Does a New Trade Agreement Mean New Drug Prices for Canadians?

Authors: Grant Stefanson and Anna Solmundson

The proposed United States-Mexico-Canada Agreement (USMCA) has been negotiated as a replacement of NAFTA, the North American Free Trade Agreement, and was announced on September 30, 2018.

USMCA changes many aspects of NAFTA, but one item of particular significance is the impact USMCA may have on prescription drug prices in Canada.

How could USMCA increase prescription drug prices?

USMCA leaves much of NAFTA in place, but does result in changes to a key area that affects prescription drug prices – intellectual property.

The longer a prescription drug is protected by intellectual property laws, the longer it will take for a generic version to enter the market, and the longer the company holding the intellectual property has to retail its product without a generic competitor to encourage lower prices.

However, one potential benefit of a longer protection period is that the increased protections that make a drug more profitable for its producers may encourage the development of new medications.

USMCA has the potential to increase the cost of biologics because USMCA extends the protection period for biologic drugs to 10 years, up two years from the eight-year protection window offered under NAFTA. In exchange, the United States reduced its window from 12 years to 10.

The USMCA defines a biologic as being “produced using biotechnology processes and that is, or, alternatively, contains, a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, protein, or analogous product, for use in human beings for the prevention, treatment, or cure of a disease or condition.”

The use of biological processes in their production results in medications belonging to the biologic class being more complex and more expensive to produce than traditional chemically synthesized medications.

The Patented Medicine Prices Review Board’s 2017 Annual Report identified biologic drugs as comprising seven of the 10 most expensive medicines contributing to prescription drug sales in Canada. In contrast, the cost of most chemically synthesized medications is steadily decreasing as countries with lower costs of production enter the market. This makes biologics a promising field for pharmaceutical companies, and the extension of their window of protection may encourage further development of innovative medications.

However, the extension of biologic drug protections may have a minimal impact on medication prices given existing patent protections which were confirmed under USMCA; patented drugs are protected for a period of 20 years.

To be eligible for a patent, a drug must contain an innovation that is new, non-obvious and useful. For example, changing the colour of a medication would not qualify it for a patent, while the use of a new medicinal ingredient or combining medicinal ingredients in a novel way likely would.

Until that 20-year period has elapsed, no generics of a patented drug can enter the market. While some drugs, like penicillin – the patent for which was famously transferred by Sir Alexander Fleming to the U.S. and U.K. governments to ensure it was readily available to the public – remain useful after their 20 year patent window has elapsed, others are replaced by newer, more effective medications, ultimately resulting in generics being made redundant before they have a chance to be produced or enter the market.

Notably, the Comprehensive Economic and Trade Agreement (CETA) with Europe expanded the patent window for some drugs from 20 years to 22 years.

Is an increase in prescription drug prices guaranteed?

While USMCA was negotiated between all three countries, it has not yet been ratified by each country’s respective government, and could still be subject to change, or rejection altogether (although the latter is unlikely).

Ratification occurs when the respective governments of each country have formally adopted USMCA as the replacement of NAFTA. The ratification process can be quite lengthy; expect USMCA to come into force in the spring of 2019 at the earliest.

To be ratified in Canada, USMCA will have to survive a series of steps, including tabling the agreement before Parliament for discussion and consideration for 21 days, passing via a motion in the House of Commons, the issuance of an Order-in-Council authorizing the Minister of Foreign Affairs to sign the treaty, and revisions to any competing regulations or statutes to ensure there are no conflicts at law.

Therefore, other than potential increases to the price of biologics, there are not any provisions of USMCA that would impact the prices of most prescription drugs in Canada upon the ratification of this new trade deal.

This article first appeared in Communication Journal, a publication of Pharmacists Manitoba

 For more information on intellectual property or patent law, contact one of our patent team members.

 Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.