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Life
Sciences
INSIGHTS +
Developments
blakes.com
The life sciences industry is a key contributor to the Canadian and global
economies. In the pursuit of competitive advantage, participants in the
pharmaceutical, biotech, medical device and diagnostic, and health-care-
services sectors have seen significant growth attributed to major leaps
in technology and an unprecedented demand for health-related goods
and services. This growth has paralleled the expansion and imposition of
more stringent regulatory requirements, improvement of market access,
aggressive patent acquisition and enforcement, strategic M&A activity, and
increased product liability claims and other litigation.
This report highlights insights and developments relating to a wide
range of legal, business and consumer issues currently impacting the life
sciences industry in Canada and abroad. These highlights were prepared
by Blakes based on non-confidential information gathered in our practices,
as well as through a review of publicly available information. Through
a series of articles, we examine the implications of some of the recent
legal developments impacting the sector, including the Supreme Court of
Canada’s decision to uphold Ontario’s ban on private-label generic drugs,
the enforcement of prohibitions on pharmacy-related loyalty points in B.C.,
the Competition Bureau’s ongoing consideration of competition among
pharmaceutical companies, and recent trends in Canadian litigation. We
also discuss issues relating to the navigation of transfer-pricing rules,
protecting intellectual property in the development of combination
products, and obtaining financing for new product development and
business expansion efforts. Supplementing our discussion of these
matters are snapshots of consumer-facing and market trends, including
integrated patient care and direct-to-consumer sales.
OVERVIEW
Editors: Frank Guarascio and Cheryl Satin
Contributors: Robin Burns, Sheldon Burshtein, Joseph Garcia, Hugh Godfrey, Jason Gudofsky,
Nicole Henderson, Christine Ing, Christopher Jones, Robin Linley, Kaitlin Macdonald, Janice McCart,
Beth Romano, David Rosner, Alice Tseng and Scott Wilkie
tABLE OF
cONTENTS
1
FOCUS ON COMPETITION IN THE HEALTH SECTOR 3
RECENT LITIGATION DEVELOPMENTS AND TRENDS 5
TRANSFER PRICING AND THE LIFE SCIENCES INDUSTRY
PATIENT-CENTRED HEALTH CARE
A NEW FRONTIER FOR MANUFACTURERS:
DIRECT-TO-CONSUMER ONLINE PHARMACEUTICAL SALES
UNLOCKING THE FUNDING CHALLENGE
DEVELOPING AND COMMERCIALIZING COMBINATION PRODUCTS
7
9
11
13
15
SUPREME COURT OF CANADA UPHOLDS
BAN ON PRIVATE-LABEL PRODUCTS
LEGALBUSINESSCONSUMER
BLAKES LIFE SCIENCES GROUP 17
1
Summary
The Supreme Court of Canada (SCC or Court) delivered its highly
anticipated decision (Katz Group Canada Inc. v. Ontario (Health
and Long‑Term Care)) on private-label products on November 22,
2013.
The Court unanimously upheld the validity of the regulations
to the Ontario Drug Benefit Act (ODBA) and the Drug
Interchangeability and Dispensing Fee Act (DIDFA) (together, the
Regulations) that essentially ban the sale of private-label products
in the private and public markets in Ontario. This decision
effectively means pharmacies that operate in Ontario will not be
able to sell drugs purchased from manufacturers they control if
the manufacturers do not also fabricate the drugs.
Background
Before 2006, generic manufacturers typically provided
rebates to pharmacies as an incentive to purchase the generic
manufacturer’s product. Due to the government’s belief that
these rebates increase the cost of generic drugs to both public
and private payers, the Ontario Ministry of Health amended
the ODBA and DIDFA and the Regulations in 2006 to prohibit
rebates. However, the Ministry of Health thought industry was
circumventing the rebate prohibition and responded with more
amendments in 2010 (the 2010 Amendments) to further restrict
the benefits manufacturers could provide to pharmacies. The
2010 Amendments prohibit not only professional allowances,
but also private-label products from being listed in the Ontario
Formulary or designated as interchangeable. Inclusion in the
Formulary or designation as interchangeable is not required to
legally sell a drug in Ontario, but for many generic drugs, inclusion
and/or designation is a prerequisite for commercial success. This
is why the 2010 Amendments have been referred to as banning
private-label products even though such products can still legally
be sold in Ontario.
The Katz Group (which controls Rexall and Pharma Plus
pharmacies) (Katz) and Shoppers Drug Mart (Shoppers) had
taken steps to set up their own private-label manufacturers. Sanis
Health Inc., which was incorporated by Shoppers for this purpose,
applied in 2010 to list several generic drugs in the Formulary and
to have them designated as interchangeable. The Ministry of
Health rejected the application on the grounds the drugs were
private-label products. Shoppers and Katz both challenged the
Regulations as being ultra vires on the grounds that they were
inconsistent with the purpose and mandate of the ODBA and the
DIDFA. The pharmacies were successful in the Divisional Court,
but the Court of Appeal reversed the decision.
THE SCC DECISION
In upholding the relevant provisions of the Regulations as
valid, the SCC held that in order for Shoppers and Katz to be
successful in their appeal, they must show that the Regulations
are inconsistent with the objective of the enabling statute. The
Court determined that the overarching purpose of the ODBA
and the DIDFA is to control the cost of prescription drugs in
Ontario without compromising safety and that, in the past,
rebates and professional allowances had driven up drug prices.
The Court found that the purpose of the 2010 Amendments
relating to private-label products was to prevent another possible
mechanism for circumventing the ban on rebates that had kept
drug prices inflated. Justice Abella held:
In banning rebates, the expectation was that manufacturers
would lower Formulary prices, and that pharmacies would
pass these savings on to consumers. If pharmacies were
permitted to create their own affiliated manufacturers whom
they controlled, they would be directly involved in setting the
Formulary prices and have strong incentives to keep these
prices high. Rather than receiving a rebate financed by inflated
drug prices, the pharmacy would share in the manufacturers’
profits from those prices. This was expected to keep the price
of drugs to consumers high.
Shoppers and Katz argued that the Regulations were inconsistent
with the statutory purpose because they neither could nor would
reduce drug prices, since the price at which drugs are reimbursed
by the Ministry of Health is independently set. The Court
rejected this argument on the basis that whether the Regulations
SUPREME COURT OF CANADA
UPHOLDS BAN ON
PRIVATE-LABEL PRODUCTS
2
ultimately prove to be successful in reducing drug prices or
represent sound economic policy does not answer the question
of whether they are consistent with the statutory purpose of the
legislation.
The Court determined that the provisions in question were
consistent with this purpose through “ensuring that pharmacies
make money exclusively from providing professional health care
services, instead of sharing in the revenues of drug manufacturers
by setting up their own private label subsidiaries.” The Court
reasoned that if pharmacies were permitted to create their own
private label subsidiaries whom they controlled, they would be
directly involved in setting Formulary prices and have strong
incentives to keep those prices high.
Shoppers and Katz also argued that the Regulations are
inconsistent with the statutory purpose because they are under-
inclusive since they do not prevent a pharmacy from owning a
manufacturer that is also the fabricator of the drug. The Court
rejected this argument on the basis that this corporate structure
does not currently exist in Ontario, and the government is not
obliged in its regulations to anticipate all potentially problematic
scenarios for it to be consistent with its statutory purpose. The
Court noted that this may become a corporate structure of
concern; however, the government is entitled to address this
problem in stages.
The SCC dismissed Shoppers and Katz’s appeal.
Significance
Although it is only Ontario law in issue, given the size of the
Ontario market, this decision has consequences nationally since
manufacturers and pharmacies may choose not to pursue private-
label product arrangements in Canada at all due to the impact
the Regulations will now have on a product’s overall commercial
success.
Pharmacy chains may feel the financial impact of this decision
as it was expected they would use the extra revenue from the
private-label product model to recover profits lost as a result
of the prohibition on rebates and professional allowances. This
decision comes at a particularly critical time as an even greater
use of generics is expected given the number of blockbuster
brand-name drugs coming off patent.
As the law currently stands in Ontario, pharmacies are not
prevented from owning a manufacturer that is also the fabricator
of the drug. We may see large pharmacy chains exploring this
corporate structure, similar to Jean Coutu Group Inc.’s acquisition
of Pro Doc Ltd., a manufacturer of generic drugs, six years
ago. Since the Ministry of Health deliberately did not choose to
ban products with this type of corporate structure in its 2010
Amendments, presumably the Ministry of Health does not object
to this type of corporate structure. Only time will tell.
This decision comes at a particularly
critical time as an even greater use of
generics is expected given the number
of blockbuster brand-name drugs
coming off patent.
3
The Canadian Competition Bureau (Bureau) has publicly indicated
its intention to advocate for increased competition in different
sectors of the economy, and senior officials have recently
identified the health sector as an area of focus for the Bureau.
The Bureau’s focus on the health sector has been reflected in a
number of its initiatives this year:
•	 Workshop in the Pharmaceutical Sector. In November
2013, the Bureau hosted a one-day invitation-only
“Workshop on Antitrust Issues in the Pharmaceutical
Sector.” The panellists at the workshop discussed a
number of topics concerning how competition law
applies to different conduct in the pharmaceutical sector,
including the application of competition law to pay-for-delay
settlements. “Pay-for-delay” settlements are payments
made in settlement of pharmaceutical patent infringement
proceedings by a plaintiff originator to a defendant generic
in return for the generic agreeing to delay its entry into the
market with a competing pharmaceutical product. Among
others, the event was attended by the U.S. Federal Trade
Commission’s assistant director from its Health Care
Division. The U.S. Supreme Court recently held that pay-for-
delay settlements were subject to and could violate the U.S.
antitrust laws.
•	 Scrutiny of Regulations of Health Professionals. In
December 2013 remarks, the Commissioner of Competition
(who leads the Bureau) made reference to the Bureau’s
“ongoing review of restrictions on advertising imposed by
certain self-regulated professions on their members, namely
pharmacists, dentists and veterinarians.” One example of
this ongoing review may have been the Bureau’s December
2013 submission in response to a consultation of the
Alberta College of Pharmacists (ACP) concerning proposed
amendments to its Standards of Practice and Code of Ethics.
The proposed amendments would prohibit pharmacists
from providing an inducement on the condition that an
individual receives a drug or a professional service. (An
inducement would include, among other things, time-limited
discounts and loyalty points or rewards that retail chains
offer to consumers). The Bureau’s submission noted that,
based on its review of the ACP’s consultation documents,
the ACP may not have empirical evidence to conclude that
negative consequences can be associated with the offering
of such inducements by pharmacists to consumers. The
Bureau noted that given consumers’ income constraints,
inducements offered by pharmacists may “translate into
greater purchasing power for consumers, particularly for
low income Canadians.…” The ACP has not yet published a
response to the Bureau’s response or indicated how, if at all,
it intends to amend its proposed rules.
The College of Pharmacists of British Columbia also passed
new rules in December 2013 prohibiting pharmacists from
offering incentives to customers. Sobeys quickly filed a
petition for judicial review seeking to have the court quash
these new rules. Sobeys alleges, among other things, that
the rules violate the Competition Act. In early January, the
British Columbia Supreme Court denied Sobeys’ application
for an interim injunction against the College of Pharmacists’
new rules.
FOCUS ON COMPETITION IN
THE HEALTH SECTOR
4
•	 	Revised Intellectual Property Enforcement Guidelines.
At a June 2013 roundtable with members of the bar, senior
officials from the Bureau indicated that the Bureau may
revise its Intellectual Property Enforcement Guidelines
(IPEGs), in part to reflect more modern thinking about the
interface between intellectual property law policy and
competition law policy that has developed since the original
publication of the IPEGs in 2001. The IPEGs provide that
where conduct is “something more than the mere exercise
of an IP right,” the Bureau will scrutinize such conduct under
the “general provisions” of the Competition Act (that is,
the abuse of dominance, cartel and other general antitrust
provisions). Where, however, conduct “involve[s] the mere
exercise of the IP right and nothing else,” then the Bureau
will instead scrutinize such conduct under section 32 of the
Competition Act. The “mere exercise” of an intellectual
property (IP) right would include, for instance, the patent-
holder’s decision whether or not to practise its patent
or license its patent. The “mere exercise” of an IP right
does not include, for instance, a patent-holder’s licensing
practices if they were arrived at through an agreement with
a competitor or a patent-holder’s transfer of its IP rights.
Under section 32, it is very difficult for the Bureau (through
the Attorney-General) to obtain an order in respect of the
exercise of an IP right, and the IPEGs explain that the Bureau
would only seek to obtain such an order “only in very rare
circumstances.” In the entire history of the IPEGs, the
Bureau has never sought an order under
section 32 of the Competition Act.
We anticipate that public discussion about the application of
competition law in Canada to the health-care sector will continue
in 2014, as will the Bureau’ efforts to make known its views in
this important area. Enforcement action in this sector by the
Bureau also remains a real possibility.
Public discussion about the
application of competition law in
Canada to the health-care sector will
continue in 2014.
5
The potential for product liability litigation, including class actions,
remains a reality for many participants in the life sciences
space in Canada. There have been several recent trends and
developments in this area. Although it is always difficult to identify
a single overarching theme in such a diverse area, this article
discusses four developments that will be of particular interest to
the industry.
Courts Reluctant to Certify Class
Actions for “Off-Label” Use of Drugs
In a positive trend for potential class action defendants, courts
have continued to express reluctance to certify pharmaceutical
class actions based on “off-label” uses of pharmaceutical drugs.
Physicians commonly prescribe drugs for uses other than those
specifically authorized in their product monographs. Though
manufacturers and distributors are not permitted to market or
promote drugs for off-label use, such use is an accepted clinical
practice among health-care providers.
In at least two decisions,1
the Ontario courts have declined to
certify issues in class actions based on off-label use. In doing so,
the courts have expressly confirmed that off-label prescribing is
lawful and that medical practitioners have a right to recommend
off-label uses to their patients.
Moreover, although the bar to show that a proposed class
action has some basis in fact is generally low, the courts have
declined to certify issues based on off-label use where there
was insufficient evidence that the drugs were actually promoted
for off-label use in Canada. In particular, the courts rejected
the plaintiffs’ contentions that settlements entered into by the
defendants in the United States relating to alleged off-label use
in that country were evidence that off-label promotion had taken
place in Canada.
Statutory Consumer Protection
Claims
In some provinces, particularly British Columbia and Quebec,
plaintiffs’ counsel have been pursuing statutory consumer
protection claims regarding pharmaceutical drugs and medical
devices with increasing frequency. The statutes in B.C. and
Quebec both facilitate claims by consumers regardless of
whether there is privity of contract between the consumer and
the manufacturer, distributor or supplier, although the B.C. and
Quebec statutes do so in different ways.
In B.C., plaintiffs’ counsel have frequently advanced statutory
claims of “deceptive acts or practices,” contrary to the Business
Practices and Consumer Protection Act (BPCPA), usually based
on allegations of misrepresentation or a failure to disclose a
material fact regarding the safety and efficacy of the product
in the labelling, the marketing materials provided directly to
consumers, the product information that is provided to doctors
and other health-care professionals, or a combination of these.
The B.C. statute expressly applies whether or not there is privity
of contract or a direct relationship between the supplier or
manufacturer of a product and the consumer. The B.C. courts
have taken an expansive view of what could potentially constitute
a “consumer transaction” within the scope of the BPCPA.
Notably, the B.C. BPCPA contains broad remedial provisions,
including injunctive powers and a reverse onus provision (the
meaning of which has not been fully litigated), so the routine
certification of these additional statutory consumer protection
claims by the B.C. courts is potentially very significant.
In Quebec, the Consumer Protection Act is a facilitating statute
aimed at alleviating the burden of proof for consumers bringing
claims against “merchants,” which includes manufacturers. As
in B.C., the potential application of statutory consumer protection
to drugs and medical devices has significant consequences.
We note that it remains an open issue whether the Consumer
Protection Act applies to drugs. Some have interpreted one
Quebec decision as refusing to apply its provisions (in particular,
Recent Litigation
Developments and Trends
1
Goodridge v. Pfizer Canada Inc., 2010 ONSC 1095; Martin v. AstraZeneca Pharmaceuticals Plc, 2012 ONSC 2744
6
those pertaining to product liability) to pharmaceutical drugs.2
First, the Consumer Protection Act creates virtual privity between
consumers and all the entities in the marketing chain. Second, it
creates various presumptions, depending on whether an alleged
claim is based on facts that occurred before the execution of a
contract or following the execution of a contract (i.e., before or
after the purchase of a product). In certain circumstances, the
statute entitles consumers to various specific and contractual
remedies, in addition to punitive and compensatory damages,
even without proof of prejudice, which some consider tantamount
to a strict liability regime. The experience with certification of
statutory claims pursuant to consumer protection legislation has
been mixed in Quebec, while many Quebec cases have applied
the Consumer Protection Act to drugs and medical devices.3
Quebec courts have nonetheless denied certification of several
proposed class proceedings pertaining to pharmaceutical drugs
or medical devices based on the Consumer Protection Act, in
contrast to the experience in B.C.4
Rise in Use of Access-to-Information
Requests
In recent years, there has been an increasing number of access-
to-information/freedom-of-information requests under relevant
federal and/or provincial legislation to obtain documents from
regulators and other government custodians relating to the life
sciences industry.
Legislation enacted in various provinces and federally provides
broad rights to access information held by government
institutions. Life sciences industries, in particular, are highly
regulated, and government institutions may possess a wealth
of information about industry participants that may be of keen
interest to third parties. For instance, regulatory filings to Health
Canada for the approval of a drug or medical device may contain
detailed and potentially sensitive information, both about the
product and the manufacturer.
Where a government institution is required to disclose information
about a third party (e.g., a private business) pursuant to an access-
to-information request, generally the third party will be afforded
an opportunity to make submissions as to why some or all of that
information should not be disclosed, although it must do so on
the basis of specified exceptions in the legislation. Though the
third party will not be provided with the name of a requester, if
a request relates to information potentially connected to existing
or anticipated litigation, it would be prudent to consult litigation
counsel to ensure a coordinated response.
Proposed Legislation to Enhance
Health Canada’s Powers Over
Therapeutic Products
On December 6, 2013, the government introduced Bill C-17,
which contains proposed amendments to the Food and Drugs
Act to enhance Health Canada’s powers in connection with drugs
and medical devices. Among other significant amendments, the
legislation would give Health Canada powers to:
•	 Require changes to product labelling
•	 Require manufacturers to compile information, conduct new
tests or studies, or to monitor experience to assist Health
Canada in assessing the safety of a drug or device
•	 Order the recall of a drug or medical device for safety reasons
Bill C-17 also proposes a regime of mandatory reporting by health-
care institutions of serious adverse events involving drugs and
medical devices. The proposed legislation would also increase the
fines and penalties for offences under the Food and Drugs Act.
As of the time of printing, Bill C-17 had passed its first reading in
the House of Commons. It is expected that interested parties will
have opportunities to make submissions regarding the bill before
it is passed in its final form.
Life sciences industries, in particular,
are usually highly regulated, and
government institutions may possess
a wealth of information about industry
participants that may be of keen interest
to class counsel.
2
F.L. c. Astrazeneca Pharmaceuticals, p.l.c., 2010 QCCS 470 (CanLII)
3
F.L. v. Astrazeneca Pharmaceuticals, p.l.c., 2010 QCCS 470
4
See e.g. Option Consommateurs v. Merck, 2013 QCCA 57; Perreault v. McNeil PDI, 2012 QCCA 713; MacMillan v. Abbott Laboratories,
2012 QCCS 1684; F.L. v. Astrazeneca Pharmaceuticals, p.l.c., 2010 QCCS 470
7
Since the 1970s, the pharmaceutical industry has routinely and
consistently been subjected to transfer-pricing audits by tax
authorities, including the Internal Revenue Service and Canada
Revenue Agency (CRA).
Transfer pricing remains a focus of attention today, impacting
the pharmaceutical industry and, more broadly, the life sciences
sector. With disputes often resulting in multimillion-dollar tax
reassessments, managing risk proactively is vital. The goal of this
article is to discuss how transfer pricing issues normally present
themselves in the context of a Canadian pharmaceutical business,
offering guidance of risk avoidance and effective ways to limit and
handle transfer-pricing disputes.
What Transfer Pricing Is About
Although closely related to other cross-border issues including
customs and trade law, transfer pricing is a corporate tax law
issue that arises when goods or services are transferred between
a Canadian taxpayer and non-resident group members in “non-
arm’s length” transactions. The underlying concern of the CRA
and tax authorities worldwide is that multinational organizations
direct profits or losses among their various affiliates to manage
tax liability or achieve other tax benefits. The CRA examines
these types of transactions to determine if the Canadian company
overpaid or was underpaid.
Types of Transactions at Risk
A variety of transaction types give rise to transfer-pricing issues
for Canadian pharmaceutical businesses. The following are
among those commonly audited, and often reassessed, by the
CRA:
•	 Purchases of pharmaceutical products, equipment or medical
devices by a group’s Canadian entity (CanCo) from a non-
resident affiliate for distribution in Canada
•	 Intellectual property (IP) licences granted to CanCo by a
non-resident affiliate, including right to know-how and use of
trade names
•	 The performance under contract of RD services by CanCo
for a non-resident affiliate
Advance Planning to Limit Exposure
Companies need to take an integrated approach, involving a broad
range of personnel when organizing and documenting transfer
pricing and in responding to queries from tax authorities to assure
that all critical components are addressed and disputes are resolved
effectively when they arise. Teams of tax, medical, regulatory and IP
personnel, both in and outside of Canada, are often needed.
The Income Tax Act requires Canadian taxpayers to prepare
annual transfer-pricing documentation to support their pricing.
That documentation needs to include a thorough analysis of the
taxpayer’s pricing method, and the functions performed, assets
used and risks assumed by the Canadian company and the non-
resident group of companies involved in the transaction. Should
a dispute arise, that documentation will be the foundation for
discussions with tax authorities. In the case of a pharmaceutical
business, many facts and the functional analysis will be informed by,
or even defined by, life sciences or other non-tax areas of law and
knowledge-based disciplines, such as patent and trade-mark law.
The documentation memorializes the transaction and thus is the
primary source for analysis.
What to Expect When a Transaction
Is Audited
If a transaction is audited, the company should anticipate
having to respond to detailed factual questions regarding the
transaction’s scope and nature. The auditor’s questions will aim at
determining the proper level of profit (and taxable income) based
on assets owned and used, risks assumed, and whether what
was earned is what would have been earned had the parties dealt
at arm’s length.
However, other non-tax legal or economic principles may need to
be applied when attempting to appropriately frame and resolve
the matter. For example, IP law often guides the resolution
TRANSFER PRICING AND THE
LIFE SCIENCES INDUSTRY
8
of the ownership issues, while basic pharmaceutical science
may be necessary to explain the role of, and weight to be
accorded to, many of the non-resident entity’s related functions,
including basic RD performance and subsequent development.
Pharmacoeconomics can provide a basis to explain the basic RD
funding and mechanics of funding recovery through pricing or
royalties. All of these disciplines can be as important as tax law in
a tax controversy dialogue.
Deploying Expertise
Deploying all the necessary expertise when documenting
the functions, assets and risks associated with cross-border
transactions—that is, explaining how a business actually operates
as understood by those carrying it on—is a key to successful
resolution of transfer-pricing controversies should they occur,
especially in light of recent global developments. Over the past
year, transfer pricing has become far more visible at a global level
due to a number of events. These include the continuing public
hearings in the U.K. focused on investigating seemingly low levels
of tax paid there by certain multinationals and the creation of an
OECD and G20 task force to consider measures to address “(tax)
base erosion and profit shifting” (BEPS).
With the advent of BEPS (and many other related OECD projects),
now more than ever, global or multinational business groups
need to put a premium on carefully documenting and explaining
how they conduct business, identifying and measuring the group
contributors to a business, and offering the type of information
that will satisfy tax authorities’ needs to understand the business.
For the pharmaceutical industry, these tasks are best achieved
using a fine-tuned multidisciplinary approach that not only
takes into account the applicable local tax law, but also applies
equally relevant IP, contract and regulatory law, and science and
economic-based knowledge.
Patient-centred health-care, or “integrated patient care,” focuses
on achieving coordinated and patient-centred health care,
addressing the issues raised by fragmented health-care delivery,
particularly for elderly, chronically ill and high-risk patients.
