Federal Court Decisions

 

 

 

 

Date: 20070321

Docket: T-863-06

Citation: 2007 FC 306

Ottawa, Ontario, March 21, 2007

 

PRESENT:     The Honourable Mr. Justice Blais

 

 

BETWEEN:

 

LEO PHARMA INC.

Applicant

and

 

ATTORNEY GENERAL OF CANADA

Respondent

 

 

 

 

REASONS FOR JUDGMENT AND JUDGMENT

 

[1]               This is an application for judicial review pursuant to section 18.1 of the Federal Courts Act, R.S.C. 1985, c. F-7, in respect of decision PMPRB-04-D2-DOVOBET of the Patented Medicine Prices Review Board (the Board) dated April 19, 2006 (the decision), wherein the Board held that the medicine Dovobet, distributed in Canada by LEO Pharma Inc. (the applicant), was being sold at an excessive price, ordered the establishment of a maximum non-excessive price of Dovobet, and further ordered the applicant to pay to the Crown the excessive revenues from the sale of Dovobet in Canada.

 

BACKGROUND

[2]               The applicant is the distributor in Canada of the medicine Dovobet, a topical medication used in the short-term treatment of psoriasis vulgaris in adult patients. Psoriasis is an auto-immune condition that causes red scaly plaques and lesions on the skin. Psoriasis is a chronic disease, in that there is no known cure for it. Dovobet is an ointment that is applied to mitigate the symptoms of psoriasis for people suffering from mild to moderate symptoms.

 

[3]               Dovobet is a combination medicine containing two active ingredients, the non-steroidal antipsoriadic calcipotriol (a vitamin D analog) and the corticosteroid betamethasone dipropionate. It is a new combination of substances already sold as individual components in Canada: Dovonex (calcipotriol 50 mcg/g) and Diprosone or Diprolene (betamethasone dipropionate 0.5 mcg/g).

 

[4]               Dovobet has been classified as a Category 3 drug product, which is defined as a new Drug Identification Number (DIN) of a non-comparable dosage form of an existing medicine, or the first DIN of a new chemical entity that provides moderate, little or no therapeutic advantage over comparable existing DINs.

 

[5]               LEO Pharmaceutical Products Ltd. is the owner of Canada Patent No. 1,307,288 and Canadian Patent Application No. 2,370,565, which pertain to Dovobet. The applicant, as the licensee, is entitled to the benefit of the patent pertaining to Dovobet. The applicant began selling Dovobet in Canada on December 17, 2001 at a price of $1.6000 per gram.

 

[6]               The Board was established to monitor and review the prices at which patented medicines are being sold in Canada, and endowed with the power to take remedial action if it determines that a medicine is being sold at an excessive price. On November 24, 2004, the Board Staff issued a statement of allegations resulting from their investigation into the price of Dovobet, in which it was stated that at $1.6000 per gram, the price of Dovobet in Canada exceeded the maximum non-excessive price of $1.2310 per gram established by the therapeutic class comparison test, as well as the highest international price of $1.2840 and the median international price of $1.2370. On November 29, 2004, the Chairperson of the Board issued a notice of hearing to inquire into the price of Dovobet in Canada pursuant to the provisions of the Patent Act, R.S.C. 1985, c. P-4 (the Act).

 

DECISION UNDER REVIEW

[7]               On April 19, 2006, the Board rendered its decision, stating that the price of Dovobet in Canada was excessive on the basis of its conclusions that it exceeded the maximum non-excessive (MNE) price, established following a comparison with the domestic therapeutic class, as well as international prices for Dovobet and other medicines in the same therapeutic class.

 

[8]               As a result, the Board issued the following directive to the parties:

Board Staff and LEO Pharma are requested to draft, for the Board’s consideration, an order that will implement the findings in this decision with the most current sales and pricing information available, establishing the MNE for each period as the lower of the prices indicated by the Therapeutic Class Comparison and the Highest International Price test. The order should require the establishment of an MNE and the payment to the Crown of the excessive revenues determined in accordance with this decision. The panel will retain jurisdiction over this matter and if the panel can be of assistance in applying the findings in this decision to the requisite order, the parties may make submissions in that regard.

 

ISSUES FOR CONSIDERATION

[9]               This application for judicial review raises the following issues:

1)      Did the Board err in its determination of the proper therapeutic class under subsection 85(1) of the Act?

2)      Did the Board err in its application of the test for international pricing comparison under paragraph 85(1)(c) of the Act?

