IN THE MATTER OF the Patent Act, R.S.C. 1985, c. P-4, as amended AND IN THE MATTER OF sanofi-aventis Canada Inc., (the “Respondent”) and the medicine “Penlac Nail Lacquer”

STATEMENT OF ALLEGATIONS OF BOARD STAFF

INTRODUCTION

1. This Statement of Allegations results from an investigation by Board Staff into the price of Penlac Nail Lacquer (“Penlac”) (DIN 02250535), a patented medicine currently sold in Canada by sanofi-aventis Canada Inc. (“Sanofi-Aventis”). Penlac is sold in Canada in 6 gram glass bottles containing 6.6 ml of solution. According to publicly available information in 2006, Sanofi-Aventis sells Penlac in Canada at a price of $14.99 per gram. (Attachment 1)

THE MEDICINE

2. Penlac is a new formulation of an existing compound (ciclopirox), indicated as part of a comprehensive nail management program in immunocompetent patients with mild to moderate onychomycosis (due to Trichophyton rubrum) of fingernails and toenails without lunula involvement. (Attachment 2)

3. Health Canada issued a Notice of Compliance for Penlac to Dermik Laboratories Canada Inc. (“Dermik”) on April 19, 2004. (Attachment 3) Dermik began selling Penlac in Canada on July 29, 2004.

4. As of January 2006, Dermik, Sanofi-Synthelabo Canada Inc. and Aventis Pharma Inc., among other companies, merged to create a new entity known as sanofi-aventis Canada Inc.

THE PATENT

5. Canadian Patent No. 1,283,054 pertains to Penlac. (Attachment 4) This patent was granted to Hoechst Aktiengesellschaft, Germany (Federal Republic of) on April 16, 1991 and will expire on April 16, 2008.

6. Dermik was, for the purposes of the Patented Medicine Prices Review Board (“Board”), considered the Canadian patentee up to December 31, 2005. As of January 2006, Sanofi-Aventis is, for the purposes of the Board, considered the Canadian patentee.

7. In accordance with the Patented Medicines Regulations, 1994 (“Regulations”), Dermik began filing price and sales information for Penlac on September 13, 2004 and continued to file its price and sales information as per the Regulations up to December 31, 2005. For the period January 1, 2006 to December 31, 2006, all price and sales information for Penlac has been filed by Sanofi-Aventis.

FACTORS SET OUT IN SUBSECTION 85 (1) OF THE PATENT ACT

8. Subsection 85(1) of the Patent Act (“Act”) sets out the factors the Board shall take into consideration in determining whether a medicine is being or has been sold at an excessive price in any market in Canada :

In determining under section 83 whether a medicine is being or has been sold at an excessive price in any market in Canada, the Board shall take into consideration the following factors, to the extent that information on the factors is available to the Board:

(a) the prices at which the medicine has been sold in the relevant market;

(b) the prices at which other medicines in the same therapeutic class have been sold in the relevant market;

(c) the prices at which the medicine and other medicines in the same therapeutic class have been sold in countries other than Canada;

(d) changes in the Consumer Price Index; and

(e) such other factors as may be specified in any regulations made for the purposes of this subsection

9. In accordance with the factors set out in subsection 85(1) of the Act, the Board, following considerable deliberation and consultation with all stakeholders pursuant to subsection 96(5) of the Act, published the Board's Compendium of Guidelines, Policies and Procedures (“Guidelines”). Although the Guidelines are not binding on the Board, Board Staff submits that it is appropriate, in the case at bar, for the Board to give due consideration to its Guidelines to establish an approach and methodology in applying the factors set out in subsection 85(1) of the Act to determine if Penlac is being or has been sold at an excessive price in Canada.

APPLICABLE GUIDELINES FOR HDAP REVIEW

10. Following the procedures outlined in the Guidelines for new medicines, Board Staff referred Penlac to the Human Drug Advisory Panel (“HDAP”) for its review. The HDAP was asked for its recommendation as to the categorization of the medicine, the appropriate comparable medicines, if any, and comparable dosage regimens for the comparable medicines, if any.

