On December 5, 2022, the Federal Court of Appeal (FCA) upheld the validity of changes to the list of countries used for international reference pricing by the Patented Medicine Prices Review Board (PMPRB). This new schedule of countries, known as the PMPRB11, removes the United States and Switzerland while adding six lower-price jurisdictions.[i] The FCA agreed with the Federal Court that the decision to change the countries was not in and of itself unreasonable and dismissed the appeal. The FCA did however note that misuse of the PMPRB11 would be subject to further review. The Attorney General’s cross-appeal concerning the scope of net price reporting to the PMPRB was also dismissed.

Background

The amendment to introduce the PMPRB11 was originally part of a broader suite of changes that also included:

  • The New Price Calculation, which required patentees to include confidential third-party rebates paid to insurers under listing agreements when reporting net prices to the PMPRB; and
  • The New Mandatory Factors, which required the Board to consider pharmacoeconomic value, market size, and Gross Domestic Product when determining whether the price of a medicine was “excessive”.

In 2020, the Federal Court declared the New Price Calculation to be ultra vires the Patent Act, but upheld the New Mandatory Factors and the PMPRB11. Both the industry applicants and the Attorney General appealed.

The PMPRB11 is a valid reporting requirement

As we reported, the New Price Calculation and the New Mandatory Factors were repealed by the Minister of Health following the hearing in the FCA, but before judgment. The FCA agreed with the parties that the appeals concerning these repealed amendments were moot. The Attorney General’s cross-appeal on the New Price Calculation was dismissed on this basis. The industry appellants’ appeal on the PMPRB11 was the only remaining issue to be decided by the FCA.

The FCA held that the PMPRB11 list of reference price countries is only a reporting requirement: the choice of countries by the Governor in Council “says nothing about what the Board will do” with the price information it receives as a result.

The Court also dismissed the argument that the PMPRB11 amendment was made for the improper purpose of achieving systemic cost savings and price control, unrelated to the Board’s “excessive price” mandate. In reaching this conclusion, the Court gave little weight to government statements regarding the goals for the amendments, holding that “only the clearest evidence will suffice” to prove colourability.

The FCA affirms statutory limits on the PMPRB

The Court expressly affirmed the statutory limits on how the Board can use this PMPRB11 price information, holding that “pure price regulation or price setting is invalid; policing excessive pricing is valid.” However, the Court left the question of whether these limits will be exceeded until later, depending on how the information is used by the Board:

If the Board later uses that comparative information to set or control prices—rather than police excessive pricing—an aggrieved party can establish on judicial review that the Board has exceeded its jurisdiction. In short, the sin is not in the gathering of information; if a sin is committed, it will be later when the information is improperly used.

Para. 24.

The FCA rejects a hyperdeferential standard of review for regulations

Consistent with the FCA’s prior decision in Portnov, the FCA agreed with the industry appellants’ arguments that the standard of review for regulations made by the Governor in Council is reasonableness as set out in Vavilov, which has supplanted the standard of review in the Supreme Court’s earlier Katz decision. This is significant, as the Katz standard required any challenger to the validity of a regulation to establish that the regulation is “irrelevant”, “extraneous” or “completely unrelated” to the “statutory purpose”. The test in Katz as been described as “hyperdeferential” compared to the standard of reasonableness review adopted in Vavilov, which does not require the challenger to overcome a presumption that the regulation is valid.

Update on implementation by the PMPRB

As we reported, the PMPRB11 reporting requirement came into force on July 1, 2022 and the PMPRB issued an interim guidance on its review process, pending the release of proposed new guidelines intended to implement the PMPRB11. Consultation on a draft of the new guidelines closed on December 5, 2022.

Links

The decision is: Innovative Medicines Canada v Canada (AG), 2022 FCA 210

Norton Rose Fulbright Canada LLP was counsel to the appellants, Innovative Medicines Canada et al.

[i] The PMPRB11 Schedule of countries consists of: Australia, Belgium, France, Germany, Italy, Japan, Netherlands, Norway, Spain, Sweden, United Kingdom. The former list of countries, known as the PMPRB7, consisted of: France, Germany, Italy, Sweden, Switzerland, United Kingdom, and United States.