Annual Report 2017

Statistical Highlights 2017

Regulatory Mandate

• 1,391 patented medicines for human use were reported to the PMPRB, including 80 new medicines.
• 14 Voluntary Compliance Undertakings were accepted as at December 31, 2017.
• $35 million in excess revenues were offset by way of payment to the Government of Canada, in addition to price reductions.

Reporting Mandate

Sales Trends:

• There was $16.8 billion in sales of medicines products in Canada in 2017, an increase of 7.6% from 2016.
• Patented medicines accounted for 61.5% of the total medicine sales in Canada, an increase from 60.8% in 2016.

Price Trends:

• Prices of existing patented medicines were stable, while the Consumer Price Index rose by 1.6%.
• Canadian prices were fourth highest among the seven PMPRB comparator countries, lower than prices in Switzerland, Germany and the US.

Research and Development:
R&D-to-sales ratios decreased in 2017:

• 4.1% for all patentees, a decrease from 4.4% in 2016.
• 4.6% for Innovative Medicines Canada members, a decrease from 4.9% in 2016.

R&D expenditures:

• $871.4 million in total R&D expenditures were reported by patentees, a decrease of 5.1% over 2016.
• $755.8 million in R&D expenditures were reported by Innovative Medicines Canada members, a decrease of 1.8% over 2016.

Letter to the Minister

July 24, 2018

The Honourable Ginette Petitpas Taylor, P.C., M.P.
Minister of Health
House of Commons
Ottawa, Ontario
K1A 0A6

Dear Minister:

I have the pleasure to present to you, in accordance with sections 89 and 100 of the Patent Act, the Annual Report of the Patented Medicine Prices Review Board for the year ended December 31, 2017.

Yours very truly,

Dr. Mitchell Levine

Chairperson

Chairperson’s Message

Thirty years ago, the Patented Medicine Prices Review Board (PMPRB) was founded with a mandate to protect consumers by ensuring that the prices of patented medicines are not excessive. Although the PMPRB’s mandate has not changed in the intervening years, many aspects of its operating environment have changed significantly. To continue to carry out its mandate effectively, the PMPRB must adapt its regulatory and reporting functions in response to those changes.

To that end, in December 2017, Health Canada’s proposed amendments to the Patented Medicines Regulations (Regulations) were published in Part 1 of the Canada Gazette. The Regulations are a key deliverable for the Minister of Health in her continuing efforts to improve patient access to necessary prescription medications, including by making them more affordable. If passed, they would require the PMPRB to consider factors beyond simply domestic and international list prices in carrying out its regulatory obligations. Later that same month, the PMPRB published a scoping paper, which provided an outline of potential changes to its Guidelines that would operationalize the Regulations and support our objective of moving to a risk-based approach to regulating patented medicine prices.

In addition to these regulatory reform initiatives, a number of other significant developments took place in 2017. In March, the Government announced a substantial increase in funding for the PMPRB in Budget 2017. In October, the Alexion matter resulted in the first decision on the merits from a Board panel in an excessive price hearing since 2012.

As is the case every year, 2017 also saw its share of staff and Board members come and go. However, two people who left the organization last year deserve special acknowledgement. First, Elaine McGillivray retired after 30 years with the PMPRB’s Board Secretariat. Elaine was the organization’s very first hire and the heart and soul of its charitable activities for as long as we can remember. Her absence is keenly felt by all of us. Second, Normand Tremblay’s term as a Board member came to a close after five years of very capable and committed service. Although his personal and business commitments did not afford him the time to serve a second term on the Board, Normand’s enthusiasm and vision for the PMPRB will have a lasting impact on the organization’s ongoing efforts to reform and modernize how it carries out its mandate.

As for 2018, the PMPRB’s focus will be on bringing the final chapter in its Guidelines modernization initiative to a close. To that end, the PMPRB will be holding targeted consultations with stakeholders on key technical and operational modalities of the new regime over the summer and early fall, and publishing a draft of the new Guidelines for broader consultation shortly thereafter. While we recognize that many of our stakeholders have divergent and even diametrically opposed points of view on the policy rationale for these changes, we hope that all of our stakeholders will work constructively with us as this process unfolds. Given the divisive nature of the subject matter, we cannot expect to achieve consensus at the end of the day, but we hope that everyone involved will come away from the process feeling properly informed, heard and understood.

Dr. Mitchell Levine
Chairperson

About the Patented Medicine Prices Review Board: Acting in the Interest of Canadians

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

The PMPRB is a consumer protection agency with a dual regulatory and reporting mandate. Through its regulatory mandate, it ensures that the prices of patented medicines sold in Canada are not excessive. The PMPRB also reports on trends in pharmaceutical sales and pricing for all medicines and on R&D spending by patentees. Its reporting mandate provides pharmaceutical payers and policy makers with information to make rational, evidence-based reimbursement and pricing decisions.

The PMPRB is part of the Health Portfolio, which includes Health Canada, the Public Health Agency of Canada, the Canadian Institutes of Health Research and the Canadian Food Inspection Agency. The Health Portfolio supports the Minister of Health in maintaining and improving the health of Canadians.

Protecting Consumers in a Complex Marketplace

Figure description

Canadian consumers are symbolically represented by a graphic of a generic male and female in the centre of a segmented circle. Each segment of the circle represents an organization or category of organizations that are part of the Canadian pharmaceutical environment: starting at the top and moving clockwise, Public Drug Plans; Canadian Institute for Health Information (CIHI); Private Drug Plans; Industry Associations; Health Canada; Patentees; PMPRB; Canadian Agency for Drugs and Technologies in Health (CADTH).

Although part of the Health Portfolio, because of its quasi-judicial responsibilities, the PMPRB carries out its mandate at arm’s length from the Minister of Health, who is responsible for the sections of the Act pertaining to the PMPRB. It also operates independently of other bodies such as Health Canada, which approves medicines for marketing in Canada based on their safety, efficacy and quality; federal, provincial and territorial (F/P/T) public drug plans, which approve the listing of medicines on their respective formularies for reimbursement purposes; and the Common Drug Review and pan-Canadian Oncology Drug Review, administered by the Canadian Agency for Drugs and Technologies in Health (CADTH), which recommends medicines that should qualify for reimbursement by participating public drug plans.

The PMPRB is composed of Board Staff, who are public servants responsible for carrying out the organization’s day-to-day work, and Board members, Governor-in-Council appointees who serve as hearing panel members in the event of a dispute between Board Staff and a patentee over the price of a patented medicine.

Jurisdiction

Regulatory

The PMPRB regulates the “factory gate” (ex-factory) ceiling prices for all patented medicines sold in Canadian markets; that is, the prices at which patentees (companies) sell their products to wholesalers, hospitals, pharmacies and other large distributors. The PMPRB does not regulate the prices of non-patented medicines.

The PMPRB’s jurisdiction is not limited to medicines for which the patent is for the active ingredient or for the specific formulation(s) or uses being sold in Canada by the patentee. Rather, its jurisdiction also covers medicines for which the patents pertain including patents for manufacturing processes, delivery systems or dosage forms, indications/use and any formulations.

Under the Act, patentees (which include any parties who benefit from patents regardless of whether they are owners or licensees under those patents and regardless of whether they operate in the “brand” or “generic” sector of the market) are required to inform the PMPRB of their intention to sell a new patented medicine. Upon the sale of a patented medicine, patentees are required to file price and sales information at introduction and, thereafter, until all patents pertaining have expired. Although patentees are not required to obtain approval of the price to be able to market their products, they are required to comply with the Act to ensure that the prices of patented medicines sold in Canada are not excessive.

Board Staff reviews the prices that patentees charge for each individual strength and form of a patented medicine. If the price of a patented medicine appears to be potentially excessive, Board Staff will first try to reach a consensual resolution with the patentee. Failing this, the Chairperson can decide that the matter should proceed to a hearing. At the hearing, a panel composed of Board members acts as a neutral arbiter between Board Staff and the patentee. If a panel finds that the price of a patented medicine is excessive, it can order a reduction of the price to a non-excessive level. It can also order a patentee to make a monetary payment to the Government of Canada in the amount of the excess revenues earned and, in cases where the panel determines there has been a policy of excessive pricing, it can double the amount of the monetary payment.

Reporting

The PMPRB is a reliable, objective source of information on medicine prices, pharmaceutical trends and R&D investment. The PMPRB reports annually to Parliament through the Minister of Health on its price review activities, the prices of patented medicines and price trends of all prescription medicines, and on the R&D expenditures reported by pharmaceutical patentees, as required by the Act.

Pursuant to an agreement by the F/P/T Ministers of Health in 2001, and at the request of the Minister of Health pursuant to section 90 of the Act, the PMPRB conducts critical analyses of price, utilization and cost trends for patented and non-patented prescription medicines under the National Prescription Drug Utilization Information System (NPDUIS). The PMPRB publishes the results of NPDUIS analyses in the form of research papers, posters, presentations and briefs. This program provides F/P/T governments and other interested stakeholders with a centralized, credible source of information on pharmaceutical trends.

Among other initiatives, the PMPRB also hosts various forums, such as webinars, research forums and information sessions, with academics and policy experts to discuss current research into pharmaceutical use in Canada and emerging areas for study.

Communications and Outreach

The PMPRB is committed to ensuring that stakeholders are consulted and informed of changes in the operating environment and are promptly advised of any updates to the regulatory process. Over the past year, the Regulatory Affairs and Outreach Branch continued to provide regular outreach sessions for patentees.

The PMPRB continues to take a proactive and plain-language approach to its communication activities. This includes targeted social media campaigns and more conventional (e.g., email and telephone) engagement with domestic, international and specialized media including the CBC, CTV, Radio-Canada, La Presse, The Globe and Mail, Toronto Star, the Canadian Medical Association Journal, Benefits Canada, CBS, Bloomberg News, and Boston Globe among others.

Governance

The Board consists of up to five members who serve on a part-time basis. Board Members, including a Chairperson and a Vice-Chairperson, are appointed by the Governor in Council. The Chairperson is designated under the Act as the Chief Executive Officer of the PMPRB, with the authority and responsibility to supervise and direct its work.

The Members of the Board are collectively responsible for the implementation of the applicable provisions of the Act. Together, they approve the issuance of the guidelines, rules and other policies of the Board as provided by the Act and consult, as necessary, with stakeholders including the provincial and territorial Ministers of Health and representatives of consumer groups and the pharmaceutical industry.

Members of the Board

Chairperson

Mitchell Levine,
BSc, MSc, MD, FRCPC, FISPE, FACP

Dr. Mitchell Levine was appointed Member and Vice-Chairperson of the Board on March 3, 2011. He was reappointed as Vice-Chairperson for a second, five year term on November 10, 2016. He was appointed Chairperson of the Board on February 13, 2018.

Dr. Levine is a professor in both the departments Medicine and of Health Research Methods, Evidence and Impact and in the department of Medicine at McMaster University in Hamilton, Ontario. He is also an Assistant Dean in the Faculty of Health Sciences and a faculty member of the Centre for Health Economics and Policy Analysis at McMaster University.

Dr. Levine received his medical degree from the University of Calgary and did postgraduate medical training in Internal Medicine (FRCPC) and in Clinical Pharmacology at the University of Toronto. He received an MSc degree in Clinical Epidemiology from McMaster University.

Prior to his appointment to the Board, Dr. Levine was a member of the PMPRB’s Human Drug Advisory Panel. He currently acts on an ad hoc basis as a clinical pharmacology consultant to the Ontario Ministry of Health and Long-Term Care. In addition, he is Editor-in-Chief of the Journal of Population Therapeutics and Clinical Pharmacology and Associate Editor of the ACP Journal Club: Evidence-Based Medicine.

Vice-Chairperson

Position vacant

Members

Carolyn Kobernick,
B.C.L., LL.B.

Carolyn Kobernick was appointed Member of the Board on June 13, 2014.

Ms. Kobernick is a lawyer and former public servant. Prior to her retirement in 2013, Ms. Kobernick was Assistant Deputy Minister of Public Law for the Department of Justice. As principal counsel to the Minister of Justice and Attorney General of Canada, Ms. Kobernick was instrumental in the development and delivery of policy for the Public Law sector. In addition to identifying key strategic, legal and operational matters, she tackled cross-cutting national issues as the liaison between the Department of Justice and other government organizations.

Ms. Kobernick joined the Department of Justice in 1980, where she practiced litigation and tax law at the Toronto Regional office. In 1991, she was appointed Senior General Counsel, Deputy Head, Business and Regulatory Law Portfolio, after working for over a decade in the legal services unit of the Correctional Service of Canada. In her role as Senior General Counsel, Ms. Kobernick was involved in complex federal policy and operational issues, including the Alaska Pipeline and Mackenzie Valley Pipeline files and the Sponsorship file.

During her career with the public service, Ms. Kobernick actively participated in many high-profile initiatives. She was Chair of the National Legal Advisory Committee and Departmental Champion for Aboriginal People and Gender Equity. She also served as the Senior Department of Justice official at the Domestic Affairs Cabinet Committee, and was appointed Senior Legal Advisor to the Government of Canada for the 2004 Gomery Inquiry.

Ms. Kobernick holds a B.C.L. and LL.B. from McGill University and is a member of the bar of Ontario. In 2012 she obtained a Certificate in Adjudication for Administrative Agencies, Boards and Tribunals from the Osgoode Hall Law School and the Society of Ontario Adjudicators and Regulators.

As at May 31, 2018 two Member positions are vacant.

Organizational Structure and Staff

PMPRB Organizational Chart

Figure description

This organizational chart illustrates the high-level reporting structure within the PMPRB, and lists the current Board and Senior Staff members. Board: Chairperson— Dr. Mitchell Levine; Vice-Chairperson—Vacant; Members— Carolyn Kobernick, Vacant, & Vacant. Senior Staff: Executive Director—Douglas Clark; General Counsel—Isabel Jaen Raasch; Director Board Secretariat, Communications and Strategic Planning—Guillaume Couillard; Director Policy and Economic Analysis—Tanya Potashnik; Director Regulatory Affairs and Outreach— Matthew Kellison; Director Corporate Services—Devon Menard.

Executive Director

The Executive Director is responsible for advising the Board and for the leadership and management of the staff.

Regulatory Affairs and Outreach

The Regulatory Affairs and Outreach Branch reviews the prices of patented medicines sold in Canada; ensures that patentees are fulfilling their filing obligations; encourages patentees to comply voluntarily with the Board’s Guidelines; implements related compliance policies; and investigates complaints into the prices of patented medicines. This branch also informs and educates patentees on the Board’s Guidelines and filing requirements.

Policy and Economic Analysis

The Policy and Economic Analysis Branch develops policy and strategic advice; makes recommendations on possible amendments to the Board’s Guidelines; conducts research and analysis on the prices of medicines, pharmaceutical market developments and R&D trends; and publishes studies aimed at providing F/P/T governments and other interested stakeholders with centralized, credible information in support of evidence based policy.

Corporate Services

The Corporate Services Branch provides advice and services in relation to human resources management; facilities; procurement; health, safety and security; information technology; and information management. It is also responsible for financial planning and reporting, accounting operations, audit and evaluation, and liaising with federal central agencies on these topics.

Board Secretariat, Communications and Strategic Planning

The Board Secretariat, Communications and Strategic Planning Branch develops and manages the PMPRB’s communications, media relations, and public enquiries; manages the Board’s meeting and hearing processes, including the official record of proceedings; and coordinates activities pursuant to the Access to Information Act and the Privacy Act. It is also responsible for strategic planning and reporting.

