While much of the business community was focused on the negotiations to modernize the North American Free Trade Agreement (NAFTA), the Canadian government in December 2017 proposed sweeping changes to its Patented Medicine Prices Review Board (PMPRB) that will have detrimental effects on Canadian citizens and innovative American manufacturers.
PMPRB is a quasi-judicial body that regulates the price of patented medicines in Canada regardless of whether the customer is a public insurer, a private insurer or paying cash. Canada announced several regulatory changes to how it would set these maximum prices, including plans to remove market-based economies such as the United States and Switzerland from its list of comparator countries – and add countries that are not of similar economic standing such as South Korea and Spain – in order to force down prices. A number of studies show that the proposed regulatory changes will have serious consequences that will not only harm the investment climate in Canada but also limit Canadian patient access to new lifesaving medicines.
According to a February 2018 Macdonald-Laurier Institute study on the PMPRB changes:
- The proposed regulatory changes are anti-innovation and will “invariably have negative effects on Canada’s investment climate and Canadians’ access to new drugs.”
- The process was rushed, lacked consultation with doctor and patient groups, and the government did not “make a meaningful assessment of the impact on access to innovative therapies and the health care system.”
- “The PMPRB program and proposed federal reform are ill-suited to this emerging world of biologic therapies. Government is patching up 20th century policy for a 21st century world where it will have no useful application and may cause harm.”
- “Price controls correlate positively with morbidity and ill-health. It is far from clear that price reductions result in net cost savings by health care systems and patients.”
PDCI Market Access Inc. studied the issue and found that:
- Health Canada significantly overstates the benefits of the proposed regulatory changes and underestimates their likely negative impact—both to Canadians and to innovative biopharmaceutical companies.
- The current PMPRB definition of scientific research and development (R&D) significantly undervalues the important contributions of Canada’s innovative biopharmaceutical industry.
- Health Canada presents an unrealistically low projection of the direct financial harm to the innovative biopharmaceutical companies. The actual negative impact is likely to be at least three times greater.
- Health Canada’s benefit-cost analysis does not accurately measure the negative consequences that the proposed amendments would have on Canadians’ access to new medicines.
- Implementing and administering the proposed changes represents an unnecessary regulatory burden and wasteful use of public finances.
- Inconsistencies with the Canadian government’s own framework to evaluate regulatory changes are concerning. Health Canada falls short of demonstrating that these changes are desirable or, on balance, the right course of action for Canadians.
ACTION for Trade’s Special 301 submission to the U.S. government highlighted this issue, saying:
“When trade partners arbitrarily set prices of innovative medicines, or peg innovative products to older, previous generation products, the incentives for future innovation falter. These tactics, which artificially lower the prices paid for medicines developed in the United States, can be compounded by a lack of transparency and due process.”
“Canada’s PMPRB seeks to expand its authority to interfere in private sector negotiations and to set Canadian prices by importing bad policies from poorer countries. In June 2017, Health Canada released a consultation document proposing to expand the mandate of the PMPRB from ensuring “non-excessive” prices to ensuring “affordable” prices for pharmaceuticals. Key proposals would amend the basket of reference countries such that prices of patented medicines would be set at the OECD median, introduce various new factors to determine whether a price is “excessive,” and require manufacturers to report all indirect price reductions. These changes would have a serious negative impact on U.S. companies operating in Canada. In advance of mandated public consultations on the new draft regulations, PMPRB has already issued a hearing decision against a U.S. company.”
A 2017 Ernst & Young economic analysis found:
- The innovative biopharmaceutical industry directly employs 13,000 Canadians, and supports more than 30,000 jobs in total.
- The industry contributes more than $19 billion in annual economic activity to Canada.
- Life Sciences ranks third in terms of combined total R&D spending in Canada among all economic sectors, behind the aerospace and software and computer services sectors.
According to a Morning Consult poll of American voters:
- Nearly two-thirds of American voters say that U.S. trading partners currently undervalue American innovations.
- Nine-in-ten Americans agree that continued innovation is important to keep the United States competitive globally and that our economic future is dependent on ensuring the next generation of innovative products is made in America.
USTR’s Special 301 Report on Intellectual Property Rights found:
- There are concerns about Canada’s IP practices and enforcement measures as they relate to pharmaceutical products.
- Canada has a “weak patent and pricing environment for innovative pharmaceuticals.”
- Canada’s improper pharmaceutical IP protections and enforcement measures interfere with its trading partners’ R&D.
- The proposed changes to PMPRB would undercut pharmaceutical innovation, impede the introduction of new drugs, devalue innovative medicines, and drive investors away from Canada’s life sciences sector.
Because of the proposed changes to PMPRB — among other IP violations — USTR downgraded Canada to its Priority Watch List in the Special 301 Report on Intellectual Property Rights.
The research shows that price control regulations coming out of Canada for life-saving medicines do not value innovation, and will ultimately harm Canadian patients, hinder life sciences research and development, and hamper an economically important industry.