3)      Did the Board err by refusing to consider the impact of the applicant’s distribution of free Dovobet on the calculation of the average transaction price?

4)      Does the Board lack sufficient institutional independence and impartiality to provide a fair hearing in accordance with the principles of fundamental justice?

 

STANDARD OF REVIEW

[10]           In order to determine the proper standard of review for the decision of the Board, we must proceed with a pragmatic and functional analysis as set out by the Supreme Court of Canada in Dr. Q v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226. The following are the four factors that must be weighed in order to determine the proper standard of review for each of the issues in this judicial review application:

1)      the nature of the appeal or review mechanism – where a right of review or appeal is expressly provided in the statute, less deference will be granted; where there is a private clause, more deference will be granted; if the statute is silent, this factor is neutral;

2)      the relative expertise of the Board - the Court must categorize the expertise of the tribunal, compare the expertise of the tribunal to that of the Court, and identify the nature of the specific issue before the tribunal relative to that expertise;

3)      the purpose of the Act – where the legislation may be characterized as polycentric, more deference will be granted than when the issues are simply between the state and the individual; and

4)      the nature of the question – the more factual the question, the more deference will be accorded.

 

The nature of the appeal or review mechanism

[11]           Regarding the nature of the appeal or review mechanism, there is no privative clause in the Act, nor is there a statutory right of appeal, as decisions of the Board are only amenable to judicial review pursuant to section 18.1 of the Federal Courts Act. This factor is thus neutral in our determination of the proper degree of deference owed to the Board.

 

The relative expertise of the Board

[12]           The following analysis was performed by Madam Justice Elizabeth Heneghan in Hoechst Marion Roussel Canada Inc. v. Canada (Attorney General), [2005] F.C.J. No. 1928 (F.C.) (QL), 2005 FC 1552, at paragraphs 101 to 104:

¶ 101      In ICN, supra, the trial judge discussed the Board's expertise in paragraph 17:

I have no difficulty finding that the Board is an expert tribunal. Parliament has created an appointment mechanism to ensure that the Board is composed of members who are knowledgeable about the pharmaceutical industry. Section 92 of the Patent Act provides that the Minister establish an advisory panel, composed of representatives of the provincial ministers of health, representatives of the pharmaceutical industry, and consumer advocates. The Minister is further obliged to consult this advisory panel before making an appointment to the Board.

¶ 102      The Board applies its expertise in accordance with subsection 83(1), as follows:

 

 

¶ 103      In my opinion, the interpretation of specific provisions of the Act, particularly section 79 and subsection 83(1), relies greatly upon technical meaning in order to establish the Board's jurisdiction over a specific patentee. In Barrie Public Utilities v. Canadian Cable Television Association, [2003] 1 S.C.R. 476, Justice Bastarache in dissent, said that the interpretation of enabling legislation by a specialized tribunal is more like the administration of the statute, a core part of a tribunal's mandate.

 

¶ 104      As well, the Board administers the section of the Act pertaining to the price review of patented medicines in furtherance of its policy objectives. The Board has more expertise in respect of these matters than does a generalized Court.

 

 

[13]           I believe that Madam Justice Heneghan’s analysis on the expertise of the Board is perfectly adequate and leads to a conclusion that greater deference should be accorded to the decisions of the Board given its relative expertise. Furthermore, it should be noted that, in Canada (Director of Investigation and Research) v. Southam, [1997] 1 S.C.R. 748, Mr. Justice Frank Iacobucci insisted at paragraph 50 that expertise “is the most important of the factors that a court must consider in settling on a standard of review”.  

 

The purpose of the Act

 

[14]           Once again, we can turn to the analysis performed by Madam Justice Heneghan in Hoechst, above, who stated at paragraph 106:

¶ 106      I agree with the submissions of the Respondent AGC that the Act is intended to resolve and balance competing policy objectives. This means that the statutory purpose may be described as polycentric. This suggests that more deference be afforded to the Board.

 

The nature of the question

 

[15]           Turning finally to the nature of the question, there is disagreement between the applicant and the respondent as to whether the first three issues are questions of law or questions of mixed fact and law. Having considered these issues, I find that they are all questions of mixed fact and law, with some being more legally intensive than others, depending on the degree to which the Board is called upon to interpret the meaning of the Act in the process of applying the requirements of the Act to the facts of this case. Moreover, it is important to keep in mind that a decision of the Board on whether or not a medicine is excessively priced is highly discretionary, as the Act and associated Regulations provide very limited guidance on the subject, and thus should be accorded greater deference.

