Putting Canada’s intellectual property (IP) architecture on a sounder footing is critical to the potential of the Canadian pharmaceutical industry. 

The inadequacy of the current IP regime in the pharmaceutical sector also constitutes a point of contention in the current negotiations towards the Comprehensive Economic and Trade Agreement (CETA) with the 27 nations of the European Union (EU). Canada is being urged by EU negotiators to strengthen its intellectual property framework. Three specific changes they are calling for are a robust appeals process for innovative pharmaceutical companies, patent term restoration, and extended protection of data from innovative pharmaceutical companies’ clinical drug trials.

CETA negotiations offer Canada an important impetus to modernize its pharmaceutical IP regime. CETA could significantly increase bilateral trade with Europe and provide a boost of billions of dollars to the Canadian economy. However, modernizing Canada’s IP protection for pharmaceutical products could mean more than reducing trade frictions and expanded access to foreign markets. The proposed reforms offer the opportunity to increase investment and employment in this thriving sector and to further encourage much needed innovation.

Although Canada currently enjoys great benefits from the pharmaceutical industry, including jobs and investment, the industry is characterized by a research and development process that is lengthy, expensive, uncertain and risky. Regardless of varying degrees of overestimation or underestimation of the cost of pharmaceutical research and development, it is clearly a tremendously costly endeavour. In their 2007 article ”œThe Cost of Biopharmaceutical R&D: Is Biotech Different?,” J. A. DiMasi and H. G. Grabowski estimated the cost of developing a new medicine at US$1.3 billion and, according to the Pharmaceutical Research and Manufacturers of America (PhRMA), new drug development takes an average of 10 to 15 years with no guarantee of success.

The potential for free riding on the fixed costs borne by the innovating firm constitutes a market failure that would discourage most innovation in the absence of intellectual property protection. Patents and the other forms of intellectual property rights protection address this market failure, providing innovators with a limited period of market exclusivity. Society balances market exclusivity to encourage innovation against public access to this knowledge. Through this trade-off, the existing patent system corrects the market failure that would stymie most innovation. Patent protection is disproportionately more important for the pharmaceutical industry than virtually any other to ensure that the innovator realizes the returns on research and development (R&D).

Overall, empirical evidence suggests that stronger intellectual property protection for pharmaceuticals stimulates additional investment in R&D and innovation. The preponderance of studies examine patent protection, thus less is understood about the importance of other types of protection and the elements that should characterize other legislation. While IP protection is clearly an essential national strategy, it is crucial to recognize that the pharmaceutical industry is global in nature and laws in one country may affect the health of the industry in another. In a 2011 article Patricia Danzon pointed out that through parallel trade the weak patent protection in one nation ”œeffectively spills over to other countries, undermining the ability of the manufacturer to realize the value of the patent in countries that respect patents.”

Canada’s complacency in IP protection is threatening its relative position in the global pharmaceutical industry and changes are needed to re-establish Canada as a global competitor. Adjustments need to be made to patent term extensions, price regulation of patented drugs and basic patent linkage with automatic injunction. Updating our IP laws would provide the necessary incentives for innovation and open up trade relationships worth billions. Canada should implement patent term restoration, which would provide innovative pharmaceutical firms up to five years of additional product exclusivity to compensate for the lengthy regulatory approval process, as well as extended protection for the data from the clinical trials of innovative pharmaceutical companies.

By adopting global legislative best practices, specifically those that characterize innovation-intensive nations, Canada could attract additional pharmaceutical research and development investment and gain the research jobs that would follow. However, any changes in legislation should preserve the existing system’s commitment to safety and efficacy, ensuring the health of patients above all.

In Canada, the legal framework surrounding pharmaceutical intellectual property relies on three components. The primary intellectual property law enacted by the federal government is the Patent Act, which sets the patent regime in Canada. The Patented Medicines (Notice of Compliance) Regulations (NOC Regulations) provide for patent linkage, balancing the interests of innovator companies with those of generic manufacturers. Finally, the Food and Drug Regulations protect the data exclusivity of innovators.

