Teva Neuroscience G.P.-S.E.N.C. v. Canada (Attorney General)

Teva Neuroscience G.P.-S.E.N.C. v. Canada (Attorney General)
Court (s) Database
Federal Court Decisions
Date
2009-11-12
Neutral citation
2009 FC 1155
File numbers
T-470-08, T-939-08
Notes
Digest
Decision Content
Federal Court
Cour fédérale
Date: 20091112
Dockets: T-470-08
T-939-08
Citation: 2009 FC 1155
Toronto, Ontario, November 12, 2009
PRESENT: The Honourable Mr. Justice Hughes
BETWEEN:
TEVA NEUROSCIENCE G.P.-S.E.N.C.
Applicant
and
ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1] These consolidated proceedings relate to two applications for judicial review sought by Teva Neuroscience G.P.-S.E.N.C. of decisions made by the Patented Medicines Prices Review Board in the first of which it was determined by the Board that Teva had priced its medicine, Copaxone, excessively and, in the second of which, that a payment to the Crown of $2,417,223.29 be made as a result of that determination. For the reasons that follow, I find that the applications are allowed and the decisions are to be sent back for redetermination.
[2] The Patented Medicines Prices Review Board (the Board) was established in 1987 and continued in 1993 under the provisions of the Patent Act, R.S.C. 1985, c. P-4 as amended in 1993 and 1996 and in particular sections 79 to 103 of that Act. It has many duties including the monitoring of prices of what are described as “medicines” if such medicines are the subject of a “patent”, the reporting of such prices to Parliament and, importantly in the context of these applications, the determination as to whether such prices are “excessive” and, if so, the imposition of a variety of remedies.
[3] The Applicant Teva Neuroscience G.P.-S.E.N.C. (Teva) distributes in Canada a medicine under the name Copaxone which is useful in the treatment of multiple sclerosis. That medicine as it was first introduced was packaged in a vial. It subsequently was packaged in a pre-filled syringe. It is the medicine as packaged in a syringe that is the particular subject of these proceedings. There is no dispute between the parties that such Copaxone is a “medicine” within the relevant provisions of the Patent Act and that such medicine is the subject of a “patent” within such provisions. In this case it is Canadian Patent 2,191,088 which has an application filing date in Canada of May 23, 1995, and was granted and issued September 28, 2004. There is no dispute between the parties that, for purposes of the Board’s decisions and this Court’s review of the matter, Copaxone is of the same therapeutic class (as that term is used in s. 85(1) of the Patent Act) as competitive medicines distributed by others in the Canadian market, namely Betaseron, Avonex and two versions of Rebif.
[4] In 1997 Teva introduced Copaxone into Canada. It was in vial form. There was one competitor medicine on the market, Betaseron. Teva approached the Board for a preliminary view as to categorization and pricing of its drug. Since Teva had only a pending patent application at the time, the Board took the position that it did not yet have jurisdiction to consider such matters. Nonetheless the Board expressed the view that, since the price of Copaxone was below that of Betaseron ($36.00 per day for Copaxone vs. $44.51 per day for Betaseron), the pricing of Copaxone was, in all probability, not excessive. It is important to note that the price of Betaseron had been previously approved by the Board as being not excessive.
[5] Between 1997 and 2002 Teva made a number of changes to Copaxone, in particular it introduced packaging in the form of a syringe which on March 20, 2002 was granted a separate Notice of Compliance by Health Canada. The syringe form was introduced in the market in Canada on May 15, 2002. The 2,191,088 patent was granted on September 28, 2004. The Board’s decision dated February 28, 2008 at paragraph 6 misstates that the patent was directed to the syringe, it is in fact directed to the medicinal composition itself, however, that is immaterial since the parties have not disputed that the patent was sufficient so as to bring Copaxone within the jurisdiction of the Board.
[6] Once the patent issued, Teva was requested by the Board to file information related to pricing both for the earlier vial as well as syringe form of Copaxone. It is important to note that at the time the Board was of the opinion that it could only make such a request after the relevant patent had issued, however since the 2007 decision of this Court in Shire Biochem Inc. v. Canada (Attorney General), 2007 FC 1316, 63 C.P.R. (4th), 342, it has been determined that such a request could be made earlier, that is, once the patent was laid open to the public.
[7] A few months prior to the time the patent issued, that is, on or about July 27, 2004, Teva implemented a 20% price increase for the Copaxone syringe product, raising it from $36.00 to $43.20 per day. While this was still the lowest price for medicines in its category, the Board warned Teva that such an increase may be considered excessive. Once the patent issued discussions ensued in earnest between Teva and the Board. Nothing was resolved. The Board issued a Notice of Hearing on May 8, 2006, evidence was submitted, arguments made and an oral hearing was held. The result was the two decisions by the Board which are the subject of these consolidated judicial reviews.
[8] The first decision of the Board dated February 25, 2008 was a determination that Copaxone had been sold at an excessive price on and after July 1, 2004 and that the only price increases permitted were those related to the Consumer Price Index (CPI) in accordance with the Board’s Guidelines. A formula was provided in the decision respecting permitted increases. The Board recommended that negotiations be conducted as to the amount of excess revenues that were to be paid to the Crown by Teva as a result of its findings that the price was excessive. The Board further determined that Teva had not engaged in a policy of selling the medicine at an excessive price therefore no Order in that regard under section 83(4) of the Patent Act would be made. No review is sought in respect of this latter determination.
[9] The second decision of the Board dated May 12, 2008 is a consequence of the first decision since no agreement had been reached. This second decision fixed the amount to be paid by Teva to the Crown in the amount of $2,417,223.29.
[10] Teva has sought judicial review of these two decisions.
Issues
[11] While Teva simply states that the issue is whether these decisions should be left undisturbed or should they be quashed, a number of issues in that regard have been raised which I have placed in the following order:
· Issue #1 - Was the decision that Copaxone was priced “excessively” unreasonable?
· Issue #2 - Were the Board’s reasons adequate?
· Issue #3 - Did the Board have jurisdiction to make the section 83 Order that it did?
· Issue #4 - Did the Board have jurisdiction to make the Order for payment that it did?
[12] Before considering these issues directly I will discuss the origin and nature of the Board in the context of this proceeding, consider the standard of review, consider the Guidelines of the Board, provide a chronology of events, consider the Board’s decisions and, present the theory of the case as asserted by Counsel for each party. I thank Counsel for the clear and direct manner in which this case was presented and their assistance in answering questions throughout the hearing.
The Origin and Nature of the Board
[13] Under the Constitution Act, 1867, section 91(22), “Patents of Invention and Discovery” is an area of jurisdiction assigned to the Parliament of Canada. The Patent Act, R.S.C. 1985, c. P.5, enacted in respect thereof affords rights to persons to be granted a patent in respect of inventions directed to a new and useful art, process, machine, manufacture or composition of matter or improvements to the same. That Act provides for exemptions to things that can be patented, for instance section 27(8) exempts any mere scientific principle or abstract theorem. Judicial interpretation has excluded living creatures such as mice from patentable subject matter (Harvard College v. Canada (Commissioner of Patents), [2004] 4 S.C.R. 45).
[14] For a considerable period of time, medicines were exempted by the Patent Act so that no patent could be granted for a “medicine.” Certain forms of clever claims drafting such as “Swiss Claims” were devised by patent practitioners to overcome this exemption in part. Gradually Canada’s patent laws were changed so as to permit “process dependent” claims to medicines and, eventually, to claims directed to medicines themselves. Still, medicines were treated specially under patent legislation. Until 1993, the Commissioner of Patents (not the patent owner) could grant compulsory licences in respect of patents directed to medicines to third parties who wanted to make, use or sell patented medicines in Canada. Almost everyone who applied got such a licence. Thus, unlike a patent directed for instance to a ferris wheel, patents directed to medicines were the subject of special restrictions.
[15] In 1993, substantial amendments were made to the Patent Act, compulsory licenses were abolished and the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 were put in their place. However prior to that, during the era of the compulsory licences, Parliament established, in 1987, the Patented Medicines Prices Review Board with a mandate to monitor, report upon and regulate the prices at which patented medicines were sold in Canada.
[16] Section 83(1) of the Patent Act supra provides for a finding by the Board that a patented medicine is being sold in Canada “… at a price that, in the Board’s opinion, is excessive …”
Excessive Prices
Order re excessive prices
83.(1) Where the Board finds that a patentee of an invention pertaining to a medicine is selling the medicine in any market in Canada at a price that, in the Board’s opinion, is excessive, the Board may, by order, direct the patentee to cause the maximum price at which the patentee sells the medicine in that market to be reduced to such level as the Board considers not to be excessive and as is specified in the order.
Prix Excessifs
Ordonnance relative aux prix excessifs
83. (1) Lorsqu’il estime que le breveté vend sur un marché canadien le médicament à un prix qu’il juge être excessif, le Conseil peut, par ordonnance, lui enjoindre de baisser le prix de vente maximal du médicament dans ce marché au niveau précisé dans l’ordonnance et de façon qu’il ne puisse pas être excessif.
[17] Section 83(3) stipulates the consequences that the Board may impose when a finding that the price was “excessive” is made, they include the payment of a specified amount to the Crown:
Idem
(3) Subject to subsection (4), where the Board finds that a former patentee of an invention pertaining to a medicine had, while a patentee, sold the medicine in any market in Canada at a price that, in the Board’s opinion, was excessive, the Board may, by order, direct the former patentee to do any one or more of the following things as will, in the Board’s opinion, offset the amount of the excess revenues estimated by it to have been derived by the former patentee from the sale of the medicine at an excessive price:
(a) reduce the price at which the former patentee sells a medicine to which a patented invention of the former patentee pertains in any market in Canada, to such extent and for such period as is specified in the order; or
(b) pay to Her Majesty in right of Canada an amount specified in the order.
Idem
(3) Sous réserve du paragraphe (4), lorsqu’il estime que l’ancien breveté a vendu, alors qu’il était titulaire du brevet, le médicament à un prix qu’il juge avoir été excessif, le Conseil peut, par ordonnance, lui enjoindre de prendre l’une ou plusieurs des mesures suivantes pour compenser, selon lui, l’excédent qu’aurait procuré à l’ancien breveté la vente du médicament au prix excessif :
a) baisser, dans un marché canadien, le prix de vente de tout autre médicament lié à une invention dont il est titulaire du brevet dans la mesure et pour la période prévue par l’ordonnance;
b) payer à Sa Majesté du chef du Canada le montant précisé dans l’ordonnance.
Standard of Review
[18] The parties are agreed that, when it comes to whether or not the Board acted within its Constitutional jurisdiction the standard to be applied is correctness, otherwise the standard to be applied is that of reasonableness as set out in Dunsmuir v. New Brunswick, [2008] 1 S.C.R. 190, especially paragraph 47 which directs the Court to consider whether the decision under review is justified, transparent and intelligible and falls within the range of defendable possible, acceptable outcomes:
Reasonableness is a deferential standard animated by the principle that underlies the development of the two previous standards of reasonableness: certain questions that come before administrative tribunals do not lend themselves to one specific, particular result. Instead, they may give rise to a number of possible, reasonable conclusions. Tribunals have a margin of appreciation within the range of acceptable and rational solutions. A court conducting a review for reasonableness inquires into the qualities that make a decision reasonable, referring both to the process of articulating the reasons and to outcomes. In judicial review, reasonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process. But it is also concerned with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law.
[19] As set out at paragraph 58 of the same decision, correctness applies to Constitutional questions regarding division of powers:
For example, correctness review has been found to apply to constitutional questions regarding the division of powers between Parliament and the provinces in the Constitution Act, 1867: Westcoast Energy Inc. v. Canada (National Energy Board), [1998] 1 S.C.R. 322. Such questions, as well as other constitutional issues, are necessarily subject to correctness review because of the unique role of s. 96 courts as interpreters of the Constitution: Nova Scotia (Workers Compensation Board) v. Martin, [2003] 2 S.C.R. 504, 2003 SCC 54; Mullan, Administrative Law, at p. 60.
[20] While deference is to be afforded to an adjudicator whose decision is under review, where that decision falls outside the range of acceptable outcomes, it must be set aside, as the Supreme Court wrote at paragraph 72 of Dunsmuir:
While we are required to give deference to the determination of the adjudicator, considering the decision in the preliminary ruling as a whole, we are unable to accept that it reaches the standard of reasonableness. The reasoning process of the adjudicator was deeply flawed. It relied on and led to a construction of the statute that fell outside the range of admissible statutory interpretations.
Guidelines of the Board
[21] The Board has prepared, apparently with consultation with relevant stakeholders, a detailed set of Guidelines, Compendium of Guidelines, Policies and Procedures, first published in 1994. These Guidelines are periodically revised. I was provided with the October 2003 version which version is said to be relevant to this consideration of the Board’s decisions. The Patent Act section 96(4) provides that the Board may issue such Guidelines but clearly specifies that they are not binding:
Guidelines
(4) Subject to subsection (5), the Board may issue guidelines with respect to any matter within its jurisdiction but such guidelines are not binding on the Board or any patentee.
Directives
(4) Sous réserve du paragraphe (5), le Conseil peut formuler des directives — sans que lui ou les brevetés ne soient liés par celles-ci — sur toutes questions relevant de sa compétence.
[22] Further, section 96(6) of the Patent Act, provides that the Statutory Instruments Act does not apply to such Guidelines:
Non-application of Statutory Instruments Act
(6) The Statutory Instruments Act does not apply to guidelines issued under subsection (4).
1993, c. 2, s. 7.
Non-application de la Loi sur les textes réglementaires
(6) La Loi sur les textes réglementaires ne s’applique pas à ces directives.
1993, ch. 2, art. 7.
[23] The Guidelines are described in their Introduction as follows:
Introduction
This Compendium is a consolidation of the Guidelines, policies and procedures of the Patented Medicine Prices Review Board previously published in Bulletins 1 through 13. It is divided into three chapters:
• Excessive Price Guidelines
• Compliance and Enforcement Policy; and
• Scientific Review Procedures
One of the PMPRB’s primary objectives is to ensure that patentees are aware of the policies, procedures and Guidelines under which staff review the prices of patented drug products, and proceed when a price appears to be excessive. This Compendium has been issued to promote awareness and facilitate compliance. Should there be any inconsistency, its contents supersede and replace all the directives previously published in Bulletins 1 through 13 inclusively.
[24] The purpose of the Guidelines is set out in Chapter 1, section 1. Specifically section 1.3 states that the Guidelines are not rigid and not binding:
1. Purpose
1.1 Subsection 85(1) of the Act stipulates those factors that the
Board, during the course of a public hearing, must take into consideration when determining whether a medicine is being sold or has been sold at an excessive price. These factors are:
• the prices at which the medicine has been sold in the relevant market;
• the prices of other medicines in the same therapeutic class;
• the prices of the medicine and of the other medicines in other countries;
• changes in the Consumer Price Index; and
• such other factors as may be specified by regulations
1.2 If after considering the above factors, the Board is unable to determine if a price is excessive, it may consider the costs of making and marketing the medicine as well as other factors which can be specified by regulations or that the Board considers relevant in the circumstances.
1.3 The Board's Excessive Price Guidelines are issued pursuant to section 96 of the Act. They are not a rigid set of decision-making rules and are not binding on the Board or on any patentee. They are intended to provide patentees with parameters and information that will aid them in establishing, in advance, prices that may be presumed not to be excessive.
[25] Justice Rothstein (as he then was as a Judge of this Court) wrote, in respect of the Guidelines, in ICN Pharmaceuticals, Inc. v. Canada (Patented Medicines Prices Review Board) (1996), 69 C.P.R. (3d) 129, [1996] F.C.J. No. 1112, at paragraph 6:
6. The applicants say the Board could not have regard to its Guidelines under subsection 85(1) as the Guidelines are not an enumerated factor in the subsection. However, each factor listed in subsection 85(1) is not an abstract concept that would be useful in a vacuum. The Board is obviously required to consider the factors in subsection 85(1) according to some rationale, approach or methodology. The rationale, approach or methodology may be ad hoc or may be derived from the Board's Guidelines. That it had regard to the Guidelines for rationale, approach or methodology did not take the Board outside of the scope of subsection 85(1)
and at footnote 2 referred to in paragraph 6 Rothstein J. wrote:
2 Had it treated the Guidelines as binding, the Board may well have erred. Subsection 96(4) of the Patent Act provides that the Board may issue guidelines, but that such guidelines are not binding on the Board.
[26] Among many things covered in the Guidelines is the approach of the Board to the question of “excessive” pricing. A number of “tests” are set out in section 6:
6. Excessive Price Tests
6.1 The PMPRB, in consultation with interested parties, has developed various tests to determine whether the price of a drug product is within the Guidelines.
6.2 The Reasonable Relationship Test considers the association between the strength and the price of the same medicine in the same or comparable dosage forms. The Reasonable Relationship Test is described in Schedule 1.
6.3 The Therapeutic Class Comparison Test compares the price of the DIN under review with the prices of DINs that are clinically equivalent and are sold in the same markets at prices that the Board considers not to be excessive. This test is described in Schedule 2.
6.4 The International Price Comparison Test compares the average transaction price of the DIN under review with the publicly available ex-factory prices of the same medicine sold in countries listed in the Regulations. This test is described in Schedule 3.
6.5 The measurement of change in the Consumer Price Index (CPI) over a specified period is used to compare the average transaction price of a drug product with the CPI-adjusted price of the product. The calculation of the CPI-adjusted price is described in Schedule 4.
6.6 The application of these tests in the PMPRB's review of the average price of a drug product is explained in the following sections.
[27] It is important to note that the Board, in its Guidelines, has set out at least two circumstances in respect of which regardless as to other circumstances, it will presume that a price is excessive. The first is set out in section 7.1 of the Guidelines, and states that if the price in Canada exceeds that of all other countries listed in the Regulations (France, Germany, Italy, Sweden, Switzerland, United Kingdom, United States) then the price is presumed to be excessive (that is not the circumstance here):
7.1 The price of a new or existing patented drug product will be presumed to be excessive if it exceeds the prices of the same medicine sold in all countries listed in the Regulations. These prices will be determined using the International Price Comparison Test described in Schedule 3.
[28] The second is stated in section 9.1 where the price is presumed to be excessive if the price change exceeds the “benchmark price” by more than the cumulative CPI increase during the “pricing period” under review.
9.1 In addition to the Guideline applicable to all patented drug products detailed in Section 7, the price of an existing DIN will be presumed to be excessive if it exceeds the benchmark price of the DIN adjusted for the cumulative change in the Consumer Price Index (CPI) from the benchmark period to the pricing period under review (CPI-adjusted price). Schedule 4 provides detailed definitions and examples of the PMPRB's CPI-adjustment methodology.
[29] Thus the Guidelines stipulate that a presumption applies if a price increase over what is considered a benchmark price exceeds the cumulative CPI increase during what is considered to be the pricing period.
[30] In considering the nature and effect of these Guidelines it is important to start with sections 96(4) and (6) of the Patent Act which clearly provide that the Guidelines are not binding, which enjoinder is repeated in section 1.3 of the Guidelines themselves. The Guidelines constitute what Professor Sullivan calls “soft law” in her text “Sullivan on the Construction of Statutes” 5th ed., Lexis Nexis, 2008 at pages 621-630. She cites a decision of the Federal Court of Appeal, Canada v. Thamotharem, [2007] F.C.J. No. 734 in which Evans JA writes at paragraph 56:
56 Through the use of "soft law" an agency can communicate prospectively its thinking on an issue to agency members and staff, as well as to the public at large and to the agency's "stakeholders" in particular. Because "soft law" instruments may be put in place relatively easily and adjusted in the light of day-to-day experience, they may be preferable to formal rules requiring external approval and, possibly, drafting appropriate for legislation. Indeed, an administrative agency does not require an express grant of statutory authority in order to issue guidelines and policies to structure the exercise of its discretion or the interpretation of its enabling legislation: Ainsley Financial Corp. v. Ontario (Securities Commission) (1994), 121 D.L.R. (4th) 79 (Ont. C.A.) at 83 ("Ainsley").
[31] Expressing a need for caution in dealing with guidelines, Professor Sullivan cites the decision of the Alberta Court of Appeal in Miller, McClelland Ltd. v. Barrhead Savings & Credit Union Ltd., [1995] A.J. No. 167 at paragraphs 8-10:
8 The Registry Information Guide published by the Attorney General, directs that the birth certificate name be used in registering securities. However, while we agree that administrative interpretations are useful in interpreting the intent of legislation, they cannot be applied to establish mandatory requirements beyond the purview of the legislation itself.
9 The Guide is not registered as a Regulation and was not published in the Alberta Gazette, so the presumption of notice and knowledge does not apply.
10 Though the language used in the Guide is directive, in the absence of some cross reference or delegation in the regulations, those directives have no binding legal effect. As Coté, J.A. said in Case Power & Equipment v. Price Waterhouse Limited, September 29, 1994 (in dissent, but the majority did not disagree on this point):
The law is not set by private or government manuals telling the public how to search. Such manuals have no force of law. And their counsel is one of caution. They doubtless give good advice, but even when they touch on law and not computers, they reflect the law; they do not make it. To rely on them is to argue in circles or even backwards.
[32] These Guidelines as published by the Board are useful both for the Board and for the public and may legitimately be referred to by the Board in the course of making its decisions. However, these Guidelines are not law nor do they have the force of law, at best they are “soft law”. Primary attention must be paid to the Patent Act and any relevant Regulations. Where the Guidelines or their applications conflicts with the Act or Regulations, they cannot prevail.
Chronology of Relevant Events
[33] The following events, in chronological order, are relevant to consideration of the issues:
May 3, 1995
Application for the ’088 patent is deemed to have been filed in Canada.
Sometime prior to 1997
Betaseron, a competitive product is introduced in Canada at a price of $44.51 per daily dose which price has been approved by the Board as being “not-excessive” and in respect of which a Voluntary Compliance Undertaking (VCU) was provided to the Board.
September 1997
Teva introduces Copaxone in the Canadian market at a price of $36.00 per daily dose. This Copaxone is provided in a vial format.
November 1997
The Board provides Teva with an advisory opinion that the price of $36.00 per daily dose was in all probability not excessive. At the time the Board believed that it could only provide actual rulings once the patent had issued. Case law in 2007, supra, has held that the Board could do so earlier once a patent application had been published (here at the end of 1997 but the belief at the time was nothing could be done then).
May 15, 2002
Teva introduces Copaxone in a syringe format. The price remained the same $36.00 per daily dose.
July 1, 2004
Teva increases the price of the daily dose of Copaxone in syringe format from $36.00 to $43.20, an increase of 20%. It was, nonetheless, still the lowest priced medicine in its therapeutic class.
September 28, 2004
The ’088 patent issues.
July 2004 to May 2006
Negotiations take place between the Board and Teva as to the 20% price increase; the Board taking the position that the increase was “excessive”.
May 8, 2006
The Board issues a Notice of Hearing and proceedings commence.
January 25, 2008
Board issues its decision that Teva’s price increase was excessive.
May 12, 2008
Board requires Teva to pay the Crown $2,417,223.29.
From July 2004 to January 2008
Teva does not make any further price increases, the price remains at $43.20 per daily dose.
[34] Reference is frequently made to the Consumer Price Index (CPI) and it changes from year to year. It was agreed that the CPI as put in evidence before the Board is accurate, part of which is as follows:
Year
All Items
2002=100
Change from previous year %
1988
71.2
3.9
1989
74.8
5.1
1990
78.4
4.8
1991
82.8
5.6
1992
84.0
1.4
1993
85.6
1.9
1994
85.7
0.1
1995
87.6
2.2
1996
88.9
1.5
1997
90.4
1.7
1998
91.3
1.0
1999
92.9
1.8
2000
95.4
2.7
2001
97.8
2.5
2002
100.0
2.2
2003
102.8
2.8
2004
104.7
1.8
2005
107.0
2.2
2006
109.1
2.0
2007
111.5
2.2
(1997 to 2004 inclusive = 15.9%)
Decisions of the Board
The February 25, 2008 Decision
[35] By its February 25, 2008 decision the Board found, as stated in paragraph 57 that the magnitude of the price increase (20% in July, 2004), and its one-time impact on consumers, resulted in the medicine being sold at an excessive price on and after July 1, 2004. It said:
In light of all the factors enumerated in section 85 of the Act, we have concluded that the magnitude of the price increase, and its one-time impact on consumers, resulted in the medicine being sold at an excessive price on and after July 1, 2004.
[36] The Board begins its reasons with a recitation of a number of factual findings, among which are:
Para 5: Teva’s Copaxone price of $36.00 as initially sold in vial form was below that of its only competition Betaseron which sold at an approved price of $44.51 per day, thus the Copaxone price was in all probability, non-excessive.
Para 6: Between 1997 and 2002 Teva made significant change to Copaxone’s mode of delivery, including a change from vial to syringe.
Para 8: Teva advised the Board that between July 1, 2004 it had implemented a 20% price increase from $36.00 to $43.20, still the lowest priced medicine in its therapeutic class.
Para 9: The Board advised Teva that the introductory price of the syringe, $36.00 was within the Guidelines but that the increased price of $43.20 was excessive under the Guidelines.
Para 38: The introductory price of the Copaxone syringe as of May 2002 at $36.00 is the “benchmark” price. It is the same price as the earlier vial. Both the vial and syringe contain the same active ingredient at comparable dosages. The “benchmark year” to be used is 1997, the year that the vial was introduced, for purposes of calculating CPI increases from 1997 to 2004.
Para 40: Copaxone has always been the lowest priced drug in its therapeutic class. When Copaxone was introduced, the only competitive drug, Betaseron was priced 25% higher. The Betaseron price had been approved by the Board. The other drugs in the same therapeutic class later introduced all at prices significantly higher than Copaxone.
Para 49: Improvements made by Teva respecting Copaxone may not have improved its therapeutic value but they significantly benefited users.
Para 50: No objective evidence as to the costs of improving the delivery mechanics of Copaxone, particularly those attributable to Canada, was provided by Teva.
Para 52: The Board was satisfied that Teva incurred substantial costs, which can be attributed to its Canadian operation. An increased price was justified.
Para 57 (a): The CPI increased by 15.9% from 1997 to July 1, 2004.
[37] The Board explained the methodology by which it arrived at its decision in its reasons as follows:
Para 34: This is the first case that the Board was called upon to deal with the meaning and effect of section 85 (1)(d) of the Act and its CPI methodology as set out in its Guidelines.
Para 35: The Panel’s decision is discretionary and must be based on all factors enumerated in subsection 85 (1) of the Act, and, if a judgment cannot be made regard must be given to subsection 85 (2) of the Act.
Para 38: A benchmark price of $36.00 would be established and a benchmark year of 1997.
Para 39: CPI methodology as set out in the Guidelines is the central issue, equal weight does not need to be given to all factors in subsection 85 (1), the Board may assign different weight to each factor.
Para 40: The only issue is the permissible increase to the price of Copaxone in 2004 and whether it must be strictly limited in accordance with the CPI methodology in the Guidelines.
Para 41: The CPI (Guidelines) methodology refines the language of section 85 (1)(d) of the Act, it remains with the Board to determine how the CPI factor applies in this case.
Para 42: Patentee market power is presumed, the Board does not need to find an abuse of market power.
Para 43: The Board is not instructed to consideration of price levels, it may consider price increases as well. In considering price increases, the Board will start with the CPI Guidelines but have regard to other factors in subsection 85 (1).
Para 44: The only relevant issue is the one time price increase in 2004.
Para 45: The Board allocated greater weight to the CPI factor in subsection 85(1)(d) but acknowledges that factors in 85(1) (b) and (c) must be recognized.
Para 46: The Panel recognizes that prices may be so low compared to the price of competitive medicines that it “flies in the face of common sense” to conclude that a price increase is excessive merely because it exceeds the CPI. Teva may increase its price in excess of the Guidelines subject to certain limitations.
Paras 47 & 48: I repeat this paragraph as written because it is puzzling:
In the alternative, even were the Panel’s conclusion based upon subsection 85 (1) factors for some reason found not to be conclusive, having considered the evidence and submissions, and weighing all of the factors outlined in paragraphs 85 (1)(a), (b), (c) and (d), the Panel would nevertheless conclude that it is unable to determine whether the medicine is being or has been sold in Canada at an excessive price and would invoke paragraph 85(2)(a) of the Act.
It is not clear whether the Panel is saying that it is unable to reach a conclusion having regard to the factors set out in subsection 85 (1) therefore must go to subsection 85 (2) or whether it is considering subsection 85 (2) simply as an alternative.
The Panel appears to be cognizant that this is the first time that the Board is required to address excessive pricing issues based on paragraph 85(2)(a) factors and that the Guidelines provide no guidance on this issue.
Paras 48 to 50: The Panel points out that there was little objective data as to actual costs, although it was prepared to conclude that substantial investments were made, a portion of which can be attributed to Canada.
Paras 51 to 53: The Board considers that Teva is justified in increasing its price. While it is unclear, it appears that a 20% increase was not considered unreasonable. I repeat paragraph 53.
In coming to this conclusion, the Panel has taken note of the fact, as previously stated, that the only increase in the medicine’s price since its introduction in Canada was the 20% increase in July, 2004. It remains the lowest-priced medicine in its therapeutic class in Canada, and one of the lowest-priced medicines in its class among the comparator countries referred to in the Regulations under the Act. The Panel emphasizes in particular that there were, at the time of the price increase, four products in the therapeutic class. No inference can be drawn, therefore, that there were as any lack of real price choice for MS therapy medicines of this sort.
Para 54: The Panel appears to be reacting to administrative pressure to adhere strictly to the Guidelines for administrative convenience. It says that this decision is of restricted precedential value.
Paras 55 & 56: The Panel deals with and dismisses arguments made by Teva’s counsel as to the precedential value of Parliamentary debates and the use of Guidelines.
Para 57: the Panel concludes that:
“…the only price increase to be permitted for reasons of increases in the CPI or for any other reasons are a) a phased increase equal to CPI increases from 1997 to 2004, and b) the increases shall be phased over 2004, 2005 and 2006.
Thus the Panel concluded that the one time 20% increase in 2004 was excessive and that phased increases representing in total the 15.9% CPI increase from 1997 to 2004 were the only permissible increases.
The May 12, 2008 Decision
[38] The second decision of the Board under review is that dated May 12, 2008. This decision follows upon the first and fixes the quantum of money that Teva is to pay the Crown at $2,417,223.29.
[39] This decision is not arranged by numbered paragraphs. The bulk of the reasoning is directed to Teva’s argument that it did not raise prices in the years 2005 and 2006 and that the CPI increases in those years should be included with the CPI increases in the years 1997 to 2004. The Panel of the Board did not accept this argument and concluded in the last two paragraphs of its reasons:
The Guidelines provide for the calculation of the average transaction price at which a medicine is sold on an annual basis. The Guidelines do not permit a patentee to charge excessive revenues in one or several years and then offset those revenues of its own accord by reducing (or not increasing) the price of the medicine in subsequent years. Indeed, such an approach would seriously impair, if not defeat, the Board´s mandate. While the Guidelines permit price-averaging within a calendar year, the Panel believes that this is the reasonable time limit on price-averaging. Beyond such averaging, excessive revenues (other than de minimus revenues that do not warrant an investigation by Board Staff) should only be capable of being offset by compliance with an order of the Board. The Panel considers these terms in the Guidelines to be an appropriate implementation of the terms of the Act, and that the Order is reflective of this.
Accordingly, the Panel concludes that, in implementing the Decision, the terms of the Order should require the offsetting of the cumulative excessive revenues received by the Respondent in 2004 and 2005 by a payment to the Crown in the amount of $2,417,223.29. This amount will represent the excess revenues received by the Respondent for the period from the introduction of Copaxone in Canada to the end of 2007.
[40] The reasons do not set out how this sum of $2,417,223.29 was calculated. Teva, at paragraph 45 of its Memorandum of Fact and Law, sets out an extensive chart indicating that, if revenues from December 2002 to December 2007 were calculated, the accumulated “excess” revenue would be a negative amount, -$348,135.81. In oral argument, Teva’s counsel submitted that, even if one were to accept that the years 2005, 2006 and 2007 could not be taken into account, the amount payable would amount to $658,644.00 and not $2,417,223.29.
[41] Respondent’s counsel offered two possible explanations as to how the Board arrived at the sum of $2,417,223.29. One was with reference to paragraph 57 of the Board’s reasons in the first decision which directed that staged increases could be contemplated in the years 2004, 2005 and 2006. The other explanation was with reference to Teva’s written submissions to the Board found at Volume 13, Tab CC, of the Record, paragraphs 24 and 25 where Teva submitted that a calculation should be based on three-year increases in the CPI having regard to a benchmark price in the three years prior and 1.5 times the CPI for each year.
[42] The point is that nowhere did the Board clearly set out in its reasons how it arrived at its figure of $2,417,223.29. Counsel for each party were uncertain and this Court remain puzzled as to how the figure was calculated.
The Parties’ Theory of the Case
[43] Teva’s theory is that its product has always been the lowest priced product in its class, even with the 20% price increase. It has only increased its price o