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Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 11 - Evidence, October 22, 2009

OTTAWA, Thursday, October 22, 2009

The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-232, An Act to amend the Patent Act (drugs for international humanitarian purposes) and to make a consequential amendment to another act, met this day at 10:30 a.m. to give consideration to the bill.

Senator Michael A. Meighen (Chair) in the chair.


The Chair: Good morning, colleagues. This morning we are continuing our examination of Bill S-232, An Act to amend the Patent Act (drugs for international humanitarian purposes) and to make a consequential amendment to another act.

According to the bill's summary, Bill S-232 would have the following effect:


Bill S-232 amends the Patent Act and the Food and Drugs Act to make it easier to manufacture and export pharmaceutical products to address public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics.


We will begin today's hearing with UNICEF, an international organization known to many of us for its involvement in a variety of initiatives, including such areas as preventing the transmission of HIV from mother to child, preventing infection among young people, treating children and protecting children affected by AIDS.

Our witnesses from UNICEF this morning are Mr. Robert Gass, Pediatric HIV Focal Point based at UNICEF; Ms. Meg French, Director, International Programmes; and Mr. Tenu Avafia, United Nations Development Programme (UNDP), Policy Specialist, Intellectual Property and Trade.

Welcome, and thank you for being with us. Mr. Gass, the floor is yours, sir.

Robert Gass, Pediatric HIV Focal Point based at UNICEF, UNICEF: Thank you very much, Mr. Chair, and distinguished senators. I am honoured to be here and wish to thank you for the opportunity to speak in support of the proposed bill, Bill S-232, which seeks to amend the Canada's Access to Medicines Regime originally passed by Parliament in May 2004.

The Canadian Senate is to be highly commended for its consideration and action in favour of individuals in less- developed countries, particularly those affected by major killers such as HIV, tuberculosis and malaria. UNICEF, where I work, is also deeply committed to improving health outcomes, particularly for women and children, and finding new and innovative mechanisms to achieve this are high on our global priority list. As such, we feel that the current proposed legislation provides an important mechanism to ensure long-term and sustainable access to medicines that can keep the most vulnerable populations alive.

For the next few minutes, I would like to draw your attention to the special needs of infants and children affected and infected with HIV in the least-developed countries and how proposed changes in the legislation could come to benefit them.

According to the most recent HIV universal access report issued by the United Nations just three weeks ago, an estimated 2 million children are living with HIV across the world, out of a total of 33 million infected individuals. In 2007, there were 370,000 new infections in children, all of them in need of immediate treatment, in addition to those already eligible. HIV is a major killer of children, particularly in the most affected countries, with 270,000 deaths in children attributed to HIV alone in 2007. This equates to approximately 7 per cent of all deaths for children under the age of 5 in sub-Saharan Africa. Some countries, however, are much harder hit, and the proportion of children who die as a result of HIV can extend to above 25 per cent.

Disease progression is much more rapid in infants and children than in adults. About 30 per cent of children infected with HIV die by the age of 1 year, and 50 per cent by 2 years of age. However, diagnosis of HIV infection does not have to translate into a death sentence. Prompt initiation of treatment can make a significant difference. A study from South Africa showed that when treatment was initiated within the first 12 weeks of life for an HIV-infected baby, rates of mortality were decreased by 75 per cent. A pressing problem, however, is that too often the drugs are either not available or in forms that are not particularly suitable to children. Revision to the current legislation could help create the business opportunity to develop more pediatric formulations suitable for children.

Even though low-cost treatment options for adults have expanded relatively rapidly, treatment options for children have not kept pace. Children are not small adults who can just make do with smaller quantities of medicines made for adults. Numerous physiological differences between adults and children impact how well these drugs work in children. In addition, issues such as acceptability of administration route, palatability and ease of administration for the carer are all essential elements of administering medicine to a small child. That is why Apotex's commitment to produce a three-in-one drug, also called a fixed-dose combination, which is suitable for treating children infected with HIV, is so encouraging. This fixed-dose combination would make a significant difference in the lives of children in that it will be easier for health care workers to prescribe, easier for children to take and will ensure that the right dosage for the child's age and weight is consumed.

In short, this will mean much better outcomes for children with HIV, our most vulnerable patients in some of the poorest parts of the world. However, Apotex has indicated they will likely not endeavour to take on this important task without changes to the current legislation that will simplify the process of licensing new products. Brand name manufacturers are unable to do this as they do not control patents for all three drugs that make up a fixed-dose combination. Revisions to the legislation will also allow generic manufacturers to produce new classes of drugs, such as second-line regimens, that may be more effective as they become available in the future, thereby reducing the gap in quality of medication received between developed and developing countries.

We know treatment works for HIV-infected children. Numerous studies from various parts of the world — Africa, Asia and the West — have repeatedly shown that children can survive and thrive. In North America, children infected during birth are now in their twenties. Despite this evidence, the vast majority of infants and children with HIV in the developing world — almost two thirds — still do not access life-saving treatment or are unable to maintain adherence because drugs currently available to them are not child-friendly. Bills such as the one you are currently reviewing, if passed into law, will have a significant impact on the lives of children by encouraging the production of affordable, child-friendly antiretroviral medications.

The issue behind small numbers of children not accessing treatment is less one of limited human capacity or even lack of physical infrastructure. On the contrary, we have seen impressive gains on the number of children placed on treatment: increases from 75,000 children on treatment in 2005 to 275,000 four years later. This is due to increasing numbers of health care workers trained to treat children and a greater decentralization of pediatric HIV health care delivery. For example, the number of sites with the capacity to treat children with HIV in low- and middle-income countries has increased by about 80 per cent from 2007 to 2008 alone. However, the medicines to treat them are often lacking.

Over time, an increasing number of children and infants will need to transition to second-line regimens, which have traditionally been much more costly and difficult to take than first-line regimens. Far fewer generic options are available for second-line treatment — a primary reason for their higher cost. Passage of this bill to make this legislation more user-friendly can help incentivize manufacturers to develop child-friendly second-line regimens.

Infants already infected, however, are only part of the story. Children born to HIV-infected mothers, if not already infected, face significant risks of infection through the breastfeeding period. Recent studies have found that protection in the form of antiretrovirals to the infant during the breastfeeding period can be protective. The World Health Organization is taking these findings into account and is considering this week whether to recommend extended antiretroviral prophylaxis for these infants. If this recommendation comes to pass, there will be a need for an even greater number of infants to access antiretroviral medicines and for longer periods of time to protect them from HIV infection. Passage of simplified legislation here in Canada could be instrumental in making this a reality.

I would like to briefly address three points that have been raised about this bill. The first is the issue of whether this bill is needed in light of current international commitment to fighting the HIV/AIDS epidemic. My view is that it is essential. UNAIDS and the World Health Organization, WHO, point out that for every two people placed on treatment, there are five new infections. Clearly, current treatment efforts will not be sustained through donation programs alone. For a sustainable response, market mechanisms will need to be applied as well. This will increasingly be the case as new classes of drugs are introduced and as many of the millions of people currently on first-line treatment need to switch to second-line regimens that are significantly more costly.

Second, procurement of medications by NGOs under the current law requires that NGOs seek approval from governments prior to procuring medicines to support their programs. UNICEF, as you know, plays a major procurement and supply function, supplying lesser-developed countries all over the world with essential, life-saving drugs. UNICEF seeks to ensure that procurement and supply take place as quickly as possible to avoid supply interruptions at the facility level, which can impact the health of infected individuals. Colleagues at our supply headquarters aim to ensure that it takes no longer than a maximum of three months from when the order is placed to when the medicines arrive on the ground. The current system with CAMR would result in much longer delays, making this difficult to use this as a reliable source of supply. Approving the recommended changes in this legislation, however, would result in significant improvements in turnaround time.

Third is drug approval. UNICEF is very concerned about the quality of drugs supplied through its channels. As such, all drugs supplied through UNICEF's warehouses are pre-qualified by the World Health Organization or another major regulatory agency. UNICEF considers the WHO pre-qualification process to be the gold standard. Therefore, drugs approved under this process immediately meet UNICEF procurement standards. Medicines approved solely by other drug regulatory agencies, such as Health Canada, are submitted to an additional internal UNICEF review to determine their acceptability.

The government and people of Canada have shown courage and leadership in initially passing Canada's Access to Medicines Regime. Generic manufacturers in Canada have shown that they can compete successfully with other generic manufacturers in price and quality. However, it is our belief that the law in its current form has essentially hampered CAMR's success largely due to the unnecessary complications built into the process. Adoption of a one- licence solution will greatly simplify the licensing and procurement process. This will provide significantly greater incentive for generic manufacturers and desiring governments in lesser-developed countries to participate to develop and deliver the drugs that are so needed. While supply of medicines is not the only solution to saving lives of children, it is an essential component of the overall response.

Thank you again for the opportunity to speak on this important bill.

The Chair: Thank you very much, Mr. Gass.

Honourable senators, we will proceed with the other presentation and then open the floor to questions.

Tenu Avafia, United Nations Development Programme (UNDP), Policy Specialist, Intellectual Property and Trade, UNICEF: Thank you, honourable senators. Let me start by thanking the committee for the opportunity to appear on behalf of the UNDP. We consider this to be an extremely important hearing on the amendment of legislation in Canada to facilitate the exportation of essential medicines by countries with manufacturing capacity, such as Canada. This is in accordance with the August 30, 2003 mechanism of the World Trade Organization, WTO, to those countries without sufficient or any manufacturing capacity to meet their public health needs.

I am a policy specialist on intellectual property and trade. I work within the HIV/AIDS practice of UNDP based in New York. Before moving to New York, I was based in South Africa, which has the largest population of people living with HIV/AIDS. These are issues dear to my heart.

UNDP's work on intellectual property and access to medicines is informed by our position as one of the founding co-sponsors of UNAIDS. UNDP is the lead agency on promoting and enabling a legislative environment critical to scaling up HIV/AIDS responses. This, for us, includes enabling intellectual property legislation that facilitates treatment access.

My colleague has referred to a recently released report sponsored by UNAIDS, WHO and UNICEF. As of December 2008, 4,000,030 people living with HIV/AIDS in low- and middle-income countries received antiretroviral therapy. This amounts to 42 per cent of the global need. That still leaves 58 per cent of people who need treatment unable to access it. For every person put on treatment in 2007, there were two and a half new infections. From the UNDP perspective, it is extremely important to prioritize sustainable and long-term solutions.

Another recently released report entitled The Treatment Timebomb was released by the All-Party Parliamentary Group on AIDS in the United Kingdom in July 2009. It noted that only 3 per cent of people receiving antiretroviral therapy at the moment are on second-line therapy. However, this number will rise steadily as drug resistance necessitates a move from first-line to second-line treatment. We also know that second-line antiretrovirals, or ARVs, are significantly more expensive than first-line ARVs. The lowest price for second-line antiretrovirals is $590 per patient per year as opposed to $87 per patient for first-line treatments.

Traditionally, one of the key drivers for price reduction of ARVs has been generic competition. In all probability over the last few days, you will have seen the Médecins Sans Frontières, MSF, slide that shows the impact of generic competition in driving down prices of first-line ARVs from approximately $10,400 per patient per year at the turn of the millennium to as little as $87 per patient per year. This is a 99-per-cent price reduction. The primary catalyst for this drastic price reduction was the Indian generic manufacturer Cipla Ltd. that made a commitment to provide ARVs to low- and middle-income patients for $1 per day in 2001.

Cipla and a host of other important generic manufacturers, such as Ranbaxy Laboratories Limited, Dr. Reddy's Laboratories Ltd. and Sun Pharmaceutical Industries Limited were able to play a crucial role in reducing medicine prices because of India's Patents Act, 1970. After independence, India had an act that was very similar to that of its colonial master, the U.K. A commission in the 1950s made recommendations to amend the law to facilitate the production of generic medicines that then led to the passing of India's Patents Act, 1970. As you know, the act did not allow for the patenting of pharmaceutical products, but rather processes. However, with India now having to comply with its WTO obligations as of 2005, the passing of the Patents (Amendment) Act, 2005 has drastically reduced India's ability to continue providing safe, quality generic medicines of patented versions of second- and third-line ARVs.

UNDP recently commissioned a study to try to better understand how the Patents (Amendment) Act, 2005 will impact India's ability to continue being what is referred to as the pharmacy of the developing world. We hope this study will be launched in December of this year in partnership with the government of India in New Delhi. In essence, from a first read of the report, it has become quite clear that the situation has changed drastically.

Multinational companies have started buying Indian generic companies. The most notable of these is the recent acquisition of India's largest pharmaceutical company, Ranbaxy Laboratories Limited by the Japanese multinational company Daiichi-Sankyo Company, Limited in June 2008. Other Indian companies that have recently been taken over include Matrix Laboratories Limited by Mylan Laboratories Inc. and Shantha Biotechnics Limited by sanofi-aventis Groupe. This is happening in part because it is part of the natural evolution of fairly sophisticated generic companies to try to move up the R&D chain. It is also that the Patents (Amendment) Act, 2005 makes it far more difficult or cumbersome to facilitate the export of generic medicines from India to developing countries in need.

India has played a pivotal role in supplying several low- and middle-income countries with essential medicines. It will become increasingly important with time for other countries with manufacturing capacity, such as Canada, to allow companies to fill that void for second-line medicines by encouraging competition.

Legislative reforms continue in several countries because of importing and exporting countries amending their laws to make operational the WTO August 30, 2003 mechanism. It remains important for there to be other sources of generic supply and that enabling legislation exists for both the importing countries and exporting countries.

The bulk of UNDP's work at present focuses on the demand side. We assist developing countries and least- developed countries to amend their laws to try to incorporate flexibilities in the TRIPS Agreement to import medicines from countries such as Canada. As good as those importing countries' laws may be, they will be of little use if the exporting countries on the supply side do not appropriately facilitate the use of the August 30, 2003 mechanism. It is my personal belief that the current CAMR does not take full advantage of a space provided by the WTO August 30 decision on several levels, including, for instance, by requiring a compulsory licence to be issued for every shipment of medicines and by placing a cap on the maximum shipment.

We, within the HIV/AIDS practice of UNDP, believe that countries with manufacturing capacity have an important role to play in revising the laws to allow for the expedient and flexible use of the August 30 mechanism. We further believe that Bill S-232 includes several key improvements on the current legislation, including the one-licence solution.

Paragraph 6 of the August 30, 2003 mechanism, for instance, contains a provision that allows developing countries, provided that they are in a regional economic grouping of at least 50 per cent least-developed country membership — and these are primarily African countries — to cooperate in the importation of medicines under the August 30, 2003 mechanism. We firmly believe that the one-licence solution is absolutely essential to operationalize the meaning of the August 30 mechanism within the letter as well as the intention of the agreement. Furthermore, Bill S-232 eliminates the two-year duration on authorization of products for compulsory licensing, which is extremely important.

A quick review of other countries that have issued compulsory licenses over the years indicates that in many cases they have linked the duration of the compulsory licence to the duration of the public health emergency in their countries. For instance, in Indonesia, which issued a compulsory licence in 2007 for AZT and 3TC, the compulsory licence was issued for the duration of the patent, which is the remaining seven years. Thailand also issued a number of compulsory licences in 2007, where the duration of the licences was five years.

I should emphasize that nothing currently in the August 30 mechanism limits or obliges countries to place a time limitation on authorizations to export. For these reasons, I believe that this is an extremely important opportunity for Canada to remain the shining example, bearing in mind that Canada was the first country to pass this legislation to address humanitarian concerns in the developing world, particularly as more and more exporting countries come forward to fill the role of being a medicine supplier for people living with HIV/AIDS in least-developed countries and developing countries.

We also believe that Bill S-232 will live up to the original intention of CAMR.

With those few remarks, I thank you for your time and look forward to your questions.

The Chair: Thank you very much. Before I turn to Senator Massicotte, followed by Senator Harb, Mr. Gass, could you help me with a point of clarification? Did I understand you to say that a review by WHO of the drug is a policy that UNICEF espouses and insists upon, or is it a requirement of some other organization? Is it contained, to your knowledge, in Bill S-232? In other words, if Bill S-232 were to pass as is, would there still be the requirement for a WHO review of the drug before it could be shipped around the world?

Mr. Gass: Thank you very much for that question. Since we are all part of one United Nations family, WHO, UNICEF, UNDP and others, we basically try to adhere to a common set of principles.

When UNICEF supplies these drugs, they have to have been approved by at least one stringent regulatory agency, such as Health Canada or the European Medicines Agency. If it is already pre-qualified or approved by WHO, then it is considered to be an automatic process because we are familiar with all the different reviews that take place as a part of that. If it has been approved by one of the other ones, such as Health Canada, the U.S. Food and Drug Administration, the European Medicines Agency, et cetera, then an additional review takes place at UNICEF to ensure all the different pieces are met. It is a very short review. It has never resulted in a drug not being approved if it was approved by one of the other agencies. However, it does go through an additional review of probably a day or two to look at the dossier to ensure that everything is technically there.

Senator Massicotte: Let me summarize where many of us are at. We are hearing that the objective is very honourable. In 2003, most countries agreed, and obviously the WTO agreed, that a problem existed, and we needed to repair it. The world's poor are needy, and the problem is serious and urgent. We seem to also agree that it has failed. The objectives set out in 2003 have not been satisfied. We now have in front of us a proposed bill amending our legislation to correct our deficiencies in satisfying that need.

Let me go back a bit to try to understand. We are not the only country in the world. The program has failed in a world sense. I am glad to have someone from the United Nations here, especially a trade specialist as you are, on intellectual property. Why has it failed worldwide? We do not all have the same legislation. We certainly should do our part, but is there something broader here that has caused the failure that we are not talking about or that we cannot repair?

Mr. Avafia: Thank you, senator, for that question. I think the August 30 decision has not worked for a number of reasons, or two primary reasons. The first among these is that it is an extremely cumbersome process to undertake, and at present, countries in need are sourcing their medicines from other sources, such as the United States President's Emergency Plan for AIDS Relief, PEPFAR, as well as the Global Fund to Fight AIDS, Tuberculosis and Malaria. As people move on to second-line medicines, the costs of these programs will increase, and the sustainability of PEPFAR projects, as well as the Global Fund, will become an issue. I believe that more and more countries will have to wade into the administratively cumbersome process that is the August 30 decision to try to navigate their way through it.

The second reason is that I believe that countries, especially on an individual basis, are subjected to bilateral pressures by certain developed countries when they try to utilize flexibilities for public health purposes. For instance, in 1997, when South Africa attempted to make a fairly simple amendment to its Medicines and Related Substances Act, 1965 to allow for parallel importation, it faced the infamous lawsuit by 39 multinational pharmaceutical companies. That to some degree was resolved by the Doha Declaration on the TRIPS Agreement and Public Health where all WTO members recognized that flexibilities are there and can be used for public health purposes; but the bilateral pressures still continue.

Thailand, for instance, which, as I mentioned, issued compulsory licences for initially two antiretroviral medicines and then for a variety of cancer medicines, was subject to quite rough treatment by certain developed countries; threats of sanctions, amongst other things. The Thai government conducted a cost-benefit analysis of how much money was being saved by issuing these licences versus the loss of trade preferences. At the end of the day, they concluded that the projected saving in Thailand is $358 million over five years from these five compulsory licences that are issued. I would be happy to share the evidence generated by the Thai government with the committee.

Therefore, the bilateral reasons have much to do with it, particularly when we are dealing with countries that have limited capacity to implement the mechanism as is and are, should we say, more vulnerable on an individual basis to bilateral pressure.

Senator Massicotte: If I was to summarize what I think I heard, you are basically saying that first-line drugs are covered by the Bill and Melinda Gates Foundations and so on, and there are other solutions to the first-line drugs. The problem we are having is second-line treatments, which are obviously more costly and, therefore, these foundations are not adequate.

You are saying that the principle reason why the supply and demand does not work is because of the existence of some leverage, blackmail or coercion, if you wish, by pharmaceutical companies to discourage importing countries from doing so. Is that a good summary of what you said? I used fewer words, but is it the same conclusion?

Mr. Avafia: That is the essence. Bilateral pressure by certain developed countries is placed on developing countries that attempt to use flexibilities for public health purposes.

Senator Massicotte: You are a policy specialist, intellectual property and trade, United Nations. You are probably more knowledgeable on these matters than us. We all appreciate the need for every country to have patent rights. Obviously, we want to encourage innovation and protect and reward those who cause innovation. It is fundamental to the world because that is how we progress as a nation, through productivity improvements and innovation. Therefore, there is a real argument by the pharmaceutical companies, as with other inventors, to say, ``Please protect our rights because that is our reward system.''

The WTO thought they came up with a mechanism to basically maintain that reward structure and that recognition of where the innovation came from but, at the same time, satisfy a very important health need by the poor countries. Everyone buys into that, as I am sure we all do here.

The concern of the pharmaceutical companies — we will certainly hear from them about it in testimony — they will say that the procedures put in place by WTO and by Canada were warranted and necessary to ensure their intellectual rights are protected. Obviously, the WTO thought the same thing.

You are a trade specialist; what are your thoughts on that? Are the pharmaceutical companies being fair, or are they exaggerating the threat to their intellectual property rights? Where does the balance lie? You are an expert on this matter.

Mr. Avafia: That is the age-old question with intellectual property protection. UNDP's position on this — which has been reflected in a number of our human development reports, the most recent one being the Human Development Report 2005 — is that a balance is needed between protecting the investment made by the innovator to produce a new medicine on the one hand and also ensuring that this innovation is available or accessible to those in need on the other hand.

From our perspective, Africa is also only responsible for about 2 per cent of global consumption of pharmaceuticals. I do not believe that the use of this particular mechanism, which was put in place to address a very specific need, is likely to drastically shift that balance away from R&D-based companies.

Senator Massicotte: If that is the case, I am sure when the people who created the initial legislation in Canada, the fact that it is one-country, one-order specific, had a concern that there will be multi-orders, and these drugs will not come to the 2 per cent but will find a way around to the other countries that are not qualified for the need. I am sure that is why they put all these controls in place. The proposed legislation looks at removing some of those controls.

Are you satisfied that removing the controls will not cause intellectual property rights for 98 per cent of the population that is not benefiting from the low cost of generic drugs?

Mr. Avafia: That is a good question. On the issue of anti-diversion, which is basically what the safeguards were meant to address, we believe that the original letter of August 30 contains more than enough flexibility to deal with the concerns of preventing anti-diversion, while increasing access.

If we look back at the five years that CAMR has been in operation, and the one instance it has been used, no recorded instance has occurred of medicines destined for Rwanda or one country ending up in the markets of another. Therefore, we believe that anti-diversion is adequately being taken care of in Bill S-232 as it reads; it is also highly unlikely as a result of measures such as requiring different labelling and lettering of the medicines specifically. We believe there is no further need on top of this to create additional barriers in order to facilitate the medicine.

I want to bring to committee members' attention that paragraph 6 of the August 30 mechanism, which, for me, surmises the intention of WTO member states when they came up with August 30 decision in the first place, foresaw an instance where countries would cooperate in jointly procuring medicines from one source. That is why the business of issuing one licence for one shipment is not feasible.

I am by no means a procurement specialist, and perhaps my colleague from UNICEF can elaborate, but the process of forecasting medicine supply in several African countries is a tricky process. That is because they have donor commitments from various agencies and the like.

As we saw with the one time Rwanda did attempt to use the mechanism, halfway through the process, they decided they needed additional medicines. We believe that stripping away those barriers — and we believe the one-licence solution would strip away those barriers while maintaining the interests of pharmaceutical companies as well — is an important step forward.

Senator Ringuette: I would like you to clarify this issue. The discussion seems to be indicating an absence of royalty payments to the intellectual property owners of the medications. Have you looked at the current legislation and the royalty schedule in the CAMR legislation? What is your feeling about that? Do you feel the royalties that are being paid are acceptable and reasonable for the patent?

Mr. Avafia: To give a short answer, yes. I believe that the royalty scale in CAMR is one of the good aspects of the legislation in its present form.

UNDP and WHO wrote a paper in 2005 where we also put forward a proposal on how to calculate royalties. We used a sliding scale of countries' positions on the UNDP's human development index, and on that basis, worked out what the royalty payments would be. We believe that the current provisions in CAMR are very similar, and it would not be an impediment.

Senator Harb: Could you tell me if any country at all is supplying second-line medicine to least-developed countries?

Mr. Avafia: Yes, some countries provide them.

Senator Harb: Could you name some of those countries?

Mr. Avafia: It is not so much an issue of whether they are second-line medicines as much as it is of whether the medicines are still under patent.

Senator Harb: Could you name one country?

Mr. Avafia: India is one such country. Brazil is another where agreements have been made between the Brazilian government and the Mozambique government to manufacture combination medicines. I believe that second-line manufacturing has not begun, but it is in the pipeline.

Senator Harb: Both Brazil and India are part of the groups that, under Schedule 15, have the ability to do so. One could be suspicious of the fact that the reason we are not seeing many shipments coming from developed countries is because those shipments are made by developing countries probably at a cheaper price and with easier access. Could that be an answer to why nothing is happening in places such as Canada, the European Union or the United States, in your view?

Mr. Avafia: I believe one reason we are not seeing a great uptake of second-line medications is because, at the moment, most people are still on first-line therapy. The assumption is that within 7 to 10 years, people on first-line therapy move on to second-line therapy. If we are talking about 4 million people being on first-line therapy now, we can be sure that in the near future, second-line access will be a big issue.

The production capacities of the Brazilian government as well as the Indian generic manufacturers, in light of the Patents (Amendment) Act, 2005, means we will not have nearly as many players on the market for second-line medicines as we have seen for first-line medicines.

Senator Harb: There is a Catch-22 here. We all know that developing countries have cheaper labour. They have the capacity and the workforce. Now they have access to permits that allow them to produce these medicines. Just as with any other consumer product, if all things are equal, a producer will manufacture in a developing country rather than in a developed country. Perhaps that explains why some of these international companies are snapping up companies in India, Brazil and elsewhere because they can produce a second-line product.

I am trying to figure out what is happening here, and I think you already gave us the answer, which is that more awareness is required. Probably what is required is more resources to be given by developed countries to developing countries.

However, I want to know what are those resources? Is it money? If it is the issue of producing the product, they can already produce a product. The list of countries is massive; some of which I do not believe are developing countries, places such as Taiwan, Singapore, and others. They all can do something.

It seems to me there is a failure in leadership. I do not know who is responsible for that. Is it WHO that is not carrying out its role here? I do not want to put you on the spot to identify who is failing to do their job. However, is it the G8, the United Nations; who is not doing their job? It looks to me that the mechanism is in place.

I am not confident, as Senator Massicotte also said, that if we approve Bill S-232 tomorrow, which I wanted to support, that it will change anything in the supply because of what you just told me and my colleagues about India and Brazil, who already have the capacity to produce that.

Mr. Avafia: To be frank, it is about the profit. It is about profit, and I believe that some companies in developing countries, as well as developed countries, would be willing to produce medicines to make a profit. Apotex produced an extremely competitive international price. I believe it was 19 cents per tablet for the medicine shipped under CAMR.

