Drug price cooling in Canada’s election year: Release of final PMPRB regulations

Final amendments to the Patented Medicines Regulations have been announced by the Government of Canada giving the Patented Medicine Prices Review Board (PMPRB) new tools for monitoring and controlling the price of patented medicines in Canada. The government’s press release calls the amendments “the most significant reforms to the regulations since their introduction in 1987”, giving the PMPRB “the tools to protect Canadians from excessive prices and make patented medicines more affordable”.

What you need to know

  • The regulations come into force on July 1, 2020, introducing a variety of changes to the way drug prices will be regulated, including:
    • new factors for the PMPRB to consider in setting pricing, such as pharmacoeconomic value, for medicines with a Drug Identification Number (DIN) issued on or after August 21, 2019;
    • new reporting requirements relating to rebates provided to direct or indirect purchasers, or reimbursing bodies, such as public or private drug plans; and
    • assessment of excessive pricing on a comparison to a “basket” of 11 countries, which will not include the United States or Switzerland.
  • The PMPRB will issue implementation guidelines setting out procedures and details of price tests to be applied by Board staff. These are expected to be published for consultation in the fall of 2019 and finalized in February 2020.
  • The release of these regulations will undoubtedly be a talking point during the upcoming election which industry participants should watch carefully.

Differences between published and final regulations

In late 2017, the federal government circulated, for consultation, draft regulations that proposed a variety of changes to the way the PMPRB reviews and regulates excessive prices of patented medicines. These draft regulations were controversial, as they appeared to target both lower prices and greater transparency from the industry about pricing strategy. While the general content and concepts of the new regulations do not significantly diverge from the draft regulations that were published for consultation late in 2017,1 there are a few key differences.

Price regulatory factors

The regulations introduce new factors for the PMPRB to use to assess whether the price of a patented medicine is excessive. These include the pharmacoeconomic value of the medicine in Canada, the size of the market for the medicine in Canada and the gross domestic product (GDP) and GDP per capita of Canada. These factors will likely have the effect of decreasing the price of patented medicines.

Compared to the draft regulations, these new factors are slightly narrowed as they no longer contemplate an assessment of the pharmacoeconomic value of comparator medicines, or an assessment of the market size outside of Canada. Furthermore, these new regulatory factors and associated information reporting requirements will only apply to patented medicines for which DINs are issued on or after August 21, 2019—this distinction was not set out in the draft regulations. However, the regulations and reporting requirements are based on DIN-level sales, and so it appears that new strengths or dosage formats of currently marketed drugs which require new DINs would be subject to the new regulatory factors and information reporting requirements. The updated guidelines of PMPRB staff, expected in February 2020, may clarify this point.

Basket of comparator countries

Under the current regime, pricing in Canada is compared to a basket of seven countries (PMPRB7) and the Canadian price of a patented medicine can never be highest of the basket. The draft regulations proposed a new basket of 12 countries. The final regulations use a basket of 11 countries (PMPRB11), opting to exclude South Korea from the basket of 12 in the draft regulations published in late 2017. Neither the United States nor Switzerland, members of the PMPRB7, are included in the PMPRP11. The US typically has the highest price of the PMPRB7 and was removed on the basis that it does not have pricing policies aligned with the consumer protection mandate of the PMPRB. The PMPRB11 rules will apply to all patented medicines and the removal of the US and Switzerland is expected to cause a significant decrease on permissible ceiling prices.

Application to certain non-prescription drugs

The regulations reduce the reporting obligations for certain patented medicines, including generic drugs, veterinary drugs and most non-prescription drugs, with that information only required on request by PMPRB. These reduced reporting obligations do not apply to patented biologics, including vaccines and insulins. Although vaccines and insulins are available without a prescription, the public health significance of these medicines has been deemed to necessitate active reporting by PMPRB.

Impact

As was the case with the draft regulations, there are new reporting requirements relating to rebates provided to direct or indirect purchasers, or reimbursing bodies, such as public or private drug plans. These reporting requirements apply to all patented medicines (including current medicines with a DIN) and it is possible that these new reporting requirements will affect the pricing of current “high priority” medicines. The government does not expect the new reporting requirements to affect the pricing of current “low priority” medicines, but their net pricing will be used to test the net pricing of new medicines.

With the new regulations coming into force on July 1, 2020, drug manufacturers should work to update their procedures to implement the new reporting requirements. The fact that sales must now be reported after adjusting for the provision of confidential rebates to drug plans and other indirect purchasers will increase the regulatory burden on the industry. The new guidelines to be issued by PMPRB staff will have more detailed pricing tests and form requirements, and PMPRB has indicated that it will hold outreach sessions with industry to discuss reporting practices under the new regulations.

Amid widespread attention on topical issues surrounding health care, and just ahead of the federal election, the release of these regulations will undoubtedly be a talking point for the current government to demonstrate their commitment to lower drug costs and improve the public health care system. However, the innovator industry has expressed concerns. Innovative Medicines Canada (IMC), the innovator drug industry association in Canada, stated the regulations “will limit Canadian patients’ access to new innovative medicines and discourage investment in Canada’s life sciences sector for years to come”. Along this vein, the removal of the United States from the PMPRB11 is controversial given that many innovative medicines are developed in the United States.

In a 2018 Special Report of the Office of the United States Trade Representative in relation to IP, Canada was included as a country in the US watch list. The report stated that the proposed regulations will “…significantly undermine the marketplace for innovative pharmaceutical products, delay or prevent the introduction of new medicines in Canada and reduce investments in Canada’s life sciences sector”.

No doubt this will be an election issue, and one that industry participants should watch carefully.

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1 See Torys’ bulletin “Proposed PMPRB Regulations Published for Comment”.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

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