going to be looking at your cost structure significantly. You have labour and capital, and you have other expenses to deal with. You also have to look at the marketplace you're in and the realities of that marketplace. I think increasingly for Canadian companies, part of our reality is that you're not only looking at competitors across the street or even within your own community, you're also looking at competitors that can come at you from anywhere and that quite often have very different cost structures than we might have here in a Canadian context. That would apply, I would say, in any context in terms of sector.

Mrs. Bev Desjarlais: What would be the percentage of profit?

Mr. Michael Murphy: There's no way to answer that question specifically, because it's going to depend on your individual market situation. Each company has to have a look at that and decide what they need to do to stay in business.

Mrs. Bev Desjarlais: Let's use the Fortune 500 list, for example, and look at the return on revenues. If a company that is listed way down low had a 4.5% profit and then we saw that the pharmaceutical companies had an 18% or 20% profit on revenues and they're at the top of the list....

Mr. Michael Murphy: One of the things you'll find depending on what—

Mrs. Bev Desjarlais: The point I'm making is that the pharmaceutical companies don't seem to be suffering in the sense of making a profit as compared with other industries that are still operating and make the Fortune 500 list.

Mr. Michael Murphy: I'll let my colleagues both in the biotech and pharmaceutical sectors comment specifically on theirs.

One of the things you can do with corporate profit data is take a look at them in a time series, and you'll find it depends on what's going on in the economy. I don't know what specific year you're looking at and whether those are current data.

Mrs. Bev Desjarlais: It's for 2001.

Mr. Michael Murphy: We could throw data up from several years ago in a variety of sectors that would not show a very good return. So it's really an issue across the board. It's very difficult to say at any one time, is this the norm in the industry and is that going to be constant over a very long period?

Mrs. Bev Desjarlais: The point I wanted to make as well, which relates to Mr. McTeague's comments, is about the import/export situation and whether we're really supporting Canadian companies or supporting a large pharmaceutical industry from elsewhere and really not benefiting as a country to the degree you tend to say we are.

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Ms. Janet Lambert: I think it's hard to say a specific number, whether it's 5, or 1, or 20. I think it comes back to risk and reward. If an entrepreneur is looking at taking that risk, is there the potential for reward down the road?

The Chair: Thank you.

Mr. Mills.

Mr. James Mills: If I may, I'd just like to make some comments about Ms. Desjarlais' characterization of what I said before. In particular, Ms. Desjarlais mentioned my statement that we couldn't refute the Health Canada statistics. That statement was—

Mrs. Bev Desjarlais: No, you made the comment that you wouldn't argue. That's all I was saying. I wasn't talking about you refuting them. You had just made the comment that you can't because Health Canada is the only one that has those statistics.

Mr. James Mills: Yes, and I want to clarify for the benefit of the committee, to make sure my statement isn't being interpreted overly broadly, that I was speaking about the 393 allegations and the 183 instances where it wasn't started. If we continue working down that page, again, there's no reason to dispute the numbers they have here, but there's further information that is necessary to understand what these numbers mean.

In particular, if we look at this, we have 59 dismissals and 38 prohibitions granted. Those 59 dismissals do not represent identifiable wins for the generic company, and I think that is a possible misunderstanding.

You commented in particular on injunctions being removed. There are no injunctions in here. Maybe it's legal semantics now, but it's a stay, not an injunction, and there's an important difference in the legal sense. But the 38 prohibitions granted do represent identifiable wins for the innovators.

What is not reflected in this data are cases where the notices of allegation have been withdrawn, and that's an important consideration, because that's the generic saying they give up on this case for whatever reason; it's up to them. We know there are at least 20 of those that have to be reflected in here.

In my practice, in the day-to-day litigating of these things, we typically end up having them as dismissals. So a number of these dismissals are actually cases where the generic just gave up on their case. If you count that as a win for the innovator, which I think is only reasonable in the circumstance, then we're talking about approximately a 50-50 win-loss for either side. There's a chart in our brief that explains that a little more.

My concern with that statement was that we would be seen as confirming the possibility that this could be misinterpreted.

The Chair: We have to move on to the next questioner. A lot of people still want to ask questions and we're running out of time.

Ms. Torsney, please.

Ms. Paddy Torsney (Burlington, Lib.): We have this environment where there's a lot of research going on. It's taking place both in the pharmaceutical industry, the innovative industry, however you want to describe it—“big pharma”, according to Mr. Walkom today—and we have the biotech industry.

In the numbers in terms of the research dollars that were committed to the $1 billion research figure, is the biotech industry included?

Mr. Terry McCool: No.

Ms. Paddy Torsney: It's not?

Mr. Terry McCool: That number only refers to companies with sales, so some of them could be in there if they have sales.

Ms. Paddy Torsney: So to the biotech companies specifically, you're developing a whole lot of patentable innovations—who knows what they are exactly; they're certainly not necessarily pills or pumps or patches, but they could have an impact on my quality of life, our health care system, into the future. But you don't actually have sales. That's interesting, going back to those return-on-investment numbers.

Dr. Lisa McKerracher: That was the second part of the answer, that in quite a large number of biotech companies in Canada, the profit is zero, because those are the research companies where the value is the patent. The ability to raise the investor money to bring the drug into clinical trials is the intellectual property.

Ms. Paddy Torsney: So investors are taking a gamble with you, Dr. McKerracher. Hopefully, they will have their risk rewarded with some good returns in the future. Certainly if any of my mutual funds or RRSP dollars are there, I'm hoping they're picking the right ones.

But I wonder if you could explain what is involved in the process. Clearly, you have a whole team of researchers. There's a whole lot of money going in there. You hold patents that are only good for 20 years. Will you ever see a reward on these?

• 1650

The investors aren't in the room.

Dr. Lisa McKerracher: Right.

The problem I have, and I think this is an important part of the argument, is that my research interest is spinal cord injuries, and it's an extremely small market. In North America, in Canada and the United States, there are only 15,000 cases per year—

Ms. Paddy Torsney: Thank God.

