Delay in Canada’s drug pricing reforms to 2021

The coming-into-force of the amended Patented Medicines Regulations (Regulations), originally set for July 1, 2020, has now been delayed to January 1, 2021. Last week, the Patented Medicines Prices Review Board (PMPRB) published a second set of draft guidelines (Guidelines¹) for stakeholder consultation in response to significant feedback that was received on the first draft in 2019.

What you need to know

• Until July 20, 2020, the PMPRB is seeking feedback on the draft Guidelines, which describe the price ceilings that will set by PMPRB staff for patented medicines. All written submissions will be published.
• The Regulations as they were published on August 21, 2019 will be in force effective January 1, 2021, and patentees will be expected to report under the final Guidelines at that time.
• Once finalized, the Guidelines will be just that—guidelines. They do not have the force of law. That said, the Guidelines are indicative of how PMPRB staff will interpret the Regulations. The Guidelines are intended to provide transparency and predictability to patentees.
• The PMPRB has jurisdiction over a medicine sold in Canada if there is a Canadian patent for an invention that is “intended or capable of being used” for that medicine. The amended Regulations do not alter the definition of a patented medicine, but rather add factors that will be considered by the PMPRB when assessing if a price is “excessive” and require the submission of new information to PMPRB for the purpose of this assessment.
• The PMPRB regards the changes to the draft Guidelines to be “significant” and responsive to stakeholder feedback.
• The revised draft Guidelines continue to classify patented medicines as Category I (high risk of excessive pricing) versus Category II (less risk of excessive pricing), with Category I patented medicines being subject to regulation of both list and rebated price.
• The revised draft Guidelines differentiate between Category I patented medicines having a high annual treatment cost versus large annual market size in the application of pricing tests, and provide further details on regulation of “Grandfathered” patented medicines approved before August 21, 2019, line extensions of such Grandfathered medicines, and “Gap” patented medicines approved between August 21, 2019 and January 1, 2021.

Updated price review process

Categories of patented medicines

The draft Guidelines define four categories of patented medicines:

• Grandfathered patented medicines are those that were approved by Health Canada and assigned a Drug Identification Number (DIN) prior to August 21, 2019.
• Line Extensions of Grandfathered patented medicines are new dosage forms and strengths of Grandfathered patented medicines, and for which a DIN was assigned on or after August 21, 2019.
• “Gap” patented medicines are those for which a DIN was assigned on or after August 21, 2019 and whose first sale in Canada took place prior to January 1, 2021.
• New patented medicines are those issued a DIN on or after January 1, 2021.

Under the Regulations, Grandfathered patented medicines are not subject to new regulatory factors² and associated information reporting requirements. The draft Guidelines clarify that Grandfathered patented medicines as well as Gap patented medicines and Line Extensions will be subject to a “maximum list price” (MLP) but will not be regulated by a “maximum rebated price” (MRP).

As discussed in our previous bulletin³, all DINs in all categories outlined above will be subject to international price tests based on a basket of countries called the PMPRB11 which is established under the Regulations. The PMPRB11 does not include the United States or Switzerland, which were used as international pricing comparators under the previous rules.

Price review process for new patented medicines

When a new patented medicine is launched in Canada, an interim maximum list price (iMLP) will be established. The iMLP will be the median international ex-factory list price (MIP) within the PMPRB11 where the patentee is selling the same medicine. The Canadian ex-factory list price must not be greater than the iMLP.

• If a patentee has not filed international price information for the PMPRB11, the iMLP will be set by the highest price of the comparator medicines comprising the domestic Therapeutic Class Comparison (dTCC).
• The iMLP is calculated once and will apply for an interim period until the earlier of: i) 3 years from the date that the patented medicine is launched; or ii) the date upon which the patentee has filed price information for at least 5 of the PMPRB11.
• If the patentee files information for at least 5 of the PMPRB11 at introduction, the iMLP does not apply and instead the MLP is set immediately.

Following the interim period, the MLP is set by the MIP, or by the top of the price of the comparator medicines comprising the dTCC, if the patentee has still not filed in at least 5 of the PMPRB11. If there are no domestic therapeutic class comparators for the medicine, the MLP is set at the median of the international Therapeutic Class Comparison (iTCC). The Canadian ex-factory list price must not be greater than the MLP, and if the MLP is lower than the iMLP that was set during the interim period, patentees will be granted one reporting period to lower the Canadian list price to the MLP before an investigation is triggered.

New patented medicines that are classified as Category I are subject to an MRP in addition to an MLP. A Category I patented medicine is one having: i) a 12-month treatment cost of greater than 150% of GDP per capita⁴ (up from 50% GDP per capita in the first draft of the Guidelines); or ii) estimated or actual annual revenues that exceed C$50 million (up from C$25 million in the first draft of the Guidelines). All other new patented medicines are Category II and, even if they would otherwise meet the Category I criteria, all new patented biosimilars and patented generic medicines are also treated as Category II.

The establishment of the MRP follows a differ procedure depending on whether the patented medicine has been classified as Category I based on high annual treatment costs (i.e., a patented medicine costs more than about C$89,818 annually) versus market size (i.e., annual revenues of a patented medicine exceed C$50 million) and is adjusted as the market size grows.

