Federal Court strikes price calculation provision of amendments to Patented Medicines Regulations

Introduction

On 29 June 2020 the Federal Court issued its decision on an application for judicial review of the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements) (the amendments) (Innovative Medicines Canada v Canada (Attorney General), 2020 FC 725).(1) The court ruled that Section 3(4), which would expand price calculation requirements in Section 4(4) of the Patented Medicines Regulations (the regulations) to encompass information beyond the first point of sale (eg, confidential third-party rebates) was invalid. The balance of the provisions challenged were upheld. As a result, Section 4(4) of the regulations will continue to operate as it currently reads when the amendments come into force on 1 January 2021 (see the report on the revised date here), while Sections 4 and 6 of the amendments will amend the regulations at that time. This article looks more closely into the court's decision and its implications.

Issues in dispute

The applicants – Innovative Medicines Canada and a number of innovative pharmaceutical companies – challenged three aspects of the regulations on the basis that the associated provisions were ultra vires the Patent Act (ie, inconsistent with the statutory purpose of or beyond the legal authority granted by act):

• Section 4 of the amendments, which would introduce three new price regulatory factors – pharmacoeconomic value, market size and gross domestic product (GDP) in Canada and GDP per capita in Canada – via new Section 4.4 of the regulations, along with associated reporting requirements in new Sections 4.1, 4.2 and 4.3;
• Section 6 and the schedule to the amendments, which would revise the list of countries used to establish price ceilings (the PMPRB 11); and
• Section 3(4) of the amendments, which would expand the information to be considered in calculating the price of a given medicine (discussed above).

Pursuant to the Supreme Court's recent decision in Canada (Minister of Citizenship and Immigration) v Vavilov (2019 SCC 65), the standard of review was reasonableness.

Improper purpose of amendments generally

The applicants argued that the amendments were intended to deliver healthcare savings, whereas the governing provisions of the Patent Act were intended to prevent patent abuse via excessive pricing.

In support of this argument, the applicants pointed to language in various public government documents, including references to amending the Patented Medicines Prices Review Board's (PMPRB's) regulatory framework to ensure "optimal price setting" of patented medicines. Based on the amendments, their accompanying regulatory impact analysis statement and certain extrinsic evidence, the Federal Court nonetheless found that the purpose of the amendments was to modernise the PMPRB and protect Canadian consumers from the abuse of excessive pricing.

Improper purpose of Sections 4 and 6 of and schedule to the amendments specifically

Section 4 – price regulatory factors

Consistency of pharmacoeconomic value factor with object of Patent Act

The applicants argued that this factor required the PMPRB to make systemic judgements on value for all Canadians, a role unrelated to its statutory mandate of regulating patent abuse via excessive pricing. The court rejected this argument as essentially directed to the wisdom of the policy, which was not relevant to the vires challenge.

Consistency of market size and GDP with object of Patent Act

The applicants argued that both factors addressed affordability, rather than excessive pricing. The Federal Court found that the PMPRB's consumer protection mandate was directly connected to affordability.

Consistency of three new price regulatory factors with statutory scheme

The applicants argued that Section 85 of the Patent Act requires the PMPRB to make assessments based on factors relating exclusively to price and that the new price regulatory factors were not rationally connected to that statutory scheme. The Federal Court found that the governor in council's regulation-making authority is not so limited and that the new price regulatory factors are a proper exercise of that authority.

Section 6 and revised basket of comparator countries

The applicants argued that Section 6 of of the amendments, which will revise the basket of comparator countries to the PMPRB 11, was not directed at preventing excessive pricing. Rather, it was intended to import price controls into the Patent Act.

The Federal Court rejected this argument, concluding that the PMPRB 11 does not, in and of itself, constitute a form of price control – it simply requires patentees to file certain information, which is then used by the PMPRB to identify prices that appear excessive. Per the court, performing a price comparison does not dictate that a specific conclusion must follow.

Scope of regulation-making authority in revised price calculation in Section 3(4)

Lastly, the applicants argued that the governor in council had exceeded the scope of her regulation-making authority by promulgating the revised price calculation in Section 3(4) of the amendments.

Section 3(4) of the amendments would replace the price calculation in Section 4(4) of the regulations, expanding its scope to capture discounts and rebates offered to third parties (ie, beyond the first point of sale). Under the current regulations, patentees must report price adjustments at the first point of sale only. The amended price calculation was broadened to capture additional rebates, including the rebates that drug manufacturers often pay to public drug plans and private insurers in exchange for having their products listed on their formularies. The following table compares the current and amended Section 4(4)(a); Section 4(4)(b) changes are analogous.

The applicants first argued that the PMPRB's jurisdiction under the Patent Act is limited to the first point of sale. The Federal Court accepted this argument, relying on prior jurisprudence stating that the Patent Act contemplates a sale by a patentee to a customer, not a rebate given to a third party after the fact. Because the new price calculation exceeded the first point of sale, it was ultra vires the Patent Act. The court rejected the minister's argument that third-party rebates remained appropriate because they were being used to calculate the effective price at the first point of sale.

The court declined to consider the applicants' further argument distinguishing the price of a medicine from its marketing costs.

Judgment and implications

The Federal Court declared that Sections 4 and 6 of the amendments are intra vires the Patent Act, while Section 3(4) is ultra vires the Patent Act and therefore invalid, void and of no force and effect. Accordingly, the existing Section 4(4) of the regulations will continue to operate as it currently reads when the amendments come into force on 1 January 2021, while Sections 4 and 6 of the amendments will amend the regulations at that time.

The parties have until 29 September 2020 to appeal.

On 8 July 2020 the PMPRB announced that in its view, this decision had no impact on the revised draft guidelines operationalising the amendments to the Patented Medicines Regulations, but invited submissions on the issue as part of the current consultation on the guidelines. The deadline for submission was simultaneously extended to 4 August 2020.

Notably, the revised draft guidelines direct patentees to the help section of the yet-to-be-released online filing tool for guidance on how to calculate the net price of a patented medicine, including the treatment of free goods and rebates.

A separate court challenge to the constitutionality of the PMPRB provisions of the Patent Act, the regulations and the amended regulations, brought in the Quebec Superior Court, is scheduled to be heard 28 September 2020 to 2 October 2020.

Endnotes

(1) For further details please see here.