The Challenges
The absence of a single definition of integrated care has resulted
in vague, confusing and conflicting interpretations. Lack of
consensus has been a major roadblock to “successful application
and meaningful evaluation” of integrated care. However, at
its core, all agree that integrated-care’s goals are coordinated
service and “patient-centred” care—care that meets the patient’s
specific and individual needs.
Proponents of integration emphasize the importance of viewing
patients as active participants in their care instead of as passive
recipients. The hope is that health-care providers will begin to
focus more on their patients’ overall well-being than on single
treatments.
Other common barriers to achieving a better-integrated health-
care model include competing funding pressures among health-
care sectors and the challenge of creating a highly coordinated
administrative structure. Further, the pliability of the integration
concept means that there is not a single approach to integrating
health care to serve as a model.
Successful Integration Models in
Other Jurisdictions
Despite the uniqueness of each health-care system, recent
reforms in Canadian health care have taken a cue from
international trends set in England, Spain, the Netherlands,
Denmark and the United States. England’s National Health
Service, in particular, has been heralded as an excellent example
of health-care integration. England’s successful reform is due
to a number of key factors, including increasing opportunities
for community engagement in health-system planning,
aligning funding models in all health sectors, and promoting
multidisciplinary teams to coordinate care.
Canada’s Integrated Care
Reforms
A recent survey of Canadian provinces revealed that all
governments that responded accept the philosophical and policy
underpinnings of integrated care, which include a commitment to
client-centred care. In fact, several integrated care reforms have
sprung up across Canada, and each jurisdiction is actively working
toward health-care integration for elderly patients by investing
in home and community-care services as part of their reform
strategies.
Ontario as a Leader
Ontario has taken several steps in its transition to integration.
Notably, in 2006, the government created Local Health Integration
Networks (LHINs), 14 not-for-profit corporations that work
with local health providers and communities to determine the
health-service priorities of a given region. LHINs are authorized
by statute to plan, integrate and fund local services, such as
hospitals, community-care access centres, and mental health and
addiction services. In addition, the province’s integrated Client
Care Project was introduced in 2008 to improve the quality and
patient experience of home-care services in the province by
promoting system integration. Most recently, Ontario released its
Action Plan for Health Care, which strives for a patient-centred
system that has better integrated health providers, focused on
family health care, community care, hospitals and long-term care.
The Future of Integrated Care
Integrating care across the country is a work in progress. Ontario
and most other provinces have successfully implemented
clinical best practices, such as devising effective means
of communicating with patients’ families and promoting
multidisciplinary primary care. Nonetheless, certain areas of
reform still require substantial attention. Provincial governments
have yet to create fully integrated information systems or
establish incentive mechanisms for evidence-based decision-
making. Despite the inherent challenges of coordinating
integrated care, Canada is well on its way. After all, integration is
not a definable end goal, but rather an ongoing process that will
not cease until Canadians have access to the most efficient, high-
quality and patient-centred care possible.
PATIENT-CENTRED HEALTH CARE
9
10
“DISRUPTIVE
INNOVATIONS”
Professionals trained to deliver
the right care in the right place
at the right time.
INTERPROFESSIONAL
TRAINING AND CARE
Care delivery provided by
a variety of well-trained,
regulated professionals.
CARE CONTINUUM
Linkages across a network of
hospital community services.
VALUES DRIVEN
Ethical decision-making
frameworks that incorporate
compassion, quality and safety.
TRANSLATIONAL
RESEARCH
Research that promotes
the most effective and
innovative health-care
intervention.
COMMUNICATION
A single efficient health
care record for every
citizen.
Canadians have prided themselves on a universal health-care
system with equal access by all. However, several factors have
threatened this sacred national value. Increased longevity and
prevalence of chronic disease, the escalating cost of acute
care illness episodes, and the lack of investment in prevention
and health-care promotion have contributed to a challenged
health-care environment. Health-care providers and policy-
makers are faced with repairing a system that is “diseased” by
access barriers, lengthy waits for elective care and overcrowded
emergency rooms across the county. An urgency to reconstruct
and transform health care is recognized by physician-led
organizations such as the Canadian Medical Association,
government at all levels and thoughtful Canadian citizens.
Increasingly, a model that places its providers surrounded by an
integrated system of care characterizes the ideal transformation.
The “cure” lies in the development of health-care networks that
govern the implementation of system change.
A Model for Patient-Centred Health-Care Transformation
In recent years, brand-name drug manufacturers have struggled
to combat the proliferation of counterfeit pharmaceuticals. The
Internet is saturated with illicit online pharmacies that aggressively
advertise inexpensive drugs, offering direct delivery to patients
without requiring a prescription.
The Viagra Experience
On May 6, 2013, Pfizer announced that it would begin selling its
flagship product, Viagra, direct to American consumers via the
drug’s website, viagra.com. Pfizer stated that its intention is to
guarantee that patients receive the true Viagra when they shop
online. Marketing executives from Pfizer cite the results of a
survey from 2011, which found that of the top 22 website search
results for “buy Viagra,” 80 per cent of the pills being sold were
counterfeit. Similarly, the annual average of 24 million online
searches for “Viagra” greatly outpaces the eight million
prescriptions written annually. In early 2013, the National
Association of Boards of Pharmacy (NABP) reviewed more than
10,000 Internet pharmacies and found that 97 per cent of them
were operating in violation of state and federal laws or NABP
patient-safety standards. The experience of users who purchase
ineffective or harmful counterfeit Viagra, combined with the
drug’s apparent availability from disreputable pharmacies, is
damaging to Pfizer’s brand.
The Direct-to-Consumer Online
Business Model
Pfizer’s decision to pursue a direct-to-consumer online business
model goes beyond simply creating an alternative to the high-
risk endeavour of buying pharmaceuticals online. The strategy
represents a dramatic change in marketing, sales and distribution.
By carefully crafting a website, like viagra.com, a manufacturer
can exercise total control over its brand. Through its website,
Pfizer can dictate how each patient interacts with the brand
through to the time of sale. Unlike in a bricks and mortar
pharmacy or an independent online pharmacy, Pfizer’s
competitors are invisible at viagra.com. All pharmaceutical
manufacturers could benefit from such a heightened degree of
control over the point-of-sale interface with customers.
Accessibility and convenience are fundamental drivers of the
growth in online shopping. A direct-to-consumer online sales
platform for pharmaceuticals provides both accessibility and
convenience for patients and doctors. Doctors can prescribe,
and patients can access, the branded product with minimum
effort. Recurring credit card payments and prescription renewals
can be built into a patient’s online profile. A further benefit of the
online model is it offers anonymity, allowing the purchaser to
avoid the social stigma that some drugs carry and the anxiety or
stress some experience when visiting a pharmacy. Of course, the
manufacturer must be able to safeguard each patient’s private
information.
A NEW FRONTIER FOR
MANUFACTURERS:
DIRECT-TO-CONSUMER ONLINE
PHARMACEUTICAL SALES
11
Direct-to-consumer online sales enable a manufacturer
to streamline and improve its supply chain and inventory
management. A manufacturer needs only to enter an agreement
with a pharmacy that is capable of verifying prescriptions and
shipping its product, thereby limiting its wholesale relationships.
Pfizer has enlisted
CVS Caremark Corporation to handle the prescriptions and
shipping requirements for viagra.com. Inventory logistics are
made easier as orders are processed in real time.
Pfizer is not the first pharmaceutical company to offer a branded
site to sell its product. In November 2011, AstraZeneca launched
ARIMIDEX Direct. Under its program, patients with a valid
prescription for anastrozole could have the ARIMIDEX brand
delivered directly to their home by Express Scripts, a specialty
pharmacy-services provider. ARIMIDEX Direct was not created
in response to counterfeit or substandard anastrozole. Rather, it
was created as a way to provide the brand-name drug at a lower
cost once its U.S. patent expired. A manufacturer’s ability to lower
before-market costs is critical to its financial health when faced
with imminent patent expiration and the emergence of generic
treatments. By all accounts, ARIMIDEX Direct was a resounding
success.
The direct-to-consumer online business model offers a host of
benefits. However, before a manufacturer can engage in direct-
to-consumer online sales, it must first navigate the regulatory
frameworks that govern its interaction with patients and
pharmacies. If this is achieved, manufacturers can enhance their
relationship with patients, mitigate concerns about product and
supply chain integrity, and reduce costs.
Accessibility and convenience are
fundamental drivers of the growth in
online shopping. A direct-to-consumer
online sales platform for pharmaceuticals
provides both accessibility and
convenience for patients and doctors.
12
The Challenge
Canada has a wide variety of participants from the life sciences
and health technology sector, including drug and medical device
manufacturers and distributors and internationally top-ranked
researchers, universities and teaching hospitals. In several regions
the industry operates on a scale comparable to other large-scale
bioclusters. However, the majority of early-stage ventures are
privately owned small and medium-sized enterprises, with
50 per cent having fewer than 20 employees. These ventures
face the challenge of seeking to advance complex innovations
that on average take 10 to 15 years and hundreds of millions
of dollars to develop. While Canada plays a significant role
in the global advancement of scientific discoveries and their
translation into commercial opportunities, it is not fully realizing its
commercial potential. Among the problems is a lack of sufficient
venture capital to take early-stage companies to the next level.
Concerned that Canada was lagging behind other countries in
business RD spending, commercialization of new products and
services, productivity and growth, in 2010 the federal government
commissioned the “Jenkins Report,” an independent study of
innovation in Canada. The report concluded, among other things,
that a history of poor returns has contributed to a lack of venture
capital to fund emerging life sciences and health technology
firms. It also found that although Canada tends to have adequate
funding from government, not-for-profit and angel investors at the
very early stages of ventures, beyond the initial few million dollars
invested, companies were struggling to find additional capital.
History has played a role in the funding challenge. The enthusiasm
for venture investing between the mid-1990s and the early 2000s
brought a five-fold increase of capital into the venture space. As
often happens when supply exceeds demand, poor investment
decisions resulted in poor overall financial performance for funds
and made investors far more conservative regarding future
investments. These factors coupled with the recent economic
downturn have made it difficult to attract venture capital to the life
sciences and health technology sector during the past decade.
What the Future Holds
Capital Availability Through the Federal Government’s
Venture Capital Action Plan
Several recent developments may signal the arrival of a more
positive venture-funding environment for life sciences and health
technology enterprises.
Following the Jenkins Report, the federal government committed
to supporting Canada’s venture capital industry. In January of
2013, after extensive consultations with key stakeholders to
determine how best to support a sustainable, private sector-led
venture capital industry, the federal government announced its
Venture Capital Action Plan. The plan calls for the investment of
C$400-million of government funds over seven to 10 years. The
funds will be used to:
•	 Establish new, large, private-sector-led funds of funds in
partnership with institution and corporate investors
•	 Recapitalize existing large private-sector-led funds of funds
•	 Invest directly into existing high-performing venture capital
funds
It is anticipated that these investments will attract nearly
C$1-billion in new private-sector investments. The life sciences
and health technology sector is already feeling the effects of this
commitment.
In September 2013, the following government-funded venture
funding commitments were announced:
•	 BDC Venture Capital, the venture capital arm of the Business
Development Bank of Canada, announced that it allocated an
additional C$135-million to the BDC Venture Capital Health
Care Fund to be used for direct venture investments into
innovative health-care technology products and services,
doubling its financial commitment to the fund.
•	 BDC Venture Capital and Fonds de solidairité FTQ announced
a C$35-million commitment to Sanderling Ventures, an
investment firm with a 35-year track record of building new
biomedical companies. Consequently, Sanderling is well
on its way to achieving its US$250-million target for its
Sanderling Ventures Fund VII and has agreed to create a
permanent facility in Montréal to facilitate the development
of early-stage life sciences investments.
UNLOCKING THE FUNDING
CHALLENGE
13
14
•	 BDC Venture Capital announced its commitment to invest
C$25-million in two Canadian life sciences venture funds,
C$15-million going into the CTI Life Sciences Fund II and
C$10-million going into the Lumira Fund II.