• For patented medicines with a high annual treatment cost:
  • For sales where the annual market size is less than C$12 million, the MRP is equal to the MLP (i.e., there is no regulation of the rebated price for the time period where annual revenues are less than C$12 million).
  • For sales between C$12 million and C$50 million, the MRP is calculated by taking into account the therapeutic criteria level of the medicine based on a pharmaceutical value threshold and would be a maximum of 50% of the MLP.
  • For sales exceeding C $50 million, the MRP is additionally subject to a market size adjustment of a range of 25-35%.

• For medicines with a high market size (annual revenues of patented medicine exceeding C$50 million):
  • For sales where the annual market size is less than C$50 million, the MRP is equal to the MLP.
  • For sales above C$50 million, the MRP is set as the median of the prices of the medicines comprising the dTCC, and an additional 25-35% market size adjustment may apply.

For Category I patented medicines, patentees are expected to comply with MLP within one reporting period and to comply with MRP within two reporting periods.

Category II patented medicines would be assessed solely based on MLP (not MRP).

For patented medicines with more than one approved indication, PMPRB staff will determine the relevant indication for assessment of MRP and MLP as follows:

• For Category I medicines, the indication triggering the Category I classification criteria for annual treatment cost will be the relevant indication.
• For Category I medicines where more than one, or no, indications meet this threshold, the indication treating the condition with the highest prevalence or estimated use will be the relevant indication.
• For Category II medicines, the indication treating the condition with the highest prevalence or estimated use will be the relevant indication.

Price review process for other medicines

For Grandfathered and Line Extension patented medicines, the MLP is set at the lower of: i) the highest international price (HIP) of the PMPRB11; or ii) the patented medicine’s ceiling under the former Guidelines (i.e., those which applied prior to the issuance of the new Guidelines).

For Gap patented medicines, the MLP is set at the lower of the MIP or the ceiling under the former Guidelines.

For Line Extension patented medicines, patentees are expected to comply with the MLP within one reporting period. For Grandfathered and Gap patented medicines, patentees are expected to comply with MLP within two reporting periods.

Reassessment

New patented medicines may be subject to a reassessment during their life cycle if they are approved for a new indication, if sales exceed the market size threshold (for Category II), if cost-utility analyses are updated (for Category I), or if in two consecutive subsequent periods, the prevailing MIP is lower than the MLP by more than 10%. A Category II medicine may move to a Category I medicine and therefore be subject to an MRP.

For Grandfathered, Line Extension and Gap patented medicines, if in two consecutive subsequent periods, the prevailing HIP is lower than the MLP, the MLP will be reset to the HIP. If in two consecutive subsequent periods, the prevailing MIP is lower than the MLP by more than 10%, the MLP will be reset to the MIP.

Investigations

The process for investigations and their outcomes remains substantially similar under the Guidelines. As under the old regime, an investigation is triggered when the price of any DIN of a patented medicine appears to be more than 5% above the price ceiling, the cumulated potential excess revenue exceeds $50,000 or a complaint about the patented medicine is received by PMPRB. If PMPRB staff determines that the price of the patented medicine is excessive, the patentee will be asked to enter into a Voluntary Compliance Undertaking (VCU) whereby the price of the patented medicine is reduced and excess revenues are offset by a payment (typically to the federal government). If a VCU is not reached, the matter may proceed to a hearing.

For patented biosimilars, patented generic medicines, patented medicines for veterinary use and over the counter patented medicines, an investigation will only be commenced if a complaint is received.

The updated Guidelines make reference to drugs approved under “COVID-19” interim measures, indicating that any medicine on Health Canada List of Drugs for Exceptional Importation and Sale will not be subject to a pricing investigation unless a complaint is received from the federal or provincial/territorial governments.

Confidentiality

The draft Guidelines do not change the PMPRB’s position on confidentiality. Information or documents provided to the PMPRB relating to pricing is privileged and cannot be disclosed to the public without authorization, unless such information has already been disclosed or is within other exceptions outlined in the Patent Act or the Access to Information Act.

What’s next

The PMPRB is seeking feedback on the draft Guidelines until July 20, 2020, and stakeholders are encouraged to submit written comments. All written submissions will be published on the PMPRB website. The PMPRB is also holding online consultations over the next few weeks.

While some updates to the Guidelines may be made based on stakeholder feedback during the 30-day consultation phase, changes will likely be minimal given that PMPRB has indicated this second draft of the Guidelines includes “significant changes … in response to [previous] feedback”. We note that the PMPRB has also published a “backgrounder document”⁵, to provide context to changes in the draft Guidelines and summaries of the feedback it received on the 2019 draft Guidelines.

It is expected that the final Guidelines will be published in the fall of 2020, in advance of the January 1, 2021 implementation date.

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¹ A copy can be found here.

² For further information, please see our bulletin of August 14, 2019: Drug price cooling in Canada’s election year: Release of final PMPRB regulations. These factors include the pharmacoeconomic value in Canada of the medicine; the size of the market for the medicine in Canada; and the gross domestic product in Canada and the gross domestic product per capita in Canada.

³ Ibid

⁴ Canada’s GDP per capita (2018) is reported by the Government of Canada to be C$59,879 (approximately US$45,000). Learn more here.

⁵ Available here.