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14 December 2020Big PharmaMicheline Gravelle and Iris Cheung

Pricing, patents and the PMPRB in Canada

The price of patented medicines in Canada is regulated by the Patented Medicine Prices Review Board (PMPRB), an independent, quasi-judicial body established under the Patent Act to ensure the prices of patented medicines are not excessive.

The PMPRB exercises its regulatory mandate by monitoring the factory gate price of patented medicines and ordering remedies when the price is determined to be excessive. It has jurisdiction only on patentees and has no regulatory power over distributors of patented medicines.

Pursuant to subsection 96(4) of the Patent Act, the PMPRB issues a set of guidelines on matters including the price review process, the commencement of investigation, hearing recommendation and ordering of remedies. The guidelines provide rules of general application but are not binding on the PMPRB.

In 2019, the Patented Medicine Regulations were substantially amended. The amendments add three new economics-based factors that the PMPRB is to consider when determining whether the price of a patented medicine is excessive: the pharmacoeconomic value; market size; and the gross domestic product (GDP) and GDP per capita in Canada.

The amendments also revise the list of comparator countries and now consists of 11 countries: Australia, Belgium, France, Germany, Italy, Japan, Netherlands, Norway, Spain, Sweden, and the UK (the PMPRB11 countries). The US and Switzerland are no longer on the list.

To implement the amendments to the regulations, the PMPRB is introducing changes to the existing guidelines. The new guidelines will take effect on January 1, 2021, when the amendments to the regulations come into force.

Price review process

According to the PMPRB, changes to the guidelines reflect a new “risk-based” approach for monitoring and reviewing patented medicine prices. Only those medicines that are likely to be at highest risk of excess pricing (category I new medicines) would be subject to a comprehensive review. Other medicines would face relatively less oversight.

Under the new guidelines, a patented medicine is first categorised as one of four categories based on its date of introduction: grandfathered medicines; line extensions medicines; gap medicines; and new medicines.

New medicines are further classified as category I or category II. Category I new medicines are those that are either high cost or high market size, while all other new medicines are classified as category II. After a patented medicine is classified into a category, a ceiling price is then identified based on the steps set out in the guidelines. The price of the patented medicine is assessed against the identified ceiling price.

New medicines

Determining price ceiling during the interim period

For new medicines, an interim period is defined as the earlier of (i) three years from the date of the introduction of the medicine in Canada; or (ii) when the patentee has filed international price information for at least five of the PMPRB11 countries.

During the interim period, the list price can be no higher than the interim maximum list price (iMLP). The iMLP is set according to:

(i) the median international publicly (MIP) available ex-factory list price for the PMPRB11 countries. Information on the international prices is to be filed by the patentee;

“After a patented medicine is classified into a category, a ceiling price is then identified based on the steps set out in the guidelines.”

(ii) if the international price information is not filed within a defined time period, the iMLP is set according to the domestic therapeutic class comparison (dTCC); or

(iii) if there are no domestic therapeutic class comparators, the iMLP is set at the median of the international therapeutic class comparison (iTCC).

Determining price ceiling after the interim period

At the end of the interim period, the iMLP is replaced by the maximum list price (MLP). The list price of the medicine can be no higher than the MLP or the highest international price (HIP).

The MLP is set according to:

(i) the lower of the list price and the MIP;

(ii) if no international price information has been filed, the MLP is the lower of the list price and top of the dTCC; or

(iii) if there are no domestic therapeutic class comparators, the MLP is the median of the iTCC.

Additional price ceiling considerations

Certain new medicines in category I may be further subject to a maximum rebated price (MRP) ceiling in the event of an investigation. The MRP takes into account therapeutic criteria level, which is a measure of the medicine’s clinical impact, pharmacoeconomic value and market size of the medicine.

Category I new medicines are classified as either “high cost medicines” (defined as where the 12-month treatment cost is greater than 150% of GDP per capita) or “high market size medicines” (defined as where estimated or actual market size exceeds CA$50 million [$39 million] annually).

