Price Regulation of Patented Medicines in Canada Presentation to the First Pan-American Seminar on the Economic Regulation of Pharmaceuticals Brasília, Brazil March 17, 2009

Outline Introduction Division of Responsibilities for Health Care and Pharmaceuticals in Canada Patented Medicine Prices Review Board (PMPRB) Origins Mandate Jurisdiction Price Regulation Guidelines Review Reporting on Key Trends

Health Care System Federal: Provincial: Shared: Canada Health Act (principles of public administration, comprehensiveness, universality, portability, and accessibility) Canada Health Transfer ($24 billion in cash and $13.6 billion in tax transfers in 2009-10) Health services to special populations (e.g., First Nations, veterans) Provincial: Administration and delivery of insured primary health care through physicians and hospitals Public health insurance plans and some supplemental health benefits Shared: Public health (health promotion and prevention)

Pharmaceuticals Federal: Provincial: Shared: Health Canada reviews the safety, efficacy and quality of drug products and approves them for sale and use under the Food and Drugs Act Patented Medicines Prices Review Board (PMPRB) ensures prices of patented medicines sold in Canada are not excessive Provincial: Provision of public drug plan benefits to provincial populations Administration of provincial drug formularies Shared: Canadian Agency for Drugs and Technologies in Health (CADTH) conducts Common Drug Review (CDR) Evidence-based clinical and pharmacoeconomic reviews of new drugs and new indications for old drugs results in recommendation on listing

PMPRB – Origins Created in 1987 as part of reforms to the federal Patent Act Consumer protection pillar Price controls to balance enhanced patent protection Industry commits to invest 10% of sales in research and development Arms-length body in the Federal Health Portfolio 5 person independent panel of Governor-in-Council appointees Accountable to Parliament through the federal Minister of Health Minister can seek policy advice but cannot interfere in decisions of the Board Quasi-judicial tribunal Remedial orders provided for in the Patent Act carry the force of the Federal Court

PMPRB – Mandate Regulatory: To ensure that prices charged by manufacturers for patented medicines are not excessive, thereby protecting consumers and contributing to the Canadian health care system. Reporting: To report on pharmaceutical trends and on the R&D spending by pharmaceutical patentees, thereby contributing to informed decisions and policy making. Key Principles: Openness, fairness, transparency, timeliness, efficiency

PMPRB – Jurisdiction Authority to review prices charged by patentees (factory-gate price) for: Prescription and non-prescription patented drugs sold in Canada to wholesalers, hospitals, pharmacies or others, for human and veterinary use The price of each patented drug product, including each strength of each dosage form, sold in Canada, at the level of the Drug Identification Number (DIN).

PMPRB – Jurisdiction No authority over: Prices of non-patented drugs Prices charged at the retail level to individual consumers Setting prices

PMPRB – Legislated Pricing Factors Patent Act sets out factors to be considered by the Board in determining whether a medicine is being or has been sold at an excessive price: The price of the medicine; The prices of other medicines in the same therapeutic class; The prices of the medicine and other medicines in the same therapeutic class in countries other than Canada; and, Changes in the Consumer Price Index

Patented Medicines Regulations Identify the specific reporting requirements of patentees Set out the seven comparator countries used in the price review: France, Germany, Italy, Sweden, Switzerland, United Kingdom and United States Price and sales in Canada to be filed for each class of customer (hospital, pharmacy, wholesaler, other) in each province and territory

Excessive Price Guidelines Under the Act, the Board can establish price guidelines In consultation with the provinces, consumers and the industry Used by Board Staff to conduct price reviews/investigations Provide transparency and predictability to patentees and other stakeholders Not binding on Board in a hearing

Scientific Review Purpose – To determine The primary indication/use of the new medicine, and dosage regime The category (i.e., breakthrough/substantial improvement; provides modest, little or no improvement over other medicines for same indication; line extension) Therapeutically comparable medicines, and their respective comparable dosage regimes

Price Review Application of price tests Reasonable Relationship Association between strength of the medicine and price Therapeutic Class Comparison Price of the drug compared to that of clinically equivalent drugs sold in same therapeutic class at non-excessive price International Price Comparison Price of the drug compared to that of the same dosage form and strength of the drug sold in countries listed in the Patented Medicines Regulations Highest International Price Comparison Canadian price cannot be the highest in the world (i.e., 7 comparator countries)

Introductory Price Review Drug Categorization

Price Increases for Existing Drugs Consumer Price Index (CPI) adjustment methodology allows the lower of: Price three years ago adjusted for cumulative change in the CPI; One year “cap” – equal to 1.5* times the forecast change in the annual CPI Again, Canadian price can never be the highest among comparator countries Even if allowed by CPI methodology * In periods of high inflation (over 10%), limit is 5% more than the forecast change in CPI

Investigations Where price appears to exceed the Guidelines, patentee given opportunity to make further written submissions to substantiate price Meetings of patentee and Board Staff take place to discuss material submitted May result in revisiting of science (i.e., appropriate comparators)

Possible Outcomes of Investigations Price not excessive and investigation closed Price determined to be excessive under the Guidelines Patentee given opportunity to provide a Voluntary Compliance Undertaking (VCU) to reduce its price and repay excess revenues OR Board Staff refers the matter to the Chairperson, who decides whether it is in the public interest to issue a Notice of Hearing Note: Even if hearing called, Board Staff still available to negotiate VCU on a parallel track with the Hearing process

