Canada moved further to tackle high drug prices as Patented Medicines Prices Review Board (“PMPRB”) released new draft Guidelines for consultation

By Pramod Kumar Mali, Senior Business Analyst

Back in August 2019, GPI reported the new regulations finalized by Canada to tackle high drug prices by making amendments to the Patented Medicines Regulations.

On November 21, 2019, the Patented Medicines Prices Review Board (“PMPRB”) released new draft Guidelines for consultation.

The guidelines implement the recently amended Patented Medicine Regulations (“Regulations”), which come into force on July 1, 2020. These guidelines are intended to provide transparency and predictability to patentees, regarding the processes which the public servant employees of the PMPRB (“Staff”) are engaged in seeking to determine whether a patented medicine appears to be priced excessively in any market in Canada. The Guidelines also provide an overview of the processes, which the patentees should be aware of regarding their filing obligations under the Patented Medicines Regulations.

If a patented medicine appears to be priced excessively based on these Guidelines and an acceptable Voluntary Compliance Undertaking (“VCU”) has not been submitted by the patentee, the Chairperson may receive a recommendation from Staff that a hearing be held on the matter. If such a hearing is deemed to be in the public interest by the Chairperson, and it is confirmed by a hearing panel composed of Board members (“Hearing Panel”) that the patented medicine was priced excessively in any market, an order may be issued to the patentee that the price be reduced and that measures need to be taken to offset any excess revenues that may have been earned through sales of the patented medicine at an excessive price.

The noteworthy changes to the Regulations include:

For drugs that received marketing approval (i.e., that have been assigned a Drug Identification Number, or “DIN”) before August 21, 2019 (“grandfathered medicines”) or on or after August 21, 2019 (together, “all medicines”),

  • An updated list of reference countries (revised Schedule), notably excluding the United States and Switzerland (the “PMPRB11”);

(While dropping these two from its current basket of seven countries, the PMPRB also added six countries for a total of 11 comparator countries. The “PMPRB11” countries are Australia, Belgium, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden and the United Kingdom. South Korea had also originally been proposed, for a total of 12 comparator countries, but is not included in the final list.)

  • Reporting of price and revenue net of adjustments including third party price rebates; and
  • Reduced reporting requirements for drugs considered at low risk of excessive pricing.

In addition, for drugs that received a DIN on or after August 21, 2019 only (“non-grandfathered medicines”),

  • Three new price regulatory factors: pharmacoeconomic value, market size, and gross domestic product (GDP) in Canada and GDP per capita in Canada; and
  • Added reporting requirements relating to the new price regulatory.

A brief summary of the proposed price review process follows:

  1. Price review process for non-grandfathered medicines

For medicines assigned a DIN on or after August 21, 2019, the draft Guidelines provide the following schematic showing the circumstances under which a list price or average transaction price (ATP) may be subject to investigation (shown with added yellow highlighting).

MIP= Median International Price, LIP=Lowest international Price, TCC= Therapeutic Class Comparison, dTCC= domestic TCC and iTCC-=international TCC

The draft Guidelines outline a two-step process for the price review of non-grandfathered medicines.

In the first step, an interim maximum list price (iMLP) will be set based on the median international list price (MIP) for the PMPRB11 countries. The ex-factory price of the medicine in Canada cannot exceed the iMLP during the interim period.

In the second step, following the defined interim period, the iMLP will be replaced by the maximum list price (MLP). The MLP will be the lower of the MIP or the result of the median domestic Therapeutic Class Comparison Test (dTCC) but is subject to a floor set by the lowest international price (LIP).

Category I vs. Category II

Medicines will be classified as Category I and Category II. Medicines classified as Category I will be subject to an additional pricing constraint – the maximum rebated price (MRP), which considers the pharmacoeconomic value and market size for the medicine.

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), or (b) estimated or actual annual revenues that exceed $25M. The latter threshold is subject to adjustments at least every five years.

Category II covers all medicines not in Category I and includes line extensions of grandfathered medicines receiving a DIN on or after August 21, 2019 where the DIN does not relate to a new indication. The federal government expects the majority of patented medicines to fall into Category II.

The maximum rebated price (MRP) is calculated as follows:

  • The pharmacoeconomic price (PEP) is calculated by determining the price at which the medicine’s incremental cost-effectiveness ratio (ICER) would be equivalent to the pharmacoeconomic value threshold (PVT) of $60,000 in cost per quality-adjusted life years (QALYs);
  • The PEP may be adjusted for market size if, priced at the MRP set by the PEP, annual revenues would be > $25 million;
  • For the drugs indicated for rare diseases (prevalence across all indications < 1 in 2000), the MRP will initially be calculated by applying an increase of 50% to the PEP, but will be adjusted for market size if, priced at the MRP set by the PEP, annual revenues would be > $12.5 million; and
  • If the above results in an MRP > MLP, the MRP will be set at the MLP.
  • Price review process for grandfathered medicines

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 draft Guidelines also provide a number of circumstances in which categories (i.e. whether a medicine falls into Category I or Category II) or price ceilings may be reassessed.  For example, for non-grandfathered patented medicines, a reassessment may be conducted if the medicine is approved for a new indication or its cost-utility analysis is updated.

Also, by way of example, a Category II medicine receiving a new indication may be re-categorized to Category I if it meets the Category I screening criteria.

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.

Impact of PMPRB Reforms

  • Overall impact is that the prices will be forced significantly lower.
  • Significantly lower prices (and pricing uncertainty) may result in launch delays in Canada
  • Canada risks moving down in the Launch Sequencing Preferences

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