Regulations Amending the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements), No. 5: SOR/2022-162

Canada Gazette, Part II, Volume 156, Number 14

Registration
SOR/2022-162 June 24, 2022

PATENT ACT

P.C. 2022-822 June 24, 2022

Whereas, under subsection 101(2)footnote a of the Patent Actfootnote b, the Minister of Health has consulted with the provincial ministers of the Crown responsible for health and with the representatives of consumer groups and representatives of the pharmaceutical industry that the Minister of Health considers appropriate;

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Health, makes the annexed Regulations Amending the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements), No. 5 under subsection 101(1)footnote c of the Patent Actfootnote b.

Regulations Amending the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements), No. 5

1 Section 1 of the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements) footnote 1 is repealed.

2 Subsection 3(4) of the Regulations is repealed.

3 Section 4 of the Regulations is repealed.

4 Section 7 of the Regulations is replaced by the following:

7 These Regulations come into force on July 1, 2022.

Coming into Force

5 These Regulations come into force on the day on which they are made.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

On August 21, 2019, the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements)footnote 1 [Amending Regulations] were published in the Canada Gazette, Part II. The Amending Regulations, which are set to come into force on July 1, 2022, provide the Patented Medicine Prices Review Board (PMPRB or Board) with the additional price regulatory factors (the new factors) of pharmacoeconomic value, market size and the gross domestic product (GDP) and GDP per capita in Canada. The Amending Regulations also change the schedule of countries for which rights holdersfootnote 2 are to report price information to the PMPRB. Finally, the Amending Regulations introduce changes in reporting requirements for rights holders, including reducing reporting obligations for medicines with the lowest risk of excessive pricing, adding new reporting obligations related to the new factors, and modifying the definition of domestic price and sales information that rights holders are to report, which must be adjusted for any discounts or rebates to third parties.

In light of the evolving pharmaceutical landscape since the publication of the Amending Regulations in 2019, the Government undertook consultations with stakeholders, including provincial and territorial health ministries, in March 2022, to discuss a path forward for the Amending Regulations. Following those consultations, the Minister of Health issued a statement on April 14, 2022, announcing the Government’s intention to move forward with the implementation of the new basket of comparator countries and reduced reporting requirements for those medicines at lowest risk of excessive pricing, which will come into force on July 1, 2022. The statement also indicated that the Government would not proceed with the amendments related to the new price regulatory factors, nor the requirements to file information net of all price adjustments.

In addition to the evolving pharmaceutical landscape, judicial considerations related to the Amending Regulations informed the path forward. These Regulations therefore reflect the direction as presented in the Minister’s statement on April 14, 2022.

Background

Overview of the PMPRB

The PMPRB was created in 1987 as the consumer protection “pillar” of a major set of reforms to the Patent Act (the Act) that significantly strengthened Canada’s patent protection for medicines. The regulatory mandate of the PMPRB is to protect consumers against excessive prices of patented medicines or medicines protected by a certificate of supplementary protection (CSP). The PMPRB also has a mandate to report on medicine prices, sales and research and development.

The PMPRB’s mandate and jurisdiction are established under sections 79–103 of the Act, and those sections are the responsibility of the Minister of Health. Among other things, the Act identifies the factors that are to be considered by the PMPRB in determining whether the price of a patented or CSP-protected medicine is excessive, provides the PMPRB with the authority to collect information from rights holders, and sets out the remedial measures that may be taken by the PMPRB to resolve excessive pricing concerns.

The corresponding Patented Medicines Regulations set out the information that rights holders are to report to the PMPRB and the timeframes in which that information is to be provided. This includes baseline information such as the identity of the medicine, any associated patent and/or CSP numbers, and information related to the price and sales of the medicine.

2019 Amendments to the Patented Medicines Regulations

In August 2019, after more than two years of stakeholder consultation, the Government published the Amending Regulations in the Canada Gazette, Part II. These represented the first substantive update of the PMPRB’s regulatory framework since its establishment, and would have provided the Board with updated tools and information to protect consumers against excessive prices of medicines falling within its jurisdiction.