Patents for pharmaceutical products and processes provide for 20 years of exclusivity for an invention disclosed in the patent application. The criteria for the invention are such that it must be novel, useful and non-obvious. Given the complexity of pharmaceutical innovation it is common for a single drug to embody many technologies and be protected by many patents with distinct expiry dates.

The EU’s concerns about a right of appeal for innovative pharmaceutical companies against generic producers are related to the issue of ”œpatent evergreening.” Critics point to ”œpatent evergreening” as a strategy to obtain multiple patents on the same product, essentially extending the term of exclusivity presented in the original patent grant. While it may be argued that incremental innovations will contribute less to social welfare than innovations that are both first-in-class and best-in-class, follow-on innovations are nonetheless important advances and worth encouraging. Optimal patent regimes will reward subsequent innovations and also allow original innovators to capture a share of the returns from incremental innovations that were spurred by the initial technological advance. A recent study by the Congressional Research Service notes that since much technological innovation occurs incrementally, incremental innovations may provide significant benefit to patients and promote competition.

The NOC Regulations connect the regulatory approval of generic drugs and patents. Prior to bringing a generic drug to market, the generic manufacturer must address the patents asserted to be relevant by the innovator company before Health Canada will issue marketing authorization. The generic firm may await expiry or claim the relevant patent is invalid or not infringed. The result is that generic firms may first face a summary proceeding to determine patent validity and later risk litigation if infringement is claimed. In like manner, the innovating firm may face litigation under the NOC Regulations and also in defending a patent’s validity. Through the patent linkage, the NOC Regulations seek to balance the incentives for innovation and the timely arrival of generic competition to the market.

Innovative drugs are protected from generic competition by Canadian law for a period of eight years through the protection of innovator data under the Food and Drug Regulations. As Paul Grootendorst and Aiden Hollis point out in their paper ”œThe CanadaEuropean Union Comprehensive Economic and Trade Agreement: An Economic Impact Assessment of Proposed Pharmaceutical Intellectual Property Provisions,” the ”œMinister of Health cannot grant a market authorization to a product that would directly or indirectly rely on the clinical trials sponsored by the firm that obtained the regulatory approval.” This exclusivity does not apply to new indications for existing drugs and only applies to drugs meeting certain criteria, specifically the first chemical entity launched in Canada.

In cross-country comparisons of patent regimes, it is most useful to examine both the most innovative nations and the emerging markets that show the greatest promise for future innovation.

In order to identify the nations garnering the greatest share of research and development dollars, table 1 presents the figures for research and development spending by geographic region for PhRMA member companies in 2009. It is worth noting that of the top 15 global pharmaceutical corporations in 2009 shown in table 2, only Roche and Teva are not PhRMA member companies.

The most significant differences across regimes appear to be in the areas of patent term extensions (where Canada is an outlier without legislation), price regulation of patented drugs (where the United States is an outlier without legislation) and basic patent linkage with automatic injunction (where Canada, the United States and Australia have provisions in place while the European Union, South Korea and Japan do not). Table 3 provides perspective on how different regimes compare and contrast with one another and how Canada measures up across each type of legislation. The countries with the highest levels of research and development spending done by PhRMA member companies, as described in table 1, include the United States, several Western European nations and Japan. Accordingly, these are the legal environments most worth exploring.

Four changes in Canadian legislation are recommended based on legislative differences across the seven countries with the highest levels of research and development spending by the world’s largest innovative pharmaceutical companies: Canada, the United States, the European Union, South Korea, Japan, Australia and Brazil.

In stark contrast to the United States and the European Union, Canada fails to provide an extra period of patent protection as compensation for time lost during regulatory approval delays. While Canadian law provides for a 20-year patent term, standard under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), there is no provision for the reduction in effective patent life due to the lapse between the filing of a patent and the grant of market authorization.

The restoration of a patent term extension of zero to five years, as in other countries, would lengthen the effective patent life of innovative therapies, increasing the incentives to invest in the research and development costs that these treatments require.

