Regulations amending the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements), No. 2: SOR/2020-298

Canada Gazette, Part II, Volume 155, Number 2

Registration

SOR/2020-298 December 29, 2020

PATENT ACT

P.C. 2020-1145 December 24, 2020

Her Excellency the Governor General in Council, on the recommendation of the Minister of Health, pursuant to subsection 101(1) footnote a of the Patent Act footnote b, makes the annexed Regulations Amending the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements), No. 2.

Regulations amending the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements), No. 2

Amendments

1 (1) Section 4 of the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements) footnote 1 is amended by replacing the subsection 4.1(4) that it enacts with the following:

(4) Despite subsection (3), in the case of a medicine that is offered for sale in Canada before July 1, 2021, an analysis shall be provided

(2) Section 4 of the Regulations is amended by replacing the subsection 4.2(4) that it enacts with the following:

(4) Despite subsection (3), in the case of a medicine that is offered for sale in Canada before July 1, 2021, the most recent version of the estimated maximum use of the medicine shall be provided

(3) Section 4 of the Regulations is amended by replacing the portion of section 4.4 before paragraph (a) that it enacts with the following:

4.4 For the purposes of paragraph 85(1)(e) of the Act, the other factors that the Board shall take into consideration to determine whether a medicine that is sold in any market in Canada after June 30, 2021 is being or has been sold at an excessive price are the following:

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

7 (1) These Regulations, except subsection 3(4), come into force on July 1, 2021.

(2) Subsection 3(4) comes into force on a day to be fixed by amendment to this subsection.

Coming into Force

3 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) [the Amending Regulations] were published in the Canada Gazette, Part II. The Amending Regulations, which are set to come into force on January 1, 2021, provide the Patented Medicine Prices Review Board (PMPRB) with the additional price regulatory factors of pharmacoeconomic value, market size, the gross domestic product (GDP) and GDP per capita in Canada. The Amending Regulations also change the schedule of countries for which patentees are to report price information to the PMPRB. Finally, the Amending Regulations published in August 2019 also modified the definition of domestic price and sales information that patentees are to report, which must be adjusted for any discounts or rebates to third parties. The latter change was declared invalid by the Federal Court of Canada in Innovative Medicines Canada v. Canada (Attorney General) footnote 2 in June 2020 (this decision is the subject of an appeal and cross-appeal currently before the Federal Court of Appeal) and by the Quebec Superior Court in Merck et al. v. Attorney General of Canada footnote 3 in December 2020 (parties to this litigation have 30 days from the date of the judgment to file a notice of appeal).

The information that is to be provided in relation to the new factors is primarily given within 30 days of the coming into force of the Amending Regulations, or within 30 days of the medicine first being sold. Information related to the schedule of countries and domestic price and sales information must be reported every six months, for as long as the medicine is under the PMPRB's jurisdiction. The amended schedule of countries and adjusted price and sales definition are changes to existing reporting obligations.

The Amending Regulations would introduce new reporting obligations at a time when the COVID-19 pandemic continues to challenge all stakeholders. To provide industry with additional time to prepare for the new reporting obligations, the Regulations [A]mending the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements), No. 2 (the Regulations) delay the coming into force of the Amending Regulations by six months. Furthermore, this delay would provide stakeholders with more than six months to further familiarize themselves with the PMPRB's final Guidelines which were published on October 23, 2020, and operationalize the Amending Regulations.

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. 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 to 103 of the Act. The Minister of Health is named as the “Minister” for these sections of the Act. Among other things, the Act identifies the factors that are to be considered by the PMPRB in determining whether the price of a patented medicine is excessive, the authority to collect information from patentees and the remedial measures that may be taken by the PMPRB to resolve excessive pricing concerns.

The corresponding Patented Medicines Regulations define the specific information that patentees are to report to the PMPRB and the time frames in which that information is to be provided. This includes baseline information such as the identity of the medicine and its associated patent number and information related to the price and sales of the medicine.

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 provided the Board with new price regulatory factors and information to protect consumers against excessive prices of patented medicines.

There were three elements to the Amending Regulations:

The Amending Regulations published in the Canada Gazette, Part II, modified the definition of domestic price and sales information that patentees are to report, and required that they be adjusted for any discounts or rebates to third parties. These changes were later declared invalid by the Federal Court of Canada in Innovative Medicines Canada v. Canada (Attorney General) footnote 2 in June 2020 (this decision is the subject of an appeal and cross-appeal currently before the Federal Court of Appeal) and by the Quebec Superior Court in Merck et al. v. Attorney General of Canada footnote 3 in December 2020 (parties to this litigation have 30 days from the date of the judgment to file a notice of appeal). The other provisions of the Amending Regulations were upheld by both the Federal Court and the Quebec Superior Court.

