Stronger intellectual property for pharmaceuticals would benefit Canadians

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Appeared in the Globe and Mail Economy Lab

Canada's lagging intellectual property (IP) protections for pharmaceutical innovators are a key issue to be settled in the Comprehensive Economic and Trade Agreement (CETA) negotiations with the European Union. They may also play a role in upcoming negotiations for the multi-country Trans-Pacific Partnership (TPP). Two new essays on the cost and benefits of stronger protection suggest Canadians would be far better off, in both economic and health terms, with an IP protection regime for pharmaceutical innovators that was more closely aligned with international standards.

There are three key areas where Canada's protection of pharmaceutical innovator intellectual property falls short of protections offered in Europe, the US, and a number of other nations. The first is patent term restoration, or restoring patent time lost to mandatory regulatory delays. The second is on a right of appeal for patent holders (allowing patent holders in Canada the right to appeal court rulings that invalidate their patent). The third is extended data exclusivity, the time during which generic manufacturers are not permitted to use innovator data for drug approvals.

Critiques of stronger IP correctly point out that weaker IP protection allows for less spending on pharmaceuticals. Government estimates suggest the costs of aligning Canada's protections with international standards could be between $367 million and $2 billion annually. These figures have been a strong motivator for those calling for Canada to defend relatively weaker IP protections in trade negotiations.

But let's put those numbers in perspective. According to the Canadian Institute for Health Information, total drug expenditures in Canada in 2012 were forecast to be a little more than $33 billion dollars, roughly 16 per cent of total health spending ($207 billion). That means the estimated cost increase falls somewhere between 1.1 and 6.1 per cent of drug spending, and between a 0.2 and 1.0 per cent increase in total health spending.

The impact on provincial budgets is smaller. Some 37 per cent of Canadian drug expenditures were covered by public sources in 2012. That means the increase in total government health spending (assuming the distribution of the increase matches that of spending generally) would be between 0.1 and 0.5 per cent.

While these costs are not insignificant, they must be balanced against the many and multifaceted benefits of stronger IP protection.

First, consider the benefits that would accrue to Canadians in the absence of enhanced trade. Enhanced IP protection for pharmaceuticals in Canada would increase incentives for activity in this knowledge based industry that pays relatively high wages for both highly-skilled and low-skilled employees. The resulting benefits include reduced legal ambiguity and litigation in Canada, greater research and development (R&D) expenditures, additional job creation in the pharmaceutical industry, greater pharmaceutical self-sufficiency, improved access to medical innovations, and additional innovation in medicines.

The benefits from trade, resulting from increased access to international trading agreements, would be more impressive.

The Comprehensive Economic and Trade Agreement (CETA) offers access to the world's largest single common market (the EU), with a population of over 500 million and a gross domestic product of $17.4 trillion. CETA has been estimated to offer a 20 per cent boost to Canada's exports to the EU and to add $12 billion to the economy annually. CETA offers reduced tariffs (particularly for fish and seafood, footwear, and textiles), access to the EU's $3 trillion government procurement market, and some $2.3 billion in non-tariff barrier reductions (including regulatory duplication, packaging, and labeling requirements).

TPP offers a similarly large economic benefit, where TPP countries (Australia, Brunei-Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US, and Vietnam) represent a prospective free trade zone of over 785 million people with a GDP in excess of $26.4 trillion. One study estimates TPP may yield annual income gains of $9.9 billion for Canada and increase exports by nearly $16 billion. The major attraction of TPP is the size and dynamism of the Asian market, including China's potential future inclusion.

Equally important is Canada's bargaining position in current and future trade agreement negotiations, where stronger IP protection may not only improve our bargaining position in TPP but also improve access to future agreements in other regions including Asia and Latin America (where the EU and U.S. are aggressively pursuing free trade agreements).

Of course, enhanced IP protection is not the only matter to be resolved in these trade negotiations, and other criteria need to be met before Canadians can reap the benefits of these trade agreements. However, this policy area is of significant importance to Canada's counterparts in these discussions and has the potential to become a sticking point.

The benefits of more closely aligning Canada's protection for pharmaceutical IP with international standards are considerable, and likely overwhelm the cost increase in pharmaceutical expenditures. It makes little sense for Canada to continue to provide less protection to pharmaceutical innovators than other nations.

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