“This Court does not sign blank cheques”: Federal Court of Appeal reverses Canada’s Patented Medicine Prices Review Board, restricting Board’s price control mandate

On July 29, 2021, the Federal Court of Appeal released its decision in Alexion Pharmaceuticals v. Canada (Attorney General), 2021 FCA 157 (Alexion) relating to the orphan drug Soliris¹. In quashing a decision of the Patented Medicine Prices Review Board (the Board), the FCA clarified the Board’s mandate, restricting it to the regulation of patent abuse and excessive pricing. The decision signals that, following recent changes to administrative law introduced by the Supreme Court of Canada in Vavilov v. Canada (Minister of Citizenship and Immigration), 2019 SCC 65 (Vavilov), administrative bodies will be held to a higher standard for justifying their decisions.

What you need to know

• The Court of Appeal quashed the Board’s decision, that the price of Soliris was “excessive”, and remitted the question back to the Board for re-determination.
• The SCC’s 2019 ruling in Vavilov marked a shift in administrative law in Canada, including the outcome of this appeal. In quashing the Board’s decision, the Court of Appeal made strong statements on the need for the Board to provide clear reasons to justify its decisions.
• The Board had grounded its decision in a consumer protection mandate to regulate prices and ensure they are reasonable. The Court of Appeal disagreed, restricting the Board’s mandate to regulating “excessive” pricing and preventing patent abuse, consistent with the statute giving the Board its jurisdiction.
• Departing from its own guidelines, the Board had adopted the lowest international price of the medicine to determine whether the price was excessive. The Court of Appeal found that the Board failed to provide sufficient reasons to justify a departure from its ordinary practice, as articulated in the guidelines. The Board’s “thin and impoverished” explanation did not, in the Court’s view, satisfy the post-Vavilov standard for reasonableness.
• As is the case for Soliris, even a very expensive medicine treating an ultra-rare condition requires a reasoned explanation from the Board before it can conclude that its price is “excessive.”

The Board

Created by Parliament in 1987, the Board is a quasi-judicial body that regulates the prices that patentees can charge for patented medicines. The Patent Act authorizes the Board to determine “whether a medicine is being or has been sold at an excessive price in any market in Canada” based on certain factors set out in the Act. The Act specifies that one factor in determining whether a price is “excessive” is the price at which the medicine is sold in certain other countries (which are specified by regulation). In recent years, there has been controversy over the scope of the Board’s mandate and whether, in addition to preventing abuse of the patent monopoly, the Board has a broader consumer protection mandate.

The Court of Appeal’s decision in Alexion

Alexion Pharmaceuticals Inc. developed, markets and manufactures a patented medicine called Soliris, which treats life-threatening and ultra-rare blood-related disorders. Soliris, an orphan drug, was regarded as a breakthrough drug and priced accordingly, and its price was benchmarked by Alexion to the median international price set out in the Board’s guidelines. The price of Soliris has never been adjusted; however, due to exchange rate fluctuations, the Board took the position that the price of Soliris exceeded the highest international price. In 2017, the Board concluded that the price of Soliris in Canada was excessive and ordered Alexion to make a payment to the Crown in order to offset past excess revenues. Rather than conclude that the excessive price was that which exceeded Soliris’ highest international price, the Board assessed excessiveness using a novel lowest international price test. However, when it came to remedy, the Board based the back-payment of excessive revenues on the highest international price.

The Federal Court dismissed Alexion’s application for judicial review and upheld the Board’s decision. However, the Federal Court of Appeal reversed, finding the Board’s decision unreasonable. There are five key issues in the case.

1. Courts will not defer to the Board without a reasoned explanation for its decision

The Federal Court had found that the Board’s decision was reasonable because it was entitled to significant deference. The Federal Court of Appeal reviewed Vavilov and noted that while Vavilov re-affirms much of the Court of Appeal’s existing jurisprudence, it did change the law substantially by requiring that reviewing courts be able to discern a reasoned explanation for the administrator’s decisions. If the decision lacks a reasoned explanation, it is deemed to be unreasonable and must be quashed.

That is precisely what occurred here. The Federal Court of Appeal found that the reasons of the Board raised real concerns about the substance of the decision. For example, the decision suggested that the Board exceeded its permissible statutory mandate by regulating the reasonableness of pricing rather than preventing abusive pricing (excessive pricing made possible by the abuse of monopoly power given by a patent). Justice Stratas, who authored the decision for the unanimous Court of Appeal, observed that in failing to adequately justify its decision, the Board may have been “trying to reach an outcome that on the facts and the law was not reasonably open to it.”

The Federal Court of Appeal sent the matter back to the Board to redetermine in “an open-minded, non-tendentious way—to examine the evidence, interpret the legislation, fairly apply the legislation to the evidence and ensure that a reasoned explanation for its outcome can be discerned.”

2. Section 85 sets out a test

The Federal Court of Appeal emphasized that the Board’s analysis should start with the law. While the Federal Court suggested that the Board “is not required to apply any defined test” and that “there is no correct test,” the Federal Court of Appeal was adamant that there is a test set out in section 85 of the Patent Act. For the Board’s decision to be reasonable, the Board was required to interpret it, in accordance with its text, context and purpose, and follow it.

Alexion argued that requiring Soliris to be below the price in seven comparator countries was contrary to the framework of section 85 because it exalted some factors (e.g., international prices—or one international price) above all others and read out certain factors entirely (e.g., consumer price indexing).