The Amending Regulations also exempted 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 this date, are not exempt.

Delay of the coming-into-force date in June

The Amending Regulations were originally set to come into force on July 1, 2020; however, in June 2020, at the height of the first wave of the COVID-19 pandemic, this date was delayed until January 1, 2021. This delay eliminated the imposition of new administrative burden on industry as they faced increased demands related to supply chains and shortages in response to the COVID-19 pandemic.

This delay also provided stakeholders a longer period in which to provide feedback to the PMPRB's then-ongoing Guidelines consultation process.

PMPRB Guidelines consultation

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. The purpose of the Guidelines is to ensure that patentees are aware of the general policies and procedures undertaken by PMPRB staff to identify patented 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 their Guidelines, reflecting the feedback from their 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.

After an almost year-long consultation, the PMPRB published its final Guidelines on October 23, 2020.

Judicial consideration of the amendments

On August 23, 2019, Merck Canada Inc. and five other pharmaceutical companies filed a judicial review in the Superior Court of Quebec challenging the constitutionality of those sections of the Patent Act that establish the PMPRB (sections 79 to 103), the Regulations as they currently exist, as well as the amendments. On December 18, 2020, the Superior Court of Quebec in Merck et al. v. Attorney General of Canada footnote 3 the constitutionality of the regime, 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. Parties to this litigation have 30 days from the date of the judgment to file a notice of appeal.

On September 2, 2019, Innovative Medicines Canada and 16 Canadian subsidiaries of pharmaceutical companies filed an application for a judicial review in the Federal Court alleging that the amendments are invalid because they are ultra vires to the Patent Act. On June 29, 2020, the Federal Court of Canada in Innovative Medicines Canada v. Canada (Attorney General) footnote 2 upheld the validity of the revised basket of comparator countries and the new price regulatory factors (market size, pharmacoeconomic value and GDP); however, the Court declared that the amendment that would allow the PMPRB to collect price information that is net of third party rebates was invalid and ultra vires the Patent Act. This decision is the subject of an appeal and cross-appeal currently before the Federal Court of Appeal.

Objective

The objective of the Regulations is to delay the coming into force of the Amending Regulations until July 1, 2021. This delay would provide industry with additional time to prepare for the new reporting obligations as the COVID-19 pandemic continues to challenge all stakeholders. A delay would also provide industry with more than six months to further familiarize themselves with the PMPRB's final Guidelines, which were published on October 23, 2020, before the Amending Regulations come into force.

These Regulations also delay the subsection of the Amending Regulations that allows the PMPRB to collect price information that is net of third party rebates until a future regulatory amendment fixes a coming-into-force date. This was done as this subsection was declared invalid by the Federal Court of Canada in Innovative Medicines Canada v. Canada, which is currently the subject of an appeal and cross-appeal currently before the Federal Court of Appeal, and by the Quebec Superior Court in Merck et al. v. Attorney General of Canada on December 18, 2020 (parties to this litigation have 30 days from the date of the judgment to file a notice of appeal).

Description

The Regulations delay the January 1, 2021, coming into force of the Amending Regulations to July 1, 2021, except for the subsection of the Amending Regulations that allows the PMPRB to collect price information that is net of third party rebates, which is delayed until a future regulatory amendment fixes a coming-into-force date. The July 1, 2021, date aligns with the beginning of the PMPRB's second reporting period of 2021 and allows the patented drug manufacturers additional time to make any necessary adjustments to comply with the new regulatory regime.

The Regulations also consequentially update some dates in the Amending Regulations themselves to ensure that deadlines to submit new reporting information remain consistent with the new coming-into-force date. Specifically, the deadlines for submitting cost-utility analyses and market size information have been updated to reflect the new coming-into-force date. Similarly, changes to the estimated market size information itself were also made to ensure that this information only captures up to three years of information preceding the new coming-into-force date. Finally, amendments were made to ensure that the new factors could not apply to sales made before the new coming-into-force date. In all instances, these changes were necessary to maintain the original policy intent behind the Amending Regulations.

The Regulations do not change the original exemption cut-off date: all medicines that obtained a DIN in Canada prior to August 21, 2019, qualify for the exemption from the new factors and associated reporting obligation. The policy intent of these Regulations is to lower any potential administrative burden on patented drug manufacturers over the next few months and provide industry with more than six months to further familiarize themselves with the PMPRB's final Guidelines before the Amending Regulations come into force. This does not impact the original policy intent of the cut-off date, which was to provide a degree of continuity for medicines already on the market prior to the publication of the Amending Regulations.

