A 7 DS Aa ON el OM TA A OD

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BITTER:

PILL

Bill C-22 will present Canadians
with a $500-million drug bill

Despite broad public opposition to the changes to federal dru ‘slation — Bi
C-22 — and objections from the Senate which oe, 10 Ratalek aarh ek So
hearings it conducted across the country, the Mulroney government has again pushed the bill
through Parliament and has demanded that the Senate pass it in unamended form. The
constitution provides for a Senate-Commons conference in the event of such disagreement, but
the Tory government, under pressure from both the U.S. government and the pharmaceutical
multilnationals, has rejected that course, and wants the bill passed over all opposition. The
following critique of the bill, presented by the Alberta Federation of Labour Hs the Senate
hearings, provides a review of the issues at stake for Canadians. It appears here slightly edited.

The amendments to Section 41 of the
Canada Patent Act contained in Bill C-22
will reduce competition in the prescrip-
tion drug industry and create higher
pharmaceutical costs for the Canadian
public and particularly for provincial
governments.

Profits and market share of the for-
eign-owned multinational corporations,
already undesirably high, will increase,
while Canadian-owned generic drug
manufacturers will suffer.
Compulsory Licensing in Canada

There has been a long-standing policy
favouring the use of compulsory licen-
sing of medicines patented under the
Act, whereby the manufacture of generic
substitutes of brand name drugs is per-
mitted as a method of price control in the
pharmaceutical industry.

Contrary to some published reports,
this policy dates back to 1923 and has
survived numerous changes of govern-

ment to the present day. i
It was upon the recommendation of the

Harley Committee that the Canada Patent
Act was amended in 1969 to create even
greater generic competition by allowing
compulsory licensing for importation of
foreign-produced generic components
and drugs.

The rationale for compulsory licensing
is obvious and as valid today as it was in
1923 or 1969. Quite simply, it is not in the
public interest to allow monopoly control
in the pharmaceutical industry. Yet a
standard 17-year patent on a drug witha
probable life span of between 10 and 15
years would virtually create such a
monopoly. In order to achieve the rapid
availability of potentially life-saving drugs
at an affordable price, compulsory licen-
sing was established in Canada.

The reason for the 1969 amendments
was simply that drug prices in Canada
were too high. That wasn’t just the con-
clusion of the Harley Committee in 1966,
it was also the findings of both the 1963
Report of the Restrictive Trade Practices
Commission and of the 1965 Hall Com-
mission on Health Care.

Not only were prices too high, but be-
cause of the complete foreign domination
of the Canadian drug industry, virtually
no research and development was taking
place in Canada. According to David
Fowler and Myron Gordon in their book,
the Drug Industry,

“In 1968 such [R&D] expenditures
were 3 per cent of sales in Canada, while
they were more than double that in the
U.S. ... Practically: nothing by way of R
& D activity was introduced in Canada
through subsidiaries of the multinationals
that were established here. The dollar
amounts of the expenditures were trivial,
and the qualitative level of the research
even lower.”

The 1969 amendments were designed

not only to bring down drug prices but
also to stimulate growth of a Canadian
industry that might begin to create valua-
ble R & D employment here in Canada.

An analysis of just how effective those
amendments were can be seen by com-
paring drug prices in 1968 with those in
1976. In the Gordon and Fowler study it
was found that a large sample of equally
weighted drugs were 10 per cent more
expensive in 1968. >

By 1976, although overall Canadian
Prices relative to the U.S. were un-
changed: “The large fall [20 per cent] in
Canadian prices relative to the U.S. on
drugs for which compulsory licenses were
obtained suggests that the policy has been
a huge success,”

Later T. Brogan and G Roberge fi
that 1983 drugstore and» mane aan
chases of 68 single-source drugs cost 23
per cent less in Canada, but that in pur-
chases of 32 drugs under compulsory
licensing the cost was 143 per cent less in
Canada. Their figures strongly support
claims by the Canadian Drug Manufac-
turers Papen that Canadians will
pay up to $650 million more for drugs b
1995 if Bill C-22 is enacted. ee

If the Canada Patent Act as it now
stands is effectively keeping drug prices
down in Canada and encouraging the
growth of a Canadian industry, why has
Bill C-22 been brought forward? One of
the obvious answers is the political in-
fluence of the multinational drug com-
panies.

Multinationals the Market

The 65 foreign-owned multinationals
represented in Canada by the Pharma-
ceutical Manufacturers Association of
Canada (PMAC), fought long and hard
against the 1969 amendments. They even
challenged the bill (C-190, renumbered
as C-102) in court and appealed the royal-
ty rates established for compulsory li-
censes (generally 4 per cent) in an effort
to delay production of generics.

The PMAC has been lobbying the
Mulroney government through a firm cal-
led Government Consultants Limited.
That firm is headed by ‘‘three of Mul-
roney’s oldest and closest supporters,”
according to a Financial Post article.

