In a much-anticipated decision, which will likely have a substantial impact on the pharmaceutical industry in Canada, the Quebec Court of Appeal unanimously found the amendments to the Patented Medicines Regulations (the “Regulations”), which govern the Patented Medicine Prices Review Board (“PMPRB”) partially invalid.

In particular, the Court of Appeal in Merck Canada inc. et al. v. Canada (available in French only) upheld the Quebec Superior Court’s decision to strike the provisions regarding disclosure of confidential rebates negotiated with insurers and went further, striking down the economic factors as well. The change to the comparator countries was upheld.

Context

In August 2019, the federal government enacted amendments to the Patented Medicine Regulations which:

  • Update the schedule of countries used by the PMPRB for international price comparisons;
  • Introduce three new, economics-based price regulatory factors which reflect a drug’s value and Canada’s ability to pay for patented medicines; and
  • Require patentees to report price and revenue information net of all price adjustments such as direct or indirect third-party discounts or rebates, including notably product listing agreements (“PLAs”) (collectively, the “Amendments”).

These Amendments were challenged by the pharmaceutical industry at both the Federal Court through a judicial review and also in Quebec through a constitutional challenge.

We previously discuss the Federal Court’s decision as well as the Quebec Superior court decision. More recently, we also published the 2022 Outlook for Pharmaceutical Patentees in Canada.

In the Constitutional Challenge the pharmaceutical companies as well as various patient groups and the Attorney General of Quebec argued that the federal patent power does not allow the federal government to regulate drug prices unless there is patent abuse. Only the provincial governments are constitutionally empowered to regulate prices. The Amendments are a form of price control, so they are outside the Parliament’s constitutional jurisdiction over patents.

The Court of Appeal’s Decision

To begin, the Court of Appeal echoed the trial judge’s decision finding that the Patent Act and existing regulations were constitutional; price control of patented medicines to prevent them from being sold at excessive prices that could derive from the monopoly confer by a patent, has a logical, real and direct link with patents and does not unreasonably infringe on provincial powers.

Nevertheless, the Court found that the pith and substance of the majority of the Amendments were not related to excessive pricing or patent abuse but to price control and the regulation of an industry. In this context, the Court of Appeal:

STRUCK the Economic Factors

According to the Court of Appeal, the addition of the economic factors, pharmacoeconomic value, market size, and gross domestic product, are being used purely to create arbitrary price reductions to the transparent list prices that are already considered reasonable:

[239] In short, under the guise of its jurisdiction over patents, the Government of Canada seeks to purely and simply regulate the prices of patented drugs in order to impose significant price reductions by introducing new factors that have little or nothing to do with the monopoly conferred by patents (our translation).

STRUCK the Disclosure of Product Listing Agreements

The Court of Appeal confirmed the trial judge’s decision that it is unconstitutional for the PMPRB to regulate PLAs or have access to PLA rebates. These agreements between pharmaceutical companies and provinces occur outside of the patent monopoly. With this amendment, the federal government is attempting to have the PMPRB second-guess provincial bodies like CADTH, INESSS, and provincial health ministries. The Court of Appeal further affirmed that the PMPRB’s jurisdiction is confined to the factory gate price.

UPHELD the Change to the Comparator Countries

The Court found that reference pricing is a legitimate way to assess excessive pricing. Moreover, the list of comparison countries is not static and can evolve. The Court of Appeal found that the fact that such a substitution of reasonably comparable countries could have the effect of reducing drug prices in Canada is irrelevant to the analysis of the constitutional validity of the measure, since the objective pursued remains that of ensuring price competitiveness in Canada relative to those abroad.

The Broader Impact

The Court also made statements about how the PMPRB’s mandate had to be narrowed and does not extend to pure price control:

[243] In summary, federal regulation of the price of patented medicines is constitutional to the extent that it has as its pith and substance to prevent the negative effects on prices of the monopoly granted by a patent. Conversely, federal regulation is unconstitutional to the extent that it no longer seeks to control the [negative] effect of the patent monopoly on prices (our translation).

Similarly, the Court generally expressed agreement with recent precedents that the control of excessive prices must result from the monopoly conferred by a patent.

This is a very important decision for the pharmaceutical industry in Canada and for access to new medicines. The Fasken team led by Marc-André Fabien, Julie Desrosiers, Michael Shortt, Eliane Ellbogen, Mathieu Gagné and Dara Jospé are happy to have represented the appellants in this appeal.

This case joins a growing body of jurisprudence questioning the price control reasoning by the PMPRB and its pursuit of “reasonable” prices or the best possible prices. It is therefore an optimal time for patentees to reconsider their patented medicines pricing strategy. We remain available to discuss the case and its impacts on your drug pricing strategies.