A. Category

11. Section 3 of Chapter 3 - Scientific Review Procedures (“Scientific Review Procedures”) provides the following guidance with respect to determining categorization for a new drug product:

3.1 A Category 1 drug product is a new DIN of an existing dosage form of an existing medicine, or a new DIN of another dosage form of the medicine that is comparable to the existing dosage form as per Schedule 7.

3.2 A Category 2 drug product is one that provides a breakthrough or substantial improvement. It is a new DIN of a non-comparable dosage form of an existing medicine or the first DIN of a new chemical entity.

3.3 A Category 3 drug product is a new DIN of a non-comparable dosage form of an existing medicine or the first DIN of a new chemical entity. These DINs provide moderate, little or no therapeutic advantage over comparable medicines. This group includes those new drug products that are not included in Category 2 above.

12. In a report dated February 15, 2006, the HDAP recommended that Penlac be classified as a Category 3 new drug product as it represents a new DIN of a non-comparable dosage form of an existing medicine that provides moderate, little or no therapeutic advantage over comparable medicines. (Attachment 5)

B. Comparable Medicines

13. With respect to the selection of comparable medicines, Section 9 of the Scientific Review Procedures provides as follows:

9.1 Comparable drug products are selected by identifying both comparable medicines and comparable dosage forms.

9.2 Comparable medicines are clinically equivalent in addressing the approved indication that is anticipated to be the primary use of the new drug product under review. The PMPRB refers to the World Health Organization (WHO) Drug Utilization Research Group's Anatomical Therapeutic Chemical Classification System (ATC) as the starting point for the selection of comparable medicines.

9.3 Comparable medicines will typically be those identified under the ATC classification system at the sub-class level above the single chemical substance. This will normally be the fourth sub-class level. If the appropriate comparable medicines are not identified at this level, then the PMPRB may choose from the next higher sub-class or another sub-class. In some instances, it may be appropriate to select from the fifth or single chemical substance level. Selection criteria will include the indication and therapeutic use, and could include other factors such as mode of action, spectrum of activity or chemical family.

9.4 The PMPRB may omit from the comparison a chemical substance or a drug product of the same ATC therapeutic class as the drug product under review if, in the panel's or Board Staff's opinion, it is not clinically equivalent or is unsuitable for comparison. For example, drug products with primary uses other than to address the indication anticipated to be the primary use of the drug product under review may be omitted from the comparison. Similarly, the PMPRB may choose to add products from other ATC classes if they are clinically equivalent for the appropriate indication to the drug product under review.

14. Based on the scientific information available to the HDAP at the time of its review and the above Scientific Review Procedures, the HDAP did not recommend any comparable medicines. The HDAP found Penlac to be less effective than currently approved oral medications for the treatment of onychomycosis of fingernails and toenails. Therefore, the HDAP did not recommend oral medications as clinically equivalent to Penlac. (Attachment 5)

THE MAXIMUM NON-EXCESSIVE (“MNE”) PRICE FOR PENLAC

A. Price of Penlac in Canada

15. Subsection 85(1)(a) of the Act requires the Board to take into consideration the prices at which the medicine has been sold in the relevant market.

16. Board Staff calculated the Average Transaction Price (“ATP”) of Penlac in Canada for the introductory period (July 2004 to December 2004) and for each subsequent year to be as follows:

B. Prices of Other Medicines in Canada in the Same Therapeutic Class as Penlac

17. Subsection 85(1)(b) of the Act requires the Board to take into consideration the prices at which other medicines in the same therapeutic class have been sold in the relevant market.

18. As the HDAP did not recommend any other medicines in the same therapeutic class as Penlac, Board Staff could not conduct a Therapeutic Class Comparison (“TCC”) Test for Penlac in accordance with subsection 8.5 of the Excessive Price Guidelines (“domestic TCC Test”), which provides as follows:

In addition to the Guideline applicable to all patented drug products detailed in Section 7, the introductory price of a Category 3 new drug product will be presumed to be excessive if it exceeds the prices of all of the comparable drug products based on a Therapeutic Class Comparison Test (Schedule 2).