Furthermore, the multinationals, un-
surprisingly, have the full support of
U.S. President Ronald Reagan. Reagan
himself, as well as U.S. trade negotiator
Clayton Yeutter, and Ed Pratt, Chair-
man of Reagan’s Trade Advisory Board
(and head of the multinational drug com-
pany Pfizer Inc.), have all lobbied the
‘Canadian government on behalf of the
multinational corporations.

The Mulroney government is in the
strange position of parroting the multina-
tionals’ arguments in defence of C-22.
These can be summed up in two points.

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First, there is an ethical argument about
the sacredness of intellectual property
rights (and how compulsory licensing of-
fends those rights).

Secondly, there is the economic argu-
ment that only with high, monopoly
prices can the pharmaceutical giants af-
ford the tough expensive job of research-
ing and developing new drugs. These are
both nonsense. Most intellectual prop-
erty, notably the cutting edge of physics,
mathematics, medicine, biology, and
chemistry, is in fact published and dis-
seminated widely to help advance sci-
ence — not patented and hidden away in
corporate storerooms.

Regarding the profits necessary to
fund ongoing research, there is ample
evidence that the multinationals are not
lacking that return under current condi-
tions.

H.C. Eastman, in the 1985 Report of
the Commission of Inquiry on the Phar-
maceutical Industry, noted that generic
firms were currently accounting for only
21 per cent of the $416-million Canadian
market for the 32 drugs they were actual-
ly producing and that ‘‘sales of the 70
compulsory licensed drugs in Canada
amounted to $328 million out of a total of
$1.6 billion for all ethical drugs in 1983 or
20 per cent of total sales.”

Eastman concluded that the overall
profitability of firms in the pharma-
ceutical industry, as measured by after-
tax profit on capital employed, was more
stable than that for most industries in
Canada and that neither growth nor em-
ployment showed adverse effects from
generic competition.

Pharmaceuticals has long been recog-
nized as one of the most profitable indus-
tries. American surveys show consistent
after-tax returns in the 20 per cent range.
There is little question that, generic
competition notwithstanding, the multi-
nationals are having no problems funding
research.

It should be noted that Canada only
accounts for 2 per cent of world drug
sales. At an estimated R & Dcost of $100
million for a new drug, a Canadian subsi-
diary would only have to realize 2 per
cent or $2 million in profit to have cov-
ered its share of research costs. In fact,
the modest Canadian share of the world
market tends to support the claim that
the multinationals really object to Cana-
dian policy simply because it could con-
vince other countries to pass similar
legislation.

Any logical examination of the facts,
then, supports the retention of the Cana-
da Patent Act as it now stands. Compul-
sory licensing is doing what it is intended
to do. It is keeping drug prices within
reasonable limits and encouraging a
growing Canadian generic industry. The
arguments of the Mulroney government

and of the multinational drug companies
do not hold up.

Yet Bill C-22, passed by the: House of
Commons on May 6, 1987, conforms
exactly with the wishes of the foreign
multinationals and operates directly
against the interests of the Canadian
people.

By giving brand-name firms a ten-year
patent period during which no compul-
sory licenses may be granted, the bill will
effectively end the price competition
generated by the generic manufacturers.

Not only will Canadian citizens be
hard hit by higher drug prices; provincial
drug plans will also face major cost in-
creases. Provincial plans providing free
drugs to senior citizens or drug reim-
bursement programs will eventually not —

have any generic substitutes left as pro-

tection against monopoly pricing.

Ontario Health Minister Murray El-
ston estimates that Bill C-22 will cost the
Ontario government close to $35-million
per year in added drug expenses.

What do Canadians
get in return?

Not only does Bill C-22 give the multi-
national corporations everything they
were asking for, it does so without de-
manding anything in return. The eriginal
stipulations about Canadian manufac-
ture of fine products and of increased
research and development expenditures
in Canada (5 to 10 per cent of revenues by
1995) were deleted from the final bill. The
proposed’ Drug Prices Review Board had
its wings clipped so that production costs
cannot be examined effectively, and its
remedial powers were curbed.

Bill C-22 serves only the interests of
foreign-owned (largely American) multi-
national drug companies. It provides an
already highly profitable industry with
increased monopoly. pricing power and
does so at the direct expense of the
Canadian public, provincial government
treasuries, and Canada’s germinal gener-
ic drug industry. It reverses the long-
standing federal policy of compulsory li-
censing that has proven itself so effective
in stimulating competition and lowering
drug prices.

Furthermore, it does so without a sin-
gle obligation upon the multinationals to
increase Canadian production of drugs or
components or to increase and maintain
research and development activities in
Canada.

The only explanation for such a one-
sided, anti-Canadian piece of legislation
is that it was an American demand in the
ongoing bilateral trade talks between
Canada and the U.S. It is just another
example of Canadians losing traditional
rights and benefits in the quest fora level
playing field in the trade talks.

PACIFIC TRIBUNE, SEPTEMBER 2, 1987 ¢ 5