Monitoring and Evaluation Plan for the Major Changes in the Guidelines 2012

Indicators Related to Specific Changes in the Guidelines

Below is a list of the seven major changes made to the Guidelines, including information on the main purpose of each change, and the impacts the Plan will be monitoring. Although the majority of the indicators are quantifiable, the Plan will also employ a number of qualitative indicators.

1. New Levels of Therapeutic Improvement

Stakeholders had expressed concern that under the former Guidelines, the PMPRB's approach to assessing the level of therapeutic improvement of a drug product did not recognize the nature of incremental pharmaceutical innovation. At that time, the Guidelines did not differentiate among products that demonstrated moderate, slight or no improvement. New drug products that demonstrated incremental innovation were subject to the same price tests as line extension drug products.

In order to more appropriately reflect therapeutic improvement as well as the incremental nature of innovation, the PMPRB introduced four levels of therapeutic improvement under the new Guidelines:

• Breakthrough: first drug product to be sold in Canada that treats effectively a particular illness or clinical indication/use
• Substantial Improvement: relative to other drug products sold in Canada, provides substantial improvement in therapeutic effects
• Moderate Improvement: relative to other drug products sold in Canada, provides moderate improvement in therapeutic effects
• Slight or No Improvement: relative to other drug products sold in Canada, provides slight or no improvement in therapeutic effects

The revised Guidelines also introduced nine secondary factors (e.g., patient convenience, success rate and route of administration) to be considered when making recommendations on the level of therapeutic improvement, from slight or no improvement to moderate improvement.

In order to assess the impact of the inclusion of the new moderate improvement category, the Plan includes indicators to gauge how frequently this category has been invoked, as well as the type of evidence used in making the determination. These include:

• Number of moderate improvement “designations” granted based on primary factors
• Number of moderate improvement “designations” granted based on secondary factors
• Type of evidence resulting in moderate improvement using secondary factors

2. Price Tests—Overall Restructuring of Tests

The PMPRB, in consultation with interested stakeholders, has developed various price tests to determine whether the price of a drug product is within the Guidelines. These price tests were restructured in the revised Guidelines in order to better align them with the new levels of therapeutic improvement previously described. New price tests were developed for assessing moderate improvement drug products, which provide a premium over slight/no improvement drug products but demonstrate less “improvement” than substantial improvement drug products.

The Plan will monitor the impact of these changes by examining, for example, the amount of price premiums being collected by drug products classified as “moderate improvements”.

3. Price Tests—Highest International Price Comparison (HIPC) Wholesaler Exemption

The Highest International Price Comparison (HIPC) test compares the average transaction price of new and existing patented drug products with the publicly available ex-factory prices of the same medicine sold in the seven comparator countries. In order to ensure a consistent and fair application of the HIPC test for all patentees, while recognizing the nature of generic drug product prices and rebates, the Board decided that the HIPC would:

• Be conducted at the national level
• Be conducted for the pharmacy and hospital customer classes
• Be conducted for each province and territory
• Not be applied to the wholesaler class of customer^{Footnote 1}

As set out in the January 2011 NEWSletter, the Board decided that the review of prices of existing patented products at the level of any market is not being implemented at this time. For purposes of this Plan, no indicator was developed to examine the application of the wholesaler exemption for existing patented drug product prices.

However, the following indicator was developed to examine the application of the wholesaler exemption for new patented drug products and the impact of this change on new patented drug prices:

• The number of wholesaler prices that are above the result of the HIPC test
• Of these, how many benefit from the wholesaler exemption

4. Use of Public Prices for Domestic Price Comparison

In order to ensure a fair and predictable application of the Guidelines and achieve greater transparency, the Board decided to specify a list of publicly available sources of price information in the new Guidelines.

Indicators included in the Plan will examine the impacts of this change to determine the extent to which the use of public prices results in higher Maximum Average Potential Prices (MAPP) for new patented drug products. Other indicators will monitor the change in utilization of price sources, including the frequency of each source indicating the lowest price, and the number of public sources cited for each comparator.

5. DIP Methodology

Patentees are allowed to take an annual price increase for their patented medicines equal to the forecasted Consumer Price Index (CPI) calculation. According to the PMPRB's CPI Methodology, the price of an existing drug product during the year under review will be presumed to be excessive if it exceeds the allowable CPI-adjusted price over the period of three years or if the price increase is more than 1.5 times the forecast CPI.