General Counsel

The General Counsel advises the PMPRB on legal matters and leads the legal team representing Board Staff in proceedings before the Board.

Budget

In 2017-18, the PMPRB had a budget of $10.866 million and an approved staff level of 66 full-time equivalent employees.

Regulating Prices of Patented Medicines: Continued Vigilance Necessary

Medical advancements have introduced many innovative new medicines to the Canadian marketplace to improve existing treatments and to treat conditions that previously had no pharmaceutical therapy. However, many of these new medicines come at a very high cost. Since 1987, pharmaceutical costs in Canada have grown at an average annual rate of 7.3%, outpacing all other health care costs and growing at well over 3 times the pace of inflation. At 16.4% of total health care spending, pharmaceuticals now rank ahead of spending on physicians. About 1 in 5 Canadians reports having no prescription medicine coverage and many more are under-insured or face high deductibles or co-pays. Almost 1 in 10 Canadians have had to forego filling a prescription medicine in the past year for reasons related to cost.

The PMPRB protects the interests of Canadian consumers by ensuring that the prices of patented medicines sold in Canada are not excessive. It does this by reviewing the prices that patentees charge for each individual patented medicine to wholesalers, hospitals and pharmacies and by taking action so that patentees reduce their prices and pay back excess revenues where appropriate.

Reporting Requirements

Patentees are required by law to file information pertaining to the sale of their medicines in Canada. The Act along with the Patented Medicines Regulations (Regulations) set out the filing requirements and Board Staff reviews pricing information on an ongoing basis to ensure that prices are not excessive until all patents pertaining have expired.

There are several factors used for determining whether a medicine is priced excessively, as outlined in section 85 of the Act.

The Compendium of Policies, Guidelines and Procedures (Guidelines) details the price tests used by Board Staff to determine whether the price charged by a patentee falls within the maximum allowable price. The Guidelines were developed in consultation with stakeholders, including the provincial and territorial Ministers of Health, consumer groups, and the pharmaceutical industry. When an investigation determines that the price of a patented medicine may be excessive, the patentee is offered the opportunity to voluntarily lower its price and/or refund its excess revenues through a Voluntary Compliance Undertaking (VCU). If the patentee disagrees with the findings of the investigation and chooses not to submit a VCU, the Chairperson of the Board may issue a Notice of Hearing (NOH). After hearing the evidence, if the Board finds that a price is excessive, it can issue an order requiring a patentee to reduce that price and/or refund excess revenues. Copies of the Act, the Regulations, the Guidelines, and the Patentee’s Guide to Reporting are posted on the PMPRB’s website.

Failure to Report

The PMPRB relies on patentees’ full and timely disclosure of any and all patented medicines being sold in Canada to which a patent pertains. In 2017, 6 medicines were reported to the PMPRB for the first time despite being patented and sold prior to 2017. In addition, 4 medicines previously reported to the PMPRB, and for which the patents had expired, were reported again as having another patent pertaining.

Failure to File Price and Sales Data (Form 2)

Failure to file refers to the complete or partial failure of a patentee to comply with the regulatory filing requirements outlined in the Act and the Regulations. There were no Board Orders issued for failure to file in 2017.

Scientific Review

Human Drug Advisory Panel

All new patented medicines reported to the PMPRB are subject to a scientific evaluation as part of the price review process. The Human Drug Advisory Panel (HDAP) was established by the Board to provide independent expertise and advice to Board Staff. HDAP conducts a review when a patentee makes a claim regarding therapeutic improvement. Panel members review and evaluate the appropriate scientific information available, including any submission by a patentee with respect to the proposed level of therapeutic improvement, the selection of medicines to be used for comparison purposes, and comparable dosage regimens.

HDAP evaluates the therapeutic benefit of new patented medicines according to the following definitions:

• Breakthrough: A medicine that is the first one to be sold in Canada to effectively treat a particular illness or effectively address a particular indication.
  
  
• Substantial Improvement: A medicine that, relative to other medicines sold in Canada provides substantial improvement in therapeutic effects.
  
  
• Moderate Improvement: A medicine that, relative to other medicines sold in Canada provides moderate improvement in therapeutic effects.
  
  
• Slight or No Improvement: A medicine that, relative to other medicines sold in Canada, provides slight or no improvement in therapeutic effects.

Figure 1 illustrates the breakdown of new patented medicines in the year of introduction by therapeutic benefit for 2010 to 2017. The largest percentage of patented medicines (82.1%) introduced since 2010 offer Slight or No Improvement in therapeutic benefit over existing therapies.^{Footnote 1}

The bar “Overall 2017” represents the therapeutic benefit breakdown for all new patented medicines introduced from 2010 to 2017. The bar “Overall 2017 Revenue Share” illustrates the revenue share by therapeutic benefit for all new patented medicines introduced from 2010 to 2017.

Figure 1. Breakdown of New Patented Medicines by Therapeutic Benefit

Figure description

This is a bar graph depicting the breakdown of new patented medicines by therapeutic benefit over existing medicines in the year of introduction for the period 2010 to 2017. In 2010: 51 new patented medicines were slight or no improvement, 14 were moderate improvement, 0 were substantial improvement, and 3 were breakthrough; 2011: 76 new patented medicines were slight or no improvement, 27 were moderate improvement, 5 were substantial improvement, and 1 was breakthrough; 2012: 70 new patented medicines were slight or no improvement, 8 were moderate improvement, 3 were substantial improvement, and 1 was breakthrough; 2013: 91 new patented medicines were slight or no improvement, 17 were moderate improvement, 2 were substantial improvement, and 5 were breakthrough; 2014: 87 new patented medicines were slight or no improvement, 7 were moderate improvement, 7 were substantial improvement, and 3 were breakthrough; 2015: 73 new patented medicines were slight or no improvement, 8 were moderate improvement, 3 were substantial improvement, and 1 breakthrough; 2016: 116 new patented medicines were slight or no improvement, 9 were moderate improvement, 0 were substantial improvement, and 3 were breakthrough; 2017: 52 new patented medicines were slight or no improvement, 5 were moderate improvement, 1 was substantial improvement, and 1 was breakthrough. The therapeutic benefit of all new patented medicines introduced from 2010 to 2017 is depicted by the Overall 2010-2017 bar. From 2010-2017; 616 new patented medicines were slight or no improvement, 95 were moderate improvement, 21 were substantial improvement, and 18 were breakthrough. The Overall 2010-2017 Sales Share depicts the percentage of sales related to each level of therapeutic benefit: 72.5% of sales were medicines of little or no improvement, 20.7% were medicines of moderate improvement, 4.3% were medicines of substantial improvement, and 2.2% were breakthroughs.

Price Review

The PMPRB reviews the average price of each strength of an individual dosage form of each patented medicine. In most cases, this unit is consistent with the Drug Identification Number (DIN) assigned by Health Canada at the time the medicine is approved for sale in Canada.

New Patented Medicines Reported to the PMPRB in 2017

For the purpose of this report, a new patented medicine in 2017 is defined as any patented medicine first sold in Canada, or previously sold but first patented, between December 1, 2016, and November 30, 2017.

There were 80 new patented medicines for human use reported as sold in 2017. Some are one or more strengths of a new active substance and others are new presentations of existing medicines. Of these 80 new patented medicines, 2 (2.5%) were being sold in Canada prior to the issuance of the Canadian patent that brought them under the PMPRB’s jurisdiction. Table 3 shows the year of first sale for these medicines.

The list of New Patented Medicines Reported to PMPRB is available on the PMPRB’s website under “Regulating Prices”. This list includes information on the status of the review (i.e., whether the medicine is under review, within the Guidelines, under investigation, or subject to a VCU or Notice of Hearing).

Figure 2 illustrates the number of new patented medicines for human use reported to the PMPRB from 1989 to 2017.

Figure 2. New Patented Medicines for Human Use

Figure description

This is a bar graph depicting the number of new patented medicines for human use reported to the Patented Medicine Prices Review Board by year. In 1989, 68 patented medicines for human use were reported to the PMPRB.

In 1990: 74; 1991: 94; 1992: 88; 1993: 77; 1994: 64; 1995: 81; 1996: 80; 1997: 93; 1998: 90; 1999: 111; 2000: 81; 2001: 82; 2002: 98; 2003: 77; 2004: 96; 2005: 68; 2006: 112; 2007: 77; 2008: 83; 2009: 81; 2010: 68; 2011: 109; 2012: 82; 2013: 115; 2014: 103; 2015: 86; 2016: 128; 2017: 80.

Of the 80 new patented medicines, the prices of 59 had been reviewed as of March 31, 2018:

• 42 were found to be within the thresholds set out in the Guidelines;
• 6 were at a level that appeared to exceed the thresholds set out in the Guidelines by an amount that did not trigger the investigation criteria; and
• 11 were at levels that appeared to exceed the thresholds set out in the Guidelines and resulted in investigations being commenced.
  • 5 of the 11 investigations were resolved by VCUs.

For a complete list of the 80 new patented medicines and their price review status, see Appendix 2.

Price Review of Existing Patented Drug Products for Human Use in 2017

For the purpose of this report, existing patented medicines include all patented medicines that were first sold and reported to the PMPRB prior to December 1, 2016.

At the time of this report, there were 1,311 existing patented medicines:

• 908 were priced within the thresholds set out in the Guidelines;
• 233 had prices that appeared to exceed the thresholds set out in the Guidelines by an amount that did not trigger the investigation criteria;
• 116 were the subject of investigations:
• 4 were under review;
• 49 were the subject of a Voluntary Compliance Undertaking; and
• 1 is the subject of a hearing.

A summary of the status of the price review of the new and existing patented medicines for human use in 2017 is provided in Table 4.

Update From the 2016 Annual Report

• Reviews of all medicines for human use that were reported as Under Review in the 2016 Annual Report have been completed.
• 84 of the 101 investigations reported in the 2016 Annual Report resulted in one of the following:
  • the closure of the investigation where it was concluded that the price was within the thresholds set out in the Guidelines;
  • a VCU by the patentee to reduce the price and offset excess revenues through a payment and/or a reduction in the price of another patented medicine (see Voluntary Compliance Undertakings); or
  • a public hearing to determine whether the price was excessive, including any remedial Order determined by the Board (see Hearings).

Patented Over-the-Counter Medicines and Patented Medicines For Veterinary Use

Board Staff reviews the prices of patented over-the-counter medicines or patented veterinary medicines only when a complaint has been received. No such complaints were received in 2017.

Voluntary Compliance Undertakings and Hearings

Voluntary Compliance Undertakings

A VCU is a written undertaking by a patentee to adjust its price to conform to the Board’s Guidelines. Under the Guidelines, patentees are given an opportunity to submit a VCU when Board Staff concludes, following an investigation, that the price of a patented medicine sold in Canada appears to have exceeded the thresholds set out in the Guidelines. A VCU represents a compromise between the PMPRB and the patentee as a result of negotiations between the parties geared towards a satisfactory resolution of an investigation initiated by Board Staff as per the Guidelines. A VCU takes into account the specific facts and underlying context of a particular case. As such, VCUs are not intended to have precedential value.

In 2017, fourteen VCUs were accepted. In addition to price reductions for certain medicines, excess revenues totaling $34,954,878.65 were offset by way of payments to the Government of Canada.

In 2018, as at May 31, 2018, four more VCUs have been approved by the Chairperson.

Hearings

The PMPRB holds hearings into two types of matters:

• excessive pricing; and
• failure to file–jurisdiction.

Excessive Pricing

In the event that the price of a patented medicine appears to be excessive, the Board can hold a public hearing. If it finds that the price is excessive, it may issue an order to reduce the price of the patented medicine in question (or of another patented medicine of the patentee) and/or to offset revenues received as a result of the excessive price. Judicial review of Board decisions can be sought in the Federal Court of Canada.

In January 2015, the PMPRB announced it would hold a public hearing in the matter of the price of the patented medicine Soliris, and Alexion Pharmaceuticals Inc. (Alexion), the pharmaceutical company that holds the patent for Soliris and sells the medicine in Canada. The purpose of this hearing was to determine whether the medicine has been or is being sold in any market in Canada at a price that, in the Board’s opinion, is or was excessive; and, if so, what order, if any, should be made to remedy the excessive pricing. The hearing was held in January, February and April 2017. The decision was issued on September 27, 2017. The Hearing Panel found that the price of Soliris (eculizumab) 10 mg/mL was and is excessive under sections 83 and 85 of the Patent Act. The Panel ordered Alexion to pay to Her Majesty in right of Canada an amount of excess revenue calculated in accordance with Schedule A to the decision. The Hearing Panel also ordered Alexion to lower the list price of Soliris in Canada to no higher than the lowest price in the comparator countries set out in the Patented Medicines Regulations.

On October 20, 2017, Alexion Pharmaceuticals Inc. sought judicial review of the decision before the Federal Court.

On November 8, 2017, the Panel ordered Alexion to pay excess revenue to Her Majesty in right of Canada the amount of $4,245,329.60 on or before December 8, 2017.

The matter of whether Apo-Salvent CFC Free was excessively priced commenced in 2008 was discontinued in September 2017.

Failure to File–Jurisdiction

When Board Staff is of the opinion that a patentee has failed or refused to provide the PMPRB with the pricing and sales information required by law, Board Staff will recommend that the Chairperson call a public hearing to determine whether the patentee has, in fact, breached the reporting requirements of the Act and Regulations. If the Hearing Panel finds, as the result of a public hearing, that the patentee is in breach of its reporting requirements, the Hearing Panel may order the patentee to provide the PMPRB with the required pricing and sales information.

There were no failure to file hearings in 2017. The failure to file matter involving Apotex Inc. commenced in 2008 was discontinued in September 2017.

Summary

Excess revenues totaling $35,229,878.65 were offset by way of payments to the Government of Canada through VCUs and Board Orders in 2017 and up to May 31, 2018.

Since 1993, a total of 138 VCUs have been approved and 30 public hearings initiated. These measures resulted in price reductions and the offset of excess revenues by way of additional price reductions and/or payments to the Government of Canada. Over $198 million has been collected through VCUs and Board Orders by way of payments to the Government of Canada and/or to customers such as hospitals and clinics.

Matters Before the Federal Court, Federal Court of Appeal and Supreme Court of Canada

On January 18, 2017, Galderma Canada Inc. filed an application for judicial review of the Board’s decision dated December 19, 2016 in respect of its finding that Canadian Patent No. 2,478,237 pertains to Differin and ordering Galderma to file the required information for the period between January 1, 2010 and March 14, 2016. The Federal Court granted Galderma’s judicial review application on November 9, 2017 and quashed the Board’s decision. On November 21, 2017, the Attorney General appealed the Federal Court’s grant of the judicial review application, and the matter is currently pending before the Federal Court of Appeal.

There are also two pending applications for judicial review before the Federal Court in respect of Board decisions made in the context of the Soliris hearing as detailed in Table 6 below.

Finally, on September 11, 2015, Alexion filed an application for judicial review regarding the constitutionality of the Board. The Federal Court granted the Attorney General’s motion to strike this application on June 23, 2016. This was further upheld by a Federal Court Order dated December 28, 2016. On February 15, 2017, Alexion appealed this decision to the Federal Court of Appeal. The Federal Court of Appeal upheld the Federal Court’s decision on December 7, 2017 and on June 28, 2018, the Supreme Court of Canada dismissed Alexion’s subsequent request for leave to appeal the Federal Court of Appeal’s decision.