Dr. Lisa McKerracher: —but it's a market that costs society a large amount of money.

Right now there's no treatment. Nothing is done for these patients. Yet we know in animals, we can improve functional recovery by giving acute treatments immediately after the injury, not just the one I'm working on, but there are many others being developed.

There's a long regulatory period to bring this into clinic, because obviously there have to be regulatory issues followed. We have to make sure it's safe, and so on.

What the companies are banking on in my case, because the market is so small, is that there will be spinoff applications, and that's part of the patent portfolio as well. Those are some of the smaller blue dots in the chart that Mr. Mills showed. So we put the patent on the overall circle, but the drug will then be used perhaps in a stroke market, or maybe we'll find it is also effective in curing Alzheimer's disease.

That's the way research works. Things are not predicted. That's why the patents are important, and getting a huge patent portfolio surrounding it, because in essence, from the biotech point of view, we're trying to protect ourselves from the big pharmaceuticals from coming in and stealing our ideas and marketing them for us.

Ms. Paddy Torsney: And in fact, should you come up with something after all these years of investment, it's all the pharmaceutical companies, both big pharma and the generics, anybody who could potentially put this to market.

Dr. Lisa McKerracher: Potentially, because the history of a small biotech company is that it's very difficult to get the structure to do all the steps of marketing, and so there's partnering that goes on at the later stages.

I think it's a problem in Canada as well to find Canadian partners. That's why it looks like biotechs will go international, because the big pharmas tend to be international companies.

But the research stage and building the industry, the intellectual property, that's very Canadian. In fact, Canada's very strong in biotech.

Ms. Paddy Torsney: So then perhaps your being here is absolutely perfect. People are investing a whole lot of money in you and your team.

Dr. Lisa McKerracher: Hopefully a whole lot in the future. Right now we're trying to get it.

Ms. Paddy Torsney: Maybe it's good advertising. There's probably some money in the room.

You're initially going after a very small group of individuals, and there might or might not be spinoffs into the future. So you're going after 1,500 people a year. No doubt the most recent cases, when you finally get something to market, will be more successful than the other ones.

But it's a pretty important area of innovation. Between developing a product for that patent to enhance that quality of life, to allow someone to get better, it all has to be done in the 20 years, and you have to market it to get to all the patients who could possibly take it.

Dr. Lisa McKerracher: Absolutely. My first patent to develop my company was submitted in 1997. Actually the clock starts ticking at the time of issue, so patents usually take a couple of years to get issued. So you have that time. As soon as the patent is issued, the clock starts ticking.

Ms. Paddy Torsney: No, we hate to break it to you, but your clock is ticking already. You've lost four years.

Dr. Lisa McKerracher: No, sorry. That's the difference between Canada and the United States in the graph that you showed, where there's the extension of the period as well.

Mr. Terry McCool: Yes, it's all the same...the PTR in the U.S.

Dr. Lisa McKerracher: Right.

Ms. Paddy Torsney: There was some talk about costs of drugs in Canada. But frankly, if my child had a spinal cord injury, there's no price I wouldn't pay for whatever innovation you're going to come to, and there's no price that will ever offset the quality of life issue of not being productive—productive in the sense of not being able to go and work at a job, where they're clearly productive.

But it is a huge cost to have someone be in the state that the patients you're after, trying to help, are in. That's the issue of whether or not pharmaceuticals are the issue in drug costs, or whether we've switched from a model of being hospital-based care versus people being out in the workforce. We've switched from people being debilitated by mental illness and not being able to work and gain income for their families, to people being able to take drugs and produce, whether those drugs are for a migraine or schizophrenia.

• 1655

The Chair: Last question, please, Ms. Torsney.

Ms. Paddy Torsney: The other issue, though, was the marketing costs. Some people had pooh-poohed those and said they're a huge expense and that you're trying to drive the market, but we heard this morning that the second entries go after the big markets. Shouldn't the generic companies be encouraging the brand-name companies to spend lots of money, to develop a market, and to advertise like heck?

Mr. Terry McCool: It's a misnomer that they're encouraging us, but they obviously benefit from our success.

Ms. Paddy Torsney: Okay, thank you.

The Chair: Thank you.

Mr. Pitts.

Mr. Charles Pitts: Just on a point of order, you mentioned biotechnology sector and pharmaceutical sector research, but there is also the academic sector that conducts research.

Ms. Paddy Torsney: And you guys occasionally get patents too, do you?

Mr. Charles Pitts: Yes, of course.

Ms. Paddy Torsney: Good.

Mr. Charles Pitts: It's just an important sector that I didn't want to see overlooked.

The Chair: We recognize that it's a very important sector.

To end this conversation, we're going to move from Ms. Torsney to Mr. Brison.

I apologize, Ms. Torsney, but Mr. Brison has a number of questions.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Madam Chair.

The role of biotech and the synergy between biotech and big pharma in the last five years has been fairly revolutionary, not just in Canada, but elsewhere. Is it accurate to say most biotech companies are focused on developing one platform or one fairly narrow band of technology or treatment in most cases?

Ms. Janet Lambert: I don't have the statistics, but the majority are those small companies at which a scientist has discovered something at the lab and is looking to commercialize.

I'll go back to your comment around the idea that there may be several applications for one patented product. It may end up having several treatments, from stroke to Alzheimer's. That's the importance, the benefit, and the promise of biotechnology.

Mr. Scott Brison: So there's a significant, almost greater level of vulnerability with biotechs than there is with big pharma to any weakening of or uncertainty relative to patent protection in that sense.

The evolution of the capital markets around biotech has been a fairly recent phenomenon in terms of how capital markets are dealing with and financing biotech companies. How would the capital markets respond to uncertainty in patent protection policy in the biotech area? How had you expected the capital markets to respond? How would it impact the ability of early-stage biotechnology companies to raise capital in Canada?

Ms. Janet Lambert: The more there are question marks around the robustness of the patent policy in Canada, the more difficult it becomes to raise capital. The more we have robust, strong patent protection for those early-stage companies that are looking to find investors, the lower that potential risk is for those investors. It then starts mitigating in terms of providing financing.

Mr. Scott Brison: Over the last seven or eight years in Canada, in terms of biotech industry, would you credit the evolution of Canada's biotech industry largely to the patent protection changes made by the previous government, or was that a facilitative...?

Ms. Janet Lambert: Strong patents and a strong, science-based regulatory system are very beneficial for biotechnology.

Mr. Scott Brison: From a tech transfer and commercialization perspective, what would be the impact on universities of increased levels of uncertainty in patent protection policy?

Ms. Janet Lambert: In general, in universities, that's the beginning of potential commercialization, so it would be the same in the universities around research and being able to get patents. That could ultimately be commercialized seven to ten years after regulatory approvals, so it's the same concept.

Mr. Charles Pitts: Ultimately, what we will see is what we have seen, and that would be the flight of our intellectual capital. Our people go south. That would be the impact. We've seen that before, and God forbid we see it again.

• 1700

Mr. Scott Brison: I have a final comment on the the role of biotechnology, which is an issue that emerged in the presentations of various groups and organizations about this legislation. I think the most compelling argument in favour of strong patent protection is that which surrounds the biotech sector in terms of its very direct impact on Canada's research community and prosperity in the future. It's one area where we're seeing significant growth in clusters across Canada, and I'm quite optimistic about the future of biotech in Canada. It's just a comment, but from the presentations we've heard, I think there hasn't been enough focus on the biotech side.

The Chair: Dr. McKerracher.

Dr. Lisa McKerracher: I wanted to make a comment about the academic side of things and what happens to patents at the level of the university, because a lot of patents are submitted at the universities where a lot of basic research is done. The scientists themselves may decide to commercialize it, but in many cases the scientist doesn't want to do it, in which case the university then goes out to out-license it to the company.

I think by weakening the Canadian patent law it weakens the chances that Canadian companies will bring this technology in, because small biotech companies like to in-license technology to build up their portfolio as well. Uncertainty I think would also hinder that process of the licensing of patents from universities into biotech companies. Particularly in regard to non-Canadian companies that won't understand what's happening in Canada, it could have a significant impact.

The Chair: Thank you. Thank you very much, Mr. Brison.

Mr. Lastewka, please.

Mr. Walt Lastewka (St. Catharines, Lib.): I have a couple of short questions.

I want to refer to the chart where you talk about the approximately 30 products on the average of six months. Of those 30 products, how many are now being implemented by the generics and will be affected? How do we know how many of those products are really going to be affected?

Mr. Terry McCool: We don't know for certain. We've tried to do an assessment, at least within our company and some of the other companies I know, as to how many products we had that would be affected. We found that some of the products we thought we had patents on actually had compulsory licences on them from many years ago and so they wouldn't fall into this category. So we've tried to look at what are the commercially viable products that would be impacted by this extension, and as the clock continues to run, obviously there are fewer and fewer. If Canada had taken action when the WTO decision was first coming down, as opposed to appealing it, there probably would have been more products that fell into this category. But right now our best estimate is there are 30 products. That's about it. That's the best analysis we can do other than going company by company.

Mr. Walt Lastewka: I want to hitchhike on Mr. Penson's remarks that probably there will be additional discussion in the fall, especially on the chart that was issued by Health Canada and the interpretation of the items.

I think the question will become: is there abuse in the system or not? That's where Mr. Murphy would come in and be the judge maybe. I was very much interested in what number you were going to use on the profitability. You escaped that one very nicely. I think this whole thing is coming down to understanding the fairness and whether there is abuse in the system.

That's all I have to add, Madam Chair.

The Chair: Thank you, Mr. Lastewka.

I'm sorry, Mr. Mills, you wanted to comment?

Mr. James Mills: I want to comment briefly on Mr. Lastewka's suggestion that there have been people who suggested that there have been abuses in this. If we look at the table that Health Canada put forward, in my submission it's pretty clear that there's no evidence of abuse; 47% of the time no proceeding is even started. If we look at the 82 applications withdrawn, a great many of those will fall into the following category. The generic company sent an allegation that did not have all the information required to determine whether there is infringement or not. And there's a good reason they didn't do that. It's because it involves their proprietary or confidential formulation or process information.

• 1705

The courts have commented on this. The generic is not expected to give that information without any protection. So what happens is the innovator is forced to commence proceeding. Then a protective order is put in place to protect the confidential information. Only at that stage does the innovator have an opportunity to evaluate the generic's case. So if we look at the 183, you can add to it many of the 82 as well to show that the innovators are actually being very reasonable and not starting proceedings when they shouldn't be.

I've already commented as well on the dismissals and the prohibitions granted, but we have to also consider that there are incentives here for the innovators not to overstep the lines. In particular they could be liable for the damages the generic company suffers if a court finds that the proceedings have somehow affected the generic unfairly.

Currently, we only have two such proceedings started. In my submission, if there was abuse, there would be a lot more than two out of four hundred. If we look at it from the big picture, it's clear that there's an incentive not to do that. The innovative company spent $750 million to develop the product. If they sell their pill at a dollar and the generic spends $1 million to sell it, depending on whose statistics you believe, at anywhere between 50% and 75%, those are obviously huge profit margins. Responsible publicly traded companies are going to do their best to avoid incurring that kind of liability.

Mr. Walt Lastewka: You probably noticed I didn't ask you to say what side had the abuse. I've learned from Mr. Murphy how to escape that. We need to look into the whole system and air the differences.

The Chair: Thank you, Mr. Lastewka.

Mr. Penson.

Mr. Charlie Penson: There are two things I want to comment on. To follow up on one issue a little bit further, what's wrong with leaving that to be a civil action to be settled by the courts? It seems to me that's the logical case to resolve these kinds of issues and therefore I think this should continue.

