EU/Canada deal: is it fair trade?

A new trade deal between the EU and Canada is expected to boost the transatlantic pharma business, but will one side benefit from the arrangement more than the other?

Pharmaceuticals are at the heart of the ambitious trade agreement whose final details have just been agreed between the EU and Canada; both sides agree that it will improve market access and facilitate innovation for drug companies on both sides of the Atlantic.

But although the deal breaks fresh ground by being a detailed free trade pact going beyond tariff abolition, concluded between the EU and a major world economy, the European Commission has been careful to play down expectations for a similar deal with the US in the Trans-Atlantic Trade & Investment Partnership (TTIP) negotiations.

‘They are not the same,’ said a Commission official. ‘The size of the market and its dynamics are different. The Comprehensive Economic and Trade Agreement (CETA) with Canada shows that a meaningful free trade agreement between advanced partners is possible, but it does not prejudge the outcome of the EU-US negotiations.’

CETA will open up trade between the EU and Canada by removing customs duties, ending restrictions on bidding for public contracts and providing safeguards for investors

The 28 EU countries are collectively the world’s second-largest producers and exporters of pharmaceuticals, after the US, with nearly a third of world output. Canada is the fifth largest market for the EU whose pharmaceutical exports to Canada in 2013 were just over US$4.5bn, slightly up from 2012, and more than twice as high as shipments in the other direction. These are huge numbers and it is neither a surprise that the CETA negotiations took five years, nor that its coming into force may not be until 2016. The texts have to be agreed by the Canadian and European Parliament, the EU Council of Ministers and – unusually – EU member states individually (although it is not sure that their parliaments must vote), because the breadth of CETA means it affects policy areas that are the preserve of EU national governments.

CETA will open up trade between the EU and Canada by removing customs duties, ending restrictions on bidding for public contracts and providing safeguards for investors. There will be greater co-operation between expert bodies such as medical councils and greater freedom for professionals to become established.

Change in IP protection

But dwarfing all other issues for the pharmaceuticals industry, are the changes it will bring in Canada’s patent protection arrangements, bringing in, among other things, additional (sui generis) patent protection for pharmaceutical products and effective rights of appeal for patented medicines litigants for the first time.

Under CETA provisions, protection for pharmaceutical patents in Canada will allow companies to extend patent monopolies (currently 20 years) on eligible patents in respect of products that are subject to regulatory delay when achieving market entry. The deal will offer research-based pharmaceutical companies the potential to recover up to two years of time lost as a result of lengthy regulatory approval processes. Canada is the only G7 country that does not provide any form of patent term restoration.

Canada and the EU both agreed under the Uruguay Round of the World Trade Organisation (WTO) to reciprocal tariff elimination for pharmaceutical products. ‘Therefore, bigger impacts for the pharmaceutical sector derive from other sections of the (CETA) agreement, such as the IPR chapter,’ said Sergio Napolitano, in charge of trade and IP issues at the European Generic Medicines Association (EGA). ‘In this section, while introducing in Canada an up-to-two year sui generis extension of the patent protection (similar to the SPC or supplementary protection certificate – in Europe), the agreement also includes an export exception to the SPC period which extends market exclusivity for originator industries for regulatory marketing approval delays.’

The EGA calls on the European Commission to seize this historic opportunity to increase manufacturing growth and employment in the pharmaceutical sector

This SPC export exception, if enacted in Europe, would create up to 60,000 new export-related jobs in the generic and biosimilar medicines sector while boosting the EU’s capacity to supply cost-competitive medicines to patients, he said. ‘This is why the EGA calls on the European Commission to seize this historic opportunity to increase manufacturing growth and employment in the pharmaceutical sector by introducing the SPC export exception foreseen in the CETA’ in EU regulations, he told Manufacturing Chemist.

Adrian van den Hoven, EGA Director General, said generics and biosimilars would represent 80% of the volume of medicines by 2020 and if Europe wanted to keep a strong pharmaceutical manufacturing sector, it needed to adopt the SPC export exception now.

In a joint statement with Rx&D (the Canadian research-based pharmaceutical companies’ organisation), the European Federation of Pharmaceutical Industries and Associations (EFPIA) welcomed CETA as ‘beneficial to patients on both sides of the Atlantic, as well as for innovation and research’. Richard Bergström, EFPIA Director General, said: ‘We look forward to working with all relevant stakeholders to ensure that this agreement delivers for patients and innovation in both the EU and Canada.’