Currently, while innovative drugs are protected from generic competition through the protection of innovator data for eight years, only drugs meeting certain criteria are eligible. In addition, data exclusivity currently does not apply to new uses for existing drugs in Canada. While data exclusivity regimes differ across countries in nature, scope and extent of protection, jurisdictions such as the EU and United States provide innovative pharmaceutical companies with broader protection than Canada. The EU provides for data exclusivity extensions of 8+2+1 years. Although the United States provides five years of data exclusivity with eligibility for an additional three years for data exclusivity limited to new and essential clinical trials, it also provides 12 years of data exclusivity for new biologics. Canada should provide for more expansive data exclusivity protection, including new uses, not just ”œinnovative drugs.” Beyond such protection for small-molecule drugs, additional protection should also be provided for biologics. Strengthening Canadian data exclusivity laws will provide incentives for innovative firms to produce the data required for regulatory approval, facilitate the research process and encourage additional investment.

Canada should strengthen its anticounterfeiting legislation. Criminal sanctions in concert with regulatory provisions will protect Canada from the threat of fraudulent medicines, safeguard the health of patients and defend the innovative pharmaceutical industry from the theft of intellectual property.

Pharmaceutical counterfeiting both reduces the incentives for innovation and endangers public health and safety. Fraudulent medicines divert potential sales from innovator companies to criminal enterprises and expose the originator companies to legal liability.

Recently the Council of Europe adopted the Medicrime Convention on pharmaceutical counterfeiting and similar crimes involving threats to public health. As noted by the European Federation of Pharmaceutical Industries and Associations ”œWhite Paper on the Anti-Counterfeiting of Medicines,” the convention aims to strengthen product protection measures, ensure reliability in the wholesale distribution of pharmaceuticals and define clear obligations for starting materials. The World Health Organization’s IMPACT Programme echoes these recommendations. Suggestions included in the IMPACT Handbook (2011) include combating Internet distribution of counterfeit pharmaceuticals, establishing guidelines for a rapid response plan, developing good security practices for packaging materials, developing pharmacovigilance systems and identifying regulatory and legislative gaps.

An effective intellectual property protection framework will include legislation mandating significant criminal sanctions for pharmaceutical counterfeiting. As outlined by the European Federation of Pharmaceutical Industries and Associations (2010), legislation should prevent pharmaceutical products with false identities, histories or sources from entering the legal supply chain. Such protection of the industry’s research and development investments would promote public safety and encourage additional investments and further innovation.

Canada is one of the few industrialized nations lacking a policy for rare diseases, and the country should implement orphan drug legislation. Such legislation would allow Canadian firms to quickly get new therapies for the treatment of rare diseases to patients.

Unfortunately, the existing patent system fails to provide incentives for research into orphan (rare) diseases and diseases of the poor due to a lack of profits. As there is no official Canadian definition of rare diseases, it is worth looking to other nations for statistical perspective on these conditions. In the United States, rare diseases are those affecting fewer than 200,000 Americans, while the European Union defines such diseases as those affecting 1 per 2,000 or fewer people. Overcoming this obstacle to drug development for these types of diseases would enhance global social welfare and provide the potential for therapeutic relief to many of the world’s most vulnerable.

Pharmaceutical firms rely disproportionately on patents and other forms of intellectual property protection to ensure innovators are able to see returns to their research and development. Pharmaceutical patents protect process and product innovations, encouraging the development of therapies that enhance and extend lives on a global scale. This innovation necessitates protection, and this protection necessitates a trade-off. Patents provide market exclusivity in exchange for continued investment in innovation.

Canada’s current IP protection regime is a stumbling block to accessing billions of dollars on EU markets. Compared to Canada, EU countries are able to approve new drugs more quickly and provide earlier access to innovative medical therapies. With these recommended changes, Canada could attract more life science research investment, create additional research jobs and speed the development of new medicines.

The legislation that facilitates the growth of a prospering generic industry differs from that which nurtures a robust innovation-based industry. The recommendations described here provide for an enhanced legal environment to safeguard patient health, encourage therapeutic advances for rare diseases and foster a robust innovative pharmaceutical industry. While these suggestions may generate fierce debate, the discussion surrounding these proposed changes is critical to improving health in Canada and to sustaining the excellence of the Canadian health care system.

This summary article is drawn substantially from ”œIntellectual Property Law and the Pharmaceutical Industry: An Analysis of the Canadian Framework,” Lybecker’s contribution to The Economics of Intellectual Property Protection in the Pharmaceutical Sector, the second instalment in MLI’s Pharmaceutical Series.