I'll add one more in case we run out of time and then we'll see how much time we have for comment. There's another issue I picked up here. What I've heard is that many countries have had quite a head start, especially in the pharmaceutical areas where in Europe and the United States there are companies that have been established for a very long time. I gather you're telling us that the environment for getting a return on investment, for getting investors into areas of research or innovation, is becoming better now because we have some kind of satisfactory patent rights. Therefore, going back to Mr. McTeague's question about imports and exports on product, we have a chance to grow this industry if we have the proper protection here to allow people to get a return on investment. Is that what you're saying?

Mr. Terry McCool: We wouldn't want to comment on the civil court proceedings.

Mr. James Mills: Essentially the important factor to keep in mind here is that in many causes of action in civil proceeding, an interlocutory injunction might be available. For example, in the United States, if a generic product is put on the market, typically if there are serious patent issues there, the innovator can get an interlocutory injunction to stop that immediately, so there won't be essentially 80% of the market gone within six months.

In Canada, it's virtually impossible to get an interlocutory injunction. It's about one in three in patent cases, and it's more than twice as hard to get one when it's a pharmaceutical patent case. It's almost impossible to get an interlocutory injunction. Without the linkage proceedings—which, by the way, determine these issues at a time when the generic is not trying to get it on the market yet anyway, so for the most part they are not adversely impacted by this, other than that they know the infringement issue ahead of time—what we have is an inability for the innovator company to prevent their market from being absolutely devastated in a year and—

Mr. Charlie Penson: Is this the two-year stay you're talking about?

• 1710

Mr. James Mills: No. We're talking about if a generic company gets on the market and sells an infringing product, the innovator company has no way to stop that sale until they reach trial, which typically is anywhere from two to five years, if you're lucky. And then there are appeals beyond that. The case of AZT is a prime example. It's been going on for about nine years now.

The Chair: Thank you, Mr. Penson.

Just before I move back to Mr. McTeague, I have a question. Oh, I'm sorry, Mr. Cannis has a question.

Mr. Cannis, go right ahead.

Mr. John Cannis (Scarborough Centre, Lib.): Thank you, Madam Chair.

In addressing this technical amendment, to use Mr. Murphy's reference and to thank him for referring to it as such, I'm pleased because we're hearing from the biotech industry and everybody else.

Really what came to my mind was productivity. This dialogue that has unfolded is quite healthy for us because we've been trying to bridge this productivity gap.

And Mr. Murphy, you were quite right. If we're going to bridge that gap and we're going to make our country more productive, we have to establish the proper rules of engagement if we want to compete.

I don't know if you want to add to that, but I think you sensed around the table that everybody wants to make sure the rules are in place. I'm pleased to hear from the biotech industry, because certainly you need the clear rules of engagement in order for you to take that IP, work at it internally and then partner it, as somebody mentioned, to get it to market.

We've had so many presenters before us over the last little while who were able to talk about commercialization. “It's no longer a dirty word to say, let's take research, let's take innovation, let's invest, so we can commercialize and benefit as a nation.” So everybody talks about costs, about dollars and cents.

I have a graph here, and I see from 1987 to now the sales from the two opponents, the name brands and the generic, show a 554% increase on the generic and a 187% increase on the name brands. Why such a difference?

Mr. McCool, you represent the firm. Can you explain this to us? Everybody's complaining about cost. If this is the case, then you guys aren't charging enough.

Mr. Terry McCool: The generic industry has grown quite nicely. One of the reasons is it sometimes takes us seven or eight years to reach peak sales in a market. If you only have 10 years of effective patent life, when the generic comes on the market they are actually coming on at your peak of sales. So the market converts relatively quickly to them because of provincial reimbursement that will only reimburse the lowest costs. So if they are the first one on the market, they can usually capture the fairly good share and maintain that share. So they can do fairly well.

Our issue is that we've had to grow through new innovation; we haven't grown through prices. There's been a price freeze in Canada for the last seven years, even though PMPRB allows a CPI increase. The provinces have virtually said they would not accept price increases while they were negotiating contracts with doctors, nurses, hospital workers, etc. They've settled some of those contracts and we still have not had any relief from that. That's a real detriment to innovation, by the way.

The Chair: Thank you, Mr. Cannis.

My question actually follows up on what Mr. Cannis had to say.

You talked about how the first one on the market after the patent expires obtains its market share. Do brand companies create pseudo-generics? Do you have a popular drug that's out there and do you create a generic that can then come on the market at the same time?

Mr. Terry McCool: I think the innovative industry developed that strategy for a period of time, but it wasn't successful. It's virtually impossible to compete with the generics, because they usually have breadth of line. To try to compete with one product is very difficult in a generic market. Shelf space in a dispensary does matter. And obviously, they can reduce the price on one product if you buy one other product. If you only have generics, it's very difficult to compete, as some of the smaller generics know. Some of the big chain stores will only buy from the major generic companies; they won't buy from some of the smaller ones.

• 1715

That doesn't preclude companies in the brand side from licensing technology to the generic business when a product goes off patent. They have two sources: they can either shop the world market to find a source or they can manufacture it in Canada. Some may choose to do that, while others may just license it from a brand name. But once we do that, we are virtually out of the business.

The Chair: I have another question, but I'll let Mr. McTeague ask a question before I do.

Mr. Dan McTeague: Go ahead.

The Chair: I want to make a comment here.

Dr. McKerracher, I actually think you've raised a very interesting point here today. You may want to know that what is now the industry, science, and technology committee, for the last four years, and maybe prior to that, has studied the whole issue of research, innovation, productivity, and what they mean to Canada. We've been very consistent in recommending that money is to be invested in research as a result of what we believe creates innovation and, as an end result, also creates jobs. I think your comments today about what's happened in the last five years in the health research area, for example, have been very interesting. To me, that's where we should be going, and that's where we need to look at investing.

