Annual Report 2020

Statistical Highlights 2020

Regulatory Mandate

• 1,289 patented medicines for human use were reported to the PMPRB, including 79 new medicines.
• 4 Voluntary Compliance Undertakings were accepted as of December 31, 2020.
• $304 thousand in excess revenues were offset by way of payments to the Government of Canada, in addition to price reductions.

Reporting Mandate

Sales Trends:

• Sales of patented medicines in Canada reached $17.5 billion in 2020, a modest increase of 1.6% from the previous year.
• Patented medicines accounted for approximately 54.7% of the sales of all medicines in Canada in 2020.

Price Trends:

• The Consumer Price Index rose by 0.7%, while the national average transaction price for patented medicines increased by 1.6%.
• Canadian list prices were fourth highest among the 31 Organisation for Economic Co-operation and Development (OECD) countries, lower than prices in Germany, Switzerland, and the US.

Research and Development

R&D-to-Sales Ratios Decreased in 2020:

• 3.4% for all patentees, a slight decrease from 3.9% in 2019.
• 3.5% for Innovative Medicines Canada members, a decrease from 3.9% in 2019.

R&D Expenditures:

• $822.9 million in total R&D expenditures were reported by patentees, a decrease of 7.9% over 2019.
• $662.8 million in R&D expenditures were reported by Innovative Medicines Canada members, an increase of 1.6% over 2019.

Letter to the Minister

November 5, 2021

The Honourable Jean-Yves Duclos
Minister of Health
House of Commons
Ottawa, Ontario
K1A 0A6

Dear Minister:

I have the pleasure to present to you, in accordance with sections 89 and 100 of the Patent Act, the Annual Report of the Patented Medicine Prices Review Board for the year ended December 31, 2020.

Yours very truly,

Dr. Mitchell Levine
Chairperson

Chairperson’s Message

The Patented Medicine Prices Review Board (PMPRB) is an independent quasi-judicial body established by Parliament in 1987 under the Patent Act (the Act). The PMPRB’s mandate is to protect and inform Canadians by ensuring that the prices of patented medicines sold in Canada are not excessive and by reporting on pharmaceutical trends.

For more than a year now, Canadians have had virtually every aspect of their daily lives disrupted by the ongoing COVID-19 pandemic. As the federal government mobilizes personnel and resources to mitigate the economic and social impact of the pandemic on Canadians, many pre-existing policy priorities have taken a backseat to this all consuming effort. While the PMPRB is eager to turn the page on the multiyear effort to modernize its regulatory framework, we recognize the legitimate desire of our stakeholders to minimize further disruption in the regulatory environment for pharmaceuticals in Canada at this tenous time. As we await the ultimate fate of the Health Canada's amendments to the Patented Medicines Regulations, the PMPRB continues to make the utmost of its existing regulatory tools to protect Canadians from excessively priced patented medicines in an era increasingly marked by extremely high cost drugs. In the eventuality that the regulatory amendments do come into force, the PMPRB is also developing a comprehensive Guideline Monitoring and Evaluation Plan (GMEP) to assess any changes in relevant trends following implementation of the reforms. In the coming year, we will continue to consult with stakeholders as we work to perfect the GMEP.

Further to our reporting mandate and under the broad umbrella of the National Prescription Drug Utilization Information System (NPDUIS) initiative, the PMPRB continues to provide analytical support and expertise to our health partners. Since the release of last year's Annual Report, the PMPRB has published 7 analytical reports, 3 chartbooks, and 2 presentation posters under the NPDUIS banner. These studies continue to highlight the pressures stemming from the increased use of higher-cost medicines in Canada. Over the last five years, sales of patented medicines have grown by an average of 3.0% per year to reach $17.5 billion in 2020. High-cost medicines now account for more than half of these sales. As noted in this year's Annual Report, in 2020, the 20 top selling patented medicines in Canada, which accounted for 36.5% of total patented medicine sales, had a weighted average annual treatment cost of $25,391. These trends lend further credence to longstanding concerns over the sustainability of Canada's pharmaceutical system.

In 2020, Canadian list prices of patented medicines were the fourth highest in the Organisation for Economic Co-operation and Development (OECD), still well behind the US but just marginally lower than Switzerland and Germany. Conversely, the R&D – sales ratio of pharmaceutical patentees in Canada continues its decades-long decline and now stands at 3.4%, its lowest level since the PMPRB first began reporting on pharmaceutical trends in the 1980s.

November 2021 marks the end of my second and final term as a PMPRB Board member, and my tenure as its Chairperson. It has been an honour and a privilege to serve as a Board member and to lead the PMPRB through an important chapter in its more than three decade long history. I would like to thank the Minister for having afforded me this opportunity and to convey my respect and deep appreciation to my fellow Board members who accompanied me on this journey. I would also like to extend my thanks and admiration to the public servants at the PMPRB who I’ve had the pleasure of working alongside during my two terms on the Board. People may come and go but the commitment of staff at the PMPRB to the very highest ideals of public service is unwavering and I am confident it will endure long after my term as Chairperson comes to an end.

Dr. Mitchell Levine
Chairperson

About the Patented Medicine Prices Review Board: Acting in the Interest of Canadians

The Patented Medicine Prices Review Board (PMPRB) is an independent, quasi-judicial body established by Parliament in 1987 under the Patent Act (Act).

The PMPRB is a quasi-judicial administrative agency with a dual regulatory and reporting mandate. Through its regulatory mandate, it ensures that the prices of patented medicines sold in Canada are not excessive. The PMPRB also reports on trends in pharmaceutical sales and pricing for all medicines and on research and development (R&D) spending by patentees. In addition, at the request of the Minister of Health, pursuant to section 90 of the Act, the PMPRB conducts critical analyses of price, utilization, and cost trends for patented and non-patented prescription medicines under the National Drug Utilization Information System (NPDUIS) initiative. Its reporting mandate provides pharmaceutical payers and policy makers with information to make rational, evidence-based reimbursement and pricing decisions.

The PMPRB is part of the Health Portfolio, which includes Health Canada, the Public Health Agency of Canada, the Canadian Institutes of Health Research and the Canadian Food Inspection Agency. The Health Portfolio supports the Minister of Health in maintaining and improving the health of Canadians.

Our Mission

The PMPRB is a respected public agency that makes a unique and valued contribution to sustainable spending on pharmaceuticals in Canada by:

• Providing stakeholders with price, cost, and utilization information to help them make timely and knowledgeable pricing, purchasing, and reimbursement decisions; and
• Acting as an effective check on the prices of patented medicines through the responsible and efficient use of its consumer protection powers.

Although part of the Health Portfolio, because of its quasi-judicial responsibilities, the PMPRB carries out its mandate at arm’s length from the Minister of Health, who is responsible for the sections of the Act pertaining to the PMPRB. The PMPRB also operates independently of other healthcare-related bodies, such as:

• Health Canada, which approves medicines for marketing in Canada based on their safety, efficacy, and quality;
• federal, provincial and territorial (F/P/T) public drug plans, working collectively as the pCPA, which approve the listing of medicines on their respective formularies for reimbursement purposes; and
• the Common Drug Review and pan-Canadian Oncology Drug Review, administered by the CADTH, which recommend which new medicines should qualify for reimbursement by the pCPA.

The PMPRB is composed of public servants (Staff) who are responsible for carrying out the organization’s day-to-day work, and Board Members, Governor-in-Council appointees who serve as hearing panel members in the event of a dispute between Staff and a patentee over the price of a patented medicine.

Jurisdiction

Regulatory

The PMPRB regulates the maximum ceiling price at which patentees (companies) may sell their products to wholesalers, hospitals, pharmacies and other large distributors. This price is sometimes also known as the “factory gate” (ex-factory) price. The PMPRB does not regulate the prices of non-patented medicines.

The PMPRB’s jurisdiction is not limited to medicines for which the patent is for the active ingredient or for the specific formulation(s) or uses the patentee sells the medicine for in Canada. Rather, its jurisdiction also covers medicines for which a patent “pertains”, including patents for manufacturing processes, delivery systems or dosage forms, indications/use, and any formulations.

Our Vision:

A sustainable pharmaceutical system where payers have the information they need to make smart reimbursement choices and Canadians can afford the patented medicines they need to live healthy and productive lives.

The Act requires patentees (which include any parties who benefit from patents regardless of whether they are owners or licensees under those patents and regardless of whether they operate in the “brand” or “generic” sector of the market) to inform the PMPRB of their intention to sell a new patented medicine. Upon the sale of a new patented medicine, patentees are required to file price and sales information at introduction and, thereafter, until all patents pertaining have expired. Patentees are not required to obtain approval of the price to be able to market their medicines. However, the Act requires the PMPRB to ensure that the prices of patented medicines sold in Canada are not excessive.

Staff review the prices that patentees charge for each individual strength and form of a patented medicine. If the price of a patented medicine appears to be potentially excessive, the patentee may volunteer to lower its price and/or refund its potential excess revenues through a Voluntary Compliance Undertaking (VCU). If this fails, the Chairperson may consider whether a hearing on the matter is in the public interest. At the hearing, a panel composed of Board members acts as a neutral arbiter between Staff and the patentee. If a Hearing Panel concludes, after hearing all of the evidence in light of the factors set out in section 85 of the Act, that the price of a patented medicine is/was excessive in any market, it can order the price be reduced to a non-excessive level. It can also order a patentee to make a monetary payment to the Government of Canada to offset the excess revenues earned and, in cases where the panel determines there has been a policy of excessive pricing, it can double the amount of the monetary payment.

Reporting

As required by the Act, the PMPRB reports annually to Parliament through the Minister of Health on its price review activities, the prices of patented medicines and price trends of all prescription medicines, and on the R&D expenditures reported by pharmaceutical patentees.

In addition, as a result of an agreement by the F/P/T Ministers of Health in 2001, and at the request of the Minister of Health, pursuant to section 90 of the Act, the PMPRB conducts critical analyses of price, utilization, and cost trends for patented and non-patented prescription medicines under the National Prescription Drug Utilization Information System (NPDUIS). The PMPRB publishes the results of NPDUIS analyses in the form of reports, posters, presentations, briefs, and chartbooks. This program provides F/P/T governments and other interested stakeholders with a centralized, objective, and credible source of information on pharmaceutical trends.

