1. 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

2. 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

3. 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 )
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)

4. 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

5. 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

6. 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

7. 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).

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

9. 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

10. 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

11. 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

12. 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

13. 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)

14. Introductory Price Review
Drug Categorization

15. 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

16. 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)

17. 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

18. 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

19. 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

20. 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, (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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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)

29. 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

34. 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: % - up from 8.1% in 2006
Rx&D members: 8.9% - up from 8.5% in 2006

36. 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)