There are three elements to the Amending Regulations:

The Amending Regulations exempt all medicines that obtained a Drug Identification Number (DIN) in Canada prior to August 21, 2019, from the new price regulatory factors and all reporting obligations that are associated with those factors. This was to provide a degree of continuity for existing medicines. Medicines sold in Canada prior to August 21, 2019, but that did not obtain a DIN by that date, are not exempt.

Delays of the coming into force associated with the COVID-19 pandemic

The original coming-into-force date of the Amending Regulations was delayed four times by six months due to considerations associated with the COVID-19 pandemic. The delays allowed stakeholders to focus on responding to the ongoing pandemic and provided rights holders with more time to prepare for and comply with the new regulatory requirements.

The most recent delay in December 2021 postponed the coming-into-force date of the Amending Regulations to July 1, 2022. As the global impact of the pandemic persisted and new coronavirus variants of concern emerged, this fourth delayfootnote 3 provided stakeholders with additional time to continue their focus on pandemic recovery. The delay also allowed the Government to consider and continue to discuss the Amending Regulations in the context of ongoing initiatives within an evolving pharmaceutical landscape.

Parallel initiatives

The pharmaceutical landscape has shifted significantly since the Government launched consultations in 2017 to modernize the PMPRB regulatory framework. The Government is now moving ahead with a suite of initiatives related to improving access to quality medicines and ensuring the sustainability of the healthcare system, while supporting innovation and investment in the pharmaceutical sector. These initiatives include the Canadian Drug Agency, national strategy for drugs for rare diseases, and the biomanufacturing and life sciences strategy. Most recently, Budget 2022 included a commitment to advance a Canada Pharmacare bill, and then task the Canadian Drug Agency to develop a national formulary of essential medicines and bulk purchasing plan.

In light of the current initiatives and considerations in the evolving pharmaceutical landscape, the Government undertook stakeholder consultations in March 2022, which were followed by the Minister of Health’s statement on April 14, 2022.

Judicial consideration of the amendments

Following the publication of the Amending Regulations in the Canada Gazette, Part II, on August 21, 2019, two court proceedings were commenced challenging the validity of the PMPRB regime.

On August 23, 2019, Merck Canada Inc. and six other pharmaceutical companies filed an application for judicial review in the Superior Court of Québec challenging the constitutionality of those sections of the Act that establish the PMPRB (sections 79 to 103), the Patented Medicines Regulations as they currently exist, as well as the Amending Regulations. On December 18, 2020, the Superior Court of Québec in Merck Canada v. Attorney General of Canada footnote 4 upheld the constitutionality of the current regime, as well as the Amending Regulations with the exception of the amendment that would allow the PMPRB to collect price information that is net of third-party rebates, which was declared invalid and ultra vires the federal power over patents. Both parties appealed the decision to the Court of Appeal of Québec (CAQ), as described below.

On September 2, 2019, Innovative Medicines Canada, and sixteen pharmaceutical companies, filed an application for judicial review in the Federal Court alleging that the Amending Regulations are invalid because they are ultra vires the Act. On June 29, 2020, the Federal Court of Canada in Innovative Medicines Canada v. Canada (Attorney General),footnote 5 upheld the validity of the revised basket of comparator countries and the new factors and associated reporting obligations; however, the Court declared that the requirement to file information net of all price adjustments was invalid and ultra vires the Act. This decision was also appealed by both parties to the Federal Court of Appeal, which heard the appeal February 28 to March 1, 2022. As of this writing, a decision has yet to be rendered.

Given the Federal Court and Superior Court of Québec rulings were the subject of appeals by the applicants and cross-appeals by the Crown, the subsection of the Amending Regulations allowing for the PMPRB to collect price information that is net of third party rebates was delayed until a future regulatory amendment fixes a coming-into-force date.footnote 6

On February 18, 2022, in Merck Canada inc. c. Procureur général du Canada footnote 7 the CAQ issued its decision in the appeal from the above-mentioned decision of the Superior Court of Québec. The CAQ upheld the constitutionality of the existing regime, as well as the revised basket of comparator countries, but found that the requirement to file information net of all price adjustments and the new factors including their associated reporting requirements to be outside the patent power and therefore invalid. The effect of the CAQ decision is that the invalidated provisions would be of no force and effect in Quebec (although the new price factors and associated reporting requirements would remain valid in the rest of Canada). Since the Patent Act is a statute of national application, and the Patented Medicines Regulations are part of a framework of national application, it would be contrary to the public interest to permit provisions in the Amending Regulations to come into force on July 1, 2022, that would apply only in the parts of Canada which are outside of Quebec. The April 19, 2022, deadline for the parties to seek leave to appeal the CAQ decision to the Supreme Court of Canada passed without either party seeking leave to appeal.