Enabling legislation is needed. We do not have enough countries that have interpreted the August 30 mechanism with the flexibilities that are there now to create the space for generic companies, such as Apotex, in developed countries — as well as developing countries, yes, indeed — to fill that void.

For me, it is about creating competition and at least creating an enabling environment where companies in the developed world can, if they choose to and see an opportunity for profit, compete.

Mr. Gass: Briefly, to add, and as my colleague mentioned, those are a couple of the countries. There is more interest in focusing on second-line treatments. A funding organization called UNITAID, originally started by the French, has now expanded to a wide variety of countries, where they basically use a levy on airline travel; a specific portion out of each ticket is used to procure medicines for HIV, TB, and malaria. They funnel much of that money through the Bill and Melinda Clinton Foundation to provide greater numbers of second-line treatments in these countries.

Some of the other major donors, such as the Global Fund and the President's Emergency Plan for AIDS Relief, PEPFAR, have been able to provide some of that as well. The issue is still the cost, particularly for the second-line regimens and also for first-line regimens as new classes become available. This is not a static area. As research continues, we continue to find new classes of drugs, which are used as first-line regimens. In the next week or so, WHO will be reassessing what they consider to be an ideal combination of first-line regimens; they will be replacing one of the key drugs with another one.

As these things happen, if no competition exists among a wide variety of different pharmaceutical manufacturers, the pressure is for those prices to continue to rise, which will result in a greater inequality between the quality of care received by developing countries and that which is received by developed countries.

The competition piece is essential and will need to continue to be so. It is one thing to say that the pharmaceutical companies agree to be able to provide voluntary licences for the drugs already on the table, but new drugs will become available, new classes of drugs, drugs that need to be formulated in different ways for children as opposed to adults, et cetera. If we are not able to maintain that level of competition, those prices will continue to rise, making the donation programs unsustainable and basically unaffordable to governments in developing countries.

The Chair: Before turning to Senator Peterson, and perhaps abusing my role in the chair, do I hear both of you saying, particularly Mr. Avafia, that you are satisfied that CAMR could be amended or changed to take advantage of flexibilities that were not incorporated into CAMR that do exist under the August 30 decision? Is that an over- simplification but nonetheless accurate?

Mr. Avafia: In summary, I believe there is space. CAMR did not take full advantage of the flexibilities on August 30, and we believe that Bill S-232 takes far better advantage of the flexibilities under the August 30 mechanism.

The Chair: I do not want to get into a debate. However, one of the concerns of some senators at least is that Bill S- 232 may go beyond the flexibility already present and enter into an area where it could be challenged under our agreements with the WTO. That is the problem I think. You are the second witness to say that there is more flexibility than CAMR exhibits under WTO. We will have to try to get to the bottom of all that.

Senator Peterson: Along those same lines, are there additional issues other than those included in Bill S-232 that would assist in addressing the shortcomings of CAMR?

Mr. Avafia: That is a difficult question to answer because at the end of the day the August 30 mechanism is about interpretation and what interpretation countries decide to give it. We believe that Bill S-232 is more than adequate and is a good step forward.

A country such as Brazil may go even further and interpret even more flexibilities and still be very much within the letter of the August 30 mechanism. Therefore, it is a matter of interpretation. However, I believe Bill S-232 is absolutely still within the confines of the August 30 mechanism.

Senator Greene: The chair asked my question, but, in relation to that, I would like your opinion. It seems that we have an impasse in a sense. We would all like to help very much. We all see and understand the need. We feel the need, actually. We have a piece of legislation that is consistent with the WTO, and the WTO mechanism itself is in response to the need that we all see.

You have testified that that August 30 declaration is weak, flawed in a number of areas and could be better. Our legislation is based on that, so I guess, by extension, our legislation is flawed as well.

This new piece of legislation attempts, of course, to fix all that. However, we have reports that that legislation is inconsistent with the WTO decision, and one of the things that we have to do, as a country, is be consistent with that decision.

Assuming that the legal opinions that we have are right in that the bill is inconsistent with the WTO decision and that we all see this problem, should we not be focusing our efforts at the WTO to try to find a way to reform their position?

Mr. Avafia: The August 30 mechanism at WTO was a compromise. To be frank, in my opinion, it is flawed. It could be better, but that is what we have. I take the point that it is extremely important for countries to ensure that whatever legislation is passed complies with the August 30 mechanism.

However, it is also my belief, based on reading Bill S-232, that the bill does not, in its current form, violate the August 30 mechanism. For me, and again this might come from being the first country to pass legislation to operationalize the August 30 mechanism, CAMR was a noble attempt but a conservative interpretation of the August 30 mechanism. Bill S-232 is a more liberal interpretation, but within the confines of the mechanism.

Senator Gerstein: Thank you very much, Mr. Avafia, for your presentation.

Evidence was presented at the 2007 review of CAMR that the issues were not with CAMR but were with other less costly sources of generic drugs. One presentation has been made that troubles me. It states:

Despite the fact that Apotex is said to be offering its product at cost, five major Indian generic pharmaceutical companies are listed on the Clinton Foundation Website as having lower-priced versions of the same product available for sale to African countries, the lowest of which is roughly half the price specified by Apotex in its application to the Commissioner.

Can you comment on that? I am unclear on this whole issue of cost. The source of that presentation is the 2007 Report on the Statutory Review of Sections 21.01 to 21.19 of the Patent Act, on page 34.

Mr. Gass: Let me start on that. We have seen tremendous reductions in prices of antiretroviral products. This has been a factor of the competition that exists. Without the competition, it would have been a completely different story. When I first started in the HIV field about 10 or 15 years ago, the price of medication for one year for a patient was $15,000 to $20,000; it was more for children. Those prices have dropped to the figures that we have heard now and have gone down to around $100 or less for fixed-dose combinations. This has been a product of the competition that has existed. Without that competition, there would have been no incentive to reduce those prices and make the drugs available to others. That is an important part. This has resulted in a savings of thousands and thousands of lives for people who would not have been able to access antiretroviral medications otherwise and would have died as a result.

The prices continue to drop. The Clinton Foundation has played an enormous role in this piece in negotiating with manufacturers. Frankly, we are amazed at how those prices continue to drop. When they reached $300 per person, we were amazed and thought it was a tremendous breakthrough. When it came down to $150, we wondered how it was possible. It has continued to drop, which shows the massive profit margins that existed for these pharmaceutical companies in the drugs that are produced.

I can assure you that these companies are not producing these drugs below cost. When they are making the drugs available at below $100 per patient per year, it is not being done out of the kindness of their hearts. I commend them for taking on the production of these drugs in generic format so that more people can access them, but they continue to make a profit.

The competition piece has been essential. Negotiations by organizations such as the Clinton Foundation bringing together different generic manufacturers and presenting them with different pieces and forcing down prices has been instrumental. However, these are for drugs that have already been around for a while. New drugs will continue to become available that will be more effective. We will need to continue to have that force of competition to keep these drugs affordable.

Senator Gerstein: Do you acknowledge that the Clinton Foundation had five listings for the drug at half the price that Apotex was presenting?

Mr. Gass: I do not have access to the exact data, but that does not surprise me. I would not deny that by any stretch of the imagination. As this process goes on, additional cost savings continue to occur. Basically, the same generic manufacturers that the Clinton Foundation worked with a year and a half ago or two years ago had one bottom price for these antiretroviral medications. A year later, after additional discussions and negotiations with them, the bottom price decreased even further. Apotex had their particular price. That was an incentive for other generic manufacturers to see what they could do to reduce prices further. That has resulted in many additional lives being saved.

Meg French, Director, International Programmes, UNICEF: If I could add to that, at the point you referred to, when that report came out, there was a difference in the price. When the drugs were ready for shipment, however, the Apotex price had dropped to be on par with those available through the Indian companies as well. The initial price was higher, but it did drop in the end.

Mr. Gass: The Apotex price was lower than the Indian prices before that. It is a continuing cycle. No one country will continue to maintain a monopoly on the lowest price available. Hopefully, that competition will continue to bring down prices.

Senator Moore: I want to clarify a couple of points I heard yesterday and today.

You referred to the Global Fund and PEPFAR. What are they? What do these two entities do, and how do they impact on the bill that we are discussing today?

Mr. Gass: They are both major organizations. PEPFAR stands for the United States President's Emergency Plan for AIDS Relief. It was signed into law by our last president, George Bush, and has a significant budget for purchasing medicines that are destined to low-income countries.

Senator Moore: What is the amount of that annual budget?

Mr. Gass: Do you have that figure, Mr. Avafia?

Mr. Avafia: No, I do not have it.

The Chair: Could you forward that to the committee?

Mr. Gass: Yes. I think it is $35 billion. It is a massive amount of money for purchasing this. I think it was $5 billion before, and it has been increased to $35 billion, but I will have to check on that.

Senator Moore: Where is it based?

Mr. Gass: It is in Washington.

Senator Moore: What about the Global Fund?

Mr. Avafia: The Global Fund to Fight AIDS, Tuberculosis and Malaria was created in response to Kofi Annan's urge to developed countries to try to find one avenue of a broader solution to treatment access.

Senator Moore: It is a funding solution?