Where a category I new medicine is a high cost medicine or a medicine with sales at MLP greater than CA$12 million annually, the MRP is calculated based on a pharmacoeconomic analysis. The analysis includes the incremental cost-utility ratio (ICUR), which measures health outcomes in terms of cost per quality-adjusted life years. Where ICUR is not available, MRP is set as the median of dTCC subject to a 50% reduction cap off the MLP. Where no pharmacoeconomic data is filed, the MRP is set at 50% of the MLP.

“The requirement to consider economic factors in price regulations will introduce further uncertainties to and lengthen an already complicated process.”

Where a category I new medicine is a high market size medicine but not a high cost medicine, the MRP is the lower of the MLP and the median of the dTCC.

The MRP may further be adjusted (MRP[A]) when market size exceeds $50 million annually, and this is recalculated annually.

Grandfathered, line extension and gap medicines

Grandfathered medicines and line extension medicines will be subject to a MLP but not an iMLP. The MLP is the lower of (i) the HIP for the PMPRB11 countries; or (ii) the medicine’s ceiling price under the guidelines as they were prior to the issuance of the new guidelines.

Gap medicines are subject to an iMLP as described above for new medicines. At the end of the interim period, the iMLP is replaced with an MLP. The MLP is the lower of (i) the MIP for the PMPRB11 countries; or (ii) the medicine’s ceiling price under the guidelines as they were prior to the issuance of the new guidelines.

Practical impact on the drug industry

Studies on the effect of drug price levels or drug price controls in different countries have shown a negative impact of price regulation on access to new medicines, through fewer drug launches and longer launch delays.

In Canada, many pharmaceutical patentees in the past gave up their exclusive rights by dedicating their patents to the public to escape the jurisdiction of the PMPRB. The PMPRB, in the decision Genentech Canada Inc, Re (1992), 44 CPR (3d) 316),  declared that dedication of a patent may not have the effect of terminating its jurisdiction. Patentees can now avoid the jurisdiction of the PMPRB only if the patent is cancelled, for example, through non-payment of maintenance fees and late fees.

Amendments to the regulations that update the comparator countries and require the PMPRB to review economic factors have been strongly opposed by the industry. Changes in the basket of comparator countries to exclude higher priced markets (such as the US and Switzerland) and include additional lower priced markets will have a dramatic impact on prices by driving the MLP down.

The requirement to consider economic factors in price regulations will introduce further uncertainties to and lengthen an already complicated process. The industry has taken the matter to the courts, arguing that, inter alia, the amendments relating to the comparator countries and the inclusion of economic factors in determining price ceilings are unrelated to the purpose of the Patent Act.

The Federal Court has, however, decided that the amendments are intra vires. The industry has not given up, however, and the guidelines may undergo further changes as the proceedings unfold.

While pricing controls at some level may be needed to ensure that the public has access to patented medicines, the controls must strike a balance between providing access to medicines to and offering a due reward to the drug companies when the average cost to develop a drug is $2.6 billion.

It appears that the amendments do not achieve that balance and may result in patentees abandoning their patents in Canada and/or Canadians being restricted in their access to new breakthrough medicines.

When the price that can be legally charged is unpredictable, innovator pharmaceutical companies may be reluctant to submit new drugs for regulatory approval. Indeed, the number of new product launches and clinical trial activities has decreased significantly since the proposed changes to the guidelines and 100% of the pharmaceutical executives surveyed in a Life Sciences Ontario webinar in June 2020 said the PMPRB changes “would have a negative impact on their overall business plan in Canada”.

It is hard to see how restricting access to patented medicines and losing business in Canada is a good thing for anyone.

Micheline Gravelle is a partner with Bereskin & Parr. She is the leader of the life sciences and plant breeders’ rights practice groups and co-leader of the cannabis practice group . She can be reached at  mgravelle@bereskinparr.com

Iris Cheung is an articling student at Bereskin & Parr, where she focuses on life sciences, patent prosecution, medical devices, and cannabis. She can be contacted at  icheung@bereskinparr.com

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