Two Pending Federal Court Decisions that Could Have a Major Impact on Pharma & the PMPRB!

Two cases currently before the Federal Court of Canada could profoundly affect the PMPRB’s jurisdiction and the scope of its reviews. Both were argued in early November 2013 and, in the normal course, decisions would be expected very shortly.

The cases are Sandoz Canada v. Attorney General of Canada, and Ratiopharm (Now Teva) v. Attorney General of Canada.

Both cases are applications to the Federal Court of Canada for judicial review of PMPRB Board Panel decisions. The two cases raise a number of lady justice1significant issues about the jurisdiction and scope of the PMPRB’s powers, including:

  • A potential new exclusion to who the PMPRB may treat as “patentees”;
  • Constitutional limits on the powers of the PMPRB to regulate drugs competing as “generics”; and
  • Clarification from Federal Court as to whether the PMPRB may regulate and consider rebates paid to non-factory-gate parties that are not governments.

Specifically, both applications raised the question of whether separate corporate entities that do not own or control any patents, and purchase patented drugs as finished goods from the IP-owning or controlling company “patentees”, are subject to the PMPRB’s jurisdiction (as opposed to the IP-owing companies that sell to them in the first place).

The facts of two cases vary: ratiopharm had written supply agreements for ratio-Salbutramol HFA with the manufacturer (and IP owner), GSK, but those agreements explicitly stated that ratiopharm had absolutely no express or implied rights with respect to any related patents; whereas Sandoz Canada, although a wholly controlled subsidiary of Novartis, did not have any written agreement with its parent and claimed to have no direct control over the patents held by the Novartis companies for five drugs (cyclosporine, famciclovir, azithromycin, estradiol and terbinfine). For these reasons, both argued at their Board Hearings that they did not fall within the definition of “patentee” as set out in PMPRB regulations and were not therefore subject to PMPRB jurisdiction.

Both companies also challenged the constitutionality of the provisions of the federal Patent Act upon which the PMPRB operates. Specifically, they argued that the empowering provisions of the Patent Act were only intended to grant the PMPRB power to regulate the prices of patented medicines sold by innovative pharmaceutical companies to ensure that exclusivity rights granted by their patents were not used to charge excessive prices.  In their view, the powers of the PMPRB were never intended to extend to generic companies, which compete in a very different marketplace in which purchasers are already able to exert tight control over the prices of generic drugs.

These constitutional arguments were rejected by the PMPRB Board Panel, which, in both cases, relied on the Federal Court of Appeal’s decision in ICN v. Canada (1996) to rule that the constitutional authority of the PMPRB had already been definitively settled.

The ratiopharm action raises another question of critical importance to the branded pharma industry, namely, whether – despite the Federal Court’s ruling in the Rx&D’s successful challenge of the PMPRB’s move to review rebates paid to third party government formularies (Pfizer v. Attorney General of Canada (2009)) – ratiopharm was entitled to reduce its drug revenues by deducting certain “professional allowances” related to ratio-Salbutramol HFA that were paid to downstream parties that were not immediate (“factory-gate”) customers of ratiopharm.

The PMPRB Board Panel did not actually decide whether ratiopharm would be allowed, as a matter of law, to make those deductions because it found that insufficient evidence had been offered to prove the existence (and amounts) of those payments. However, the Board did state in its reasons that had there been sufficient proof, it would have allowed the deduction of those rebates – even if paid to third parties who were not “factory-gate” customers – as long as they were not paid to provinces in consideration for listing drugs.  This is the narrowest possible interpretation of the Pfizer case.

This last point, though not central to the judical reviews, may turn out to be the most contentious of all.

The common wisdom of Canadian pharma companies after the Pfizer case has been that the PMPRB may not compel disclosure or seek to regulate rebates paid by innovator companies to any third parties who are not the immediate “factory-gate” customers of those companies – i.e. public formularies, but also pharmacies or other non-government entities further down the supply channel who do not buy directly from the pharma company.  If the Board’s narrow interpretation is correct, the PMPRB would be within its rights to compel companies to report, for example, rebates paid as part of a listing agreement with a private health insurer.

Because the PMPRB Board in Ratiopharm merely offered its opinion on the proper treatment of those payments had they been proven, the pending Federal Court decision will not have to deal with the issue directly.  However, any comments that the Federal Court does choose to make as to whether the Pfizer decision should be given a wide or narrow interpretation going forward should be very carefully analyzed by Canadian pharma companies as an indication as to the outcome of future cases.

As the ancient Chinese proverb says, “may you live in interesting times!”

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