Mr. Avafia: Yes. It is a pot of money with a secretariat based in Geneva that has a board mandated to buy medicines for HIV, tuberculosis and malaria responses in the developing world.

Again, I am not sure of the exact funding basket, but as far as I know, it is at least $3 billion to $5 billion.

Mr. Gass: I think it is closer to $8 billion now.

Senator Moore: Does Canada contribute to that?

Mr. Avafia: Yes.

Senator Moore: How much do we contribute?

Mr. Avafia: I do not have a specific amount, but I can make that available to you.

Senator Moore: How does they work? Let us talk about the Apotex example. Were one of these funds involved in that? Do they provide money to the importing country to use those funds to buy the goods and medicines from Apotex? Is that how it works?

Mr. Gass: That is exactly it. As long as a drug has been approved by one of these regulatory agencies, whether it is Health Canada, or the WHO, or the U.S. Food and Drug Administration, funds can be used from the Global Fund or from PEPFAR to purchase the drugs. The U.S. Food and Drug Administration has created a temporary licence or temporary approval that allows the export of some of these different products to other countries but not for use in the United States.

When you do have competition and the prices are brought down for each of these drugs, it means that each dollar is able to go further to provide or purchase additional products.

Senator Moore: A country has to apply to use the Global Fund. We have heard that it takes about one year to get approval of a compulsory licence. How long does it take for an application to the Global Fund by an importing developing country to be considered and approved?

Mr. Gass: The process is not short. It takes about seven to eight months or maybe even a year. Basically, once that process is complete, it is not for one shipment. That allows funds to be used over two-, three- or four-year periods. Some countries that received funds from the Global Fund four, five or six years ago still have funds remaining.

Senator Moore: Does that application approval process run concurrent with the application involved, whether it is a voluntary or compulsory licence; or does that funding have to be completed and approved before they can then apply to the other process, such as in this CAMR-Apotex situation?

Mr. Gass: Essentially, they are separate processes.

Senator Moore: Does one follow the other? They do not run concurrently. In the example here with Apotex, we are into two years. They said that it was one year for the process and negotiations, so they had to do one year in advance of that to get the money. That was at least a two-year deal.

Mr. Gass: I think the two processes are unrelated.

Senator Moore: I know that. I heard you say that. However, we are into a year or 20 months.

Senator Massicotte: Mr. Avafia, you related to us that the major reason or one of the most significant reasons why there is a lack of demand and why many countries you referenced are not buying goods is because of the leverage from the pharmaceutical companies. If we pass this legislation, how does that avoid that major issue? We are a supply country. Why will all the pressure and so on not continue?

Mr. Avafia: Before I answer that, I would like a quick word on the Global Fund and PEPFAR, which I believe are extremely important players in providing treatment access. Those two programs and others like them are completely different from CAMR. CAMR is about creating an environment that allows companies to compete and to drive down prices so that the money that is spent by the Global Fund and by PEPFAR goes further.

On the issue of the barriers and the bilateral pressure of which I spoke, we have seen an uptake in countries using their flexibilities with time, and that is because the need is more urgent. With every country that issues a compulsory licence to import medicines, there is greater legal certainty and also, the smaller countries take heart.

If we look at case studies of countries that first issued compulsory licences, or at least used strict flexibilities — such as South Africa and Brazil; India amended its law to make great use of the flexibilities in the agreement — these are big countries that have a better chance of withstanding bilateral pressure. Smaller countries or least-developed countries are learning from these examples of flexibilities being used and are taking heart from it. We see that more countries are making use of the flexibilities.

However, the use of flexibilities is only as good as enabling legislation on the part of the supplier country, and this is why CAMR or at least Bill S-232 is so very important. We can have a bunch of developing countries of excellent textbook model legislation but not enough suppliers, and we will still have the same barrier of high prices as when we started.

The Chair: Thank you, Senator Massicotte. We are five minutes over, but it was very useful. We appreciated the clarity and the scope of the presentations you gave. To all three witnesses, thank you very much for your attendance today. It has been very helpful.


We will now hear from the representatives of the Canadian Generic Pharmaceutical Association and Apotex Inc. on Bill S-232.


Apotex Inc. is the only pharmaceutical manufacturer to have shipped a generic version of a patented drug to a developing country through Canada's Access to Medicines Regime. Consequently, it no doubt will have views on the regime and may have recommendations to make about how it could be improved.

Apotex Inc. and the Canadian Generic Pharmaceutical Association will also share their impressions of Bill S-232 with us. We have with us today from the association Mr. Jim Keon, President. Representing Apotex Inc. is Mr. Jack Kay, President and Chief Operating Officer and Mr. Bruce Clark, Vice-President, Regulatory and Medical Affairs.

I believe each of our witnesses has a short, succinct presentation to make. We will start with Mr. Keon. Welcome to all of you and thank you for being here.

Jim Keon, President, Canadian Generic Pharmaceutical Association: We appreciate very much the opportunity to appear. The Canadian Generic Pharmaceutical Association, CGPA, is very pleased to give you our views on Bill S-232.

The Canadian Generic Pharmaceutical Association represents virtually all generic manufacturers in Canada, both multinational companies and Canadian-owned companies such as Apotex.

The Chair: How many would that be?

Mr. Keon: About 10 to 12 serious companies manufacture and sell products in Canada.

As you may know, the majority of medicines in Canada are now filled with generic medicines. That is an interesting development as well.

I will start with brief remarks and then turn the floor over to Apotex. They are the sole Canadian generic pharmaceutical company that has made use of CAMR. I think everyone wants to hear about their experience.

I believe, unfortunately, you will hear that the system has not worked very well. This was predicted by CGPA and many other groups at the time the bill was introduced. Our view is that the central problem with Canada's Access to Medicines Regime is that many aspects relating to intellectual property go beyond what is needed for our country's compliance with the WTO and the TRIPS Agreement.

The WTO decision leading to the creation of CAMR outlines basic requirements that need to be met for an exporting country to grant a compulsory licence to a generic manufacturer. These could have been more easily implemented. Instead, CAMR has gone beyond and become a process largely controlled, we believe, by the interests of intellectual property rights holders, ultimately ensuring that humanitarian shipments of medicines are not made to those who desperately need them.

The Canadian Generic Pharmaceutical Association is supportive of the changes to the Patent Act as outlined in Bill S-232. In our view, the streamlined application and licensing process included in the bill embodies the spirit of the Doha Declaration and the WTO decision. At the same time, it ensures compliance with the TRIPS Agreement.

One caveat we have is the amendment to the Food and Drugs Act to allow foreign approvals to be recognized under the regime. We are not asking for that; we do not believe it is necessary. The generic pharmaceutical industry has expressed support for Health Canada approval under CAMR. Our position has not changed.

We have provided the clerk with our written submission that outlines our views in greater detail. I will be pleased to answer questions. I would like to turn to floor over to Apotex since they have had firsthand experience with this. Thank you.

Jack Kay, President and Chief Operating Officer, Apotex Inc.: Good morning, honourable senators; it is a pleasure to be here. I am here to talk to you about the Apotex experience with Canada's Access to Medicines Regime. The original intent of this legislation was honourable: to get much-needed medicines to developing countries where thousands of people are needlessly dying due to lack of access to life-saving medications.

We were the only company in Canada to apply the principles of CAMR and develop Apo-TriAvir, a triple- combination HIV/AIDS drug. This combination was deemed to be the most beneficial combination by several NGOs, including MSF, Médecins Sans Frontières.

The first country to come forward with a request for this product was Rwanda. We entered this process with high hopes and a willingness to commit the money for research and development. Apotex had no intent to make profits on this process. As a Canadian-owned company, we wanted to help to make a difference. However, we were not ready for the obstacles and legal wrangling that would be involved in dealing with this cumbersome legislation.

Some easy fixes will make this work. It would be a tragedy if we do nothing and let this process end with only one try. As Canadians, we have an opportunity to make a difference and show the rest of the world how it should be done.

I was on the plane with Mr. Clark with the first shipment of our drugs to Rwanda in 2008. I witnessed directly what this could mean for many lives. Apo-TriAvir was distributed to 21,000 patients living with AIDS who had few options left. This touched me forever. Without this medicine, many of these people would be dead today. No one in North America or the world would be any wiser that having the right process in place could make a huge difference.

In concluding, we have an opportunity to make the CAMR process work no matter what political party we support. We do not need drastic changes to this legislation if there is a political will to get it done. Doing nothing is not an option. We have the answer close at hand.

I would like to turn it over to Mr. Clark to provide you with clarification as to misinformation pertaining to what Apotex had to go through and some of the timelines.

The Chair: Mr. Kay, will someone tell us what adjustments you feel are necessary to the present CAMR?

Mr. Kay: The adjustments are in the bill.

The Chair: Therefore, with the exception, as I understand it, of allowing foreign approvals to be recognized, you support the bill.

Mr. Kay: With the exception of foreign manufacturers, that is correct. We support the amendments to the bill with that exception.

The Chair: Thank you. Mr. Clark, please proceed.

Bruce Clark, Vice-President, Regulatory and Medical Affairs, Apotex Inc.: Honourable senators, as a starting point in the discussion, it is worth saying that this is one company's experience in the context of CAMR.

Somewhere along the way, even looking at the name of this legislation, this effort was a pledge to Africa. It suddenly became a regime. I think therein lies part of the tale: A pledge has somehow become ensnared in a regime.

That has been our perspective on what transpired. We have to ask ourselves at the outset, what is the objective of this legislation? What is the intent? This will help answer some of the questions. If the intent is truly to get product into the hands of those who most desperately need it to treat diseases that go untreated, and the need still remains regardless of other options available, then we have to look at the objective of the legislation. There is still a need.

In our experience, we faced specific areas that were a particular challenge. The outset of the CAMR process, as it is now written, requires a country to make notification to the WTO of their intent or interest in obtaining a product under that provision. Then they are required to notify, in this case, the Government of Canada and subsequently a company such as Apotex of their desire to obtain a product.

The challenge is that the product is undetermined at this point. A lengthy list of products is appended to the legislation. I am sure that has been referred to previously. In the case of TriAvir, it was not on the list. One of the earliest steps was determining which product was most needed in which jurisdiction and the most effective dosage form or delivery of that product. That was not our decision, although we were involved in the discussion.

As Mr. Kay mentioned, MSF was a great player in determining what was needed. Through discussions with Health Canada, they agreed TriAvir was the combination that would be taken forward. That process was lengthy, but worked fairly well. Good collaboration occurred between the medical community, NGOs and Health Canada in discussions of how to take that forward. The approval process in Canada was remarkably efficient, effective and quick.

The challenge still remained in a country coming forward to be named. If you put yourself in the requesting country's shoes, they look at Canada and understand some provision in legislation exists that allows them to get some type of a product. However, it is not clear what that product might be, whether the company can provide it or under what terms the provision will be made. It is all based on trust. They cannot go through the catalogue of Apotex or any other company and say, ``We want this product. How can you provide that to us?'' Whereas, they can go to Indian and Brazilian manufacturers, identify the product they want to purchase and get on with the process. Therefore, a great deal of time was wasted in the initial stages of the process to get a country to come forward. Seven countries approached us. Rwanda was the only one that went through the process after understanding what was required. All the others turned away because the process was too complicated, too frustrating and not worth their effort; they had other options.

The next hurdle, if you will, was the negotiation of a voluntary licence. We tried prior to the approval of the product, which was in June 2006, to approach the patentees. In the case of TriAvir, four patent holders were involved: three companies and an individual. Each of those needs to be approached independently for discussions around licensing. That process was begun around the time of approval by Health Canada. The response that we received from the brand name industry and the patent holders was that discussions were premature because the product was not yet approved and no country had come forward. Therefore, we could not even enter into discussions on a voluntary licence until a country came forward, which was about a year later.

It was not until 2007 that Rwanda finally made a request, and we were then able to tell the brand name companies that we had a country named. Then the negotiations began on the terms of those licence agreements. Ultimately, despite what was being very publicly stated in the press about willingness to grant voluntary licenses, when it came down to the practicalities and details of those licences, they were completely unacceptable and far outside the terms defined within CAMR.

Interestingly enough, royalties were not the big issue. I think both parties agreed on the assigned royalty rates; they had no objection. The issues were around trademarking and diversion — you heard about that in the previous discussion — and about audit processes far over and beyond the provisions within CAMR.

It then came to the logistics of delivering the product to Rwanda. As previous speakers mentioned, the procurement process in the developing world is fairly complex. Many countries have to have very transparent tendering processes because their funds to purchase products come from the World Bank or other organizations. It is a very lengthy process. Therefore, after developing this product and navigating our side of the legislation, we were uncertain whether we would ever be able to deliver this product to Rwanda because we had to go through a tendering process. As you have also heard, pricing was an issue, but we were fortunate to be able to negotiate raw material prices that allowed us to be competitive.

The ability that this bill would give to develop regional provisions for structuring the patent terms and compulsory licences for a region would allow us, just on the basis of economies of scale, to drive the prices down. That is one of the most important impacts when it comes to price.

In the middle of the process, when Rwanda realized this would work and result in a product that would be delivered to them, they wanted to double their order, which we could not do. We could have sourced raw materials and manufactured it, but we could not have sent more product because we were restricted by the structure of the legislation, which we think is completely ridiculous. As well, we had two years to deliver the amount of product they were ordering.

As you may know, we sent the product in two separate shipments, one in September of last year and one in September of this year, for the practical purpose of maximizing the shelf life of the product. We do not want to send them enough medication for 21,000 patients for two years all in one shipment. However, we are required to fall within the two-year time restriction of the current legislation. That can be extended for another two years under the current provisions; but in order to do so, we have to navigate the logistics, which is really unnecessary when you think of the purpose of delivering the product.

In reviewing each individual stage, with an extra week here or an extra month there, this process has gaps of years because we could not move under the structure of the legislation. Other aspects of it work quite well. As I said, we are happy to operate under approval by Health Canada. The review was efficient and effective, and the process worked very smoothly. The pre-qualification of this product under WHO, which is another vital piece of the process, went very smoothly as well. The issue is that if Rwanda wants to reorder, we have to start the negotiations all over again.

We have read in the press, as recently as yesterday, that the brand side of the industry are stating that they are doing their part and encouraging their members to provide voluntary licenses, as they did last time. Well, they did not provide any voluntary licences last time. These products were provided under a compulsory licence. We were forced to take that route. I am not sure what they are referring to when they say that they are encouraging their members to continue with the voluntary licences. It did not happen.

Senator Fox: Is the compulsory licence process a difficult one?

Mr. Clark: No, once the decision was taken to go with the compulsory licence, I think we received it in 14 to 15 days. Why have the voluntary licence piece in there at all? There is no dispute about the terms of the licensing. The royalty rates are appended to the bill. No one has disagreed, on either side of the equation, on whether those are appropriate or restrictive. The issue is that they are there. Why do we not move directly to a compulsory licence situation? The question that is asked is about diversion. This was another part of the negotiation.

From a very practical point of view, consider the volume of products that we are sending to a nation such as Rwanda for a critical disease, where people are dying and where they have the infrastructure to distribute it. What is the likelihood that they will send that back to the developed world? It is hard to comprehend how they would take that away from their own people and distribute it back into the developed world, especially considering that the tablets are imprinted with ``XCL,'' which means that it is not for distribution and sale within Canada.

Mr. Kay: As well, no equivalent brand name product exists in the developed world in this market.

Mr. Clark: From a top-line point of view, those are some of the hurdles that we ran into. As Mr. Kay said earlier, some simple fixes to the existing legislation are in this bill that would make it workable and feasible.

This cannot be a one-off process. We have to look for something that is sustainable, and to be sustainable, it has to be practical for all parties. I believe similar provisions have been made in seven or eight other jurisdictions, yet nothing has been delivered out of those countries. One simple answer is that they do not have Apotex. We made a commitment five years ago that, as a Canadian company, this was an opportunity for Canadians to make a difference on the world stage and meet an overwhelming need. It was the right thing to do. We stepped forward, and regardless of the hurdles, we continued to press on.

I have never forgotten the statement of a senior diplomat from an African country who said that, based on his view and experience with CAMR, Canada has betrayed the trust that Africa has put in her. When you hear that from the nations that you are trying to help, it is sobering. Do Canadians know how little we are doing to respond to a very treatable disease with a system that can be very manageable with some very simple changes?

With all haste, proceed to make the changes necessary so that we can get on with what we do.

The Chair: Thank you all. That was very complete and clear.

For clarification, I believe you said that it was a year before Rwanda applied. Is that CAMR's fault, Rwanda's fault or Apotex's fault?

Mr. Clark: I do not think it is anyone's fault, per se. I believe that under the current legislation countries did not know what to do. We were in the situation of trying to figure out what product was needed. It also needs to be understood that there are ways to provide generic products to the developing world, and we do that, not restricted by patents. This is talking about specific products that have a critical need that are covered under patents, which we all know.

The truth is that countries are mystified by the process. In a normal transaction, we would offer product X required for disease Y, and they can purchase this from us directly. Whereas with CAMR, we are talking to them about a process, not a product. We try to explain how they have to make a request to the TRIPS Council, then they must notify the Canadian government and then Apotex; they do not understand why. They say that they can go to Aurobindo Pharma in India, for example, and buy this off the shelf. Therefore, why go through that process?

That was the discussion we had, as I said, with seven different countries. When we tried to explain the process to them, their eyes glazed over. They did not understand why they should have to do that.

The Chair: Did any of the seven countries purchase elsewhere?

Mr. Clark: I do not know.

Senator Moore: Mr. Keon, how many manufacturers do you represent? You said that it is 10 to 12; I thought you would know the number exactly.

Mr. Keon: We have eight manufacturers, one fine chemical manufacturer and five contract research organization, so 14 members in total.

Senator Moore: Mr. Kay, you have looked at the bill. In your opinion, is it WTO-compliant?

Mr. Kay: I have no idea.

Mr. Keon: The association's view is that it is.

Senator Moore: Mr. Keon, your association has looked at it?

Mr. Keon: Yes, we have.

Senator Moore: The August 30 decision that we have heard about provides flexibility for this process to happen and this bill to come forward. Are you satisfied that it meets WTO requirements?

