Comprehensive Economic and Trade Agreement (CETA) and Canada’s Pharmaceutical Sector

Author: Bhavesh Patel, C. Chem. Natco Pharma (Canada) Inc.

On October 30th, 2016, Prime Minister Justin Trudeau, European Commission President Jean-Claude Juncker and European Council President Donald Tusk signed the Comprehensive Economic and Trade Agreement (CETA) during the European Union-Canada Leaders’ Summit in Brussels, Belgium.

Let’s have a look at CETA from a pharmaceutical point of view.

How will CETA benefit Canadian pharmaceutical companies?

·         With CETA, Canadian service providers in the pharmaceutical sector will be on an equal footing with their EU competitors and will receive better treatment than most of their non-EU competitors.

·         CETA will provide a predictable and transparent investment climate for Canadian and EU investors in the pharmaceutical sector.

·         Canadian pharmaceutical companies will also benefit from improved labour mobility provisions, expanded access to EU government procurement opportunities, and mutual recognition of compliance certification processes for pharmaceutical good manufacturing practices.

Mutual recognition of pharmaceutical Good Manufacturing Practices

·         CETA will provide a mechanism for Canada and the EU to mutually accept the results of each other’s inspections of pharmaceutical manufacturers.

·         Continued coverage under the Protocol for pharmaceutical good manufacturing practices, may reduce the number of duplicate inspection and certification requirements for Canadian pharmaceutical manufacturers.

Government procurement

·         Under CETA, Canada will gain new access at the sub-central level (regions and municipalities) to procurement by local contracting authorities and bodies governed by public law (e.g. hospitals, schools, universities).

·         CETA’s government procurement provisions cover the procurement of pharmaceutical products as well as a broad range of services that may be of interest to the pharmaceutical sector, including technical testing and analysis services.

·         CETA has been effective since July 1st, 2017. Canadian exporters of pharmaceutical products are enjoying the advantages of the agreement, when compared to their competitors in countries without a preferential trade agreement in force with the EU.

Pharmaceutical Intellectual Property (IP) and CETA. 

CETA will only affect intellectual property rights in Canada and not the EU.

CETA requires changes to the Canadian rules governing intellectual property (IP), particularly with respect to pharmaceuticals. There are two changes specifically that are consequential:

(1) patent restoration, and

(2) patent appeal

The first is concerning the period of market exclusivity granted to new drugs. Whereas the second concerns the process for allowing generic drugs to enter the market.

1.    PATENT RESTORATION

The changes would prolong the period of protection granted to a patent holder and this would be manifested in two ways. One is through higher prices to consumers. The other is on an external balance when royalties and dividends go to parent companies outside of Canada. This section will primarily focus on the latter of these two effects. However, the first can have important redistributive effects within Canada, and even lead to a slightly lower use than that if the price had fallen.

Canada has a well-developed capability in generic drug manufacturing. Indeed, CETA excluded exports of generics from the two years of patent restoration. Those firms compete with brand-name manufacturers, who is required to patent all the drugs that will be sold in Canada. However, even when the patent is in Canada, there are royalty payments from the Canadian company for the use of intellectual property.

Canada’s Patent Act gives 20 years of protection from the date of filing. This is similar to most of the other countries due to standardization by international agreements. However the protection afforded to intellectual property can vary significantly across countries (Park, 2008). In 2005, Canada was tied for the second-strongest intellectual property protection in a list of 122 countries (behind only the United States).

The justification for CETA to make changes to intellectual property, originates from the process of bringing a drug to the market. On the one hand, filing a patent to protect IP gives 20 years of coverage from the date that the patent is filed. On the other hand, a regulatory process must be engaged to obtain approval for trials and subsequent marketing. This can be lengthy as it requires studies to prove the drug’s efficacy and safety. Since the 20-year patent period begins to count down from the date the patent is filed, the delay in getting it to market means that market exclusivity is shorter than the patent life (by roughly 10 to 15 years). After that, the drug will sell at a price closer to its production cost since generic drugs will be able to enter the market. While 5 to 10 years is still a considerable length of time for a drug that is particularly popular, other countries tend to have longer exclusivity periods by using what is termed “patent restoration”. That is, companies can argue that the approval process was long and burdensome and a longer period is required for them to recover development costs. In the EU, United States, and Japan this period is for up to 5 years. As a result, CETA will now allow for what is called a “sui generis protection” that can provide up to 2 additional years of patent protection. The aim of patent term restoration is to compensate companies for the time lost between when the patent application is filed and when the drug is eventually approved.

