Canada’s Patented Medicines Board Leans Heavily on Its Consumer Protection Mandate, and Uses “The Ends Justify the Means” Approach to Lower the Price of an Orphan Drug

The Patented Medicines Prices Review Board (“Board”) recently concluded a 7 year saga regarding its evaluation of the price for Soliris – Alexion’s admittedly breakthrough drug for rare blood disorders. This is the first Board decision dealing with an orphan drug. The Decision aptly illustrates that using the traditional statutory/regulatory framework for patented medicines pricing to evaluate Soliris (which has gained notoriety as the world’s most expensive drug) may be like fitting a square peg into a round hole. The Soliris story provides a rare glimpse into the inner workings of the quasi-judicial price regulating body. Notable highlights include: the zig zagged approach of the Staff, the Board’s adoption of a completely new benchmark for price based on “unique circumstances” (which in many respects are not unique), as well as the Board recognizing it is not limited to the Guidelines where this would be an unreasonable application of the Patent Act, and at the same time on balance applying the Guidelines. The Board ignored Alexion’s apparent bona fide efforts to abide by the regime, and found it was not unfair to introduce a new benchmark test (even though under the old test Soliris pricing was still excessive). Patentees are well aware of the risk that the Board may implement any procedures it deems appropriate at the hearing stage. At the same time, the Board recognized the punitive effect of retroactively applying its new test to Soliris over 2009-2015. Instead a two part remedy was ordered: apply the old test with respect to past excesses, and restrict application of the new test (to compel an even lower price) to only the current/future price of Soliris.

1. Summary

The Board considered whether the Guidelines should be applied to ensure a “reasonable implementation” of statutory factors, appropriate to apply in the particular circumstances of Soliris. This was an unusual case in that even Staff argued that the Guidelines should not apply, as well as the patentee Alexion.

The Board recognized its broad discretion to use its own judgment to apply the statutory factors to Soliris, with Alexion’s concerns of transparency, fairness and certainty falling on deaf ears (until the issue of remedy was decided as noted above):

133… Parliament clearly contemplated that different tests and approaches may be appropriate for different patented medicines, and it chose to give the Panel the discretion to determine what tests and approaches should be applied in an excessive pricing hearing.

The Board was careful not to overtly stray into broad policy parameters like ability to pay, treatment cost, GDP, median income, and Soliris’ disproportionate price as compared to other expensive drugs for rare diseases (EDRD). Provincial Ministers of Health advocated a balancing of such factors to ultimately further lower price. Interestingly, the Board found that the definition of “therapeutic class” was within its expertise, and excluded Staff’s expert evidence directed at expanding the class to include other EDRD. Instead, the Board quickly dispensed with this argument and found there were no other drugs in the same therapeutic class ie. having clinical equivalence. Although summarily dispensed with by the Board, this was a significant issue. Staff had attempted to take a completely new approach to combat orphan drug pricing dynamics by creating a new type of therapeutic class with policy considerations in mind, notwithstanding such concerns are clearly not covered off in the applicable statutory factors.

The Board did accept Staff’s proposal to use a completely new international pricing benchmark, one that was not contained in the Guidelines. When comparing Canadian price to comparator countries (as specified in the Regulations), the Guidelines set a benchmark of the “Highest International Price” (HIPC). The Board found this was not reasonable in the particular circumstances and instead required Soliris’ benchmark to be the “Lowest International Price” (in this case UK). In reaching this conclusion, the Board conducts a policy type analysis of other countries to conclude that Alexion’s overblown Canadian price was much higher than necessary to earn it a normal rate of return and cover its costs, and was a significant burden on provincial health budgets as compared to other EDRDs. After noting that even the lowest comparator UK had been criticizing the price of Soliris, the Board found:

“While this Panel cannot comment on whether the UK price of Soliris is excessive under the regime in the UK, this certainly suggests to the Panel that permitting Alexion to sell at a price up to the UK price is generous to Alexion.”

The Board was also persuaded by the disparate pricing as compared to the US, which generally has the highest pharmaceutical prices. The Board was irked by Alexion’s willingness to supply a market like the US at a much lower price than the Canadian price:

“No explanation or justification was provided to the Panel as to why Canadians should be paying significantly more for Soliris than comparable developed countries, including the United States and the United Kingdom.”

Regarding exchange rates used to compare international pricing, the Board returned to the Guidelines which precisely covered Alexion’s case. Soliris price had not increased since introduction, and initially Staff had found the price of Soliris was compliant, with noncompliance solely the result of exchange rates. The Board found the Guidelines “generous” to patentees in permitting time to adjust pricing based on changes in exchange rates. Alexion was aware of the risk of varying exchange rates and had considered this in in own general business plans. Although recognizing that using exchange rates to convert foreign drug prices and enable “apples to apples” comparisons was not a perfect solution, it was reasonable in the circumstances. In any event it was irrelevant given the Board had selected a new lower benchmark. Alexion’s alternative approaches (factoring in supply/demand/purchasing power) were too difficult to implement. Even Alexion had applied its approach inconsistently in this case. Moreover, a PMPRB Working Group had already considered and rejected this option.

Regarding the ultimate remedy ordered – Alexion received the most lenient treatment according to the range of potential penalties sought by Staff for past excess revenues. This appears to be the only part of the Decision where procedural fairness was a factor in the Board’s analysis. Some leniency is suggested given Soliris may be considered a “test case” raising unique considerations. As the matter proceeded, Staff had argued for overpayment in the range of $4.7-$91 million, depending on the test accepted by the Board (including the LPIC test, as well as a new definition of therapeutic class not based on clinical equivalence that would include other lower priced orphan drugs). Considering the evidence and unique circumstances (this time in Alexion’s favour), the Board found it appropriate, fair, and consistent with its mandate to apply the old HIPC test with respect to past excessive pricing, and require the new LPIC test only with respect to the current price. The actual offset amount for excess revenue was recently calculated as $4.2 m, covering 2010-2017 (November 8, 2017 Decision).

2. Practice Points

It is difficult to reach a consensus of “lessons learned” in respect of the Decision. The Board relies heavily on its broad powers to reasonably apply the Patent Act based on its “own expertise” in this particular case, irrespective of what the Guidelines or the parties may say.

An “elephant in the room” not discussed in the Decision: the PMPRB is currently considering a complete overhaul of its Guidelines, inter alia, to start considering overt policy issues, and adopt an expansion of therapeutic class such as was denied in the Soliris case. Health Canada has also recently indicated an intention to similarly overhaul the Regulations, which have not been amended in 20 years. In some respects Alexion may have won the battle but will lose the war once these changes are in place. Notably the Board in this case found policy submissions from provincial Ministers of Health largely irrelevant. The Ministers were a first-time participant in a PMPRB proceeding, denoting the significance of the orphan drug pricing issue. Underlying the adoption of the new LPIC test is the expectation that this test may now be increasingly applicable (even before the framework overhaul) given patentees are now formally on notice that at any oral hearing the Board may advocate such a new test to further its consumer protection mandate.

As one would expect, the Soliris story is not over yet. Alexion’s current judicial review to the Federal Court (T-1596-17) may provide further guidance for orphan drug patentees. At the same time, given the many grey areas always in play in the context of pharmaceutical pricing, and Parliament’s accepted expertise of the Board, it is more likely than not that if any error is to be found it will be a procedural type error. Any resulting Federal Court decision will simply push the case back down to the Board to freely make its substantive decisions within any modified court mandated procedures.

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