Mr. Keon: Yes.

Senator Moore: Mr. Clark, you mentioned that you dealt with the four patent holders and were readily able to strike a deal with regard to royalty and branding. Who do you satisfy with regard to diversion? Is it those patent holders, or who else are you dealing with here? When looking at the whole process, with whom are dealing?

Mr. Clark: That is a discussion with the patent holders.

Senator Moore: How long did that process take? You said that you started in June 2006.

Mr. Clark: Yes, and it was not until the end of August 2007 that the whole process wrapped up.

Senator Moore: That is a matter of negotiation between your company and those patent holders, aside from any other requirements in the legislation. It took that long?

Mr. Clark: That is correct.

Mr. Kay: It took that long for them to say that they were not giving us a voluntary licence.

Senator Moore: I know. I wanted to get to that. I asked this question yesterday. To get to the compulsory licence process and have a decision within 15 days, which I think is quite reasonable, it took 14 months. Is there no cut-off sooner than that, whereby you determine the people have not been able to come to an agreement after three months, for example, so now we will go into the compulsory process? That open-ended process seems to be a big problem here.

Mr. Clark: As the legislation is written, there is actually a 30-day process. It is defined as demonstrating within 30 days for a voluntary process to go forward.

The 14 months was actually us trying to find, in good faith, a middle ground or at least some way to come to a voluntary licence, which ultimately we could not do. We said that enough is enough; we will move on to the compulsory licence phase.

Senator Moore: Could your company have cut that off sooner, determined it was not going anywhere, agreed to disagree and moved on to a compulsory process?

Mr. Clark: The legislation provides a 30-day period for us to demonstrate in good faith that we tried to negotiate a voluntary licence. Part of our challenge was that it is one thing to say that in the legislation, but our lawyers advised us that there is much more to good faith and the process of negotiation that they wanted to go through prior to using the default of 30 days. That was why we ended up at 14 months of trying to negotiate.

Senator Moore: Senator Fox or someone asked about this, that Rwanda came forward in 2007. How does an importing country do that? Do they go through their local embassy? Do they contact you directly? How do they become familiar with the Canadian legislation and with the product list to see whether your product is on it? To whom do they go?

Mr. Clark: That is one of the biggest problems, that there is no clear avenue. That is where the NGOs have done a good service, whether its Médecins Sans Frontières, the Clinton Foundation or others, in trying to raise awareness in the developing world about this as an option.

Senator Moore: Tell us about the process of how Apotex linked up with Rwanda.

Mr. Clark: We received a fax from the head of their HIV treatment program, who apparently independently came across the legislation and the opportunity to make the request under CAMR. They made the request to the TRIPS Council and the WTO and then followed the process to notify the Canadian government and ourselves. It was one individual within that organization; it was not through an embassy. The inquiry is typically through the health ministries or individuals within the health ministries inquiring about the process.

Senator Moore: Who has the obligation to then give Rwanda the legislation so that they can see what they are dealing with?

Mr. Clark: In this case, we provided them access to the information as best we could and a step-wise process to go through in assistance.

Otherwise, currently the way it appears, their countries are pretty much on their own to find out how to access this and what opportunities are available; that is a problem. We need to have a better way for Canada to advise the developing world that this is an option; we have a big gap.

The Chair: Maybe I am the only one who believes this, and being a lawyer, I guess I can say this; it sounds as though the lawyers are one of the villains in this. If in 30 days the lawyers do not think that you could demonstrate good faith, that you had to carry on for however number of months, I do not get it. I hope in the additional questioning, at least for my benefit, it might come out as to why after 30 days you did not determined that you tried your best and moved on.

Mr. Kay: It is bad enough dealing with one lawyer; we were dealing with four different firms.

Mr. Keon: Part of the difficulty in this whole process is that to start negotiations, you must have identified a country that wants your product. When you go to a country and identify your product, you do not have a licence. It is backward. You want to tell Rwanda or another country that you can provide the product, but you do not have a licence. To start the whole compulsory licensing process and voluntary negotiations, companies want to know who you will sell it to, but you do not have a legal right to sell it yet.

Therefore, the whole process currently is complicated and backward. That is one reason this bill is good; it simplifies matters.

Senator Moore: Did Rwanda have to have approval of funding from the Global Fund before they came to your company? We are told that takes a year as well and that it must happen before they can apply.

Mr. Clark: That, I do not know.

Mr. Kay: We began the process on faith, that when they placed the order, they would eventually find the mechanism to pay it.

Senator Harb: Thank you for your presentation. You mentioned that you are probably the only company in the developed world that provides this type of product and did this type of shipment. Is that correct?

Mr. Kay: The only company in Canada.

Senator Harb: Did any other developed country do that?

Mr. Clark: For this particular product, when we visited Rwanda, we did see another supplier of this combination, but they were finishing that contract and transferring to the Apotex product.

Senator Harb: From what country was that?

Mr. Clark: That was an Indian product.

Senator Harb: That is the point that I wanted to make. You have many nightmares around you. You are the hero, in a sense. From your statement, you want to do well. Generally, I believe you, and I am sure that my colleagues do, too. However, you are surrounded by competition from developing countries, such as Brazil, India, China, and others that will come on stream. You have to compete with their products in terms of their prices and your prices. You have a second nightmare from the legislation, which is creating hurdles for you, and you have a third nightmare in that you are their worst nightmare and they are your worst nightmare. By that, I mean the brand name companies because, whether or not you like it, you are in competition with them also. Finally, we have the pledge to Africa. Many different variables exist.

You are suggesting that we start with support of Bill S-232 — at least that will resolve some of your nightmares and allow you to move on to the next step. Is that what you are saying?

Mr. Clark: I think that is fair.

Mr. Kay: Yes.

Senator Harb: Mr. Keon, when the witness appeared before us, Senator Goldstein, who introduced the bill, said that part of the bill would replace a country by an NGO. That is, rather than a country applying to subscribe to the product, an NGO would subscribe to that product. However, when the WTO agreed to allow countries to subscribe, they did not mention NGOs. In your view, would that continue to make the bill consistent with WTO provisions, or do you think that, while the bill is approved, we still need to go to WTO to get clarification?

Mr. Keon: As we heard Mr. Clark and the previous speakers say, the NGOs are critical to this. The Global Fund has the money to buy these products. However, they want access to more competitively priced products to make their funds go further so that they can treat more people.

We have always favoured allowing the NGOs to work with the countries to identify their needs and then represent them on their behalf.

Senator Massicotte: It is very honourable that you are doing this on a cost basis. Obviously, you are a responsible Canadian partnered with society. I am a big believer in the market system. I strongly believe that the world's poor would best be served by open-market response to their needs. Having said that, we have to find a mechanism so that you make a reasonable profit and are highly motivated not only to satisfy certain needs but also many needs on an aggressive basis.

Will this amendment to the act allow that vibrant competition to occur, where we do not rely upon the generosity or non-profit nature of a supply contract? How do we get to many parties being available and competing to drive down the cost so that everyone wins?

Mr. Kay: The answer is that this will allow us to compete from Canada. We still have to compete on a worldwide basis. If, at the end of the day, they can buy these products from India, for example, for less than from a Canadian company, so be it. Without the amendments, you will not get a Canadian company to step up and take advantage of manufacturing the products in Canada.

Senator Massicotte: Is that because the impediments are such that you cannot be competitive?

Mr. Kay: It is not that we cannot be competitive. It is a matter of stick handling through the bureaucracy, through the legislation. At the end of the day, it is not worth it because I can put my resources to other areas where I can make a good return on investment. I do not mind doing something such as providing life-saving drugs at cost because it is our corporate social responsibility, providing I do not tie up my whole organization in handcuffs.

Senator Massicotte: Why then do you not increase your cost? While 19 cents was good from your experience, if you made it 30 cents, would you have more interest to go through this burdensome bureaucracy and still deliver the product?

Mr. Kay: At 30 cents, they would buy the drugs from another country.

Senator Massicotte: The issue is that you allow yourself to become competitive with fewer obstacles. In a world sense, what is more important than it coming from Canada is that the need is satisfied. You seem to suggest that other countries have mechanisms in place with fewer obstacles to satisfy that need at a lower cost. Is that the case, or are many needs not satisfied that are less price-sensitive and allow you to make a bigger product?

Mr. Kay: There are needs not being satisfied. Also, certain countries would prefer not to buy from an Indian company but to buy from a first-world country such as Canada, where they know the quality of products manufactured are of the highest standard.

Senator Massicotte: If that is the case, then why do you not charge a higher price and make a profit to motivate you to go through this process and not hinder that supply?

Mr. Kay: If we could, we would, but we cannot. We have to be competitive. At the end of the day, it turns into being a commodity business.

Senator Massicotte: We are going in circles. For some products, no competition exists. A need that is not being satisfied, or some demand exists maybe for a high-quality producer such as Canada. I am not a big believer that you will do much of this on a non-profit basis. I want to ensure that the structure we create is such that you will be motivated to do this many times and compete with other countries.

Mr. Kay: We would continue to do it for no profit because it is the right thing to do. We have the capacity and the capabilities.