Capital Provided by the Pharma Industry
Another growing source of venture funding and other forms
of support for early-stage life sciences and health technology
companies is the pharmaceutical industry. Many pharmaceutical
companies have significantly reduced their internal RD
programs and farmed out the risk of drug development to start-up
companies. However, faced with expiring patents on a number
of significant drugs and fewer blockbuster drugs coming to
market, the pharmaceutical industry’s need for new products
remains critical. Consequently, pharmaceutical companies have a
significant interest in the success of early-stage drug companies
and are taking various steps to identify and partner with or invest
in strategic early-stage companies.
One tactic adopted by a number of pharmaceutical companies
is establishing or investing in life sciences venture funds. For
example, in 2011, GlaxoSmithKline established the C$50-million
GSK Canada Life Sciences Innovation Fund. In 2012, Merck
Canada committed C$35-million to the Merck Lumira Biosciences
Fund and C$5-million to Lumira Capital II LP, and Eli Lilly joined
Teralys Capital and others in investing in the C$150-million
TVM Life Science Ventures VII fund. Each of these funds has a
mandate to invest in early-stage life sciences companies.
Another approach has been to provide early-stage ventures with
strategic support, including through the creation of research
centres. In 2012, AstraZeneca and Pfizer Canada Inc. partnered
with the Province of Quebec to create the NÉOMED Institute,
a life sciences research institute that acts as a bridge between
academic research and the private sector. The NÉOMED Institute
was established with a commitment by its founders to invest
C$100-million over five years. In early 2013, MaRS Innovation
announced a strategic partnership with Pfizer Inc. to advance
early-stage technologies. Through this collaboration, MaRS and
Pfizer will identify investment opportunities to which Pfizer will
provide funding over a three-year period. In late 2013, MaRS and
Pfizer announced the first project to receive financial support
under the collaboration. Also in late 2013, Johnson  Johnson
Innovation and its Janssen unit announced collaborations with
both the NÉOMED Institute and MaRS Innovation.
Improving Liquidity Opportunities
Liquidity events for venture investors typically come in the form
of a sale of shares in an initial public offering or through the sale
of the business to a strategic investor. For a number of years,
there seemed to be little opportunity for life sciences companies
to undertake an initial public offering (IPO) or alternative “going
public” event (such as acquisition by a publicly traded capital pool
company or a reverse take-over). In 2013, the 11 “going public”
events for life sciences companies reported by the Toronto
Stock Exchange and TSX Venture Exchange were more than
double the number in the prior year. In addition, this number does
not take into account Canadian companies, such as Acquinox
Pharmaceuticals, that elect to pursue a U.S.-only IPO. However,
it is important to recognize that, while this increase represents a
significant improvement over past years, it does not match the
approximately five-fold increase in the number of life sciences
IPOs seen in the U.S. in 2013.
The past year also saw significant MA activity, including the
acquisition of several significant public Canadian life sciences
companies, including LifeLabs Medical Laboratory Services’
acquisition of CML HealthCare Inc., Patheon Inc.’s going-private
transaction, Endo Health’s acquisition of Paladin Labs, Emergent
BioSolutions’ acquisition of Cangene Corporation and many
other significant acquisitions, such as Cardiome Pharma Corp’s
acquisition of Correvio LLC.
The example set by these successful liquidity events will play an
important role in attracting further investment capital to Canadian
life sciences and health-care technology industry participants.
CONCLUSION
While the question of how Canada can effectively and efficiently
address the lack of adequate venture capital for life sciences
and health technology companies is not fully answered, these
developments appear to signal an improvement in funding and
liquidity opportunities and the prospect of further improvements.
With creativity, flexibility and a bit of luck, early-stage companies
can access the investment capital required to take their projects
to the next stage, and investors can find successful liquidity
events.
Traditional pharmaceutical, biologic, software and medical device
businesses are increasingly collaborating to find innovative
ways to combine technologies into single products and
interactive component product suites. These products, known
as “combination products,” are being recognized as improving
the delivery, specificity and outcomes of numerous medical
procedures and therapies. As a result, collaborative efforts
to leverage technologies are on the rise, especially in the life
sciences industry.
What Is a Combination Product?
Health Canada defines a “combination product” as a therapeutic
product that combines a drug component and a device
component. The United States Food and Drug Administration
considers any combination of the following to be a combination
product:
•	 Two or more regulated drug or device components that are
physically, chemically or otherwise combined and produced
as a single entity
•	 Two or more separate drug or device products that are
packaged together or as a unit
•	 An approved or investigational drug or device that is packaged
separately and whose approved or proposed label limits use
only with another specified, approved or investigational drug
or device, where both are required to achieve the intended
use, indication or effect
•	 Two or more separate drug or device products that are
packaged together or as a unit, or any drug or device product
packaged separately that, according to the proposed label, is
or are for use only with another specific drug or device where
both are required to achieve the intended use, indication or
effect
Many medical devices now incorporate both electronics and
software, and software itself may be regulated as a medical
device.
Challenges of Collaboration
Although collaborations among drug and device businesses are
on the rise, these collaborations present a variety of challenges. A
few of these are noted below.
Establishing a Product Development Strategy
Drug and medical device product development strategies differ,
and neither is necessarily appropriate for a combination product.
Collaborators need to determine a hybrid product development
roadmap that integrates the underlying drug and device
components of the product. That strategy should reflect different
resource requirements, interactive and iterative development
processes, interactions with regulatory agencies, milestones and
funding requirements that will work for all of the collaborators.
Determining the Regulatory Pathway
Combination products involve components that would normally
be regulated under different regimes, by different departments
of regulatory authorities and pursuant to different timeframes.
Therefore, the regulatory pathway for combination products
can be complex. Careful consideration should be given to
the regulatory pathway at an early stage. This often involves
consultation with the regulators in multiple jurisdictions.
Identifying and Accessing Target Markets
While drugs and devices are often targeted to pharmacies,
hospitals and other health-care institutions, many combination
products are sold directly to physicians and even consumers. The
collaborators must identify target markets and then develop a plan
for accessing them. The target markets may vary from country
to country. The collaborators may have to work through different
distribution channels to reach categories of customers that are
not familiar to them.
Developing and
Commercializing Combination
Products
15
16
Securing Intellectual Property Rights
The parties or a collaboration entity will need to secure pre-
existing intellectual property (IP) rights from each collaborator
and, in some cases, acquire rights from third parties. The parties
or a collaboration entity will need to arrange for the protection of
newly developed IP and the rights therein.
Establishing a Commercialization Model
There are numerous choices for a commercial model for a
combination product. Even in the straightforward example of a
reusable device with drug refills, the collaborators may choose
separate sales of each component at market prices, below-
market pricing of the device to encourage purchases of the drug
or other approaches. It is important to allocate costs and revenues
among the collaborators that accurately reflect each component’s
value and the contributions and risks of each collaborator.
Reconciling Different Corporate Cultures
The challenges of a collaboration are often further compounded
by different mindsets, practices, business strategies and
“cultural” corporate norms of each of the collaborators. For
example, the cultural approach and development timing in the
software industry are very different from those in the drug
and medical device industries. As the number of collaborators,
components and types of technology enter the mix, the likelihood
that collaborators may not see eye-to-eye increases. All of
these differences may jeopardize or delay the success of the
collaboration unless the parties mitigate the risk by creating an
appropriate structure and enter collaboration agreements that
clearly set out the ground rules for the collaboration.
conclusion
There are many other important issues to address when
structuring and negotiating a collaboration for a combination
product and developing the legal structure and required
agreements. While the rewards of collaboration for the
collaborators and the public may be significant, the challenges
must be carefully addressed.
17
Internationally recognized for its life sciences expertise, Blakes
combines regulatory, intellectual property (IP), commercial,
transactional, MA, antitrust/competition, transfer pricing and
international tax, litigation, and other expertise to meet the needs
of many participants in the life sciences industry. Our clients
include established and emerging multinational pharmaceutical,
biotech, medical device, diagnostic product, consumer product
and pharmacy businesses, as well as health-related service
providers, research institutions, financial institutions and investors.
A distinguishing feature of our practice is our expertise in the vast
array of regulatory regimes at the federal and provincial levels. We
advise numerous clients, including manufacturers, wholesalers
and pharmacies, on all matters such as product approvals and
labelling, pricing and reimbursement, price controls, product listing
agreements, rebates, professional allowances, interchangeability
of drugs, conflict of interest issues, procurement matters,
freedom of information matters, drug marketing and advertising,
drug import and export issues, clinical trials, and recalls. One of
our lawyers is also a qualified pharmacist.
Clients retain Blakes for strategic advice on protecting their
innovations and collaborating with others in the research
and development of pharmaceutical, biological, device and
combination products. We handle patent and other intellectual
property protection, portfolio management, risk management and
litigation. Many Blakes practitioners have advanced degrees in life
sciences and other related technologies.
We also have significant experience in research and development,
product acquisition, distribution, licence, technology transfer,
collaboration, strategic alliance, joint venture and other industry-
specific arrangements. As life sciences companies look to
consolidate operations, acquire products or technology, divest
themselves of non-strategic products or functions, or attract
partners and research funding, they rely on Blakes, a leader in
MA, securities, finance and competition law.
When disputes arise, Blakes is a leading choice for representation.
Successfully advocating for life sciences industry clients in high-
profile litigation matters, we have one of the most experienced
class action practices in Canada and are among a small number
of Canadian firms with notable success at trial and on dispositive
applications and motions. Recognized as leading Canadian
lawyers in product liability defence, we have handled precedent-
setting cases, including the first medical device class action to go
to trial in Canada.
We also frequently represent clients on transfer pricing cases
before the courts and regularly advise on income tax, commodity
tax, transfer pricing and other cross-border tax issues. On a global
level and in Canada, transfer pricing has become the most highly
ranked and high-profile international tax issue for multinationals,
including those operating in the life sciences industry. Drawing on
its broad and unparalleled experience, Blakes offers strategic and
pragmatic advice on these issues that is reflective of our clients’
needs and our understanding of tax authorities’ expectations
and how transfer pricing fits in, affects, and is affected by, other
elements of the tax system. Our Transfer Pricing group is headed
up by two of the most senior and highly ranked transfer pricing
tax advisers in Canada who work closely with the Firm’s equally
ranked Tax Controversy  Litigation group.
