Future-oriented Financial Statements for the year ending March 31, 2014

Table of Contents

• Statement of Management Responsibility
• Future-oriented Statement of Financial Position
• Future-oriented Statement of Operations and Board Net Financial Position
• Future-oriented Statement of Change in Board Net Debt
• Future-oriented Statement of Cash Flow
• Notes to the Future-oriented Financial Statements
  1. Authority and objectives
  2. Methodology and significant assumptions
  3. Variations and changes to the forecast financial information
  4. Summary of significant accounting policies
  5. Parliamentary authorities
  6. Accounts payable and accrued liabilities
  7. Employee future benefits
  8. Accounts receivable and advances
  9. Related party transactions
  10. Segmented Information

Statement of Management Responsibility

The introduction of Future-oriented Financial Statements is a Parliamentary direction for departments to provide enhanced financial information to external users. The Patented Medicine Prices Review Board has prepared a full set of Future-oriented Financial Statements which forecast results for the 2013-14 fiscal year and update 2012-13 projections. Responsibility for the compilation, content and presentation of the Future-oriented Financial Statements for the years ended March 31, 2013 and 2014 and all information contained in this statement rests with the Board's management. This future-oriented information has been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards. The Future-oriented Financial Statements and the accompanying notes are submitted for Part III of the Estimates (Report on Plans and Priorities), and will be used in the Departmental Performance Report to compare with actual results.

Management is responsible for these Future-oriented Financial Statements, including responsibility for the appropriateness of the forecasts and future projections on which these statements are prepared. These forecasts and future projections are based upon information available and known to management at the time of development. They reflect current business and economic conditions, assume a continuation of current governmental priorities and are consistent with the Board's mandate and strategic objectives. Much of the future-oriented financial information uses best estimates, assumptions and judgment to derive forecasts and future projections as at December 31, 2012 and reflect the plans described in the Report on Plans and Priorities while at the same time giving due consideration to materiality. At the time of preparation of this information, management believes these best estimates and assumptions to be reasonable. However, as with any use of best estimates and assumptions, there is a measure of uncertainty surrounding them. This uncertainty increases as the forecast horizon extends.

The actual results achieved for the fiscal year covered in the accompanying Future-oriented Financial Statements will vary from the information presented and these variations may be material.

Mary Catherine Lindberg
Chairperson
Ottawa, Canada
Date: February 4, 2013

Michelle Boudreau
Executive Director and Chief Financial Officer
Ottawa, Canada
Date: January 30, 2013

Future-oriented Statement of Financial Position (Unaudited)
As at March 31

Information for the year ending March 31, 2013 includes actual amounts from April 1, 2012 to December 31, 2012. The accompanying notes form an integral part of these future-oriented financial statements.

Future-oriented Statement of Operations and Board Net Financial Position (Unaudited)
For the Year Ending March 31

Segmented information (note 10)

Information for the year ending March 31, 2013 includes actual amounts from April 1, 2012 to December 31, 2012. The accompanying notes form an integral part of these future-oriented financial statements.

Future-oriented Statement of Change in Board Net Debt (Unaudited)
For the Year Ending March 31

Information for the year ending March 31, 2013 includes actual amounts from April 1, 2012 to December 31, 2012. The accompanying notes form an integral part of these future-oriented financial statements.

Future-oriented Statement of Cash Flows (Unaudited)
For the Year Ending March 31

Information for the year ending March 31, 2013 includes actual amounts from April 1, 2012 to December 31, 2012.

The accompanying notes form an integral part of these future-oriented financial statements.

Notes to the Future-oriented Financial Statements (Unaudited)
For the Year Ending March 31, 2014

1. Authority and objectives

The Patented Medicine Prices Review Board (PMPRB) is an independent quasi-judicial body established by Parliament in 1987 under the Patent Act (Act).

Although the PMPRB is part of the Health Portfolio, it carries out its mandate at arms-length from the Minister of Health. It also operates independently of other bodies such as Health Canada, which approves drugs for safety and efficacy, and public drug plans, which approve the listing of drugs on their respective formularies for reimbursement purposes.

