Quarterly financial Report for the quarter ended September 2011

Management Statement for the Quarter Ending September 30, 2011

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.

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 2011-2012 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 section highlights the significant items that contributed to the net increases in resources available for the year and actual expenditures for the quarter ended September 30. The PMPRB's quarterly and year-to-date spending as at September 30, 2011 have increased from the previous year. Spending for the second quarter of 2011-2012 has increased by $310 thousand over spending for the same quarter in 2010-2011 and year-to-date spending as increased by $160 thousand from $4,166 in 2010-2011 to $4,326 thousand in 2011-2012.

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

The amount reported as non-respendable revenue is influenced by the number of VCUs submitted by patentees and approved by the Chairperson and the number of Board Orders issued as a result of public hearings into the price of a patented medicine. In the quarter ended September 30, 2011 the PMPRB received payment of 2 VCUs totalling $156.7 thousand repayment of excess revenues as compared to 3 VCUs and repayments of excess revenues totalling $2,572 thousand in the same quarter of 2010-2011. There were no payments related to Board Orders in the second quarter of either 2010-2011 or 2011-2012. In 2011-2012 year-to-date non-respendable revenue from VCUS and Board Orders totalled $311.7 thousand as compared to $12,464.1 thousand in 2010-2011.

2.1 Significant Changes to Authority

As at September 30, 2011, total authorities available for the year have decreased by $317 thousand (2.5%) compared to the same quarter of the prior year, from $12.575 million to $12.258 million. This net decrease is a result of a decrease in Vote 35 – Operating expenditures. The decrease in funding was mainly absorbed through lower annual planned spending in Transportation and communications, and Information.

2.2 Significant Changes to Budgetary Expenditures by Standard Object

The PMPRB's second quarter spending is higher than second quarter spending in the previous year. There have been significant changes in planned and actual spending by standard object.

Actual expenditures in Personnel for the quarter ended September 30, 2011 have increased by $339 thousand from the same quarter of the previous year. This variance is largely a result of the severance cash out paid to the Program and Administrative Services (PA) Bargaining Unit and interdepartmental settlements for seconded employees for the first quarter of 2011-2012 received and paid in the second quarter. In addition, expenditures in the second quarter of 2010-2011 were understated because interdepartmental settlements (ISs) for employees hired through secondments that were not received until the third quarter of that year.

Actual year-to-date expenditures in Information services, as at September 30, 2011 have decreased by $13 thousand from the $35 thousand used as at September 30, 2010 to $22 thousand. This decrease is a result of a change in the coding of the disbursements in legal contracts.

Actual year-to-date expenditures in Professional and special services, as at September 30, 2011 have decreased by $65 thousand from the $707 thousand used as at September 30, 2010 to the $642 thousand. This decrease is a result of a $26 thousand decrease in Legal fees and an $18 thousand decrease in Health Science Consultants as a result of fewer hearing related expenditures, and a decrease of $34 thousand in Human Resources services related to one-time costs incurred in the period ending September 30, 2010. These decreases were offset by an increase in expenditures related to Information Technology consultants due to the replacement of the mission-critical database containing drug pricing information.

As per the table of Departmental budgetary expenditures by Standard Object, planned expenditures for Repairs and maintenance have increased by 15% from $150 thousand as at the end of the second quarter of 2010-2011 to $172 thousand as at the same quarter of 2011-2012. This change is a result of increases in the purchase price of software licences and the purchase of new software.

As per the table of Departmental budgetary expenditures by Standard Object, there is a significant change in planned expenditures for Utilities, materials and supplies, $281 thousand, for the year ending March 31, 2012 as compared with planned expenditures of $166 thousand for prior fiscal year. This increase of 69% is a result of a change in the coding of electronic subscriptions.

Conversely, actual year to date expenditures for Utilities, materials and supplies, as at September 30, 2011 is down $32 thousand, from $120 thousand as at September 30, 2010 to $88 thousand as at September 30, 2011. The decrease in actual spending is a result of a coding error in the first quarter of 2010-2011 which overstated expenditures by $8 thousand and the cancellation of a number of subscriptions at the 2010-2011 year-end which resulted in savings in 2011-2012.

3. Risks and Uncertainties:

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

Budget 2010 announced that departments would not be funded for the 2010-11 to 2012-13 wage and salary increases resulting from collective agreements. As departments must pay the salary increases to employees, organizations are expected to find efficiencies within their operating vote to fund these increases. The PMPRB has estimated the impact of this government-wide initiative to be $177,937 in 2011-12. The PMPRB will accommodate this reduction in funding for 2011-12 by not staffing currently vacant positions without significantly impacting its operations. Management is reviewing various options to address the increasing reductions in funding for 2012-13.

The PMPRB's funding includes a Special Purpose Allotment (SPA) to conduct Public Hearings, in Vote 35 (Program expenditures) of $3.1 million. The SPA can only be used to cover the costs of public hearings such as, external legal counsel, expert witnesses, etc. Any unspent amount is returned to the Consolidated Revenue Fund (CRF). The PMPRB's expenditures are influenced by the number and complexity of investigations into the prices of patented medicines and the number of investigations that result in hearings. 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 60% of its planned expenditures. The PMPRB, much like other small organizations, has difficulty attracting and retaining highly specialized subject-matter experts and engaging new staff in a timely manner. As a result, the PMPRB relies on maintaining its highly specialized workforce to continue to deliver its programs. Given the department's small size, the departure or hiring of a handful of employees in one quarter can have a significant impact on the quarter's expenditures.

Significant changes in relation to operations, personnel and programs:

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

Approval by Senior Officials
Approved by:

_____________________ _____________________
Originally signed by Originally signed by
Mary Catherine Lindberg, Michelle Boudreau,
Chairperson Chief Financial Officer

Ottawa, Canada
November 24, 2011

STATEMENT OF AUTHORITIES (unaudited)

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

S) Statutory vote

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

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