 

Proper Standard of Review

 

[16]           Having considered the four factors, I have concluded that the proper standard of review for the first three issues is reasonableness.  As such, the Court must determine if the reasons provided by the Board to support its conclusion can stand up to a somewhat probing examination (Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247). As further explained by the Supreme Court of Canada  in Voice Construction Ltd. v. Construction and General Workers’ Union, Local 92, [2004] 1 S.C.R. 69 at paragraph 55, a decision will be considered unreasonable where:

…there is no line of analysis within the given reasons that could reasonably lead the tribunal from the evidence before it to the conclusion at which it arrived. If any of the reasons that are sufficient to support the conclusion are tenable in the sense that they can stand up to a somewhat probing examination, then the decision will not be unreasonable and a reviewing court must not interfere. This means that a decision may satisfy the reasonableness standard if it is supported by a tenable explanation even if this explanation is not one that the reviewing court finds compelling.

 

[17]           Finally, as relates to the fourth issue under consideration, namely the allegation of institutional bias, there is no need to proceed with a pragmatic and functional analysis as the Court will automatically review an alleged breach of procedural fairness on a standard of correctness (Ellis-Don Ltd. v. Ontario (Labour Relations Board), [2001] 1 S.C.R. 221 at paragraph 65). If a breach of procedural fairness is found, the decision will be set aside (Congrégation des témoins de Jéhovah de St-Jérôme-Lafontaine v. Lafontaine (Village), [2004] 2 S.C.R. 650 at 665).

 

ANALYSIS

[18]           Before turning to the specific issues raised in this application, it is important to note that the Act and the associated Regulations provide very limited guidance to the Board in determining whether or not the price of a medicine is excessive. Section 85 of the Act lists a series of factors to be considered by the Board, but does not specify how these factors should be used or weighed by the Board, nor does it specify the circumstances in which the price will be considered excessive. As the Board noted in its decision: “performing a comparison does not dictate a conclusion that must result from the comparison”.

 

[19]           To assist the Board in its decisions and to provide patentees with parameters and information that can help them establish prices that may be presumed not to be excessive, non-binding Guidelines were issued by the Board under section 96 of the Act, following consultations with stakeholders. These Guidelines can provide an appropriate rationale for a decision of the Board, as long as the Board does not consider them to be binding. As stated by Mr. Justice Marshall Rothstein in ICN Pharmaceuticals, Inc. v. Canada (Patented Medicine Prices Review Board), [1996] F.C.J. No. 1112 (F.C.A) (QL), (1996) 119 F.T.R. 114  at paragraph 6:

[…] 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) […]

 

 

 

 

 

1) Did the Board err in its determination of the proper  therapeutic class under subsection 85(1) of the Act?

 

 

[20]           The first step in the Board’s analysis was to determine the relevant ‘therapeutic class’ for Dovobet, that is to say the medicines to which Dovobet should be compared to determine whether the pricing of Dovobet is excessive, as per paragraph 85(1)(b) of the Act. The Board noted that this is an issue that is usually not contentious and can be resolved by the scientists working with the patentee and the Board Staff; this was the first case since the establishment of the Board in which the matter could not be resolved and had to come before the Board for a decision. The Board decided that, since the two active ingredients of Dovobet are sold as separate medicines in Canada, the price of Dovobet should be compared to the combined prices of those two medicines, namely Dovonex and Diprosone. This is the Board Staff’s typical practice for determining the therapeutic class of combination medicines. Dovonex and Diprosone or Diprolene were also considered to be the proper comparators for the therapeutic class comparison performed by the Human Drug Advisory Panel. The Board explained its decision as follows:

The Guidelines do not provide any specific directions for the determination of the therapeutic class for a “combination medicine” such as Dovobet, the active ingredients of which are available in Canada as separate medicines. The Guidelines do contemplate the much more common situation in which a therapeutic class must be determined by looking for medicines that differ somewhat on the relevant criteria but are nonetheless sufficiently similar on those criteria to justify the comparison to the medicine under review.

 

The logic of the manner in which the therapeutic class is established for price comparison purposes, however, leads quite directly to a focused approach to the identification of a therapeutic class for a combination medicine where its active ingredients are sold in Canada as separate medicines: in most cases, the therapeutic class for the price comparison purposes of subsection 85(1) will consist of the medicine under review and the separate medicines that contain its active ingredients.

