Mr ROCHER (11:03 AM) —The Therapeutic Goods Legislation Amendment Bill 1997 is the second one introduced by the Howard government into the House in recent times that seeks to effect changes to the patent protection of pharmaceutical products. Probably the first of these bills, the Intellectual Property Laws Amendment Bill 1997, is the more important of the two. Its principal aim is to improve Australia's place in the highly competitive global pharmaceutical industry by giving greater patent protection to local pharmaceutical manufacturers. Whereas that first bill is concerned with providing an effective patent life for complete pharmaceutical substances, this second bill aims to improve the protection regime for new active components—or NACs, as they are called—that are connected with an application to register therapeutic products with the Australian Register of Therapeutic Goods.

Put simply, although the issue of safeguarding of intellectual property is anything but simple, this bill seeks to give patent protection to innovators, where the final product of their research and development is quite different from the original forecast and is, therefore, not subject to protection under the original patent. This is not a common occurrence.

However, given that we are competing in an aggressive international marketplace, it is critical that we implement comparable legislation to that which is in effect elsewhere. The coalition has espoused that the five-year data protection regime proposed in this bill is consistent with that of New Zealand and the United States of America.

While it is true that New Zealand adheres to this time frame, the United States of America Food and Drug Administration protects test data for up to seven years. The United Kingdom goes further than this in recognising that data relating to new chemical entities remains the exclusive property of the registering individual or organisation for a period of 10 years from the date of first marketing.

While the measures in this bill are supportable, it is submitted that the government should look, as a matter of priority, at extending patent protection for test data for a minimum of seven years. In presenting its 1996 report into the domestic pharmaceutical industry, the Industry Commission acknowledged that:

Australia is bound to abide by its international obligations in the area of intellectual property protection.

This was a reference to the 1994 agreement on trade related aspects of intellectual property rights, commonly known as TRIPs, to which Australia is a party. Section 7 of that agreement reads, in part:

Members, when requiring, as a condition of approving the marketing of pharmaceutical products which utilise new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.

To this end, the Therapeutic Goods Legislation Amendment Bill 1997 proposes to introduce a number of changes to better align Australian patent legislation with the laws of other member nations to the TRIPs agreement.

A five-year data protection regime is to be introduced to prevent the Secretary to the Department of Health and Family Services from accessing information about a new active component in order to process other applications for the registration of goods with a like active component.

Representatives from the Tri-Med Specialties Group, a medical research organisation which borders on my electorate—I believe it might even be known to the honourable member for Stirling (Mr Eoin Cameron), who is at the table—believe this to be a significant and fair inclusion. As they rightly point out, the cost and time being borne by those who are the first to produce a new active component far outweigh those costs incurred by firms which opt to piggyback off these innovations.

This position is also advanced by the Australian Pharmaceutical Manufacturers Association, APMA, the peak body representing the interests of domestic manufacturers of prescription medicines. In a fax dated 23 January 1998, Dr Janice Hirshorn, Director of Policy and Strategy Development at APMA, noted that—

A division having been called in the House of Representatives—

Sitting suspended from 11.09 a.m. to 11.19 a.m.

Mr ROCHER —Before the suspension, I was about to quote Dr Hirshorn. In the fax she said:

The APMA considers that protection of test data is critical both from a public or health policy standpoint.

She went on to note:

Equity demands that protection be provided for data, which can cost the original submitter several millions of dollars to produce (because) disclosing these data to the public or allowing its use by another applicant, unfairly denies the compiler of the data the value of its efforts and grants an economic advantage to later applicants for marketing approval, enabling them to avoid the cost of developing test data for their own products.

One of the most significant traits of the pharmaceutical industry is its dependence on products that are technologically intensive and knowledge driven, hence the bigger than average expenditure in pharmaceutical research and development as a proportion of total sales in comparison to other industries.

Given that pioneering pharmaceutical companies rely so heavily on R&D to keep ahead of the pack, it is perfectly reasonable for them to anticipate that any submissions made for inclusion in the Australian Therapeutic Goods Register, the ATGR, will be adequately protected under Australian patent law. Some have suggested that the deficiencies in the existing legislation have disadvantaged innovative companies and dissuaded them from pursuing other costly research and development projects in Australia. If this is the case, it is to be hoped that the amendments in this bill will help to reverse that trend.

The 1998 OECD Economic Surveys publication notes that Australia has not fared all that well in recent global comparisons of innovativeness. Page 116 of that report reads:

The rate of (Australian) enterprise creation has not stood out as high by international comparison, relatively few companies have grown beyond medium size, and the industrial sector is still dominated by large resourced based—many foreign owned—companies.

But it is not just the industrial sector that is commanded by multinationals. The United States of America, Japan, Germany, the United Kingdom and France are the largest producers of pharmaceutical products. Together, they accounted for greater than 80 per cent of the total pharmaceutical production in 1991, the most recent figures available to me. The USA alone was responsible for 40 per cent of total global production in that same year.

