PMPRB Notice and Comment May 2013

Regulatory Burden Reduction Initiative

Proposed Changes for Comment by June 13, 2013:

1. Consumer Price Index (CPI) Adjustment Methodology
2. Filing Requirements

Introduction

The PMPRB strives to make its price review process open and transparent to all stakeholders and is committed to a regulatory framework that is relevant, responsive and appropriate.

As part of the Board's ongoing commitment that the framework continues to have a positive impact for consumers, while recognizing the value that innovative medicines offer to patients the Board intends that:

• the Guidelines be responsive, in an appropriate timeframe, to relevant developments;
• the regulatory burden be reduced, where possible; and,
• the PMPRB continue to use its limited resources efficiently.

An internal examination of its price review process was conducted to identify ways to reduce the regulatory burden on patentees and make effective use of Board staff resources without adversely affecting its mandate to protect consumers. This initiative aligns with the Government's Red Tape Reduction Plan and the Economic Action Plan.

The following two regulatory burden reduction initiatives are planned for meeting the Board's priority to decrease regulatory burden and make effective use of Board Staff resources1:

• Examine the CPI Adjustment Methodology (Compendium of Policies, Guidelines and Procedures – the Guidelines)
• Examine the feasibility of changing to one regulatory filing for existing patented medicines by patentees per year (Patented Medicines Regulations).

The Board seeks stakeholder comments on the proposed changes. Based on stakeholder feedback, further consultation will be undertaken on the proposed text in the Compendium of Policies, Guidelines and Procedures and in the Patented Medicines Regulations, as well as on operational/transitional details, prior to final adoption and implementation. In addition, the proposed amendments to the Regulations will follow a formal consultation (Federal Regulatory Development Process) through Cabinet and publication in the Canada Gazette.

Initiative #1: Eliminate the Use of Forecast CPI and Transition to the use of Actual Lagged CPI as part of the CPI Adjustment Methodology

Proposal for Consideration: Maintain current CPI Adjustment Methodology for existing drug products, except replace the use of the forecast CPI with actual CPI in calculating the CPI Adjustment Factor for the forecast period.

Background: The Consumer Price Index methodology was introduced as part of the Board's Guidelines on Excessive Prices in 1989, in application of the CPI pricing factor listed in the now sub-section 85(1)(d) of the Patent Act. The CPI is one of four pricing factors the Board must take into consideration when determining whether the price of a patented drug product is excessive. The CPI Adjustment Methodology was last amended in 1994 and applies to ‘existing' patented drug products in accordance with the Board's Guidelines.

To allow patentees to set prices reflective of current CPI rates, the Board's CPI methodology provides for the calculation of the CPI Adjustment factors based on forecast changes in the CPI. These forecasted CPI Adjustment factors are published each year in the April NEWSletter. Patentees are able to use these published forecasted factors to increase their prices up to the allowable maximum. The actual CPI values are obtained in January of the following calendar year, which are used by Board Staff in accordance with the Guidelines, to calculate the National Non-Excessive Average Price (N-NEAP) for the year.

Using an actual CPI rather than forecast CPI has the potential of better aligning the PMPRB´s processes as well as improving internal operations. In addition, if patentees priced in accordance with forecasted values and the actual CPI values are less than the forecasted values patentees are not able to use the full value of the forecast CPI in the following regulatory period. The PMPRB's current approach of using a forecast CPI, particularly, in times where the forecast CPI is higher than the actual CPI, has the potential of affecting patentees' pricing models and may affect their business planning for subsequent years. Committing to an actual CPI would provide predictability and certainty for patentees when they consider price increases.

An impact analysis conducted by Board Staff shows that over the last twelve years, forecasted CPI values tended to be lower than actual CPI. The average difference between forecast and actual CPI has been relatively small. On average, the forecasted CPI has been 2.03% and actual CPI has been 2.07%. Based on historical trends, the impact of changes of this nature would not be substantial on the application of the CPI Adjustment Methodology at the national level. An analysis conducted by Board Staff predicts a negligible margin of variation between the current approach and the proposed approach.

Initiative #2: Reduction of Regulatory Filing Requirements

Proposal for Consideration – Existing Patented Drugs: For existing drug products, to replace the semi-annual regulatory filing of Form 2- Information on the identity and prices of the medicine by an annual filing.

Background: In 1996, when pharmaceutical companies switched to annual price setting, the Board approved a recommendation to review the price of existing patented drug products on an annual basis. Patentees continued to submit data on a semi-annual basis, while Board Staff began reviewing the data for existing patented drug products on a yearly basis.

Since 1996, the January-June information has been used as an early warning system to notify patentees when prices appear to exceed the Guidelines and to give them an opportunity to take action before the end of the year. An impact analysis conducted by Board Staff shows that patentees might benefit from the semi-annual early warning system in less than 1% of the total number of DINs under the PMPRB jurisdiction.

An annual regulatory filing of Form 2 information for existing drug products would allow for a better use of patentees and Board Staff resources, while maintaining the Board's ability to fulfill its regulatory mandate.

Proposal for Consideration – New Patented Drugs: To eliminate the requirement to submit Form 2 information for the first day of sales of a patented drug product in Canada and to add a section in the Form 1-Medicine Identification Sheet to report the publicly available ex-factory price in Canada on the date of first sale.

Board Position: Under the Regulations, patentees are required to file Form 2 information for the day on which the drug product is first sold in Canada, within 30 days after that date. In practice, as described in the Guidelines, the introductory benchmark price is established based on the information submitted for the introductory period, i.e., from the date of first sale to the end of the six-month regulatory reporting period, not on the data submitted for the first day of sales.

An analysis conducted by Board Staff shows that patentees usually start selling a new drug product at list price in Canada and introduce benefits subsequently. By adding a new section in the Form 1 reporting the publicly available ex-factory price in Canada on the date of first sale, Board Staff would be provided with an acceptable proxy for the average transaction price of the drug product on the first day of sales.

¹ Please see 2013-14 Report on Plans and Priorities and the Management Response and Action Plan published recently in response to the 2012 Program Evaluation of the PMPRB for further information.