I guess my question is this—and this may be directed more to Mr. McCool: For the length of time it takes to develop new and innovative drugs, is the patent protection not long enough to develop those really innovative drugs? For example, I don't think there's a person in this room.... I hear about the breast cancer gene. I have four or five people in my family who have died of breast cancer in the last five years. To make it more relevant to the majority of people in this room, let's talk about prostate cancer.

Some hon. members: Oh, oh!

The Chair: I can't imagine anybody in this room not suggesting that if it's the cost factor, if there isn't the ability to be innovative, then we should not extend the patent term. I'm just sitting here listening to this and I've listened to all the debates, and I don't think you can put a price or a value on it.

Since the bells are ringing, I probably won't get an answer to my question, because we're going to have to go to vote.

Mr. Pitts, you wished to comment.

Mr. Charles Pitts: It's a little, tiny comment.

You're talking about early-stage availability of patents to allow for appropriate development of a drug, but I've had the opportunity to work with several drugs that were discovered and applied for a certain indication. As is often the case, when a drug is developed for one indication, then after some serendipitous event, it's discovered that it's useful in other things. It's discovered for gynecology and winds up being useful in Parkinson's disease, for example.

It's the artificial cut-off date with patent protection that sometimes means that once the patent is gone, no one will then venture to invest in it for other indications that may be of greater relevance therapeutically than even the initial indication. I have no answer to that, but it's a very serious problem.

The Chair: Mr. McCool, do you want to comment?

Mr. Terry McCool: Very quickly, there are two ways to get revenue. One is through angel investors, who are what the biotech industry relies on. The other is from sales of existing products. To the extent that you can have that for a period of time, it will mean you can put more money into research. Canada's period of time is shorter than other developed markets in two ways. First, from a regulatory perspective, it takes us much longer to get our drugs approved in Canada, so we lose a year to eighteen months there. Then we often have shorter patent life, so our period on the market here can be quite short. Unless Canada is prepared to address both ends of that spectrum, we'll probably never get to be as innovative as we could potentially be.

The Chair: On behalf of the committee members, I want to thank you all for being here. We do have to go to vote, so we will excuse you and we'll call our next group of witnesses when we return from the vote.

Just for members, we will ask the departmental officials.... There were some questions people wanted to ask. Anyone who didn't get a chance will have a round there, and then we'll move to the clause-by-clause. I'll wait about five or ten minutes before we go to that, if there are no questions of the departmental officials, and if there are any, we'll start with questions right away when we return.

We're now suspended until after the vote.

• 1719

• 1806

The Chair: I'll call the meeting back to order.

Mr. McTeague has a question for the officials, so we'll let him ask the question and then we'll move to clause-by-clause.

Mr. Dan McTeague: Welcome back. It's good to see you. My questions are going to be as precise and as brief as I can make them, and there are two of them.

First, I wondered if Industry Canada has had an opportunity to analyse the first and second bills that have been presented in the U.S., with respect to their applicability to the Canadian situation. I'm going to go on the assumption that you have not. Therefore, over the period of the summer, would it be possible for you to give us an illustration, or perhaps a synopsis, from your point of view, as to whether the bill itself, should it be necessary, is meritorious? I'm interested in the position taken in the United States, since Canada and the United States have the question of automatic injunction as something in common.

The second one deals with what Mr. Mills of R_x&D just presented, and that was that companies he represents couldn't get interlocutory injunctions from the normal court system. Of course, that's why he justifies the need for automatic stays. It sounds vaguely similar to the arguments you had put before this committee as well.

In the absence of an automatic stay provided by the regulations, couldn't Canadian judges themselves simply decide whether or not these interlocutory injunctions should be granted in the first place? Isn't the mechanism already there? Is there not a concern you have that due process is really at stake here, since you're erecting a unique system, as Mr. Sutherland-Brown suggested in the previous presentation he made to this committee? I'm interested in hearing what you have to say about that.

Mr. Andrei Sulzenko (Assistant Deputy Minister, Industry and Science Policy, Department of Industry): Thank you, Madam Chair.

I believe the first question was raised in relation to Senator McCain's bill.

Mr. Dan McTeague: That's right, yes.

Mr. Andrei Sulzenko: The answer is no, we have not yet had an opportunity to analyse it. If the committee is interested, we can have a look at it, of course. I might just remind the committee, though, that there are many bills tabled in the U.S. Congress by many different people. We can certainly check with our embassy in Washington, but I don't know at this point whether this one is one of many on the same subject or whether it is actively being pursued. But we could certainly investigate that and get back to the committee.

The Chair: That would be fine.

Mr. Andrei Sulzenko: With respect to the second question, I'll ask Mr. Sutherland-Brown to deal with that.

Mr. Rob Sutherland-Brown (Senior Legal Counsel, Department of Industry): Madam Chair, I think this question is addressed to the availability in the Canadian courts of interlocutory relief or interlocutory injunction pending trial on the merits.

The Canadian courts, like those in the U.S. and the U.K., follow the test from a case called American Cyanimid. Basically, that case says interlocutory relief will be available when there's a serious issue to be tried—which there usually is in these cases—and when the person seeking the injunction will suffer irreparable harm. In Canada, that means you will suffer a harm that is not compensable by money damages. And the third test is the balance of convenience.

• 1810

The Canadian courts have taken a very strict view of these tests, and, as Mr. Mills said—I don't know what the accuracy of his statistics were—it is very unusual for a pharmaceutical company to get interlocutory relief in the Canadian courts following those tests.

I would add that, in terms of how it plays out in the system, the second entrant manufacturer, who is seeking authorization from the Minister of Health to market a competing version of the product, cannot get onto the market until the NOC issues, and the litigation at issue, when the stay runs, is running when the second entrant has no right to enter the market, in fact is prohibited from entering the market by the Food and Drugs Act in regulations.

Mr. Dan McTeague: I have a great deal of trouble accepting the premise that because an industry can't get an injunction, one must automatically deduce it is because there is something wrong with due process. Would it not be more correct, sir, to suggest that perhaps there isn't enough evidence to demonstrate that in fact the patent has been infringed? Why has the Department of Industry not taken that view, which seems so obvious to everybody else in every walk of life as far as common law in this country and other countries is concerned? Why do we need this exception that goes beyond the simple requirement of the patent holder, that if they believe they're being infringed they ought to at least provide prima facie evidence? Is there something wrong with that, and if so, should we be stopping with the pharmaceutical industry, perhaps going to all other industries and creating exceptional circumstances for them as well?

Mr. Rob Sutherland-Brown: I think the answer to that, sir, is that the pharmaceutical industry is regarded as being in unique circumstances, and this is a set of rules that allows the two sides of the industry to thrash out those questions before a generic can come to the market with a notice of compliance. It is not unusual in Canadian law or other western law that when you have special circumstances the legislatures write special rules to balance the interests of those whose interests are at play.

Mr. Dan McTeague: Mr. Brown, I'm confused. You say on the one hand that this is an exception to this industry, yet your argument at the WTO with respect to early workings was in fact that there are other areas. We're coming back to the discussion we had some two weeks ago. My first days in class on law and practice were that a thing is or is not. Clearly, you've taken a position here today, and two weeks ago, that seems to fly in the face of what you had taken as a position at the WTO almost two years ago with respect to those other exceptions.

I point out that there are those exceptions. They have been raised here before. I think I raised them with you. Your letter, incidentally, did not respond to that to the committee in any satisfactory way. To cite them: agricultural products, new pesticides, medical devices, heart monitoring, X-ray technology.... I have indeed the transcripts of what you said last year, or what our Canadian government said, to the WTO on Canada patent protection for pharmaceutical products in its submission on page 45, and I'll end with this:

Indeed, the regulatory review exception has been raised as a defence in an action for patent infringement arising out of the use of a medical apparatus.

Mr. Rob Sutherland-Brown: That's correct. In the VISX case that was indeed argued, but I think I testified before this committee in my last appearance that, yes, indeed, the early working exception has application to other industrial sectors where there is a regulatory scheme in place.

What I think makes this industry more unique, and why special rules are needed, is that there are very few of these other industries where there is a vibrant generic industry capable of coming along and challenging the patents that are involved, if there are any, and making a reasonable profit out of it.

Mr. Dan McTeague: Assuming the benchmark is 20 years, however, that we do not want to allow the patents to be less or more than this, but that there is a de facto extension of the patent, why then would the position of your department have been in the past couple of years to remove the early possibility of challenges that might have averted this problem? Instead of responding to the recommendations of this committee of 1997, you aggravated the situation by removing the possibility of that kind of an early contest before courts to resolve the matter before it was actually dealt with, or could be dealt with.

• 1815

Mr. Rob Sutherland-Brown: As I understand the regulations, that's exactly what they do, sir.

Mr. Andrei Sulzenko: Madam Chair, could I add that after our first appearance here we agreed to forward to the committee certain information regarding questions that were raised, and we did so, I understand, at the end of last week. The question being asked was, I believe, covered in those documents, so I'd refer the member to them.

The bottom line is that none of the other industries that were polled reported on reliance on the early working exception. So we've gone back on that, and I believe it is the fact, as we were best able to determine it.

The Chair: I think we'll just have to agree to disagree on this one, Mr. McTeague.

Mr. Dan McTeague: In point of fact, Madam Chair, I would point out the one comment they did make on the second page:

While certain innovative industries such as pest control, medical device manufacturing and atomic energy production were found to have significant regulatory burdens, none reported having a generic sector similar to that of pharmaceuticals. Accordingly, none of these industries polled reported reliance on the early-working exception.

But in fact you have acknowledged that there are other industries that do.

The Chair: No, they just clearly clarified that there are not other industries that have—

Mr. Dan McTeague: Early workings—

The Chair: —the same types of generic industry challenging. I believe that was what Mr. Sutherland-Brown said. So I think we've clarified that point.

Are there any other questions? If I see no other questions, I'm prepared to move to clause-by-clause at this time. Agreed?

Some hon. members: Agreed.

(On clause 1)

The Chair: We have an amendment. Ms. Desjarlais.

Mrs. Bev Desjarlais: I have to get them in order here.

The Chair: Do you have a copy of the four amendments?

Mrs. Bev Desjarlais: Yes.

The Chair: Does everyone have them in front of them?

Would you like to move that amendment?

Mrs. Bev Desjarlais: Yes. Do you want me to read it out?

The Chair: No. Everyone has it. Refer to it as NDP-1.

Mrs. Bev Desjarlais: All right.

The Chair: Did you have any comments on the amendment?

Mrs. Bev Desjarlais: Yes.

In general, this amendment makes sure that all the patents go by the 20 years. There are still some patents that will go beyond the 20 years, which this legislation doesn't address, and in the view of being fair, this amendment will make sure that all patents fall under 20 years. There are some that are going beyond the 20 years that aren't being brought into....

The Chair: Is there any other discussion on the amendment?

Ms. Bev Desjarlais: For those who haven't been around for all the discussions, when we had the discussions on this section, there are some patents that will go beyond the 20 years that this legislation does not bring into the 20-year timeframe. As we're bringing the 17-year ones up to 20 years, there are some that go beyond 20 years we're not bringing down to 20 years. This amendment generally would bring all patents to 20 years.

The Chair: Mr. Sulzenko, did you wish to comment on that?

Do members have any comments?

Ms. Jennings.

Ms. Marlene Jennings: Yes. I would like to address the amendment and the issue you raised that there are some patented drugs for which the life of the patent is longer than 20 years and that this legislation doesn't reduce to 20 years, whereas those that were less than 20 years are being brought up to 20 years.

• 1820

In law, there is a precedent that you increase a right but you don't retroactively decrease a right. That means that if something has received a patent for, say, 22 years or 25 years, and the legislation that allowed for that is changed to say that from this day forward patents will no longer be issued for more than 20 years, those patents that are longer, for instance, are not retroactively reduced. We see it in other fields of activity as well. One simply has to look at the Criminal Code, for instance. That's why, when sentencing for a particular act is increased, for instance, it's never retroactive.

The Chair: Just so we're clear, the researcher has advised me that the terminology in law would be the presumption against interference of vested rights.

Ms. Marlene Jennings: Thank you.

The Chair: Mr. Penson, you had some comments.

Mr. Charlie Penson: I only wish to ask the department officials for their view here, but I gather there may not be a view coming.

Mrs. Bev Desjarlais: Actually, I guess what I'm surprised about is the fact that this position didn't come up before, and, all of a sudden, when we're doing clause-by-clause, it's coming not from the witnesses but from the committee member. I respect your position, but I'm just surprised it never came up when we had the discussion before.

Ms. Marlene Jennings: I'm not aware of any discussion.

The Chair: Mr. Penson, you have the floor.

Mr. Charlie Penson: I'd ask if the department officials would care to comment on this amendment.

The Chair: Mr. Sulzenko.

Mr. Andrei Sulzenko: Thank you, Madam Chair.

As I recall, this issue was raised when we appeared before. Although I don't recall going into great detail on it at the time, I believe I said the government had taken this decision as a matter of policy, in that it would amend the legislation as is in the bill.

On the legal point, if Mr. Sutherland-Brown wanted to add anything to what the member just explained, he'd be happy to do so, but certainly that was a clear policy decision by the government to limit the amendments to only those that were absolutely required by the WTO ruling.

The Chair: Are there any other comments? Ms. Desjarlais.

Mrs. Bev Desjarlais: What would the position of the government be if the WTO ruling suddenly comes out next year and says patents must be reduced to 15 years?

Mr. Andrei Sulzenko: I think it's a hypothetical question, Madam Chair, and I don't—

The Chair: We don't expect you to answer policy decisions that haven't been made, Mr. Sulzenko.

Mrs. Bev Desjarlais: No, I'm asking—

The Chair: You're asking him a hypothetical question.

Mrs. Bev Desjarlais: I'm asking for the legal position, then, if we cannot—

A voice: We just had a legal decision.

The Chair: Madam Jennings was referring to terminology in law. The researcher provided us with the terminology—the name of it—and there are different ways that...it's not a steadfast rule, but it's the normally followed rule.

However, there is an amendment on the floor. Is there any other discussion on the amendment? Mr. McTeague.

Mr. Dan McTeague: Just one thing. I realize there are some here who want to cling to the notional and legal purity of what constitutes retroactivity. One could probably give them the argument of why the NOC itself isn't challenged on the basis of its retroactivity. I believe that if any member of this committee wished to read the criteria under the scrutiny of regulations, they would find the whole regime is based and predicated on the—

The Chair: Mr. McTeague, on the amendment, please.

Mr. Dan McTeague: —point of retroactivity. Therefore, as parliamentarians, we set laws in this country. We have an opportunity here to set this law correctly and to correct an imbalance, and therefore I will be supporting this amendment.

(Amendment negatived—[See Minutes of Proceedings])

(Clause 1 agreed to)

(On clause 2)

The Chair: We have several amendments on clause 2. The first one is from Mr. McTeague.

Mr. Dan McTeague: Thank you, Madam Chair.

Colleagues, I want to just express that, right from the outset, I think we all agree that S-17 is about complying with the WTO. There have been very few who have come before this committee to challenge that, save and except those who have some difficulty with a decision that was made antecedent to the decision of the WTO. I am, however, interested, more importantly, in fairness in the rule of law and in maintaining some semblance of understanding of why one industry should be given exclusive privileges that have the effect of going beyond anything Parliament intended.

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You have the written work of our researcher, you have the decision of the Supreme Court of Canada, particularly the comments of Justice Iacobucci, and you also have the comments of our learned colleagues in the other place.

I'm going to read into the record, if I can, the conclusions, or at least some of the conclusions. And these are not my conclusions. They are, in fact, found on page 3 of our own research paper. These regulations, and specifically proposed subsection 55.2(4), Madam Chair,

essentially superimpose special rules on existing court procedures. The committee was told that the result is that the generic product cannot be marketed for a longer period of time than would otherwise be the case, and that this use of the regulation is tantamount to an abuse of process.

The same senators—and I remind all colleagues of both sides of the House or of the upper chamber about this—said:

In general, it is the Committee's view that the courts are fully capable of determining appropriate procedures, which should not differ substantially from one industry to another. Regulatory interference carries a risk that an unfair advantage may inadvertently be provided to [the other side].

The Committee, therefore, strongly urges that the Minister, in a future review of the legislation and regulations in question, ensure that they do not provide any of the parties implicated in patent protection with an advantage unintended by Parliament.

I want to believe the minister will indeed review this. There is no statutory requirement. There is no letter that demonstrates that we will be in fact looking at this issue again. I believe there are probably strong money forces that will ensure this issue never gets re-addressed. I hope I am wrong, but I believe there's an opportunity here to send a signal that this draconian additional regulation that was put after the fact, that is uniformly and blindly one-sided, ought to be redressed here and now. This gives us an opportunity at some point down the road to determine whether or not there should be some adherence to the rule of law.

My suggestion is that the amendment, in and of itself, simply repeals subsection 55.2(4), the offensive subsection that was inserted by the department and that ought to have been reviewed after the 1997....

And I must apologize to the colleagues here who were here in 1997. As I've expressed before—and as I think has become fairly clear—even though the last committee that was charged with looking at this issue gave directions to the industry committee to look at this issue, it was not only ignored, for all intents and purposes, but the problem was exacerbated.

