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Executive Summary

The Canadian Parliament is moving toward a patent extension compromise that would do away with compulsory licensing but would enhance the price control powers of the Patented Medicien Prices Review Board (PMPRB). According to a bill (C-91) that recently passed the first major milestone of "tabling" by the House of Commons on June 23, marketers of patented drug products in Canada would be assured of market exclusivity throughout the full 20-year (Canadian) patent life of their products. The bill would continue the process begun five years ago of dismantling the compulsory licensing system established by Canada for pharmaceuticals in 1969. The original system required innovators to license generic competitors as soon as the original product reached the market. In 1987, that law was changed significantly to assure innovators at least seven years of exclusive marketing before the compulsory licensing could be required. The 1987 amendment also established the PMPRB. The C-91 amendment would eliminate compulsory licensing altogether, thus allowing generic competition only after an innovator's patent expires. This change is being interpreted in Canada as effectively adding an average of three years of marketing exclusivity to patented products in Canada. A government spokesperson said the C-91 amendment is meant to implement the actions promised by Canada in January, when it announced that it would comply with the draft text of the General Agreement on Tariffs and Trade published in December 1991. The draft text calls for the end of selective use of compulsory licensing. Several companies greeted the tabling of C-91 with promises of increased R&D expenditure and manufacturing in Canada. Glaxo Canada stated that it will begin construction of a (Canadian) $70 mil. manufacturing facility in Mississauga, Ont. "pending... federal legislation in support of the GATT agreement." The company also estimates C$275 mil. in R&D spending "over the next five years." Merck Frosst said that the Mevacor manufactured in Kirkland would be for the Canadian market and selected European countries. Marion Merrell Dow Canada said it will increase R&D spending 50% to C$30 mil. in 1992 and "will be investing C$150 to C$200 mil. over a six-year period" through its Nordic Merrell Dow R&D subsidiary. The firm added that such increases "will require additional improvement in patent protection to a term similar to that offered in Europe and the U.S." Bristol-Myers Squibb announced it would begin a C$27 mil. expansion of its Caniac, Quebec research facility. Upjohn said its Don Mills, Ont. facility has been chosen to manufacture two new product lines worth an estimated C$14 mil. in export revenue "because of the amendments to the Patent Act tabled by the Government of Canada." The Pharmaceutical Manufacturers Association of Canada predicts the overall drug industry investment in Canada as a result of the change in the compulsory licensing law will exceed "$400 mil. in new capital and R&D investment." PMAC maintains "that figure is in addition to the almost $2 bil. in estimated research funding which will come from the industry between 1992 and 1996." PMAC contrasted the new investment funds with "the deferred discount" from the delay in generic market entries that would follow the passage of C-91. While the patent protection proposals are being hailed by the research-intensive industry, the increased price control powers may set a significant precedent. Price review bodies modeled on the Canadian PMPRB have cropped up in several of the legislative proposals concerning the drug industry in the U.S. recently. Under the Canadian amendment, the PMPRB could require firms to undertake various remedial actions for price violations. These include: reducing the price to a level "the Board considers not to be excessive"; reducing the price to a level for a period of time that would "offset the excess revenues" earned; reducing the price of another drug the company markets in Canada to a level that would make up the "excess revenues"; and paying the Canadian government a lump payment "not exceeding the amount of the excess revenues." If the board determines that "the patentee engages or has engaged in a policy of selling the medicine at an excessive price," it can order assessment of monetary penalties equal to double the excess revenues be assessed, either as price decreases or fines. The bill also provides for legal action should a firm fail to comply with PMPRB's decisions. The Canadian government characterized C-91 as a way to defend against high introductory prices for new drugs. In a June 23 release, Consumer and Corporate Affairs Minister Pierre Blais said that "entry prices of new patented drugs have been a concern." Another government spokesperson said the board's authority to force firms to pay back revenues or double revenues derived from "unfair" prices would provide a deterrent against introducing drugs into Canada at high prices. Current law allows the board to lower drug prices but not to force firms to repay what the PMPRB determines to be excessive profits. In considering whether a company has priced its patented product unfairly, the Board would consider several factors outlined in the bill, including: "the prices at which the medicine has been sold in the relevant market" and other markets in Canada; the price of the medicine and others in its therapeutic class in Canada and other countries; and changes in the Consumer Price Index. The bill also specifies that only research costs in Canada will be taken into account to determine a fair price for a drug. PMPRB has held only one hearing since its founding in 1987 because "almost all" companies choose to act "voluntarily" to lower their prices before PMPRB takes action. The board's current enforcement authority lies in its authority to mandate compulsory licensing before the normal term of exclusivity if firms do not lower prices to an amount specified by the Board.

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