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CANADIAN DRUG PRICE REVIEW BOARD SEEKING INPUT ON PLAN TO ENSURE PRICES DO NOT EXCEED INTERNATIONAL MEDIAN; THREE-YEAR CHANGE IN CPI TO GUIDE PRICE INCREASES

Executive Summary

Canada's Patented medicine Prices Review Board is soliciting input on its plan to amend its pricing guidelines to ensure that Canadian drug prices do not exceed those in other countries. Having postponed a final decision on its original proposal to use median international price to guide most new drug pricing, the board has invited interested parties to comment on the plans that are now on the table and to offer suggestions for alternative methods. In October 1992, Canada's drug price review board published several proposals for amendments to its guidelines on excessive price, one of which would have brought international pricing into the guideline for new drugs offering moderate, little or not therapeutic improvement. The proposal was intended to address evidence that many such new drugs were introduced in Canada in 1990 and 1991 at prices higher than the international median price, yet within the board's guidelines. The board's mandate is to ensure that prices of patented medicines are not excessive, and it does so by establishing pricing guidelines, reviewing prices and taking remedial action where necessary against companies with drugs that are judged to be excessively priced. The guidelines cover both new and existing patented drugs, with new drugs divided into three categories: line extensions; drugs providing substantial therapeutic improvement; and moderate, little or no improvement. Under the current guidelines, an international pricing comparison is made only with regard to medicines in category two. A drug that represents a substantial improvement is considered excessively priced if its introductory price is greater than the prices of all other drugs in its therapeutic category and the median international price of the drug, which is computed from prices in France, Germany, Italy, Sweden, Switzerland, the U.K. and the U.S. Line extensions are compared to the price of other products of the same medicine or the same therapeutic class. At present, the guidelines provide that the introductory prices of new drugs in category three may not exceed the prices of other drugs in the therapeutic class. The proposal published last year would have added the median international price for the same product as a further limit on the price of the drug. Following nine months of consultation, the board reported its decision on the proposals in a July PMPRB Bulletin. "The proposal to amend the guidelines for new medicines in category three has proven to be the most contentious," the board stated. Because of the various issues raised during the consultations on the proposal, the bulletin explains, "the board believes it would be premature to make a final decision on the proposal now." A number of questions were raised during the course of the consultations as to whether the board's proposal would be the most appropriate way of ensuring that prices of patented medicines in Canada are not excessive. While consumer and professional health groups generally supported the board's proposal and the principle that Canada should not pay more than other countries, the bulletin reports, patentees noted that the effect of the board's proposal over time would be to ensure that Canadian prices are, on average, below the median international price. The board reported that many provinces supported the proposal, and some felt it should be more restrictive. Ontario recommended that PMPRB undertake a more comprehensive review and make no changes until their impact has been evaluated in light of the revisions made in February to Canada's Patent Act (C-91). In the past, PMPRB's compliance policy had rested upon its power to remove a drug's market exclusivity. However Bill C-91, enacted Feb. 4, abolished compulsory licensing and gave the board authority to order price reductions or penalties to compensate for past excessive revenues ("The Pink Sheet" Feb. 22, T&G-4). The Pharmaceutical Manufacturers Association of Canada offered an alternative proposal under which category three drugs would be broken down so that medicines which provide moderate improvements would be allowed greater pricing flexibility than medicines bringing little or no improvements. Under the board's proposal, only category two new drugs -- substantial improvements -- would be permitted greater pricing flexibility. The board has asked its staff to analyze PMAC's proposal and any other options which should be considered. The staff also has been asked to analyze the most recent evidence on the relationship of Canadian prices to prices elsewhere. The bulletin invites interested parties to "comment on specific questions and to make recommendations," with written comments due by Sept. 8. The board will consider the issue further at its meeting in September. While both the PMPRB proposal and PMAC's proposal apply different price tests to different categories of drugs and permit some introductory prices to exceed the median international price, the board suggests there is another approach to ensure that Canadian prices should not, on average, exceed the median in other countries. The second approach would be "to deal only with extreme cases such as where the Canadian price exceeds the price in all other countries" considered in the board's regulations. The board's concern with cases where the Canadian price exceeds the price in all other countries extends to both new and existing medicines. The board found that 24% of the top-selling drugs were priced higher in Canada than in any of the eight reference countries in which they were sold, and yet were priced within the current guidelines. While it maintains that, over time, its original proposal would have an effect on existing drug prices, the board has asked interested parties to comment on whether the guidelines should limit the prices of existing patented drugs -- or just new patented drugs or just category three drugs -- to ensure that they do not exceed the prices in all other countries. If the guidelines were to limit the prices of existing drugs to ensure that they do not exceed prices in all other countries, the board asks, "are there alternatives to requiring an immediate price adjustment where the price of an existing medicine has been established in good faith based on the current guidelines?" The board also seeks suggestions on how often such a test should be applied. The current guideline for reviewing the prices of existing drugs calls for a comparison between the cumulative change in the price of a drug since its introduction (or since the inception of the board in 1987, whichever is more recent) and the cumulative change in the Canadian Consumer Price Index during that same period. One of the proposals published last October, however, would have limited one year price increases to the one year change in the CPI. The board's decision, announced in the July bulletin, is to restrict the cumulative feature of the CPI guideline to three years. In addition, one year price increases in the current pricing period may not exceed 1.5 times the forecast change in the annual CPI. This new methodology will become effective Jan. 1, 1994. In an effort to make its review process more transparent, PMPRB published for the first time the criteria for commencing an investigation. Following each pricing period (either six months or one year), PMPRB will investigate a drug product when the price is 5% or more above the maximum non-excessive price; cumulative excess revenues are $25,000 or more over the life of the patent after Jan. 1, 1992; or there are complaints with significant evidence. If a drug product is subject to a Voluntary Compliance Undertaking, then the board will investigate if the price is 1% or more above the maximum non-excessive price and excess revenues are $1,000 or more during the review period. If the investigation confirms that the price exceeds the guidelines, a patentee who has earned excess revenues may choose to adjust its price voluntarily and pay back the excess revenues through a Voluntary Compliance Undertaking. Excess revenues below $25,000 can be reduced voluntarily by pricing below the non- excessive price in subsequent pricing periods. PMPRB accepted two VCUs in June from Genentech for Activase ("The Pink Sheet" June 7, T&G-13) and Rhone-Poulenc Rorer for Imovane ("The Pink Sheet" June 21, p. 2). Genentech agreed to a payment of C$1.755 mil. and an immediate price reduction. RPR agreed to pay C$1.66 mil.

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