I simply am in a position of trying to determine with members here today whether or not we can place our faith in the future and wait for our drug care system to incur further examples of erosion, whether we can indeed continue to see the import situation decrease for Canada, and whether or not we're going to live up to our other mandate not simply of determining what industry says is right as a result of certain interests, but what is right in our hearts and what is right for Canadians. If we do try to determine that, I think we will have at least some consideration as to why this motion is important.

This offensive regulation must be repealed, and I ask you to consider the implications not for two or three manufacturers of brand names—which I have in my riding—but for the people at the end of the line who rely on effective drug care and who understand that there is a quid pro quo to making decisions.

Thank you, colleagues.

The Chair: Thank you, Mr. McTeague.

Is there anyone else who wants to speak on the amendment? No?

(Amendment negatived—[See Minutes of Proceedings])

The Chair: We have a second amendment, from Ms. Desjarlais.

Mrs. Bev Desjarlais: Actually, it's pretty much the very same amendment, and—

The Chair: Well, it can't be the same amendment or I'd rule it out of order. It has to be a different amendment.

Mrs. Bev Desjarlais: Okay, but it's pretty much the same.

The Chair: I've been told this is in order, because we won't do the same thing twice.

Mrs. Bev Desjarlais: As I said, it's pretty much the same amendment, but it's not the same in the sense that the notice of compliance regulations do essentially give further benefit to the brand-name companies. The notice of compliance regulations are not required under the WTO trade agreements, so there's no reason to keep them within the bill. There was never an intention, from the historical aspect, that they should benefit the brand-name drug companies, and by not having those regulations in place, this would definitely bring some degree of fairness.

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I know the brand-name companies figure it's stabilizing the industry by being able to get up to the 20 years, but the reality is that our system and the people within our system are going to suffer greatly, and we are going to feel the impact of this as a country. I see no reason why we have to keep them in there. It's not going to affect the WTO agreement, not in the least; therefore, I'm suggesting deleting lines 20 to 30 on page 1.

The Chair: Oh, you're on the wrong....

Mrs. Bev Desjarlais: Am I on the wrong...?

The Chair: Yes. We're dealing with the first amendment, to lines 18 and 19.

Mrs. Bev Desjarlais: Sorry, I thought you were dealing with the other one. My apologies.

The Chair: We have to deal with lines 18 and 19 first.

Mrs. Bev Desjarlais: Okay. Sorry, I thought you were dealing with the other one.

An hon. member: [Inaudible—Editor].

Ms. Bev Desjarlais: No, because the other one is different. It's the stockpiling exemption regulation. The government has already complied with the WTO ruling on stockpiling. It no longer happens. However, within the presented legislation, it removes the power for the government to have stockpiling legislation. Now, a year down the road, should the WTO allow stockpiling, we will then have to be back here putting the stockpiling legislation back into place.

Basically, the government should maintain that power. It doesn't have to have stockpiling legislation in place, and it doesn't have to put it in force, but it should maintain the power to be able to do that. That's what this section does.

The Chair: Is there any other discussion? No?

(Amendment negatived—[See Minutes of Proceedings])

The Chair: You've already talked about the next amendment. Is there any other discussion? No?

(Amendment negatived—[See Minutes of Proceedings])

(Clauses 2 and 3 agreed to)

(Clause 4 agreed to on division)

(Clause 5 agreed to)

The Chair: Shall the title carry?

Some hon. members: Agreed.

The Chair: Shall the bill carry?

Some hon. members: Agreed.

The Chair: Shall I report the bill to the House?

Some hon. members: Agreed.

The Chair: There's no reason to order a reprint. We didn't change anything.

Just before we go, there is another proposal. I'd like to propose that we move to a vote on estimates, because we have now heard our last witness on estimates. Since we are all here, I would have someone move that we adopt the estimates.

An hon. member: I so move.

An hon. member: All of them?

The Chair: All of the estimates that are particular to Industry.

INDUSTRY

Industry Department

Vote 1—Operating expenditures $393,076,000

Vote 5—Grants and contributions $703,378,000

Vote L10—Payments pursuant to subsection 14(2) of the Department of Industry Act $300,000

Vote L15—Loans pursuant to paragraph 14(1)(a) of the Department of Industry Act $500,000

Atlantic Canada Opportunities Agencies

Vote 20—Operating expenditures $60,597,000

Vote 25—Grants and contributions $277,073,000

Canadian Space Agency

Vote 30—Operating expenditures $111,687,000

Vote 35—Capital expenditures $184,678,000

Vote 40—Grants and contribution $49,971,000

Canadian Tourism Commission

Vote 45—Program expenditures $82,460,000

Competition Tribunal

Vote 50—Program expenditures $1,375,000

Copyright Board

Vote 55—Program expenditures $1,665,000

Economic Development Agency of Canada for the Regions of Quebec

Vote 60—Operating expenditures $33,686,000

Vote 65—Grants and contribution $273,402,000

Enterprise Cape Breton Corporation

Vote 70—Payments to the Enterprise Cape Breton Corporation $36,574,000

National Research Council of Canada

Vote 75—Operating expenditures $287,170,000

Vote 80—Capital expenditures $66,284,000

Vote 85—Grants and contributions $133,614,000

Natural Sciences and Engineering Research Council

Vote 90—Operating expenditures $28,738,000

Vote 95—Grants $575,548,000

Social Sciences and Humanities Research Council

Vote 100—Operating expenditures $12,477,000

Vote 105—Grants $146,883,000

Standards Council of Canada

Vote 110—Payments to the Standards Council of Canada $5,402,000

Statistics Canada

Vote 115—Program expenditures $485,650,000

Western Economic Diversification

Vote 120—Operating expenditures $38,551,000

Vote 125—Grants and contributions $223,428,000

(Votes 1 to 125 inclusive agreed to on division)

The Chair: Thank you very much for your cooperation. I remind you of our meeting on Thursday morning. We have witnesses for our last round table on science and technology, and we have a review of the Lobbyists Registration Act. And on Thursday afternoon, we have the officials on Bill S-11.

The meeting is adjourned.