W. Neil Palmer
In its December 2019 NEWSletter[1], the Patented Medicine Prices Review Board (PMPRB) is “reminding” patentees that they are required under the Patent Act (the Act) and the Patented Medicines Regulations (the Regulations) to file all zero-dollar sales, referring specifically to free goods. This “reminder” is troubling as it creates new disincentives for manufacturers (patentees) to offer programs that benefit patients and sows confusion with respect to current and future filing requirements under the Regulations.
First, there is a legal question as to whether the provision of a free good is in fact a sale. Legal definitions consider a sale to be the provision of a good or service in exchange for consideration, typically money.[2] Consideration is an essential element of a sales transaction such that the sale is contingent upon the seller receiving the consideration.
Accordingly, provision of compassionate free drugs through the Health Canada Special Access Programme (SAP) or for drugs supplied by a patentee without charge for conducting a clinical trial are not sales. Furthermore, samples of drug products in non-salable form distributed to physicians have typically not been reported under the Regulations. However, free goods are to be reported under the Regulations as “benefits” in the calculation of net revenues or average price is a separate matter (as I discuss below).
The phrase “zero-dollar sale” does not appear in the Regulations or the Act. The references to free goods are in connection with the calculation of “net revenues” or “average price per package”[3] but do not define the provision of free goods as “sales”, per se.
The Patented Medicines Regulations require patentees to file an initial Form-2 (price and sales information) within 30 days of a first sale.[4] In other words, the initial Form-2 cannot be filed unless and until there is a sale for consideration.
Second, the PMPRB recognized in April 2000[5] (with a brief hiccup in 2007[6]), that requiring patentees to report free goods and other benefits might in some cases have the perverse effect of disincentivizing patentees from introducing programs that benefit patients, as fluctuations in the volumes of free goods (or rebates, etc.) could result in fluctuating average transaction prices which in turn could trigger an investigation. The PMPRB provided patentees with the following Guidance:
“For instance, products supplied under a compassionate release program can either be included or excluded by the patentees; however, the inclusion or exclusion thereof must be consistent in all reporting periods.”
“In summary, it is the Board’s intention in these circumstances that its policies and procedures not discourage a patentee from offering an incentive program or entering into an agreement which would benefit patients. However, the patentee must be consistent in reporting such programs from one reporting period to the next so as to avoid artificial fluctuations in the price calculated for price review purposes.”[7]
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The PMPRB’s proposed changes to the Guidelines may address the issue of fluctuations in the average transaction price. However, under the draft Guidelines, the quantities (units) of drug sold (including quantities distributed free of charge) will be used in the calculation of each drug’s market size which, in turn, may be used calculate a reduction in the maximum rebated price for the drug[8], thus creating a new disincentive for offering free goods on a compassionate basis to patients or for supplying drugs for clinical trials.
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Finally, characterizing this new policy as a “reminder” is disingenuous and infers that the long-standing April 2000 policy never existed. Moreover, it may raise fears among patentees that they have not been complying with the Regulations despite following the guidance outlined in the April 2000 NEWSletter.
The PMPRB should defer implementation of this new policy until it consults with industry and can fully understand the consequences (intended and unintended) and make any necessary clarifications and amendments. PMPRB needs to ensure its policies do not disincentivize patentees from offering programs that benefit patients or from conducting clinical trials in Canada. Specifically, the PMPRB should:
- Continue the April 2000 policy unless and until there are compelling reasons for change
- Consult with patentees regarding any proposed changes
- Clarify whether drug supplied for clinical trials or as samples in non-salable form should, or should not, be reported under the Regulations
- Clarify the definition of a “first sale” and whether reporting of free goods under the Regulations should only commence after a first sale for consideration
- Implement any new policy regarding the reporting of free goods at the same time as implementation of the New Guidelines
The PMPRB should also release, as soon as possible, a draft of an updated Patentees’ Guide to Reporting (including all forms) for notice and comment so that patentees are able to provide feedback and the PMPRB can provide final guidance in time to comply with the amended Regulations when they come into effect July 2020.
In the interim, patentees should seek advice of legal counsel and direct specific questions and concerns with respect to compliance with this policy to the PMPRB Regulatory Affairs and Outreach Branch. Please contact PDCI for strategic (but not legal) advice regarding the impact, implications and compliance with the PMPRB’s Regulations, Guidelines and policies.
Neil Palmer (neil.palmer@pdci.ca) is Senior Strategic Adviser at PDCI Market Access Inc.
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[1] PMPRB NEWSletter December 2019, https://pmprb-cepmb.gc.ca/view.asp?ccid=1485
[2] For example, Duhaime’s Law Dicitonary defines a sale as “The exchange of goods or services for consideration.” http://www.duhaime.org/LegalDictionary/S/Sale.aspx
[3] Patented Medicines Regulations paragraphs 4(4)(a, b) https://laws-lois.justice.gc.ca/eng/regulations/sor-94-688/page-1.html#h-966035
[4] Op cit, Patented Medicines Regulations paragraph 4(2)(a)
[5] PMPRB NEWSletter April 2000, http://www.pmprb-cepmb.gc.ca/CMFiles/News%20and%20Events/Speeches/NEWSletter_2000_2_April_E.pdf
[6] The April 2000 policy for reporting free goods and other benefits was briefly rescinded in the April 2007 NEWSletter but restored in July 2007 NEWSletter
[7] Op cit, PMPRB NEWSletter April 2000
[8] PMPRB Draft Guidelines, Appendix D, Market Size Adjustment Methodology, https://www.canada.ca/en/patented-medicine-prices-review/services/consultations/draft-guidelines.html#a34