Coming into force

The Regulations will come into force on the day they are made. Given the impending date of January 1, 2021, this will ensure that the Regulations delay the coming into force by six months should their registration not occur until the new year. As previously mentioned, the Regulations also delay the coming into force of the subsection of the Amending Regulations that allows the PMPRB to collect price information that is net of third party rebates until a future regulatory amendment fixes a coming-into-force date.

Regulatory development

Consultation

Industry stakeholders have requested a delay of the coming into force of the Amending Regulations. Innovative Medicines Canada, the largest industry association representing companies impacted by the Amending Regulations, requests that the implementation date for the amendments to the Patented Medicines Regulations be delayed until the COVID-19 pandemic has abated.

A letter notifying of the Department's delay in the coming into force will be sent to all interested stakeholders who participated in the consultation process leading to the development of the Amending Regulations.

Broader consultations were not possible given the timeliness considerations associated with bringing the amendments into force in advance of January 1, 2021.

Prepublication in the Canada Gazette, Part I

These Regulations were not prepublished in the Canada Gazette, Part I, as these amendments were neither necessary nor anticipated prior to the second wave of the COVID-19 pandemic. Currently, new measures and the subsequent expansion of lockdowns are being employed to lower the rate of infection in Canada. There is now insufficient time to seek prepublication before the Amending Regulations would otherwise come into force on January 1, 2021.

Modern treaty obligations and Indigenous engagement and consultation

There are no implications to 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

Regulatory delay of the coming into force provides the regulator, regulated parties, and consumers with the highest level of predictability and certainty.

A non-regulatory alternative, such as enforcement discretion by the PMPRB, would not be sufficient to support the policy objective, since patentees could still face administrative burden to fulfill the new information reporting obligations. Delaying the coming into force provides greater certainty to the regulated industry as it is legally binding rather than discretionary. This is particularly material in this case given that the entity that enforces the regulations (i.e. the PMPRB) is independent from the governmental organization that sponsors amendments to the Patented Medicines Regulations (i.e. Health Canada).

Regulatory analysis

Benefits and costs

The main anticipated benefit of the Regulations is to allow drug manufacturers and health system partners to remain focused on responding to COVID-19 and allow stakeholders enough time to respond to and be informed on new guidelines currently being developed by the PMPRB.

This extension will result in a small possibility of higher cost for Canadian payers.

It was originally estimated that payers would save Can$220 million from lower patented medicine spending in the first year of the Amending Regulations coming into force. Delaying the original coming into force by another six months may impact some of these savings, but Health Canada anticipates that most of these savings will continue to occur as originally estimated. Therefore, it is expected that the resulting increased costs these Regulations would impose on consumers will be low. There are two reasons for this:

Patentees and public payers are already aware that medicines that obtained a DIN after August 21, 2019, will be subject to the new price regulatory factors once the Amending Regulations come into force. It is anticipated that both parties will possess this knowledge when negotiating long-term Product Listing Agreements (PLAs) for any new medicines. Delaying the coming into force by another six months in this case is unlikely to have much of an impact on the negotiated prices of new medicines, as potentially lower future price ceilings are already being absorbed and accounted for in the pricing and listing decisions of new medicines.

The Regulations do not alter the original exemption to the new factors: all medicines that did not obtain a DIN prior to August 21, 2019, continue to be subject to the new price regulatory factors once these come into force. A delay in the coming into force does not affect whether a medicine will be impacted, and that fact is anticipated to inform pricing and listing decisions.

Small business lens

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

One-for-one rule

While the Regulations delay the administrative burden by another six months, patentees will still be required to submit the same amount of information under both scenarios. Therefore, a six-month delay is expected to yield a marginal decrease in administrative burden to industry strictly related to timing of administrative requirements rather than the actual activities themselves.

The original amendment had estimated an increase in administrative burden costs of $3,062 as calculated according to the methodology ascribed in the Red Tape Reduction Regulations. In June 2020, adjusting for the first extension of the coming-into-force date to January 1, 2021, changed this to an estimate of $2,758. A further adjustment for an additional six-month delay changes this to an estimate of $2,577, a reduction of $181.

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

Values to report in the Regulatory Impact Analysis Statement

Unit of measure

Annualized administrative costs (constant 2012 $)

$181

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 these Regulations.

Implementation, compliance and enforcement, and service standards

The Regulations delay the coming into force of the Amending Regulations. The PMPRB is responsible for implementation, enforcement and service standards related to the application of the Patented Medicines Regulations.

Contact

Elaine Chong
Acting 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: 613‑327‑1643
Email: PMR-Consultations-RMB@hc-sc.gc.ca