Pharma challenges PMPRB authority over rebates on patented drugs

I have been neglecting my posts on here! I'll update today with three posts. Here's the first.

Canada’s branded pharmaceutical trade association, Rx&D, and 17 companies have launched an application to challenge the authority of Canada’s Patented Medicines Prices Review Board (“PMPRB”) to require brands to report rebates and discounts to the Federal government.

Canada’s Patent Act vests the PMPRB with the authority to limit a patented drug’s price where it finds the drug’s prevailing market price to be excessive. The Act permits the PMPRB to require companies selling patented drugs to report the selling prices of their drugs to the PMPRB, for the purposes of administering the excessive pricing provisions.

On August 18, 2008, the PMPRB posted a Stakeholder Communiqué requiring companies to provide mandatory reports of all reductions off the manufacturer’s list price for drugs, where a Canadian patent covers an invention pertaining to the drug. Reductions to be reported under the Communiqué include rebates (including rebates/payments to third parties), discounts, free goods, free services, gifts, and other benefits of a like nature. The reporting requirements are set to be implemented in January 2009.

On September 17, 2008, Rx&D brought an application in the Federal Court of Canada seeking judicial review of these new reporting requirements. In its Notice of Application, Rx&D has taken the position that the Patent Act and its regulations do not require reporting of any price reductions paid to anyone except at the ex-factory level (i.e. between the manufacturer and its direct buyer, normally a wholesaler). This interpretation would exclude any indirect buyers, most notably intermediary distributors and wholesalers, pharmacies, and provincial drug program purchasers. The brands argue that any additional reporting requirement, beyond transactions at the ex factory level, is outside the jurisdiction of the PMPRB under the Patent Act and the Federal government under the Canadian constitution.

Rx&D seeks an order from the Court prohibiting the PMPRB from requiring reporting of any benefits granted by sellers of patented drugs to “third parties”, by its Communiqué or otherwise. Interestingly, this relief, if granted, would make it more likely that patented pharmaceutical companies would be found to be pricing their drugs excessively. Any rebate, discount, or equivalent payment reported to PMPRB would lower the average price calculated for the purposes of an excessive pricing calculation. More reported discounts would lead to lower prices, and lower prices are less likely to warrant excessive pricing orders. On the face of it then, the reporting requirements appear beneficial to patentee drug companies.

However, there are various reasons why brands may wish to keep their price reductions secret. Motivations likely vary from company to company, but it is easy to imagine that any supply chain participant not currently receiving a benefit being granted to a similarly-situated competitor (e.g., a provincial government purchaser not receiving the same discount as a private purchaser) may aggressively demand benefits not otherwise thought available. Alternatively, upstream participants in the supply chain, such as wholesalers or regional distributors, may try to capture rebates found to be widespread downstream at the pharmacy level. On the face of the Communiqué, it is unclear to what extent information collected by PMPRB would be accessible to these interested parties.

As an example of the policy implications of PMPRB’s reporting requirements, consider their interaction with Canadian provinces’ latest efforts to reduce the cost of publicly-funded drugs. In the past year, several brands have entered secret agreements to provide substantial rebates off their list prices to provinces in exchange for exclusive supply of their drugs to the provinces’ public drug programs, in situations where generics had successfully entered the national market but patent protection persisted. These payments may become more critical to retaining market share if provinces adopt tendering programs which require companies to offer rebates and/or discounts to compete. Transparency of these payments would thwart provinces’ intent to keep the payments secret.

Time will tell whether Rx&D and its member companies are successful in their judicial review application. In the meantime, companies selling patented drugs will be thinking twice before offering piecemeal deals to Canadian consumers, for fear of PMPRB’s new reporting requirements.

Nathaniel Lipkus
Gilbert's LLP