Key Pharmaceutical Trends: Medicine Sales are on the Rise

Overall spending on pharmaceuticals is influenced by many factors, including price, utilization, the market entry of newer, more expensive medicines, and older patented medicines “going generic”. In 2017, sales of patented medicines increased by 7.6%, and Canadian prices were in the middle of the range of the PMPRB’s comparator countries (PMPRB7).

The PMPRB is responsible for reporting on trends in pharmaceutical sales and pricing for all medicines and for reporting research and development spending by patentees. In addition, the PMPRB undertakes studies and conducts analysis on a variety of topics related to pharmaceutical pricing and costs.

Disclaimers

1. Although select statistics reported in the Key Pharmaceutical Trends section are based in part on data obtained under license from the IQVIA MIDAS^TM database and the IQVIA Private Pay Direct Drug Plan Database, the statements, findings, conclusions, views and opinions expressed in this Annual Report are exclusively those of the PMPRB and are not attributable to IQVIA.
2. To provide a broader perspective on pharmaceutical trends in Canada, summaries of the results of NPDUIS analyses have been included as additional “Brief Insights” throughout the Pharmaceutical Trends section of the Annual Report. A variety of public and licensed data sources are used for NPDUIS analytical studies. Many of these sources do not differentiate between patented and non-patented generic medicines; in these instances the general term “generic” is used to include both. NPDUIS is a research initiative that operates independently of the regulatory activities of the PMPRB.

Trends in Sales of Patented Medicines

Patentees are required under the Regulations to submit detailed information on their sales of patented medicines, including quantities sold and net revenues received for each product by class of customer in each province/territory. The PMPRB uses this information to analyze trends in sales, prices and utilization of patented medicines.^{Footnote 2} This section provides key statistical results from this analysis.

Sales and Prices^{Footnote 3}

Canadians spend much more today on patented medicines than they did a decade ago, but it is important to understand that an increase in spending does not in itself imply rising medicine prices. For example, the PMPRB’s Annual Reports from 1995 through 2003 noted that sales of patented medicines grew at annual rates consistently exceeding 10%, while average annual rates of change for prices were less than 1%. In these instances, sales growth was driven by changes in the volume and composition of the medicines utilized.

A variety of factors can produce such changes. These include:

• increases in total population
• changes in the demographic composition of the population (for example, shifts in the age distribution toward older persons with more health problems)
• increases in the incidence of health problems requiring medicinal treatments
• changes in the prescribing practices of physicians (for example, a shift away from older, less expensive medicines to newer, more expensive medications, or a shift toward higher, more frequent dosages)
• increases in the use of medicinal treatments instead of other forms of therapy
• the use of new medicines to treat conditions for which no effective treatment existed previously
• the use of new medicines that enter the market at a higher price than previous treatments for a given condition

Sales Trends

Figure 3(a) reports on trends in patentees’ total sales of patented medicines in Canada for 1990 through 2017. In 2017, sales of patented medicines increased to $16.8 billion from $15.6 billion in 2016, an increase of 7.6%. As shown in Figure 3(b), this is the second highest growth rate since 2004 and more than double that of 2016.

Figure 3(a) also gives sales of patented medicines as a share of overall medicine sales. This share rose from 43.2% in 1990 to a peak of 72.7% in 2003. It declined over the 2004 to 2010 period, but has been trending upward since, from 55.8% in 2010 to 61.5% in 2017. That is, sales of non-patented brand and generic^{Footnote 4} medicines (patented and non-patented) have generally grown at lower rates than the sales of patented medicines in recent years.

Figure 3(c) gives sales of patented medicines per capita and as a share of Gross Domestic Product (GDP). Patented medicine sales per capita rose from $61.6 in 1990 to $454.1 in 2017. Patented medicine sales as a portion of Canada’s GDP tripled from 0.25 in 1990 to 0.78 in 2017.

A complete table of the data presented in Figure 3 is given in Appendix 3.

Figure 3. Patented Medicine Sales, 1990 to 2017

(a) Patented medicine share of all medicine sales

Figure description

This is a line and area graphic depicting the annual sales of patented medicines and the patented medicine share of all medicine sales, for the period from 1990 to 2017. In 1990, the sale of patented medicines was $1.7 billion and the patented medicine share of all medicine sales was 43.2%. In 1991: $2.0 billion, 43.2%; 1992: $2.2 billion, 43.8%; 1993: $2.4 billion, 44.4%; 1994: $2.4 billion, 43.9%; 1995: $2.6 billion, 44.4%; 1996: $3.0 billion, 45.0%; 1997: $3.7 billion, 52.3%; 1998: $4.3 billion, 55.1%; 1999: $5.4 billion, 61.0%; 2000: $6.3 billion, 63.0%; 2001: $7.6 billion, 65.0%; 2002: $8.9 billion, 67.4%; 2003: $9.7 billion, 72.7%; 2004: $10.5 billion, 72.2%; 2005: $10.9 billion, 70.6%; 2006: $11.7 billion, 67.8%; 2007: $12.1 billion, 63.2%; 2008: $12.6 billion, 61.7%; 2009: $13.0 billion, 59.6%; 2010: $12.4 billion, 55.8%; 2011: $12.9 billion, 58.3%; 2012: $12.9 billion, 59.2%; 2013: $13.4 billion, 60.7%; 2014: $13.8 billion, 59.9%; 2015: $15.1 billion, 61.6%; 2016: $15.6 billion, 60.8%; 2017: $16.8 billion, 61.5%.

(b) Rate of change in patented medicine sales

Figure description

This is a line and bar graphic depicting the annual rate of change in patented medicine sales and the 5-year compound annual growth rate from 1990 to 2017. In 1991, the rate of change in patented medicine sales was 13.1%. In 1992: 14.0%; 1993: 9.4%. In 1994, the rate of change in patented medicine sales was -2.1% and the 5-year compound annual growth rate was 9.0%. In 1995: 10.8%, 6.8%; 1996: 12.8%, 8.1%; 1997: 22.6%, 11.4%; 1998: 18.9%, 15.7%; 1999: 27.0%, 20.0%; 2000: 16.7%, 20.4%; 2001: 18.9%, 19.7%; 2002: 17.5%, 19.9%; 2003: 9.0%, 15.8%; 2004: 7.8%, 13.6%; 2005: 4.2%, 9.4%; 2006: 7.4%, 7.1%; 2007: 3.2%, 5.7%; 2008: 4.6%, 4.7%; 2009: 2.9%, 4.5%; 2010: -4.3%, 1.5%; 2011: 3.5%, 1.6%; 2012: 0.1%, 0.6%; 2013: 4.2%, 0.8%; 2014: 3.1%, 2.7%; 2015: 9.4%, 4.0%; 2016: 3.3%, 4.9%; 2017: 7.6%, 5.8%.

(c) Patented medicine sales per capita and as a share of GDP

Figure description

This is a line graphic depicting patented medicine sales per capita and as a share of GDP from 1990 to 2017. In 1990, patented medicine sales per capita was $61.60 and as a share of GDP 0.245. In 1991: $71.40, 0.286; 1992: $77.70, 0.307; 1993: $83.90, 0.322; 1994: $82.80, 0.304; 1995: $88.70, 0.314; 1996: $101.40, 0.350; 1997: $123.70, 0.409; 1998: $142.0, 0.459; 1999: $177.60, 0.459; 2000: $205.90, 0.571; 2001: $245.20, 0.666; 2002: $284.30, 0.748; 2003: $307.00, 0.776; 2004: $329.20, 0.789; 2005: $338.50, 0.769; 2006: $360.00, 0.784; 2007: $368.90, 0.769; 2008: $379.50, 0.762; 2009: $386.90, 0.829; 2010: $364.70, 0.746; 2011: $376.10, 0.729; 2012: $371.80, 0.708; 2013: $381.80, 0.706; 2014: $388.70, 0.696; 2015: $421.80, 0.760; 2016: $430.94, 0.770; 2017: $454.09, 0.783.

Brief Insights

From 2007 to 2010, as many blockbuster medicines lost patent protection, the rates of growth in the sales of generic medicines in Canada exceeded those of patented medicines. The pattern reversed in more recent years due in part to the introduction of generic pricing policies. While the growth in the sales of generic medicines has rebounded back since, it is still lower than growth in patented medicine sales. Figure 4 compares the growth in Canadian sales for generic medicines with the growth for patented medicines over the last decade.

Figure 4. Rate of Change in Retail Sales, Generic versus Patented Medicines, 2007 to 2017

Figure description

This bar graph compares the rate of change in retail sales of generic and patented medicines from 2007 to 2017.

Medicine category	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Generic	18.4%	18.6%	11.3%	10.7%	-5.1%	2.2%	-2.9%	1.2%	3.8%	2.1%	1.8%
Patented	3.2%	4.6%	2.9%	-4.3%	3.5%	0.1%	4.2%	3.1%	9.4%	2.6%	7.6%

Drivers of Sales Growth

In any given year, the growth in patented medicine sales is influenced by changes in several key factors. Figure 5 breaks down^{Footnote 5} the year-by-year sales growth from 2014 to 2017 to show the impact of each of the following elements:

• previously patented medicines that have gone off-patent or left the Canadian market (“exiting drug effect”)
• patented medicines that have lost market exclusivity, and thus are open to competition, but still hold a valid patent (“loss-of-exclusivity effect”)
• use of higher-cost patented medicines, new and existing (“drug-mix effect”)
• changes in prices among patented medicines (“price effect”)
• differences in the quantities of such medicines sold (“volume effect”)

Some factors, such as the drug-mix effect will generally put an upward pressure on sales; while others such as the loss-of-exclusivity effect may have the opposite effect. Figure 5(a) gives the yearly impact of each factor in dollar amounts, while Figure 5(b) expresses them as proportions of the overall annual change in sales.

The results in this figure show that the increase in total sales that occurred between 2016 and 2017 was the result of two key factors: increases in the quantity of existing medicines sold, and strong sales for new medicines and existing higher-cost medicines, which offset the exiting drug effect and the loss-of-exclusivity effect.

Figure 5. Decomposition of Changes in Sales of Patented Medicines

(a) Absolute change ($Millions)

Figure description

These two bar graphs describe the factors that impacted the annual rates of change in the sales of patented medicines from 2014 to 2017. The first graph gives the rate of change in absolute dollar amounts and the second gives the corresponding percent rate of growth for each contributing factor along with the total push up (positive) and pull down (negative) effects. Direct-acting antiviral (DAA) medicines for hepatitis C are presented separately from the rest of the drug-mix effect because of their high impact.

(a) Absolute change in millions of dollars

Absolute change ($M)	2014	2015	2016	2017
Net Change	$504	$1,077	$490	$1,151
Total Push Effects	$1,164	$1,980	$1,432	$1,597
Price	-$12	$91	-$77	-$26
Quantity	$466	$485	$192	$517
DAAs for hepatitis C	$204	$690	-$130	$80
Drug-mix	$494	$714	$1,240	$1,001
Loss-of-exclusivity	-$365	-$372	-$226	-$150
Exiting	-$284	-$531	-$509	-$271
Total Pull Effects	-$660	-$903	-$943	-$446

(b) Relative change (%)

Figure description

Relative change (%)	2014	2015	2016	2017
Net Change	3.7	7.6	3.2	7.3
Total Push Effects	8.5	13.9	9.4	10.1
Price	-0.10	-0.60	-0.50	-0.20
Quantity	3.40	3.40	1.30	3.30
DAAs for hepatitis C	3.60	5.00	8.10	6.30
Drug-mix	$494	$714	$1,240	$1,001
Loss-of-exclusivity	-2.70	-2.60	-1.50	-0.90
Exiting	-2.10	-3.70	-3.30	-1.70
Total Pull Effects	-4.8	-6.4	-6.2	-2.8

Brief Insights

An examination of Canadian, public and private drug plan expenditures yields comparable results. Figure 6 depicts the trends in public and private drug plan cost drivers, encompassing all products reimbursed by the plans, including but not limited to patented and non-patented brand medicines, patented and non-patented generic medicines and non-patented single-source medicines. Over the past five years, higher-cost medicines (other than direct-acting antivirals (DAAs) for hepatitis C) have exerted a consistent, upward pressure of approximately 5% on the cost of medicines, while cost savings from generic and biosimilar substitution, as well as price reductions, have steadily declined.

Figure 6. Medicine cost drivers

NPDUIS public drug plans*, 2012/13 to 2016/17. Private drug plans, 2013 to 2017

Figure description

These two bar graphs describe the factors that impacted the annual rates of change in medicine costs for public and private plans. The first graph depicts the total for the combined NPDUIS public drug plans from fiscal year 2012-13 to 2016-17 and the second depicts the Canadian private drug plans from calendar year 2013 to 2017. The total positive or push effects, negative or pull effects, and net change is given above and below the bars for each year. Direct-acting antiviral (DAA) medicines for hepatitis C are presented separately from the rest of the drug-mix effect because of their high impact.

NPDUIS public drug plans, 2012-13 to 2016-17

	2012-13	2013-14	2014-15	2015-16	2016-17
Drug-Mix, DAAs for Hepatitis C	0.0%	0.0%	0.0%	8.0%	-2.3%
Drug-Mix, Others	4.1%	5.4%	4.9%	4.1%	4.4%
Volume	1.7%	2.2%	0.3%	1.3%	1.0%
Demographic	2.7%	2.1%	2.7%	3.0%	1.8%
Price Change	-2.0%	-6.0%	-3.0%	-1.8%	-1.0%
Generic Substitution	-7.2%	-1.5%	-3.2%	-2.3%	-1.8%
Total pull effects	-9.2%	-7.5%	-6.2%	-4.1%	-5.1%
Total push effects	8.5%	9.7%	7.9%	16.2%	7.2%
Net change	-0.8%	2.0%	2.5%	12.0%	2.0%

Private drug plans, 2013 to 2017

	2013	2014	2015	2016	2017
Drug-Mix, DAAs for Hepatitis C	0.0%	1.0%	1.5%	-1.4%	-0.2%
Drug-Mix, Others	3.5%	3.2%	4.1%	4.2%	4.9%
Volume	1.2%	0.6%	-0.9%	2.0%	0.1%
Demographic	2.5%	3.2%	4.0%	2.3%	4.0%
Price Change	-4.5%	-2.7%	-2.2%	-2.5%	-2.2%
Generic Substitution	0.0%	0.0%	0.0%	0.0%	0.0%
Total pull effects	-5.0%	-2.7%	-3.3%	-2.7%	-2.3%
Total push effects	7.1%	8.5%	9.5%	7.1%	8.8%
Net change	2.2%	5.8%	6.2%	4.4%	6.4%

New Medicines

Figure 7 breaks down 2017 sales of patented medicines according to the year in which the medicine was first sold in Canada. Throughout the latter part of the 1990s and early 2000s, sales growth was largely driven by a succession of new “blockbuster” medicines that ultimately achieved very high sales volumes. As the patents for these medicines continue to expire, their share of sales is gradually decreasing. Recently, new higher-cost medicines such as biologics, oncology medicines and several highly effective treatments for hepatitis C launched in 2014, are influencing the share of sales in 2017.

