When the federal government announced late last month that it was considering revisions to Canadian drug regulations that could jeopardize the availability of lowcost generic drugs, the multinational drug industry was quick to express its enthusiasm. There was outrage, however, from the Canadian firms that manufacture and sell the cheaper, noname versions of such popular drugs as Valium and Inderal. The full impact of the changes on Canadian retail drug prices will remain unknown until Consumer Affairs Minister André Ouellet unveils his final proposals in the fall. But he has made it clear that he plans to alter a system that has saved Canadian consumers at least $1 billion over the past 14 years.
Under current law Canadian companies can manufacture and sell drugs developed by other firms if they pay a royalty to the firm that developed the drug.
The result has been that Canadian drug companies have been able to discount generic noname versions of well-known brand-name drugs developed by such pharmaceutical giants as Hoffmann-La Roche Ltd. and Dów Chemical. The system, called “compulsory licensing,” was introduced in 1969 after public outcry over drug company profits. Before the change, a company that developed a drug was guaranteed exclusive rights by patents to sell that drug for 17 years. As a result, the company enjoyed total control over the drug price during that period. A special Canadian parliamentary committee called for compulsory licensing as a way to introduce more competition into the drug market. Large, mainly foreign drug companies argued that they needed the security of exclusive rights to recoup the heavy costs of research and development, estimated at between $70 million and $100 million for a new drug. They have lobbied heavily against compulsory licensing since it was introduced.
Ouellet has not made it clear how he will alter the system when he introduces amendments to the patent act next fall. But the alternative options he outlined were all aimed at giving the original drug developer more protection against competition from low-cost generic substitutes. The debate has been bitter because the companies that develop the drugs are all foreign-owned multinationals. Although some generic drug producers are also foreign, Canada supports an estimated 10 companies that produce and market no-name drugs. Some of the Canadian firms started as a result of compulsory licensing legislation. Bernard Sherman, president of Canadian-owned Apotex Inc., which markets several types of ge-
neric drugs, argues that multinationals still have the lion’s share of the Canadian drug market but charges that “the greed of the international drug firms has no bounds.” Sherman says that any substantial weakening of the compulsory licensing provisions could drive Canadian firms trying to compete with the multinationals out of business.
In fact, brand-name drug manufacturers still control 90 per cent of the Canadian market, but the impact of generic drugs where they exist has had a dramatic effect on prices. For instance, in Ontario pharmacists can buy 100 tablets of Valium for $13.09, while the cost for the cheapest equivalent generic product, made from the drug diazepam, is only $2.13—a difference of more than 500 per cent. While estimates vary, all parties acknowledge that compulsory licensing has meant large consumer savings. The government estimates the saving at more than $100 million a year over the past 14 years.
Ouellet’s announcement that he is considering amendments to Canada’s patent act has prompted opposition charges that he has bent to pressure from the multinational drug firms, which has been the major group pressing for changes. Two separate academic studies have found that the current system has been successful in
keeping consumer drug prices down. In 1981 a report for the Economic Council of Canada recommended that “compulsory licensing be retained in its present form.” And a 1981 report on the drug industry by two Canadian economists concluded that the system caused the price of drugs facing competition to fall dramatically. Myron Gordon, a University of Toronto finance professor who coauthored the report for the Canadian Institute for Economic Policy, says that the end of the compulsory licensing system would be very costly to hospitals and patients on provincially subsidized drug plans, which only subsidize pharmacists for the lowest-priced product.
Furthermore, a confidential internal discussion paper prepared within the department of consumer and corporate
affairs—a copy of which has been obtained by Maclean's—also found that compulsory licensing effectively lowered drug prices. “While generic products rarely attain more than a 25-percent market share, they do have the effect of lowering the price of the original patented drug,” says the paper, prepared last September by the department’s bureau of policy co-ordination.
Ouellet says that his main purpose in altering the regulations is to “stimulate growth in the Canadian pharmaceutical industry.” The Pharmaceutical Manufacturers’ Association of Canada (PMAC), an organization representing multinational drug companies operating in Canada, estimates that altering the current drug-manufacturing regulations could lead to roughly $500 million in increased investment in new research in Canada during the next five or six years. Others, however, remain skeptical that the changes will have any effect on investment in Canada. The U of T’s Gordon notes that drug companies do very little basic research in Canada now. “I don’t see how the proposals under consideration will reverse that,” he says. The internal discussion paper is similarly pessimistic, pointing out that strong market forces push companies to locate their research facilities in countries that, unlike Canada, provide access to large markets and sophisticated manufacturing plants.
The apparent lack of support for Ouellet’s changes—apart from that of the multinational corporations—has led both opposition parties to focus on the role of Martin O’Connell in the matter. Since leaving his cabinet post as labor minister after an electoral defeat in 1979, O’Connell has acted as a parttime consultant for two multinational drug firms, which he refuses to name. Last winter PMAC retained him, and O’Connell helped to prepare the association’s brief to the government on compulsory licensing. After severing his ties with the industry last January, O’Connell was retained by Ouellet the following month to help the federal government consider what to do about compulsory licensing regulations. O’Connell, who continues to consult for the government, says he does not believe he is biased in favor of the multinational drug firms simply because he worked for them. “My interest is in what is the best policy for the country,” O’Connell told Maclean's.
But the Canadian companies that produce generic drugs fear that O’Connell may in fact have helped his former clients. With Ouellet planning to consult provincial governments, industry and consumer groups before introducing his amendments, it is a charge that the minister is likely to hear again in the coming months.
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