Strategic Outcome: Canadians are protected from excessive prices for patented medicines sold in Canada and stakeholders are informed on pharmaceutical trends.

Patented Medicine Prices Regulation Program

The Patented Medicine Prices Review Board (PMPRB) is an independent quasi-judicial body that is responsible for ensuring that the prices that patentees charge for patented medicines sold in Canada are not excessive based on the price review factors in the Patent Act (the Act). To make this determination the Board must consider each of the following factors: prices at which the medicine and other medicines in the same therapeutic class have been sold in Canada and in the seven comparator countries listed in the Patented Medicines Regulations (Regulations); changes in the Consumer Price Index (CPI); and in accordance with the Act, such other factors as may be specified in any regulations made for the purposes of the price review. Under the Act, and as per the Regulations, patentees are required to file price and sales information for each patented medicine sold in Canada, for the duration of the patent(s). Board Staff reviews the introductory and ongoing information filed by patentees, for all patented medicines sold in Canada. When it finds that the price of a patented medicine appears to be excessive, Board Staff will conduct an investigation into the price. An investigation could result in: its closure where it is concluded that the price was non-excessive; a Voluntary Compliance Undertaking (VCU) by the patentee to reduce the price and offset excess revenues obtained as a result of excessive prices through a payment and/or a price reduction of another patented drug product; or a public hearing to determine if the price is excessive, including any remedial order determined by the Board. In the event that the Board Hearing Panel finds, after a public hearing, that a price is or was excessive, it may order the patentee to reduce the price and take measures to offset any excess revenues. This program, by reviewing the prices charged by patentees for patented medicines sold in Canada, protects Canadians and the health care system from excessive prices.

Pharmaceutical Trends Program

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 drugs, and R&D expenditures as reported by pharmaceutical patentees. In supporting this requirement, the pharmaceutical trend program provides complete and accurate information on trends in manufacturers' prices of patented medicines sold in Canada and on patentees' research-and-development expenditures to interested stakeholders including: industry (i.e., brand-name, biotech, generic); federal, provincial and territorial (F/P/T) governments; consumer and patient advocacy groups; third party payers; and others. This information also provides assurance to Canadians that the prices of patented medicines are not excessive. In addition, as a result of the establishment of the National Prescription Drug Utilization Information System (NPDUIS) by F/P/T ministers of health the Minister of Health requested that the PMPRB conduct analysis of price, utilization and cost trends for prescription drugs so that Canada's health system has more comprehensive, accurate information on how prescriptions drugs are being used and on the sources of cost increases. Furthermore, in 2005, as a result of the National Pharmaceutical Strategy which was part of the First Ministers' 10-Year Plan to Strengthen Health Care, the Minister of Health on behalf of F/P/T Ministers of Health, requested the PMPRB also monitors and reports on non-patented prescription drug prices. This function is aimed at providing federal/provincial/territorial governments and other interested stakeholders with a centralized credible source of information on non-patented prescription drug prices.

Internal Services

Internal services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization. These groups are: Management and Oversight Services; Communications Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Services; Material Services; Acquisition Services; and Travel and Other Administrative Services. Internal Services include only those activities and resources that apply across an organization and not to those provided specifically to a program.

2. Methodology and significant assumptions

The future-oriented financial statements have been prepared on the basis of the government priorities and the plans of the Board as described in the Report on Plans and Priorities.

The main assumptions are as follows:

1. The Board's activities will remain substantially the same as for the previous year.
2. Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience. The general historical pattern is expected to continue.
3. Allowances for uncollectibility are based on historical experience. The general historical pattern is expected to continue.
4. Estimated year end information for 2012-13 is used as the opening position for the 2013-14 planned results.

These assumptions are adopted as at December 31, 2012.

3. Variations and changes to the forecast financial information

While every attempt has been made to forecast final results for the remainder of 2012-13 and for 2013-14, actual results achieved for both years are likely to vary from the forecast information presented, and this variation could be material.

In preparing these future-oriented financial statements, the Patented Medicine Prices Review Board has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Factors that could lead to material differences between the future-oriented financial statements and the historical financial statements include:

1. The timing and amounts of acquisitions and disposals of equipment may affect gains/losses and amortization expense.
2. Implementation of new collective agreements.
3. Economic conditions may affect both the amount of revenue earned.
4. Further changes to the operating budget through additional new initiatives or technical adjustments later in the year.

