Quarterly Financial Report for the Quarter Ended September 30, 2015

Management Statement for the Quarter Ended September 30, 2015

1. Introduction

This quarterly report has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by the Treasury Board Accounting Standard (TBAS) 1.3. This quarterly report should be read in conjunction with the Main Estimates and Supplementary Estimates, as well as Canada's Economic Action Plan 2015 (Budget 2015).

1.1 Authority, Mandate and Program Activities

The Patented Medicine Prices Review Board (PMPRB) is an independent, quasi-judicial body created by Parliament as a result of revisions to the Patent Act (Act) in 1987 (Bill C-22). The Act was further amended in 1993 (Bill C-91). The revisions were intended to balance the extension of patent protection with the need to protect consumers from possible excessive patented drug prices.

The PMPRB’s adjudicative functions are carried by Board Members. At a hearing, a panel composed of Board Members acts as a neutral arbiter between Board Staff and the patentee. The Chairperson decides the composition of a panel. Provincial and territorial ministers of health have a statutory right to appear before the panel as parties, and other interested persons or groups may seek leave to participate as interveners.

In the event that a panel finds that the price of a patented medicine is in fact excessive, it can order a reduction of the price to a non-excessive level. It can also order a patentee to offset any excess revenues and, in cases where the panel determines there has been a policy of excessive pricing, it can double the amount to be offset.

The PMPRB has a dual role:

Regulatory: To ensure that prices charged by patentees for patented medicines sold in Canada are not excessive.

Reporting: To report on pharmaceutical trends of all medicines, and on research and development (R&D) spending by pharmaceutical patentees.

Further details on the PMPRB's authority, mandate and program activities may be found in the Report on Plans and Priorities and the Main Estimates.

1.2 Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the PMPRB’s spending authorities granted by Parliament and those used by the organization, consistent with the Main Estimates and Supplementary Estimates for the 2015-16 fiscal year. This quarterly report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before moneys can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authority for specific purposes.

When Parliament is dissolved for the purposes of a general election, section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the Government to withdraw funds from the Consolidated Revenue Fund (CRF). A special warrant is deemed to be an appropriation for the fiscal year in which it is issued.

As part of the departmental performance reporting process, the PMPRB prepares its annual departmental financial statements on a full accrual basis in accordance with Treasury Board accounting policies, which are based on Canadian Generally Accepted Accounting Principles for the public sector. However, the spending authorities voted by Parliament remain on an expenditure basis.

The quarterly report has not been subject to an external audit or review.

2. Highlights of Fiscal Quarter and Fiscal Year to Date (YTD) Results

This quarterly financial report reflects the results of the current fiscal period in relation to the Main Estimates. The PMPRB’s spending for Q2 of 2015-16 has increased by $15 thousand (0.8%) over spending for the same quarter in 2014-15 and YTD spending has increased by $189 thousand (5.7%), from $3,321 thousand in 2014-15 to $3,510 thousand in 2015-16.

The money reported in the PMPRB’s Annual Financial Statements as non-respendable revenue is a result of payments to the Government of Canada made by patentees through Voluntary Compliance Undertakings (VCUs)¹ or Board Orders to offset excess revenues. The Minister of Health may enter into agreements with any province respecting the distribution to that province of amounts received by the Receiver General, less any costs incurred in relation to the collection and distribution of those amounts.

The amount reported as non-respendable revenue is a function of the VCUs accepted by the Chairperson or a hearing panel as the case may be, and the Board Orders issued as a result of public hearings into the price of a patented medicine. In Q2 of 2015-16, no VCUs were accepted by the Chairperson in repayment of excess revenues as compared to the Q2 of 2014-15 whereas two VCUs were accepted in repayment of excess revenues totalling $2,092 thousand. In addition, the PMPRB received a VCU payment adjustment in Q2 of 2015-16, for a prior year in the amount of $5 thousand. In 2015-16, YTD non-respendable revenue from VCUs and payment adjustment for a prior year VCU totalled $64 thousand as compared to $2,094 thousand for the same period in 2014-15.

Revenues that are non-respendable are not available to discharge the PMPRB’s liabilities. While the Deputy Head is expected to maintain accounting control, she has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are not therefore presented as a reduction to the entity's total gross budgetary expenditures.

2.1 Significant Changes to Authority

As shown in the Statement of Authorities of this document, there were no significant changes to the total authorities available for the year when compared to Q2 of 2014-15.

2.2 Significant Changes to Budgetary Expenditures by Standard Object

This section elaborates on variances in expenditures, Statutory items and Vote 1 by standard object to explain changes in spending trends from the same quarter of the previous year.

Overall, YTD spending has increased by $189 thousand (5.7%), and Q2 has increased by $15 thousand (0.8%).

For “Personnel”, YTD spending has increased by $299 thousand. The variance is mainly due to the implementation of salary payment in arrears by the Government of Canada and completion of planned staffing actions of vacant positions.

For “Transportation and communications”, YTD spending has increased by $16 thousand. The variance is mostly attributed to an increase in travel due to an increase in the number of face-to-face meetings for the Human Drug Advisory Panel (HDAP), an increase in the membership of HDAP and an increase in the number of trips related to hearings.

For “Information services”, YTD and Q2 spending have increased by $83 thousand and $57 thousand respectively. This increase is mainly due to a change of coding for subscription for specialized pharmaceutical data and database to be used in the analysis of drug prices and their cost drivers. These subscriptions were coded to “Utilities, materials and supplies” in 2014-15.

For “Professional and special services”, YTD spending has increased by $43 thousand. This increase is mainly due to earlier payments of consultant fees for scientific advice as well as the timing of the issuance of new contracts for scientific literature search following a competitive process. This increase is partially offset by additional consultant costs in 2014-15 to develop and support information management related activities.

For “Rentals”, YTD spending has decreased by $15 thousand. The variance is mainly due to the timing of invoicing for software license renewals.

For “Utilities, materials and supplies”, YTD and Q2 spending have decreased by $60 thousand and $62 thousand respectively. This variance is mainly due to a change of coding for subscription for specialized pharmaceutical data and database to be used in the analysis of drug prices and their cost drivers. These subscriptions are coded to “Information services” in 2015-16.

For “Acquisition of machinery and equipment”, YTD spending has decreased by $12 thousand. This variance is mainly due to additional costs in 2014-15 associated with the modernization of data safeguarding capabilities.

For “Other subsidies and payments”, YTD spending has decreased by $162 thousand. This variance is mostly due to a one-time transition payment in 2014-15 of $170 thousand for implementing salary payment in arrears by the Government of Canada.

There were no significant variances to report in the other standard objects.

3. Risks and Uncertainties

The PMPRB is funded through annual appropriations. As a result, its operations are impacted by any changes in funding approved through Parliament. The PMPRB has no authority to spend revenues received during the year as a result of payments made by patentees to the Government of Canada through VCU’s or Board Orders to offset excess revenues. The Minister of Health may enter into agreements with any province respecting the distribution to that province of amounts received by the Receiver General, less any costs incurred in relation to the collection and distribution of those amounts.

The PMPRB’s funding includes a Special Purpose Allotment (SPA) to conduct Public Hearings, in Vote 1 (Program expenditures) of $2,470 thousand. The SPA can only be used to cover the costs of public hearings, such as external legal counsel and expert witnesses, etc. Any unspent amount is returned to the Consolidated Revenue Fund (CRF). The PMPRB’s expenditures are influenced by the number and complexity of investigations into the prices of patented medicines, the number of investigations that result in hearings and the number of hearing decisions that form the basis of judicial review applications, all of which are inherently unpredictable.

The PMPRB’s most significant expenditure is “Personnel”, representing 61% of its annual planned expenditures. Given the highly specialized nature of its consumer protection mandate, the PMPRB must continue to attract and retain subject matter experts. More than 35% of its employees are over 50 years of age and at least 10 of them are eligible to retire over the next 5 years. Given the organization’s small size, the departure or hiring of a handful of employees in one quarter can have a significant impact on the quarter’s expenditures.

4. Significant changes in relation to operations, personnel and programs

Changes to Key Senior Personnel

In May 2015, the Director, Corporate Services Branch, retired from the public service of Canada. A staffing process is in progress. The position is currently occupied on an acting basis to ensure continuity.

Changes to Programs

There have been no significant changes in relation to programs over the last year.

Approval by Senior Officials

Approved by:

Ottawa, Canada
November 12, 2015

Footnotes

¹ VCUs are approved by the Chairperson or, if the VCU is submitted after the issuance of a Notice of Hearing, the Board Hearing Panel.

Statement of Authorities (unaudited)

¹ Includes only Authorities available for use and granted by Parliament at quarter end

(S) Statutory vote

Table 1: Departmental budgetary expenditures by Standard Object (unaudited)

¹ Includes only Authorities available for use and granted by Parliament at quarter end