On September 27, 2017, a two-member Hearing Panel of the Patented Medicine Price Review Board (PMPRB) ruled that the ultra-rare disease drug Soliris® (eculizumab), manufactured by Alexion Pharmaceuticals Inc. (Alexion), was “excessively priced.” The Panel ordered both a reduction of the price of Soliris going forward and required Alexion to pay past “excessive” revenues.

A surprising and unprecedented feature of the decision was the application of an entirely new test, the “lowest international price comparison test” (“LIPC test”) to determine whether the price of Soliris was excessive. The Panel ruled that the LIPC test, a test of its invention, should apply to the introductory price of Soliris, and to the price of Soliris going forward, even though the test cannot be found in any of the Guidelines published by the Board. An LIPC test has never been applied previously to any other drug sold in Canada and was invented by the Panel in the case to apply only to Alexion.

In the decision, the Panel ruled that past “excessive” revenues would be calculated based on the highest international price comparison test (HIPC test) found in the Guidelines. The Panel also refused to permit any offsets for various rebates and other benefits provided by Alexion in Canada.

Background

Under the Patent Act (Act) and Patented Medicine Regulations (Regulations), the PMPRB can order manufacturers of patented drugs to reduce the average price at which a drug is sold in Canada to a price not considered "excessive." The Board can also order a manufacturer to pay the government any “excessive” revenue generated above what the Board considers a non-excessive price. The factors considered by the Board when determining whether a price is excessive are found in section 85(1) of the Act. Typically, the factors are interpreted by Board staff based on the Board’s published Guidelines. The Guidelines, however, are merely presumptive in application. If compelling evidence is advanced to rebut the presumption that the Guidelines should apply, a hearing panel can depart from the Guidelines in individual cases where the Guidelines may not, in the panel’s view, adequately apply the statutory factors in the Act.

Soliris is a “breakthrough” drug for two ultra-rare and usually fatal diseases. The only applicable test found in the Guidelines for breakthrough drugs is the “median international price comparison test” (MIPC test) for the introductory price, and the HIPC test for the price in subsequent years. Under these tests, the price of a drug is compared to the price of the same drug in a “basket” of seven countries specified in the Regulations, and held to be excessive if the price is higher than the median international price (at introduction) or the highest international price (in subsequent years).

In 2010 and 2011, the Board stated that the introductory price of Soliris in 2009 was within Guidelines. The 2009 introductory price has never been increased nor has the medicine’s price been reduced in any of the comparator countries. Fluctuations in international exchange rates between 2012 and 2015 made it appear, however, that the Canadian price was the highest international price, even as the Canadian price was falling in real terms given increases in the (Canadian) Consumer Price Index.

In 2015, the Board “requested” that Alexion “voluntarily” lower its price. Alexion declined on the basis that the price was only “excessive” because of exchange-rate fluctuations beyond the Company’s control that did not affect consumers in Canada. Alexion also asked the Board to take into account the sizable rebates provided by the company to provincial public drug plans, who pay a substantial number of the claims made by users of Soliris.

The Decision

In the original Statement of Allegations, Board Staff took the position that the Guidelines should be strictly applied. Before the hearing was originally scheduled to commence, however, Board staff shifted their liability theory to assert that the price of Soliris in Canada should be the lowest price of the medicine in the seven comparator countries.

The Panel ultimately accepted the new ‘theory’. In doing so, they relied on what they characterized as the Board’s “consumer protection mandate”, which they found justified a departure from the Guidelines. The essential rationale for their decision was that if Alexion were willing to sell Soliris at the “lowest international price” (in this case, the UK price), the company must be able to “cover its costs and earn a normal rate of return.” In essence, the Panel found no reason that Canadians should pay more than the lowest international price for Soliris.

Despite rejecting Alexion’s arguments that application of the newly-formulated LIPC test would be unfair and retroactive, and despite holding that the price of Soliris had been “excessive” since introduction based upon the LIPC test, the Panel concluded it would not be “appropriate, fair and consistent with the Panel’s mandate” to apply the LIPC test to calculate past “excessive revenues.” Instead, the Panel ordered that calculation of past “excessive revenues” would be based on the HIPC test found in the Guidelines.

The Panel also rejected Alexion’s arguments that the HIPC test should not apply, and any presumption of excess revenues should not be made in the face of exchange rate fluctuations beyond Alexion’s control. The Panel insisted that the Guidelines provide “advance notice” to patentees that exchange rate fluctuations are at a patentee’s risk. No patent abuse was found by the Panel: Alexion’s good conduct was irrelevant.

The Panel also rejected all of Alexion’s arguments for offsets to the price based on the large rebates paid to the provincial insurers and/or to Alexion’s wholesaler.

Concerns Raised by Decision

The obvious concern for the industry raised by the decision is that the Panel departed from the Guidelines to create its new LIPC test, which could apply to all patentees. Indeed, the Panel expressly noted that it was not applying any “special scrutiny” to Alexion. The reasons given by the Panel for applying the new test to Alexion—that the Board’s “consumer protection mandate” required the Canadian price to be the lowest price commensurate with a patentee covering its costs and earning a “normal” rate return—are not factors found in the legislation, Guidelines, or any previous decision. There is no reason why the same rationale cannot be applied to any or all patented medicines sold in Canada.

Nevertheless, the Panel relied on the Guidelines as providing reasonable notice to patentees that the company, and other patentees, bore the risks of exchange rate fluctuations. At the same time, however, the Panel applied its new LIPC test to the price of Soliris that is nowhere to be found in the Guidelines, even though Alexion could never have known about the test when it introduced Soliris on the Canadian market. The new test appears to apply universally to patented drugs sold in Canada and means that patentees have no certainty that a price that is within Guidelines upon introduction, will not find itself facing liability after the fact for “excessive” pricing at the time of introduction.

Alexion has applied to the Federal Court of Canada for a judicial review of the Panel’s decision.