In comparison, Australia is considered to be small fry, both in terms of the size of our domestic market and in our share of production of pharmaceuticals. Given the relative obscurity of the Australian pharmaceutical market, it is paramount that indigenous companies make the most of their opportunities to increase their market share, through both a commitment to research and development and a focus on the development of external markets.

The government, too, has an obligation to create the right conditions to cement the commitment of foreign drug companies to continue with research and development and production in Australia. It is ridiculous to argue that the major benefactors of this legislation will be Australian pharmaceutical companies. The fact is that the big winners will be those countries which are net exporters of pharmaceuticals—that is, the United States of America, the United Kingdom, Germany, France and possibly Japan.

In strengthening the patent protection for new active components in the manner prescribed in this bill, we are effectively fortifying the grip that these multinationals have on the pharmaceutical trade. To illustrate the control that foreign companies have over the Australian market, I refer members to table 2.7 of the Industry Commission report into the pharmaceutical industry. The contents of this table reveal that the two largest Australian pharmaceutical companies, in terms of pharmaceutical benefits scheme, PBS, sales, accounted for less than five per cent of total PBS sales in the year 1994-95 worth $111 million.

On the other hand, the biggest 10 multinational enterprises, called MNEs, generated sales in excess of $1,255 million in Australia in the same period. Just as telling is the fact that greater than 90 per cent of all new drugs developed post-1960 have originated from Japan, Europe and the USA. To not proceed with the amendments proposed in this legislation could mean that the MNEs look abroad to countries that are prepared to reward innovation through investment in research and development.

As the Industry Commission noted:

The pharmaceutical industry is knowledge intensive. This means that R&D plays a key role in allowing companies to develop and refine products. At the same time, companies rely on patents to enable them to capture the returns from their investment in R&D.

In recent years, the costs associated with pharmaceutical research and development have escalated but the discovery of new chemical entities, the subject of this bill, has become less frequent. Patent protection for MNEs is therefore becoming increasingly significant. Should those MNEs opt to take their Australian operations elsewhere, the impact on the Australian economy of the loss of those multinationals cannot be overstated.

The Industry Commission has concluded that the majority of multinationals conduct a large proportion, around 40 per cent, of their research and development through linkages with other pharmaceutical companies and other research organisations. In other words, domestic pharmaceutical organisations benefit directly from these formal links with the MNEs, as well as indirectly through the spill-over effects of foreign research and development.

The Industry Commission estimates that the pharmaceutical industry makes a substantial contribution to the broader Australian economy, with value adding of approximately $745 million in the year 1993-94 alone. We simply cannot afford to become blase in our attitude towards the protection of intellectual property.

Item 4 of schedule 1 will see the secretary's powers further enhanced, so that he or she may revoke the registration of a therapeutic good, if it is found that the registration includes the use of protected information. That is both fair and reasonable. As the explanatory memorandum indicates, this bill aims also to extend the secretary's authority to pursue information about a manufacturer of therapeutic goods beyond the current restrictions.

Under the proposed legislation, detailed information relating to the site of manufacturer and the modus operandi of a producer of a therapeutic good will be able to be investigated by the secretary. Many expect this provision to discourage a home-brew type of operation and therefore it enjoys the broad support of industry.

The government has forecast that the measures in this bill—unlike the Intellectual Property Laws Amendment Bill 1997 , with its financial impact—will have no significant effect on revenue. This is principally because it is not common for pharmaceutical R&D to produce a new chemical entity that is so different from the initial forecast that it is not covered by the original patent. Therefore, this bill should be viewed as an extension of the coalition's attempts to upgrade protection for intellectual property rights. Given the commitment of both sides of the House, as I understand it, to fostering a culture that encourages research and development in Australia, I expect that all members will support this legislation.

I remind my parliamentary colleagues that pharmaceutical manufacturers rely heavily on patents to maximise their returns on the fruits of their research and development. R&D and the protection of intellectual property are inextricably linked, and it should be the priority of government to foster the input of knowledge back into technology. The pharmaceutical industry operates in a heavily regulated environment and it is important for government to strike a balance between the interests of manufacturers of new drugs and of those producing generic versions of drugs.

In its 1996 report, the Industry Commission quotes the former Department of Industry, Science and Technology as concluding:

From the consumer's point of view, a balance that encourages both research and production of new drugs and the availability of lower priced generic drugs is important. This balance is also important in the context of retaining competitive pressures which keep PBS prices low.

Any reasonable measure which seeks to protect innovators from copycat manufacturers, and therefore provides an incentive to invest in the development of new pharmaceutical products, should be embraced.

In March last year I noted, in my contribution to a grievance debate on research and development of intellectual property, that the key to success for technology firms is the speedy getting and marketing of information. I noted then that the protection of intellectual property is equally important. In the absence of adequate patents legislation, companies do not have the time to reap the rewards of their research and development, and we would surely see Australian businesses look elsewhere in those circumstances to fund their research and development. I support the bill.