A decision and a delay: PMPRB news for the new year

La version française de cette communication est publiée ici.

As a federal administrative body created under the Patent Act, the Patented Medicine Prices Review Board (PMPRB) has a mandate of ensuring that the prices of patented medicines sold in Canada are not “excessive”. In August 2019, the Governor in Council enacted significant amendments to the Patented Medicines Regulations. The PMPRB has once again announced a delay in the implementation of these amendments, this time to July 1, 2021. This last-minute notice to the pharmaceutical industry follows the decision of the Québec Superior Court of December 18, 2020, which upheld the constitutionality of the provisions of the Patent Act that establish the PMPRB and the majority of the recent amendments to the Regulations1.

What you need to know

  • Delay to July 1, 2021. Initially enacted in August 2019, the amendments to the Regulations will now come into force on July 1, 2021, delayed from January 1, 2021. The Guidelines of the PMPRB, which operationalize the Regulations, are also expected to take effect at the same time.
  • Québec Superior Court upholds constitutionality of PMPRB regime. In a constitutional challenge brought by seven pharmaceutical companies, the Québec Superior Court upheld the constitutionality of the PMPRB regime, finding that the price control of patented drugs falls within the federal government’s power over patents.
  • Mandatory economic factors and basket countries upheld; rebate reports out of scope. The Québec Court also upheld the constitutionality of the portions of the amendments to the Regulations that: 1) introduce new mandatory economic factors for the PMPRB to use in determining whether a medicine’s price is “excessive”; and 2) replace the basket of comparator countries for pricing tests. However, similar to the recent decision of the Federal Court2 (see our bulletin), the requirement for patentees to report rebates provided by the drug manufacturer was held to be beyond the scope of the federal patent power.
  • What’s next. The Federal Court decision is currently under appeal, and the parties may appeal the Québec decision.

Analysis

Delay in coming into force of the amendments to the Regulations

The final amendments to the Regulations were published on August 21, 2019. Since that time, court proceedings have been initiated by industry in both the federal and Québec provincial courts, challenging the amendments on various grounds. The implementation of the Regulations has now been delayed again, with the scheduled coming-into-force date now set for July 1, 2021.

This latest delay comes days before the previous coming-into-force date for the Regulations (January 1, 2021). The PMPRB has cited the COVID-19 pandemic as the reason for the delay. In its publication of the final Guidelines to operationalize the Regulations (see our bulletin), brief commentary on the treatment of COVID-19 related medicines was included to provide some assurance that price assessments for these medicines would not occur until the pandemic crisis had subsided. However, some stakeholders had commented that postponement of PMPRB reform is warranted as the drug industry focuses its efforts on development of life-saving medicines and vaccines.

The PMPRB has not given any indication that further changes to the “final” Guidelines (as published Oct 23, 2020) are forthcoming, and their validity is currently being challenged in the Federal Court3. Unless that challenge is successful, industry can expect the price tests of the published Guidelines to apply to sales of medicines after July 1, 20214.

Constitutionality of the PMPRB regime

The proceedings of the Québec Superior Court are not the first to have considered the validity of the PMPRB regime in 2020. While the Federal Court judicial review proceedings from earlier this year focused on the recent amendments to the Regulations, the Québec proceeding was a challenge to the entire PMPRB regulatory regime (as set out in the Patent Act and the Regulations) on the grounds that it exceeded Parliament’s legislative authority over patents, and was instead a matter of provincial jurisdiction over property and civil rights, over hospitals, and over matters of a merely local or private nature, including health.

As with any constitutional analysis, Justice Picard first considered the “pith and substance” of the disputed provisions, based on both their purpose and effects, and then turned to their classification.

Pith and substance of the Patent Act provisions

Justice Picard held that the purpose of sections 79-103 of the Patent Act was to authorize the PMPRB to ensure that prices of patented medicines are not “excessive”, but rather are fair and reasonable. She explained that Parliament left it to the PMPRB to determine whether a given price is “excessive” rather than defining this term in the legislation. In light of the parliamentary debates surrounding both the 1987 and the 1993 amendments to the Patent Act that resulted in the inclusion of sections 79-103, Justice Picard concluded that their purpose was also to ensure that the abolishment of compulsory licensing in 1993 did not lead to excessive prices. She held that the pith and substance of these provisions is to control the prices of patented medicines to ensure that they are below a certain threshold—which is to be determined by the PMPRB. With respect to the amendments to the Regulations, Justice Picard held that their purpose is to reduce the prices of patented drugs.