Figure 7. Share of 2017 Sales of Patented Medicines by Year of Introduction

Figure description

This bar graph depicts the share of sales of patented medicines by the year in which the product was first sold in Canada. Medicines introduced before 1995 comprised 3.5% of the 2017 sales. In 1995: 0.3%; 1996: 0.7%; 1997: 0.7%; 1998: 1.3%; 1999: 3.0%; 2000: 2.1%; 2001: 8.7%; 2002: 3.8%; 2003: 3.9%; 2004: 7.6%; 2005: 4.2%; 2006: 3.3%; 2007: 5.3%; 2008: 5.0%; 2009: 7.0%; 2010: 4.8%; 2011: 5.2%; 2012: 3.9%; 2013: 7.6%; 2014: 8.2%; 2015: 4.4%; 2016: 5.3%; 2017: 0.2%.

Brief Insights

These findings are supported by analyses of the market entry dynamics of new medicines in Canadian and international markets. New medicines have a steep year-over-year uptake in sales. Between 2009 and 2015, an average of 37 medicines was launched annually in Canada and the PMPRB7. By the fourth quarter of 2016, they accounted for close to one quarter (23.8%) of the total brand-name pharmaceutical market in Canada.

Figure 8. New medicines cumulative share of all brand-name medicine sales by launch year, (2009 to 2015)

Figure description

This area graph depicts the new medicine cumulative share of total brand-name medicine sales in Canada by their year of launch. Yearly sales of medicines launched between 2009 and 2015 are given up to the fourth quarter of 2016. The total new medicine share of sales for each year is also given.

Launch Year	2009	2010	2011	2012	2013	2014	2015	2016	Q4-2016
2009	0.05%	0.41%	1.10%	2.10%	3.04%	3.77%	4.4%	5.1%	5.3%
2010		0.00%	0.13%	0.50%	0.90%	1.26%	1.5%	1.7%	1.8%
2011			0.03%	0.75%	1.62%	2.19%	3.0%	4.2%	4.5%
2012				0.01%	0.21%	0.91%	1.6%	2.5%	2.8%
2013					0.02%	1.51%	2.5%	3.9%	4.1%
2014						0.15%	4.2%	4.0%	3.9%
2015							0.1%	0.6%	1.1%
Total share of sales	0.1%	0.4%	1.3%	3.4%	5.8%	9.8%	17.3%	22.0%	23.6%

Higher-Cost Medicines

Ninety percent ($1.07 billion) of the total growth in patented medicine sales from 2016 to 2017 was driven by an increase in the sales of 10 medicines (Table 7); most of which had an average annual treatment cost greater than $10,000. The two top contributors, Epclusa and Eylea, used in the treatment of hepatitis C and retinal disorders, respectively, together accounted for slightly more than half of the sales growth. Both had substantial annual treatment costs.

While Table 7 reports the top 10 contributors to the growth in patented medicine sales in 2017, Table 8 lists the 10 top-selling patented medicines. The table also compares the treatment costs for the top 10 selling medicines in 2006 and 2017. In 2006, Remicade was the only biologic medicine to make the top 10 list, with an average annual treatment cost of $17,759. This cost was much higher than the rest of the top 10, none of which exceeded $1,000 annually. By 2017, however, seven of the top 10 medicines were biologics, with annual treatment costs ranging from $2,948 to $57,928. Only two of the top 10 sellers in 2017 had annual treatment cost of less than $1,000. With collective annual sales of approximately $4.4 billion, these 10 medicines accounted for over one-quarter of total sales for all patented medicines.

Over the last decade there has been a significant shift in pharmaceutical development toward more specialized medicines, with an increasing number of higher-cost medicines compounded by a notable uptake in their use. As illustrated in Figure 9, for many years, the majority of the top 20 selling patented medicines had annual treatment costs under $1,000; however, 2015 marked a turning point, as most of the top sellers now cost in the thousands or tens of thousands of dollars per year. This shift is reflected in the exceptional tenfold growth in the median annual treatment cost between 2006 and 2015, which was $5,728 in 2017 after reaching a high of $8,584 in 2016. In addition to their higher cost, these medicines have had a remarkable uptake in use, resulting in a weighted average annual treatment cost of $16,359 for the top 20 selling patented medicines in 2017. This is only slightly less than the maximum average annual treatment cost a decade ago.

Figure 9. Treatment Cost for Top 20 Selling Patented Medicines, 2006 to 2017

Figure description

This graph depicts the minimum, maximum, median and weighted average annual treatment costs for the top 20 selling patented medicines in Canada from 2006 to 2017.

Treatment cost	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Maximum	$17,759	$18,669	$19,974	$22,716	$22,361	$23,507	$49,022	$52,227	$58,800	$58,830	$60,249	$57,928
Weighted average	$1,797	$2,576	$2,892	$4,114	$5,228	$6,009	$7,960	$10,156	$12,491	$18,860	$17,770	$16,359
Median	$409	$479	$420	$584	$704	$675	$731	$803	$828	$4,626	$8,584	$5,728
Minimum	$86	$89	$86	$88	$88	$87	$173	$181	$136	$254	$260	$260

Figure 10 shows that high-cost medicines represent an increasingly significant share of total patented medicine sales, rising steeply from 7.6% in 2006 to a remarkable 41.6% in 2017. This sustained growth was evident in all cost bands (10K to 20K; 20K to 50K; and 50K+), with the steepest increase in the highest-cost medicines. While the new direct-acting antiviral medicines (DAAs) for hepatitis C were a major contributor to the growth in high-cost medicines, other high-cost medicines played an even more pronounced role. Despite the sharp increase in the share of costs, the number of people using these medicines remained at less than 1% of the population.

Figure 10. Share of Sales for High-Cost Patented Medicines, 2006 to 2017

Figure description

This bar graph depicts the high-cost medicine share of total patented medicine sales per year from 2006 to 2017. The bars are subdivided into three bands based on average annual costs: $10 to $20 thousand; $20 to $50 thousand; and greater than $50 thousand.

Year	Share of sales for medicines costing $10 to $20 K	Share of sales for medicines costing $20 to $50 K	Share of sales for medicines costing greater than $50 K	Total share of sales of high-cost medicines
2006	5.2%	2.1%	0.3%	7.6%
2007	5.5%	2.4%	0.4%	8.3%
2008	6.9%	2.7%	0.5%	10.1%
2009	8.1%	3.0%	0.7%	11.8%
2010	9.6%	3.5%	1.3%	14.4%
2011	10.8%	6.0%	1.7%	18.5%
2012	12.9%	8.2%	2.2%	23.3%
2013	14.5%	10.9%	2.7%	28.1%
2014	15.6%	12.9%	4.5%	33.0%
2015	16.5%	12.0%	9.2%	37.7%
2016	18.7%	13.8%	7.8%	40.3%
2017	18.2%	18.1%	5.3%	41.6%

The table below the graph gives additional information including the medicine cost, the number of molecules, the average annual treatment cost, and the estimated treatment population and corresponding share of total Canadian population.

	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Medicine cost	$967M	$1,090M	$1,372M	$1,701M	$1,982M	$2,518M	$3,105M	$3,843M	$4,503M	$5,746M	$6,985M	$6,314M
Total number of molecules	44	53	61	67	74	93	97	108	116	126	135	144
Number of molecules costing $10K to $20K	27	32	33	36	38	49	48	53	53	54	55	55
Number of molecules costing $20K to $50K	11	12	17	19	21	27	31	37	41	46	55	67
Number of molecules costing more than $50K	6	9	11	12	15	17	18	18	22	26	25	22
Average annual treatment cost	$15,111	$15,631	$15,507	$15,755	$16,247	$17,071	$17,621	$18,084	$18,964	$20,660	$20,106	$20,394
Estimated treatment population	64,007	69,708	88,506	107,978	122,009	147,533	176,224	212,509	237,461	278,117	314,042	342,516
Share total Canadian population	0.20%	0.21%	0.27%	0.32%	0.36%	0.43%	0.51%	0.60%	0.67%	0.77%	0.86%	0.93%

The shift toward higher cost treatments can also be seen when looking specifically at oncology medicines. Figure 11 shows the sales share of oncology medicines by treatment cost as a percentage of total medicine costs. These costs are based on a 28-day treatment regimen, unlike the annual treatment costs reported for high-cost medicines in Figure 10.

From 2006 to 2017, the average treatment cost for oncology medicines increased by 82%, from $3,867 to $7,057. Many of these medicines are used in multiple treatment regimens resulting in much higher treatment costs than reported. There may be some overlap in the medicines reported in Figures 10 and 11, as the oncology medicines that exceeded $10,000 in annual treatment costs are reported in both figures.

The estimated treatment population using these medicines increased over 200% from 2006 to 2017 but is still very low at 1% of the total Canadian population. The dual pressures of rising average treatment costs and growing utilization mean that this therapeutic area is likely to continue to grow as a proportion of patented medicine sales.

Figure 11. Share of Sales for Oncology Medicines by 28-day Treatment Cost, 2006 to 2017

Figure description

This bar graph depicts the high-cost oncology medicine share of total patented medicine sales from 2006 to 2017. The bars are subdivided into seven bands based on the average 28-day treatment cost: medicines whose costs are not available; medicines costing less than $2.5K; $2.5K to $3.5K; $3.5K to $5.0K; $5.0K to $7.5K; $7.5K to $10.0K; and more than $10K.

Year	Share of sales for oncology medicines for which treatment cost is unavailable	Share of sales for oncology medicines for which treatment cost is less than $2.5K	Share of sales for oncology medicines for which treatment cost is $2.5K to $3.5K	Share of sales for oncology medicines for which treatment cost is $3.5K to $5.0K	Share of sales for oncology medicines for which treatment cost is $5.0K to $7.5K	Share of sales for oncology medicines for which treatment cost is $7.5K to $10.0K	Share of sales for oncology medicines for which treatment cost is more than $10.0K	Total share of sales for oncology medicines
2006	0.8%	0.3%	1.8%	1.0%	0.1%	0.2%	0.0%	4.1%
2007	0.7%	0.5%	1.8%	0.7%	0.2%	0.3%	0.0%	4.3%
2008	0.6%	0.9%	1.8%	1.4%	0.2%	0.6%	0.0%	5.5%
2009	0.9%	0.9%	1.9%	1.6%	0.3%	0.9%	0.0%	6.5%
2010	1.2%	1.0%	2.1%	1.8%	0.5%	1.1%	0.0%	7.7%
2011	1.4%	1.2%	2.1%	2.0%	0.6%	1.1%	0.0%	8.3%
2012	1.6%	1.2%	2.3%	2.6%	0.7%	1.1%	0.1%	9.5%
2013	1.5%	1.2%	2.2%	3.0%	1.0%	1.2%	0.3%	10.4%
2014	1.7%	1.2%	1.9%	3.5%	1.2%	1.6%	0.5%	11.5%
2015	1.9%	1.0%	1.8%	3.5%	0.9%	2.2%	0.7%	12.0%
2016	2.1%	0.4%	2.0%	3.5%	0.9%	3.1%	0.6%	12.6%
2017	2.2%	0.4%	2.1%	3.2%	1.0%	3.9%	0.6%	13.4%

The table below the graph gives additional information including the medicine cost, the number of molecules, the average 28-day treatment cost, and the estimated treatment population and corresponding share of total Canadian population.

	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Medicine cost	$480M	$515M	$697M	$844M	$954M	$1,076M	$1,221M	$1,388M	$1,585M	$1,812M	$1,972M	$2,256M
Total number of molecules	20	21	25	29	33	41	46	54	62	69	79	83
Number of molecules for which cost is unavailable	5	5	6	8	8	11	11	12	13	14	14	16
Number of molecules costing less than $2.5K	6	6	6	7	7	8	8	8	10	10	11	11
Number of molecules costing $2.5K to 3.5K	2	2	2	3	3	4	4	5	6	6	6	6
Number of molecules costing $3.5K to 5.0K	3	4	7	7	9	10	11	11	11	12	12	13
Number of molecules costing $5.0K to 7.5K	2	2	2	2	3	3	5	7	8	9	13	13
Number of molecules costing $7.5K to 10.0K	2	2	2	2	2	2	3	7	8	10	13	15
Number of molecules costing more than $10K	0	0	0	0	1	3	4	4	6	8	10	10
Average 28-day treatment cost	$3,867	$3,879	$4,003	$3,786	$4,159	$5,490	$5,685	$5,856	$6,011	$6,242	$6,993	$7,057
Estimated treatment population	124,109	132,663	174,038	222,887	229,450	195,992	214,761	237,078	267,426	306,763	317,757	376,044
Share total Canadian population	0.38%	0.40%	0.52%	0.66%	0.67%	0.57%	0.62%	0.68%	0.75%	0.86%	0.88%	1.02%

Brief Insights

High-cost medicines are also accounting for an increasing share of both public and private drug plan expenditures, as shown in Figures 12 and 13. The relative expenditures reported here are greater than for patented medicines alone, since they encompass the sales for all products reimbursed by the plan, including but not limited to patented and non-patented brand medicines, patented and non-patented generic medicines, and non-patented single source medicines.

Figure 12. Trends in the Number and Share of High-Cost Medicines, NPDUIS Drug Plans*, 2011/12 to 2016/17

Figure description

This stacked bar graph depicts the high-cost medicine share of total medicine costs for the NPDUIS public drug plans from fiscal year 2011-12 to 2016-17. The bars are subdivided into bands based on average annual costs per active beneficiary: $10K to $20K; $20K to $50K; and more than $50K. The share of new direct-acting antiviral (DAA) medicines for hepatitis C is reported separately. An accompanying table gives the total number of high-cost molecules, the share of beneficiaries using these medicines and the share of prescriptions they represent.

High-cost medicines share of total medicine costs

	2011-12	2012-13	2013-14	2014-15	2015-16	2016-17
Medicine cost in millions of dollars	$865.20	$1,075.70	$1,258.60	$1,408.70	$2,235.70	$2,327.20
Total number of molecules	47	56	63	75	82	86
Average cost per active beneficiary of $10K‒$20K: share of total medicine cost	7.2%	8.8%	10.3%	10.6%	10.3%	11.4%
Average cost per active beneficiary of $20K–$50K: share of total medicine cost	4.4%	5.4%	5.8%	6.7%	7.1%	8.0%
Average cost per active beneficiary of greater than $50,000: share of total medicine cost for medicines other than DAAs for hepatitis C	1.0%	1.3%	1.6%	2.0%	2.4%	3.5%
Average cost per active beneficiary of greater than $50K: share of total medicine cost for DAAs	0%	0%	0%	0%	7.3%	4.8%
High-cost medicines - share of active beneficiaries	0.87%	1.04%	1.18%	1.28%	1.52%	1.60%
High-cost medicines - share of total prescriptions	0.16%	0.18%	0.20%	0.22%	0.27%	0.29%

Figure 13. Trends in the Number and Share of High-Cost Medicines, Private Drug Plans, 2005 to 2017

Figure description

This bar graph depicts the trends in the number of high-cost medicines and their share of total medicine costs for private drug plans in Canada from 2005 to 2017.

The high-cost medicine share of total costs is represented by bars and is given for each year. Each bar is subdivided into bands based on average annual costs per beneficiary: $10K to $20K; $20K to $50K; and $50K and greater. An index of the number of molecules and an index of medicine cost are represented by superimposed lines on the graph. Both indices are set to a value of 1.0 for 2005.

