America's "Great Generic Wars" and the Canadian-European Trade Agreement

As a young pharmaceutical manager, I became involved in America’s “Great Generic Wars” in the late 1970’s. It was an epic struggle between the U.S. brand name manufacturers and numerous generic drug producers that wanted to make generics widely available on the U.S. market. Depending on your point of view, the wars were fought over “the future viability of the American research drug industry”…or… “providing low cost generic products to all Americans.”

The conflict raged for nearly 30 years, but in the end, the generic firms soundly defeated the brand name industry. Today in the U.S., over 86% of all Rx prescriptions are written for generics (http://goo.gl/2kn1M3 ).

Given that big win by the generic industry in the U.S., it’s been more than interesting watching what our Canadian neighbors to the North are apparently about to visit on their generic drug industry, courtesy of a new international trade agreement.

Canadian and Europe's Comprehensive Economic Trade Agreement (CETA)

CETA is a massive (1500 pages) agreement that has been hammered out between Canada and the 28 members of the European Union. In negotiation since 2009, the pact is nearing “principal approval” by both sides, possibly as early as this fall. It’s expected that with the needed Euro parliamentary and Canadian provincial governmental approvals, it will be another two years before final acceptance is achieved (http://goo.gl/8yJAj4 ). However, in the end, CETA will eventually cover thousands of products flowing between Canada and the EU (http://goo.gl/JR6yHw).

Although there are various issues in the document that have generated “heat” on both sides of the Atlantic (“dairy protections” on the Canadian side; “investor protections” on the EU side), clearly one of the most controversial aspects of the new pact revolves around a series of pharmaceutical intellectual property agreements that were reported in the just leaked “final” CETA document published in Germany on August 14^th (http://goo.gl/Y2fBgx).

CETA Changes to Canadian IP Policies

Depending on your point of view, Canadian CETA negotiators have either “caved” to the pressures of the big European drug makers; or the EU has convinced Canada it is best to “harmonize” Canada’s current Rx IP system with that of the EU.

Either way, these developments have to be seen as a major concern for the Canadian generics industry. Here’s why (http://goo.gl/hPG3jI ):

1. Patent Term Restoration

Canada commits to creating a new system of patent term restoration that effectively delays the entry of Canadian generics into the Canadian market by two years (Note: This is versus the EU countries which are allowed five years of patent term restoration).

2. Data Protection Reaffirmed

Canada confirms and underscores its current “data protection” system that is utilized by Canadian brand name manufacturers, thereby denying any expedited access to key Rx data by Canadian generic houses as they make their generic Rx applications.

3. Right of Appeal

CETA implements a new “right of appeal” timeline for Canadian brand name manufacturers under the Canadian “patent linkage system” (expiration of all existing patents on a drug) that will likely increase the delays experienced by Canadian generic companies by approximately two years as they attempt to enter the market.

If these three agreements hold up, in each case, it’s pretty clear that the European and Canadian brand name manufacturers have succeeded in making life significantly more difficult for the Canadian generic drug industry.

So, what does all this mean to Canadian citizens?

Well, depending on who you read, there are many possible outcomes:

For example, on the “pro” side of the CETA ledger we find…

· The Alzheimer Society of Canada stating that this new deal will cause an additional $12 billion in “knowledge based investments” to come into the Canadian economy, something that the Society sees as beneficial to future Alzheimer’s research.

· The Canadian Pharmaceutical Manufacturers is stating that as with the global 1994 TRIPS IP agreement, CETA will only open the doors to more investment in the Canadian brand name drug industry, driving new Canadian R&D, and ultimately producing new Rx drugs that will benefit Canadian citizens (http://goo.gl/gnajLe)

While on the “con” side of CETA we find…

· The Generic Pharmaceutical Manufacturers Association stating that the delays in generic drug competition that CETA will create will cost the Canadian health care system approximately $2.8 billion in lost Rx savings, annually.

· As a result, Canadian consumer groups are claiming that the new CETA agreements will end up costing Canadian consumers 13% more for individual Rx drug costs, annually, and that this new pharmaceutical IP provision will result in increased healthcare taxes since the government has pledged to cover for any Rx cost differential that may be generated the pact (http://goo.gl/IhXYkM).

The Canadian Politics Behind CETA

To the outside observer, what can be made of all of this?

Well, one fact that I think we do need to understand is that this Rx IP element, relatively speaking, is “small potatoes” versus the broader vision of CETA that Canadian Prime Minister, Stephen Harper, sees. Indeed, he has described CETA as “the biggest Canadian trade deal ever” (http://goo.gl/Dxd62x )…even bigger than NAFTA. Numerically, he’s certainly correct as the EU market is comprised of 500 million people versus the NAFTA market of 440 million (America’s 320 million & Mexico’s 120 million).

So given Harper’s broader view on CETA, the decision to concede on these various drug IP issues could perhaps be explained by Canadian politics. Harper is running for re-election next year and is hoping that CETA, writ large, will be viewed by the Canadian electorate as a major, long term trade accomplishment...and a very big, good thing for all Canadians.

Therefore, if the Canadian government decided to concede some “modest ground” on the relatively “small” question of generic drugs getting to market quicker…Harper likely viewed this as a reasonable trade off given Canada’s larger CETA prize.

In the end, what matters to Harper is that the final CETA deal is closed and that the Canadian public clearly understands that as a result, $12 billion (CA) in direct, annual CETA benefits, as well as an additional $38 billion (CA) in new, bilateral trade -- will flow into Canada. Taking these facts to the personal level, should CETA conclude as Harper hopes, it’s estimated that Canadians will realize an average increase in household income of $1000, annually (http://goo.gl/F80CGD).

The American Rx View of CETA

For the American Rx industry, however, I suspect these “modest” CETA IP developments are being watched with more than a little bit of interest. Given that the “Great Generic Wars” are essentially lost in the U.S., you would have to wonder if the American brand name industry isn’t quietly considering their options. What if they moved to “test the waters” with similar CETA-like IP “tradeoffs” in the Transatlantic Trade Investment Partnership (TTIP) negotiations currently underway between the U.S. and Europe (http://goo.gl/k8bpyA)?

It does make some sense since the EU trade chief Karel de Gucht has publicly described CETA as a "template" for TTIP…a “test run”, if you will, for the much bigger TTIP deal between the EU and the U.S. (http://goo.gl/n9Id5L).

So, let’s conclude this discussion with an interesting, if provocative question: Is it possible that American Pharma may have a shot at recouping some of its losses from the “Great Generic Wars”, courtesy of the IP bureaucrats in Brussels?

I guess crazier things have happened in the whacky world of international Rx trade. Just ask the Canadian generic industry.

Tom Norton (tnorton@nhdcomm.com) is Principal at NHD Smart Communications of Illinois.