Quarterly Financial Report for the quarter ended June 30, 2013

Management Statement for the Quarter Ended June 30, 2013

1. Introduction:

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

1.1 Authority, Mandate and Program Activities

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

The PMPRB has a dual role:

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

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

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

1.2 Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the PMPRB´s spending authorities granted by Parliament and those used by the organization, consistent with the Main Estimates and Supplementary Estimates for the 2013-14 fiscal year. This quarterly report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

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

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

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

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

2. Highlights of Fiscal Quarter and Fiscal Year to Date Results:

This quarterly financial report reflects the results of the current fiscal period in relation to the Main Estimates. The PMPRB´s spending for the first quarter of 2013-14 has decreased by $125 thousand (7.8%) over spending for the same quarter in 2012-13.

The money reported as non-respendable revenue does not represent revenues generated by the PMPRB. This money is a result of payments made by patentees to the Government of Canada through Voluntary Compliance Undertakings (VCUs) or Board Orders to offset excess revenues. The Minister may enter into agreements with any province respecting the distribution to that province of amounts received by the Receiver General, less any costs incurred in relation to the collection and distribution of those amounts.

The amount reported as non-respendable revenue is influenced by the number of VCUs submitted by patentees and accepted by the Chairperson and the number of Board Orders issued as a result of public hearings into the price of a patented medicine. In the first quarter of 2012-13, the Chairperson accepted 3VCUs which generated non-respendable revenue in the amount of $1.031 thousand. In the first quarter of 2013-14, the Chairperson accepted 4VCUs covering 5 medicines and a payment adjustment for a prior year VCU all of which generated $7.205 thousand in non-respendable revenue.

2.1 Significant Changes to Authority

As at June 30, 2013, total authorities available for the year have decreased by $888 thousand (7.5%) compared to the same quarter in the previous year, from $11,832 thousand to $10,944 thousand. This net decrease is a result of a decrease in Vote 40 - Operating expenditures due to implementation of the Deficit Reduction Action Plan.

2.2 Significant Changes to Budgetary Expenditures by Standard Object

The PMPRB´s first quarter spending is 7.8% lower than the first quarter spending in the previous year. Additionally, there have been significant changes in planned and actual spending by standard object.

Actual expenditures in Personnel for the quarter ended June 30, 2013 have decreased by $42 thousand (3.1%) from the same quarter of the previous year. This variance is largely a result of a decision to manage the risk of increasing salary costs by not staffing some positions as vacancies arise due to retirements and departures.

Actual expenditures in Information Services have increased $15 thousand from $7 thousand in the first quarter of 2012-13 to $22 thousand in the first quarter of 2013-14. The increase is the result of a coding change made necessary by the addition of new accounts to the Government of Canada´s Chart of Accounts.

Actual expenditures in Professional and special services have decreased by $55 thousand from $112 thousand in the first quarter of 2012-13 to $57 thousand for the same quarter of 2013-14. This decrease (49.1%) is largely a result of lower expenditures related to IT consultants due to the completion of the development and testing phase of the replacement of the mission-critical database containing drug pricing information. This project is now focused on documentation of the mission-critical database and development of in-house expertise.

Actual expenditures on Rentals have increased by $46.3 thousand in the first quarter of 2013-14. This increase is due to a change in the coding of software licences; in 2012-13 the licence renewals were coded to R&M, Utilities & Other Services.

In the first quarter of 2013-14 actual expenditures in R&M, Utilities & Other Services decreased by $73 thousand; a large portion of the decrease is due the coding change mentioned above and a significant decrease in the number of SAS software licences as a result of the replacement mission-critical database.

Actual expenditures in Utilities, Material and Supplies have increased by $16.8 thousand in the first quarter of 2013-14. This increase is due to the payment of a subscription that was paid in the second quarter of fiscal year 2012-13 and is now being paid in the first quarter of fiscal year 2013-14.

Finally, actual expenditures on the Acquisition of Machinery, Equipment and Tools of less than $10K decreased by $31.8 thousand in the first quarter of 2013-14. This decrease is due to a coding change in 2013-14 which resulted in server software being coded to rentals rather than Acquisition of Machinery, Equipment and Tools of less than $10K as was the case in fiscal year 2012-13.

3. Risks and Uncertainties:

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

The PMPRB´s funding includes a Special Purpose Allotment (SPA) to conduct Public Hearings, in Vote 40 (Program expenditures) of $2.5 million. The SPA can only be used to cover the costs of public hearings such as, external legal counsel, expert witnesses, etc. Any unspent amount is returned to the Consolidated Revenue Fund (CRF). The PMPRB´s expenditures are influenced by the number and complexity of investigations into the prices of patented medicines and the number of investigations that result in hearings. In recent years more Board proceedings seem to be resulting in judicial review applications before the Federal Court and the Federal Court of Appeal. As a result of the inherent complexity of the Board´s jurisdiction, it is expected that patentees will continue to make applications to the Federal Court and the Federal Court of Appeal in areas where the Board´s jurisdiction is not clearly defined in legislation and/or precedents.

The PMPRB´s most significant expenditure is Personnel representing 63% of its annual planned expenditures in fiscal year 2013-14 up 4% from the 59% of annual planned expenditures in fiscal year 2012-13.

In spite of a decrease of $42 thousand (3.1%) in Personnel expenditures in the first quarter of 2013-14 as compared to the same quarter last fiscal year, Personnel expenditures over total expenditures for the quarter rose by 4% from 84% in 2012-13 to 88% in 2013-14. This is because the PMPRB´s total expenditures for the first quarter of 2013-14 decreased from 1,607 in the first quarter of 2012-13 to $1,482 (8.1%) for the same quarter in 2013-14. The PMPRB, much like other small organizations, has difficulty attracting and retaining highly specialized subject-matter experts and engaging new staff in a timely manner. As a result, the PMPRB relies on maintaining its highly specialized workforce to continue to deliver its programs. Given the department´s small size, the departure or hiring of a handful of employees in one quarter can have a significant impact on the quarter´s expenditures.

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

Changes to Key Senior Personnel

In December 2012, a new Board Member was appointed.

In February 2013, a new Director, Corporate Services was hired and there was a transition period until the former Director retired in April 2013.

Changes to Programs

In June 2013, The PMPRB released its annual updated version of the Compendium of Policies, Guidelines and Procedures for 2013.

In June 2013, the Patented Medicine Prices Review Board issued a Notice and Comment on proposed changes to its (Consumer Price Index) CPI Adjustment Methodology and to the Patented Medicines Regulations. Feedback on the Notice and Comment was due by June 13, 2013.

5. Budget 2012 Implementation

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

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

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

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

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

• The elimination of $144 thousand in funding for the Non-Patented Prescription Drug Prices Initiative. There have been a number of changes in the Canadian environment surrounding non-patented (generic) drug prices since the 2005 Ministerial direction was received, as a result there would appear to be a less urgent need for the Board to continue directed work in this area leading to an efficiency gain. It is expected that sufficient capacity will still remain to conduct work regarding non-patented medicines on an as needed basis.

Expenditures in the first quarter of 2013-14 are 7.7% less than in the same period in the previous fiscal year.

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

Approval by Senior Officials
Approved by:

___________________
Mary Catherine Lindberg,
Chairperson

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Michelle Boudreau,
Chief Financial Officer

Ottawa, Canada
August 28, 2012

STATEMENT OF AUTHORITIES (unaudited)

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

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

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