BLAKES LIFE SCIENCES GROUP
18
INdustry Recognition
•	 LMG Life Sciences 2013 (Product Liability and Regulatory)
•	 LMG Life Sciences Awards 2013 (“Canadian Product Liability
Impact Case of the Year” – Andersen v. St. Jude Medical)
•	 LMG Life Sciences Awards 2013 (“Canadian Impact Deals of
the Year” – Gilead Science’s acquisition of YM Biosciences)
•	 The 2014 Lexpert/American Lawyer Guide to the Leading
500 Lawyers in Canada (Advertising  Marketing, Intellectual
Property, Class Actions, and Product Liability)
•	 The Best Lawyers in Canada 2014 (Advertising and
Marketing Law, Class Action Litigation, Intellectual Property
Law, Product Liability Law, and Tax Law)
•	 Benchmark Canada: The Definitive Guide to Canada’s
Leading Litigation Firms and Attorneys – 2013 Edition
(“Product Liability Law Firm of the Year” for Canada)
•	 Law Business Research’s The International Who’s Who
of Life Sciences Lawyers 2013 (Product Liability and
Regulatory)
•	 Law Business Research’s The International Who’s Who of
Patent Lawyers 2013
•	 Law Business Research’s The International Who’s Who of
Business Lawyers 2013 (Life Sciences)
•	 Chambers Global: The World’s Leading Lawyers for
Business 2013 (Dispute Resolution: Class Action (Defence),
Intellectual Property, and Corporate Tax)
•	 Benchmark Canada: The Definitive Guide to Canada’s
Leading Litigation Firms and Attorneys – 2013 Edition (Class
Action and Product Liability)
•	 The Canadian Legal Lexpert Directory 2013 (Advertising 
Marketing Law, Intellectual Property, Class Actions,
Litigation – Product Liability, and Corporate Commercial Law)
•	 International Tax Review’s Tax Controversy Leaders 2013
•	 Legal Media Group’s The Best of the Best 2013 (Transfer
Pricing)
•	 Legal Media Group’s Guide to the World’s Leading Transfer
Pricing Advisers 2013
•	 Legal Media Group’s Guide to the World’s Leading Women
in Business Law 2013 (Transfer Pricing)
•	 IAM 1000: The World’s Leading Patent Practitioners 2013
•	 Legal Media Group’s Guide to the World’s Leading Litigation
and Product Liability Lawyers 2012
•	 The 2012 Lexpert Guide to the Leading US/Canada Cross-
border Litigation Lawyers in Canada (Class Action and
Product Liability)
•	 Law Business Research’s Who’s Who Legal: Canada 2013
(Corporate Tax)
•	 IAM Licensing 250: The World’s Leading Patent 
Technology Licensing Lawyers
•	 Managing Intellectual Property’s World’s Leading Patent
Experts
19
CONTACT US
For more information, please contact any member of the Blakes Life Sciences Steering Committee:
Santosh Chari
Patent Agent | Partner | Toronto
416-863-3166
santosh.chari@blakes.com
Marie-Hélène Constantin
Partner | Montréal
514-982-4031
mariehelene.constantin@blakes.com
Robin Linley
Partner | Toronto
416-863-3047
robin.linley@blakes.com
Cheryl Satin
Partner | Toronto
416-863-2575
cheryl.satin@blakes.com
Alice Tseng
Partner | Toronto
416-863-3067
alice.tseng@blakes.com
MontrÉal
ottawa
toronto
calgary
vancouver
new york
chicago
london
Bahrain
al-khobar*
Beijing
Shanghai*
*Associated Office© 2014 Blake, Cassels  Graydon LLP  |  blakes.com

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Life Sciences Report

  • 2. The life sciences industry is a key contributor to the Canadian and global economies. In the pursuit of competitive advantage, participants in the pharmaceutical, biotech, medical device and diagnostic, and health-care- services sectors have seen significant growth attributed to major leaps in technology and an unprecedented demand for health-related goods and services. This growth has paralleled the expansion and imposition of more stringent regulatory requirements, improvement of market access, aggressive patent acquisition and enforcement, strategic M&A activity, and increased product liability claims and other litigation. This report highlights insights and developments relating to a wide range of legal, business and consumer issues currently impacting the life sciences industry in Canada and abroad. These highlights were prepared by Blakes based on non-confidential information gathered in our practices, as well as through a review of publicly available information. Through a series of articles, we examine the implications of some of the recent legal developments impacting the sector, including the Supreme Court of Canada’s decision to uphold Ontario’s ban on private-label generic drugs, the enforcement of prohibitions on pharmacy-related loyalty points in B.C., the Competition Bureau’s ongoing consideration of competition among pharmaceutical companies, and recent trends in Canadian litigation. We also discuss issues relating to the navigation of transfer-pricing rules, protecting intellectual property in the development of combination products, and obtaining financing for new product development and business expansion efforts. Supplementing our discussion of these matters are snapshots of consumer-facing and market trends, including integrated patient care and direct-to-consumer sales. OVERVIEW Editors: Frank Guarascio and Cheryl Satin Contributors: Robin Burns, Sheldon Burshtein, Joseph Garcia, Hugh Godfrey, Jason Gudofsky, Nicole Henderson, Christine Ing, Christopher Jones, Robin Linley, Kaitlin Macdonald, Janice McCart, Beth Romano, David Rosner, Alice Tseng and Scott Wilkie
  • 3. tABLE OF cONTENTS 1 FOCUS ON COMPETITION IN THE HEALTH SECTOR 3 RECENT LITIGATION DEVELOPMENTS AND TRENDS 5 TRANSFER PRICING AND THE LIFE SCIENCES INDUSTRY PATIENT-CENTRED HEALTH CARE A NEW FRONTIER FOR MANUFACTURERS: DIRECT-TO-CONSUMER ONLINE PHARMACEUTICAL SALES UNLOCKING THE FUNDING CHALLENGE DEVELOPING AND COMMERCIALIZING COMBINATION PRODUCTS 7 9 11 13 15 SUPREME COURT OF CANADA UPHOLDS BAN ON PRIVATE-LABEL PRODUCTS LEGALBUSINESSCONSUMER BLAKES LIFE SCIENCES GROUP 17
  • 4. 1 Summary The Supreme Court of Canada (SCC or Court) delivered its highly anticipated decision (Katz Group Canada Inc. v. Ontario (Health and Long‑Term Care)) on private-label products on November 22, 2013. The Court unanimously upheld the validity of the regulations to the Ontario Drug Benefit Act (ODBA) and the Drug Interchangeability and Dispensing Fee Act (DIDFA) (together, the Regulations) that essentially ban the sale of private-label products in the private and public markets in Ontario. This decision effectively means pharmacies that operate in Ontario will not be able to sell drugs purchased from manufacturers they control if the manufacturers do not also fabricate the drugs. Background Before 2006, generic manufacturers typically provided rebates to pharmacies as an incentive to purchase the generic manufacturer’s product. Due to the government’s belief that these rebates increase the cost of generic drugs to both public and private payers, the Ontario Ministry of Health amended the ODBA and DIDFA and the Regulations in 2006 to prohibit rebates. However, the Ministry of Health thought industry was circumventing the rebate prohibition and responded with more amendments in 2010 (the 2010 Amendments) to further restrict the benefits manufacturers could provide to pharmacies. The 2010 Amendments prohibit not only professional allowances, but also private-label products from being listed in the Ontario Formulary or designated as interchangeable. Inclusion in the Formulary or designation as interchangeable is not required to legally sell a drug in Ontario, but for many generic drugs, inclusion and/or designation is a prerequisite for commercial success. This is why the 2010 Amendments have been referred to as banning private-label products even though such products can still legally be sold in Ontario. The Katz Group (which controls Rexall and Pharma Plus pharmacies) (Katz) and Shoppers Drug Mart (Shoppers) had taken steps to set up their own private-label manufacturers. Sanis Health Inc., which was incorporated by Shoppers for this purpose, applied in 2010 to list several generic drugs in the Formulary and to have them designated as interchangeable. The Ministry of Health rejected the application on the grounds the drugs were private-label products. Shoppers and Katz both challenged the Regulations as being ultra vires on the grounds that they were inconsistent with the purpose and mandate of the ODBA and the DIDFA. The pharmacies were successful in the Divisional Court, but the Court of Appeal reversed the decision. THE SCC DECISION In upholding the relevant provisions of the Regulations as valid, the SCC held that in order for Shoppers and Katz to be successful in their appeal, they must show that the Regulations are inconsistent with the objective of the enabling statute. The Court determined that the overarching purpose of the ODBA and the DIDFA is to control the cost of prescription drugs in Ontario without compromising safety and that, in the past, rebates and professional allowances had driven up drug prices. The Court found that the purpose of the 2010 Amendments relating to private-label products was to prevent another possible mechanism for circumventing the ban on rebates that had kept drug prices inflated. Justice Abella held: In banning rebates, the expectation was that manufacturers would lower Formulary prices, and that pharmacies would pass these savings on to consumers. If pharmacies were permitted to create their own affiliated manufacturers whom they controlled, they would be directly involved in setting the Formulary prices and have strong incentives to keep these prices high. Rather than receiving a rebate financed by inflated drug prices, the pharmacy would share in the manufacturers’ profits from those prices. This was expected to keep the price of drugs to consumers high. Shoppers and Katz argued that the Regulations were inconsistent with the statutory purpose because they neither could nor would reduce drug prices, since the price at which drugs are reimbursed by the Ministry of Health is independently set. The Court rejected this argument on the basis that whether the Regulations SUPREME COURT OF CANADA UPHOLDS BAN ON PRIVATE-LABEL PRODUCTS
  • 5. 2 ultimately prove to be successful in reducing drug prices or represent sound economic policy does not answer the question of whether they are consistent with the statutory purpose of the legislation. The Court determined that the provisions in question were consistent with this purpose through “ensuring that pharmacies make money exclusively from providing professional health care services, instead of sharing in the revenues of drug manufacturers by setting up their own private label subsidiaries.” The Court reasoned that if pharmacies were permitted to create their own private label subsidiaries whom they controlled, they would be directly involved in setting Formulary prices and have strong incentives to keep those prices high. Shoppers and Katz also argued that the Regulations are inconsistent with the statutory purpose because they are under- inclusive since they do not prevent a pharmacy from owning a manufacturer that is also the fabricator of the drug. The Court rejected this argument on the basis that this corporate structure does not currently exist in Ontario, and the government is not obliged in its regulations to anticipate all potentially problematic scenarios for it to be consistent with its statutory purpose. The Court noted that this may become a corporate structure of concern; however, the government is entitled to address this problem in stages. The SCC dismissed Shoppers and Katz’s appeal. Significance Although it is only Ontario law in issue, given the size of the Ontario market, this decision has consequences nationally since manufacturers and pharmacies may choose not to pursue private- label product arrangements in Canada at all due to the impact the Regulations will now have on a product’s overall commercial success. Pharmacy chains may feel the financial impact of this decision as it was expected they would use the extra revenue from the private-label product model to recover profits lost as a result of the prohibition on rebates and professional allowances. This decision comes at a particularly critical time as an even greater use of generics is expected given the number of blockbuster brand-name drugs coming off patent. As the law currently stands in Ontario, pharmacies are not prevented from owning a manufacturer that is also the fabricator of the drug. We may see large pharmacy chains exploring this corporate structure, similar to Jean Coutu Group Inc.’s acquisition of Pro Doc Ltd., a manufacturer of generic drugs, six years ago. Since the Ministry of Health deliberately did not choose to ban products with this type of corporate structure in its 2010 Amendments, presumably the Ministry of Health does not object to this type of corporate structure. Only time will tell. This decision comes at a particularly critical time as an even greater use of generics is expected given the number of blockbuster brand-name drugs coming off patent.
  • 6. 3 The Canadian Competition Bureau (Bureau) has publicly indicated its intention to advocate for increased competition in different sectors of the economy, and senior officials have recently identified the health sector as an area of focus for the Bureau. The Bureau’s focus on the health sector has been reflected in a number of its initiatives this year: • Workshop in the Pharmaceutical Sector. In November 2013, the Bureau hosted a one-day invitation-only “Workshop on Antitrust Issues in the Pharmaceutical Sector.” The panellists at the workshop discussed a number of topics concerning how competition law applies to different conduct in the pharmaceutical sector, including the application of competition law to pay-for-delay settlements. “Pay-for-delay” settlements are payments made in settlement of pharmaceutical patent infringement proceedings by a plaintiff originator to a defendant generic in return for the generic agreeing to delay its entry into the market with a competing pharmaceutical product. Among others, the event was attended by the U.S. Federal Trade Commission’s assistant director from its Health Care Division. The U.S. Supreme Court recently held that pay-for- delay settlements were subject to and could violate the U.S. antitrust laws. • Scrutiny of Regulations of Health Professionals. In December 2013 remarks, the Commissioner of Competition (who leads the Bureau) made reference to the Bureau’s “ongoing review of restrictions on advertising imposed by certain self-regulated professions on their members, namely pharmacists, dentists and veterinarians.” One example of this ongoing review may have been the Bureau’s December 2013 submission in response to a consultation of the Alberta College of Pharmacists (ACP) concerning proposed amendments to its Standards of Practice and Code of Ethics. The proposed amendments would prohibit pharmacists from providing an inducement on the condition that an individual receives a drug or a professional service. (An inducement would include, among other things, time-limited discounts and loyalty points or rewards that retail chains offer to consumers). The Bureau’s submission noted that, based on its review of the ACP’s consultation documents, the ACP may not have empirical evidence to conclude that negative consequences can be associated with the offering of such inducements by pharmacists to consumers. The Bureau noted that given consumers’ income constraints, inducements offered by pharmacists may “translate into greater purchasing power for consumers, particularly for low income Canadians.…” The ACP has not yet published a response to the Bureau’s response or indicated how, if at all, it intends to amend its proposed rules. The College of Pharmacists of British Columbia also passed new rules in December 2013 prohibiting pharmacists from offering incentives to customers. Sobeys quickly filed a petition for judicial review seeking to have the court quash these new rules. Sobeys alleges, among other things, that the rules violate the Competition Act. In early January, the British Columbia Supreme Court denied Sobeys’ application for an interim injunction against the College of Pharmacists’ new rules. FOCUS ON COMPETITION IN THE HEALTH SECTOR
  • 7. 4 • Revised Intellectual Property Enforcement Guidelines. At a June 2013 roundtable with members of the bar, senior officials from the Bureau indicated that the Bureau may revise its Intellectual Property Enforcement Guidelines (IPEGs), in part to reflect more modern thinking about the interface between intellectual property law policy and competition law policy that has developed since the original publication of the IPEGs in 2001. The IPEGs provide that where conduct is “something more than the mere exercise of an IP right,” the Bureau will scrutinize such conduct under the “general provisions” of the Competition Act (that is, the abuse of dominance, cartel and other general antitrust provisions). Where, however, conduct “involve[s] the mere exercise of the IP right and nothing else,” then the Bureau will instead scrutinize such conduct under section 32 of the Competition Act. The “mere exercise” of an intellectual property (IP) right would include, for instance, the patent- holder’s decision whether or not to practise its patent or license its patent. The “mere exercise” of an IP right does not include, for instance, a patent-holder’s licensing practices if they were arrived at through an agreement with a competitor or a patent-holder’s transfer of its IP rights. Under section 32, it is very difficult for the Bureau (through the Attorney-General) to obtain an order in respect of the exercise of an IP right, and the IPEGs explain that the Bureau would only seek to obtain such an order “only in very rare circumstances.” In the entire history of the IPEGs, the Bureau has never sought an order under section 32 of the Competition Act. We anticipate that public discussion about the application of competition law in Canada to the health-care sector will continue in 2014, as will the Bureau’ efforts to make known its views in this important area. Enforcement action in this sector by the Bureau also remains a real possibility. Public discussion about the application of competition law in Canada to the health-care sector will continue in 2014.
  • 8. 5 The potential for product liability litigation, including class actions, remains a reality for many participants in the life sciences space in Canada. There have been several recent trends and developments in this area. Although it is always difficult to identify a single overarching theme in such a diverse area, this article discusses four developments that will be of particular interest to the industry. Courts Reluctant to Certify Class Actions for “Off-Label” Use of Drugs In a positive trend for potential class action defendants, courts have continued to express reluctance to certify pharmaceutical class actions based on “off-label” uses of pharmaceutical drugs. Physicians commonly prescribe drugs for uses other than those specifically authorized in their product monographs. Though manufacturers and distributors are not permitted to market or promote drugs for off-label use, such use is an accepted clinical practice among health-care providers. In at least two decisions,1 the Ontario courts have declined to certify issues in class actions based on off-label use. In doing so, the courts have expressly confirmed that off-label prescribing is lawful and that medical practitioners have a right to recommend off-label uses to their patients. Moreover, although the bar to show that a proposed class action has some basis in fact is generally low, the courts have declined to certify issues based on off-label use where there was insufficient evidence that the drugs were actually promoted for off-label use in Canada. In particular, the courts rejected the plaintiffs’ contentions that settlements entered into by the defendants in the United States relating to alleged off-label use in that country were evidence that off-label promotion had taken place in Canada. Statutory Consumer Protection Claims In some provinces, particularly British Columbia and Quebec, plaintiffs’ counsel have been pursuing statutory consumer protection claims regarding pharmaceutical drugs and medical devices with increasing frequency. The statutes in B.C. and Quebec both facilitate claims by consumers regardless of whether there is privity of contract between the consumer and the manufacturer, distributor or supplier, although the B.C. and Quebec statutes do so in different ways. In B.C., plaintiffs’ counsel have frequently advanced statutory claims of “deceptive acts or practices,” contrary to the Business Practices and Consumer Protection Act (BPCPA), usually based on allegations of misrepresentation or a failure to disclose a material fact regarding the safety and efficacy of the product in the labelling, the marketing materials provided directly to consumers, the product information that is provided to doctors and other health-care professionals, or a combination of these. The B.C. statute expressly applies whether or not there is privity of contract or a direct relationship between the supplier or manufacturer of a product and the consumer. The B.C. courts have taken an expansive view of what could potentially constitute a “consumer transaction” within the scope of the BPCPA. Notably, the B.C. BPCPA contains broad remedial provisions, including injunctive powers and a reverse onus provision (the meaning of which has not been fully litigated), so the routine certification of these additional statutory consumer protection claims by the B.C. courts is potentially very significant. In Quebec, the Consumer Protection Act is a facilitating statute aimed at alleviating the burden of proof for consumers bringing claims against “merchants,” which includes manufacturers. As in B.C., the potential application of statutory consumer protection to drugs and medical devices has significant consequences. We note that it remains an open issue whether the Consumer Protection Act applies to drugs. Some have interpreted one Quebec decision as refusing to apply its provisions (in particular, Recent Litigation Developments and Trends 1 Goodridge v. Pfizer Canada Inc., 2010 ONSC 1095; Martin v. AstraZeneca Pharmaceuticals Plc, 2012 ONSC 2744
  • 9. 6 those pertaining to product liability) to pharmaceutical drugs.2 First, the Consumer Protection Act creates virtual privity between consumers and all the entities in the marketing chain. Second, it creates various presumptions, depending on whether an alleged claim is based on facts that occurred before the execution of a contract or following the execution of a contract (i.e., before or after the purchase of a product). In certain circumstances, the statute entitles consumers to various specific and contractual remedies, in addition to punitive and compensatory damages, even without proof of prejudice, which some consider tantamount to a strict liability regime. The experience with certification of statutory claims pursuant to consumer protection legislation has been mixed in Quebec, while many Quebec cases have applied the Consumer Protection Act to drugs and medical devices.3 Quebec courts have nonetheless denied certification of several proposed class proceedings pertaining to pharmaceutical drugs or medical devices based on the Consumer Protection Act, in contrast to the experience in B.C.4 Rise in Use of Access-to-Information Requests In recent years, there has been an increasing number of access- to-information/freedom-of-information requests under relevant federal and/or provincial legislation to obtain documents from regulators and other government custodians relating to the life sciences industry. Legislation enacted in various provinces and federally provides broad rights to access information held by government institutions. Life sciences industries, in particular, are highly regulated, and government institutions may possess a wealth of information about industry participants that may be of keen interest to third parties. For instance, regulatory filings to Health Canada for the approval of a drug or medical device may contain detailed and potentially sensitive information, both about the product and the manufacturer. Where a government institution is required to disclose information about a third party (e.g., a private business) pursuant to an access- to-information request, generally the third party will be afforded an opportunity to make submissions as to why some or all of that information should not be disclosed, although it must do so on the basis of specified exceptions in the legislation. Though the third party will not be provided with the name of a requester, if a request relates to information potentially connected to existing or anticipated litigation, it would be prudent to consult litigation counsel to ensure a coordinated response. Proposed Legislation to Enhance Health Canada’s Powers Over Therapeutic Products On December 6, 2013, the government introduced Bill C-17, which contains proposed amendments to the Food and Drugs Act to enhance Health Canada’s powers in connection with drugs and medical devices. Among other significant amendments, the legislation would give Health Canada powers to: • Require changes to product labelling • Require manufacturers to compile information, conduct new tests or studies, or to monitor experience to assist Health Canada in assessing the safety of a drug or device • Order the recall of a drug or medical device for safety reasons Bill C-17 also proposes a regime of mandatory reporting by health- care institutions of serious adverse events involving drugs and medical devices. The proposed legislation would also increase the fines and penalties for offences under the Food and Drugs Act. As of the time of printing, Bill C-17 had passed its first reading in the House of Commons. It is expected that interested parties will have opportunities to make submissions regarding the bill before it is passed in its final form. Life sciences industries, in particular, are usually highly regulated, and government institutions may possess a wealth of information about industry participants that may be of keen interest to class counsel. 2 F.L. c. Astrazeneca Pharmaceuticals, p.l.c., 2010 QCCS 470 (CanLII) 3 F.L. v. Astrazeneca Pharmaceuticals, p.l.c., 2010 QCCS 470 4 See e.g. Option Consommateurs v. Merck, 2013 QCCA 57; Perreault v. McNeil PDI, 2012 QCCA 713; MacMillan v. Abbott Laboratories, 2012 QCCS 1684; F.L. v. Astrazeneca Pharmaceuticals, p.l.c., 2010 QCCS 470
  • 10. 7 Since the 1970s, the pharmaceutical industry has routinely and consistently been subjected to transfer-pricing audits by tax authorities, including the Internal Revenue Service and Canada Revenue Agency (CRA). Transfer pricing remains a focus of attention today, impacting the pharmaceutical industry and, more broadly, the life sciences sector. With disputes often resulting in multimillion-dollar tax reassessments, managing risk proactively is vital. The goal of this article is to discuss how transfer pricing issues normally present themselves in the context of a Canadian pharmaceutical business, offering guidance of risk avoidance and effective ways to limit and handle transfer-pricing disputes. What Transfer Pricing Is About Although closely related to other cross-border issues including customs and trade law, transfer pricing is a corporate tax law issue that arises when goods or services are transferred between a Canadian taxpayer and non-resident group members in “non- arm’s length” transactions. The underlying concern of the CRA and tax authorities worldwide is that multinational organizations direct profits or losses among their various affiliates to manage tax liability or achieve other tax benefits. The CRA examines these types of transactions to determine if the Canadian company overpaid or was underpaid. Types of Transactions at Risk A variety of transaction types give rise to transfer-pricing issues for Canadian pharmaceutical businesses. The following are among those commonly audited, and often reassessed, by the CRA: • Purchases of pharmaceutical products, equipment or medical devices by a group’s Canadian entity (CanCo) from a non- resident affiliate for distribution in Canada • Intellectual property (IP) licences granted to CanCo by a non-resident affiliate, including right to know-how and use of trade names • The performance under contract of RD services by CanCo for a non-resident affiliate Advance Planning to Limit Exposure Companies need to take an integrated approach, involving a broad range of personnel when organizing and documenting transfer pricing and in responding to queries from tax authorities to assure that all critical components are addressed and disputes are resolved effectively when they arise. Teams of tax, medical, regulatory and IP personnel, both in and outside of Canada, are often needed. The Income Tax Act requires Canadian taxpayers to prepare annual transfer-pricing documentation to support their pricing. That documentation needs to include a thorough analysis of the taxpayer’s pricing method, and the functions performed, assets used and risks assumed by the Canadian company and the non- resident group of companies involved in the transaction. Should a dispute arise, that documentation will be the foundation for discussions with tax authorities. In the case of a pharmaceutical business, many facts and the functional analysis will be informed by, or even defined by, life sciences or other non-tax areas of law and knowledge-based disciplines, such as patent and trade-mark law. The documentation memorializes the transaction and thus is the primary source for analysis. What to Expect When a Transaction Is Audited If a transaction is audited, the company should anticipate having to respond to detailed factual questions regarding the transaction’s scope and nature. The auditor’s questions will aim at determining the proper level of profit (and taxable income) based on assets owned and used, risks assumed, and whether what was earned is what would have been earned had the parties dealt at arm’s length. However, other non-tax legal or economic principles may need to be applied when attempting to appropriately frame and resolve the matter. For example, IP law often guides the resolution TRANSFER PRICING AND THE LIFE SCIENCES INDUSTRY
  • 11. 8 of the ownership issues, while basic pharmaceutical science may be necessary to explain the role of, and weight to be accorded to, many of the non-resident entity’s related functions, including basic RD performance and subsequent development. Pharmacoeconomics can provide a basis to explain the basic RD funding and mechanics of funding recovery through pricing or royalties. All of these disciplines can be as important as tax law in a tax controversy dialogue. Deploying Expertise Deploying all the necessary expertise when documenting the functions, assets and risks associated with cross-border transactions—that is, explaining how a business actually operates as understood by those carrying it on—is a key to successful resolution of transfer-pricing controversies should they occur, especially in light of recent global developments. Over the past year, transfer pricing has become far more visible at a global level due to a number of events. These include the continuing public hearings in the U.K. focused on investigating seemingly low levels of tax paid there by certain multinationals and the creation of an OECD and G20 task force to consider measures to address “(tax) base erosion and profit shifting” (BEPS). With the advent of BEPS (and many other related OECD projects), now more than ever, global or multinational business groups need to put a premium on carefully documenting and explaining how they conduct business, identifying and measuring the group contributors to a business, and offering the type of information that will satisfy tax authorities’ needs to understand the business. For the pharmaceutical industry, these tasks are best achieved using a fine-tuned multidisciplinary approach that not only takes into account the applicable local tax law, but also applies equally relevant IP, contract and regulatory law, and science and economic-based knowledge.
  • 12. Patient-centred health-care, or “integrated patient care,” focuses on achieving coordinated and patient-centred health care, addressing the issues raised by fragmented health-care delivery, particularly for elderly, chronically ill and high-risk patients. The Challenges The absence of a single definition of integrated care has resulted in vague, confusing and conflicting interpretations. Lack of consensus has been a major roadblock to “successful application and meaningful evaluation” of integrated care. However, at its core, all agree that integrated-care’s goals are coordinated service and “patient-centred” care—care that meets the patient’s specific and individual needs. Proponents of integration emphasize the importance of viewing patients as active participants in their care instead of as passive recipients. The hope is that health-care providers will begin to focus more on their patients’ overall well-being than on single treatments. Other common barriers to achieving a better-integrated health- care model include competing funding pressures among health- care sectors and the challenge of creating a highly coordinated administrative structure. Further, the pliability of the integration concept means that there is not a single approach to integrating health care to serve as a model. Successful Integration Models in Other Jurisdictions Despite the uniqueness of each health-care system, recent reforms in Canadian health care have taken a cue from international trends set in England, Spain, the Netherlands, Denmark and the United States. England’s National Health Service, in particular, has been heralded as an excellent example of health-care integration. England’s successful reform is due to a number of key factors, including increasing opportunities for community engagement in health-system planning, aligning funding models in all health sectors, and promoting multidisciplinary teams to coordinate care. Canada’s Integrated Care Reforms A recent survey of Canadian provinces revealed that all governments that responded accept the philosophical and policy underpinnings of integrated care, which include a commitment to client-centred care. In fact, several integrated care reforms have sprung up across Canada, and each jurisdiction is actively working toward health-care integration for elderly patients by investing in home and community-care services as part of their reform strategies. Ontario as a Leader Ontario has taken several steps in its transition to integration. Notably, in 2006, the government created Local Health Integration Networks (LHINs), 14 not-for-profit corporations that work with local health providers and communities to determine the health-service priorities of a given region. LHINs are authorized by statute to plan, integrate and fund local services, such as hospitals, community-care access centres, and mental health and addiction services. In addition, the province’s integrated Client Care Project was introduced in 2008 to improve the quality and patient experience of home-care services in the province by promoting system integration. Most recently, Ontario released its Action Plan for Health Care, which strives for a patient-centred system that has better integrated health providers, focused on family health care, community care, hospitals and long-term care. The Future of Integrated Care Integrating care across the country is a work in progress. Ontario and most other provinces have successfully implemented clinical best practices, such as devising effective means of communicating with patients’ families and promoting multidisciplinary primary care. Nonetheless, certain areas of reform still require substantial attention. Provincial governments have yet to create fully integrated information systems or establish incentive mechanisms for evidence-based decision- making. Despite the inherent challenges of coordinating integrated care, Canada is well on its way. After all, integration is not a definable end goal, but rather an ongoing process that will not cease until Canadians have access to the most efficient, high- quality and patient-centred care possible. PATIENT-CENTRED HEALTH CARE 9
  • 13. 10 “DISRUPTIVE INNOVATIONS” Professionals trained to deliver the right care in the right place at the right time. INTERPROFESSIONAL TRAINING AND CARE Care delivery provided by a variety of well-trained, regulated professionals. CARE CONTINUUM Linkages across a network of hospital community services. VALUES DRIVEN Ethical decision-making frameworks that incorporate compassion, quality and safety. TRANSLATIONAL RESEARCH Research that promotes the most effective and innovative health-care intervention. COMMUNICATION A single efficient health care record for every citizen. Canadians have prided themselves on a universal health-care system with equal access by all. However, several factors have threatened this sacred national value. Increased longevity and prevalence of chronic disease, the escalating cost of acute care illness episodes, and the lack of investment in prevention and health-care promotion have contributed to a challenged health-care environment. Health-care providers and policy- makers are faced with repairing a system that is “diseased” by access barriers, lengthy waits for elective care and overcrowded emergency rooms across the county. An urgency to reconstruct and transform health care is recognized by physician-led organizations such as the Canadian Medical Association, government at all levels and thoughtful Canadian citizens. Increasingly, a model that places its providers surrounded by an integrated system of care characterizes the ideal transformation. The “cure” lies in the development of health-care networks that govern the implementation of system change. A Model for Patient-Centred Health-Care Transformation
  • 14. In recent years, brand-name drug manufacturers have struggled to combat the proliferation of counterfeit pharmaceuticals. The Internet is saturated with illicit online pharmacies that aggressively advertise inexpensive drugs, offering direct delivery to patients without requiring a prescription. The Viagra Experience On May 6, 2013, Pfizer announced that it would begin selling its flagship product, Viagra, direct to American consumers via the drug’s website, viagra.com. Pfizer stated that its intention is to guarantee that patients receive the true Viagra when they shop online. Marketing executives from Pfizer cite the results of a survey from 2011, which found that of the top 22 website search results for “buy Viagra,” 80 per cent of the pills being sold were counterfeit. Similarly, the annual average of 24 million online searches for “Viagra” greatly outpaces the eight million prescriptions written annually. In early 2013, the National Association of Boards of Pharmacy (NABP) reviewed more than 10,000 Internet pharmacies and found that 97 per cent of them were operating in violation of state and federal laws or NABP patient-safety standards. The experience of users who purchase ineffective or harmful counterfeit Viagra, combined with the drug’s apparent availability from disreputable pharmacies, is damaging to Pfizer’s brand. The Direct-to-Consumer Online Business Model Pfizer’s decision to pursue a direct-to-consumer online business model goes beyond simply creating an alternative to the high- risk endeavour of buying pharmaceuticals online. The strategy represents a dramatic change in marketing, sales and distribution. By carefully crafting a website, like viagra.com, a manufacturer can exercise total control over its brand. Through its website, Pfizer can dictate how each patient interacts with the brand through to the time of sale. Unlike in a bricks and mortar pharmacy or an independent online pharmacy, Pfizer’s competitors are invisible at viagra.com. All pharmaceutical manufacturers could benefit from such a heightened degree of control over the point-of-sale interface with customers. Accessibility and convenience are fundamental drivers of the growth in online shopping. A direct-to-consumer online sales platform for pharmaceuticals provides both accessibility and convenience for patients and doctors. Doctors can prescribe, and patients can access, the branded product with minimum effort. Recurring credit card payments and prescription renewals can be built into a patient’s online profile. A further benefit of the online model is it offers anonymity, allowing the purchaser to avoid the social stigma that some drugs carry and the anxiety or stress some experience when visiting a pharmacy. Of course, the manufacturer must be able to safeguard each patient’s private information. A NEW FRONTIER FOR MANUFACTURERS: DIRECT-TO-CONSUMER ONLINE PHARMACEUTICAL SALES 11
  • 15. Direct-to-consumer online sales enable a manufacturer to streamline and improve its supply chain and inventory management. A manufacturer needs only to enter an agreement with a pharmacy that is capable of verifying prescriptions and shipping its product, thereby limiting its wholesale relationships. Pfizer has enlisted CVS Caremark Corporation to handle the prescriptions and shipping requirements for viagra.com. Inventory logistics are made easier as orders are processed in real time. Pfizer is not the first pharmaceutical company to offer a branded site to sell its product. In November 2011, AstraZeneca launched ARIMIDEX Direct. Under its program, patients with a valid prescription for anastrozole could have the ARIMIDEX brand delivered directly to their home by Express Scripts, a specialty pharmacy-services provider. ARIMIDEX Direct was not created in response to counterfeit or substandard anastrozole. Rather, it was created as a way to provide the brand-name drug at a lower cost once its U.S. patent expired. A manufacturer’s ability to lower before-market costs is critical to its financial health when faced with imminent patent expiration and the emergence of generic treatments. By all accounts, ARIMIDEX Direct was a resounding success. The direct-to-consumer online business model offers a host of benefits. However, before a manufacturer can engage in direct- to-consumer online sales, it must first navigate the regulatory frameworks that govern its interaction with patients and pharmacies. If this is achieved, manufacturers can enhance their relationship with patients, mitigate concerns about product and supply chain integrity, and reduce costs. Accessibility and convenience are fundamental drivers of the growth in online shopping. A direct-to-consumer online sales platform for pharmaceuticals provides both accessibility and convenience for patients and doctors. 12
  • 16. The Challenge Canada has a wide variety of participants from the life sciences and health technology sector, including drug and medical device manufacturers and distributors and internationally top-ranked researchers, universities and teaching hospitals. In several regions the industry operates on a scale comparable to other large-scale bioclusters. However, the majority of early-stage ventures are privately owned small and medium-sized enterprises, with 50 per cent having fewer than 20 employees. These ventures face the challenge of seeking to advance complex innovations that on average take 10 to 15 years and hundreds of millions of dollars to develop. While Canada plays a significant role in the global advancement of scientific discoveries and their translation into commercial opportunities, it is not fully realizing its commercial potential. Among the problems is a lack of sufficient venture capital to take early-stage companies to the next level. Concerned that Canada was lagging behind other countries in business RD spending, commercialization of new products and services, productivity and growth, in 2010 the federal government commissioned the “Jenkins Report,” an independent study of innovation in Canada. The report concluded, among other things, that a history of poor returns has contributed to a lack of venture capital to fund emerging life sciences and health technology firms. It also found that although Canada tends to have adequate funding from government, not-for-profit and angel investors at the very early stages of ventures, beyond the initial few million dollars invested, companies were struggling to find additional capital. History has played a role in the funding challenge. The enthusiasm for venture investing between the mid-1990s and the early 2000s brought a five-fold increase of capital into the venture space. As often happens when supply exceeds demand, poor investment decisions resulted in poor overall financial performance for funds and made investors far more conservative regarding future investments. These factors coupled with the recent economic downturn have made it difficult to attract venture capital to the life sciences and health technology sector during the past decade. What the Future Holds Capital Availability Through the Federal Government’s Venture Capital Action Plan Several recent developments may signal the arrival of a more positive venture-funding environment for life sciences and health technology enterprises. Following the Jenkins Report, the federal government committed to supporting Canada’s venture capital industry. In January of 2013, after extensive consultations with key stakeholders to determine how best to support a sustainable, private sector-led venture capital industry, the federal government announced its Venture Capital Action Plan. The plan calls for the investment of C$400-million of government funds over seven to 10 years. The funds will be used to: • Establish new, large, private-sector-led funds of funds in partnership with institution and corporate investors • Recapitalize existing large private-sector-led funds of funds • Invest directly into existing high-performing venture capital funds It is anticipated that these investments will attract nearly C$1-billion in new private-sector investments. The life sciences and health technology sector is already feeling the effects of this commitment. In September 2013, the following government-funded venture funding commitments were announced: • BDC Venture Capital, the venture capital arm of the Business Development Bank of Canada, announced that it allocated an additional C$135-million to the BDC Venture Capital Health Care Fund to be used for direct venture investments into innovative health-care technology products and services, doubling its financial commitment to the fund. • BDC Venture Capital and Fonds de solidairité FTQ announced a C$35-million commitment to Sanderling Ventures, an investment firm with a 35-year track record of building new biomedical companies. Consequently, Sanderling is well on its way to achieving its US$250-million target for its Sanderling Ventures Fund VII and has agreed to create a permanent facility in Montréal to facilitate the development of early-stage life sciences investments. UNLOCKING THE FUNDING CHALLENGE 13
  • 17. 14 • BDC Venture Capital announced its commitment to invest C$25-million in two Canadian life sciences venture funds, C$15-million going into the CTI Life Sciences Fund II and C$10-million going into the Lumira Fund II. Capital Provided by the Pharma Industry Another growing source of venture funding and other forms of support for early-stage life sciences and health technology companies is the pharmaceutical industry. Many pharmaceutical companies have significantly reduced their internal RD programs and farmed out the risk of drug development to start-up companies. However, faced with expiring patents on a number of significant drugs and fewer blockbuster drugs coming to market, the pharmaceutical industry’s need for new products remains critical. Consequently, pharmaceutical companies have a significant interest in the success of early-stage drug companies and are taking various steps to identify and partner with or invest in strategic early-stage companies. One tactic adopted by a number of pharmaceutical companies is establishing or investing in life sciences venture funds. For example, in 2011, GlaxoSmithKline established the C$50-million GSK Canada Life Sciences Innovation Fund. In 2012, Merck Canada committed C$35-million to the Merck Lumira Biosciences Fund and C$5-million to Lumira Capital II LP, and Eli Lilly joined Teralys Capital and others in investing in the C$150-million TVM Life Science Ventures VII fund. Each of these funds has a mandate to invest in early-stage life sciences companies. Another approach has been to provide early-stage ventures with strategic support, including through the creation of research centres. In 2012, AstraZeneca and Pfizer Canada Inc. partnered with the Province of Quebec to create the NÉOMED Institute, a life sciences research institute that acts as a bridge between academic research and the private sector. The NÉOMED Institute was established with a commitment by its founders to invest C$100-million over five years. In early 2013, MaRS Innovation announced a strategic partnership with Pfizer Inc. to advance early-stage technologies. Through this collaboration, MaRS and Pfizer will identify investment opportunities to which Pfizer will provide funding over a three-year period. In late 2013, MaRS and Pfizer announced the first project to receive financial support under the collaboration. Also in late 2013, Johnson Johnson Innovation and its Janssen unit announced collaborations with both the NÉOMED Institute and MaRS Innovation. Improving Liquidity Opportunities Liquidity events for venture investors typically come in the form of a sale of shares in an initial public offering or through the sale of the business to a strategic investor. For a number of years, there seemed to be little opportunity for life sciences companies to undertake an initial public offering (IPO) or alternative “going public” event (such as acquisition by a publicly traded capital pool company or a reverse take-over). In 2013, the 11 “going public” events for life sciences companies reported by the Toronto Stock Exchange and TSX Venture Exchange were more than double the number in the prior year. In addition, this number does not take into account Canadian companies, such as Acquinox Pharmaceuticals, that elect to pursue a U.S.-only IPO. However, it is important to recognize that, while this increase represents a significant improvement over past years, it does not match the approximately five-fold increase in the number of life sciences IPOs seen in the U.S. in 2013. The past year also saw significant MA activity, including the acquisition of several significant public Canadian life sciences companies, including LifeLabs Medical Laboratory Services’ acquisition of CML HealthCare Inc., Patheon Inc.’s going-private transaction, Endo Health’s acquisition of Paladin Labs, Emergent BioSolutions’ acquisition of Cangene Corporation and many other significant acquisitions, such as Cardiome Pharma Corp’s acquisition of Correvio LLC. The example set by these successful liquidity events will play an important role in attracting further investment capital to Canadian life sciences and health-care technology industry participants. CONCLUSION While the question of how Canada can effectively and efficiently address the lack of adequate venture capital for life sciences and health technology companies is not fully answered, these developments appear to signal an improvement in funding and liquidity opportunities and the prospect of further improvements. With creativity, flexibility and a bit of luck, early-stage companies can access the investment capital required to take their projects to the next stage, and investors can find successful liquidity events.