PMPRB Guidelines consultations

To implement the Amending Regulations, the PMPRB launched associated stakeholder consultations on new draft Guidelines on November 21, 2019. The PMPRB is authorized to make non-binding Guidelines under section 96 of the Act, subject to consultation with relevant stakeholders including the Minister of Health and the provincial ministers of the Crown responsible for health. The purpose of the Guidelines is to ensure that rights holders are aware of the general policies and procedures undertaken by PMPRB staff to identify patented or CSP-protected medicines that appear to be priced excessively.

The new draft Guidelines were subject to public consultations. In addition to hosting policy forums, webinars and bilateral meetings in Ottawa with key stakeholders, the PMPRB hosted over 60 meetings across Canada, with more than 260 members of its stakeholder community. Additionally, over 120 written submissions were received at the close of the initial 85-day consultation process.

On June 19, 2020, the PMPRB published an updated draft of its Guidelines, reflecting the feedback from the public consultation, for a second round of public comment. This was followed by a 47-day written consultation period which ended August 4, 2020, and elicited over 100 written submissions.

The PMPRB published its updated Guidelines on October 23, 2020, which were subsequently adjusted on March 17, 2021, to account for consequential amendments resulting from the second delay of the coming into force of the Amending Regulations.

Following the federal Minister of Health’s statement on April 14, 2022, which announced the Government’s intention related to the coming into force of the Amending Regulations, the PMPRB committed to launching consultations on a new and different set of Guidelines to operationalize the aspects of the Amending Regulations that will come into force July 1, 2022.

Objective

The objective of the Regulations Amending the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements), No. 5 (the Regulations) is to repeal the new factors, including their related reporting requirements, and the requirement to file information net of all price adjustments from the Amending Regulations. This approach best respects the Amending Regulations in the context of ongoing initiatives and considerations within an evolving pharmaceutical landscape, including judicial decisions to date. The changes to the schedule of comparator countries and reduced reporting obligations for medicines with lowest risk of excessive pricing (i.e. veterinary, over-the-counter, and certain “generic” medicines) will come into force on July 1, 2022, as provided for in the Amending Regulations and confirmed in the Minister of Health’s announcement on April 14, 2022.

Description

The Regulations repeal the provisions of the Amending Regulations that would provide the additional price regulatory factors and the information that rights holders are required to report to the PMPRB that is relevant to the new factors of pharmacoeconomic value and market size, including the circumstances that prompt the obligation to report that information, as well as the related exemption provided for medicines that obtained a DIN in Canada prior to August 21, 2019.

The Regulations also repeal the subsection of the Amending Regulations that would allow the PMPRB to collect price information that is net of third party rebates.

The coming-into-force provisions are replaced to account for the repealed sections of the Amending Regulations.

The Regulations do not change the existing information reporting requirements related to the schedule of countries and domestic price and sales information, which must continue to be reported every six months, beginning on January 1 and July 1 in a year, within 30 days after the end of the period, for as long as the medicine is under the PMPRB’s jurisdiction.

The Regulations also do not change the coming into force of the changes to the schedule of comparator countries and reduced reporting obligations for medicines with lowest risk of excessive pricing (i.e. veterinary, over-the-counter, and certain “generic” medicines), which will occur on July 1, 2022.

Coming into force

The Regulations come into force on the day they are made.

Regulatory development

Consultation

Following publication of the Amending Regulations in the Canada Gazette, Part II, in August 2019, Health Canada and the PMPRB continued to receive input from stakeholders. Much of the input was received as submissions to the PMPRB’s consultation processes for its Guidelines. Other correspondences were received by Health Canada on an ad hoc basis.

The most recent delay to the coming-into-force date from December 2021 acknowledged that continued discussion of the Amending Regulations in the context of the changing pharmaceutical landscape would take place. Further, the CAQ decision from February 2022 invalidated the new factors and related reporting requirements in addition to affirming the invalidity of the requirement to report net prices.

As such, Health Canada took the opportunity in March 2022 to undertake a targeted consultation with stakeholders on a path forward. This included forty invitations sent to individuals and associations representing industry, life sciences organizations, patient groups, payers, academics, health professional and distribution chain associations, and all provincial and territorial health ministries. Twenty-one consultation sessions followed.

Through these discussions, private health insurance providers and some academics shared their support for the Amending Regulations, including for the revised schedule of countries. Some patient groups shared their support for the Amending Regulations and encouraged the Government to continue to work to address patient access and sustainability. Industry stakeholders, life sciences organizations and a number of patient organizations expressed concern that the Amending Regulations would create uncertainty in the pharmaceutical ecosystem that would adversely impact access. Many of these stakeholders underscored specific concerns with the implementation of the new factors. Pharmaceutical supply and distribution chain associations also expressed reservations regarding the Amending Regulations based on the potential impact they would have on their abilities to maintain inventories of medicines and provide professional services. Others suggested that the proposed tools for modernizing the PMPRB’s regulatory framework would be better situated in a different context (i.e. drug price negotiations). Even so, most stakeholders were supportive of moving forward with the revised basket of comparator countries. Provincial and territorial health ministers did not raise any concerns during these engagements, nor did they express a preference with respect to the new factors, the new reporting requirements or the revised schedule of comparator countries. Previously, some provincial health ministries had encouraged the full implementation of the regulatory changes without further delay, while others had requested a full delay of the coming into force of the Amending Regulations until the COVID-19 pandemic had abated.

Informed by this consultation, the federal Minister of Health issued a statement on April 14, 2022, which announced the Government’s intention to move forward on July 1, 2022, with the implementation of the new basket of comparator countries and reduced reporting requirements for medicines at lowest risk of excessive pricing, and to not proceed with the changes relating to the new factors nor the requirement to file information net of all price adjustments. A communication was sent to stakeholders, including provincial and territorial health ministries, providing this announcement. In response, Health Canada received support from many stakeholders on the intended path forward acknowledging the advancement of the updates to the schedule of comparator countries as an important change, while some stakeholders encouraged the Government to continue to pursue sustainable access for needed medicines.

A communication notifying stakeholders of the revised Amending Regulations will be sent by Health Canada to all pertinent stakeholders as well as those who participated in the consultation process leading to the development of the Amending Regulations.

Prepublication in the Canada Gazette, Part I

An exemption from prepublication in the Canada Gazette, Part I, was sought in light of the need to reconsider the application of the Amending Regulations within the time to decide whether to respond to the Court of Appeal of Québec decision invalidating the new factors and their associated reporting requirements, in addition to affirming the invalidity of the requirement to report net prices, as well as the coming into force of the Amending Regulations (with the exception of the subsection allowing the PMPRB to collect price information that is net of third party rebates), which would have otherwise proceeded on July 1, 2022.

Modern treaty obligations and Indigenous engagement and consultation

There are no implications regarding the Government’s obligations in relation to rights protected by section 35 of the Constitution Act, 1982, modern treaties or international human rights obligations.

Instrument choice

In light of the evolving pharmaceutical landscape, removing the provisions pertaining to the requirement to report net prices and the new factors, including their associated reporting requirements, by way of regulatory repeal provides the regulator, regulated parties, and consumers with the highest level of predictability and certainty.

If no new amendments are made (“baseline scenario”), the Amending Regulations would come into force on July 1, 2022, with the exception of the requirement to file information net of all price adjustments, for which the coming-into-force date was to be fixed by way of a later amendment. This would be contrary to the public interest given the CAQ decision which invalidated the new factors including their associated reporting requirements, in addition to affirming the invalidity of the requirement to report net prices, although those provisions would remain valid in the rest of Canada outside of Quebec.

