In a decision made public on March 4, 2008, the Patented Medicine Prices Review Board (PMPRB) has found that a price increase greater than the annual increase in the CPI is not excessive. The hearing panel rejected Board Staff's arguments that a price increase for Copaxone in 2004 should have been limited to increases in the CPI as calculated under the Board's CPI adjustment methodology, but it also found that the increase of 20% was too high and ordered that the amount of the increase be reduced and that the increase be phased in over a three year period.
In its decision, the Board's hearing panel also considered arguments that the price increase was justified by increases in the costs of making and marketing the medicine even though there was no direct evidence placed before the Board of those costs. The Board agreed that increased costs were relevant in this case.
Patentees will want to give serious consideration to this decision and its implications for the circumstances under which the Board may permit price increases greater than CPI. In addition, the decision may give some insight into the future direction of the Board's ongoing policy review of its guidelines.
The case involved the patented medicine Copaxone which is supplied in Canada by Teva Neuroscience GP-SENC (Teva). Copaxone is used in the treatment of patients with Multiple Sclerosis and came on the market in 1997 in a vial presentation; it was the second entry in the therapeutic class at the time and other drugs have been introduced into the class since then. In 2002, Health Canada issued a Notice of Compliance for Copaxone in a syringe and both presentations came under the PMPRB's jurisdiction when the relevant patent was issued in 2004. On July 1, 2004, Teva increased the price of the Copaxone syringe by 20%. The Board issued a Notice of Hearing into this matter in 2006.
The hearing panel found that both before and after the price increase, Copaxone "has always been the lowest priced drug in its therapeutic class." According to the Board, "the only issue is the permissible increase in the price of Copaxone in 2004 and whether it must be strictly limited in accordance with the terms of the current CPI methodology in the Guidelines." Board staff argued that the Board should strictly apply the methodology as it protects consumers against sudden one time price increases and also because allowing a price increase on the basis that the drug "still remains the lowest priced drug in its therapeutic class, domestically and internationally, would establish a precedent that would create unmanageable administrative difficulties for Board Staff in its monitoring of other patentees who might attempt to exceed the current CPI methodology restrictions."
Among other things, the Respondent argued that since the relevant sections of the Patent Act refer to "excessive" prices, the Board should only concern itself with the medicine's price level. The panel did not agree and concluded that the CPI factor in paragraph 85(1)(d) enables the Board to take into account the quantum of incremental increases based on the relationship to the CPI and that the Board should allocate the greatest weight to the CPI factor in situations concerning increases in prices of existing medicines. Nevertheless:
"The Board agrees however, that fact situations involving price increases similar to the circumstances of Copaxone in this matter cross a threshold where the CPI factor should not be the sole determinant of whether a price increase is excessive. In other words, the Board is prepared to recognize that the factors in paragraphs 85(1)(b) and (c) should apply to situations involving an increase in the price of a medicine that was and remains the lowest in a group of medicines of its therapeutic class in order to moderate the determination of excessiveness of price based on the Guidelines' CPI methodology.
The Panel … is of the view that at some point the price of a medicine relative to that of the other medicines in its class, which are the measures referred to in paragraphs 85(1)(b) and (c), can be so low that it flies in the face of common sense to conclude that the medicine is excessively priced merely because the increase exceeds the CPI."
In the exceptional circumstances of this case, where after a price increase the medicine remains the lowest priced in a group of medicines, "the Panel is prepared to conclude that a patentee may increase the price of its medicine in an amount in excess of the Guidelines, subject to certain limitations described below."
The panel also considered the "costs of making and marketing the medicine" factor in paragraph 85(2)(a) of the Act. The Board has never previously considered this factor and its guidelines do not address it. The hearing panel made a number of general comments about this factor which may provide some guidance to the thinking of the Board:
The Board is only prepared to consider costs of this nature in exceptional circumstances; The costs must be so exceptional or provide such an obvious benefit to users that the Board would be entitled to rely on the provision; and
In considering whether a price increase should be considered excessive, the panel must normally be satisfied that the costs were incurred after the benchmark price was established and that it is reasonable to take them into consideration.
It is appropriate to consider the costs incurred in making delivery mechanisms and other necessary components of medicine as part of the cost of making a medicine.
In this case, the hearing panel was satisfied that the Respondent had incurred substantial costs in improving the delivery mechanisms of Copaxone over the relevant time period even though it "would have preferred to have more concrete evidence as to the precise expenditures incurred."
During the proceedings, Board Staff had argued that departing from the current CPI methodology in this case would encourage other patentees to make similar arguments and create untold difficulties for Board staff in future. The panel concluded that its decision in this case will have restricted precedential application because of the specific facts of the case, including the fact that Copaxone had the lowest price in the therapeutic class, that there are four higher priced products in the class, and the costs associated with product improvements.
In conclusion, although the Board agreed that a price increase greater than CPI would not be excessive, it determined that the increase of 20% in 2004 was excessive. It determined that the appropriate total increase should not exceed the cumulative increase in the CPI from the introduction of the Copaxone vial in 1997 until the increase on July 1, 2004, which it estimated to be approximately 15.9%. Furthermore, and to protect "the consumer against excessive prices and to lessen the impact of a sudden, one time price increase, it directed that the allowable increase in 2004 should be implemented in three equal phases twelve months apart beginning on July 1, 2004. Board Staff and the Respondent are to calculate the precise amounts of the increases and of the excess revenues to be offset through a payment to the Government of Canada and submit a draft order to the Board panel by March 25, 2008.
It is not known if Teva intends to seek judicial review of the Board decision.
For a copy of the PMPRB's decision, please visit: