Six month delay for Canada’s new drug pricing rules

Over the last several years, there has been a great deal of uncertainty regarding Canada’s patented drug pricing regime. That uncertainty is set to continue for at least 6 more months as the coming-into-force of the amended Patented Medicines Regulations (Regulations) has been delayed from July 1, 2020 to January 1, 2021.

These changes to the Canadian drug pricing rules have been in development for several years. However, concerns that the proposed changes will discourage pharmaceutical companies from launching new products in Canada appear to have caused the federal government to hit pause to refine the government’s approach.

Timeline for reform

In late 2017, the federal government announced its intentions to substantially reform the regulation of patented drug prices in Canada, with the publication of draft amendments to the Regulations. The first draft indicated that the changes would come into force on January 1, 2019. After a period of consultation, final Regulations were published in August 2019, with a number of substantive changes including an amended implementation date of July 1, 2020.

The amended Regulations are intended to give the Patented Medicines Prices Review Board (PMPRB) new tools to monitor and control the Canadian price of patented medicines. While the Regulations provide the general framework of the pricing rules, the PMPRB relies on Guidelines that detail how the Regulations are implemented, including the procedures drug manufacturers follow to report to their drug prices to the PMPRB and the specific pricing tests the PMPRB uses to determine whether a drug is excessively priced. The delay between the publication of the final Regulations and the coming-into-force date was intended to give the PMPRB time to publish, consult on and finalize amended Guidelines, which apply the new Regulations.

Draft Guidelines were first published on November 21, 2019 for consultation, with an expected finalization date of February 2020. However, significant feedback from industry and other stakeholders, extended the consultation period and ultimately sent the PMPRB back to the drafting table. As late as April, the government’s public messaging indicated an intention to finalize revised Guidelines in advance of the July 1, 2020 date. By May, whether due to COVID-19 delays or the significance of the changes required, with no revised Guidelines in place, industry had begun to expect a delay in implementation. On June 1, with a month to go, the federal government officially announced the delay of the implementation date. 

Revised draft guidelines and consultation

A revised set of draft Guidelines was published on June 19, 2020, with a consultation period in place to July 20, 2020 for stakeholders to provide feedback. Depending on the volume of input the PMPRB receives on the amended draft Guidelines, it is possible that this consultation period could be extended as occurred with the initial consultation period.

Before the Guidelines are finalized, we may also see the results of at least one of two ongoing court challenges to the validity of the Regulations, the PMPRB and Canadian drug pricing controls. The Federal Court heard one challenge to the amended Regulations at the beginning of June and the presiding Judge has promised a decision by the end of July, if not sooner. The Federal Court judicial review application specifically challenges the validity of the amendments, and the government’s authority to make such amendments by regulation. If the challenge is successful, the status quo could be maintained with the pre-amendment Regulations remaining in place. A constitutional challenge to the validity of the Regulations as a whole, brought before the Quebec Superior Court by six innovative drug companies, remains ongoing with the hearing set for late September 2020.

Key provisions of the amendments

The amended Regulations include changes to the reporting obligations of drug manufacturers and the tests which the PMPRB uses to assess whether a drug is priced excessively, such that the PMPRB could order the price lowered. The notable changes, related to how the PMPRB assesses excessive pricing, include:

• Change to comparator countries:
• Under both the old Regulations and amended Regulations, when assessing whether a Canadian patented medicine is priced excessively, the PMPRB compares the Canadian drug price to the price of drugs in a basket of comparator countries. The amended Regulations revise the basket of comparator countries, most notably removing the United States and Switzerland from the basket. Given that the United States typically has the highest drug price of all comparator countries, its removal is expected to lower the price ceiling for almost all patented medicines. The number of comparator countries has also been increased from 7 (PMPRB7) to 11 (PMPRB11).
• PMPRB has justified removal of the United States on the basis of the lack of price regulation in that jurisdiction, while some stakeholders have commented that it is appropriate to keep the U.S. in the basket given that it is our closest trading partner and a country where any new medicine is typically launched.

• New factors:
• The amended Regulations also introduce a number of new factors the PMPRB can consider when assessing whether the price of a patented medicine is excessive. These new factors add to the factors already set out in section 85 of the Patent Act and 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 new factors are expected to decrease the Canadian price of patented medicines; in particular complex biologics and rare-disease treatments may be significantly impacted.

What’s next?

With finalized Guidelines still to come and the ongoing court challenges, it remains to be seen how this regime will be crystalized by the coming into force date of January 1, 2021.

The new Guidelines will be critical for understanding the impact that the Regulations will have on individual products and companies, and the Canadian marketplace at large. Under the current version of the Guidelines, the price tests applied to a patented medicine were in part based upon the level of therapeutic contribution, meaning that breakthrough products or those with substantive improvement over existing therapies would be entitled to a higher price ceiling than a “me too” product. This connection between therapeutic contribution and price was rational given the context of the regime within the Patent Act – i.e. presumably a greater degree of innovation and development is required for a breakthrough product, and thus these medicines may have a higher price tag but may not be considered to have an “excessive” price. Under the draft Guidelines proposed in 2019 and 2020, therapeutic contribution was largely absent. Instead, generally a new medicine would be classified as either Category I or II based on treatment costs and market size, and for medicines that exceed the thresholds (Category I), the list price and rebated price as offered to payors would be subject to PMPRB oversight. This movement away from therapeutic contribution as a test for “excessive” pricing is consistent with the past communications from PMPRB and its intent to shift the perspective on pricing to the viewpoint of the public health care system.

This price control regime hinges on patent protection, and the patent system exists to reward innovation. Of note, Canada continues to appear on the “Watch List” published by the Office of the United States Trade Representatives in its 2020 Special 301 Report as a country that may not offer adequate and effective intellectual property protections. Quoting from the report:

“Canada has drawn significant concern from stakeholders with changes set for implementation in 2020 that would dramatically reshape how the Patented Medicine Prices Review Board evaluates patented pharmaceuticals and sets their ceiling prices. If implemented, the changes may 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.”

The COVID-19 pandemic highlights the tension between affordable medicines and creating incentives for innovation. The international community is racing to develop vaccine candidates and investigate anti-viral treatments, and questions of priority and access are starting to surface. Canada may be in a difficult position if we are perceived as a country that does not invest in the life science industry when Canadians are desperately waiting for medicines to overcome this current crisis.

This article was originally published by The Lawyer’s Daily, part of the LexisNexis Canada Group Inc.

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