Among other initiatives under its reporting mandate, the PMPRB also hosts various forums, such as webinars, research forums, and information sessions, with academics and policy experts to discuss and disseminate research on emerging areas for study on pharmaceutical trends in Canada and internationally.

1,289 Patented medicines were reported to the PMPRB in 2020.

Communications and Outreach

The PMPRB takes a proactive and plain-language approach to its external communication activities. This includes targeted social media campaigns and more conventional (e.g., email and telephone) engagement with domestic, international, and specialized news media. The PMPRB is actively pursuing additional opportunities to leverage new and emerging media to communicate with its stakeholders and the Canadian public.

The PMPRB recognizes the importance of openness and transparency as we continue to work on modernizing the way we carry out our mandate. We communicate regularly, through various channels, about our progress, including projected timelines, and key milestones. Engagement with stakeholders will remain a central part of our multi-faceted communications approach. Reporting on our progress helps ensure we remain focused on delivering results.

Governance

The Board consists of not more than five members who serve on a part-time basis. Board members, including a Chairperson and a Vice-Chairperson, are appointed by the Governor-in-Council. The Chairperson, designated under the Act as the Chief Executive Officer of the PMPRB, has the authority and responsibility to supervise and direct its work. By law, the Vice-Chairperson exercises all the powers and functions of the Chairperson when the Chairperson is absent or incapacitated, or when the office of the Chairperson is vacant.

The members of the Board, including the Chairperson, are collectively responsible for implementing the applicable provisions of the Act. Together, they establish the guidelines, rules, by-laws, and other policies of the PMPRB provided for by the Act (section 96) and consult, as necessary, with stakeholders including provincial and territorial Ministers of Health, representatives of consumer groups, the pharmaceutical industry, and others.

Members of the Board

Chairperson

Mitchell Levine,
BSc, MSc, MD, FRCPC, FISPE, FACP

Dr. Mitchell Levine was appointed Chairperson of the Board on February 13, 2018. He has served as a Member and Vice-Chairperson of the Board since 2011.

Dr. Levine is a professor at McMaster University in Hamilton in the Department of Health Research Methods, Evidence and Impact and in the Department of Medicine, Division of Clinical Pharmacology & Toxicology. He is also an Assistant Dean in the Faculty of Health Sciences and a faculty member of the Centre for Health Economics and Policy Analysis at McMaster.

Dr. Levine received his medical degree from the University of Calgary, which was followed by postgraduate training in Internal Medicine (FRCPC) and in Clinical Pharmacology at the University of Toronto. He received an MSc degree in Clinical Epidemiology from McMaster University.

Dr. Levine is a consultant physician in the fields of internal medicine and clinical pharmacology in Hamilton. On an ad hoc basis, he acts as a clinical pharmacology consultant to the Ontario Ministry of Health and Ministry of Long-Term Care. Prior to his appointment to the Board, Dr. Levine was a member of the PMPRB’s Human Drug Advisory Panel.

This is Dr. Levine’s second term as a Board member. His term ends November 2021.

Vice-Chairperson

Mélanie Bourassa Forcier
LLB., LL.L, MSc, LL.M., DCL

Mélanie Bourassa Forcier was appointed Vice-Chairperson of the Board on June 19, 2019.

Professor Bourassa Forcier is a lawyer and a Full Professor in the Faculty of Law at the Université de Sherbrooke. She directs the Law and Health Policy, and Law and Life Sciences programs. She has expertise in Health governance and Ethics in Health Policy, Intellectual Property, Regulation of Digital Technologies, Technology Transfers and in Pharmaceutical Law and Policies. Over the years she has particularly concentrated her research on policies promoting the development, integration and access to innovation in the health care sector.

Professor Bourassa Forcier has published numerous books and articles on the subject of pharmaceutical regulation and health law. She holds a Ph.D. in Pharmaceutical Patent Law from McGill University, an MSc in International Health Policy from the London School of Economics and Political Science (concentration in Health Economics), a LL.M. in Law and Biotechnologies from the University of Montreal and an LL.L. from the University of Ottawa (summa cum laude).

Members

Carolyn Kobernick,
B.C.L., LL.B.

Carolyn Kobernick was appointed Member of the Board on June 13, 2014.

Ms. Kobernick is a lawyer and former public servant. Prior to her retirement in 2013, Ms. Kobernick had been Assistant Deputy Minister of Public Law for the Department of Justice since 2006. As principal counsel to the Minister of Justice and Attorney General of Canada, Ms. Kobernick was instrumental in the development and delivery of policy for the Department of Justice. In addition to identifying key strategic, legal, and operational matters, she tackled cross-cutting national issues as the liaison between the Department of Justice and other government organizations.

Ms. Kobernick holds a B.C.L. and LL.B. from McGill University and is a member of the bar of Ontario. In 2012 she obtained a Certificate in Adjudication for Administrative Agencies, Boards and Tribunals from the Osgoode Hall Law School and the Society of Ontario Adjudicators and Regulators.

Dr. Ingrid Sketris,
BSc (Pharm), PharmD, MPA(HSA), Clinical Toxicology Residency

Dr. Ingrid Sketris was appointed Member of the Board on June 29, 2018.

Dr. Sketris is a licensed pharmacist and a professor at the College of Pharmacy, Dalhousie University, with cross appointments to Medicine and Health Administration.

Dr. Sketris received her Doctor of Pharmacy in 1979 from the University of Minnesota, followed by her residency in Clinical Toxicology at the University of Tennessee Centre for the Health Sciences. She also received a Master of Public Administration/Health Services Administration from Dalhousie University.

She is a leader in pharmacy, and has served as President of the Association of Faculties of Pharmacy of Canada and as a board member of the Canadian Council for Accreditation of Pharmacy Programs.

Dr. Sketris is a Fellow of the Canadian Society of Hospital Pharmacists, the American College of Clinical Pharmacy and the Canadian Academy of Health Sciences. She was previously elected to the US National Academies of Practice.

Matthew Herder,
B.Sc. (hons), LL.B., LL.M., J.S.M.

Matthew Herder was appointed Member of the Board on June 29, 2018.

Mr. Herder is the Director of the Health Law Institute at Dalhousie University, as well as an Associate Professor in the Department of Pharmacology in the Faculty of Medicine, with a cross-appointment to the Schulich School of Law.

Mr. Herder’s research focuses on biomedical innovation policy, with a particular emphasis on intellectual property rights and the regulation of biopharmaceutical interventions. His work is often interdisciplinary and policy-oriented, and he has received grants from the Canadian Institutes of Health Research and the Royal Society of Canada, in addition to appearing as an expert witness before several Parliamentary committees on pharmaceutical regulation and policy.

Prior to arriving at Dalhousie, Mr. Herder was the Ewing Marion Kauffman Foundation Legal Research Fellow at New York University’s School of Law. He was a Law Clerk at the Federal Court of Canada and was admitted to the Law Society of Upper Canada. Mr. Herder holds a Master of the Science of Law degree from Stanford Law School as well as two law degrees from Dalhousie University.

Organizational Structure and Staff

Executive Director

The Executive Director is responsible for advising the Board and for the leadership and management of Staff.

Regulatory Affairs and Outreach

The Regulatory Affairs and Outreach Branch reviews the prices of patented medicines sold in Canada to ensure they are not excessive; ensures that patentees are fulfilling their filing obligations; encourages patentees to comply voluntarily with the PMPRB’s Guidelines; implements related compliance policies; and investigates complaints into the prices of patented medicines.

Policy and Economic Analysis

The Policy and Economic Analysis Branch develops policy and strategic advice; leads stakeholder consultations and makes recommendations on possible amendments to the PMPRB’s Guidelines; conducts research and analysis on the prices of medicines, pharmaceutical market developments, and R&D trends; and publishes studies aimed at providing F/P/T governments and other interested stakeholders with centralized, objective, and credible information in support of evidence-based policy.

Corporate Services

The Corporate Services Branch provides advice and services in relation to human resources management; facilities; procurement; health, safety and security; information technology; and information management. It coordinates activities pursuant to the Access to Information Act and the Privacy Act, and is responsible for strategic planning and reporting. It is also responsible for financial planning and reporting, accounting operations, audit and evaluation, and liaising with federal central agencies on these topics.

Board Secretariat

The Board Secretariat manages the Board’s meeting and hearing processes, including the official record of proceedings.

General Counsel

The General Counsel advises the PMPRB on legal matters and leads the legal team representing Staff in proceedings before the Board.

Budget

In 2020–21, the PMPRB had a budget of $17.8 million and an approved staff level of 87 full-time equivalent employees.

Regulating Prices of Patented Medicines: Informing on PMPRB Regulatory Activities

Medical advancements have introduced many innovative new medicines to the Canadian marketplace to improve existing treatments and to treat conditions that previously had no pharmaceutical therapy. However, many of these new medicines come at a very high cost. Since 1987, pharmaceutical costs in Canada have grown at an average annual rate of 7.2%,^{Footnote 1} outpacing all other health care costs and growing at well over three times the pace of inflation. At 15.7% of total health care spending, pharmaceuticals now rank ahead of spending on physicians.^{Footnote 2} About 1 in 5 Canadians reports having no prescription medicine coverage and many more are under-insured or face high deductibles or co-pays. Almost 1 in 10 Canadians have had to forego filling a prescription medicine in the past year for reasons related to cost.^{Footnote 3}

The PMPRB protects the interests of Canadian consumers by ensuring that the prices of patented medicines sold in Canada are not excessive. It does this by reviewing the prices that patentees charge for each individual patented medicine and by ensuring that patentees reduce their prices and pay back excess revenues, where appropriate.

Reporting Requirements

By law, patentees must file information about the sale of their medicines in Canada. The Act and the Patented Medicines Regulations (Regulations) set out the information required and Staff reviews pricing information on an ongoing basis until all relevant patents have expired.

The Compendium of Policies, Guidelines and Procedures (Guidelines) details price tests and triage mechanisms used by Staff when it reviews and investigates the prices of patented medicines. The Guidelines are not binding and were developed in consultation with stakeholders, including the provincial and territorial Ministers of Health, consumer groups, and the pharmaceutical industry. When an investigation suggests that the price of a patented medicine is excessive, the patentee may volunteer to lower its price and/or refund its potential excess revenues through a Voluntary Compliance Undertaking (VCU). If the patentee chooses not to submit a VCU, the Chairperson may consider whether a hearing on the matter is in the public interest. If such a hearing is held before a panel composed of Board members (“Hearing Panel”) and that Hearing Panel concludes, after hearing all of the evidence in light of the factors set out in section 85 of the Act, that the patented medicine was priced excessively in any market, an order may be issued to the patentee requiring that (1) the price be reduced; and/or (2) that measures be taken to offset any excess revenues that may have been earned through sales of the patented medicine at an excessive price. Copies of the Act, the Regulations, and the Guidelines are available on the PMPRB’s website.

Failure to Report

Access to timely and accurate information regarding the sale of patented medicines is necessary for the PMPRB to fulfil its regulatory mandate. Therefore, patentees and former patentees are required to submit this information to the PMPRB. The information that must be submitted is set out in section 82 of the Act and in the Regulations. In 2020, 4 medicines were reported to the PMPRB for the first time despite being patented and sold prior to 2020 (see Table 2, Failure to Report the Sale of Patented Medicines).

Failure to File Price and Sales Data (Form 2)

Failure to file refers to the complete or partial failure of a patentee to file the information required by the Act and the Regulations to the PMPRB. There were no Board Orders issued for failure to file in 2020.

Table 2. Failure to Report the Sale of Patented Medicines

Our Motto

Protect, Empower, Adapt.

Scientific Review

Human Drug Advisory Panel

A scientific evaluation is done on all new patented medicines as part of the price review process. The PMPRB established the Human Drug Advisory Panel (HDAP) to provide advice to Staff. The HDAP conducts an evaluation to provide clinical context pertaining to the scientific information that is being considered by Staff. The HDAP members review and evaluate the appropriate scientific information available, including any submission by a patentee about the proposed level of therapeutic improvement, the selection of comparator medicines, and comparable dosage regimens.

The HDAP evaluates the therapeutic benefit of new patented medicines according to the following definitions:

• Breakthrough: A medicine that is the first one sold in Canada to effectively treat a particular illness or effectively address a particular indication.
• Substantial Improvement: A medicine that, relative to other medicines sold in Canada, provides substantial improvement in therapeutic effects.
• Moderate Improvement: A medicine that, relative to other medicines sold in Canada, provides moderate improvement in therapeutic effects.
• Slight or No Improvement: A medicine that, relative to other medicines sold in Canada, provides slight or no improvement in therapeutic effects.

Figure 1 illustrates the percentage breakdown of new patented medicines in the year of introduction by therapeutic benefit for 2011 to 2020. The largest percentage of patented medicines (84%) introduced since 2011 were categorized as “Slight or No Improvement” in therapeutic benefit over existing therapies.^{Footnote 4}

The “Overall 2011–2020” bar represents the therapeutic benefit breakdown for all new patented medicines introduced from 2011 to 2020. The “Overall 2011–2020 Revenue Share” bar illustrates the revenue share by therapeutic benefit for all new patented medicines introduced from 2011 to 2020.

Price Review

The PMPRB reviews the average price of each strength of each individual dosage form of each patented medicine. In most cases, this unit is consistent with the Drug Identification Number(s) (DIN), (DINs) assigned by Health Canada at the time the medicine is approved for sale in Canada.

New Patented Medicines Reported to the PMPRB in 2020

For the purpose of this report, a new patented medicine in 2020 is defined as any patented medicine or new dosage form or strength of a patented medicine first sold in Canada, or previously sold but first patented, between December 1, 2019, and December 1, 2020.

There were 79 new patented medicines for human use reported as sold in 2020. Some are one or more strengths of a new active substance and others are new presentations of existing medicines. Of these 79 new patented medicines, 2 (2.5%) were being sold in Canada prior to the issuance of the Canadian patent that brought them under the PMPRB’s jurisdiction. Table 3 shows the year of first sale for these medicines.

Table 3. Number of New Patented Medicines for Human Use in 2020 by Year First Sold

The list of New Patented Medicines Reported to PMPRB is available on the PMPRB’s website under “Regulating Prices”. This list is updated yearly upon the release of the Annual Report and includes information on the status of the review (i.e., whether the medicine is under review, within the Guidelines, under investigation, or subject to a VCU or Notice of Hearing). Figure 2 illustrates the number of new patented medicines for human use reported to the PMPRB from 1989 to 2020.

Of the 79 new patented medicines, the prices of 37 had been reviewed as of March 31, 2021:

• 27 were found to be within the thresholds set out in the Guidelines and, as such, did not trigger the investigation criteria;^{Footnote 5}
• 4 were at a level that appeared to exceed the thresholds set out in the Guidelines by an amount that did not trigger the investigation criteria; and
• 6 were at levels that appeared to exceed the thresholds set out in the Guidelines and resulted in investigations being commenced.

For a complete list of the 79 new patented medicines and their status, see Appendix 2.

Price Review of Existing Patented Medicines for Human Use in 2020

For the purpose of this report, existing patented medicines include all patented medicines first sold and reported to the PMPRB prior to December 1, 2019.

At the time of this report, there were 1,210 existing patented medicines:

• 865 were priced within the thresholds set out in the Guidelines and, as such, did not trigger the investigation criteria;
• 165 had prices that appeared to exceed the thresholds set out in the Guidelines by an amount that did not trigger the investigation criteria;
• 160 were the subject of investigations;
• 12 were under review;
• 5 were the subject of a Voluntary Compliance Undertaking;
• 2 were the subject of a hearing; and
• 1 was subject to a Stay Order.

Table 4 provides a summary of the status of the price review of the new and existing patented medicines for human use in 2020.

Table 4. Patented Medicines for Human Use Sold in 2020—Status of Price Review as of March 31, 2021

Update From the 2019 Annual Report

• There are 6 reviews of patented medicines for human use that were reported as Under Review in the 2019 Annual Report that remain Under Review.

• 41 of the 128 investigations reported in the 2019 Annual Report resulted in one of the following:
  • the closure of the investigation where it was concluded the price was within the thresholds set out in the Guidelines;
  • a VCU by the patentee to reduce the price and offset excess revenues through a payment and/or a reduction in the price of another patented medicine (“Voluntary Compliance Undertakings”); or
  • a public hearing to determine whether the price was excessive, including any remedial Order determined by the Board (“Hearings”).

Patented Over-the-Counter Medicines, Patented Generic Medicines and Patented Medicines For Veterinary Use

Staff only reviews the prices of patented over-the-counter medicines, patented generic medicines, and patented veterinary medicines when a complaint of excessive pricing has been received. No such complaints were received in 2020.

Voluntary Compliance Undertakings and Hearings

Voluntary Compliance Undertakings

A VCU is a promise by a patentee to reduce its price(s) and/or offset any potential excess revenues from the sale of a patented medicine that is subject to an investigation. The Guidelines set out procedures for patentees to submit a VCU. The consideration of a VCU is an administrative procedure and does not constitute an admission or determination by the PMPRB that the price submitted by the patentee, or used to calculate a revenue offset, is not excessive. However, the acceptance of a VCU by the Chairperson will result in the closure of an investigation.

In 2020, the Chairperson approved the closure of investigations based on the receipt of four VCUs. In addition to price reductions for certain medicines, potential excess revenues totaling $304,354.70^{Footnote 6} were offset by way of payments to the Government of Canada.

As of May 31, 2021, the Chairperson approved the closure of an investigation after the receipt of an additional VCU, which resulted in a price reduction.

Table 5. Voluntary Compliance Undertakings in 2020 up to May 31, 2021

Hearings

The PMPRB holds hearings into two types of matters:

• excessive pricing; and
• failure to file–jurisdiction.

Excessive Pricing

When an investigation into the price of a patented medicine is completed, and the matter is not resolved, the Executive Director may submit a report to the Chairperson. The Chairperson may decide to issue a Notice of Hearing if he or she is of the opinion that it is in the public interest. During a hearing, submissions and evidence from the parties are heard by a Hearing Panel consisting of at least two Board members. The Hearing Panel determines whether a patented medicine is being, or has been, sold at an excessive price in any market in Canada by taking into consideration the available information relating to the factors set out in section 85 of the Act. If the Hearing Panel finds the price is excessive, it can issue an order to reduce the price of the patented medicine in question (or of another patented medicine of the patentee) and/or to offset revenues received as a result of the excessive price. Judicial review of Board decisions can be sought in the Federal Court of Canada.

In January 2019, the PMPRB announced it would hold a public hearing in the matter of the price of the patented medicine cysteamine bitartrate sold under the trade name Procysbi by Horizon Therapeutics Canada. The purpose of this hearing was to determine whether the medicine has been, or is being, sold in any market in Canada at a price that, in the Board’s opinion, is or was excessive: and, if so, what order, if any, should be made to remedy the excessive pricing. The hearing was held over several weeks in late 2020-early 2021 and a decision on the matter is pending.

Failure to File–Jurisdiction

When it is the opinion of Staff that a patentee has failed or refused to provide the PMPRB with the pricing, sales, or revenues and like information required by law, the Executive Director may submit a report to the Chairperson. The Chairperson may decide to issue a Notice of Hearing if he or she is of the opinion that it is in the public interest to hold a hearing to determine whether the patentee has, in fact, breached the reporting requirements of the Act and Regulations. If the Hearing Panel finds, as the result of a public hearing, that the patentee has failed to report the required information, the Hearing Panel can order the patentee to file the required pricing and sales information.

There were no new failure to file hearings as of March 31, 2021.

On May 7, 2020, the Board issued its decision on re-determination on its decision dated December 19, 2016, whereby the Board originally found that Canadian Patent No. 2,478,237 pertains to the patented medicine adapalene sold under the trade name Differin and ordered Galderma to file the required information for the period between January 1, 2010, and March 14, 2016. The Board’s decision on redetermination again ordered Galderma to file the required information for the period between January 1, 2010, and March 14, 2016. On August 11, 2020, Galderma Canada Inc. filed an application for judicial review of the Board’s May 7, 2020 decision on redetermination (T-906-20).

Summary

Excess revenues totaling $75,844.49, were offset by payments to the Government of Canada through VCUs and Board Orders in 2020 and up to May 31, 2021. As a result of a condition in the terms of a VCU accepted in 2019 to make a further payment to the Government of Canada for any remaining cumulative excess revenues as of December 31, 2019, the PMPRB received a payment in the amount of $228,510.21^{Footnote 7} making the total funds received up to May 31, 2021, $304,354.70.

Since 1993, 158 VCUs have been accepted. In addition, 7 public hearings related to allegations of failure to file and 10 public hearings related to allegations of excessive pricing have been held. These measures resulted in price reductions and the offset of excess revenues by additional price reductions and/or payments to the Government of Canada. Over $210 million has been collected through VCUs, settlements, and Board Orders through payments to the Government of Canada.

Matters Before the Federal Court, Federal Court of Appeal, and Supreme Court of Canada or Other Courts

A-237-19: on October 20, 2017, Alexion Pharmaceuticals Inc. filed an application for judicial review of the Board’s decision dated September 20, 2017 in respect of its finding that the patented medicine eculizumab sold under the trade name Soliris was being sold at an excessive price in Canada and ordering Alexion to lower its price (currently stayed) and make an excess revenue payment of $4,245,329.60. The Board’s decision was found to be reasonable by the Federal Court via a decision dated May 23, 2019. Alexion has appealed the Federal Court’s decision in the Federal Court of Appeal. The Federal Court of Appeal heard the appeal of the Board Panel’s decision in October 2020. The Federal Court of Appeal granted Alexion's appeal on July 29, 2021 and remitted the matter to the Board for redetermination.

T-906-20: on January 18, 2017, Galderma Canada Inc. filed an application for judicial review of the Board’s decision dated December 19, 2016. In that decision the Board found that Canadian Patent No. 2,478,237 pertains to the patented medicine adapalene sold under the trade name Differin and ordered Galderma to file the required information for the period between January 1, 2010, and March 14, 2016. The Federal Court granted Galderma’s judicial review application on November 9, 2017 and quashed the Board’s decision. On November 21, 2017, the Attorney General appealed the Federal Court’s grant of the judicial review application. On June 28, 2019, the Federal Court of Appeal granted the appeal and issued its decision sending the matter back to the Board for redetermination. The Board’s decision on redetermination, issued on May 7, 2020, again ordered Galderma to file the required information for the period between January 1, 2010 and March 14, 2016. On August 11, 2020, Galderma Canada Inc. filed an application for judicial review of the Board’s May 7, 2020 decision on redetermination (T-906-20). The Board Panel’s redetermination in this matter is under judicial review by the Federal Court.

T-1419-20: on November 23, 2020, Innovative Medicines Canada and nineteen individual pharmaceutical companies brought an application in Federal Court for judicial review of the PMPRB’s decision to issue new Guidelines on October 23, 2020 (then slated to come into effect in July 1, 2021). The application seeks a declaration that the new Guidelines are ultra vires the Patent Act and an order quashing and setting aside the decision of the PMPRB to issue the new Guidelines. This matter is currently pending.

There are no PMPRB related matters before the Supreme Court of Canada.

Two challenges related to PMPRB legislation were commenced in 2019 and are ongoing:

T-1465-19: on September 6, 2019, Innovative Medicines Canada (I.M.C.) and sixteen individual pharmaceutical companies brought an application in Federal Court to judicially review s. 4 (new factors), s. 6 and Schedule (new basket of countries) and ss. 3(4) (new net price calculation) of the 2019 Amendments to the Patented Medicines Regulations (coming into force in January 2022) on the basis that they are ultra vires the regulation-making power contained in the Patent Act. The FederPal Court issued its decision on June 29, 2020, and held that the amendments in s 4, s. 6 and the Schedule are intra vires the Patent Act, but that the amendment in ss. 3(4) is not. On September 10, 2020, I.M.C. and the individual pharmaceutical companies filed a Notice of Appeal with respect to the Federal Court decision. The Attorney General of Canada has also filed a cross-appeal in respect of the invalidated amendments. This appeal is currently pending.

No. 500-17-109270-192. Merck et al. v Canada (Attorney General): on August 22, 2019, six individual pharmaceutical companies brought an application for judicial review in Quebec Superior Court challenging the constitutionality of ss. 79-103 of the Patent Act. In its decision issued on December 18, 2020, the Quebec Superior Court found the amendments to subsections 4(4)a) and 4(4)b) that would update the net price calculation to require patentees to include discounts and rebates provided to third parties unconstitutional and of no force or effect. The Court found the rest of the Regulations, including the other amendments, and the relevant sections of the Patent Act constitutionally valid. The pharmaceutical company applicants filed a Notice of Appeal with respect to the Superior Court of Quebec’s decision on January 25, 2021. The Attorney General of Canada has also filed a cross-appeal in respect of the invalidated amendments. The appeal remains pending.

Table 6.  Status of Board Proceedings in 2020 up to May 31, 2021

Key pharmaceutical trends: more expensive medicines continue to influence sales

Overall spending on pharmaceuticals is influenced by many factors, including price, utilization, the entry of newer, more expensive medicines, and the loss of market exclusivity for older patented medicines. In 2020, there was a moderate rise in the sales of higher-cost medicines, resulting in an overall increase in total spending of 1.6%. Canadian list prices of patented medicines remained among the highest in the Organisation for Economic Co-operation and Development (OECD), ranking fourth, well behind the US and just marginally lower than Switzerland and Germany.

The PMPRB is responsible for reporting on trends in pharmaceutical sales and pricing for all medicines and for reporting research and development spending by patentees.

Under the Regulations, patentees are required to submit detailed information on their sales of patented medicines, including quantities sold, gross and net prices, and net revenues. The PMPRB uses this information to analyze trends in the sales, prices,^{Footnote 8} and use of patented medicines.^{Footnote 9} This section provides key trends, including analyses of Canadian national, public, and private payer markets for all medicines. Note that any reference to sales in this section should be interpreted as sales revenues unless otherwise noted.

An additional $4.9 billion was spent on medicines that previously reported to the PMPRB.

Trends in Sales of Patented Medicines

Canadians spend much more on patented medicines today than they did a decade ago. Over the last five years, sales of these medicines have grown by an average of 3.0% per year, reaching $17.5 billion in 2020. This section looks at the most important factors driving the change in sales revenues from 2019 to 2020 and compares them to trends from previous years.

Trends in Sales Revenues

Between 2019 and 2020, there was a modest 1.6% increase in the sales of patented medicines. Figure 3 reports on trends in the sales of patented medicines from 1990 to 2020. While there has been a 10-fold increase in annual sales over the last 30 years, the year-over-year rate of change within that period has varied. This trend is highlighted by the five-year compound annual growth rate given in Figure 3(b).

Figure 3(a) gives the sales of patented medicines as a share of overall medicine sales. This share reached a peak of 72.7% in 2003. In 2020, patented medicines accounted for 54.7% of the sales of all medicines in Canada.

The trends in sales per capita and sales as a percentage of the gross domestic product (GDP) show the increasing importance of patented medicines in the Canadian economy. Overall, per capita sales of patented medicines rose from $61.60 in 1990 to $460.37 in 2020, while sales as a percentage of GDP rose from 0.25% in 1990 to 0.79% in 2020 [Figure 3(c)].

To highlight the continuing impact of patented medicines, Figures 3(a) and 3(b) also provide results for “All PMPRB Medicines”. This broader category includes all medicines, current and historic, that ever reported sales to the PMPRB.

Sales for All PMPRB Medicines rose by 7.7% in 2020. Medicines that previously reported to the PMPRB accounted for estimated sales of $4.9 billion, or 15.4% of all sales. This is considerably more than a decade ago when medicines that formerly reported to the PMPRB accounted for $0.8 billion, or 3.4% of all sales.

A complete table of the data presented in Figure 3 for patented medicines currently reporting to the PMPRB is included in Appendix 3.

Figure 3. Trends in Patented Medicine Sales, 1990 to 2020

Drivers of the Growth in Sales Revenues

The growth in the sales revenues of patented medicines is influenced by changes in several key factors:

• Volume effect: changes in the quantity or amount of patented medicines sold.
  This effect focuses on established medicines that were on the market for the period analyzed. Increases in the population, changes in demographic composition (e.g., shifts in the age distribution), increases in the incidence of disease, and changes in prescribing practices are among the factors that may contribute to this effect.
• Mix effect: shifts in use between lower- and higher-cost patented medicines.
  This effect applies to both new medicines and those that were already on the market. The switch to new higher-priced medicines, the use of new medicines that treat conditions for which no effective treatment previously existed, and changes in prescribing practices are among the factors that may contribute to this change.
• Exiting effect: previously patented medicines that have stopped reporting sales revenues to the PMPRB or are no longer sold in Canada.
• Loss-of-exclusivity effect: medicines that have lost market exclusivity and are open to some level of generic competition but are still patented.
• Price effect: changes in the prices of existing patented medicines.
  This effect applies to both increases and decreases in the prices of patented medicines over the time period analyzed.

Some factors, such as the mix effect, will generally put an upward pressure on sales, while others, such as the loss-of-exclusivity effect, have the opposite effect.

Figure 5 focuses on the major factors that drove the year-by-year growth in patented medicine sales^{Footnote 10} between 2015 and 2020 (a) in absolute dollar amounts, and (b) as proportions of the overall annual change in sales. In addition to the standard sales drivers, the emergence of new “blockbuster” medicines that have a significant influence on sales may be monitored as a separate effect. For example, direct-acting antiviral (DAA) treatments for hepatitis C are presented separately to show their continuing impact on expenditures.

Figure 5. Key Drivers of Change in the Sales of Patented Medicines, 2015 to 2020

Changes in the prices of patented medicines have played a very minor role in the growth in patented medicine sales over the last several years, suggesting that, on average, the prices of existing patented medicines are fairly stable. However, this does not reflect the overall increases in treatment costs due to the entry of newer, higher-priced patented medicines, the impact of which is captured by the mix effect.

The shift to new higher-cost patented medicines has been a major driver of sales growth in recent years. In 2020, the use of higher-cost patented medicines other than DAAs put an upward pressure on expenditures of $1.0 billion (5.9%). While growth was observed in many therapeutic areas, the increase in sales of “antineoplastic and immunomodulating agents” exceeded that of any other class. These medicines, which include oncology treatments, accounted for more than 40% of all patented medicine sales in 2020. Results by therapeutic class are discussed in further detail in the upcoming sections.

Counterbalancing the upward sales pressures from the mix effect, there was a moderate market segment shift as some high-selling medicines stopped reporting their sales to the PMPRB. The exiting effect accounted for a loss of $795 million (-4.6%) in sales in 2020. Figure 6 illustrates the change in the impact of the exiting effect since 2015 and identifies the 10 top-selling medicines that stopped reporting to the PMPRB in 2020.

New Medicines Driving Sales Revenues

Figure 8 breaks down the 2020 sales of patented medicines according to the year in which the medicine was first issued a Notice of Compliance (NOC) by Health Canada. Throughout the latter part of the 1990s and early 2000s, sales growth was largely driven by a succession of new “blockbuster” medicines that ultimately achieved very high sales volumes. As the patents for these medicines expired, their share of sales gradually decreased. The introduction of new higher-cost medicines such as biologics, oncology medicines, and treatments for hepatitis C has accounted for a growing share of sales in recent years. Humira, which was issued an NOC in 2004, was the top-selling medicine in 2020, accounting for $926.6 million (5.3%) of total patented medicine sales (Table 8). Similarly, many new medicines introduced between 2013 to 2016 also made the list of top-sellers in 2020, including Eylea (2013), Imbruvica (2014), Jardiance (2015), Keytruda (2016), and Epclusa (2016).

Higher-Cost Medicines Driving Sales Revenues

Over the last decade, there has been a notable shift in pharmaceutical development toward more specialized medicines, with an increasing number of higher-cost medicines entering the market and amassing a substantial share of sales.

In 2020, the trend in the shift to new or higher-cost medicines continued to put an upward pressure on overall patented medicine sales. The top 10 medicines contributed $689 million to the increase in sales (Table 7). Most of these medicines had an average annual treatment cost greater than $10,000.^{Footnote 11} These 10 medicines were also concentrated in a few select therapeutic areas, with seven belonging to the high-growth “antineoplastics and immunomodulating agents” class.

While Table 7 reports the top 10 medicines contributing to the increase in the sales of patented medicines, Table 8 compares the 10 top-selling patented medicines in 2006 and 2020, along with their treatment costs. In 2006, Remicade was the only biologic medicine to make the top 10 list, with an average annual treatment cost of $17,759. This was much higher than the rest of the medicines on the list, none of which exceeded $1,000 annually. By 2020, however, four of the top 10 medicines were biologics, with annual treatment costs ranging from $9,151 to $40,987. These medicines are highlighted in Table 8. Only three of the top-selling non-biologic medicines in 2020 had annual treatment costs of less than $1,000 and the highest treatment costs exceeded $60,000. With collective annual sales of $4.2 billion, these 10 medicines accounted for close to one quarter of the total sales for all patented medicines in 2020.

6 of the 10 top-selling medicines in 2020 had annual treatment costs exceeding $10,000.

Figure 9 details the trend in the treatment costs of patented medicines since 2006. For many years, the majority of the 20 top-selling patented medicines had annual treatment costs under $1,000, but in recent years costs for the top-sellers have soared into the thousands or tens of thousands of dollars. In 2020, the top 20 medicines, which accounted for 36.5% of patented medicine sales, had a median annual treatment cost of $19,420, nearly 50 times the median in 2006. In addition to their higher cost, these medicines have had a strong uptake in use, resulting in a weighted average annual treatment cost of $25,391 for the 20 top-selling patented medicines in 2020.

Figure 10 shows that high-cost medicines represent an increasingly significant share of the total sales of patented medicines, rising steeply from 5.0% in 2006 to 52.1% in 2020. This growth was evident in all ranges of annual treatment costs ($10 to $20 thousand; $20 to $50 thousand; and $50 thousand and over), with medicines in the highest cost band climbing from 0.1% to 14.5% of sales over the same period. Despite the sharp increase in the share of costs, less than 1% of the population use these medicines.

The shift toward higher-cost treatments is especially evident in oncology medicines. Figure 12 shows the share of total sales for patented oncology medicines by treatment cost based on a standard 28-day treatment regimen.^{Footnote 12}

The number of patented oncology medicines with 28-day treatment costs over $7,500 rose from 3 to 48 between 2006 and 2020, now accounting for 14.9% of total patented medicine sales.

As a result, the average treatment cost for oncology medicines in 2020 was $13,304, double the average cost in 2015 and close to four times that in 2006.

Many treatment regimens use multiple medicines resulting in even higher treatment costs per beneficiary. The dual pressures of increasing average treatment costs and growing utilization mean that this therapeutic area is likely to continue to grow as a proportion of patented medicine sales.

In 2020, high-cost medicines accounted for over 50% of all patented medicine sales.

The number of patented medicines in Canada with an annual average treatment cost of at least $10,000 more than quadrupled between 2006 and 2020, while the number of medicines with costs over $50,000 rose from 4 to 58 over the same period.

Top Therapeutic Classes Driving Sales Revenues

“Antineoplastics and immunomodulating agents”, “alimentary tract and metabolism”, and “general antiinfectives for systemic use and antiparasitic products” were the three top-selling therapeutic classes in 2020, accounting for close to two thirds of all patented medicine sales. The “antineoplastics and immunomodulating agents” class experienced a 9.2% increase in sales between 2019 and 2020 while “general antiinfectives for systemic use and antiparasitic products” had the greatest year-over-year decrease at -15.8%.

Figure 15 breaks down the sales of patented medicines in Canada by therapeutic class using level 1 of the World Health Organization’s (WHO) Anatomical Therapeutic Chemical (ATC) system.^{Footnote 13} Two donut graphs compare the share of total sales for each therapeutic class in 2020 to the share in 2008. The associated table gives the 2020 sales for each class and the sales growth from 2019 to 2020.

The “antineoplastics and immunomodulating agents” class accounted for a much larger share of sales in 2020 (41.7%) than in 2008 (15.6%), as more oncology medicines entered the market over the past decade, many of which were high-cost. By contrast, the share of sales held by “cardiovascular system” medicines decreased dramatically from 24.5% to 3.2% over the same period.

Biologic medicines

Biologic medicines, many of which are in the high-cost category, capture a substantial share of the Canadian market. These medicines accounted for 43% of patented medicine sales in 2020, with the top three biologics alone representing more than 10% of sales. Figure 16 breaks down the annual share of sales for biologic patented medicines by major therapeutic class and lists the 10 top-selling biologics for 2020.

Although the share of biologic medicine sales has increased in many therapeutic classes, immunomodulating agents other than those for oncology had the highest uptake over the study period, rising from 4% of total patented medicine sales in 2008 to 16% in 2020. Oncology medicines also represent a steadily growing share of the biologics market, increasing from 2% of patented medicine sales in 2008 to 10% in 2020.

Oncology medicines

Figure 19 illustrates the growth in the sales of all oncology medicines (biologic and non-biologic) since 2008. In 2020, oncology medicines accounted for 22.6% of total patented medicine sales, a significant increase from 5.4% in 2008. Oral forms of cancer treatment are a noteworthy emerging segment, expanding their share of the patented medicine market from 1.7% to 12.3%, or more than half of all oncology medicine sales, over the same period. The oral therapy Revlimid was the top-selling oncology medicine in 2020, accounting for 3.0% of all patented medicine sales.^{Footnote 14}

Price Trends

The PMPRB uses the Patented Medicines Price Index (PMPI) to monitor trends in the prices of patented medicines. The PMPI measures the average year-over-year change in the ex-factory prices of patented medicines sold in Canada using a sales-weighted average of price changes at the level of individual medicines.^{Footnote 15} This is similar to the approach Statistics Canada uses to construct the Consumer Price Index (CPI). The PMPI is based on an average transaction price and sales information submitted by patentees for a six-month period.

The PMPI only measures the sales growth attributable to changes in the prices of patented medicines. It does not measure changes in the use of patented medicines; this is measured by the quantity index or PMQI (see “Utilization of Patented Medicines”). Nor does it measure the cost impact of changes in prescribing patterns or the introduction of new medicines.

The Patent Act requires the PMPRB to consider changes in the CPI, among other factors, in determining whether the price of a patented medicine is excessive. Figure 20 compares year-over-year changes in the PMPI to corresponding changes in the CPI from 2003 to 2020. The PMPI is reported based on two measures: the national average transaction price, which is a net price; and the national list price, which is a gross price.^{Footnote 16} Both measures are reported to the PMPRB by patentees. General price inflation, as measured by the CPI, has exceeded the average increase in the prices of patented medicines almost every year since 2003. However, in 2020, the CPI rose by just 0.7%, while the national list price PMPI increased by 1.6%.

The PMPRB’s Guidelines envisage that the price of a patented medicine should not rise by more than the CPI over any three-year period.^{Footnote 17} The Guidelines also contemplate a cap on year-over-year price increases equal to one and one-half times the current year rate of CPI inflation. This effectively establishes CPI inflation as an upper bound on the amount by which individual prices could rise over any three-year period. Increases in the PMPI normally do not reach this upper bound because many patentees do not raise their prices by the full amount envisaged under the Guidelines. As the forecast rate of inflation exceeded the actual in 2020, the change in the PMPI surpassed that of the CPI.

Price Behaviour After Introduction

Does the price of a typical patented medicine change much in the years after it enters the Canadian market? To answer this question, Figure 21 provides the average ratio of the 2020 price to introductory price (the price at which the medicine was sold in its first year on the Canadian market).

The results in Figure 21 suggest a consistent trend: prices remain stable early in their life cycle, and then gradually rise by a small amount, year-over-year, afterwards.^{Footnote 18} For example, the average prices of medicines introduced a decade ago are still at the same level in 2020.

Price Change by Country

In 2020, in accordance with the Act and the Regulations, patentees reported publicly available prices of patented medicines for seven comparator countries (PMPRB7): France, Germany, Italy, Sweden, Switzerland, the United Kingdom (UK), and the United States (US).

The PMPRB uses this information to

• conduct international price comparison tests; and
• compare the Canadian prices of patented medicines to those prevailing in other countries.