In our industry, the business model is shifting towards more partnerships. CETA is a great example of this

Russell Williams, president of Rx&D, said the deal was ‘an important step towards putting Canada on the same playing field as its major trading partners’. Canada wanted to do business with its European counterparts. ‘In our industry, the business model is shifting towards more partnerships. CETA is a great example of this. We now look to the governments involved to move swiftly on implementation; this is good for all the countries involved, and it’s good for Canadians,’ he said.

These are carefully chosen words since it is clear that the CETA agreement has not met with universal acclaim in Canadian medical and pharmaceutical circles. The Canadian Medical Association Journal (CMAJ) reported that ‘opinion remains sharply divided on its cost implications for numerous medicines marketed by European pharmaceutical companies’. It said that ‘according to the Government, in attempting to induce drugmakers to invest in job-creating research by sweetening drug patents, Canadian negotiators carefully balanced patients’ needs with its economic aims. But academic critics who’ve looked at official and unofficial texts of the deal disagree.’

One of the most critical analyses of CETA has been made by the Canadian Centre for Policy Alternatives (CCPA), a highly-regarded research institute concerned with issues of social, economic and environmental justice. Its report claims to be the first independent analysis of the completed CETA text, including assessments of the agreement’s impact on intellectual property rights for pharmaceutical products.

CETA ‘is unbalanced, favouring large multinational corporations at the expense of consumers, the environment, and the greater public interest’, argues the report. It will force Canadians to pay C$850m to C$1.6bn (US$761m to US$1.43bn) more for patented drugs annually – ‘a 7–13% increase on drug spending, which is already the second highest in the world per capita after the United States’.

The authors conclude that those paying – consumers, businesses, unions and government insurers – ‘will face substantially higher drug costs as exclusivity is extended on top-selling prescription drugs’ and challenge the claim that extending patents encourages investment in drug development. ‘The countries that are increasingly attracting pharmaceutical R&D expenditures are emerging countries with much lower levels of patent protection,’ they say.

The IP provisions of CETA would delay market entry of cost-saving generic prescription medicines in Canada in the future

Jeff Connell, Vice President, Corporate Affairs of the Canadian Generic Pharmaceutical Association (CGPA) told Manufacturing Chemist that the IP provisions of CETA would ‘delay market entry of cost-saving generic prescription medicines in Canada in the future’, although CGPA was pleased with safeguards for Canadian generic pharmaceutical manufacturers.

Canada was the only country that allowed brand-name pharma companies to sue generics companies multiple times on the same patents, adding to the costs and risks of bringing generic drug competition to the Canadian market. ‘CGPA welcomes the commitment to reduce the burden on the courts, bring earlier finality to pharmaceutical patent disputes and deliver greater business certainty for generic pharmaceutical companies in Canada,’ he said. The organisation was disappointed by the inclusion of a patent term extension, ‘but welcomes the Government’s commitment to cap the maximum length of extension at two years’.

Connell added that CETA ‘sets an international precedent as the first trade agreement that permits an exception under the period of patent extension for the production and other activities related to the export of generic medicines’.

Circumstantial evidence

Meanwhile, a study by the Conference Board of Canada, funded by brand-name drug manufacturers, argues that ‘circumstantial evidence’ from Europe suggests stronger intellectual property protection will encourage investment in new drug development in Canada. CETA ‘likely will boost Canada’s innovation ecosystem with minimal, if any, negative consequences’, argued the study’s Director, Dr Gabriela Prada. European countries with patents longer than Canada’s ‘have not seen drug prices increase faster than Canada over the last few years,’ she added.

Donald Makowichuk, President of Canadian Pharmaceutical Consultants, said the issue he had with the agreement was that ‘early access to lower cost alternatives will be decreased’.

European countries with patents longer than Canada’s have not seen drug prices increase faster than Canada over the last few years

He added: ‘Costs for these medications will be more expensive for the health system. I will also suggest that the profitability of the pharmacy retail sector will decrease as professional allowances on generics provide a significant amount of revenue to this sector.’

The range of individual pharmaceuticals had decreased dramatically in Canada and this was ‘particularly worrisome’. This is a complex issue, with benefits and risks to all parties. ‘Most of these new pharmaceuticals are manufactured in India and China with quality control provided in Canada. On this area it will have a dramatic effect as supply to Canada will be impacted,’ he said.

These and other observations suggest that there could be political difficulties in getting CETA ratified in Canada. There will have to be specific legislation to amend existing laws such as the Patent Act and the Food and Drug Regulations and this could provide opportunities for setting out changes to sui generis protection and for defining the rights of appeal, among other things.

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