Year	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Share of overall cost	6%	7%	9%	10%	11%	13%	15%	17%	19%	22%	24%	25%	26%
Share of $10K to $19.9K	5%	6%	8%	9%	7%	8%	9%	10%	12%	12%	13%	14%	15%
Share of $20K to $49.9K	0%	1%	1%	1%	4%	4%	5%	6%	7%	7%	7%	8%	9%
Share of $50K and greater	0%	0%	0%	0%	0%	0%	0%	0%	1%	2%	4%	2%	2%
Index of number of molecules	1.0	1.3	1.8	2.0	2.4	2.8	3.1	3.3	4.1	4.7	5.5	6.7	7.1
Index of medicine costs	1.0	1.2	1.8	2.2	2.8	3.4	4.0	4.7	5.4	6.4	7.6	8.3	9.1

The accompanying table gives the number of molecules for each year.

Year	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Number of molecules	23	31	41	45	56	65	72	77	95	107	126	154	163

Therapeutic Class

The PMPRB classifies medicines according to the World Health Organization’s (WHO) Anatomical Therapeutic Chemical (ATC) system when it conducts analyses under the PMPRB Guidelines. This is a scientific, hierarchical system that classifies medicines according to their principal therapeutic use and chemical composition. At its first level of aggregation (Level 1), the ATC system classifies medicines according to the element of human anatomy with which they are primarily associated.

Figure 14 breaks out sales of patented medicines in Canada in 2017 by ATC Level 1. The two donut graphs compare the share of total sales for each therapeutic class in 2017 to the share in 2008. The associated table gives the 2017 sales for each class and the rate at which sales grew relative to 2016. Values in the second to last column of the table represent the component of overall sales growth attributable to medicines in the corresponding therapeutic class.^{Footnote 6} By this measure, antineoplastics and immunomodulating agents and alimentary tract and metabolism made the largest contribution to sales growth. Lower sales of nervous system medicines also had an impact on overall expenditure.

The antineoplastics and immunomodulating agents class accounted for a much larger share of sales in 2017 (34.1%) than in 2008 (15.6%), as more high-cost medicines entered the market. By contrast, the share of sales of cardiovascular system medicines decreased dramatically from 24.5% to 5.2%.

Figure 14. Sales of Patented Medicines by Major Therapeutic Class, 2017

Figure description

These two pie charts depict the sales of patented medicines as a percentage of all medicine sales by therapeutic class in 2017 and 2008.

Therapeutic Class	2017 Share of Sales (%)	2008 Share of Sales (%)
L: Antineoplastics and immunomodulating agents	34.1	15.6
J: General antiinfectives for systemic use and P: Antiparasitic products	13.6	10.6
A: Alimentary tract and metabolism	11.4	9.8
N: Nervous system	9.2	12.6
R: Respiratory system	7.7	7.9
B: Blood and blood forming organs	5.9	6.8
S: Sensory organs	5.5	2.1
C: Cardiovascular system	5.2	24.5
M: Musculo-skeletal system	2.6	4.0
G: Genito-urinary system and sex hormones	2.5	3.9
H: Systemic hormonal preparations	0.9	0.2
D: Dermatologicals	0.8	0.5
V: Various	0.6	1.5

The accompanying table gives the 2017 total sales by therapeutic class, the growth in sales (millions of dollars) and the growth rate (percent) from 2016 to 2017, the percentage impact on change in expenditures from 2016 to 2017, and the 2017 share of sales.

Therapeutic Class	2017 Sales ($ M)	Growth: 2017/2016, $M (rate in %)	Impact on change in expenditure (%)	2017 share of sales (%)
L: Antineoplastics and immunomodulating agents	5,723.62	544.2 (10.5)	45.9	34.1
J: General antiinfectives for systemic use and P: Antiparasitic products	2,279.96	62.1 (2.8)	5.2	13.6
A: Alimentary tract and metabolism	1,905.40	185.4 (10.8)	15.6	11.4
N: Nervous system	1,548.52	-53.8 (-3.4)	-4.5	9.2
R: Respiratory system	1,293.86	52.0 (4.2)	4.4	7.7
B: Blood and blood forming organs	986.89	74.6 (8.2)	6.3	5.9
S: Sensory organs	927.90	129.1 (16.2)	10.9	5.5
C: Cardiovascular system	877.40	51.4 (6.2)	4.3	5.2
M: Musculo-skeletal system	430.83	33.2 (8.3)	2.8	2.6
G: Genito-urinary system and sex hormones	412.03	1.2 (0.3)	0.1	2.5
H: Systemic hormonal preparations	153.94	83.0 (117.0)	7.0	0.9
D: Dermatologicals	138.79	13.6 (10.8)	1.1	0.8
V: Various	105.70	9.7 (10.1)	0.8	0.6
All therapeutic classes	16,784.87	1,185.5	100.0	100.0

Biologic medicines, which are well represented in the high-cost medicine category, have been capturing an increasing share of the Canadian market, from 16% of patented medicine sales in 2008 to 42% in 2017. Figure 15 breaks down the growth in biologic patented medicine sales by major therapeutic class. Although the increasing share of biologic medicine sales cuts across many therapeutic categories, immunosuppressants have had an exceptionally high uptake over the last decade, from 4% of total patented medicine sales in 2008 to 17%, less than a decade later. This increase was mainly driven by three medicines: Remicade, Humira and Enbrel.

Figure 15. Biologic Medicine Share of Patented Medicine Sales by Therapeutic Class, 2008 to 2017

Figure description

This bar graph depicts the biologic medicine share of total patented medicine sales by therapeutic class from 2008 to 2017. Each bar is subdivided into the therapeutic class bands: Other; Alimentary tract and metabolism; Sensory organs; Antiinfectives for systemic use; Immunomodulating agents – Other than oncology; and Oncology. The total sales in billions of dollars is given for each year.

Therapeutic Class	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Other	3%	3%	4%	4%	4%	4%	5%	5%	6%	6%
A: Alimentary tract and metabolism	1%	1%	2%	2%	3%	3%	4%	4%	4%	4%
S: Sensory organs	1%	1%	2%	2%	2%	3%	4%	4%	4%	4%
J: Antiinfectives for systemic use	3%	3%	4%	4%	4%	3%	4%	4%	4%	4%
L: Immunomodulating agents – other than Oncology	4%	4%	5%	8%	10%	13%	14%	15%	17%	17%
L: Oncology	4%	4%	5%	5%	6%	6%	7%	7%	6%	6%
Sales ($billions)	$1.9	$2.2	$2.5	$3.2	$3.8	$4.5	$5.1	$5.7	$6.4	$7.0

The accompanying table gives the share of 2017 sales for the top 10 selling biologics and their therapeutic class.

Medicine	Therapeutic Class	Share of 2017 Sales
Remicade	L: Immunomodulating agents – other than Oncology	5.6%
Humira	L: Immunomodulating agents – other than Oncology	4.2%
Eylea	S: Sensory organs	2.4%
Enbrel	L: Immunomodulating agents – other than Oncology	1.9%
Lucentis	S: Sensory organs	1.9%
Rituxan	L: Oncology	1.5%
Stelara	L: Oncology	1.2%
Perjeta-Herceptin	L: Oncology	1.1%
Herceptin	L: Oncology	1.1%
Gamunex	J: Antiinfectives for systemic use	1.0%
Total Top 10 Biologics		21.9%

Oncology medicines are also capturing an increasing share of the patented medicine market. Figure 16 shows that cancer treatments have grown from 5.5% of total patented medicine sales in 2008 to 13.4% in 2017. Cancer treatments taken orally in particular are an emerging segment, increasing their share of the patented medicine market from 1.9% to 7.3% during the same time period. Revlimid was the top-selling oncology medicine, accounting for 2.0% of all patented medicine sales.

Figure 16. Oncology Medicine Share of Patented Medicine Sales, by Formulation, 2008 to 2017

Figure description

This bar graph depicts the oncology medicine share of patented medicine sales by formulation from 2008 to 2017. Each bar is subdivided into non-oral medicine and oral medicine formulations.

Formulation	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Non-oral medicines	3.6%	4.1%	4.7%	5.0%	5.5%	6.1%	6.7%	6.8%	6.3%	6.2%
Oral medicines	1.9%	2.4%	3.0%	3.3%	4.0%	4.2%	4.7%	5.3%	6.4%	7.3%
Sales ($billions)	$0.7	$0.8	$1.0	$1.1	$1.2	$1.4	$1.6	$1.8	$2.0	$2.3

The accompanying table gives the share of 2017 sales for the top 10 selling oncology medicines.

Medicine	Share of 2017 Sales
Revlimid	2.0%
Rituxan	1.5%
Perjeta-Herceptin	1.1%
Herceptin	1.1%
Imbruvica	0.8%
Avastin	0.7%
Zytiga	0.5%
Keytruda	0.4%
Xtandi	0.4%
Jakavi	0.4%
Total Top 10 Oncology Medicines	9.0%

The results reported for the high-cost medicine, biologic and oncology market segments are not mutually exclusive, as many oncology medicines are biologics and many biologics are high-cost medicines.

Price Trends

The PMPRB uses the Patented Medicines Price Index (PMPI) to monitor trends in the prices of patented medicines. The PMPI measures the average year-over-year change in the ex-factory prices of patented medicines sold in Canada. The index is constructed using a formula that takes a sales-weighted average of price changes observed at the level of individual medicines.^{Footnote 7} This is similar to the approach Statistics Canada uses to construct the Consumer Price Index (CPI). The PMPI is based on an average transaction price, and sales information for a six-month period submitted by patentees.

It is important to understand the conceptual relationship between the PMPI and medicine costs. The PMPI does not measure changes in the utilization of patented medicines; a quantity index, the PMQI, is calculated for this purpose (see the section on the Utilization of Patented Medicines). The PMPI does not measure the cost impact of changes in prescribing patterns or the introduction of new medicines. By design, the PMPI isolates the component of sales growth attributable to changes in prices.

The Patent Act requires the PMPRB to consider changes in the CPI, among other factors, in determining whether the price of a patented medicine is excessive. Figure 17 provides year-over-year changes in the PMPI against corresponding changes in the CPI for the years 2003 through 2017. The PMPI is reported based on two measures: the national average transaction price (which includes rebates and discounts), and the national list price, both of which are reported to the PMPRB by patentees. General price inflation, as measured by the CPI, has exceeded the average increase in patented medicine prices almost every year since 2003. In 2017, the CPI rose by 1.6%, while the PMPI increased by 0.8%.

It is not surprising that the PMPI has seldom kept pace with the CPI. The PMPRB’s Guidelines envisage that the price of a patented medicine should not rise by more than the CPI over any three-year period.^{Footnote 8} (The Guidelines also contemplate a cap on year-over-year price increases equal to one and one-half times the current year rate of CPI inflation.) This effectively establishes CPI inflation as an upper bound on the amount by which individual prices may rise over any three-year period if they are to remain within the limits set out in the Guidelines. Increases in the PMPI normally do not reach this upper bound because many patentees do not raise their prices by the full amount envisaged under the Guidelines.

Figure 17. Annual Rate of Change (%), Patented Medicines Price Index (PMPI) and Consumer Price Index (CPI), 2003 to 2017

Figure description

This line graph depicts the year-over-year percent changes in the PMPI and CPI for the years 2013 to 2017. The PMPI is represented by two lines – one based on the national average transaction price and one based on the national list price.

	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
PMPI change (National Average Transaction Price)	0.1	0.7	0.5	-0.2	0.0	-0.1	0.2	-0.5	-0.1	0.3	-0.1	0.0	0.0	-0.6	-0.3
PMPI change (National List Price)	0.6	1.0	1.2	0.1	1.4	2.9	1.3	2.4	1.4	1.2	1.4	0.8	0.2	0.3	0.8
CPI change	2.8	1.8	2.2	2.0	2.2	2.3	0.3	1.8	2.9	1.5	0.9	2.0	1.1	1.4	1.6

Price Behaviour after Introduction

Does the price of a typical patented medicine change much in the years after it enters the Canadian market? To answer this question, Figure 18 provides the average ratio of the 2017 price to introductory price (the price at which the medicine was sold in its first year on the Canadian market).

The results in Figure 18 imply a consistent trend for prices to remain stable early in the life cycle, and then to gradually rise by a small amount, year-over-year, afterwards. This is consistent with the effect of the PMPRB’s CPI methodology.^{Footnote 9} For example; the prices of medicines introduced a decade ago are only 2% higher in 2017.

Figure 18. Average Ratio of 2017 Price to Introductory Price, by Year of Introduction

Figure description

This bar graph depicts the average ratio of the 2017 price of a typical patented medicine to the introductory price (the price at which the medicine was sold in its first year on the Canadian market). The line at 1.00 indicates the 2017 price.

In 1995, the average ratio of the 2017 price to the introductory price is 1.06. In 1996, 1.16; 1997, 1.12; 1998, 1.05; 1999, 1.10; 2000, 1.09; 2001, 1.07; 2002, 1.05; 2003, 1.04; 2004, 1.05; 2005, 1.03; 2006, 1.03; 2007, 1.02; 2008, 1.01; 2009, 1.01; 2010, 1.01; 2011, 1.00; 2012, 0.99; 2013, 1.00; 2014, 0.99; 2015, 0.99; 2017, 0.99.

Price Change by Country

In accordance with the Act and the Regulations, patentees must report publicly available prices of patented medicines for seven foreign comparator countries (“PMPRB7”): France, Germany, Italy, Sweden, Switzerland, the United Kingdom (UK) and the United States (US).

The PMPRB uses this information to:

• conduct international price comparison tests
• compare the Canadian prices of patented medicines to those prevailing in other countries

Figure 19 gives the average annual rates of price change for Canada and each of the seven comparator countries. These results were obtained by applying the PMPI methodology (with weights based on Canadian sales patterns) to the international price data that patentees have submitted to the PMPRB. Note that results for the US are based on prices that incorporate prices from the US Federal Supply Schedule (FSS).^{Footnote 10}

The results in Figure 19 indicate that in 2017, the US saw prices rise at an average rate of 6.0%, while prices in all other countries declined. Germany saw the greatest decrease, at -10.4%. These results are consistent with a long-term tendency for patented medicine prices to slowly fall over time in most comparable countries (the exception being the US).

The foreign market results are based on publicly available ex-factory price information (generally for the retail customer class) submitted by patentees to the PMPRB. The Canadian rate of change, however, is based on actual average transaction prices and is net of rebates and discounts provided by manufacturers to their direct customers.

Figure 19. Annual Average Rates of Price Change (%), Canada and the PMPRB7, 2017

Figure description

This bar graph depicts the average annual rates of price change for Canada and each of the PMPRB7 comparator countries for 2017. In Canada, the average annual rate of price change was -0.3%. France, -5.2%; Italy, -3.2%; Germany, -10.4%; Sweden, -3.9%; Switzerland, -2.4%; UK, -0.2%; US, 6.0%.

Comparison of Canadian Prices to Foreign Prices

Tables 9 and 10 provide detailed statistics comparing the foreign prices of patented medicines to their Canadian prices. Each table provides two sets of average price ratios. These are differentiated according to the method by which foreign prices were converted to their Canadian dollar equivalents. The tables also give the numbers of medicines (DINs) and the volume of sales encompassed by each reported price ratio.^{Footnote 11}

The average price ratios given in Tables 9 and 10 are sales weighted arithmetic means of price ratios obtained for individual medicines, with weights based on Canadian sales patterns. Average price ratios constructed in this way provide exact answers to questions of the following type:

How much more/less would Canadians have paid for the patented medicines they purchased in 2017 had they paid Country X prices rather than Canadian prices?