One candidate after another has surged, generating excitement and interest temporarily, only to flame out. As of this writing, four candidates remain: former speaker of the House Newt Gingrich, former senator Rick Santorum, Congressman Ron Paul and former governor Mitt Romney. Together, these candidates represent the four poles of the big effective Republican tent that Ronald Reagan constructed in the 1980s. Mitt Romney has yet to convince Republicans he can construct a similarly solid and popular structure for the 21st century.

Texas congressman Ron Paul is the libertarian candidate, representing the anti-government impulse at its purest " and most extreme. The newsletters from the 1990s in his name uncovered by The New Republic, which Paul now says he did not write, reflect just how extreme his sensibility is. As the Washington Post reported January 27, 2012: ”œThe articles included racial, anti-Semitic and anti-gay content. They claimed, for example, that the Rev. Martin Luther King Jr. ”˜seduced underage girls and boys’; they ridiculed black activists by suggesting that New York be named ”˜Zooville’ or ”˜Lazyopolis’; and they said the 1992 Los Angeles riots ended ”˜when it came time for the blacks to pick up their welfare checks.’”

Paul in some ways evokes the pre-Reagan, 1960s-era John Birch Society right. In those days, conservatives were angrier and more marginal. Paul instinctively recoils at modern government in all its gargantuan size, not just the welfare state. He is an old-fashioned, 19th century constitutionalist, wishing he could turn back the clock to a simpler, thriftier, less governed America. His newsletter suggests that at least originally he did not mind if it was a whiter, more racist, more sexist America, although he is now shrewd enough " or evolved enough " to distance himself from those positions. Thus, he keeps himself as a libertarian, giving off just a whiff of the reactionary he once was.

Ronald Reagan did indeed say in his 1981 inaugural address that ”œin the present crisis, government is not the solution, government is the problem.” Nevertheless, by the time he became president, Reagan understood that he had to temper his libertarianism with realism, and govern more or less within the status quo. Ultimately, Reagan slowed the rate of growth of government. He did not shrink the government, nor did he close government departments he and his fellow Reaganauts hated, such as the Department of Education. Reagan, who shared Paul’s charming, ”œaw shucks” sensibility, made conservatism popular by slapping a smileyface on it. Reagan’s conservatismwith-a-smile proved much more popular than the traditionally cranky conservatism of Barry Goldwater, the earlier incarnation of Ron Paul and the John Birchers.

Despite being a Catholic, Rick Santorum has become the darling of the Evangelical Protestant conservatives who still have a very strong voice in the Republican Party, especially during primary season. Santorum’s popularity reflects the maturation of the Moral Majority set, reflecting the Evangelical understanding that American politics cannot be exclusively denominational or confessional. Over the years, the Evangelicals have allied with Orthodox Jews and conservative Catholics " although we are seeing that their coalition-building skills do not yet reach over into Utah, the centre of Mitt Romney’s Mormon religion.

The Reagan revival blazed the trail for the Santorum swoon in two critical ways. First, while the Evangelical entry into politics began in earnest under Jimmy Carter in the late 1970s, Reagan brought it more into the mainstream and solidified its alliance with the Republican Party. But Reagan treated Evangelicals with tough love; while wooing them he often broke their hearts. Reagan did not push the social conservatives’ ABC agenda " fighting abortion, busing and crime " as aggressively as Evangelicals hoped. Rhetorically, he was much tougher on liberals as California’s governor in the 1960s than he was as America’s president in the 1980s. Substantively, both as governor and president, he understood the art of compromise.

Reagan also paved the way by not quite living the Evangelical lifestyle his allies preached. While he had a long, happy marriage to his second wife, Nancy Reagan, Ronald Reagan was the first divorced president, the pater familias of a famously dysfunctional family and a Hollywood type who had gay friends, who had an openness to difference that tempered his image and sometimes frustrated his allies.

