Drug price clarifications and complexities: Draft PMPRB guidelines published for consultation

Canada’s Patented Medicines Prices Review Board (PMPRB) has published draft guidelines for stakeholder consultation.

What you need to know

  • The PMPRB is seeking feedback on the guidelines until January 20, 2020. All written submissions will be published. It is anticipated that a final version of the guidelines will be published shortly thereafter.
  • The guidelines implement the recently amended Patented Medicine Regulations (regulations), which come into force on July 1, 2020, and describe the pricing tests that will be used by PMPRB staff to assess if a patented medicine is being priced excessively.
  • The guidelines, once finalized, will not be law but describe how price ceilings will typically be set by PMPRB staff.
  • The application of various provisions of the guidelines will differ depending on whether a medicine is classified by PMPRB as Category I (high risk of excessive pricing) versus Category II (lower risk of excessive pricing), and whether the medicine is grandfathered under the previous version of the regulations.
  • The draft guidelines also provide guidance to patentees on how to comply with the new filing requirements in the regulations.

Key aspects of the guidelines

Grandfathering

In accordance with the regulations, patented medicines which received a drug identification number (DIN) prior to August 21, 2019 (the date of publication of the regulations) are considered “grandfathered” medicines and are not subject to new regulatory factors and associated information reporting requirements that apply to medicines that receive a DIN after August 21, 2019.1 Patented medicines sold in Canada under the special access program (SAP) prior to August 21, 2019 will not be grandfathered because SAP medicines are not assigned a DIN. In addition, line extensions of existing medicines that are assigned a DIN after August 21, 2019 are not grandfathered even though the patented medicines on which the line extensions are based and existing before August 21, 2019 would be grandfathered.

As discussed in our previous bulletin, all DINs will be subject to international price tests based on a basket of countries called the PMPRB11. The PMPRB11 does not include the United States or Switzerland, which were used as international pricing comparators under the old regime. So, all patented medicines, whether Category I or II, or whether grandfathered or non-grandfathered, will be assessed based on the PMPRB11, which will likely require decreases in Canadian prices for many products.

Category I vs. Category II

Category I medicines are subject to price tests that are not applicable to Category II products. A Category I medicine is defined by the guidelines as having: (a) a 12-month treatment cost of greater than 50% of GDP per capita (based on dosing set out in the product monograph),2 or (b) estimated or actual annual revenues that exceed $25M. The latter threshold is subject to adjustments at least every five years. The federal government expects the majority of patented medicines to fall into Category II.

For Category I medicines, patentees will be required to file cost utility analyses conducted by the Canadian Agency for Drugs and Technologies in Health (CADTH) and l’Institut national d’excellence en santé et services sociaux (INESSS). The guidelines state that the PMPRB will not duplicate the pharmacoeconomic analysis undertaken by CADTH and INESSS. Category I medicines would then be subject to a comprehensive review under the new factors to determine whether their price is potentially excessive.

Price review process

After determining whether a medicine has been grandfathered, PMPRB staff would perform price review in accordance with the following process:

  1. When a new patented medicine is launched in Canada, an interim maximum list price (iMLP) will be established as the median international list price (MIP) within the PMPRB11 where the patentee is selling the same medicine. The Canadian list price must not be greater than the iMLP.
  2. The iMLP is recalculated annually and will apply until the earlier of: (a) three years from the date that the medicine was launched, or (b) the date upon which the patentee has filed price information for at least five of the PMPRB11 countries. At this time, a maximum list price (MLP) will be set and will be the lower of the MIP or the median domestic Therapeutic Class Comparison (dTCC). The MLP will not be set lower than the lowest international price (LIP). In sum, the maximum price for the medicine will only be based on comparators sold in Canada when the price of the Canadian comparators is lower than the median international price of the medicine and will be subject to a price floor set by the lowest price within the PMPRB11.
    • Where list prices vary from province to province, or where there are multiple reported list prices internationally, PMPRB will use the lowest available price in its calculations.
    • Where the MLP is based on therapeutic comparators, there may be some room for negotiations with PMPRB staff on the appropriate comparator.
  3. For Category I medicines, a maximum rebated price (MRP) is also established, based upon the pharmacoeconomic value and market size for the medicine. The MRP reflects “non-transparent” rebates and discounts that are provided by the manufacturer, as opposed to the MLP which is based upon the public list price. The MRP has regard to the marginal cost of a quality-adjusted life year (QALY) within Canada’s health system (i.e., the point at which spending on a new health technology for one set of patients will result in the loss of one QALY for another set of patients). The MRP will then be the price at which the patented medicine’s cost per QALY would be equivalent to the threshold of C$60,000 per QALY, subject to additional adjustment due to market size (e.g., if annual revenues at the MRP price would exceed $25M). Category I medicines that treat conditions with very low prevalence in Canada, would be allowed a 50% percent increase in the MRP, if annual revenues fall within a $12.5M average annual affordability threshold.3
  4. Category II medicines, regarded as medicines at lower risk of being excessively priced, would face relatively less oversight. Pricing compliance for Category II medicines would be assessed solely based on MLP (not MRP).
  5. Under the guidelines, patentees would have flexibility to vary their pricing from year to year, provided it remains below the MLP and MRP, as applicable.
  6. Grandfathered medicines are subject to an MLP test but not the MRP test. The MLP for grandfathered medicines is the lower of the MIP for the PMPRB11 countries for which sales data has been reported, and the maximum ceiling price as calculated under the previous version of the guidelines (the federal government comments that the MIP is considered to be consistent with Canada’s responsibility to pay its fair share for global pharmaceutical innovation). The MLP may also be adjusted by CPI in certain circumstance

    Because of current limitations in data capture and reporting on volume per indication, the PMPRB considered and rejected indication-specific pricing. The draft guidelines adopt the approach of a single price ceiling across multiple indications.

Reassessment

The guidelines contemplate ongoing reassessments for non-grandfathered patented medicines, meaning patented medicines could move from Category II to Category I during their lifecycle, and the price ceilings could be revised in various situations. For example, approval of a new indication, an increase in sales over the estimated threshold or an update to a cost-utility analysis can trigger a reassessment. In addition, there is a reassessment procedure for patented medicines that may warrant a higher or lower ceiling because of changes in market conditions.

For all patented medicines, if the MLP is set by the MIP and over time, the MIP is lower than the MLP by more than 10%, the MLP will be reset. Conversely, if the MIP exceeds the MLP by more than 10%, the MLP may be adjusted based on actual lagged CPI, as long as the MLP does not exceed the MIP.

When the price ceilings are altered, patentees will be given notice by PMPRB staff and will be required to adjust pricing by the end of the subsequent reporting period to avoid an investigation.

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 the 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 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. The guidelines state that they are not binding on staff, hearing panels or patentees.

The guidelines remind patentees that Canadian patents that are not eligible for listing on Canada’s Patent Register under the Patented Medicines (Notice of Compliance) Regulations may nonetheless “pertain to” medicines sold in Canada and trigger PMPRB jurisdiction.

Confidentiality

The guidelines expressly provide that information or documents provided to the PMPRB (e.g., revenues, average price or net revenues and associated discounts and rebates) or in any proceeding relating to excessive prices is privileged and cannot be disclosed to the public without authorization of the patentee, unless such information has already been disclosed or is within other exceptions outlined in the Patent Act.

What’s next

While some updates to the guidelines may be made based on stakeholder feedback during the consultation phase, it is expected that the new approach to price review will not be materially altered in the final version.

As noted above, the regulations come into force on July 1, 2020, and so it is expected that the final guidelines will be published in spring of 2020. All patentees will be subject to the requirements of the final guidelines.

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1 For further information, please see our bulletin: “Drug price cooling in Canada’s election year: Release of final PMPRB regulations”.

2 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.

3 Guidelines set out a threshold for a rare disease or disorder as any disease that is found in less than 1 in 2,000 Canadians.

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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