C. International Price Comparison (“IPC”)

19. Subsection 85(1)(c) of the Act requires the Board to take into consideration the prices at which the medicine has been sold in countries other than Canada.

i) Median of International Prices

20. The Excessive Price Guidelines set out the appropriate price test for a Category 3 new drug product for which a domestic TCC Test cannot be conducted:

8.6 When it is inappropriate or impossible to conduct a Therapeutic Class Comparison Test, Board Staff will give primary weight to the median of the international prices identified in an International Price Comparison Test (Schedule 3) to determine if the introductory price of the new DIN is excessive.

21. Schedule 3 of the Guidelines further sets out the methodology for using the IPC Test to determine the median:

2.3 When the International Price Comparison is being conducted to determine the median price and the drug product is sold in an even number of countries, the median will generally be the simple average of the middle two prices.

2.4 When the International Price Comparison is being conducted to determine the median price, an interim median international price will be used in cases when the medicine is sold in fewer than five countries at the time of its introduction. Unless it is excessive, the introductory price will be treated as the interim benchmark price. The interim benchmark price may be reviewed at the end of three years or when the medicine is sold in at least five countries, whichever comes first.

22. The ATP of Penlac in Canada, (Attachment 6) and the publicly available ex-factory prices of Penlac in the countries listed in the Regulations, (Attachment 7) filed by the patentee, for the introductory period, are as follows:

23. In accordance with subsection 8.6 of the Excessive Price Guidelines and subsection 2.4 of Schedule 3 of the Guidelines, Board Staff reviewed the price of Penlac in Canada during the introductory period, by applying the interim median of the international prices identified in the IPC Test. The result indicated that, during the introductory period, Penlac was sold in 4 of the countries listed in the Regulations, and the price of Penlac in Canada ranked 2nd highest above the interim median. Therefore the introductory price of Penlac exceeded the MNE price of

ii) International TCC

24. Subsection 85(1)(c) also requires the Board to take into consideration the international prices of other medicines in the same therapeutic class as Penlac (“international TCC Test”), a factor not addressed in the Guidelines.

25. Board Staff submits that the application of any international TCC Test ought to be consistent with all other factors set out in subsection 85(1) of the Act.

26. Board Staff submits that in conducting an international TCC Test the following criteria must be satisfied :

a) The comparators included in an international TCC Test must be those identified in the domestic TCC Test; and

b) The price of the drug under review will be deemed excessive if it exceeds the median of the international TCC Test.

27. As there are no other medicines in Canada in the same therapeutic class as Penlac , Board Staff submits that it would not be appropriate, in the present case, to rely upon the application of the international TCC Test to determine if Penlac is being or has been sold at an excessive price in Canada.

D. Consumer Price Index (CPI)

28. Subsection 85(1)(d) of the Act requires the Board to take into consideration changes in the CPI.

29. The Excessive Price Guidelines set out the appropriate CPI-adjustment methodology to be applied to all existing drug products as follows:

9.1 In addition to the Guideline applicable to all patented drug products detailed in Section 7, the price of an existing DIN will be presumed to be excessive if it exceeds the benchmark price of the DIN adjusted for the cumulative change in the Consumer Price Index (CPI) from the benchmark period to the pricing period under review (CPI-adjusted price). Schedule 4 provides detailed definitions and examples of the PMPRB's CPI-adjustment methodology.

9.2 Regardless of the above, and in addition to the Guideline applicable to all patented drug products detailed in Section 7, one-year price increases in the current pricing period may not exceed 1.5 times the forecast change in the annual CPI. In periods of high inflation (over 10%), the limit will be five percentage points more than the forecast change in the CPI.

30. Commencing in January 2005, Board Staff reviewed the price of Penlac as an existing drug product by applying the PMPRB's CPI-Adjustment methodology, in accordance with the Excessive Price Guidelines.