Figure 22 gives the average annual rates of price change for Canada and each of the PMPRB7 countries. These results were obtained by applying the PMPI methodology (with weights based on Canadian sales patterns) to the international price data that patentees submitted to the PMPRB. Note that prices from the US Federal Supply Schedule (FSS)^{Footnote 19} are incorporated into the US results.

In 2020, Canadian prices saw a slight increase of 0.9%, while prices in the US rose by an average of 4.2% and those in Italy and the UK remained relatively steady. Prices in the remaining countries declined. These results are consistent with a long-term tendency for patented medicine prices to slowly fall over time in most comparator countries, with the exception of the US.

The foreign market results are based on publicly available gross prices, namely ex-factory price information (generally for the retail customer class) submitted by patentees to the PMPRB. The Canadian rate of change, however, is based on net prices, namely actual average transaction prices net of rebates and discounts provided by manufacturers to their direct customers.

Comparison of Canadian Prices to Foreign Prices

Tables 9 and 10 provide detailed statistics comparing the foreign prices of patented medicines to their Canadian prices. Each table provides two sets of average price ratios. These are differentiated according to the method by which foreign prices were converted to their Canadian dollar equivalents. The tables also give the numbers of strengths and dosage forms of medicines (DINs) and the volume of sales encompassed by each reported price ratio.^{Footnote 20}

The average price ratios given in Tables 9 and 10 are sales-weighted arithmetic means of price ratios obtained for individual DINs, with weights based on Canadian sales patterns. Average price ratios constructed in this way provide answers to questions such as:

How much more/less would Canadians have paid for the patented medicines they purchased in 2020 had they paid Country X prices rather than Canadian prices?

For example, Table 9 states that the 2020 average France-to-Canada price ratio for medicines available in both countries was 0.77. This means Canadians would have paid 23% less for the patented medicines they purchased in 2020 if they had paid French prices.

For many years, the PMPRB has reported average foreign-to-Canadian price ratios with foreign prices converted to their Canadian dollar equivalents by means of market exchange rates (more exactly, the 36-month moving averages of market rates the PMPRB normally uses in applying its Guidelines). Tables 9 and 10 also report foreign-to-Canadian price ratios with currency conversion at purchasing power parity (PPP). The PPP between any two countries measures their relative costs of living expressed in units of their own currencies. In practice, cost of living is determined by pricing out a standard “basket” of goods and services at the prices prevailing in each country.

Because PPPs are designed to represent relative costs of living, they offer a simple way to account for differences in overall national price levels when comparing individual prices, incomes, and other monetary values across countries. When applied to the calculation of average foreign-to-Canadian price ratios, they produce statistics answering questions such as:

How much more/less consumption of other goods and services would Canadians have sacrificed for the patented medicines they purchased in 2020 had they lived in Country X?

Questions such as this cannot be answered by simply comparing the prices of medicines. Rather, one must first calculate what each price represents in terms of goods and services foregone. PPPs are designed for such purposes.

Bilateral Price Comparisons

Table 9 provides bilateral comparisons of list prices in each of the PMPRB7 countries to average transaction prices in Canada. Focusing on the results with currency conversion at market exchange rates, it appears that, as in previous years, Canadian prices were typically within the range of prices observed in comparator countries. Prices in France were appreciably lower than Canadian prices, followed by Sweden and the UK, while prices in Italy were on par with those in Canada and those in Switzerland and Germany were higher. Prices reported for the US were much higher than prices in Canada or any other comparator country. Year-to-year changes in these ratios may be influenced by variations in international exchange rates.

It is important to note that it is not always possible to find a matching foreign price for every strength and dosage form of a patented medicine sold in Canada. Table 9 indicates how often an international price comparison was available for each of the comparator countries. For example, of the 1,257 DINs that reported a patent to the PMPRB in 2020, 46% had a publicly available ex-factory price for France while 77% had a price for the US. Given the integrated nature of the Canadian and US supply chain, it is not uncommon for the US to be the only comparator country with an available price for a strength and dosage form of a medicine sold in Canada. In this case, it is considered to constitute the international median price, as per the PMPRB’s methodology.

When international differences in the cost of living are considered (using PPP), the average price ratios indicate that Canadians incurred a larger consumption cost for the patented medicines they purchased in 2020 than residents of France, Sweden, Switzerland, and the UK.

Table 9. Average Foreign-to-Canadian Price Ratios, Bilateral Comparisons, Canada and the PMPRB7, 2020

Figure 23 puts these results in historical perspective. In 2008, Canadian prices were, on average, slightly higher than prices in Italy, France, and Sweden, and approximately the same as prices in the UK and Switzerland. By 2020, the gap between Canadian prices and prices in France and Sweden had grown significantly greater as the relative prices in these countries dropped, while prices in Italy and the UK in 2020 were in line with Canadian levels. Price levels in Switzerland, Germany, and the US all exceeded those in Canada in 2020.

If a patented medicine is being sold in one or more of the PMPRB7 countries, the patentee must report the publicly available ex-factory prices to the PMPRB for each class of customer.^{Footnote 21} Using this data, Figure 23 provides sales-weighted bilateral ratios comparing Canadian average transaction prices against foreign list prices. In order to assess how Canada compares to a basket of countries beyond the PMPRB7, Figure 24 uses Canadian and international prices reported in the IQVIA MIDAS® database at the ex-factory manufacturer level, reflecting all sales to the pharmacy and hospital sectors.^{Footnote 22} Note that the results presented in Figures 23 and 24 will differ somewhat due to the use of different data sources.

The international price comparisons reported in Figure 24 provide a bilateral price comparison for all countries in the Organisation for Economic Co-operation and Development (OECD) with available MIDAS® data. The average foreign-to-Canadian price ratios are calculated using the same approach employed to produce the ratios presented in Figure 23. These are Canadian sales-weighted arithmetic averages of the corresponding foreign-to-Canadian price ratios for individual medicines. As shown in Figure 24, median OECD prices are, on average, approximately 18% lower than price levels in Canada, which are the fourth highest among the 31 countries. Notably, the top three highest-priced countries are the US, Switzerland, and Germany.

Multilateral Price Comparisons

Table 10 provides average foreign-to-Canadian price ratios using several multilateral measures of foreign prices. The median international price (MIP) is the median of list prices observed among the PMPRB7. Other multilateral price ratios compare the minimum, maximum, and simple mean of foreign prices to the Canadian average transaction price.

Focusing again on the results based on market exchange rates, the average MIP-to-Canadian price ratio was 1.16 in 2020, identical to the ratio in 2019 (Figure 27). Note that mean foreign prices produce higher foreign-to-Canadian price ratios than MIPs do. This is due to the influence of US prices, which are typically much higher than prices elsewhere and nearly always figure importantly in determining the mean foreign price. While the US has less of an impact on median international prices, it does exercise a significant influence over the average ratio of median international prices relative to Canadian prices, as the US is sometimes the only country with an available ex-factory price for a patented medicine sold in Canada.

Table 10. Average Foreign-to-Canadian Price Ratios, Multilateral Comparisons, 2020

Figure 28 provides alternative results for the average MIP-to-Canadian price ratio at market exchange rates in 2020. To address the point that Canadian prices are national average transaction prices whereas foreign prices are list prices, a list-to-list price ratio is calculated. Using this method, the average ratio decreases from 1.16 to 1.10. It is important to keep in mind that confidential rebates provided to payers are not captured in this data.

Ratios excluding the US and including at least five countries in the calculation of the median are also provided as additional context in Figure 28 to account for the large impact of US prices in determining the median foreign price. With these restrictions, the average MIP-to-Canadian price ratios drop to 0.91 and 0.95, respectively, suggesting that median foreign list prices are, on average, 5% to 9% lower than Canadian list prices.

In many of the comparator countries, discounts off list prices are available to all payers, both public and private. By contrast, a large portion of the Canadian market pays list prices, or close to list prices. Furthermore, it should be noted that these are average ratios—some patentees charge Canadian consumers less than median international prices, while others charge more. For MIP-to-Canadian price ratios at the patentee level, please refer to Table 22 in Appendix 4 of this report.

Figure 29 offers more detail on the medicine-level MIP-to-Canadian ratios underlying the averages reported in Table 10. This figure distributes the 2020 sales of each patented medicine according to the value of its MIP-to-Canadian price ratio (more exactly, according to the range into which the ratio fell).^{Footnote 23} These results show a substantial dispersion in medicine-level price ratios: while patented medicines with MIP-to-Canadian price ratios between 0.90 and 1.10 accounted for 39.6% of sales, those with ratios less than 0.90 accounted for 30.2% of sales and medicines with ratios exceeding 1.10 accounted for the remaining 30.2%. Approximately one quarter of the medicines assessed had an MIP-to-Canadian ratio greater than 1.50, including many for which the US price was the only available international comparator.

In 2020, approximately 41% of Canadian patented medicines were priced above the median international level.^{Footnote 24} Table 11 examines the impact of this difference by therapeutic class. Medicines that share the fourth level ATC classification (“ATC4”)^{Footnote 25} are grouped to identify distinct chemical/pharmacological/therapeutic subgroups, allowing for a calculation of the average MIP-to-Canadian price ratios among medicines that may be used to treat the same conditions. Table 11 identifies the top 10 ATC4s in 2020 in which the difference between Canadian and median prices had the largest effect on Canadian patented medicine spending.^{Footnote 26} For example, had Canadian prices been in line with the international median for these classes of medicines in 2020, sales in Canada would have been reduced by approximately $943 million (an average reduction of 13% for these ATC4s). Of the 233 DINs classified into these 10 ATC4s, 56% were priced above the median international price.

Table 11. Top 10 ATC4s* by Total Sales Greater than Median International Prices, 2020

Utilization of Patented Medicines

The price and sales data used to calculate the PMPI also allow the PMPRB to examine trends in the quantities of patented medicines sold in Canada. The PMPRB maintains the Patented Medicines Quantity Index (PMQI) for this purpose. Figure 30 provides average rates of utilization growth, as measured by the PMQI, from 1988 through 2020. These results confirm that in recent years, growth in the utilization of patented medicines has been a primary source of rising sales.

Canadian Medicine Expenditures in the Global Context

IQVIA^{Footnote 27} regularly reports on medicine sales across a large number of countries. Based on sales data from this source, Figure 31 provides shares of global sales for Canada and other major national markets including the PMPRB7 countries.^{Footnote 28} The Canadian market accounted for 2.1% of the global market in 2020.

Canada is a top 10 global market

Canada is an important market for pharmaceuticals representing 2.1% of worldwide sales. Canada spends nearly the same amount as the UK on pharmaceuticals despite having only half its population.

Figure 32 provides Canada’s share of global sales for 2005 to 2020. The Canadian share has remained between 1.9% and 2.7% throughout this period. Although 2.1% is at the low end for Canada’s average share of global sales in recent years, the US share grew from 40.4% in 2014 to 46.1% in 2020.

Figure 33 gives the average annual rate of growth in total medicine sales for Canada and the PMPRB7, individually and collectively. From 2005 to 2020, sales of medicines in Canada rose at an average annual rate of approximately 4.6%. This is on par with the average rate of growth in medicine sales among the PMPRB7 countries over the same period, though this average is heavily skewed by the influence of US sales.

Figure 34 compares rates of year-over-year growth in medicine sales for the entire pharmaceutical market in Canada and the PMPRB7 countries combined. In 2020, sales grew at a faster rate in Canada than in the PMPRB7.

1.8% Medicine Expenditures in Canada

In 2018, Canadians spent 1.8% of gross domestic product on medicines. This is the second highest share in the PMPRB7, behind only the United States.

The proportion of national income allocated to the purchase of medicines provides another way to compare medicine costs across countries.^{Footnote 29} Figure 35 gives medicine expenditures as a share of gross domestic product (GDP) for Canada and the PMPRB7 countries based on data for 2018. Medicine expenditures absorbed between 1.1% and 2.0% of the GDP in the PMPRB7. The Canadian value of 1.8% was second only to the US.

Table 12 provides a historical perspective on the expenditures-to-GDP ratio.^{Footnote 30} Between 2005 and 2018, Canada’s ratio rose, while the ratios of three other PMPRB7 countries (France, Italy, and Sweden) declined. In 2018, Canada had the fourth highest spending per capita on medicines compared to the PMPRB7, behind the US, Switzerland, and Germany.

Table 12. Medicine Expenditures as a Share of GDP, Canada and the PMPRB7, 2005 and 2018

Table 13 gives the composition of patentees’ sales by therapeutic class for Canada and the PMPRB7, individually by country and as an aggregate.^{Footnote 31} The results suggest considerable similarity across countries.

Table 13. Distribution of Medicine Sales by Major Therapeutic Class, Canada and the PMPRB7, 2020

National Prescription Drug Utilization Information System: Supporting Health Care Decision Making in Canada

How medications are used—where, by whom, and for what—has an impact on the amount that we spend on medicines. The PMPRB contributes to Canada’s understanding of medicine usage through the National Prescription Drug Utilization Information System (NPDUIS) initiative, generating comprehensive, accurate information to help guide decision making and support the sustainability of our pharmaceutical system.

Background

NPDUIS is a research initiative established by federal, provincial, and territorial Ministers of Health in September 2001. It is a partnership between the PMPRB and the Canadian Institute for Health Information (CIHI).

At the request of the Minister of Health pursuant to section 90 of the Patent Act, the PMPRB has the mandate to conduct analysis that provides decision makers with critical information and intelligence on price, utilization, and cost trends so that Canada’s healthcare system has more comprehensive and accurate information on how medicines are being used and on sources of cost pressures.

The specific research priorities and methodologies for NPDUIS are established with the guidance of the NPDUIS Advisory Committee and reflect the priorities of the participating jurisdictions. The Advisory Committee is composed of representatives from public drug plans in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, the Non-Insured Health Benefits (NIHB) Program, and Health Canada. It also includes observers from the CIHI, the Canadian Agency for Drugs and Technologies in Health (CADTH), the Ministère de la Santé et des Services sociaux du Québec (MSSS), and the pan-Canadian Pharmaceutical Alliance (pCPA) Office.

NPDUIS operates independently of the regulatory activities of the PMPRB. NPDUIS reports do not contain information that is confidential or privileged under sections 87 and 88 of the Patent Act.

Highlights

Since the start of 2020, the PMPRB has published seven analytical reports, three chartbooks, and two posters under the NPDUIS banner.

Published Reports:

• Meds Entry Watch, 4th Edition (January 2020)
• Meds Pipeline Monitor, 2019 (April 2020)
• Market Intelligence Report: Combination Inhalers for Asthma, 2018 (April 2020)
• Meds Pipeline Monitor, 2020 (January 2021)
• Meds Entry Watch, 5th Edition (February 2021)
• Alignment Among Public Formularies in Canada, Part 2: Oncology Medicines (May 2021)

Chartbooks:

• Biologics in Canada
  • Part 1: Market Trends, 2018 (May 2020)
  • Part 2: Biosimilar Savings, 2018 (May 2020)
• Oncology Medicines in Canada: Trends and International Comparisons, 2010–2019 (October 2020)

Poster Presentations:

• A pan-Canadian Comparison of Coverage for Hospital and Take-Home Oncology Medicines
• Changes in Canadian Guidelines for Conducting Budget Impact Analysis

In addition, in June 2020, the PMPRB, through the NPDUIS initiative, released updated Guidelines for Conducting Pharmaceutical Budget Impact Analyses for Submission to Public Drug Plans in Canada, which were first published in 2007. These Guidelines provide a standardized approach and detailed recommendations for developing a Budget Impact Analysis (BIA) for submission to CADTH or to one of the participating federal/provincial/territorial drug plans. The final recommendations are the result of a multi-year process that included extensive research and consultation with relevant stakeholders, including CADTH and participating plans.

The PMPRB continues to support and strengthen its NPDUIS engagement activities by regularly consulting with the NPDUIS Advisory Committee, participating in conferences and stakeholder committees, and organizing bilingual information sessions with interested stakeholders to share the results of the analytical studies.

Research Agenda

The NPDUIS research agenda for the remainder of the 2021–22 fiscal year includes plans to publish the following analytical studies:

Annual Publications and Report Series

• CompassRx: 7th Edition, 2019/20
• Meds Pipeline Monitor, 2021
• Meds Entry Watch, 6th Edition
• Alignment Among Public Formularies in Canada, Part 3: Medicines Assessed Through the Common Drug Review (CDR) Process
• Market Intelligence Report: New Oral Anti-Diabetic Drugs

Chartbooks

• Expensive Drugs for Rare Diseases: Canadian and International Markets, 2020

Additional research topics may be pursued based on consultation with the NPDUIS Advisory Committee.

Analysis of Research and Development Expenditures: At a Historical Low

Innovation is vital to advancing health care. In part, the provisions of Canada’s Patent Act are intended to foster an investment climate favorable to pharmaceutical research and development (R&D) in Canada. However, the ratio of R&D expenditures to sales revenues for pharmaceutical patentees in Canada has been falling since the late 1990s and has been below the agreed-upon target of 10% since 2003. In 2020, it was at 3.4% for all patentees and 3.5% for members of Innovative Medicines Canada.

3.4% R&D-to-sales ratio

The R&D-to-sales ratio for all patentees was 3.4% in 2020. This represents a 71% decrease from a peak of 11.7% in 1995.

Analysis of Research and Development Expenditures

The Act mandates the PMPRB to monitor and report on pharmaceutical R&D spending. This chapter provides key statistics on the current state of pharmaceutical R&D investment in Canada.

Data Sources

The statistical results in this section were entirely derived from data submitted to the PMPRB by patentees.

The Act requires each patentee to report its total gross revenues from sales of all medicines for human or veterinary use (including revenues from sales of non-patented medicines and from licensing agreements) and R&D expenditures in Canada related to medicines (both patented and non-patented for human or veterinary use). Patentees transmit this information to the PMPRB by means of its Form 3 (Revenues and Research and Development Expenditures Provided Pursuant to subsection 88(1) of the Patent Act).

The Patented Medicines Regulations (Regulations) require that each submitted Form 3 be accompanied by a certificate stating the information it contains is “true and correct”. The Board does not audit Form 3 submissions, but it does review submitted data for anomalies and inconsistencies, seeking corrections or clarifications from patentees where necessary. To confirm that PMPRB staff has correctly interpreted the data submitted, each patentee is given the opportunity to review and confirm the accuracy of its own R&D-to-sales ratio before that ratio is published.

Failure to File (Form 3)

It is a patentee’s responsibility to ensure a complete and accurate Form 3 is filed within the time frame set out in the Regulations. If a patentee fails to meet these filing requirements, the Board may issue an Order demanding compliance. No such Board Orders were issued for the 2020 reporting period.

Coverage

Note that companies without sales of patented medicines do not need to report their R&D expenditures to the PMPRB. This has two implications:

First, the statistical results reported here should not be understood as representative of all pharmaceutical research conducted in Canada. For example, a company may sell only non-patented medicines but still perform considerable research. Similarly, a company may conduct research and have no medicine sales at all.^{Footnote 32} The results presented below will not reflect the R&D expenditures of firms in either situation.

Second, as new patented medicines come onto the Canadian market and existing relevant patents expire, the number and identity of companies required to file R&D data may change from year to year. In 2020, 99 companies reported on their R&D activity. Of these, 35 were members of Innovative Medicines Canada.

Definition of Sales Revenues

For reporting purposes, sales revenues are defined as total gross revenues from sales in Canada of all medicines and from licensing agreements (e.g., royalties and fees accruing to the patentee related to sales in Canada by licensees).

Definition of R&D Expenditures

Pursuant to section 6 of the Regulations, patentees are required to report R&D expenditures that would have qualified for a Scientific Research and Experimental Development (SR&ED) investment tax credit under the provisions of the Income Tax Act that came into effect on December 1, 1987.^{Footnote 33} By this definition, R&D expenditures may include current expenditures, capital equipment costs, and allowable depreciation expenses. Market research; sales promotions; quality control or routine testing of materials, devices, or products; and routine data collection are not eligible for an investment tax credit and, therefore, are not to be included in the R&D expenditures reported by patentees.

Total Sales Revenues and R&D Expenditures

Table 14 provides an overview of reported sales revenues and R&D expenditures from 1988 to 2020.

Patentees reported total 2020 sales revenues of $24.3 billion, an increase of 5.1% from 2019. Sales revenues reported by Innovative Medicines Canada members were $18.9 billion, accounting for 78% of the total. (Less than 1% of reported sales revenues were generated by licensing agreements.)

