I'll just refer you to the PowerPoint presentation that was sent to committee over the weekend. I'm going to zip right through this. I know that the committee has passed a motion to review and study our guidelines, but it's important to understand and to situate these guidelines in context.
They're actually non-binding and they sit atop—I'm on slide 2 of the presentation—a pyramid, if you will, of legal instruments that begins at the base with the Patent Act, which is obviously the responsibility of the Ministers of Industry and Health to the extent that our provisions are concerned and, ultimately, Parliament. It's in the act that the PMPRB is created and the excessive pricing factors are provided for, so I'll talk a bit more about those excessive pricing factors in a minute.
Then, above the Patent Act, we have the regulations, and they are the responsibility of the Minister of Health. They were recently amended. I'll be talking about that as well. It's in the regulations where patentees are directed to provide certain types of information and data to the PMPRB so that staff can administer the act and regulations on a day-to-day basis.
One of the factors in the act that the board is required to look to when trying to determine whether a price is excessive or not is the price of that same drug in other countries. The regulations also prescribe the list of countries that the PMPRB is to look to in making that comparison. Those are seven countries. I'll come back to that composition in a moment, because it has been amended. We call those the PMPRB7.
Then, at the very top, as I mentioned at the outset, are the guidelines. They don't have force of law, unlike the regulations and the legislation, but that's where the rubber hits the road. The act doesn't have a definition for what an excessive price is. It really doesn't offer a lot of specificity, nor do the regulations, so for a lot of the core administrative concepts, life is breathed into them in the guidelines, and that's where patentees turn to when they're trying to figure out how to comply on a day-to-day basis with the act and regulations.
As Dr. Levine mentioned—I'm on slide 3—we've been at this for quite some time. We published a strategic plan back in 2015 and identified some of the things in our environment, which Dr. Levine alluded to and that we feel have changed the nature of the game considerably. That was really when we put ourselves on a reform track and said that we needed to modernize and strengthen the regime if we were going to have the right tools to regulate the types of ceiling prices or types of products that were increasingly dominating the marketplace.
Shortly after we released our plan, we issued a discussion paper on guidelines modernization. It's important to understand that the guidelines are within the exclusive purview or authority of the board, so we wanted to get the ball rolling by engaging our stakeholders in a discussion on a document that we ourselves could amend independently and autonomously.
However, the ideas that were set out in that document were quickly picked up by the Minister of Health. Budget 2017, as some of you may know, earmarked additional funds for the PMPRB, CADTH and Health Canada to accelerate the market entry of patented drugs and to make them more affordable in Canada.
The types of changes we were talking about, and the guidelines, eventually got anchored into a more load-bearing document—the regulations—and the minister issued a white paper on regulatory reform. Ultimately, those proposed changes were published in the Canada Gazette in December 2017 and finally adopted in the Canada Gazette, part II, in August 2019.
Pretty much since that time we've been consulting on changes to our guidelines, for the better part of the past year. As Dr. Levine mentioned, we issued an initial draft for public consultation in November 2019, and then, based on the feedback we received, we revised that draft and issued a second one in June, and then made some additional changes to the version that is now final and was issued just last month.
I'm on slide 4 now. The changes to the guidelines are necessary to give effect to the changes, the amendments and the regulations.
What are those amendments? Basically, there are three types of amendments that we're talking about. First off, as I mentioned on the countries that we compare ourselves to currently, that list of countries, what we call the PMPRB-7, is being changed. The two most expensive countries are being removed from the list and countries with health systems and GDP per capita that are more in line with Canada are being added in. These countries also have prices that are more in line with the OECD median, if you will. The U.S. and Switzerland are out, and Australia, Belgium, Japan, Netherlands, Norway and Spain are in. That's the first change. The new list of countries we're calling the PMPRB11; there are 11 countries in it.
The second change is to add additional factors. I mentioned that section 85 of the Patent Act sets out the factors that the PMPRB is to consider when trying to make a determination as to whether a patented product is excessively priced in Canada. Those include the price of that same product in other countries, the price of other products in the same therapeutic class in Canada and in other countries and then the consumer price index.
However, section 85 also contemplates further factors being prescribed by regulation. For the first time in the PMPRB's history, the minister saw fit to introduce new factors by regulation through these amendments, these being primarily pharmacoeconomic value and market size. I suspect you'll have a number of questions on these new factors. I think I'll leave it to your questions to unpack them. They are complex and esoteric concepts, but I've become well versed in explaining them to people in layperson terms. I would be happy to do so in a moment.
As a result of these new factors, ceiling prices will be considerably lower in Canada. You've probably heard that concern expressed by industry and patient groups. In order for pharmaceutical patentees to be able to comply with those new lower ceilings that would result from the application of these new factors, it's important that the PMPRB have access to the true price of the product in the market.
Over the past two decades or so, prices in the pharmaceutical market have really gone underground, not just in Canada but also globally. Industry is increasingly negotiating confidential discounts and rebates with large institutional payers. Canada is no exception. No country knows what another country is truly paying for its patented pharmaceutical products. The irony in Canada is that the PMPRB is doubly handicapped in the sense that we don't know what other countries are paying and we also don't even know the real prices in Canada, because we don't have access to that true net price that takes into account the confidential rebate.
The third change in the regulations was to add a provision that requires patentees to provide us with those prices. However, as some of you may know, the regulations are being challenged before both the Quebec Superior Court and the Federal Court by the industry, two separate challenges. One of those challenges resulted in a decision from the Federal Court trial division earlier this year. It upheld the first two types of changes—the new countries, the new factors—but it did find that this third requirement that patentees provide us with this information was ultra vires of the enabling provisions of the act and therefore is of no force or effect. That decision is currently under appeal before the Federal Court of Appeal, but that has had consequences for how we are going to apply the new regime coming out of the gate in January of next year, 2021, when it comes into force.
It's important to understand that since inception, the PMPRB has taken the exact same approach to regulating all medicines that come under its jurisdiction. We look at them through the same lens. We apply the same tests. We only review the price substantively. We give a scientific and price review at introduction. We set the price, and that's it in terms of a substantive review of the appropriate price ceiling.
Going forward, however, in addition to changing our guidelines to implement these amended regulations, we're also taking a somewhat different approach, what we're calling a risk-based approach, to apply in our regulatory mandate. When new medicines come under our jurisdiction, we're going to apply screening criteria and divide them up into either category I medicines—medicines that we feel are at higher risk of excessive pricing—or category II medicines, which are medicines that we feel are at lower risk. You can see the screening criteria on slide 6.
With regard to the drug in question, its annual treatment cost is above 1.5 times GDP per capita, so it's about $90,000 annually. That will land it in category I. If its expected revenue in any of the first three years on the market is above $50 million annually, that will also land it in category I, in which case it will be subject to greater scrutiny under our new regulatory regime. I'll explain what I mean by that in a moment.
We expect that about 25% of new medicines will fall into category I and that the remainder will fall into category II. Although this represents a minority of the new medicines coming under our jurisdiction over the next decade, those medicines will account for the majority of sales of new medicines over the coming decade. The risk-based approach really scrutinizes a minority of drugs that will eventually account for the majority of sales.