  • 18. Traditional pharmaceutical, biologic, software and medical device businesses are increasingly collaborating to find innovative ways to combine technologies into single products and interactive component product suites. These products, known as “combination products,” are being recognized as improving the delivery, specificity and outcomes of numerous medical procedures and therapies. As a result, collaborative efforts to leverage technologies are on the rise, especially in the life sciences industry. What Is a Combination Product? Health Canada defines a “combination product” as a therapeutic product that combines a drug component and a device component. The United States Food and Drug Administration considers any combination of the following to be a combination product: • Two or more regulated drug or device components that are physically, chemically or otherwise combined and produced as a single entity • Two or more separate drug or device products that are packaged together or as a unit • An approved or investigational drug or device that is packaged separately and whose approved or proposed label limits use only with another specified, approved or investigational drug or device, where both are required to achieve the intended use, indication or effect • Two or more separate drug or device products that are packaged together or as a unit, or any drug or device product packaged separately that, according to the proposed label, is or are for use only with another specific drug or device where both are required to achieve the intended use, indication or effect Many medical devices now incorporate both electronics and software, and software itself may be regulated as a medical device. Challenges of Collaboration Although collaborations among drug and device businesses are on the rise, these collaborations present a variety of challenges. A few of these are noted below. Establishing a Product Development Strategy Drug and medical device product development strategies differ, and neither is necessarily appropriate for a combination product. Collaborators need to determine a hybrid product development roadmap that integrates the underlying drug and device components of the product. That strategy should reflect different resource requirements, interactive and iterative development processes, interactions with regulatory agencies, milestones and funding requirements that will work for all of the collaborators. Determining the Regulatory Pathway Combination products involve components that would normally be regulated under different regimes, by different departments of regulatory authorities and pursuant to different timeframes. Therefore, the regulatory pathway for combination products can be complex. Careful consideration should be given to the regulatory pathway at an early stage. This often involves consultation with the regulators in multiple jurisdictions. Identifying and Accessing Target Markets While drugs and devices are often targeted to pharmacies, hospitals and other health-care institutions, many combination products are sold directly to physicians and even consumers. The collaborators must identify target markets and then develop a plan for accessing them. The target markets may vary from country to country. The collaborators may have to work through different distribution channels to reach categories of customers that are not familiar to them. Developing and Commercializing Combination Products 15
  • 19. 16 Securing Intellectual Property Rights The parties or a collaboration entity will need to secure pre- existing intellectual property (IP) rights from each collaborator and, in some cases, acquire rights from third parties. The parties or a collaboration entity will need to arrange for the protection of newly developed IP and the rights therein. Establishing a Commercialization Model There are numerous choices for a commercial model for a combination product. Even in the straightforward example of a reusable device with drug refills, the collaborators may choose separate sales of each component at market prices, below- market pricing of the device to encourage purchases of the drug or other approaches. It is important to allocate costs and revenues among the collaborators that accurately reflect each component’s value and the contributions and risks of each collaborator. Reconciling Different Corporate Cultures The challenges of a collaboration are often further compounded by different mindsets, practices, business strategies and “cultural” corporate norms of each of the collaborators. For example, the cultural approach and development timing in the software industry are very different from those in the drug and medical device industries. As the number of collaborators, components and types of technology enter the mix, the likelihood that collaborators may not see eye-to-eye increases. All of these differences may jeopardize or delay the success of the collaboration unless the parties mitigate the risk by creating an appropriate structure and enter collaboration agreements that clearly set out the ground rules for the collaboration. conclusion There are many other important issues to address when structuring and negotiating a collaboration for a combination product and developing the legal structure and required agreements. While the rewards of collaboration for the collaborators and the public may be significant, the challenges must be carefully addressed.
  • 20. 17 Internationally recognized for its life sciences expertise, Blakes combines regulatory, intellectual property (IP), commercial, transactional, MA, antitrust/competition, transfer pricing and international tax, litigation, and other expertise to meet the needs of many participants in the life sciences industry. Our clients include established and emerging multinational pharmaceutical, biotech, medical device, diagnostic product, consumer product and pharmacy businesses, as well as health-related service providers, research institutions, financial institutions and investors. A distinguishing feature of our practice is our expertise in the vast array of regulatory regimes at the federal and provincial levels. We advise numerous clients, including manufacturers, wholesalers and pharmacies, on all matters such as product approvals and labelling, pricing and reimbursement, price controls, product listing agreements, rebates, professional allowances, interchangeability of drugs, conflict of interest issues, procurement matters, freedom of information matters, drug marketing and advertising, drug import and export issues, clinical trials, and recalls. One of our lawyers is also a qualified pharmacist. Clients retain Blakes for strategic advice on protecting their innovations and collaborating with others in the research and development of pharmaceutical, biological, device and combination products. We handle patent and other intellectual property protection, portfolio management, risk management and litigation. Many Blakes practitioners have advanced degrees in life sciences and other related technologies. We also have significant experience in research and development, product acquisition, distribution, licence, technology transfer, collaboration, strategic alliance, joint venture and other industry- specific arrangements. As life sciences companies look to consolidate operations, acquire products or technology, divest themselves of non-strategic products or functions, or attract partners and research funding, they rely on Blakes, a leader in MA, securities, finance and competition law. When disputes arise, Blakes is a leading choice for representation. Successfully advocating for life sciences industry clients in high- profile litigation matters, we have one of the most experienced class action practices in Canada and are among a small number of Canadian firms with notable success at trial and on dispositive applications and motions. Recognized as leading Canadian lawyers in product liability defence, we have handled precedent- setting cases, including the first medical device class action to go to trial in Canada. We also frequently represent clients on transfer pricing cases before the courts and regularly advise on income tax, commodity tax, transfer pricing and other cross-border tax issues. On a global level and in Canada, transfer pricing has become the most highly ranked and high-profile international tax issue for multinationals, including those operating in the life sciences industry. Drawing on its broad and unparalleled experience, Blakes offers strategic and pragmatic advice on these issues that is reflective of our clients’ needs and our understanding of tax authorities’ expectations and how transfer pricing fits in, affects, and is affected by, other elements of the tax system. Our Transfer Pricing group is headed up by two of the most senior and highly ranked transfer pricing tax advisers in Canada who work closely with the Firm’s equally ranked Tax Controversy Litigation group. BLAKES LIFE SCIENCES GROUP
  • 21. 18 INdustry Recognition • LMG Life Sciences 2013 (Product Liability and Regulatory) • LMG Life Sciences Awards 2013 (“Canadian Product Liability Impact Case of the Year” – Andersen v. St. Jude Medical) • LMG Life Sciences Awards 2013 (“Canadian Impact Deals of the Year” – Gilead Science’s acquisition of YM Biosciences) • The 2014 Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada (Advertising Marketing, Intellectual Property, Class Actions, and Product Liability) • The Best Lawyers in Canada 2014 (Advertising and Marketing Law, Class Action Litigation, Intellectual Property Law, Product Liability Law, and Tax Law) • Benchmark Canada: The Definitive Guide to Canada’s Leading Litigation Firms and Attorneys – 2013 Edition (“Product Liability Law Firm of the Year” for Canada) • Law Business Research’s The International Who’s Who of Life Sciences Lawyers 2013 (Product Liability and Regulatory) • Law Business Research’s The International Who’s Who of Patent Lawyers 2013 • Law Business Research’s The International Who’s Who of Business Lawyers 2013 (Life Sciences) • Chambers Global: The World’s Leading Lawyers for Business 2013 (Dispute Resolution: Class Action (Defence), Intellectual Property, and Corporate Tax) • Benchmark Canada: The Definitive Guide to Canada’s Leading Litigation Firms and Attorneys – 2013 Edition (Class Action and Product Liability) • The Canadian Legal Lexpert Directory 2013 (Advertising Marketing Law, Intellectual Property, Class Actions, Litigation – Product Liability, and Corporate Commercial Law) • International Tax Review’s Tax Controversy Leaders 2013 • Legal Media Group’s The Best of the Best 2013 (Transfer Pricing) • Legal Media Group’s Guide to the World’s Leading Transfer Pricing Advisers 2013 • Legal Media Group’s Guide to the World’s Leading Women in Business Law 2013 (Transfer Pricing) • IAM 1000: The World’s Leading Patent Practitioners 2013 • Legal Media Group’s Guide to the World’s Leading Litigation and Product Liability Lawyers 2012 • The 2012 Lexpert Guide to the Leading US/Canada Cross- border Litigation Lawyers in Canada (Class Action and Product Liability) • Law Business Research’s Who’s Who Legal: Canada 2013 (Corporate Tax) • IAM Licensing 250: The World’s Leading Patent Technology Licensing Lawyers • Managing Intellectual Property’s World’s Leading Patent Experts
  • 22. 19 CONTACT US For more information, please contact any member of the Blakes Life Sciences Steering Committee: Santosh Chari Patent Agent | Partner | Toronto 416-863-3166 santosh.chari@blakes.com Marie-Hélène Constantin Partner | Montréal 514-982-4031 mariehelene.constantin@blakes.com Robin Linley Partner | Toronto 416-863-3047 robin.linley@blakes.com Cheryl Satin Partner | Toronto 416-863-2575 cheryl.satin@blakes.com Alice Tseng Partner | Toronto 416-863-3067 alice.tseng@blakes.com