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Pharmaceuticals bill will drive up costs:
MRG/CHC brief opposes Bill C-91

1992


The following is a summary of a brief prepared by the Medical Reform Group and the Canadian Health Coalition opposing Bill C-91, the pharmaceuticals legislation introduced by the federal Progressive Conservative government.

The federal government has introduced Bill C-91 which will abolish compulsory licensing for drugs, with the consequence that the company introducing a new drug onto the Canadian market will be in a monopoly position until the patent on the drug expires -- about 13 years. The government claims this bill will lead to increased investment in Canada by the multinational drug companies and at the same time consumers will be protected against undue price increases. Similar claims were made when Bill C-22 was passed in 1987. In this brief, the Canadian Health Coalition and the Medical Reform Group will first analyze the effects of Bill C-22 in order to see how well reality matches the initial set of predictions around the bill. We will then focus our attention on whether or not the new legislation is really necessary for the economic viability of the multinational sector of the pharmaceutical industry. Finally, we will conclude with an analysis of the likely impact on consumer prices should Bill C-91 be enacted.

To date the large generic drug companies have not suffered financially due to Bill C-22, but the full impact on them has yet to be felt. When Bill C-22 was introduced the government and the industry promised that it would lead to the creation of 2,000 new R & D jobs between 1988 and 1995 in the pharmaceutical industry. To date, R & D jobs have only been increasing at 215 per year, well short of the 250 necessary. Although prices on patented drugs have been rising at less than the Consumer Price Index since 1988, prices on all drugs, patented and unpatented, have been going up faster than the CPI. More importantly, the delay in the appearance of generic competitors means that significant cost savings are foregone. If there is a single generic competitor, the difference between the generic drug and the brand name one is 24%; when there are four generic competitors the difference is 65%. If there was generic competition for the cholesterol lowering drug Mevacor, the Ontario Drug Benefit Plan could be saving more than $1.4 million annually. Spending on R & D in Canada has increased significantly, but most of the money is being used to fund clinical trials, not to do basic research. In a survey of leading medical researchers, 90% foresaw a likely conflict of interest in accepting money from the drug industry; 80% deemed pharmaceutical clinical research 'me too' research; and 40% were worried about a potential delay in the publication of unfavourable results.

The pharmaceutical industry in Canada has consistently shown high profit levels. Over the decade ending in 1987 the pretax rate of return on equity for drug manufacturers averaged 34.5% compared to an average for all manufacturing industries of 15.2%. Despite these enviable figures the industry argues that it needs increased patent protection in order to realize an essential return on its investment in the drug discovery and development process in Canada. The drug companies claim that it takes a global investment of US$231 million to bring a new drug from discovery to marketplace and only one in three drugs recover their R & D costs. However, the studies that the industry uses to back up these claims deal with only a very narrow universe of new drugs and drug companies and it is not clear that their results can be generalized in the way that PMAC does. Moreover, recent research has challenged their conclusions. A survey of 39 American, Japanese and European companies found that the large majority said it took less than US$200 to research and develop a new drug.

New drugs are launched in Canada at a substantial premium compared to older, and in many cases, just as effective drugs. Between 1982 and 1989 antihypertensives, antiarthritics and ulcer medications introduced onto the Ontario market were priced 35-60% higher, on a daily treatment cost basis, than existing drugs. With compulsory licensing newly introduced patented medications are subject to price competition from gen-eric products within seven to ten years. Without compulsory licensing there is no price competition until the patent expires. At this point that is an estimated 13 years, but if approval times for new drugs drop, as both the government and the industry hope they will, then instead of 13 years it could be 14 or 15 years.

The Medical Reform Group and the Canadian Health Coalition believe that the benefits from Bill C-22 have not been clearcut and that the costs may only be beginning to be recognized. Therefore, we cannot accept the government's pronouncements about the effects of Bill C-91. Furthermore, we can find no evidence that the new bill is necessary for the economic health of the industry. On the contrary, there is good reason to believe that the elimination of compulsory licensing will only serve to drive up the cost of prescription drugs. Therefore, we recommend that the government abandon its plans to proceed with Bill C-91.

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