PMPRB-08-D3-ratio- merits, June 30, 2011, amended October 17, 2011

PMPRB-08-D3-ratio-Salbutamol HFA, May 27, 2011

PMPRB-10-D2-Sandoz-Merits dated August 1, 2012

Summary – The blurring of “brand” and “generic” has arguably grown over the past few years as companies develop strategies to take advantage of the best of both worlds.  “Authorized generics” and generic subsidiaries are common “blurring” methods.  The PMPRB’s stated mandate is to “[protect] the interests of Canadian consumers by ensuring that the prices of patented medicines sold in Canada are not excessive … by reviewing the prices that patentees charge for each individual patented drug product in Canadian markets” [emphasis added].  In carrying out its mandate, PMPRB has had to determine whether “traditional generics” may be rendered “patentees” according to contractual or corporate relationships that such generics may have with a “traditional brand/patentee”.  To date the PMPRB has arguably expanded the term “patentee” to include both authorized generics and generic subsidiaries.  It remains to be seen whether the Federal Court will agree with the PMPRB’s “wide net” approach.  Teva and Sandoz have currently brought review proceedings of PMPRB decisions to the Federal Court where these “traditional generics” argue the patented medicines regime does not apply to them.

Analysis – A recent decision of the PMPRB against Sandoz continues a trend of arguably interpreting the term “patentee” broadly under section 79 of the Patent Act (“Act”) which states:

“patentee”, in respect of an invention pertaining to a medicine, means the person for the time being entitled to the benefit of the patent for that invention and includes, where any other person is entitled to exercise any rights in relation to that patent other than under a licence continued by subsection 11(1) of the Patent Act Amendment Act, 1992 [compulsory licenses granted before December 20, 1991 – but now would have expired], that other person in respect of those rights” [emphasis added]

On its face, a “patentee”, according to the Act, includes not simply the patent owner or licensee, but anyone who has had any benefit of the patent.

In earlier decisions released in 2011, the PMPRB found:

  1. ratiopharm, as an authorized generic, is required to provide the PMPRB with prescribed information to permit price evaluation of several specific ratiopharm products (PMPRB-08-D3-ratio-merits, June 30, 2011, amended October 17, 2011); and
  2. ratio-salbutamol – an authorized generic of GSK – was in fact priced excessively and ratiopharm was required to pay over $65 million “to offset excess revenues” for a specific 8 year period over 2002-2010 (PMPRB-08-D3-ratio-Salbutamol HFA, May 27, 2011) (Orders filed in T-1705-11 and T-1707-11).

The ratiopharm/GSK agreement “grant[ed] to ratiopharm an exclusive licence to promote, market, and sell ratio-HFA in Canada”, but “expressly reserve[d] to GSK ownership in its … Patents.”  After a 6 day hearing, the PMPRB found that ratiopharm clearly exercised the right to use and sell under GSK’s patents, and that ratiopharm’s pricing was properly within the PMPRB’s broad consumer protection mandate.  Only after the PMPRB requested filing information in 2006 (4 years after the first sales of ratio-HFA), ratiopharm provided information and attended the 2010 hearing.  In its determination that ratiopharm’s pricing was excessive, the PMPRB was clearly concerned by ratiopharm’s inability to provide product specific information (including rebates) (para. 111).  A key issue was whether the PMPRB was even entitled to consider rebates (given an earlier Pfizer decision that suggested rebates could not be considered in evaluating pricing).  The PMPRB recognized some ambiguity, however found customer based rebates acceptable given its broad mandate and “The business reality of the pharmaceutical industry is one that operates by providing rebates and other payments throughout a chain of distribution.” (para. 124)  Ratiopharm’s (now Teva’s) judicial review applications are currently pending in the Federal Court[1].

Sandoz (another “traditional generic”) has also recently filed its own appeal of a PMPRB finding[2] that, as a wholly owned subsidiary of the brand Novartis AG, it was entitled to exercise rights in relation to Novartis’ patents.  In particular, Sandoz could sell authorized generic versions of Novartis’ drugs without the threat of being sued for patent infringement.  Sandoz was therefore obligated to comply with the reporting requirements of the PMPRB to permit pricing review.  In its initial pleading, Sandoz [3] argued that (1) it is a generic company selling generic products at prices that are already regulated by provincial authorities (hence no need for the PMPRB’s protection); (2) it is simply a re-seller who purchased finished product from Novartis similar to “any arm’s length vendor” and had “no patent rights”; and (3) there could be no abuse of monopoly power because Sandoz “had no monopoly power it could possibly abuse”.  Query however, whether any purchaser of goods from a patentee (whether at arm’s length or not) acquires “no” patent rights – according to standard patent exhaustion principles (whether set out explicitly in the sale agreement or not), such purchased goods would be immune from patent attack having “properly” entered the market.

Like Teva, Sandoz has attacked the PMPRB’s rationale that Sandoz (and Teva) must be covered – otherwise patent holders could easily “evade the application of the Act” with subsidiaries.  One of Sandoz’s most compelling arguments is that if it acquires patent rights by being a reseller – then so do other parties in the pharmaceutical supply chain.  One can wonder whether wholesalers, distributors and pharmacies will be the next targets of the PMPRB.  However, wholesalers and distributors arguably do not have their own product which could possibly be designated as a “patented product”.  The analysis becomes more complicated with pharmacies who do have their own products and could also be classified as resellers similar to Sandoz.

Although (understandably) not discussed in the Sandoz appeal – should Sandoz’s assertions – that there could be “no possibility of mischief that could arise from the abuse of monopoly power consequential on the grant of patent rights”, be correct, then presumably the PMPRB would ultimately find there are no excessive prices.  Instead, it would be expected that the provincial regulatory authorities would control such abuses.  Aside from the question of whether the specific Sandoz products in issue in this case are excessively priced[4], Sandoz (and other subsidiary generics) clearly have broader concerns as to the consequences of ongoing reporting obligations to the PMPRB going forward.  Another question to consider is:  Why has the PMPRB only now taken action?  It only started complaints against ratiopharm and Sandoz in 2006 (4 years after ratiopharm started selling) and 2008 (4-12 years after Sandoz started selling/relevant patents issued), respectively.  In its Notice of Application, the PMPRB indicated that Sandoz had only ever reported sales of one product that it had licensed from Merck (Vasotec).

Practice Point – Both “traditional brands” and “traditional generics” need to consider the possible effect of the PMPRB on their corporate activities in general.  The possible effect of an issuing pharmaceutical patent needs to be vetted – not simply from the perspective of the brand’s reporting obligations to the PMPRB, but from the perspective of any products in this drug area that the brand, or a business partner, is to receive a benefit from – directly or indirectly.  This is a relatively new area of investigation for the PMPRB.  Until there are more judicial pronouncements in this area, the practical/likely limits of the PMPRB remain unclear.