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Canada is home to a robust and thriving pharmaceutical sector; Canadian pharmaceutical sales reached C$29.9 billion in 2019, representing a 35.3 per cent increase since 2011.2 Although there is every indication the pharmaceutical industry will continue to evolve and thrive, as we approach a post-covid-19 future, industry players must remain mindful of the nuances of regulatory, intellectual property (IP) and competition law aspects that will shape its future. While predominantly federally regulated, pharmaceutical products (including drug and biologic products and their subsequent entry counterparts) are also subject to a patchwork of provincial and territorial laws, such as pricing and reimbursement. This chapter focuses on the applicable federal laws, regulations and policies.

Legislative and regulatory framework

The provision of health products3 in Canada is regulated under the Food and Drugs Act (FDA) and its associated Regulations (FDR). Health Canada's Health Products and Food Branch (HPFB) is the federal agency responsible for regulating, evaluating and monitoring, among other things, the safety, efficacy, quality, approval and risks associated with the sale and use of health products in Canada.

To be sold and distributed in Canada, a drug product must be issued a Drug Identification Number (DIN)4 and a Notice of Compliance (NOC), which signifies compliance with the FDA and FDR. After approval, Health Canada continues to monitor post-marketing activity to ensure that drugs are safely used and marketed and are not advertised in a false or misleading manner. Health Canada's enforcement powers where a manufacturer is found to be in contravention of the FDA include fines and other sanctions, such as product recalls and seizures.

Once approved and issued an NOC, manufacturers typically make submissions to the various public and private drug plans seeking inclusion as a reimbursable drug on the basis of the drug's clinical- and cost-effectiveness, among other things. There are multiple public drug plans in Canada (referred to as formularies) that are administered by each province and territory, as well as at the federal level, that are governed by their own legislation directed to pricing and reimbursement criteria. Essentially, however, manufacturers can establish the list price for their drug products, with the exception of patented medicines, which are subject to the federal Patented Medicine Prices Review Board (PMPRB). The PMPRB's mandate is to ensure that drug products are not sold to a wholesaler, distributor, hospital or pharmacy at an excessive price (the PMPRB does not regulate retail-level sales, such as pharmacy-to-customer).

Manufacturers and each formulary negotiate a 'product listing agreement' (PLA), which, assuming the drug product is accepted for inclusion on the formulary, tends to result in the formulary paying an amount less than the list price. Because PLAs are confidential, there tends to be high variability between formularies, both in respect of the listing and pricing of the same product. Provinces may also select manufacturers to become exclusive suppliers of a formulary drug through a tendering process.

i Innovation incentives

By the time a drug product receives regulatory approval, manufacturers have invested significant time and resources towards its development and testing, not to mention the regulatory review process. To assist in compensating manufacturers for the lost 'on market' time, Canada has adopted two mechanisms – data protection and patent term extension – aimed at incentivising manufacturers to continue their investment, to encourage ongoing innovation, as well as to continue to offer innovative drug products in Canada.

Data protection

The FDR provide for the protection of undisclosed test or other data relevant to the safety and efficacy of drug products that contain a 'new chemical entity' (referred to as an 'innovative drug').5 'Innovative drugs' are subject to a guaranteed minimum of eight years of market exclusivity, with an additional period of six months with the submission of clinical data supporting paediatric use. In so doing, a subsequent entry manufacturer is prohibited from filing a drug submission making a direct or indirect comparison to the innovator's undisclosed data for the first six years of the eight-year period; and market approval cannot be granted before the end of the next two-year period.

Patent term extension

Further investment incentive is provided by the Certificate of Supplementary Protection (CSP) regime, which provides up to two additional years of patent-like protection for drug products protected by an eligible patent.6 To be eligible, a patent must be directed to a new medicinal ingredient or combination of medicinal ingredients, or their use or process for manufacture, that is contained in the drug product for which the marketing approval is issued. CSPs are granted by Health Canada's Office of Patented Medicine Liaison (OPML).7 A company must file a CSP application with OPML within 120 days of the later of the issuance of the NOC or the eligible patent.

ii Competition

By its nature, the pharmaceutical industry relies in part on market exclusivity incentives that inevitably impact competition. Ongoing expansion in the pharmaceutical sector, no doubt accelerated by the covid-19 pandemic, is also influencing the global and domestic competitive landscape through multi-jurisdictional mergers with potential impacts on competition. Canada is no exception to this, representing the ninth largest pharmaceuticals market in the world, with a 2.1 per cent share of the global market.8

Competition within the pharmaceutical industry in Canada is regulated by the federal Competition Act, which can be broadly divided into four main areas, all of which are relevant for the pharmaceutical sector:

  1. competitor collaborations, which includes both criminal regime for hard-core cartels and a civil regime for legitimate competitor collaborations such as joint R&D or commercialisation agreements;
  2. unilateral conduct (i.e., prohibitions on certain practices when they affect competition, such as tied selling, exclusive dealing and abuse of dominance);
  3. mergers; and
  4. deceptive marketing practices, as addressed in Section V.

The Competition Act also creates a statutory cause of action that permits private parties to claim damages for losses caused by breach of the criminal provisions or failure to abide by an order of the Competition Tribunal (Tribunal)9 or a court. Private parties may also bring an application with respect to certain non-criminal trade practices (e.g., tied selling, price maintenance) with leave of the Tribunal.

The Competition Bureau (Bureau), headed by the Commissioner of Competition (Commissioner), has placed the enforcement of competition laws in the pharmaceutical industry high on its list of enforcement priorities and provided useful guidance with respect to its enforcement approach through the Intellectual Property Enforcement Guidelines (IPEGs) and numerous position statements. The IPEGs describe the Bureau's analytical approach to fundamental competition law concepts such as market definition and market power and provide examples of how the Bureau may assess various practices, such as product switching and patent settlement agreements, that are common in the pharmaceutical industry.10