For example, Table 9 states that the 2017 average France-to-Canada price ratio was 0.75. This means Canadians would have paid 25% less for the patented medicines they purchased in 2017 had they bought these products at French prices.

For many years, the PMPRB has reported average foreign-to-Canadian price ratios with foreign prices converted to their Canadian dollar equivalents by means of market exchange rates. (More exactly, the 36-month moving averages of market rates the PMPRB normally uses in applying its Guidelines.) Table 9 also reports foreign-to-Canadian price ratios with currency conversion at purchasing power parity (PPP). The PPP between any two countries measures their relative costs of living expressed in units of their own currencies. In practice, cost of living is determined by pricing out a standard “basket” of goods and services at the prices prevailing in each country.

Because PPPs are designed to represent relative costs of living, they offer a simple way to account for differences in overall national price levels when comparing individual prices, incomes and other monetary values across countries. When applied to the calculation of average foreign-to-Canadian price ratios they produce statistics answering questions of this type:

How much more/less consumption of other goods and services would Canadians have sacrificed for the patented medicines they purchased in 2017 had they lived in Country X?

Questions of this type cannot be answered by simply comparing medicine prices. Rather, one must first calculate what each price represents in terms of goods and services foregone. PPPs are designed for such purposes.

Bilateral Price Comparisons

Table 9 provides bilateral comparisons of prices in each of the PMPRB’s seven comparator countries to corresponding Canadian prices. Focusing on the results with currency conversion at market exchange rates, it appears that, as in previous years, Canadian prices were typically within the range of prices observed among the comparator countries. Prices in France were appreciably lower than Canadian prices followed by Sweden, the United Kingdom and Italy, while those in Germany and Switzerland were higher. As in previous years, prices reported for the United States were much higher than prices in Canada or any other comparator country.

Table 9. Average Foreign-to-Canadian Price Ratios, Bilateral Comparisons, 2017

It is important to note that it is not always possible to find a matching foreign price for each and every patented medicine sold in Canada. Table 9 displays how often an international price comparison was available for each of the comparator countries. For example, out of 1,381 patented medicines reported as under the PMPRB’s jurisdiction in 2017, a publicly available ex-factory price for France was available 49.0% of the time, whereas for the US the number was 79.6%. Given the integrated nature of the Canadian and US supply chain, it is not uncommon for the US to be the only other country for which a comparator price to a medicine sold in Canada is available, in which case it is deemed to constitute the international median price as per the PMPRB’s methodology.

Average price ratios obtained with currency conversion at PPPs tell the same story. When international differences in cost of living are accounted for, it appears Canadians incurred a larger consumption cost for the patented medicines they purchased in 2017 than did residents of France, Sweden, Switzerland and the UK.

Figure 20 puts these results in historical perspective. In 2008, Canadian prices were, on average, slightly higher than prices in France, Italy, Sweden and the UK, and approximately the same as prices in Switzerland. By 2017, the gap between Canadian prices and prices in France, Sweden and the UK had grown slightly greater as the relative prices in these countries dropped, while the prices in Italy in 2017 were more in line with Canadian levels. Price levels in Switzerland, Germany and the US all exceeded those in Canada in 2017.

Figure 20. Average Foreign-to-Canadian Price Ratios, 2008 and 2017

Figure description

This bar graph depicts the average foreign-to-Canadian price ratios in 2008 and 2017 for the PMPRB7 comparator countries.

• France — 2008; 0.88, 2017: 0.75
• Italy — 2008; 0.83, 2017: 0.95
• Sweden — 2008; 0.96, 2017: 0.93
• UK — 2008; 0.98, 2017: 0.94
• Canada — 2008: 1.00, 2017: 1.00
• Switzerland — 2008; 0.99, 2017: 1.12
• Germany — 2008; 1.10, 2017: 1.12
• US — 2008; 1.76, 2017: 3.36

If the patented medicine is being sold in one or more of the PMPRB7 countries, the patentee must report the publicly available ex-factory prices to the PMPRB for each class of customer.^{Footnote 12} In order to assess how Canada compares to a basket of countries beyond the PMPRB7, Figure 21 uses Canadian and international prices reported in the IQVIA MIDAS™ database at the ex-factory manufacturer level, reflecting all sales to the pharmacy and hospital sectors.

The international price comparisons reported in Figure 21 provide a bilateral price comparison using all countries in the Organisation for Economic Co-operation and Development (OECD) with available MIDAS™ data. The average foreign-to-Canadian price ratios are constructed using exactly the same approach employed to produce the ratios presented in Figure 20. These are Canadian sales-weighted arithmetic averages of the corresponding foreign-to-Canadian price ratios for individual medicines.^{Footnote 13} As shown in Figure 21, median OECD prices are, on average, approximately 19% below prices in Canada, which are third highest among the 31 countries. Notably, the top three highest priced countries are the US, Switzerland and Canada.

Figure 21. Average Foreign-to-Canadian Price Ratios, Patented Medicines, OECD, 2017

Figure description

This bar graph depicts the average foreign-to-Canadian price ratios for patented medicines in 2017 for OECD countries using Canadian and international prices reported in the IQVIA MIDAS™ database. The OECD median value is also given and is calculated at medicine level for medicines with prices available in at least three foreign markets.

US: 3.21; Switzerland: 1.06; Canada: 1.00; Germany: 0.97; New Zealand: 0.94; Mexico: 0.94; Japan: 0.92; Chile: 0.89; Austria: 0.88; Sweden: 0.86; Italy: 0.85; Finland: 0.84; UK: 0.83; Ireland: 0.83; OECD Median*; 0.81; Hungary: 0.81; Spain: 0.80; Netherlands: 0.80; Belgium: 0.79; Luxembourg: 0.79; Norway: 0.78; France: 0.76; Australia: 0.74; Portugal; 0.72; Slovakia: 0.71; Czech Republic: 0.70; Poland: 0.69; Greece: 0.69; Estonia: 0.67; Slovenia: 0.67; South Korea: 0.54; Turkey: 0.34.

*OECD Median calculated at medicine level for medicines with prices available in at least three foreign markets.

Brief Insights

Average generic medicine prices in Canada have been reduced to half of what they were a decade ago (Figure 22). While this decrease exceeded the overall price reductions in most PMPRB7 markets, the rate of decline has slowed in recent years. Generic price reductions coupled with a weakening Canadian dollar have gradually reduced the sizable gap between Canadian and foreign generic price levels over the past several years. Despite this, average prices in the PMPRB7 countries are still substantially less than Canadian levels, with the gap being slightly wider for the OECD countries. Canada has the seventh highest generic prices in the OECD, just below the US (Figure 23).

Figure 22. Price Indices for Generic Medicines, Canada and the PMPRB7, Q4-2007 to Q4-2016

Figure description

This line graph gives price indices for Canada and the PMPRB7 comparator countries beginning at the fourth quarter of 2007. Two sets of data are provided for Canada: one for all generic medicines and the other for the medicines set to 18% of the brand price through pan-Canadian Pharmaceutical Alliance negotiations as of the end of 2016. The median OECD value is also given.

Quarter year	Canada	Canada medicines at 18%	France	Germany	Italy	OECD Average	Sweden	Switzerland	UK	US
2007: fourth quarter	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00
2008: first quarter	0.98	0.97	1.00	0.96	0.99	0.97	0.94	1.00	0.96	0.95
2008: second quarter	0.97	0.95	0.96	0.94	0.98	0.96	0.95	0.99	0.95	0.95
2008: third quarter	0.96	0.94	0.94	0.89	0.97	0.94	0.90	0.99	0.94	0.94
2008: fourth quarter	0.96	0.94	0.93	0.88	0.97	0.92	0.87	0.99	0.90	0.90
2009: first quarter	0.96	0.93	0.93	0.87	0.97	0.91	0.87	0.99	0.88	0.90
2009: second quarter	0.96	0.94	0.92	0.85	0.90	0.90	0.92	0.98	0.87	0.89
2009: third quarter	0.96	0.94	0.92	0.84	0.83	0.89	0.81	0.98	0.88	0.89
2009: fourth quarter	0.96	0.93	0.92	0.83	0.83	0.89	0.77	0.98	0.85	0.89
2010: first quarter	0.97	0.94	0.90	0.82	0.86	0.88	0.75	0.95	0.85	0.88
2010: second quarter	0.97	0.94	0.88	0.77	0.85	0.86	0.73	0.91	0.90	0.87
2010: third quarter	0.88	0.82	0.88	0.74	0.83	0.85	0.76	0.91	0.94	0.87
2010: fourth quarter	0.85	0.79	0.88	0.71	0.83	0.84	0.74	0.91	0.82	0.86
2011: first quarter	0.84	0.77	0.88	0.70	0.85	0.81	0.74	0.90	0.81	0.81
2011: second quarter	0.78	0.69	0.88	0.69	0.81	0.80	0.71	0.90	0.78	0.80
2011: third quarter	0.76	0.67	0.87	0.68	0.79	0.77	0.69	0.89	0.82	0.74
2011: fourth quarter	0.76	0.67	0.87	0.68	0.78	0.77	0.68	0.89	0.75	0.76
2012: first quarter	0.75	0.66	0.86	0.67	0.77	0.77	0.69	0.88	0.74	0.77
2012: second quarter	0.70	0.60	0.85	0.66	0.77	0.74	0.69	0.88	0.72	0.75
2012: third quarter	0.66	0.55	0.84	0.62	0.77	0.73	0.68	0.88	0.70	0.73
2012: fourth quarter	0.65	0.55	0.84	0.61	0.77	0.71	0.65	0.84	0.61	0.73
2013: first quarter	0.64	0.54	0.82	0.61	0.77	0.72	0.68	0.83	0.62	0.74
2013: second quarter	0.59	0.44	0.79	0.60	0.77	0.73	0.67	0.83	0.64	0.77
2013: third quarter	0.57	0.41	0.79	0.60	0.77	0.75	0.66	0.82	0.67	0.81
2013: fourth quarter	0.57	0.41	0.78	0.59	0.76	0.75	0.64	0.81	0.64	0.84
2014: first quarter	0.57	0.41	0.76	0.59	0.76	0.76	0.62	0.80	0.64	0.86
2014: second quarter	0.55	0.38	0.74	0.58	0.76	0.73	0.63	0.79	0.61	0.82
2014: third quarter	0.55	0.38	0.74	0.55	0.76	0.72	0.71	0.79	0.62	0.81
2014: fourth quarter	0.55	0.37	0.72	0.55	0.76	0.73	0.67	0.77	0.65	0.82
2015: first quarter	0.55	0.37	0.72	0.54	0.76	0.73	0.70	0.76	0.65	0.82
2015: second quarter	0.53	0.35	0.71	0.54	0.76	0.71	0.69	0.75	0.65	0.78
2015: third quarter	0.53	0.35	0.71	0.53	0.76	0.70	0.70	0.75	0.65	0.77
2015: fourth quarter	0.53	0.35	0.71	0.53	0.75	0.69	0.67	0.75	0.65	0.76
2016: first quarter	0.52	0.34	0.69	0.53	0.74	0.67	0.66	0.75	0.60	0.72
2016: second quarter	0.51	0.33	0.68	0.51	0.74	0.65	0.64	0.75	0.59	0.68
2016: third quarter	0.51	0.33	0.68	0.50	0.74	0.63	0.63	0.75	0.57	0.66
2016: fourth quarter	0.51	0.33	0.67	0.50	0.74	0.62	0.62	0.75	0.56	0.63

Figure 23. Foreign-to-Canadian Price Ratios for Generic Medicines, OECD, Q4-2016

Figure description

This bar graph compares the bilateral foreign-to-Canadian generic medicine price ratios for OECD countries for the fourth quarter of 2016. A value for the OECD median is also provided, calculated at medicine level for medicines with prices available in at least three foreign markets.

Country	Foreign-to-Canadian price ratio
Mexico	2.25
Chile	1.96
Switzerland	1.69
South Korea	1.56
Japan	1.47
US	1.08
Canada	1.00
Finland	0.92
Austria	0.91
Spain	0.89
Greece	0.85
Ireland	0.82
Italy	0.77
France	0.75
Germany	0.74
UK	0.73
Belgium	0.71
OECD Median	0.67
Luxembourg	0.63
Australia	0.62
Portugal	0.60
Estonia	0.54
Slovenia	0.53
Czech Republic	0.53
Hungary	0.50
Sweden	0.50
Poland	0.49
Slovakia	0.48
Norway	0.42
New Zealand	0.39
Netherlands	0.38
Turkey	0.35

Multilateral Price Comparisons

Table 10 provides average foreign-to-Canadian price ratios using several multilateral measures of foreign prices. The median international price (MIP) is the median of prices observed among the PMPRB7. Other multilateral price ratios compare the minimum, maximum and simple mean of foreign prices to their Canadian counterparts.

Focusing again on results at market exchange rates, the average MIP-to-Canadian price ratio stood at 1.26 in 2017 almost unchanged from 1.25 in 2016 (Figure 24). Note that mean foreign prices produce higher foreign-to-Canadian price ratios than do MIPs. This is explained by the influence of US prices, which are typically much higher than prices elsewhere. Although US prices nearly always figure importantly in determining mean foreign price, this is less so when it comes to median international prices. Nevertheless, the US does exercise a significant influence over the average ratio of median international prices relative to Canadian prices because of the not infrequent phenomenon mentioned in the previous section, whereby the US is the only country for which an ex-factory price for a patented medicine sold in Canada is available.

Figure 24. Average Ratio of Median International Price (MIP) to Canadian Price, at Market Exchange Rates, 2001 to 2017

Figure description

This line graph depicts the trend in the average MIP-to-Canadian price ratios from 2001 to 2017 using the average transaction price (ATP) in Canada. In 2001, the average ratio of Median International Price (MIP) to Canadian price, at market exchange rates, was 1.11. In 2002: 1.08; 2003: 1.12; 2004: 1.16; 2005: 1.14; 2006: 1.07; 2007: 1.03; 2008: 1.03; 2009: 1.04; 2010: 1.06; 2011: 1.05; 2012: 1.07; 2013: 1.06; 2014: 1.13; 2015: 1.18; 2016: 1.25; 2017: 1.26.

Figure 25 provides alternate results for the average MIP-to-Canadian price ratio at market exchange rates in 2017. To address the point that Canadian prices are national average transaction prices whereas foreign prices are list prices, a list price to list price ratio is also calculated. Using this method, the average ratio decreases from 1.26 to 1.08. It is important to keep in mind that confidential rebates provided to payers are currently not captured in these data.

To account for the large impact of US prices in determining the median foreign price, a ratio excluding the US and a ratio including at least five countries in the calculation of the median are also provided in Figure 25. With these restrictions, the average MIP-to-Canadian price ratios drop to 0.88 and 0.92, respectively, suggesting that median foreign list prices are, on average, 8% to 12% lower than Canadian list prices. In many of the comparator countries, discounts off list prices are available to all payers, both public and private. By contrast, a large portion of the Canadian market pays list prices, or close to list prices. Furthermore, it should be noted that these are average ratios—some patentees charge Canadian consumers less than median international prices, while others charge more. For patentee level median-to-Canadian price ratios, please refer to Table 21 in Appendix 4 of this report.

Figure 25. Average Ratio of Median International Price (MIP) to Canadian Price, at Market Exchange Rates, 2017

Figure description

This bar graph depicts the average MIP-to-Canadian price ratios at market exchange rates for 2017 using (1) the average transaction price in Canada (ATP) compared to the PMPRB7 international list price and (2) the Canadian list price compared to the international list price.