Classification of the Patent Act provisions

At the classification stage, Justice Picard emphasized overlap between federal and provincial powers, and noted that it would be impossible for Parliament to legislate in respect of patents without affecting matters of property and civil rights (a matter falling to the provinces). She conducted a detailed review of the prior jurisprudence on the constitutionality of the PMPRB and its predecessor compulsory licensing regime, noting that each of these regimes have been upheld by the courts. The industry plaintiffs had argued that, in each of those cases, the courts did not have the benefit of the extensive evidence that was before the Québec Court on how the PMPRB actually operates. The plaintiffs argued that, in practice, the PMPRB goes beyond regulating prices to ensure that there is no patent abuse and has instead turned into a detailed price control regime.

However, Justice Picard held that the evidence does not support a different conclusion from that drawn by previous courts. She ultimately held that the price control of patented drugs to prevent them from being sold at excessive prices has a logical, real and direct link with patents (as opposed to a purely incidental and indirect link), and does not unreasonably encroach on matters of exclusive provincial jurisdiction. She also noted that the Court cannot intervene in how Parliament chooses to regulate areas that are within its competence (here, to prevent drugs from being sold at excessive prices, whether by compulsory licensing or excessive price control). The impugned provisions of the Patent Act were therefore upheld.

Requirement to report rebates is unconstitutional

For the same reasons as above, Justice Picard upheld the amendments to the Regulations relating to the new factors and the new basket of countries. However, Justice Picard came to a different conclusion regarding new section 4(4)(a) and 4(4)(b) of the Regulations, which require patentees to provide the PMPRB with information about discounts and rebates that are subject to contractual terms negotiated with the provinces/payors and that are confidential. She held that by requiring this information, the PMPRB was intruding on the role of the provinces, who are the only ones that can “fix” prices, and interfering with the pricing process established by the provinces. In arriving at this conclusion, Justice Picard also relied on the prior decision of the Federal Court on rebate reporting from 20095.

This conclusion of the Québec Court regarding rebates aligns with that of the Federal Court in the judicial review of the Regulations launched by Innovative Medicines Canada (IMC)6. In that case, the Federal Court upheld the amendments to the Regulations, with the exception of the rebate reporting requirements, which were held to be outside the regulation making authority of the Patent Act. That decision is now under appeal and cross-appeal to the Federal Court of Appeal.

No decision regarding the Guidelines

Justice Picard declined to address the constitutionality of the new PMPRB Guidelines. She acknowledged the risk that the Guidelines could be used for price fixing as opposed to simply determining a ceiling over which a price would be considered “excessive.” However, she noted that the Guidelines are not binding, and held that if the PMPRB were to apply the Guidelines unconstitutionally by engaging in price fixing, then the appropriate remedy would be to bring a judicial review application of that decision in the Federal Court. Notably, the Guidelines are also the subject of a separate judicial review proceeding also launched by IMC in the Federal Court.

Practical implications

The industry plaintiffs had requested that the judgement be enforceable notwithstanding an appeal. Despite the government’s opposition, Justice Picard agreed, and held that the application of (4)(a) and 4(4)(b) of the Regulations is suspended pending any appeal.

Nevertheless, the Guidelines continue to contemplate reporting of rebate information in the context of a pricing investigation. Given so many moving parts, PMPRB will continue to be top of mind for all stakeholders as 2021 begins. We will continue to monitor and provide updates on these developments.

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1 Merck et al. v. Attorney General of Canada, Court File No. 500-17-109270-192

2 Innovative Medicines Canada v. Canada (Attorney General), 2020 FC 725

3 Innovative Medicines Canada et al. v. AGC, Court File No. T-1419-21

4 https://www.canada.ca/en/patented-medicine-prices-review/services/legislation/about-guidelines/guidelines.html

5 Pfizer Canada Inc. v. Canada (Attorney General), (2009) 347 F.T.R. 196 (FC)

6 Innovative Medicines Canada v. Canada (Attorney General), 2020 FC 725

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.

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