Regulatory analysis

Benefits and costs

The main anticipated benefit of the Regulations is to optimize predictability and certainty for all stakeholders on the way forward for the Amending Regulations. The impact of the Regulations is considered low, given that they remove regulatory requirements for rights holders to report on information related to the new factors and the requirement to report net prices, which would not have readily achieved the anticipated direct benefits in light of the recent judicial decisions.

It should be noted that the originally estimated benefits and costs presented in the Canada Gazette, Part II, publication of the August 2019 Amending Regulations will not be realized as envisioned, particularly for the provisions being repealed. The estimates presented at the time of publication were derived from a comprehensive cost-benefit analysis undertaken in 2017, and reflected data that were available at the time, in addition to assumptions related to applicable price tests in the absence of finalized amendments to the PMPRB’s Guidelines. The estimated total quantified benefit and cost of the Amending Regulations in August 2019 were both projected at $8.8 billion present value (PV) over 10 years. The introduction of the new factors was expected to have the biggest impact on patented medicine expenditure ($3.8 billion), followed by the revised schedule ($2.9 billion) and the requirement to report net prices ($2.1 billion).

With the Regulations, only the benefits and costs relating to the revised basket of comparator countries and reduced reporting obligations for medicines with lowest risk of excessive pricing will be realized. As mentioned, the estimated impact from the cost-benefit analysis from 2017 was conducted in a comprehensive manner using reasonable assumptions. Some differences in the benefits and costs relating to the revised basket of comparator countries and reduced reporting obligations for medicines with lowest risk of excessive pricing can, however, be expected.

As discussed in previous regulatory amendments that extended the coming-into-force date, negotiations for long-term product listing agreements were operating in an environment where rights holders and public payers were anticipating the new regulatory regime. It was thus believed that these changes may have already started to have an impact on pharmaceutical prices and thus savings were being realized. The Regulations will remove that influencing factor on negotiations going forward.

More fundamentally, the price tests which will result from the PMPRB’s upcoming consultations on how the Guidelines should give effect to the new basket of countries from an administrative standpoint, the extent to which rights holders voluntarily comply with those price tests, and the extent to which the price tests are an appropriate application of the Act and the Patented Medicines Regulations in individual excessive pricing cases may all have an impact on the projected benefits and costs of the Amending Regulations.

Moving forward, the PMPRB is putting in place a Guideline Monitoring and Evaluation Plan (GMEP) to assess the impact of its Guidelines and inform any future adjustments required to ensure that they are working as intended.

Small business lens

The Small Business Lens does not apply to the Regulations, as no companies that sell patented or CSP-protected medicines in Canada satisfy the small business definition. In general, these medicines are sold by large multinational enterprises or their subsidiaries.

One-for-one rule

The Regulations remove the aspects of the Amending Regulations that were associated with incremental administrative burden costs. The remaining consideration is therefore the reduced reporting obligations for medicines with lowest risk of excessive pricing (i.e. veterinary, over-the-counter, and certain “generic” medicines) that come into force on July 1, 2022.

This changes the original estimate from an increase in administrative burden to a decrease in administrative burden. The last estimate of $2,321 (IN) is now $627 (OUT), for a net reduction of $2,948 in annualized administrative burden.

Table 1: One-for-one rule (administrative costs)
The current initiative is an OUT.
 

Value to report for the Red Tape Reduction Act

Unit of measure
Annualized administrative costs $2,948 Constant 2012 dollars, present value base year 2012

Regulatory cooperation and alignment

These Regulations do not further impact national or international regulatory cooperation efforts.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

No gender-based analysis plus (GBA+) impacts have been identified for this proposal.

Implementation, compliance and enforcement, and service standards

The Regulations revise the Amending Regulations by repealing the provisions relating to the requirement to file information net of all price adjustments and the new factors, including their associated reporting obligations. The PMPRB is responsible for implementation, enforcement and service standards related to the application of the Patented Medicines Regulations.

Contact

Michelle Boudreau
Executive Director
Office of Pharmaceuticals Management Strategies
Strategic Policy Branch
Health Canada
Brooke Claxton Building, 10th Floor
70 Colombine Driveway, Tunney’s Pasture
Ottawa, Ontario
K1A 0K9
Telephone: 613‑710‑7663
Email: michelle.boudreau@hc-sc.gc.ca