Still, the Evangelicals remain a formidable force. Karl Rove and George W. Bush blamed the Bush deadlock with Al Gore in the 2000 election on an estimated 3 to 4 million Evangelicals who stayed at home in November 2000, appalled as they were by rumours of cocaine use and drunk driving by a younger George W. Bush. If Romney wins the nomination, he, too, will have to worry about how to make sure the Evangelicals show up to vote, just as President Barack Obama in 2012 has to figure out how to get young people, independents and other disillusioned members of his 2008 coalition to show up at the polls.

Although former speaker of the House Newt Gingrich had a complex relationship with Ronald Reagan " along with everyone else in the mainstream Republican Party " Gingrich is the 2012 candidate who most carries Reagan’s ideological flame. Gingrich represents the conservative ideology that Reagan mainstreamed, as the GOP lost its liberal wing, its Rockefeller Republicans, as they were known, in honour of the liberal New York governor and Gerald Ford’s vice-president, Nelson Rockefeller. Gingrich is ideologically most in synch with the Republican Party of today, a kind of libertarian lite à la Reagan, with enough conservative positions that could please Evangelicals, and did help him.

Yet, whereas Ronald Reagan’s pleasing personality was so attractive that even many who disagreed with him nevertheless loved him, Newt Gingrich’s mercurial, blowhard, know-it-all personality is so toxic even many who agree with him detest him. The steady drumbeat from former Senate majority leader Bob Dole and also from much of the House leadership of the 1990s denouncing Gingrich’s leadership is a devastating indictment of this presidential wannabe. To know him, to work closely with him, is to loathe him. That is a surefire formula for failure in a political culture that ends up being so distracted by concerns that President Barack Obama is too much the Mr. Spock, not warm and fuzzy enough. Most Republicans seem to understand, moreover, that likability and stability are only some of the personality traits Gingrich lacks, despite his obvious intelligence and vision.

Especially when compared to his opponents, Mitt Romney represents the Eisenhower Republicans, the patrician Republicans, the business Republicans, who have long been the backbone of the Republican Party. In the Reagan administration, James A. Baker III represented that important sensibility and stabilizer in the Republican identity, and George H.W. Bush was also from that stream. But Bush’s son, George W. Bush, understood back in 2000 that being a patrician business Republican was not enough. In the modern era, you need a little more ideological bite. Moreover, in a recession-burdened America, while some do hope for a businesstype to help revive and protect the American economy, in a political year when rage against the ”œ1 percent” has become a defining cliché, a vulture, er, venture capitalist with a quarter of a billion dollars stashed in many banks in the US and the Caymans may not quite be the go-to guy.

Romney remains the strongest candidate in the field, especially because of the Republican impulse to select the established candidate who appears to be the rightful heir. Romney has to hope that he does not become the Walter Mondale of 2012, the ”œinevitable” candidate who wins the nomination but never quite wins the hearts and minds of his own party. Instead, Romney’s people should be hoping for a bit of 2008 redux. That year, a somewhat stiff, occasionally awkward, inexperienced candidate named Barack Obama became a better and better candidate the more adversity he experienced during the primaries. Hillary Clinton’s opposition brought out the best in Obama " a point many forget but the many campaign books about 2008 emphasize. Furthermore, the harshest attacks against Obama came out in the primaries, especially the revelations about his close relationship with his demagogic, unpatriotic preacher, the Reverend Jeremiah Wright. By the time the general election came, Obama had been inoculated from damage " Americans were bored by Republican charges they had already heard. Romney has to hope that the worst of his tax returns and Bain Capital stories have already been exposed and will soon bore voters, who have the attention span of a child with ADD at the end of a long school day.

Meanwhile, to journalists’ delight, the Republican nomination battle is now guaranteed to drag out into the spring. By February, former senator Rick Santorum was enjoying his Paul Tsongas-Bill Bradley moment. Remember them? Each of these former senators enjoyed a momentary surge when running against a flawed candidate on the Democratic side. In 1992, Tsongas was the Massachusetts media darling who had a brief moment in the political sun, attacking Bill Clinton as a ”œpander bear,” with pander sounding like ”œpanda,” thanks to Tsongas’s Massachusetts accent. New Jersey senator Bill Bradley was the former New York Knicks basketball star and Rhodes Scholar who distracted voters momentarily when Al Gore ran as the inevitable Democratic candidate in 2000. Both Tsongas and Bradley proved more popular with reporters than with voters, particularly by prolonging campaigns threatening to end too quickly, given the media’s need for an extended fight.

