Guidance document on changes to the Guidelines

Presentation to the Steering Committee - June 25, 2018

Outline

• Background on Guideline reform
• Objectives and guiding principles
• Outline of new Guidelines framework
• Technical Working Group and Next Steps

The Government of Canada is committed to making prescription drugs more affordable

Reform of federal drug price regime long overdue

• The PMPRB and its regulatory framework were designed at a time before the Internet or cell phones.
• Built to respond to changing intellectual property standards of the mid-1980s, price protection for patentees was seen as a good trade-off for attracting R&D.
• Price ceilings were based on pricing data that was public and compared against the highest R&D jurisdictions in the hopes of emulating them.
• In the 30 years since, the anticipated benefits haven’t materialized and the regulatory pricing model is broken.

We've been consulting since June 2016

• PMPRB Discussion paper on Guideline reform
• Health Canada pre-consultation on regulatory amendments
• Health Canada Gazette I
• PMPRB Guidelines scoping paper

PMPRB discussion paper on Guideline reform

June 2016 discussion paper identified aspects of the Guidelines that are thought to be out of step with recent developments in the PMPRB’s operating environment.

Stakeholder views sought on changes which would:

• Prioritize drugs at higher risk of monopoly pricing;
• Reduce regulatory burden on patentees;
• Revisit introductory price ceilings as market conditions change;

Health Canada proposed regulatory amendments

June 2016 discussion paper identified aspects of the Guidelines that are thought to be out of step with recent developments in the PMPRB’s operating environment.

• Enable the PMPRB to consider cost effectiveness and budget impact in setting ceiling prices;
• Change the list of comparator countries;
• Require patentees to disclose confidential rebates to third parties.

Latest step: Steering Committee

The Steering Committee is being asked to provide targeted stakeholder feedback on key features of a new Guidelines framework which will serve the following dual objectives:

1. Operationalize amendments to the Patented Medicines Regulations designed to lower patented drug prices; and,
2. Support a risk-based approach to regulating drug prices that simplifies and streamlines compliance for patentees.

In deliberating on the above, the Steering Committee should seek to strike a balance between the following guiding principles:

• Sustainability
• Predictability
• Consistency
• Functionality
• Fairness

The Steering Committee will be assisted by a technical Working Group (the “Working Group”) with expertise in health technology assessment and other economic and scientific matters.

Suggested questions for Steering Committee

• Is the proposed division and treatment of Category 1 and Category 2 drugs a reasonable risk-based regulatory approach?
• Is an MLP based on the median of the PMPRB12 (MIPC) for all drugs reasonable?
• Should exceptions be made to the MLP-MIPC test and, if so, when and why?
• Should there be a price floor for Category 2 drugs based on LIPC?
• Should further drug categories exist with different treatment modalities from those proposed?
• Should more or less criteria be considered in screening a drug as higher risk and, where should the line be drawn with respect to the criteria?
• Should the pharmacoeconomic, market size and GDP factors apply both as screens and thresholds?
• Should Category 2 drugs be scrutinized more or less than proposed?
• Should the cost effectiveness threshold for Category 1 drugs vary?
• Should a Category 1 drug ever have more than one MRP?
• Are there economic considerations that would support a higher MRP for some Category 1 drugs than would result from the proposed application of the new factors?
• How often and in what circumstances should a drug be rebenched?
• Should confidential third party pricing information only be used for compliance purposes?
• Is there a better way to deal with existing drugs under the new framework?
• Are there opportunities to further reduce regulatory burden while respecting the dual objectives?

Overview of new Guidelines framework

• A risk-based approach to price regulation that considers value and affordability, in addition to list prices in other like-minded countries.
• Basic structure can be broken down into 5 parts:
  • Part I: ‘Maximum List Price’ (MLP) for all new drugs at introduction based on median of PMPRB12 (MIPC)
  • Part II: Screening of drugs into high priority (Category 1) or low priority (Category 2)
  • Part III: ‘Maximum Rebated Price’ (MRP) for Category 1 drugs based on new pharmacoeconomic, market size and GDP factors
  • Part IV: Lower of MIPC and average of Therapeutic Class (ATCC) for Category 2 drugs
  • Part V: Re-benching
• The MLP will be a transparent ceiling based on public list prices but the MRP, which applies to Category 1 drugs only, will be confidential.
• To comply with the MRP, patentees of Category 1 drugs will be required to submit information on undisclosed rebates to third parties.

Proposed PRICE Review Schematic

Figure description

Slide 11 is a work-flow diagram of how the proposed PRICE review process will function.

The first step in the process is the receipt of a Patentee submission for a new patented drug which is represented the box in the center of the diagram.

From there, a Maximum List Price (MLP) is established. This is done through an external price review based on the PMPRB12 countries, as proposed in the amendments to the Regulations. The MLP is established as the median of an international price comparison (MIPC) of the countries in the PMPRB12. This is represented in the box below the receipt of the Patentee submission.

In next step in the process, represented by the box below, a Preliminary Clinical and Market Assessment is conducted. Based on the results of this assessment the drug is categorised as one of two categories:

• A Category 1 drug, the attributes of which are included in the box to the left, indicated by an arrow pointing to the box.
• A Category 2 drug, all other drugs that do not have a Category 1 classification. This is represented by the box to the right.

Starting from the top left, Category 1 drugs are those that are either:

• First in class or offer a substantial improvement over existing drugs for clinically significant indication(s)
• Have a Market Size greater than $20M
• Expected to diminish population health ($/QALY>$30K)

Once a drug is classified as a Category 1 drug, it moves down to the box that represents an Economic Value test. To pass this test, the drug’s cost effectiveness value must be below a certain $/QALY threshold.

If the drug passes the economic value test, it moves to the box below which represents an affordability test, based on a market size adjustment. If the drug fails either the economic value test or affordability test it moves to a central box. The central box represents the PMPRB Staff Recommendation stage.

If the a drug passes both the economic value test and affordability test, it then moves down to the last box on the left and the Investigation is closed.

At the top right is the starting box for Category 2 drugs. For this category the Median International Price is compared to the Average of the Therapeutic Class Comparison. The MLP becomes the lower of the two tests as indicated in the second box on the right. From here, the drug moves to the centre box, PMPRB Staff Recommendation stage.

At the PMPRB Staff Recommendation stage, staff review the merits of each drug on a case-by-case basis and make a recommendation to the Board.

At this stage, PMPRB Staff make one of the following recommendations: Close Investigation as indicated in the box at the bottom left; proceed to a Hearing as indicated by the box at the bottom right; or agree to a Voluntary Compliance Undertaking as indicated in the bottom center box.

From the Voluntary Compliance Undertaking box, the drug moves to the Investigation Closed stage on the bottom left once the VCU has been signed.

*Each year, the amount of money available to be spent on new drugs depends on total spending on drugs the year before and how much the economy is growing. For example, if Canada spent $1000 on drugs in 2018 and its economy grew by 2%, it would have $20 more to spend on the new drugs that come to market in 2019 (for a total of $1020)

Part 1: Median international price test (MIPC)

• All new drugs are assigned a Maximum List Price (MLP) based on the median of the PMPRB 12 (MIPC).
• IMS will be used to verify international list prices.
• Category 1 drugs will be given both an MLP based on the MIPC and a Maximum Rebated Price (MRP)
• All other drugs will be deemed Category 2 and have an MLP based on the lower of the MIPC and the average of the domestic therapeutic class (ATCC).
• No Category 2 drug will be given an MLP that is lower than the lowest price country in the PMPRB12 (LIPC floor).

Part II: Screening

Drugs will be screened into Category 1 if they are:

1. First in class or substantial improvement over existing therapy
2. Expected to have sales in excess of a $20 million/year market size threshold
3. Above a $30K/QALY threshold for clinically significant indications
4. Have an average annual treatment cost above per capita GDP.

Part III: MRP for Category 1 drugs

Step 1: application of pharmacoeconomic factor

• Empirical work undertaken by Karl Claxton at the University of York suggests a $30K/QALY opportunity cost threshold for Canada.
• PMPRB will use this estimate at the screening phase to determine whether a drug should go in Category 1 or Category 2.
• Category 1 drugs will then be subject to a baseline maximum value-based price ceiling of $60K/QALY, for reasons of practicality and efficiency.
• Drugs that meet certain clinical characteristics (e.g., high burden of disease or significant absolute gain in QALY) may be subject to a higher $/QALY ceiling.

Step 2: application of market size and GDP factors

• A Category 1 drug that meets the applicable $/QALY ceiling may still face an adjustment in price if the application of the market size and GDP factors raise affordability concerns.
• Using new drug contribution to GDP and GDP growth over the last five years, the PMPRB is estimating a threshold of $20M per new drug.
• New Category 1 drugs with an estimated market size that exceeds this threshold within any of its first five years of sale will require further price adjustments.
• The adjustment would see the MRP reduced by a certain percentage discount which would increase as the expected market size increases.
• The $20M threshold would also increase annually based on GDP growth and/or CPI.

Part IV: MLP for Category 2 drugs

• As mentioned, Category 2 and have an MLP based on the lower of the MIPC and the average of the domestic therapeutic class (ATCC).
• However, no Category 2 drug will be given an MLP that is lower than the lowest price country in the PMPRB12 (LIPC floor).

Part V: Re-benching

• All new drugs will be given an interim MLP of 3 years or until the drug is sold in 7 countries, whichever comes first.
• MLP is then frozen, as is MRP, unless re-benching is triggered by one of the following criteria:
  • Approval of a new indication
  • Sales in excess of expected market size
  • New evidence on cost-effectiveness (e.g. CADTH therapeutic class review or lifting of HC conditions on NOC)
  • Significant changes in international prices (eg. MIPC ‹ MIPC at intro by more than 25%)
• Patentees may apply for a re-benching with evidence of increased cost-effectiveness, smaller market, or a significant increase in CPI

How compliance with new price ceilings will be assessed

• Price reviews will be conducted for the following customer classes:
  • National Retail – list price assessed against MLP
  • National Private Payer – average transaction price (ATP) assessed against MRP
  • Provincial Public Payer – ATP assessed against MRP in each market
• ATPs are calculated net of all discounts to determine compliance with confidential MRP.
• Category 2 drugs will be assessed against MLP.

How pricing complaints will be managed

Complaints received by the PMPRB will trigger an investigation, during which the PMPRB will assess whether:

1. a drug is in compliance with the Guidelines; and
2. whether circumstances in the market have changed to warrant a rebenching/reclassification.

Application of new Guidelines to existing drugs

• Existing drugs will be given an interim price ceiling based on the MIPC of the PMPRB12.
• An existing drug will only be classified as Category 1 if it fails a $100K/QALY screen for any indication.
• Existing drugs that are screened into Category 1 will be prioritized for re-benching.
• Category 2 drugs will be re-benched later unless a complaint is received.
• All drugs within a therapeutic class will be assessed at the same time for the purposes of the ATCC test.
• Patentees will be advised in advance of re-benching and given two reporting periods to come into compliance.

Reminder: suggested questions for Steering Committee

• Is the proposed division and treatment of Category 1 and Category 2 drugs a reasonable risk-based regulatory approach?
• Is an MLP based on the median of the PMPRB12 (MIPC) for all drugs reasonable?
• Should exceptions be made to the MLP-MIPC test and, if so, when and why?
• Should there be a price floor for Category 2 drugs based on LIPC?
• Should further drug categories exist with different treatment modalities from those proposed?
• Should more or less criteria be considered in screening a drug as higher risk and, where should the line be drawn with respect to the criteria?
• Should the pharmacoeconomic, market size and GDP factors apply both as screens and thresholds?
• Should Category 2 drugs be scrutinized more or less than proposed?
• Should the cost effectiveness threshold for Category 1 drugs vary?
• Should a Category 1 drug ever have more than one MRP?
• Are there economic considerations that would support a higher MRP for some Category 1 drugs than would result from the proposed application of the new factors?
• How often and in what circumstances should a drug be rebenched?
• Should confidential third party pricing information only be used for compliance purposes?
• Is there a better way to deal with existing drugs under the new framework?
• Are there opportunities to further reduce regulatory burden while respecting the dual objectives?

Technical questions for analysis and recommendation by the Working Group

• The draft Terms of Reference for the Working Group identify the following issues:
  • The economic and scientific rationale for selecting specific criteria for screening drugs as high priority and associated metrics
  • How opportunity cost and willingness to pay should factor into the application of cost effectiveness thresholds
  • How to address drugs with multiple indications
  • How to make optimal use of CADTH and INESSS analyses and how to account for uncertainty in doing so
  • How to assess affordability by applying market size and GDP factors
• The Steering Committee has until July 13 to identify further issues it believes would benefit from expert review and analysis.

Annex: ICER calculations for Canada based on Patented drugs sales