	Ratio of the Average Transaction Price (ATP) to International List Price	Ratio of the Canadian List Price to International List Price
MIP to Canadian	1.26	1.08
Median limited to medicines sold in at least 5 of the PMPRB7	1.00	0.92
Without US	0.98	0.88
Without Germany	1.25	1.09
Without Germany and US	0.96	0.86

Figure 26 offers more detail on the medicine-level MIP-to-Canadian ratios underlying the averages reported in Table 10. This figure distributes the 2017 sales of each patented medicine according to the value of its MIP-to-Canadian price ratio (more exactly, according to the range into which the ratio fell).^{Footnote 14} These results show substantial dispersion in medicine-level price ratios: while patented medicines with MIP-to-Canadian price ratios between 0.90 and 1.10 accounted for 34.8% of sales, those with ratios less than 0.90 accounted for 30.5% of sales, and medicines with ratios exceeding 1.10 accounted for 34.7%.

Figure 26. Range Distribution, Sales, by MIP-to-Canadian Price Ratio, 2017

Figure description

This bar graph depicts the distribution of 2017 sales of patented medicines by their range of MIP-to-Canadian price ratio.

‹ 0.50: 3.2%; 0.50 to 0.55: 0.5%; 0.55 to 0.60: 1.8%; 0.60 to 0.65: 4.4%; 0.65 to 0.70: 1.9%; 0.70 to 0.75: 3.3%; 0.75 to 0.80: 3.9%; 0.80 to 0.85: 3.0%; 0.85 to 0.90: 8.5%; 0.90 to 0.95: 7.0%;. 0.95 to 1.00: 10.7%; 1.00 to 1.05: 8.2%; 1.05 to 1.10: 8.8%; 1.10 to 1.15: 8.7%; 1.15 to 1.20: 3.7%; 1.20 to 1.25: 1.0%; 1.25 to 1.30: 0.5%; 1.30 to 1.35: 1.3%; 1.35 to 1.40: 3.3%; 1.40 to 1.45: 1.2%; 1.45 to 1.50: 2.2%; › 1.50: 12.8%.

In 2017, approximately 50% of Canadian patented medicines were priced above the median international level.^{Footnote 15} Table 11 shows which therapeutic categories in particular are priced above the median international levels in Canada. Medicines that share the fourth level ATC (“ATC4”)^{Footnote 16} are grouped to identify distinct chemical/pharmacological/therapeutic subgroups, allowing for a calculation of the average MIP-to-Canadian price ratios among medicines that may be used to treat the same conditions. Table 11 identifies the top 10 ATC4s in 2017 in which the difference between Canadian and median prices had the largest effect on Canadian patented medicine spending. For example, had Canadian prices been in line with the international median for these classes of medicines in 2017, sales in Canada would have been reduced by $843 million (an average reduction of 16% for these ATC4s). Of the 138 DINs classified into these 10 ATC4s, over 63% were priced above the median international price.

Utilization of Patented Medicines

The price and sales data used to calculate the PMPI also allow the PMPRB to examine trends in the quantities of patented medicines sold in Canada. The PMPRB maintains the Patented Medicines Quantity Index (PMQI) for this purpose. Figure 27 provides average rates of utilization growth, as measured by the PMQI, from 1988 through 2017. These results confirm that in recent years, growth in the utilization of patented medicines has been the primary source of rising sales, with rates of utilization growth roughly tracking sales growth. This tracking pattern continued in 2017, with utilization of patented medicines, on average, increasing by 7.9% between 2016 and 2017 and sales increasing by 7.6%.

Figure 27. Annual Rate of Change (%), Patented Medicines Quantity Index (PMQI), 1988 to 2017

Figure description

This bar graph depicts the average annual rates of growth in utilization, as measured by the Patented Medicines Quantity Index (PMQI), from 1988 to 2017.

1988: 3.8%; 1989: 13.3%; 1990: 13.9%; 1991: 9.1%; 1992: 10.8%; 1993: 5.5%; 1994: 3.2%; 1995: 14.8%; 1996: 7.8%; 1997: 20.6%; 1998: 16.1%; 1999: 21.2%; 2000: 16.2%; 2001: 17.8%; 2002: 11.0%; 2003: 14.1%; 2004: 8.5%; 2005: 4.2%; 2006: 5.4%; 2007: 3.4%; 2008: 3.7%; 2009: 3.2%; 2010: -2.3%; 2011: 0.8%; 2012: -1.6%; 2013: 4.4%; 2014 : 3.5%; 2015: 9.6%; 2016: 4.3%; 2017: 7.9%.

Canadian Medicine Expenditures in the Global Context

IQVIA^{Footnote 18} regularly reports on medicine sales across a large number of countries. Based on sales data from this source, Figure 28 provides shares of global sales for Canada and each of the PMPRB7 countries considered in conducting its price reviews.^{Footnote 19} The Canadian market accounted for 2.0% of the global market in 2017.

Figure 28. Distribution of Medicine Sales (%) Among Major National Markets, 2017

Figure description

This pie chart depicts the distribution of medicine sales among major global markets in 2017.

The US market accounted for 43.9% of the global market in 2017. Japan: 7.3%; Germany: 4.1%; France: 3.3%; Italy: 2.9%; U.K.: 2.3%; Spain 2.1%; Canada: 2.0%; Switzerland: 0.6%; Sweden: 0.4%; the rest of the world: 31.2%.

Figure 29 provides Canada’s share of global sales for 2005 to 2017. The Canadian share has remained between 1.9% and 2.7% throughout this period. Although 2.0% is at the low end for Canada’s average share of global sales in recent years, the US share grew from 40.4% in 2014 to 43.9% in 2017, resulting in declining shares for all other major countries.

Figure 29. Canada’s Share of Medicine Sales (%), 2005 to 2017

Figure description

This bar graph depicts Canada’s share of global medicine sales for 2005 to 2017.

2005: 2.4%; 2006: 2.6%; 2007: 2.6%; 2008: 2.6%; 2009: 2.5%; 2010: 2.7%; 2011: 2.6%; 2012: 2.6%; 2013: 2.5%; 2014: 2.2%; 2015: 2.0%; 2016: 1.9%; 2017: 2.0%.

Figure 30 gives the average annual rate of growth in total medicine sales for Canada and the PMPRB7, individually and collectively. From 2005 to 2017, medicine sales in Canada rose at an average annual rate of approximately 4.2%. This is less than the average rate of growth in medicine sales among the seven comparator countries over the same period, though as is clear from the figure, this growth rate is heavily skewed by the influence of US sales on the total sales of the PMPRB7.

Figure 30. Average Rate of Growth (%), Medicine Sales, at Constant 2017 Market Exchange Rates, by Country, 2005 to 2017

Figure description

This bar graph depicts the average annual rate of growth in total medicine sales for Canada and the PMPRB7 comparator countries from 2005 to 2017.

France: 1.3%; Switzerland: 2.8%; Germany: 3.4%; Sweden: 3.4%; Canada: 4.2%; Italy: 4.3%; UK: 4.4%; all of the PMPRB7: 4.5%; US: 5.0%.

Figure 31 compares rates of year-over-year growth in medicine sales in Canada and the PMPRB7 countries combined. In 2017, sales grew at a faster rate in Canada than in any of the other PMPRB7 countries, including the US which saw a significant decrease in the rate of growth from the previous year. The Canadian expenditure growth rate in 2017 exceeded the median for the PMPRB7 for the first time since 2009.

Figure 31. Average Annual Rate of Change in Medicine Sales, at Constant 2017 Market Exchange Rates, Canada and the PMPRB7, 2006 to 2017

Figure description

This line graph depicts the average annual rate of change in medicine sales, at constant 2017 market exchange rates, for Canada; the combined PMPRB7 countries, and the mean of the PMPRB7 from 2006 to 2017.

Annual rate of change

Year	Canada	All of PMPRB7	Median for PMPRB7
2006	8.0	7.3	4.3
2007	6.9	4.6	5.9
2008	8.6	2.5	5.3
2009	6.6	4.7	4.3
2010	2.0	2.7	2.6
2011	-1.0	3.0	1.3
2012	-1.8	0.3	-0.3
2013	1.6	2.3	3.5
2014	4.7	10.8	5.1
2015	6.6	10.7	7.5
2016	4.0	6.0	4.6
2017	6.9	1.9	3.7

The proportion of national income allocated to the purchase of medicines provides another way to compare medicine costs across countries.^{Footnote 20} Figure 32 gives medicine expenditures as a share of Gross Domestic Product (GDP) for Canada and the PMPRB7 countries based on data for 2015. Medicine expenditures absorbed between 1.1% and 2.1% of the GDP in the PMPRB7. The Canadian value (1.8%) was second only to the US.

Figure 32. Medicine Expenditures as a Share of GDP (%), 2015

Figure description

This bar graph depicts the expenditures for medicines as a share of the gross domestic product (GDP) for Canada and the PMPRB7 comparator countries based on data for 2015.

Sweden: 1.1%; UK: 1.2%; Germany: 1.6%; Italy: 1.6%; France: 1.6%; Switzerland 1.7%; Canada: 1.8%; US: 2.1%.

Table 12 provides a historical perspective on the expenditures-to-GDP ratio.^{Footnote 21} In 2005, Canada’s ratio was fourth highest of the PMPRB7. Since that time, Canada’s ratio has risen, while the ratios of three other countries (France, Italy and Sweden) have declined. In 2015, Canada once again had the second highest medicine spending per capita among the PMPRB7 (again behind only the US), 18% higher than the median of these countries.

Table 13 gives the composition of patentees’ sales by therapeutic class for Canada and PMPRB7, individually by country and as an aggregate.^{Footnote 22} The results imply a remarkable degree of similarity across countries.

Background

NPDUIS is a research initiative established by federal, provincial, and territorial Ministers of Health in September 2001. It is a partnership between the PMPRB and the Canadian Institute for Health Information (CIHI).

At the request of the Minister of Health pursuant to section 90 of the Patent Act, the PMPRB provides policy makers and public drug plan managers with critical analyses of price, utilization and cost trends of patented and non-patented prescription medicines. This ensures that Canada’s health care systems have more comprehensive and accurate information on how prescription medicines are being used and on sources of cost increases.

The PMPRB conducts its NPDUIS analytical reporting under the guidance of the NPDUIS Advisory Committee. The Committee advises and supports the PMPRB in establishing research priorities, in the development of research methodologies and in the interpretation of analytical results. It is composed of representatives from public drug plans in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Yukon, and Health Canada. It also includes observers from CIHI, the Canadian Agency for Drugs and Technologies in Health, the Ministère de la Santé et des Services sociaux Québec, and the pan-Canadian Pharmaceutical Alliance Office.

NPDUIS operates independently of the regulatory activities of the PMPRB. NPDUIS reports do not contain information that is confidential or privileged under sections 87 and 88 of the Patent Act.

Highlights

Since the release of the last Annual Report, the PMPRB has published three analytical reports and seven posters under the NPDUIS banner.

Published Reports:

• Alignment Among Public Formularies in Canada – Part 1: General Overview (October 2017)
• Generics360: Generic Drugs in Canada, 2016 (February 2018)
• Meds Entry Watch, 2016 (June 2018)

Poster Presentations:

• Cost Drivers of Public Drug Plans in Canada, 2016/17
• The New Drug Landscape: International Availability and Pricing, 2016
• Generic Drugs in Canada, 2016
• Private Drug Plans in Canada: High-Cost Drugs and Beneficiaries, 2005 to 2017
• Cost Drivers of Private Drug Plans in Canada, 2017
• The Cost of Drugs for Age-Related Macular Degeneration in Canada and Internationally
• The Cost of New Oral Antidiabetic Drugs in Canada and Internationally

In addition, the NPDUIS conducted a number of ad hoc studies at the request of the NPDUIS participating jurisdictions.

The PMPRB continued to support and strengthen its NPDUIS engagement activities by regularly consulting with the NPDUIS Advisory Committee, participating in conferences and stakeholder committees, and organizing information sessions with interested stakeholders to share the results of the analytical studies.

In response to stakeholder requests and to inform the dialogue on national pharmacare in Canada, NPDUIS developed a three-part report series “Alignment Among Public Formularies in Canada” that explores the current gaps and overlaps in Canadian public drug plan formularies. The next two parts in the series are slated for publication in the upcoming fiscal year, as highlighted in the Research Agenda.

Research Agenda

The NPDUIS research agenda for the two upcoming fiscal years includes the following analytical studies:

• Meds Entry Watch, 2017 Edition
• CompassRx, 4^th Edition, 2016/17
• Market Intelligence Reports on (1) Age-related Macular Degeneration Drugs and (2) New Drugs for Type-2 Diabetes
• New Drug Pipeline Monitor, 8^th Edition
• Alignment Among Public Formularies in Canada, Parts 2 and 3: Drugs Assessed through the Common Drug Review (CDR) Process; and, Oncology Drugs assessed through the pan-Canadian Oncology Drug Review (pCODR) Process
• Private Drug Plans in Canada Part 2: High-Cost Drugs and Beneficiaries

Additional research topics may be pursued based on consultation with the NPDUIS Advisory Committee.

Analysis of Research and Development Expenditures: R&D Investment Falling Short of Target

Innovation is vital to advancing health care. In part, the provisions of Canada’s Patent Act are intended to foster an investment climate favorable to pharmaceutical research and development (R&D) in Canada. However, the percentage of R&D-to-sales by pharmaceutical patentees in Canada has been falling since the late 1990’s and has been under the agreed-upon target of 10% since 2003. In 2017, it was at 4.1% for all patentees and 4.6% for members of Innovative Medicines Canada.

Analysis of Research and Development Expenditures

The Act mandates the PMPRB to monitor and report on pharmaceutical R&D spending. This chapter provides key statistics on the current state of pharmaceutical R&D investment in Canada.

Data Sources

The statistical results in this report were entirely derived from data submitted to the PMPRB by patentees.

The Act requires each patentee to report its total gross revenues from sales of all medicines for human or veterinary use (including revenues from sales of non-patented medicines and from licensing agreements) and R&D expenditures in Canada related to medicines (both patented and non-patented for human or veterinary use). Patentees transmit this information to the PMPRB by means of its Form 3 (Revenues and Research and Development Expenditures Provided Pursuant to subsection 88(1) of the Patent Act).

The Patented Medicines Regulations (Regulations) require that each submitted Form 3 be accompanied by a certificate stating the information it contains is “true and correct”. The Board does not audit Form 3 submissions, but it does review submitted data for anomalies and inconsistencies, seeking corrections or clarifications from patentees where necessary. To confirm that PMPRB staff has correctly interpreted the data submitted, each patentee is given the opportunity to review and confirm the accuracy of its own R&D-to-sales ratio before that ratio is published.

Failure to File (Form 3)

It is a patentee’s responsibility to ensure a complete and accurate Form 3 is filed within the time frame set out in the Regulations. If a patentee fails to meet these filing requirements, the Board may issue an Order demanding compliance. No such Board Orders were issued for the 2017 reporting period.

Coverage

Note that companies without sales of patented medicines do not need to report their R&D expenditures to the PMPRB. This has two implications.

First, the statistical results reported here should not be taken to cover all pharmaceutical research conducted in Canada. For example, a company may sell only non-patented medicines but may still perform considerable research in Canada. Similarly, a company may conduct research and have no medicine sales at all.^{Footnote 23} The results presented below will not reflect the R&D expenditures of firms in either situation.