After winning three caucuses and minor elections in Missouri, Minnesota and Colorado in early February, Santorum proved useful to reporters anxious to drag out the Republican campaign, even though most reporters abhorred his cultural conservatism. Tsongas and Bradley were high priests serving in the church we could call ”œOur Lady of the Principled, Priggish Politician,” appearing to waft above the normal political fray. That gave their fleeting surges particular appeal, as they lorded over their more worldly rivals, feeding mass American fantasies about politics as a higher calling. Santorum lacked that appeal " or a particular popularity with reporters, many of whom viewed him as a puritanical prig. His Catholicism appealed to the bigoted Evangelical Protestants who would rather have a Catholic than a Mormon president.

Much has been written about the bigotry from the right against Mormonism, but in this campaign, that bigotry was also being reinforced from the left. The unfair obstacles Mitt Romney faced due to prejudice against his community of faith did not trigger a backlash of support from the left or the right. On the right, the lack of indignation reflected the deep prejudice among the bigots who view Mormonism as an abomination not a Christian denomination. On the left, it reflected a pro-Obama protectiveness laced with an instinctive anti-Mormonism.

A recent ”œroom for debate” among New York Times guest bloggers asking ”œWhat is it about Mormons?” reflected the kind of static Romney endures from those who would normally be primed to see the underlying hostility against him as a civil rights issue. The five experts the Times solicited about Mormonism were unflattering, to one degree or another. Sally Denton, the author of The Money and the Power, wrote about the Church’s male-dominated world with the tag line: ”œGiven that Mitt Romney is a high church official and not just a member, voters are right to be circumspect.” Jana Riess, who wrote Flunking Sainthood, asked ”œCan a Candidate Be Too Perfect?” explaining that ”œvoters want someone they can identify with. Historically, that does not bode well for Mormons.” Ian Williams, a refugee from Mormonism, said in ”œIt May Look Good on Paper.” ”œBut some of us who have experienced the Mormon life firsthand would rather choose a messy, colorful America.” And ”œThere Is a Dark Side to Mormonism,” warned another author, Jane Barnes, saying, ”œWhen it comes to the social agenda, the Mormon Church does not respect separation of church and state.” Finally, readers learned about ”œMormons’ Double Legacy” from Professor Laurie F. Maffly-Kipp, who said, ”œJust as Mormons seem to be ideal Americans, they also provoke typically American fears.”

In fairness, the short entries raised issues that were shaping the contemporary conversation about the leading Republican candidate. But it is instructive to substitute the words ”œMormon” and ”œMormonism” in judging whether the overall impression provided enlightenment or bred bigotry. I doubt the Times would have run a debate asking: ”œWhat is it about” blacks or gays or Catholics or women or Jews? Would it have been acceptable to write in 1960 about John Kennedy’s Catholicism: given that the Kennedys have met the Pope and support the Church, ”œvoters are right to be circumspect,” or in 2000 during Democratic vice-presidential candidate Joe Lieberman’s stint as the first Jew on a major ticket, that ”œthere is a dark side” to Judaism? How about an analysis in 2008 that ”œjust as” African-Americans like Barack Obama ”œseem to be ideal Americans, they also provoke typically American fears?”

Standing alone, each of these articles analyzed the fears of others. But their cumulative effect together, with no full-throated defence of Mormonism, created this noxious impression. Mitt Romney was careful to downplay his religion, emphasizing that he is a Jesus-believing, God-fearing Christian. Given what he experienced left and right, it seemed like the shrewd but unfortunate strategy to follow. Still, this was yet another moment when Republicans yearning for Reaganesque leadership realized how unfortunate it was to be stuck with Romney. Romney lacked that flair, that ability to laugh off bigotry or to end the attacks with one well-delivered rhetorical knockout punch. That left Republicans feeling hungry, not satisfied, yearning for the builder of a Reaganesque coalition and hoping for a Reaganesque leader who could calm their fears, take on Obama and lead America with the aplomb their hero frequently showed.