In late December 2021, a postponement of the amended Patented Medicines Regulations was announced until July 1, 2022. This was the fourth time that the federal government delayed the implementation date of the rules. This marks two years of delays, with little public transparency about implementation or further amendment, causing consternation among drug industry observers that important drug pricing issues were being left in indefinite limbo.
In the meantime, the Federal Court of Canada and Quebec courts have both held that portions of the new rules will not make it past the limbo stick, because they go beyond permitted federal jurisdiction. This article will focus on the very recent Quebec Court of Appeal decision, and explain it in relation to the draft rules and the Federal Court case.
Background on the PMPRB
The PMPRB is a federal, independent, quasi-judicial body with the mandate of ensuring that prices for patented medicines sold in Canada are not excessive. The PMPRB has jurisdiction to review price of any patented medicines, as long as a Canadian patent is in force that has the slenderest thread of connection to the medicine. The Regulations, together with the Patent Act, provide the PMPRB with the framework to limit the price of patented medicines. The PMPRB Guidelines outline the mechanisms through which the PMPRB will administer the Regulations, and how patentees should comply with the filing requirements.
The existence of a patent is key for the federal government to be able to take jurisdiction over medicine pricing. The federal government cannot regulate all medicine prices because that would be outside its constitutional jurisdiction and encroach on provincial matters.
The Draft Amendments
For the first time in more than 30 years, the Regulations were to be substantially updated. There are three elements to the amended Regulations: new price regulatory factors, changes in reporting requirements, and an updated schedule of comparator countries.1
The Delay
The amended Regulations were published on August 21, 2019, after three years of extensive consultations, study and review. On November 21, 2019, the PMPRB published the first draft set of new Guidelines, intended to operationalize the amended Regulations. The original implementation date was July 1st, 2020.
The amended Regulations have been highly contentious among stakeholders and the public. A combination of fierce opposition from industry and special interest groups, as well as the COVID-19 pandemic, have factored into this series of delays. The federal government may have also been keeping an eye on the Quebec and Federal court decisions under appeal, after parts of the regulations were found ultra vires (i.e., beyond the federal government's constitutional rule-making authority).
Implementation was first delayed to January 1, 2021. A year-long consultation on changes to the PMPRPB's Guidelines culminated on October 23, 2020, with the publication of the final version of the PMPRB Guidelines to support the new Regulations. Implementation was subsequently delayed to July 1, 2021, and then to January 1, 2022.
On December 23, 2021, implementation was delayed for the fourth time, to July 1, 2022. Health Canada cited the global impact of COVID-19 and its variants, and that the delay would provide additional time for the impacted stakeholders to continue to focus their efforts on responding to the pandemic. Further, the delay would allow the Government to further engage stakeholders on the application of these amendments within the changing pharmaceutical landscape.
The Quebec Court of Appeal Decision
The new draft rules were recently dealt a blow by the Quebec Court of Appeal in Merck Canada inc et al v. Canada.2 Below is an analysis of the decision on key sections of the rules.
- Updated schedule of comparator countries
A key part of the PMPRB rules has always involved comparison of the Canadian price to prices in a set of other countries. The plan to revise the comparator countries was upheld as valid.
Prior to the amendments, the comparator countries (known as the PMPRB7) were the US, UK, France, Germany, Switzerland, Italy and Sweden. The draft Regulations were amended to include countries considered to have similar consumer protection priorities, economic wealth and marketed medicines as Canada. Countries that did not have policy measures in place to constrain free-market pricing (such as the US) were removed, and countries with similar economic standing and market characteristics to Canada were included. The new schedule of eleven comparator countries (the "PMPRB11") are Australia, Belgium, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden and the United Kingdom.
- New price regulatory factors under section 85 of the Patent Act
The amended Regulations introduced additional price regulatory factors that the PMPRB must consider when determining whether the price of a patented medicine is excessive under section 85 of the Patent Act. The amended Regulations empower the PMPRB to refer to new factors including pharmacoeconomic value, market size, health technology assessments, and gross domestic product (GDP) and GDP per capita in Canada. The draft regulations to revise the pharmacoeconomic factors were struck down as invalid (ultra vires).3
The Court explained that the federal jurisdiction over the prices of patented medicines relates to the control of excessive prices resulting from patent monopoly, and not to the market as a whole. The new regulatory factors (pharmacoeconomic value, market size, GDP) aim to reduce the prices of patented medicines so that they are more affordable, not to control the effect of the patent monopoly on prices. Under the guise of its jurisdiction over patents, the Government of Canada was determined to be trying to regulate the prices of patented medicines and impose significant price reductions using new factors which have little or no nothing to do with the patent monopoly.
- Reporting requirements for patentees
The amended Regulations also changed reporting requirements for patentees to allow PMPRB to take new financial considerations into account. This is a complex issue, but in summary, the proposed collection and review of third-party consideration was found invalid (ultra vires) by the Quebec Appeal Court.4
The amendments introduce reporting obligations related to the new price regulatory factors of pharmacoeconomic value and market size. Patentees will also have reporting obligations for price and revenue information that is net of all adjustments. Under the amendments, patentees will be required to report price and revenue information net of any or other adjustments. This requires reporting of benefits to third parties, including discounts, rebates and free goods and services. The reportable benefits could be to any party that pays for, or reimburses, the new patented medicine. This information would be factored into the PMPRB's calculation of average transaction prices.
The Pending Appeal in the Federal Court Challenge
The Quebec Court of Appeal decision partially aligns with a case in the Federal Court of Canada that began in September 2019. The industry association, Innovative Medicines Canada ("IMC"), and 16 of its member companies filed a judicial review application in the Federal Court of Canada. IMC sought a declaration that certain provisions of the amended Regulations were invalid, void and of no force and effect because they exceed the statutory powers of the Patent Act.
On June 29, 2020, the Federal Court of Canada issued its decision. Justice Manson found that the amendments regarding changes to the schedule of comparator countries were within the statutory powers of the Patent Act, similar to the Quebec Appeal Court result.
Both courts also held invalid the draft amendments that required patentees to use a new price calculation that included discounts, rebates or other benefits provided to third parties (e.g. public and private insurers) when reporting medicine prices and revenue information to the PMPRB.
Unlike the Quebec Appeal Court case, the Federal Court held that the new economic price regulatory factors were valid (intra vires). This Federal Court decision remains under appeal and cross-appeal, with a hearing set for February 28, 2022.
It is unclear whether the federal government will seek leave to appeal to the Supreme Court of Canada in the Quebec case. If no further appeals are launched, it appears that the new drug pricing rules are likely to remain in limbo and the Regulations will need to be reworked to get past the bars being set by courts.
Footnotes
1. Many new restrictions would not apply to medicines currently on the market; patented medicines that received a Drug Identification Number (DIN) from Health Canada prior to the publication of the Amended Regulations on August 21, 2019 would be essentially "grandfathered" in.
2. Merck Canada Inc c Procureur général du Canada, 2022 QCCA 240.
3. S.4.1-4.4 of the draft Regulations were found ultra vires. This entirely strikes down the new excessive price factors, which the Appeal Court stated were aimed at arbitrary reductions.
4. The news. 4(4)(a) and 4(4)(b) were held entirely ultra vires.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