The Federal Court of Appeal said the Board was obfuscating in its decision, making it impossible for a reviewing court to know whether the Board has helped itself to a power it does not lawfully have—thus putting itself beyond review, “asking the Court to sign a blank cheque in its favour.” But Justice Stratas reminded the Board that a reviewing court “does not sign blank cheques.” Here, because the Board never engaged in an analysis of the text, context and purpose of section 85 of the Patent Act, the Court could not understand why its “unprecedented use of the lowest international price” was warranted.

3. Section 85 must be interpreted in accordance with the Board’s mandate: preventing patent abuse, not protecting consumers

 The Federal Court of Appeal noted its fundamental concern that the Board misunderstood the mandate Parliament had given to it under section 85. The Board said that it has a consumer protection mandate to regulate prices in order to ensure that they are reasonable. The Federal Court of Appeal flagged several signs that the Board was pursuing a general price regulation mandate—for example, the Board considered: (i) the effects of pricing on provincial budgets (a factor not listed in section 85); (ii) the fact that Soliris had been under scrutiny in Ireland and New Zealand (countries not set out in the regulations); (iii) commentary that the price of Soliris seemed exorbitant, astronomical and unreasonable (subjective facts that, without more, cannot lead to a conclusion of excessiveness); and (iv) Canadian prices tend to be cheaper than international prices (a point lacking any explanation).

The Court of Appeal disagreed with the Board’s view of its mandate. Under the Patent Act, the Board is tasked with determining whether a patented medicine is sold at an “excessive price” in a Canadian market. The Court noted that the Patent Act aims at a balance between incentivizing research and development of patented medicines and their introduction into Canada. “General price control is no part of the exercise.” To trigger the Board’s remedial powers, prices must therefore be “excessive”, not simply “unreasonable” or insufficiently protective of consumers. To whatever extent these two mandates are not different, the Federal Court of Appeal noted that the Board’s decision lacks an explanation as to why: “Indeed, nowhere does [the Board] grapple with the concept of ‘excessive pricing’ or show that it had to deal with this issue of legislative interpretation as a key part of this case.”

4.The use of price comparators and Board guidelines 

The Board publishes guidelines to assist itself and regulated parties in applying its statutory mandate under the Patent Act. Under those guidelines, the highest international price is normally the trigger in determining whether a price is excessive (the median international price is used in making comparisons under the guidelines). However, in this case, the Board departed from that practice, relying instead on the lowest international price. Further, the Board concluded that, to be non-excessive, the price for Soliris would have to be lower than the price of Soliris in all other seven comparator countries. This was the first time that the Board had ever imposed that requirement. The Court of Appeal determined that, while the Board (and other administrative actors) are allowed to depart from these kinds of guidance documents, they must justify and explain why a departure is appropriate.

The Court of Appeal said that the Board failed to point to any unique circumstances to justify a change to the ordinary approach articulated in the guidelines. Here, the Board’s reasons for departing from the guidelines on the basis of “unique circumstances” were characterized as “thin and impoverished.”

5. Forfeiture order was not justified

The Board ordered Alexion to forfeit the deemed excess revenues earned between 2009 and 2017 to the Crown. The Court of Appeal noted that while the Board used the lowest international price to determine if the price for Soliris was excessive, meaning the price of Soliris moving forward would be tied to this lower price, its remedy with respect to back payments was based on the highest international price. The Board failed to explain this inconsistency. It also failed to account for evidentiary objections made by Alexion about the data concerning the highest international price and unreasonably used the “list price”, as opposed to the actual prices, in determining the amount of the forfeiture order.

Alexion’s impact

Alexion will impact future Board proceedings in three primary ways.

First, Alexion restricts the Board’s mandate. While the Board’s jurisdiction is over patented medicines, the Board must now embrace its role of encouraging innovation and preventing patent abuse and “excessive” prices—as opposed to solely a broader price regulation and consumer protection mandate. This will have a significant impact on the Board’s regulatory authority moving forward and will be an issue to watch in litigation over the validity of recent amendments to the Patented Medicines Regulations[2].

Second, going forward, Alexion will make it difficult for the Board to use the lowest international price as a comparator to determine whether a price is excessive. More broadly, this aspect of the decision sends a strong signal that courts will closely scrutinize deviations from the Board’s own guidelines. 

Third, Alexion is the first Board decision reviewed under Vavilov. The Court of Appeal acknowledged that changes introduced by Vavilov—namely, the requirement for administrative decisions to contain reasoned explanations—affected the outcome of the appeal. While courts will still defer to the Board’s reasoning and analysis, Alexion warns that they will not “pick up [the Board’s] pen” in order to salvage an incomplete analysis.

There is a deadline of September 29, 2021 for the Attorney General to seek leave to appeal this decision to the Supreme Court of Canada.

_________________________

¹Torys has written extensively on PMPRB developments, including with respect to this particular case; see below for a selection:

• Déjà vu: Another delay in implementation of Canada’s PMPRB Regulations, available here.
• The wait is over: Canada’s PMPRB releases final Guidelines, available here.
• PMPRB decision stands: Soliris priced excessively, available here.

• Alexion Pharmaceuticals v Canada FCA Dismisses Appeal Aimed at Constitutionality of PMPRB Provisions, available here.
• Alexion Ordered to Significantly Reduce Cost of Soliris, available here.

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

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.

© 2024 by Torys LLP.

All rights reserved.