31. Upon review, it was determined that the prices of Penlac in Canada, during the period January 2005 to December 2006, continued to exceed the MNE prices:

E. Other Factors

32. Subsection 85(1)(e) of the Act requires the Board to take into consideration such other factors as may be specified in any regulations made for the purposes of this subsection. There are currently no such regulations.

CONCLUSION

33. By letter dated October 13,2006, Board Staff informed Sanofi-Aventis that it had completed its investigation and that the prices of Penlac exceeded the Excessive Price Guidelines during both the benchmark period and in subsequent reporting periods up to June 2006. (Attachment 8) Furthermore, the price of Penlac has since continued to exceed the MNE price:

34. Board Staff respectfully submits that, when considering the applicable factors in subsection 85(1) of the Act, there are grounds for the Board to conclude that, pursuant to section 83 of the Act, Sanofi-Aventis is selling or has sold the medicine known as Penlac in any market in Canada at prices which are or were excessive.

ORDER REQUESTED

35. Board Staff seeks the issuance of an Order against Sanofi-Aventis, the terms of which would be as follows:

a) The MNE prices of Penlac in Canada for the period July 29, 2004 to December 31, 2006 inclusive shall be as follows:

b) The MNE prices of Penlac in Canada in future years shall be calculated in accordance with the Guidelines;

c) In accordance with subsection 83(1) of the Act, Sanofi-Aventis shall cause the maximum price at which it sells Penlac in Canada to be reduced to the MNE price effective on or before 30 days from the date of the Board's Order;

d) In accordance with subsection 83(2) of the Patent Act, Sanofi-Aventis shall offset the amount of excess revenues estimated to have been derived by Sanofi-Aventis from the sale of Penlac at excessive prices from July 29, 2004 until the date on which the price reduction referred to in paragraph c) above comes into effect:

i) With respect to the period from July 29, 2004 to December 31, 2006, Sanofi-Aventis shall pay to Her Majesty in right of Canada, within 30 days of the date of the Board's Order, an amount equal to the amount set out in Attachment 6; and

ii) With respect to the period from January 1, 2007 to the date on which the price reduction referred to in paragraph c) comes into effect, Sanofi-Aventis shall pay to Her Majesty in right of Canada, a further amount equal to the amount of the excess revenues estimated by the Board to have been derived by Sanofi-Aventis from the sale of Penlac at excessive prices and make the payment within 30 days of receipt of a notification from the Board of its estimate of excess revenues based on the information filed in response to paragraph e) below.

e) Sanofi-Aventis shall, within 30 days of the date of the Board's Order:

i) Notify federal/provincial/territorial ministers of health or their representatives and all customers of the price decrease as required by the Board's Order (a copy of which shall be included in such notifications) and the effective date of such price decrease;

ii) Submit copies of the above-noted notifications and any other notice to the Board; and

iii) Provide to the Board information concerning the quantity of Penlac sold and either the average price per package or the net revenue from sales of Penlac in Canada, in the same form as required by subsection 4(1) of the Regulations for the period January 1, 2007 to the date on which the price reduction referred to in paragraph c) comes into effect.

OTHER

36. Board Staff reserves the right to make such other allegations and submissions and introduce other additional documents as Board Staff may advise and the Board may permit.

37. Pursuant to section 86 of the Act, a hearing shall be held in public unless the Board orders otherwise. Board Staff submits that any hearing conducted by the Board into the price of Penlac should be held in public and, subject to orders of the Board, all information and documents filed should form part of the public record.

Dated at Ottawa this 2nd day of March 2007.

Borden Ladner Gervais, LLP
The Chambers
Suite 1100, 100 Queen Street
Ottawa, Ontario K1P 1J9

Tel: (613) 787-3521
Fax: (613) 230-8842

Guy Pratte
E-mail: gpratte@blgcanada.com

Nadia Effendi
E-mail: neffendi@blgcanada.com

LIST OF ATTACHMENTS