Judy Erola, PC
Clin Invest Med 1996; 19 (6): 479-81.
Paper reprints may be obtained from: Ms. Lee Marks, Director, Policy Development and Marketing Practices, Pharmaceutical Manufacturers Association of Canada, 3021111 Prince of Wales Dr., Ottawa ON K2C 3T2; fax 613 727-1407
Matthews refers to the commitment of the member companies of the Pharmaceutical Manufacturers Association of Canada (PMAC) to increase their investment in research and development. He rightly points out that our industry committed to increase spending to 8% of sales by 1991; however, with regard to the increase to 10%, we undertook to reach that target by 1996, not 1995, as stated in the article. In fact, we reached that target in 1993, a full 3 years ahead of schedule.
As shown in the 8th Annual Report of the Patented Medicine Prices Review Board (PMPRB), covering the year ending Dec. 31, 1995, investment in research and development by PMAC patentees was 12.5% of sales (Table 1).[1] That figure was reached despite the narrow definition of research and development applicable in Canada.
Readers should be aware that the basic criterion used to define research and development in most countries is the presence of "an appreciable element of novelty or technological uncertainty." However, in practical terms, that concept is modified to suit the circumstance. For example, Revenue Canada uses the concept of invention and defines scientific research and experimental development as the following.
The systematic investigation or search carried out in a field of science or technology by means of experiment or analysis. Developmental work is the use of the results of basic or applied research for the purpose of creating new or improving existing materials, devices, products or processes.[2]
In the United States, the National Science Foundation's concept of research and development is similar to that used in Canada.[3] Both definitions embody the concept of uncertainty in technological exploration, and the US and Canadian definitions narrow the scope of activity to science or engineering. Both focus on activities that lead to invention. On the other hand, the definition used by the Organization for Economic Cooperation and Development (OECD) is broader because the fundamental concept is innovation. It is therefore not limited to science or engineering and includes research in the social sciences.
The OECD concept is as follows.
Research and experimental development comprise creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture, and society, and the use of this stock of knowledge to devise new applications. Research and development is a term covering three activities: basic research, applied research, and experimental development.[3]
Obviously, the breadth of the OECD specification permits the inclusion of a greater number of specific expenditures in the research and development definition. Canada and Canadian researchers would benefit from a change in the current definition of research and development. In fact, the academic research community should actively lobby for change.
Matthews expresses the view that the research and development target of 10% may be too low and cites the fact that research and development spending by the research-based pharmaceutical industry in the United States "is roughly 17% of sales revenue." However, Canada's share of the global pharmaceutical market is estimated at less than 2%, whereas that of the US is estimated at 31%.[4] And, according to figures released recently by IMS International, the value of total drug sales in Canada rose only 2% year over year in the January-to-April 1996 period, compared with a 6% increase in world drug sales.[5] In fact, here in Canada, the research-based pharmaceutical sector is losing market share to the generic drug sector.
According to IMS, the value of generic sales increased 13% over the previous year in the 12 months ending June 30, 1996, sales of generic drugs now account for 40% of the Canadian prescription medicine market, and generic drug companies continue to be the fastest growing sector.[5]
Table 2 shows a comparison of the percentage of expenditures on research and development in Canada versus the United States in 1994. The PMPRB figures are based on Revenue Canada's definition of scientific research and experimental development. However, if we apply the US definition of research and development to the PMPRB's figures, the percentages for the various types of research done in Canada in 1994 would be those shown in the column headed PMAC. In showing the extent of research and development done in Canada, I believe the figures speak for themselves.
I applaud Matthews' statement that the legislative environment must be fair to all concerned, but I take issue with the statement that "the workings of the legislation lack clarity and predictability."
In 1993, closing patent loopholes was as important as strengthening the Patent Act itself. The "linkage provisions" closed one of those loopholes. The change essentially made it impossible for a generic drug company to receive a Notice of Compliance until it demonstrated that it was not infringing existing patents. Importantly, the change puts the onus on the generic drug company instead of the patent holder to prove free title to the product. This is the standard throughout the developed world. However, it should be noted that this requirement does not prevent generic drug companies from applying for a Notice of Compliance and having it reviewed well in advance of this process. Nor does it prevent these companies from manufacturing and stockpiling products as they wait for the patent to expire. The linkage provisions merely prevent generic drug companies from actually selling the product until the patent has expired. It should be noted that these privileges -- sometimes called "early working" provisions -- are not permitted in other developed countries but were a major concession to the Canadian generic drug sector.
Although there have been more than 90 cases in which patent infringement has been alleged, almost three quarters of these cases have been settled in favour of the brand-name sector (Gowling, Strathy and Henderson, Ottawa: unpublished data, 1996). That record clearly shows that the generic drug market entry in these cases was illegal and confirms that the generic drug companies involved planned to infringe patents; hence the need for the linkage regulations. Furthermore, in only a couple of instances was the 30-month period exceeded.
The 1987 changes to the Patent Act began the process of moving Canada toward parity with the intellectual property protection regimes that prevail among our major trading partners, the other G7 countries. The 1993 amendments -- a thoughtful and balanced approach -- continued that process.