In Canada, the data protection is up to 8 years of market exclusivity with an additional 6 months for companies have studied the drug in pediatric populations. Generic companies are not allowed to make use of the brand-name companies’ data in their ANDSs. During the CETA consultation, Canada has rejected the extension of data protection from 8 years to 10 years.

2.    PATENT APPEAL

Another key provision includes an innovator right to appeal under the Patented Medicines (Notice of Compliance) Regulations (“PMNOC Regulations”) and a potential end to “dual litigation” in Canada under both the PMNOC Regulations and the Patent Act.

The final CETA provision regarding IPR that will put pressure on drug costs by delaying the appearance of generics is the right of appeal. A Notice of Compliance (NOC) is the term Health Canada uses when it certifies that a drug manufacturer has met their regulatory requirements for the safety, efficacy and quality of a product. In 1993, the federal government introduced the NOC linkage regulations as part of the legislation that abolished compulsory licensing to import generic drugs into Canada. Under the linkage regulations, Health Canada is prevented from issuing an authorization for market entry for a generic until the generic company can show that all of the relevant patents on the brand name product have expired. As a result, when the generic company submits its application to get a product approved, it also sends a Notice of Allegation (NOA) to the patent holder claiming that no patents are being infringed. The patent holder then has 45 days to initiate an application to the Federal Court of Canada seeking an order to prohibit Health Canada from issuing a NOC to the generic manufacturer for a period of up to 24 (originally 30) months. At that point, the matter usually proceeds to a court hearing. The stay expires either at the end of the 24 months, when the disputed patent expires or when the court case is decided, whichever comes first.

The argument put forward by the brand-name industry has been that if the generic company wins the court case and is allowed to market its product, then once a NOC has been issued any appeal filed by the patentee becomes moot. The patentee is thus left with no alternative but to start another proceeding (an action for patent infringement) once the generic has entered the market. CETA will now allow brand-name companies the right to appeal decisions made under the NOC linkage regulations. However, the generic companies have received written assurances from the Government of Canada that its implementation of the “Right of Appeal” treaty commitment will also address excessive and duplicate litigation by ending the practice of dual litigation. Dual litigation means that even if brand-name companies lose under the NOC linkage regulations, they can launch a separate case under Canada’s general patent law. It is this ability to launch a second court case that the federal government has pledged to end. Although this will work to the advantage of the generic companies there will still potentially be an additional delay to the marketing of generic drugs.

Since the EU does not use patent linkage and CETA does not require it to do so, this Right of Appeal provision applies only to Canada. Patent linkage systems automatically deliver the equivalent of an injunction without prior analysis of evidences that a patent is being infringed. In fact, the European Commission prohibits EU member countries from introducing patent linkage provisions because they delay the entry of generics. Italy was reprimanded in 2012 for trying to introduce such a system and was asked to eliminate it. It is thus ironic that under CETA, rather than Canada eliminating its patent linkage system, it will be forced to strengthen it by providing a right of appeal that will create further delays for the entry of generics. In practice, this means that under CETA there could be a further delay of 6-18 months before generics appear, as the appeal makes its way through the court system. 

Overall, it may be concluded is that the provisions in CETA regarding drug prices and the pharmaceutical industry, will lead to increased costs for Canadians and for governments without any compensating benefits.

References:

Government of Canada (http://www.international.gc.ca/trade-commerce)

Office of the Parliamentary Budget Officer. Government of Canada

Statistics Canada, Government of Canada

1 CETA and Pharmaceuticals: impact of the trade agreement between Europe and Canada on the costs of prescription drugs, House of Commons, Government of Canada.