Mr. Chair, members of the committee, good afternoon.
Thank you for the invitation to appear before you today. My name is Tanya Potashnik, and I'm the director of policy and economic analysis at the PMPRB. With me today I have my colleague, Guillaume Couillard, who is the director of the board secretariat, communications and strategic planning at the board.
I'm appearing today before you on behalf of our executive director who has fallen sick and sends his regrets.
The PMPRB is an independent, quasi-judicial body established by Parliament in 1987 as a result of major reforms to the Canadian drug patent regime. These reforms sought to balance strengthened patent protection for pharmaceutical companies with consumer protection from excessively priced patented drugs. As you may know, in return for these newly strengthened rights, the pharmaceutical industry committed to increase its R and D in Canada to 10% of sales.
Although the PMPRB is part of the Health portfolio, because we are in part an administrative tribunal with a quasi-judicial function, we must carry out our mandate at arm's length from the Minister of Health and other portfolio members.
The PMPRB is composed of approximately 70 civil servants, known commonly as board staff, and five Governor in Council appointment board members. The chairperson of the board is designated under the Patent Act as the CEO of the PMPRB, with the responsibility to supervise and direct the work of the PMPRB. Its work is carried out by board staff under the day-to-day direction of the executive director.
The PMPRB is a consumer protection agency with a dual mandate; first, to ensure that prices at which pharmaceutical companies sell their patented medicines in Canada are not excessive; and second, to report on pharmaceutical trends in general and on R and D spending by pharmaceutical patentees in particular.
In terms of a price regulating mandate, the PMPRB sets ceiling prices based on the factors in the Patent Act and its guidelines for all new patented drugs when they enter into the Canadian market and are continually regulated until the patent expires. There are approximately 1,300 patented drugs under the PMPRB jurisdiction at any given time.
The PMPRB encourages patentees to comply voluntarily with its price ceilings and investigates any suspected instances of excessive pricing. When the result of an investigation is that the patented medicine appears to be priced excessively, the patentee is given the option to lower its price and/or refund the excess revenues through a voluntary compliance undertaking, commonly known as a VCU.
If a patentee chooses not to submit a VCU, the chairperson of the board may issue a notice of hearing. At the hearing, staff and patentees appear as parties before the panel of two to three board members who must exercise their quasi-judicial responsibilities by making a legal finding based on the evidence and the applicable factors in the Patent Act as to whether the drug is priced excessively. If the panel finds that the price is indeed excessive it can order a patentee to reduce the price and/or refund the excess revenue.
In carrying out its quasi-judicial responsibility, the board possesses all the powers, rights, and privileges as are vested in superior court.
Since 2008, PMPRB has accepted 67 voluntary compliance undertakings from patentees, for a total of more than $100 million in excess revenue refunded to the Government of Canada.
As of today, the PMPRB staff is overseeing more than 100 investigations of suspected excessive pricing, and there are three active hearings before the board. There are also a number of ongoing Federal Court cases that relate to the decisions of the board or the scope of its jurisdiction. One such case seeks to have the provisions of the Patent Act, which empower the PMPRB to set price ceilings on patented drugs, declared unconstitutional. If successful, this would mean the federal government has no meaningful role to play in controlling drug prices at the national level.
In terms of our reporting mandate, the PMPRB reports annually to Parliament through the Minister of Health on its price review activities, the prices of patented medicines, and price trends for all prescription drugs, as well as R and D expenditures that are reported to it by the patentees.
In addition to its annual report, the PMPRB publishes a multitude of studies every year under the national prescription drug utilization information system that was already mentioned by my colleague. The PMPRB has produced and published approximately 28 analytical studies over the last decade under the NPDUIS initiative.
In the last two years in particular, the PMPRB has worked closely with provincial governments through NPDUIS and directly with lead jurisdictions through the Council of the Federation to provide relevant pricing and market analysis aimed at reducing costs of generic drugs in Canada.
The work of the PMPRB was referenced in achieving price reductions in 18 commonly used generic drugs and continues to inform discussions on generic prices in a national framework.
These are challenging times for industry and pricing and reimbursement authorities alike. While recent years saw growth in drug expenditures stabilize relative to a decade ago, as already mentioned, by any measure Canadians spend an inordinate amount on drugs relative to our OECD partners. While Canada has enjoyed a period of relative stability in the growth of drug expenditures lately, the PMPRB's analysis of the underlying cost drivers behind these trends suggests that increased spending on high-cost specialty drugs, such as biologics, oncology drugs, and orphan drugs, will place increasing strain on the public and private drug plans. Global spending on these drugs is projected to quadruple by 2020. In 2014, Canadian spending on biologics and oncology drugs grew by double digits, and spending on new drugs alone increased tenfold.
The PMPRB's 2014 annual report, tabled in Parliament last December, provides some helpful high-level statistics to explain that spending in context and breaks it down further.
Internationally, Canada ranks in the top 10 major drug markets and boasts sales similar to those of the U.K.
Sales of patented drug products in Canada increased by 3.1% in 2014, to $13.7 billion. Although our prices in Canada do not increase beyond the rate of inflation, they also tend not to decrease over time, contrary to trends in many other developed countries. Canadian patented drug prices have thus steadily risen relative to prices in seven countries we compare ourselves to under the PMPRB regulations. We commonly refer to these countries as the “PMPRB7.” Whereas in 2005 Canadian prices were third lowest of these seven countries, in 2014 we are third highest, nearly on par with Germany but still well below the U.S., which is a major outlier.
Beyond the PMPRB7, Canadian drug prices are the fourth highest of the 31 countries in the OECD, and on average Canadian prices are 26% higher than the OECD median. Canada spends more on drugs per capita and as a percentage of GDP than most other OECD countries.
On the other hand, R and D in Canada continues to decline and currently stands at 5% of sales. This is the lowest recorded figure since 1988, when the PMPRB first began reporting on R and D. In contrast, the average R and D ratio for the PMPRB7 countries has held steady at about 20%.
The increasing cost pressure of high-cost pharmaceuticals is not a uniquely Canadian issue. All developed countries are struggling to reconcile patient access to promising technologies with finite health care budgets. In recent years, growing concern over sustainability has led many of these countries to introduce measures to address affordability, maximize value for money, and keep pace with a rapidly evolving pharmaceutical market.
The PMPRB has followed these developments closely as it recognizes that its regulatory environment has changed significantly since 1987. It is imperative that its legal framework adapt to these changing circumstances, if it is to remain relevant and effective in protecting consumers from excessive pricing.
To that effect, last December, the PMPRB published its 2015-18 strategic plan, identifying a new vision and a revised mission statement, as well as four strategic objectives that will allow the organization to better leverage its strengths and unique legislative remit to complement the efforts of its federal, provincial, and territorial partners and other stakeholders in advancing a common goal of a sustainable health care system in Canada.
Going forward, consumer-focused regulation and framework modernization will be at the forefront of PMPRB's efforts in ensuring a sustainable pharmaceutical system where payers have the information they need to make smart reimbursement choices and Canadians have access to patented drugs at prices they can afford.
As a first step, in the coming months we will be releasing a discussion paper on guidelines modernization and holding national consultations with interested members of the public and other stakeholders on this subject.
Thank you very much.