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Pills are measured out at a Shoppers Drug Mart in Toronto. (DEBORAH BAIC/THE GLOBE AND MAIL)
Pills are measured out at a Shoppers Drug Mart in Toronto. (DEBORAH BAIC/THE GLOBE AND MAIL)

Trade deal to increase cost of prescription drugs by up to $1.65-billion, report warns Add to ...

The recently announced free-trade deal with Europe will likely cost Canadians hundreds of millions of dollars more for prescription drugs, says a new analysis.

The report, by two York University professors, says concessions by the federal government to cement the deal will delay the arrival cheap generic drugs by about a year, on average.

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And the delay will add between $850 million and $1.65 billion — or up to 13 per cent — to the total drug bill paid annually by Canadians, either directly, through insurance plans or by provinces.

The researchers are also skeptical of claims by brand-name manufacturers that extended patent life will be an incentive to the industry to invest more in Canada.

“There is no incentive for them to invest more in Canada,” said Marc-Andre Gagnon, one of the authors.

“The question is: Are we getting bang for the buck? And the answer is No.”

The report warns that all Canadians will likely wind up paying more in taxes, or higher premiums for private drug plans — and Canadians who can least afford it will bear the biggest burden.

“People with no drug coverage and paying out of pocket are usually people with minimum-wage jobs and are often the least able to absorb increases in prices,” says the report.

Russell Williams of R&D Canada, which represents the brand-name drug industry, questioned whether it was possible to estimate cost increases because it is impossible to predict what new drugs will hit the market a decade from now.

“Nobody knows what the prices will be. Nobody can predict a 2023 scenario with any credibility,” he said.

He also disputed that the changes will have no impact of investment by the industry, saying spending on research and development shot through the roof after 1987, the last time Ottawa made significant changed to patent protection.

The paper, being released Thursday by the Canadian Centre for Policy Alternatives, was co-authored by Joel Lexchin, a physician and professor of York University’s school of health policy; and Gagnon, a public-policy professor and researcher with the Pharmaceutical Policy Research Collaboration.

Under the terms of the Canada-European Union free-trade agreement tabled in the House of Commons this week, brand-name manufacturers can extend by up to two years the life of their patents. They also won the right of appeal against unfavourable court rulings, which could add another six-to-18 months to patent life.

The federal government has acknowledged costs could rise. Prime Minister Stephen Harper has pledged to compensate provinces for any additional costs, which would only appear starting in 2023, assuming the deal is in place by Jan. 1, 2015. There was no pledge, however, to compensate individuals or private insurance plans.

Previous studies conducted before details of the agreement were released Oct. 18 also projected higher costs, up to $2.8 billion, based on the expectation there would be longer patent protection.

But Gagnon and Lexchin say those assumptions were based on Canada adopting the European model of patent protection, rather than going only part way, as was agreed to in negotiations. The expected delay, using the same assumptions as a previous study, was ratcheted down to 1.05 years.

That doesn’t mean that average couldn’t be longer, or longer for specific drugs, Gagnon noted. At the extremes, the combination of extended patent restoration and right to appeal could keep generic copies on the sidelines as much as three years longer, which would increase the cost estimates.

In the information package issued day the deal was announced, the federal government said the extended patent protection would help “keep Canada as an important destination for research and development.”

The industry, represented by R&D Canada, at the time praised the agreement known as CETA, saying the improvement to intellectual property protection “will help drive investment (and) support high-paying jobs.”

That’s a doubtful assertion, say the authors. They note that when Ottawa extended patent protection in 1987, the brand-name industry committed to invest at least 10 per cent of sales in Canada but have not met the target since 2003.

The most recent figures for 2012 show that R&D spending in Canada represents only 6.6 per cent of sales, the researchers say.

“It is expected that the R&D-to-sales ratio will decline even more, since CETA will artificially inflate sales due to higher costs without increasing R&D expenditures,” they write.

Williams called the system of measuring the ratio flawed. The industry invests more than $1 billion a year in Canada and has lived up to its commitments, he said.

Gagnon says the uncertainty over the predicted higher annual cost — from a low of $850 million to a high of $1.65 billion — stems from a lack of clarity as to what new drugs will be covered under the agreement. If minor changes to existing drugs also receive the added protection, the bill will be higher for Canadians.

By comparison, according to sources, Canadian exporters stand to gain only about $226 million from the elimination of virtually all industrial tariffs once the deal comes into place.

Gagnon says Canadians already pay more for pharmaceuticals than citizens of almost any other country, except the United States, at about $900 a person, and CETA will only add to the burden.

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