Court overturns PMPRB's Requirement for Reporting of Third Party Payments
By: Adrienne Blanchard

The Federal Court released its decision on July 10, 2009, setting aside a Communiqué of the Patented Medicine Prices Review Board (PMPRB) dated August 18, 2008, under which the PMPRB had advised patentees that "full mandatory reporting" would be insisted upon, and that the calculation of the average price must include any and all benefits that are "connected to sales transactions", including payments to third parties. In its decision, the court, in interpreting the Patented Medicines Regulations, held that third party payments, such as expenditure limitation agreements with the provinces, are not required to be reported by patentees to the PMPRB for inclusion in calculating the average transaction price of a medicine.

Justice Mactavish, in reaching her decision, addressed a number of issues and made a number of particularly notable comments. Firstly, the court dealt with the legal question of whether the applications were "premature"; the Respondent, the Attorney General, had objected to the hearing of the matter on the basis that no patentee had yet been subject to the mandatory reporting requirement and that as such, the August 18 decision at issue was not yet reviewable. The court disagreed, finding that no factual underpinning was required to decide what was in essence a pure question of statutory interpretation.

Mactavish, J. outlined the history and facts leading up to the August 18, 2008 Communiqué, and observed that although the Board appeared to interpret the court's decision in Leo Pharma [also known as the "Dovobet decision"] as requiring the reporting of rebates or payments made to third parties, the Leo Pharma decision did not address the issue in this case. Specifically, the Leo Pharma case, while holding that the average price for a medicine must take into account any reduction given as a promotion or in the form of rebates, discounts, refunds, free goods, free services, gifts or any other benefits of a like nature, the case did not consider whether this obligation extends to "rebates or payments to third parties".

The court stated that, in addressing the central issue of whether such payments are reportable, "the starting point must be a consideration of the constitutional limitations on what Parliament can, and cannot, do in relation to drug prices." In further considering the object of the Patent Act and the Patented Medicines Regulations, as well as the intention of Parliament, the court commented that "the Board does not set the prices for patented medicines in Canada, nor does it control the profits made by patentees. Rather, the role of the Board is to monitor the prices charged by patentees for patented medicines, so as to ensure that these prices are not excessive."

On the specific question of whether third party payments are reportable, the court interpreted the terms "sale" and "customer", finding that, "The fact that the payments made by patentees under expenditure limitation agreements may, in some cases, be calculated as a percentage of the sales of the patented medicine in question does not make the province a customer of the patentee ... Indeed, the recognition that provinces are not "customers" of the patentees is implicit in the Board's own description of them as "third parties"."

Mactavish J. again commented on the constitutional aspects of the Board's powers, stating that:

I would also observe that my interpretation of the Patent Act and the Patented Medicines Regulations is consistent with the constitutional limitation on the Board's ability to look beyond the factory-gate price of patented medicines, to consider contractual arrangements involving patentees and entities further down the distribution chain.

Quite apart from the constitutional issues that would arise if the Board were able to go beyond an examination of the factory-gate prices charged for patented medicines, it is also clear from subsections 4(5) and 4(6) of the Regulations that the Board is only empowered to inquire into prices charged beyond the factory-gate where the factory-gate sale by the patentee is a non-arm's length transaction.

Furthermore, if correct, the Board's interpretation would allow it to go well beyond the examination of the prices charged by patentees at the factory-gate for patented medicines in order to determine whether such prices were "excessive" within the meaning of the Patent Act and Regulations.

As to whether a payment to a province constitutes a "rebate", Mactavish J. referred to Black's Law Dictionary, 6th ed., (1990), where "rebate" is defined as a "Discount; deduction or refund of money in consideration of prompt payment .... A deduction or drawback from a stipulated payment, charge, or rate ... not taken out in advance of payment, but handed back to the payer after [it] has paid the full stipulated sum". Given that the term "rebate" "refers to the return of a portion of money actually paid", the court held that, as a consequence, a "rebate" cannot be paid to a stranger to the sale transaction.

Even if the monies paid to the provinces by patentees could be considered to be a "refund", a "discount" or "any other benefit of a like nature", such payments still do not relate to patented medicines "sold" to a "customer" as contemplated by subparagraph 4(1)(f)(i) of the Patented Medicines Regulations.

In the result, the court set aside the decision (the Communiqué of August 18, 2008), and declared that subsections 4(1)(f)(i) and 4(4) of the Patented Medicines Regulations do not authorize the Board to require the reporting of rebates or payments made to third parties by the manufacturers of patented medicines.

Gowlings' Martin Mason (martin.mason@gowlings.com) and Graham Ragan (graham.ragan@gowlings.com) represented the applicants Canada's Research-Based Pharmaceutical Companies (Rx&D) and 17 co-applicant Rx&D member companies. To view the decision see:
http://www.gowlings.com/resources/enewsletters/drugpricingreimbursement/pdfs/T-1442-08-T-1447-08.pdf