Quarterly Financial Report for the quarter ended September 2012

Management Statement for the Quarter Ending September 30, 2012

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 2012 (Budget 2012).

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 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 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

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year. Budget 2012 was tabled in Parliament on March 29, after the tabling of the Main Estimates on February 28, 2012. As a result the measures announced in the Budget 2012 could not be reflected in the 2012-13 Main Estimates.

In fiscal year 2012-2013, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In future years, the changes to departmental authorities will be implemented through the Annual Reference Level Update, as approved by Treasury Board, and reflected in the subsequent Main Estimates tabled in Parliament.

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 2012-2013 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. 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 Results

This quarterly financial report reflects the results of the current fiscal period in relation to the Main Estimates. The PMPRB´s spending for the second quarter of 2012-2013 has decreased by $590 thousand over spending for the same quarter in 2011-2012 and year to date spending has decreased by $796 (18%) thousand from $4326 in 2011-2012 to $3530 thousand in 2012-2013.

The money reported as non-respendable revenue does not represent revenues generated by the PMPRB. This money is a result of payments made by patentees to the Government of Canada through Voluntary Compliance Undertakings (VCUs) or Board Orders to offset excess revenues. The Minister 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 influenced by the number of VCUs submitted by patentees and approved by the Chairperson and the number of Board Orders issued as a result of public hearings into the price of a patented medicine. In the quarter ended September 30, 2012 the PMPRB received payment of 3 VCUs totalling $2,806.6 thousand in repayment of excess revenues as compared to 2 VCUs and repayments of excess revenues totalling $156.7 thousand in the same quarter of 2011-2012. In 2012-2013 year to date non-respendable revenue from VCUs and Board Orders totalled $3,837.6 thousand as compared to $311.7 thousand in 2011-2012.

2.1 Significant Changes to Authority

As at September 30, 2012, total authorities available for the year have decreased by $32 thousand (0.26%) compared to the same quarter of the prior year, from $12.258 million which includes a carry-forward of $0.404 million to $12.216 million which includes a carry-forward of $0.384 million. This net decrease is a result of a decrease in Vote 35 – Operating expenditures due to implementation of Budget 2010 costs containment measures.

2.2 Significant Changes to Budgetary Expenditures by Standard Object

The PMPRB´s second quarter spending is 23% lower than second quarter spending in the previous year. Additionally, there have been significant changes in planned and actual spending by standard object.

Actual expenditures in Personnel as at September 30, 2012 have decreased by $334 thousand from the same period in the previous year. This variance is largely a result of the severance cash out paid to the Program and Administrative Services (PA) Bargaining Unit and interdepartmental settlements for seconded employees for the first quarter of 2011-2012 received and paid in the second quarter of 2011-2012.

Actual year-to-date expenditures in Transportation and communications, as at September 30, 2012 have decreased by $17 thousand from the $64 thousand used as at September 30, 2011 to $46 thousand. This decrease is a result of reduced travel and lower telecommunication charges during the period.

Actual year-to-date expenditures in Professional and special services, as at September 30, 2012 have decreased by $351 thousand from the $642 thousand used as at September 30, 2011 to $291 thousand. This decrease is a result of lower expenditures related to IT consultants due to the completion of the development and testing phase of the replacement of the mission-critical database containing drug pricing information in 2011-2012 and a decrease in Legal Services as a result of fewer hearing related expenditures.

As per the table of Departmental Budgetary Expenditures by Standard Object, planned expenditures for Utilities, materials and supplies have decreased by 76% from $88 thousand as at the end of the second quarter of 2011-2012 to $20 thousand as at the end of the same quarter of 2012-2013. This change is a result of fewer planned and actual data purchases and the timing of invoicing for continuing data purchase contract renewals.

Conversely, actual year to date expenditures for Acquisitions of Machinery, Equipment and Tools, as at September 30, 2012 is up $28 thousand, from $9 thousand as at September 30, 2011 to $37 thousand. This change is a result of increases in the number of software licences purchased and the timing of invoicing for software license renewals.

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 Voluntary Compliance Undertakings (VCUs) or Board Orders to offset excess patented revenues. The Minister 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.

Budget 2010 announced that departments would not be funded for the 2010-11 to 2012-13 wage and salary increases resulting from collective agreements. As departments must pay the salary increases to employees, organizations are expected to find efficiencies within their operating vote to fund these increases. The PMPRB has estimated the impact of this government-wide initiative to be $177,937. The PMPRB will accommodate this reduction in funding by not staffing selected vacant positions without significantly impacting its operations.

The PMPRB´s funding includes a Special Purpose Allotment (SPA) to conduct Public Hearings, in Vote 35 (Operating expenditures) of $3.1 million. The SPA can only be used to cover the costs of public hearings such as, external legal counsel, 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 and the number of investigations that result in hearings. While over the past two years, there has been a decrease in Board hearings, more Board proceedings seem to result in judicial review applications before the Federal Court and the Federal Court of Appeal. As a result of the inherent complexity of the Board´s jurisdiction, it is expected that patentees will continue to make applications to the Federal Court and the Federal Court of Appeal in areas where the Board´s jurisdiction is not clearly defined in legislation and/or precedents.

The PMPRB´s most significant expenditure is Personnel of its planned expenditures. The PMPRB, much like other small organizations, has difficulty attracting and retaining highly specialized subject-matter experts and engaging new staff in a timely manner. As a result, the PMPRB relies on maintaining its highly specialized workforce to continue to deliver its programs. Given the department´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

There have been no major senior personnel or program changes this quarter.

5. Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that will be implemented in order to refocus government and programs; make it easier for Canadians and business to deal with their government; and, modernize and reduce the back office.

The PMPRB will achieve Budget 2012 savings of $1 million by fiscal year 2014-15 through efficiency measures; scaling back where the need is reduced; and by transforming how it works internally by adopting process efficiencies and alternative means of delivering both the regulatory and reporting programs.

In the first year of implementation, the PMPRB will achieve savings of approximately $0.8 million. Savings will increase to $0.9 million in 2013-14 and will result in ongoing savings of $1.0 million by 2014-15.

There is a variance of $0.8 million in the PMPRB´s authorities between fiscal year 2011-12 and 2012-13 related to Budget 2012 initiatives. Specifically, savings are achieved in 2012-13 by reducing funding to the following initiatives:

• A reduction in the Special Purpose Allotment (SPA) for Hearings. This proposal would eliminate $630 thousand in funding for the SPA, but is considered an adequate amount to carry out fair and timely hearings as required.
• The elimination of $144 thousand in funding from the Pharmaceutical Trends Program.

Expenditures in the second quarter of 2012-13 are 23% less than the same period from last fiscal year.

There are no financial risks or uncertainties related to these savings.

Approval by Senior Officials
Approved by:

_____________________ _____________________
Mary Catherine Lindberg, Michelle Boudreau,
Chairperson Chief Financial Officer

Ottawa, Canada
November 23, 2012

STATEMENT OF AUTHORITIES (unaudited)

1. *Includes only Authorities available for use and granted by Parliament at quarter end.
2. (S) Statutory vote

Patented Medicine Prices Review Board
For the quarter ended September 30, 2012

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

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