Senator Gerstein: I wish to pursue Senator Massicotte's question. In the process, which may have higher obstacles and lower obstacles, at what point in your discussion with a potential customer does the subject of price come up? When do they ask about the cost?

Mr. Clark: Again, I will speak to our experience currently. The discussion of pricing did not happen until it was clear on Rwanda's side that a valid process was actually in place. That is, there was an end point to this. A discussion took place about us going through the tendering process, and then we were told, ``This is your competition. This is the price.'' The discussion around price came in probably two thirds of the way through the process.

With respect to price and the change proposed in this legislation, by expanding the compulsory licence model to a region or a jurisdiction — and this product is not just needed in Rwanda; it is needed in the whole region — we are able to source raw materials at a much better price when we start moving into volume. Some of the confusion around the pricing initially for the Apotex product was — because of the development costs — that it was over twice the price of the commercial cost that we were able to hit because of the economies of scale. When that is expanded to multiple regions, then we are able to drive that price down and be competitive on an international basis. There is no issue about competing on price. It is the guarantee that we will be able to get something into the market that is the driving factor for us.

I agree with questioning around the pricing or the economics, if you will. We have to create a sustainable process. To be sustainable, even if the decision is that it is not for profit, we still have to drive as much cost out of the equation as possible to deliver an at-cost solution at a price those countries are willing to pay.

Senator Fox: Would the global funding organizations play a role in determining what price they find acceptable? Do they impose conditions to funding? You mentioned calls for tender.

Mr. Clark: Under the open-tendering process, there is an understanding implicit in that process to compete. I have not seen anything that says that there are controls or a range of pricing that they will find acceptable.

Mr. Kay: Remember, at this point in time, we are limited to only one experience.

Senator Ringuette: Thank you for explaining to us your unique experience as a Canadian company and also the great amount of goodwill you put into your efforts.

I am somewhat dismayed. On one hand, some colleagues seem to be arguing about the free market. It seems that if one wants to promote free markets, then we should remove complexities and rules. Basically, this is what Bill S-232 is trying to achieve.

In the last five years, what product and which brand name companies located in Canada have made any shipment from the list of products in CAMR to developing countries?

Mr. Kay: We are not equipped to answer. I know the brand name industry, through other organizations, does donate products to sub-Saharan Africa, but I do not know the value.

Senator Ringuette: We were told by Senator Goldstein that it is about $50,000 per Canadian company or something similar per year.

Mr. Keon: Outside of CAMR, both the generic and brand name companies donate substantial volumes of medicines to the developing world. Health Partners International of Canada, HPIC, is a not-for-profit relief and development organization. A generic company, Pharmascience Inc., from Montreal has been the largest donor through HPIC for the last few years. Pharmaceutical companies do donate medicines.

This bill and the legislation is intended to allow generic companies to make copies of patented medicines to bring those costs down on medicines they could not otherwise make.

The Chair: The bottom line is that more medicine has been donated outside CAMR than has been transferred to desiring countries through CAMR.

Mr. Kay: However, they are not necessarily patented medicines.

Mr. Keon: Generic companies make and export non-patented medicines to over 100 countries. This bill deals with patented medicines that generic companies might be able to make under compulsory licensing schemes.

Mr. Clark: In that respect, it is one thing to donate medicines and provide those through various organizations. However, this bill is not talking about charity; we are talking about self-determination. This bill allows countries to identify their needs; they have the resources and infrastructure in order to treat their own issues. This is about their self- determination and being able to choose. It is not charity; it is about choice.

Senator Fox: You mentioned the phrase ``easy fixes'' in your presentation. One of the easy fixes would be to eliminate the voluntary licence process and go directly to the compulsory licence. Is that possible?

Mr. Clark: Even under current legislation, that is possible. It is the default mechanism. They assume you cannot reach a voluntary licence, so the compulsory licensing approach is there.

Senator Fox: Would you keep the voluntary licence approach, but within strict time limits? As soon as you put strict time limits on it, does it not become a compulsory licence approach?

Mr. Clark: That is our view exactly. It is unnecessary for both parties. It is a waste of their time and ours when both sides have agreed to the structure of compulsory licensing.

Senator Fox: The first easy fix would be to go to a compulsory licence. The second would be to eliminate the requirement that the process start with a request from a given country.

Mr. Clark: That is correct. That could be done by the provision saying that there would be regional compulsory licences established or opportunities for regions to be covered.

Senator Fox: That would be an application by an NGO, and they would need that country's support, is that correct?

Mr. Kay: If it is done through an NGO, it is representing a specific country or region.

Senator Fox: The advantage of the proposed changes over the present system is that the NGO would be proactive to seek the support, when now you are saying that countries are not aware of the possibilities of doing this. I would have thought Foreign Affairs and International Trade Canada, through the embassies, would have promoted this as a Canadian way of doing things. However, you are telling me that they have not, could not or would not.

Mr. Clark: If they have, we have not seen the evidence based on the level of questions that come from various countries.

Senator Fox: Those are two easy fixes. What is the third easy fix?

Mr. Clark: It is to take away the time limit on the licence. CAMR presently has a limited two-year time period. We would like that to be open-ended because once we have negotiated that licence for a jurisdiction, it seems foolish to say that we have to use it up by January 1, 2011, for example.

The Chair: If I understood you correctly, when you wanted to make a second shipment, you had to reconvene the process.

Mr. Clark: We would have to re-enter the process again for a second shipment.

Senator Fox: Is that the three easy fixes, or were there more?

Mr. Clark: From our perspective, those are the major roadblocks from our experience.

Senator Frum: Mr. Clark mentioned the legal aspects of conforming to the WTO. One of the potential problems with this bill, where it does not conform, is on the duration of a licence. The WTO demands that there be a limit or a defined length of term. This bill would eliminate the length of term. The WTO also requires a statement on quantity. This bill would remove the need for any limit.

My question is not on the legal compliance. I was interested in your comments about diversion. Obviously, it matters to you, too, if this is abused from a diversionary point of view. If you have a bill with no limit on time or quantity and with the destinations, with all due respect, of these drugs where the opportunities for black markets exist, why would a black market for these drugs not develop?

Mr. Clark: I do not know the simple answer to that. We have to ask ourselves other questions. Brand name pharmaceutical companies already distribute their regular products into these regions. If they are not concerned about diversion of their own products in these regions, then I do not know why, under this legislation, we would be any more concerned about diversion of these products. They are clearly marked for use in those programs only. All regulatory bodies in various countries are alert to what these products are.

We do not have any problem with the transparency provisions in the current form of the legislation. We advise the patent holders of the intent to ship, the volumes of shipment and track that on our website. It is visible to all. Those provisions are still necessary. We do not have any objection to those conditions.

It is our ability to have some predictability of volume, supply and time frame that allows us to function as a reasonable business in providing these products in a sustainable manner.

Mr. Kay: The issue that large pharmaceutical companies have with diversion is that the drugs will be diverted back to countries where they are selling at much higher prices.

In the case of the products that we are supplying, not only are they marked differently, but they are not available commercially from the brand name industry. They do not manufacture a triple combination product.

The other important factor is that this product cannot be sold in Canada or in the United States. In Canada, it cannot be sold because it does not have a drug identification number, so a pharmacist cannot buy it and dispense it. Additionally, in the United States, it does not have a national drug code number, so it cannot be purchased and sold in that country. It is somewhat of a red herring, but we will do whatever is necessary on our part to ensure there is no diversion.

Senator Frum: I am not familiar with the black market in drugs, but do those participating in it care how items are marked? I have heard many times that they are marked differently, but does an illegal drug trader or purchaser care how they look?

Mr. Kay: Illegal trade goes on all the time. We have to ensure that we package and mark the products in such a way that they will not be sold to another bona fide agency and that they arrive at the destination for which they were intended. I cannot control the black market.

Mr. Clark: The involvement of NGOs and other organizations in the process would provide the benefit of oversight by them and facilitate their access to the program.

Senator Frum: I agree with that. Currently NGOs cannot apply.

Mr. Clark: It would still require a deal within a country. They would not be able to distribute in a country without a deal, so that is just a matter of logistics. It is still the country that will have the agreement under the legislation.

The Chair: My understanding of the WTO regulation is that you must specify duration and quantity, among other things. No number is established. Why would you not tell them three times what you intend to ship and say that it is for 10 years?

Mr. Kay: Yes, it should be open-ended with a time limit and a quantity limit.

The Chair: That does not seem to contravene WTO regulations, but I am not a practising lawyer any more.

Mr. Keon: The WTO agreement says that you will only export the amount necessary to meet the needs. It does not specify quantities. Under this proposal, you would manufacture and be able to export to meet the needs, and that is what we are asking.

Senator Raine: I was happy to hear that no one seems to have a problem with the royalty structure in the current and the proposed legislation. Am I correct about that?

Mr. Clark: Yes. Especially when the brand name pharmaceutical companies say that they are not looking at charging royalties anyway. I do not think that is an issue. They said only yesterday that they are not looking for royalties on these products.

Mr. Kay: If they did charge a royalty, it would be added to our cost. It would be a cost of doing business and would increase the price.

The Chair: I wish to thank the witnesses very much. We have all benefited from this discussion.

(The committee adjourned.)

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