October 2005, volume 9, issue no. 4

Of particular interest to patentees

Actual vs. Forecast Consumer Price Index (CPI)

The April 2003 issue of the NEWSletter reported on the CPI-Adjustment Factors for 2004. The forecast CPI for 2004 was 124.57. This was based on the actual CPI figure for 2002 and the latest available inflation projections of 2.4% for 2003 and 2.2% for 2004. Based on a 2004 forecast inflation of 2.2%, a one-year price increase in 2004 could not result in a price being more than 3.3% over the price in 2003 (1.5 times forecast inflation). The information in the table below was also reported in the April 2003 NEWSletter.

The Base CPI for 2003 was not known when the CPI-Adjustment Factors for 2004 were published in April 2003. The Base CPI (or actual CPI) was subsequently determined to be 122.32 for 2003 and 124.56 for 2004. The 2004 Adjustment Factor for 2003 based on the actual 2003 and 2004 CPI rather than forecast CPI is 1.018, or 124.56 divided by 122.32. The result is that the actual maximum allowable one-year price increase was 2.7% of the price in 2003 (i.e. 1.8 x 1.5).

The PMPRB´s Excessive Price Guidelines contain a provision that recognizes that, in circumstances where a patentee bases a price increase solely on forecasted inflation, rather than on actual CPI, the use of such methodology will not automatically give rise to a price review (Excessive Price Guidelines, Paragraph 9.3). In the absence of any other evidence that might give rise to further review of the price of a particular patented medicine, the price will be considered to be within the Guidelines.

Although the Guidelines contain provision for this approach when the forecasted CPI exceeds the actual CPI, a patentee is expected to comply with the actual CPI in all subsequent reporting periods. As a result, the retroactive maximum non-excessive (MNE) price for 2004 for purposes of applying the CPI-adjustment methodology will be based on actual CPI for 2004. The result for patentees that took price increases based on the forecast inflation will be that this MNE (and not the average transaction price (ATP) considered to be within the Guidelines) for 2004 will be used to calculate the 2005 MNE.

The following example is an illustration of the above.

Medicine X:

• The manufacturer´s price for medicine X in 2003 is $10.00 and it is within the PMPRB's Guidelines.
• The manufacturer increases the price for medicine X in 2004 to $10.33 (based on a forecast rate of inflation of 2.2% and allowing for a price increase of 1.5 times this rate). The price is considered within the Guidelines as the increase does not exceed the 2004 adjustment factor based on forecast inflation.
• The actual CPI results in a 2003 adjustment factor of 1.018.
• The 2004 MNE price is therefore $10.27.
• The 2005 MNE price will be calculated using the 2004 MNE price of $10.27 and not the manufacturer´s price of $10.33 as it exceeds the 2004 MNE price.

Prices used for comparator drug products in conducting a therapeutic class comparison

The therapeutic class comparison (TCC) compares the price of the drug product under review with the price of drug products that are clinically equivalent and sold in Canada at prices that the PMPRB considers not to be excessive. Comparable drug products are first selected, a comparable dosage regimen is then established, and their prices are compared against the drug product under review.

The Guidelines provide that ordinarily, the introductory price of the new drug product and the Ontario Drug Benefit (ODB) Formulary price of the comparable drug products, if available, will be used for the comparison. If the ODB Formulary price is not available, or the PMPRB considers it inappropriate, other prices may be used for the comparison.

Other prices used by Board Staff for the comparison may include prices from other public drug plan formularies, prices calculated using IMS data, the price published in PPS and possibly other sources.

However, given the Board´s direction through its Guidelines to initially consider the ODB price, should there be no ODB price, or should it be considered inappropriate, Board Staff may give preference to other public drug plan formulary prices in determining an appropriate price for other products in the TCC test. The appropriateness of prices used in the TCC test will be determined on a case-by-case basis. Board Staff reserves the right to exclude a particular public price if it has reason to believe that it is an excessive price.

Filing requirements — Impact of Refunds on Average Transaction Price

The Patented Medicines Regulations (Regulations) provide for the reporting of the average price per package or the net revenue from each package size of a DIN. Pursuant to the Regulations, the reported average price or the net revenue takes into account reductions given in the form of rebates, discounts, refunds, free goods, free services, gifts, and any other benefits of a like nature. The average transaction price is calculated by adding all the net revenue and dividing it by the total number of units sold.

A patentee must certify that the information filed is accurate; Board Staff is not authorizedto make any modifications to the data that are filed. It is the data as filed by a patentee which are reviewed to determine the average transaction price and whether that price is within the Guidelines. Refunds are reported as negative amounts in terms of quantity sold (units sold) and net revenue. It appears that some patentees may not be taking care to ensure the accuracy of the units returned and net revenue. This can have the impact of creating what appears to be an artificially high average transaction price and may trigger the criteria for commencing an investigation.

If, based on the data filed by a patentee, the criteria for commencing an investigation have been triggered, an investigation shall be commenced, even in cases where there may appear to be some error regarding the data that are reported.

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