Quarterly financial Report for the quarter ended June 2011

Management Statement for the Quarter Ending June 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 June 30. The PMPRB´s quarterly and year-to-date spending are in line with that of the previous year.

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 first quarter of 2010-2011 the Chairperson approved 6 VCUs which resulted in repayments totalling $6.834 thousand and the Board issued 2 Board Orders totalling $3.058 thousand. In the first quarter of 2011-2012, the Chairperson approved 3VCUs which generated non-respendable revenue in the amount of $0.155 thousand.

2.1 Significant Changes to Authority

As at June 30, 2012, total authorities available for the year have decreased by $327 thousand (3%) compared to the same quarter of the prior year, from $12.181 million to $11.854 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 first quarter spending is in line with the first quarter spending in the previous year. However, there have been significant changes in planned and actual spending by standard object.

Actual expenditures in Professional and special services have decreased $51 thousand from $234 thousand in the first quarter of 2010-2011 to $183 thousand for the same quarter of 2011-2012. This decrease is a result of a $10 thousand decrease in Legal fees and a $40 thousand decrease in Health Science Consultants as a result of fewer hearing related expenditures and a decrease of $29 thousand in HR services which was the result of a one-time cost incurred in the first quarter of 2010-2011. These decreases were offset by an increase in expenditures related to IT 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 in the first quarter of 2010-2011 to $172 thousand for the same quarter of 2011-2012. Actual spending for this expenditure in the first quarter of 2011-2012 has also increased by 15% over the same quarter of the previous year. 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, $269 thousand, for the year ending March 31, 2012 as compared with planned expenditures of $166 thousand for prior fiscal year. This increase of 62% is a result of change in the coding of electronic subscriptions.

Conversely, actual spending in the first quarter of 2011-2012 is down, $42 thousand, from spending in the same quarter of the previous year, $70 thousand. The decrease in actual spending is a result of a coding error in the first quarter of 2010-2011 which resulted in overstating expenditures for this quarter by $8 thousand and the cancellation of a number of subscriptions at year-end which resulted in savings in the first quarter of 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.

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

Changes to Key Senior Personnel
There have been a number of changes to senior level personnel, namely the appointment of a new Chairperson and Vice-Chairperson in March 2011, and the appointment of a new Executive Director in September 2010.

Changes to Programs
The new PMPRB Guidelines on Excessive Prices (Guidelines) came into effect on January 1, 2010. The Guidelines represent direction from the Board, to patentees and Board Staff, on how to comply with the Patent Act and the Patented Medicines Regulations. The price reviews for all new patented drug products sold on or after January 1, 2010, and where appropriate, new drug products sold prior to that date for which the price was still under review at January 1, 2010, and the patentee filings for the reporting period from January 1st to June 30th, 2010 were conducted using the revised Guidelines.

Approval by Senior Officials
Approved by:

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

Ottawa, Canada
August 17, 2011

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