The DIP Methodology was introduced in order to not create disincentives to the offering of “benefits”, which lead to a price reduction to customers. However, in the January 2011 NEWSletter, the Board announced that the DIP Methodology would not be implemented, and the PMPRB established a DIP Methodology Technical Working Group (DIP-WG), which produced a report identifying challenges in implementing the original DIP Methodology and outlined options to address them^{Footnote 2}. The Board agreed to the proposed recommendations outlined in the report and, after an initial pilot, implemented the following modifications to the DIP Methodology:

The pilot DIP Methodology consists of two processes: (1) the Simplified DIP Methodology, and (2) the Regular DIP Methodology. The Simplified DIP Methodology is a streamlined approach requiring minimal evidence for situations in which the National Average Transaction Price is less than or equal to the Introductory Benchmark Price. The Regular DIP Methodology, on the other hand, is an expanded version of the Simplified DIP Methodology requiring additional evidence from patentees. It is to be applied in cases where the DIP is invoked and the Simplified DIP Methodology does not apply.

The Plan includes a summary of the number of products that were eligible for a Simplified DIP Methodology or the Regular DIP Methodology.

6. Offset of Excess Revenues (Does not trigger investigation criteria)

Prior to the implementation of the revised Guidelines, patentees could offset excess revenues by not taking allowable (CPI) price increases. Excess revenue balances below the amount sufficient to trigger the investigation criteria were also observed to not be uncommon and in some cases existed for multiple years.

Under the new Guidelines, and as set out in the Patent Act, excess revenues can only be offset by either:

i) the reduction of the price of the medicine or the price at which the patentee sells another patented medicine in Canada

ii) a payment to Her Majesty in right of Canada.

In cases where the investigation criteria are not triggered (in accordance with Part B - Policies, section B.5.2), the Board will ensure transparency with respect to the potential accumulation of excess revenues by reporting these drugs as “does not trigger”.

7. Investigation Criteria

Prior to the implementation of the revised Guidelines, the price of an existing patented drug product would trigger an investigation if:

• the price exceeded the maximum non-excessive price by 5% or more and there were cumulative excess revenues of $25,000, or
• there were cumulative excess revenues of $50,000 or more, or
• a complaint was received.

Under the revised Guidelines, the thresholds for commencing an investigation for existing patented drug products were changed. An investigation is triggered if:

• the National Average Transaction Price or any Market-Specific Average Transaction Price of a new drug product exceeds the Maximum Average Potential Price during the introductory period by more than 5%, or
• there are cumulative excess revenues of $50,000 or more, or
• a complaint is received.

The impact of this change is currently being assessed.

Changes Not Monitored

No active monitoring is proposed for the following changes to the Guidelines, as these changes did not significantly impact current procedures:

• Terminology changes
  • “Maximum Average Potential Price” replaced “introductory Maximum Non-Excessive Price” for new patented drug products
  • “Non-Excessive Average Price” replaced “Maximum Non-Excessive Price” for existing patented drug products
• Limited comparators for patented generic drug products
  • Comparators are limited to only the reference (bioequivalent) or licensing brand's drug product
• International Therapeutic Class Comparison test
  • Drug products used for comparison purposes in the ITCC mirror those used in the domestic Therapeutic Class Comparison test. The ITCC test is not a pivotal price test, but rather may provide useful information in the context of an investigation.

Reporting

This Plan will assist the Board in assessing the impact and application of the major changes to the Guidelines. These impacts may not be immediately apparent due to the timing of the regulatory filings of patentees, the price review process of existing patented drug products, which is based on a full calendar year, and the fact that it may take several reporting periods before any discernible trends become evident. The Board will monitor emerging issues to identify the need for any future amendments to the Guidelines or this Plan.

The following table presents a summary of the major changes made to the Guidelines, the indicators developed to date to measure the impact of these changes, as well as results or observations on 2011 data. As noted above, some indicators are still to be developed in accordance with the Board's consideration of emerging policy issues. Other observations by the Board may also be made as Board Staff continues to gain experience in the application with the Guidelines.

The Summary of Major Changes, Indicators and Results was presented to the Board in December 2012 and will be updated annually each December.