Second, as new patented medicines come onto the Canadian market and existing relevant patents expire, the number and identity of companies required to file R&D data may change from year to year. A total of 85 companies reported on their R&D activity in 2017. Of these, 33 were members of Innovative Medicines Canada.

Definition of Sales Revenues

For reporting purposes, sales revenues are defined as total gross revenues from sales in Canada of all medicines and from licensing agreements (e.g., royalties and fees accruing to the patentee related to sales in Canada by licensees).

Definition of R&D Expenditures

Pursuant to section 6 of the Regulations, patentees are required to report R&D expenditures that would have qualified for an investment tax credit in respect to scientific research and experimental development (SR&ED) under the provisions of the Income Tax Act that came into effect on December 1, 1987.^{Footnote 24} By this definition, R&D expenditures may include current expenditures, capital equipment costs and allowable depreciation expenses. Market research, sales promotions, quality control or routine testing of materials, devices or products and routine data collection are not eligible for an investment tax credit and, therefore, are not to be included in the R&D expenditures reported by patentees.

Total Sales Revenues and R&D Expenditures

Table 14 provides an overview of reported sales revenues and R&D expenditures over the period 1988 through 2017.

Patentees reported total 2017 sales revenues of $ 21.1 billion, an increase of 1.4% from 2016. Sales revenues reported by Innovative Medicines Canada members were $16.3 billion, accounting for 77% of the total. (Less than 1% of reported sales revenues were generated by licensing agreements.)

Patentees reported R&D expenditures of $871.4 million in 2017, a decrease of 5.1% over 2016. Innovative Medicines Canada members reported R&D expenditures of $755.8 million in 2017, a decrease of 1.8% over last year. Innovative Medicines Canada members accounted for 86.7% of all reported R&D expenditures in 2017.

R&D-to-Sales Ratios

Table 14 and Figure 33 also provide ratios of R&D expenditures to sales revenues. It should be noted in this context that, with the adoption of the 1987 amendments to the Act, Innovative Medicines Canada made a public commitment to increase its members’ annual R&D expenditures to 10% of sales revenues by 1996.^{Footnote 25} This level of R&D expenditure was reached by 1993, with the ratio exceeding 10% in some years.

The ratio of R&D expenditures to sales revenues among all patentees was 4.1% in 2017, a decrease from 4.4% in 2016. The overall R&D-to-sales ratio has been less than 10% for the past 17 consecutive years.

The corresponding R&D-to-sales ratio for members of Innovative Medicines Canada was 4.6% in 2017, a decrease from 4.9% in 2016.^{Footnote 26} The Innovative Medicines Canada ratio has been less than 10% for the past 15 consecutive years.

Table 20 in Appendix 4 provides details on the range of 2017 R&D-to-sales ratios. Of the 85 companies reporting in 2017, 87.1% had R&D-to-sales ratios below 10%.

Figure 33. R&D-to-Sales Ratio, Pharmaceutical Patentees, 1988 to 2017

Figure description

This line graph depicts the annual the R&D-to-sales ratio for all patentees and members of Innovative Medicines Canada (IMC) from 1988 to 2017.

IMC Patentees: 1988, 6.5; 1989, 8.1; 1990, 9.2; 1991, 9.8; 1992, 9.8; 1993, 10.7; 1994, 11.6; 1995, 12.5; 1996, 12.3; 1997, 12.9; 1998, 12.7; 1999, 11.3; 2000, 10.6; 2001, 10.6; 2002, 10.0; 2003, 9.1; 2004, 8.5; 2005, 8.8; 2006, 8.5; 2007, 8.9; 2008, 8.9; 2009, 8.2; 2010, 8.2; 2011, 6.7; 2012, 6.3; 2013, 5.7; 2014, 4.8; 2015, 4.9; 2016, 4.9; 2017, 4.6.

All Patentees: 1988, 6.1; 1989, 8.2; 1990, 9.3; 1991, 9.7; 1992, 9.9; 1993, 10.6; 1994, 11.3; 1995, 11.7; 1996, 11.4; 1997, 11.5; 1998, 11.5; 1999, 10.8; 2000, 10.1; 2001, 9.9; 2002, 9.9; 2003, 8.8; 2004, 8.3; 2005, 8.7; 2006, 8.1; 2007, 8.3; 2008, 8.1; 2009, 7.5; 2010, 6.9; 2011, 5.6; 2012, 5.2; 2013, 4.4; 2014, 4.3; 2015, 4.4; 2016, 4.4; 2017, 4.1.

Current Expenditures by Type of Research

Table 15 and Figure 34 (as well as Figure 36 in Appendix 4) provide information on the allocation of 2017 current R&D expenditures^{Footnote 27} among basic and applied research and other qualifying R&D.^{Footnote 28} Patentees reported spending $109 million on basic research in 2017, representing 13.1% of current R&D expenditures, an increase of 2.9% over the previous year. Patentees reported spending $501.9 million on applied research, representing 60.3% of current R&D expenditures. Clinical trials accounted for 72.3% of applied research expenditures.

Figure 34. Current R&D Expenditures by Type of Research, 1988 to 2017

Figure description

This stacked bar graph depicts the share of current R&D expenditures by type of research from 1988 to 2017.

Year	Basic Research (%)	Applied Research (%)	Other qualifying research (%)
1988	19.1	67.2	13.7
1989	23.4	62.7	13.9
1990	27.2	58.0	14.8
1991	26.5	57.3	16.2
1992	26.4	57.1	16.5
1993	25.3	60.3	14.4
1994	21.9	62.7	15.4
1995	22.1	61.8	16.1
1996	21.7	62.9	15.4
1997	20.7	62.0	17.3
1998	19.6	61.1	19.4
1999	18.4	63.3	18.3
2000	17.8	61.3	20.9
2001	16.1	59.9	24.0
2002	17.4	55.8	26.6
2003	15.3	55.2	29.1
2004	19.7	58.3	21.7
2005	18.2	62.4	19.5
2006	20.0	59.5	20.5
2007	20.3	54.4	25.6
2008	15.9	57.3	26.8
2009	19.4	56.2	24.3
2010	21.1	54.8	24.2
2011	17.3	55.0	27.8
2012	12.6	57.9	29.4
2013	8.7	63.5	27.8
2014	10.7	60.9	28.4
2015	12.9	57.7	29.3
2016	12.6	59.5	27.9
2017	13.1	60.2	26.7

Current R&D Expenditures by Performer

Patentees report expenditures on research they conduct themselves (intramural) and research performed by other establishments, such as universities, hospitals and other manufacturers (extramural). Table 16 shows that 45.1% of 2017 current research expenditures were intramural. Research performed by other companies on behalf of patentees was 26.7% of current expenditures, while research conducted in universities and hospitals accounted for 17.9%.

Current R&D Expenditures by Region

Table 17 (as well as Table 22 and Table 23 in Appendix 4) show current R&D expenditures by region. As in previous years, current expenditures were heavily concentrated in Ontario and Quebec in 2017, with these provinces accounting for 83.1% of total expenditures. While current R&D expenditures decreased at a year-over-year rate of 10.8% in Western Canada and 0.9% in Ontario, they increased by 3.9% in Quebec.

Total R&D Expenditures by Source of Funds

Table 18 provides information on the sources of funds used by patentees to finance their R&D activity. Internal company funds remained by far the single largest source of funding in 2017, accounting for 90.8% of total expenditures. Funds received from government amounted to 0.7% of total expenditures.

The Global Context

Figure 35 compares Canadian pharmaceutical R&D-to-sales ratios for the years 2000 and 2015 to those in the PMPRB7.^{Footnote 29} In 2000, Canada had an R&D-to-sales ratio of 10.1%, lower than all other PMPRB7 countries except for Italy, at 6.2%. Switzerland had the highest ratio at 102.5%.

In 2015, Canada’s R&D-to-sales ratio was the lowest among the comparator countries at 4.4%. Italy had a slightly higher ratio of 6.2%, while all other PMPRB7 countries remained well above Canada. The ratio obtained by aggregating R&D spending and sales across all PMPRB7 countries was 24.2%, more than five times Canada’s.

The R&D-to-sales ratios represented in Figure 35 may be compared to the average bilateral price ratios reported in Table 9 (see the Comparison of Canadian Prices to Foreign Prices section). Several comparator countries, which have patented medicine prices that are, on average, substantially less than prices in Canada, have achieved much higher R&D-to-sales ratios.

As noted in previous annual reports, there are a multitude of factors that drive the location of pharmaceutical R&D. These include where companies can find the best science base at reasonable cost and ready access to a quality clinical trials infrastructure. Although price levels are often cited as an important policy lever for attracting R&D, the data has not supported this link domestically or internationally.

Figure 35. R&D-to-Sales Ratios, Canada and the PMPRB7

Figure description

This bar graph depicts R&D-to-sales ratios for Canada and the PMPRB7 comparator countries for 2000 and 2015.

2000: Canada, 10.1; PMPRB7, 20.4; France, 16.8; Germany, 17.3; Italy, 6.2; Sweden, 44.4; Switzerland, 102.5; UK, 35.1; US, 18.4.

2015: Canada, 4.4; PMPRB7, 24.2; France, 16.5; Germany, 20.7; Italy, 6.2; Sweden, 29.0; Switzerland, 129.5; UK, 25.7; US, 24.8.

Appendix 1: Glossary

These definitions are provided for general assistance only; they have no legal force and should be read in conjunction with the applicable legislation.

Active Ingredient or Medicinal Ingredient: Chemical or biological substance responsible for the claimed pharmacologic effect of a medicine.

ATC: Anatomical Therapeutic Chemical (ATC) classification system, developed and maintained by the World Health Organization (WHO) Collaborating Centre for Drug Statistics Methodology, divides medicines into different groups according to their site of action and therapeutic and chemical characteristics. This system is used by the PMPRB as a guide for selecting comparable medicines for purposes of price review under the Guidelines.

Drug Identification Number (DIN): A registration number (drug identification number) that the Health Products and Food Branch of Health Canada assigns to each prescription and non-prescription drug product marketed under the Food and Drugs Regulations. A DIN uniquely identifies the following product characteristics: manufacturer; product name; active ingredient(s); strength(s) of active ingredient(s); pharmaceutical dosage form; route of administration.

Drug Product: A particular presentation of a medicine characterized by its pharmaceutical dosage form and the strength of the active ingredient(s) (see “medicine” below).

Failure to File: The complete or partial failure of a patentee to comply with regulatory filing requirements pursuant to the Patent Act and the Patented Medicines Regulations.

Failure to Report: The complete failure of a patentee to have reported a patented medicine being sold in accordance with regulatory filing requirements pursuant to the Patent Act and the Patented Medicines Regulations.

License, Voluntary: A contractual agreement between a patent holder and a licensee under which the licensee is entitled to enjoy the benefit of the patent or to exercise any rights in relation to the patent for some consideration (e.g., royalties in the form of a share of the licensee's sales).

Medicine: A medicinal ingredient and/or a substance or a mixture of substances manufactured, sold or represented for use in the diagnosis, treatment, mitigation or prevention of a disease, disorder or abnormal physical state, or its symptoms, in human beings or animals; or restoring, correcting or modifying organic functions in human beings or animals.

Notice of Compliance (NOC): Means a notice issued under section C.08.004 or C.08.004.01 of the Food and Drug Regulations. The issuance of an NOC indicates that a drug product meets the required Health Canada standards for use in humans or animals and that the product is approved for sale in Canada.

Patent: An instrument issued by the Commissioner of Patents in the form of letters patent for an invention.

Patented Medicine Price Index (PMPI): The PMPI was developed by the PMPRB as a measure of average year-over-year change in the transaction prices of patented medicines sold in Canada, based on the price and sales information reported by patentees.

Patentee: As defined by subsection 79(1) of the Patent Act, “the person for the time being entitled to the benefit of the patent for that invention and includes, where any other person is entitled to exercise any rights in relation to that patent other than under a license continued by subsection 11(1) of the Patent Act Amendment Act, 1992, that other person in respect of those rights;”

PMPRB7: France, Germany, Italy, Sweden, Switzerland, the United Kingdom and the United States.

Research and Development (R&D): Basic or applied research for the purpose of creating new, or improving existing, materials, devices, products or processes (e.g., manufacturing processes).

Research and Development—Basic Research: R&D directed toward a specific practical application, comprising research intended to improve manufacturing processes, pre-clinical trials and clinical trials.

Research and Development—Other Qualifying: Includes eligible research and development expenditures that cannot be classified into any of the preceding categories of “type of research and development”. It includes regulatory submissions, bioavailability studies and Phase IV clinical trials.

Research and Development Expenditures: For the purposes of the Patented Medicines Regulations, in particular Sections 5 and 6, research and development includes activities for which expenditures would have qualified for the investment tax credit for scientific research and experimental development under the Income Tax Act as it read on December 1, 1987.

Research and Development Expenditures–Current: Consist of the following non-capital expenses that are directly related to research work: (a) wages and salaries, (b) direct material, (c) contractors and subcontractors, (d) other direct costs such as factory overhead, (e) payments to designated institutions, (f) payments to granting councils, and (g) payments to other organizations. These elements are described in greater detail in the Patentees' Guide to Reporting—Form 3, available from the PMPRB Website under Regulatory Filings.

Special Access Programme (SAP): A program operated by Health Canada to give practitioners access to medicines that are not approved or otherwise available in Canada.

Voluntary Compliance Undertaking (VCU): A written undertaking by a patentee to adjust its price to conform to the Board's Guidelines. A VCU represents a compromise between the PMPRB and the patentee as a result of negotiations between the parties geared towards a satisfactory resolution of an investigation initiated by Board Staff as per the Guidelines. A VCU takes into account the specific facts and underlying context of a particular case. As such, VCUs are not intended to have precedential value.

Appendix 2: Patented Medicines First Reported to the PMPRB in 2017

Appendix 3: Pharmaceutical Trends - Sales

Appendix 4: Research and Development

Figure 36. Current R&D Expenditures ($millions) by Type of Research, 1988 to 2017

Figure description

This stacked bar graph depicts current R&D expenditures in millions of dollars by type of research from 1988 to 2017.

Year	Basic Research ($M)	Applied Research ($M)	Other qualifying research ($M)
1988	30.3	106.6	21.7
1989	53.5	143.1	31.8
1990	78.3	167.2	42.8
1991	94.2	203.5	57.6
1992	103.7	224.1	64.9
1993	120.7	290.9	68.8
1994	117.4	336.5	80.8
1995	132.0	369.3	96.5
1996	136.6	369.4	97.1
1997	140.4	421.3	117.5
1998	146.8	458.0	145.3
1999	155.9	535.2	154.7
2000	159.1	547.2	187.0
2001	163.1	604.8	242.6
2002	198.6	637.0	304.4
2003	180.3	631.5	332.6
2004	221.7	658.3	244.2
2005	215.1	737.5	230.1
2006	232.4	689.6	237.4
2007	259.0	688.2	326.8
2008	200.2	723.2	337.9
2009	237.1	685.3	296.8
2010	235.9	613.4	270.8
2011	164.9	525.1	265.2
2012	114.6	525.5	266.9
2013	67.6	492.2	215.0
2014	81.8	467.4	217.8
2015	102.2	456.2	231.7
2016	105.9	500.9	234.9
2017	109.0	501.9	222.2