Once the Report on Plans and Priorities is presented, the Patented Medicine Prices Review Board will not be updating the forecasts for any changes to appropriations or forecast financial information made in ensuing supplementary estimates. Variances will be explained in the Departmental Performance Report.

4. Summary of significant accounting policies

The future-oriented financial statements have been prepared using the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

(a) Parliamentary authorities

The Patented Medicine Prices Review Board is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Board do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Future-oriented Statement of Financial Position and the Future-oriented Statement of Operations and Board Net Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 5 provides a reconciliation between the bases of reporting.

(b) Net cash provided by Government

The Board operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Board is deposited to the CRF and all cash disbursements made by the Board are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the Government.

(c) Amounts due from the Consolidated Revenue Fund

Amounts due from the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the Board is entitled to draw from the CRF without further authorities to discharge its liabilities.

(d) Revenues - are recorded on an accrual basis

• Revenues from regulatory fees are recognized in the accounts based on the services provided in the year;
• Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place;
• Revenues that are non-respendable are not available to discharge the Board's liabilities. While the Deputy Head is expected to maintain accounting control, he or she has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on the behalf of the Government of Canada and are therefore presented in reduction of the entity's gross revenues.

(e) Expenses are recorded on the accrual basis:

• Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment;
• Services provided without charge by other government departments for accommodation, employer contribution to health and dental insurance plans and legal services are recorded as operating expenses at their estimated cost.

(f) Employee future benefits

i) Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. The Board's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Board's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

ii) Severance benefits: Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

(g) Accounts receivable

Accounts receivable are stated at the lower of cost and net recoverable value. They are mainly comprised of amounts to be recovered from other government departments and the recovery is considered certain. As a result, no provision has been recorded as an offset against these amounts.

(h) Contingent liabilities

Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the future-oriented financial statements.

(i) Measurement uncertainty

The preparation of these future-oriented financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the future-oriented financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant item where estimates are used is the liability for employee severance benefits. Actual results could significantly differ from those estimated.

5. Parliamentary authorities

Patented Medicine Prices Review Board receives most of its funding through annual parliamentary authorities. Items recognized in the Future-oriented Statement of Financial Position and the Future-oriented Statement of Operations and Board Net Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the Board has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

6. Accounts payable and accrued liabilities

The following table presents details of the Board's accounts payable and accrued liabilities:

The Board has recorded an accrued liability of $2.8 million in 2013-14 ($2.8 million in 2012-13) for an allowance for claims and litigation.

7. Employee future benefits

(a) Pension benefits

The Board's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government. Pension benefits accrue up to a maximum period of 35 years at a rate of 2% per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plans benefits and they are indexed to inflation.

Both the employees and the Board contribute to the cost of the Plan. The forecasted expenses, which represent approximately 1.8 times the contributions by employees, amount to:

The Board's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

(b) Severance benefits

The Board provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. These severance benefits are not pre-funded. Benefits will be paid from future authorities. Information about the severance benefits, measured as at March 31, is as follows:

As part of collective agreement negotiations with certain employee groups, and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing in 2012. Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

8. Accounts receivable and advances

The following table presents details of Patented Medicine Prices Review Board's accounts receivable and advances balances:

9. Related party transactions

The Board is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Board enters into transactions with these entities in the normal course of business and on normal trade terms. Also, during the year, the Board received services which were obtained without charge from other government departments as disclosed below.

(a) Common Services provided without charge by other government departments:

During the year, the Board received services without charge from certain common service organizations, related to accommodation, legal services and the employer's contribution to the health and dental insurance plans. These services provided without charge have been recorded in the Board's Future-oriented Statement of Operations and Board Net Financial Position as follows:

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada, are not included in the Board's Future-oriented Statement of Operations and Board Net Financial Position.

(b) Other transactions with related parties:

Expenses and revenues disclosed in (b) exclude common services provided without charge, which are already disclosed in (a).

10. Segmented information