Separation of Investigation and Decision-Making Functions “Conflict Wall” between Board Staff and Board/Panels Essential to ensure Board remains unbiased Board never informed of status of investigations of particular drugs Chairperson decides whether to call Hearing Board Staff and Patentees both “parties” before Hearing Panel Any communication by one party to the Board served on the other party at the same time

Hearings 11 hearings initiated since January 2006 Adderall XR; Airomir1; Apotex; Concerta; Copaxone; Penlac; Quadracel and Pentacel; Risperdal Consta1; Strattera; Thalomid / Celgene; Zemplar1 One older ongoing hearing (Nicoderm), initiated in 1999 1 Resolved through VCUs

Voluntary Compliance Undertakings (VCUs) 47 VCUs approved to-date – price reductions and offset of excess revenues Over $33M in total since 1993 In 2007 and 2008, a total of nine VCUs Three were submitted in the context of a hearing: Airomir: payment of excess revenues of $485,498.58 Risperdal Consta: price reduction and payment of excess revenues of $ 4,386,172.99 Zemplar: price reduction and payment of excess revenues of $58,741.67 One following the issuance of a Board Order: - Dovobet: $870,425.68 (for 2006 period) Denavir: offset excessive revenues of $61,021.80 Forteo: offset excessive revenues of $333,629.25 Lantus: price reduction and payment of excess revenues of $694,239.50 OctreoScan: price reduction and payment of excess revenues of $387,181.87 Vaniqa: payment of excess revenues of $70,860.59

Current Guidelines Review Initiated in 2005 due to changing environment: Developments within the pharmaceutical industry – globalization, mergers, partnerships Changes in nature of new patented medicines – fewer breakthroughs, more incremental innovation High (over 90%) but declining voluntary compliance with current Excessive Price Guidelines Third party reports to PMPRB of significant price increases Shifting regimes: in Canada and internationally Health Canada: progressive licensing Certain Provinces-Territories: changes in legislation, reimbursement and listing agreements Internationally: U.S. Medicare, Part D; UK – move away from PPRS

Objectives of Review To ensure that Excessive Price Guidelines remain relevant and appropriate Concerns since 2006 regarding Categorization of new medicines don’t adequately reflect incremental innovation Introductory prices seen as cost-driver The review has involved extensive consultation with the PMPRB’s stakeholders Consumer groups, industry, and federal and provincial health ministries

Review Considerations In reviewing / amending the Guidelines, the Board must consider: Consistency with the statutes Public / consumer interest focus Impact on patentees Transparency and predictability Overall timeliness

Key issues being considered Clarification of mandate Four levels of therapeutic improvement and associated price tests Any market price reviews (national, class of customer, province and territory) at and following introduction DIP methodology following elimination of benefits Clarifying policy on acceptable measures and timelines for offsetting excess revenues Appropriate use of prices of generic drugs in price tests Publication of prices

Next Steps Release of revised Notice and Comment document in late March 2009 Final round of consultations with industry, provincial and territorial governments, consumer groups in April 2009 Board decisions on revised Guidelines in May 2009 Publication of proposed Guidelines and outreach with stakeholders in June 2009 Implementation of new Guidelines in July 2009

Reporting Mandate Annual Report Pursuant to sections 89 and 100 of the Patent Act Provided to Minister of Health on May 31 for tabling in House Includes overview of: PMPRB activities Price trends – patented and all medicines R&D expenditures by patentees National Prescription Drug Utilization Information System (NPDUIS) Reports Non-Patented Prescription Drug Prices (NPPDP) Reports Quarterly NEWSletter and PMPRB Web site

Highlights from Annual Report 2007 Sales of patented drugs increased by only 3% to $12.3 billion Smallest increase since 1994 Patented drugs account for 66% of all drug sales in Canada At an aggregate level, patented drug prices in Canada decreased by 0.1% – decrease at hospital level offset increases at pharmacy and wholesaler levels In relation to comparator countries, Canadian prices at 1.01% of the Medial International Price (MIP) R&D-to-sales ratio in Canada up to 8.3% (all patentees) and 8.9% (Rx&D members)

Prices in Comparator Countries Five of the seven comparator countries saw price increases in 2007; only Switzerland and France, like Canada, experienced a small decline In 2007, Canadian prices appeared to be slightly higher than all countries except the US, a main cause expected to be the appreciating Canadian dollar As a result, foreign Median International Prices dipped slightly below those in Canada for the first time since 1993

R&D Expenditure in 2007 Patentees reported total R&D expenditures of $1.32 B in 2007, an increase of 9.5% from 2006 The R&D-to-sales ratio increased: All patentees: 8.3% - up from 8.1% in 2006 Rx&D members: 8.9% - up from 8.5% in 2006

Contact Information Gregory Gillespie Director, Policy and Economic Analysis Patented Medicine Prices Review Board Box L40, 333 Laurier Avenue West, Suite 1400 Ottawa, Ontario, Canada, K1P 1C1 Tel: +1 (613) 952-3305 gregory.gillespie@pmprb-cepmb.gc.ca