Patentees reported R&D expenditures of $822.9 million in 2020, a decrease of 7.9% from 2019. Innovative Medicines Canada members reported R&D expenditures of $662.8 million in 2020, an increase of 1.6% over the previous year. Innovative Medicines Canada members accounted for 81% of all reported R&D expenditures in 2020.

R&D-to-Sales Ratios

Table 14 and Figure 36 also provide ratios of R&D expenditures to sales revenues. It should be noted that with the adoption of the 1987 amendments to the Act, Innovative Medicines Canada made a public commitment to increase its members’ annual R&D expenditures to 10% of sales revenues by 1996.^{Footnote 34} This level of R&D expenditure was reached by 1993, with the ratio exceeding 10% in some years.

The ratio of R&D expenditures to sales revenues among all patentees was 3.4% in 2020, a decrease from 3.9% in 2019. The overall R&D-to-sales ratio has been less than 10% for the past 20 years.

The corresponding R&D-to-sales ratio for members of Innovative Medicines Canada was 3.5% in 2020, a decrease from 3.9% in 2019.^{Footnote 35} The Innovative Medicines Canada ratio has been less than 10% for the past 18 years.

Table 21 in Appendix 4 provides details on the range of 2020 R&D-to-sales ratios. Of the 99 companies reporting in 2020, 85.9% had R&D-to-sales ratios below 10%.

Table 14. Total R&D Expenditures and R&D-to-Sales Ratios of Reporting Companies, 1988 to 2020

Current R&D Expenditures by Type of Research

Table 15 and Figure 37 (as well as Figure 39 in Appendix 4) provide information on the allocation of 2020 R&D expenditures^{Footnote 36} in basic and applied research as well as other qualifying R&D.^{Footnote 37} Patentees reported spending $113.9 million on basic research in 2020, representing 14.2% of current R&D expenditures, a decrease of 2.6% over the previous year. A reported $455.4 million was spent on applied research, representing 56.8% of current R&D expenditures. Clinical trials accounted for 81.0% of applied research expenditures.

Table 15. Current R&D Expenditures by Type of Research, 2020 and 2019

Current R&D Expenditures by Performer

Patentees report expenditures on research they conduct themselves (intramural) and research performed by other establishments, such as universities, hospitals, and other manufacturers (extramural).

Table 16 shows that 45.9% of 2020 current research expenditures were intramural. Research performed by other companies on behalf of patentees made up 26.4% of current expenditures, while research conducted in universities and hospitals accounted for 19.0%.

Table 16. Current R&D Expenditures by R&D Performer, 2020 and 2019

Current R&D Expenditures by Region

Table 17 (as well as Tables 23 and 24 in Appendix 4) show current R&D expenditures by region. As in previous years, current expenditures were heavily concentrated in Ontario and Quebec in 2020, with these provinces accounting for 79.4% of total expenditures. Between 2019 and 2020, R&D expenditures decreased at a year-over-year rate of 15.8% in the Atlantic provinces, 7.6% in Quebec, 7.4% in Ontario, and 7.1% in Western Canada.

Table 17. Current R&D Expenditures by Region, 2020 and 2019

Total R&D Expenditures by Source of Funds

Table 18 provides information on the sources of funds used by patentees to finance their R&D activity. Internal company funds remained by far the single largest source of funding in 2020, accounting for 90.6% of total expenditures. Funds received from government amounted to 0.6% of total expenditures.

Table 18. Total R&D Expenditures by Source of Funds, 2020 and 2019

The Global Context

Figure 38 compares Canadian pharmaceutical R&D-to-sales ratios for 2000 and 2018 to those in the PMPRB7. In 2000, Canada had an R&D-to-sales ratio of 10.1%, lower than all other PMPRB7 countries except for Italy at 6.2%. Switzerland had the highest ratio at 102.5%.

In 2018, Canada’s R&D-to-sales ratio was the lowest among all comparator countries at 4.0%. Italy had a higher ratio of 6.9%, while all other PMPRB7 countries remained well above Canada. The ratio obtained by aggregating R&D spending and sales across all PMPRB7 countries was 22.0%, more than five times that in Canada. The R&D-to-sales ratios represented in Figure 38 may be compared to the average bilateral price ratios reported in Table 9 (see “Comparison of Canadian Prices to Foreign Prices”). A number of comparator countries with patented medicine prices that are, on average, lower than prices in Canada, have achieved much higher R&D-to-sales ratios.

As noted in previous annual reports, there are a multitude of factors that drive the location of pharmaceutical R&D. These include where companies can find the best science base at a reasonable cost and have ready access to a quality clinical trials infrastructure. Although price levels and intellectual property protection are often cited as an important policy lever for attracting R&D, the data has not supported this link domestically or internationally.

5x Greater

The PMPRB7 average R&D ratio is almost 5x greater than in Canada. The R&D-to-sales ratio obtained by aggregating R&D spending and sales across all seven comparator countries in 2018 was 22.0%, compared to just 4.0% in Canada.

Appendix 1: Glossary

These definitions are provided for general assistance only; they have no legal force and should be read in conjunction with the applicable legislation.

Active Ingredient or Medicinal Ingredient: Chemical or biological substance responsible for the claimed pharmacologic effect of a medicine.

ATC: Anatomical Therapeutic Chemical (ATC) classification system, developed and maintained by the World Health Organization (WHO) Collaborating Centre for Drug Statistics Methodology, which divides medicines into different groups according to their site of action and therapeutic and chemical characteristics. This system is used by the PMPRB as a guide for selecting comparable medicines for purposes of price review under the Guidelines.

Drug Identification Number (DIN): A registration number (drug identification number) that the Health Products and Food Branch of Health Canada assigns to each prescription and non-prescription drug product marketed under the Food and Drug Regulations. A DIN uniquely identifies the following product characteristics: manufacturer; product name; active ingredient(s); strength of active ingredient(s); pharmaceutical dosage form; route of administration. Different strengths and dosage forms of a medicine may be assigned different DINs.

Drug Product: A particular presentation of a medicine characterized by its pharmaceutical dosage form and the strength of the active ingredient(s) (see “medicine”).

Failure to File: The complete or partial failure of a patentee to comply with regulatory filing requirements pursuant to the Patent Act and the Patented Medicines Regulations.

Failure to Report: The complete failure of a patentee to have reported a patented medicine being sold in accordance with regulatory filing requirements pursuant to the Patent Act and the Patented Medicines Regulations.

License, Voluntary: A contractual agreement between a patent holder and a licensee under which the licensee is entitled to enjoy the benefit of the patent or to exercise any rights in relation to the patent for some consideration (e.g., royalties in the form of a share of the licensee’s sales).

Medicine: A medicinal ingredient and/or a substance or a mixture of substances manufactured, sold or represented for use in the diagnosis, treatment, mitigation or prevention of a disease, disorder or abnormal physical state, or its symptoms, in human beings or animals; or restoring, correcting or modifying organic functions in human beings or animals.

Notice of Compliance (NOC): A notice issued under section C.08.004 or C.08.004.01 of the Food and Drug Regulations. The issuance of an NOC indicates that a drug product meets the required Health Canada standards for use in humans or animals and that the manufacturer of the product is authorized to market the product in Canada.

Patent: An instrument issued by the Commissioner of Patents in the form of letters patent for an invention.

Patented Medicine Price Index (PMPI): The PMPI was developed by the PMPRB as a measure of average year-over-year change in the transaction prices of patented medicines sold in Canada, based on the price and sales information reported by patentees.

Patentee: As defined by subsection 79(1) of the Patent Act, “the person for the time being entitled to the benefit of the patent for that invention and includes, where any other person is entitled to exercise any rights in relation to that patent other than under a license continued by subsection 11(1) of the Patent Act Amendment Act, 1992, that other person in respect of those rights”.

PMPRB7: France, Germany, Italy, Sweden, Switzerland, the United Kingdom, and the United States.

Research and Development (R&D): Basic or applied research for the purpose of creating new, or improving existing, materials, devices, products, or processes (e.g., manufacturing processes).

Research and Development—Applied Research: R&D directed toward a specific practical application, comprising research intended to improve manufacturing processes, pre-clinical trials and clinical trials.

Research and Development—Basic Research: R&D defined as work that advances scientific knowledge without a specific application in mind.

Research and Development—Other Qualifying: Eligible research and development expenditures that cannot be classified into any of the preceding categories of “type of research and development”. It includes regulatory submissions, bioavailability studies and Phase IV clinical trials.

Research and Development Expenditures: For the purposes of the Patented Medicines Regulations, in particular Sections 5 and 6, research and development includes activities for which expenditures would have qualified for the investment tax credit for scientific research and experimental development under the Income Tax Act as it read on December 1, 1987.

Research and Development Expenditures–Current: Consist of the following non-capital expenses directly related to research work: (a) wages and salaries, (b) direct material, (c) contractors and subcontractors, (d) other direct costs such as factory overhead, (e) payments to designated institutions, (f) payments to granting councils, and (g) payments to other organizations. These elements are described in greater detail in the Patentees’ Guide to Reporting—Form 3, available on the PMPRB Website under Regulatory Filings.

Special Access Program (SAP): A program operated by Health Canada to give practitioners access to medicines that are not approved or otherwise available in Canada.

Voluntary Compliance Undertaking (VCU): A written undertaking by a patentee to adjust its price to conform to the Board’s Guidelines. A VCU represents a promise by a patentee geared towards a satisfactory resolution of an investigation initiated by Staff as per the Guidelines. A VCU takes into account the specific facts and underlying context of a particular case. As such, VCUs are not intended to have precedential value.

Appendix 2: Patented Medicines First Reported to the PMPRB in 2020

Table 19. Patented Medicines First Reported to the PMPRB in 2020

Appendix 3: Pharmaceutical Trends - Sales

Table 20. Sales of Patented Medicines, 1990 to 2020

Appendix 4: Research and Development

Table 21. Range of R&D-to-Sales Ratios by Number of Reporting Companies and Total Sales Revenue, 2020 and 2019

The share of sales held by companies with an R&D-to-sales ratio greater than 10% dropped from 12.4% to 4.9% between 2019 and 2020.