On August 30, 2012, the Supreme Court of Canada granted leave to appeal the decision of the Ontario Court of Appeal upholding the Ontario regulations that restrict pharmacies from selling “private label” generic drugs.  The parties challenging the regulations include companies that own, operate and franchise retail pharmacies, including Shoppers Drug Mart Inc., and Sanis Health Inc., a generic drug company that sells its products primarily to its parent company, Shoppers Drug Mart.

In order for the cost of a drug product to be reimbursed by the Ontario government, the Ontario Drug Benefit Act (“ODBA”) mandates that the drug product be listed on the Ontario Drug Benefit Formulary.  For a generic drug product to be dispensed in place of the brand name version of the drug, Ontario’s Drug Interchangeability and Dispensing Fee Act (“DIDFA”) requires that the generic drug product be listed as interchangeable with the brand name version.  Under the impugned regulatory provisions[1] introduced in 2010 pursuant to these two statutes, “private label” generic drugs cannot be listed on the Ontario Drug Benefit Formulary and cannot be designated as interchangeable.  Generally speaking, a “private label” generic drug is defined as one that is supplied by a generic drug company that does not fabricate the drug itself and that does not have an arm-length’s relationship with the retail pharmacy.

In the 2-1 decision from which leave to appeal was granted, the Ontario Court of Appeal reversed the decision of the Divisional Court holding the “private-label” regulatory provisions to be outside the scope of the regulation-making power awarded to the government under the ODBA and the DIDFA.  MacPherson and Karakatsanis JJA (as she then was) held that the impugned provisions were within the jurisdiction of the government as they only sought to regulate — not to prohibit — the “private-label” generic companies from participating in the Ontario drug supply market.  The Court also held that the regulations were within the statutory purpose of the ODBA and the DIDFA to “to make generic drugs available to eligible persons and the rest of the public at low prices”.  In so finding, the majority noted that these provisions were introduced in order to prevent the “private label” model from circumventing the 2006 legislative ban on rebates paid by generic companies to pharmacies, which could reduce the competitiveness of the generic drug market and make future price reductions more difficult.

In dissent, Justice Epstein held that the regulations fell outside the regulation-making authority of the government as there was no nexus between the drug prices and the “private label” model, and because the effect of the provisions was prohibitive, rather than regulatory.  She further would have declared the provisions to be of no force and effect on the basis that they interfered with property and commercial rights in a manner not authorized by the ODBA or DIDFA and because they constituted unauthorized discrimination against “private-label” drug manufacturers.

No date for the hearing has been set as of yet.

The full text of the Ontario Court of Appeal and the Ontario Divisional Court decisions can be found at: