The Parliamentary Budget Officer released a report last week providing its estimate on the economic impact of the Canada – EU Trade Agreement. While the Liberal government made CETA its top trade priority when it came into office (and the Conservatives claimed that the deal would add $12 billion to the Canadian economy), the PBO report concludes that the economic benefits will be modest at best.
The report devotes a full chapter to CETA’s intellectual property provisions, particularly the patent related rules that will have a direct impact on the pharmaceutical industry. CETA establishes patent restoration and patent appeal rules that will extend the term of patent protection for pharmaceutical products, thereby increasing consumer prices and royalty outflows. With a regulatory framework designed to address pricing in place, the report focuses on increased royalty outflows with extended protection.
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As the TPP negotiations reached their conclusion in Atlanta last October, one outstanding issue stood above all others: protection for biologics. While not well understood by the public, at issue was billions of dollars and access to cutting edge medicines. The Trouble with the TPP series examines the outcome of the biologics issue and argues that even with less protection than the U.S. advocated, the TPP’s requirements still represent a significant problem for global health (prior posts include Day 1: US Blocks Balancing Provisions, Day 2: Locking in Digital Locks, Day 3: Copyright Term Extension, Day 4: Copyright Notice and Takedown Rules, Day 5: Rights Holders “Shall” vs. Users “May”, Day 6: Price of Entry, Day 7: Patent Term Extensions).
Biological drugs are pharmaceuticals involving complex molecules or mixtures of molecules that are made of biological sources manufactured within a living system. They differ from conventional drugs that are manufactured by combining chemical ingredients. Building on greater knowledge of genetics and cell processes, the area represents a major growth area for the pharmaceutical industry. With the complexity comes cost, however, with biological drugs far more expensive than conventional ones. Much like the generic pharmaceutical industry creates cheaper, generic versions of chemical drugs, companies have begun to create “biosimilars” as cheaper versions of biological drugs, relying on data from clinical trials to formulate the alternative. Pharmaceutical companies have therefore sought protection for the clinical data.
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For the second time in less than a year, Canada and the EU have announced that they reached agreement on the Canada – EU Trade Agreement. Back in October 2013, there was an announcement of an agreement “in principle”. The announcement did not include a release of the text and the parties said there was still further work to be done on drafting and legal analysis. Yesterday, brought another announcement of an agreement on the text. Once again, the announcement did not include a release of the text and the parties said there was still further work to be done on legal review and translation into 23 languages.
Given the agreement is 1,500 pages, the additional work is expected to take a considerable amount of time. While government ministers claimed that CETA “is ready for debate and ratification”, the reality is that there cannot be a meaningful, informed debate without the actual text. Releasing it for full study and comment is the essential next step.
Analysis without the text is difficult, however, the combination of prior leaks and media reports indicate that Canada caved on its concerns regarding the potential replication of Eli Lilly-style pharmaceutical patent lawsuits.
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In the early 1990s, pharmaceutical giant Eli Lilly applied for patent protection in Canada for two chemical compounds, olanzapine and atomoxetine. The company had already obtained patents over the compounds, but asserted that it had evidence to support new uses for the compounds that merited further protection. The Canadian patent office granted the patents based on the content in the applications, but they remained subject to challenge.
Both patents ultimately were challenged on the grounds that there was insufficient evidence at the time of the applications to support the company’s claims. The Federal Court of Canada agreed, invalidating both patents. Eli Lilly proceeded to appeal the decision to the Federal Court of Appeal and later to the Supreme Court of Canada. The company lost the appeals, as the courts upheld the decision to invalidate the patents.
My weekly technology law column (Toronto Star version, homepage version) notes that under most circumstances, that would conclude the legal story as nine Canadian judges reviewed Eli Lilly’s patent applications and ruled that they failed to meet the standards for patentability. Yet in June 2013, the company served notice that it planned to file a complaint under the North American Free Trade Agreement claiming that in light of the decisions, Canada is not compliant with its patent law obligations under the treaty. As compensation, Eli Lilly is now seeking $500 million in damages.
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As noted in another post on the CETA intellectual property provisions, one of the key elements in the deal from a European perspective was patent term restoration, which effectively allows the large pharmaceutical companies to extend the term of their patents (additional posts on the need to release the draft text and the telecom and e-commerce provisions). The change will delay the entry of generic alternatives and, as acknowledged by Prime Minister Stephen Harper, will raise health care costs across the country (estimates run into the billions). In fact, the Ontario government has already indicated that it may seek compensation (or “mitigate the impact”) for the additional costs.
Ironically, the CETA deal comes just as the government’s Patented Medicines Prices Review Board issued its annual report that shows that the major pharmaceutical companies spending to sales ratio continues a decade-long decline, hitting its lowest level since the last time the Canadian government caved to pressure for patent reforms. According to the PMPRB released data (which is gathered from the companies themselves), the R&D-to-sales ratio for members of Rx&D (the lead pharma lobby) was 6.6% in 2012, down from 6.7% in 2012. The Rx&D ratio has now been less than 10% for the past ten consecutive years and is approaching its lowest level since tracking began in 1988. From a global perspective, Canada fares very poorly, ranking ahead of only Italy with countries such as France, Germany, Sweden, Switzerland, the U.K., and U.S. all seeing greater expenditures.
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