 

In the case of combination drugs, especially where the other medicines that contain the identical active ingredients as the combination drug are used in a combined therapy, there is an extremely compelling therapeutic class for price comparison purposes. The separate medicines used in combination are slightly different than the medicine under review because they are (for example, as in this case) two medicines rather than one, but beyond that their comparability is uncommonly rare for a therapeutic class comparison.

 

Being in the ideal situation of having such a logical and compelling therapeutic class, and absent reliable evidence to the contrary, it simply makes no sense to degrade the homogeneity of the therapeutic class by the addition of medicines that are more dissimilar than those very medicines containing the identical active ingredients. …

 

 

[21]           The Board also noted that this approach is “subject to the caveat that it will not be appropriate if there is reliable evidence that the separate medicines used in a combination therapy have a materially different clinical effect than the combination medicine”. However, absent scientifically persuasive evidence to the contrary, the clinical effectiveness of the two treatments would be presumed to be the same.

 

[22]           On this issue, the applicant submits that the Board erred by ignoring the common use and understanding of the term therapeutic class as the class of medicines used to treat the same disease, and adopting instead a restrictive interpretation of the term in cases of medicines which are a combination of two active ingredients, limiting the class to a single combination of two products, each containing one of the active ingredients. The applicant maintains that this interpretation finds no support in a plain reading of the Act, Regulations, non-binding Guidelines, or the evidence of the various experts who appeared before the Board. The applicant also took issue with the Board’s refusal to expand the therapeutic class beyond that of the combination of the two active components, unless the applicant established that Dovobet was a materially more effective treatment for psoriasis than a therapy involving the combination of the two active ingredients, based on a scientific level of proof with clinical head-to-head studies – a level of proof that is well beyond the balance of probabilities standard that should have applied.

 

[23]           The respondent for his part maintains that the Board provided a reasoned and coherent rationale as to how the therapeutic class should be defined in the context of a combination medicine. Moreover, there is a line of analysis that can reasonably lead the Board from the evidence presented to the conclusion that it reached. On the question of expanding the therapeutic class when warranted by the greater effectiveness of the combination medicine, the respondent submits that the applicant is confusing the burden of proof placed on the Board Staff to demonstrate excessive pricing, with the assessment of evidence by the Board. After hearing from experts on both sides, the Board simply chose to accept one type of evidence (head-to-head trial), over another type of evidence (review of other trials and clinical observations).

 

[24]           The first step in determining the reasonableness of the Board’s decision is to look at the wording of the Act, Regulations, and Guidelines. Paragraph 85(1)(b) of the Act reads as follows:

 

[25]           No further guidance is provided in the Act, or for that matter in the Regulations, as to what constitutes an appropriate therapeutic class or how such a class must be established for a given medicine. Section 8.5 of the “Excessive Price Guidelines” states that “the introductory price of a Category 3 new drug product will be presumed to be excessive if it exceeds the prices of all of the comparable drug products based on a Therapeutic Class Comparison Test”. This test is briefly described at section 6.3 as comparing “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”. The selection of the therapeutic class involves, as a first step, the identification of comparable medicines, followed by the determination of comparable dosage forms. Once comparable drug products are selected, the prices of each drug products must then be measured. At issue in this application is the first step in the process, namely the identification of comparable medicines.

 

[26]           Section 9 of the “Scientific Review Procedures” states that comparable medicines are “clinically equivalent in addressing the approved indication that is anticipated to be the primary use of the new drug product under review”, and will typically be those identified under the World Health Organization (WTO) Drug Utilization Research Group’s Anatomical Therapeutic Chemical Classification System (ATC), at the sub-class level above the single chemical substance. That being said, the Board may omit from the review a drug product of the same ATC therapeutic class if, in the Board’s opinion, it is not clinically equivalent or is unsuitable for comparison. Finally, as per section 2 of Schedule 2 of the Guidelines, the Board reserves the right to exclude from the therapeutic class comparison test any drug product it has reason to believe is being sold at an excessive price.

 

[27]           A careful reading of the Board’s decision discloses that the Board was aware of all of these elements as it set out to determine the appropriate therapeutic class. The Board considered all the medicines suggested by the applicant in the proposed therapeutic class, but ultimately rejected each of them as being too dissimilar to Dovobet to allow for an adequate comparison. The Board was also clear that the onus rests with the Board Staff in convincing the Board that the price of a medicine is excessive, on a balance of probabilities.

 

[28]           At first glance, the argument of the Board seems quite compelling for its simplicity and common sense – if a new drug product is a combination of two existing drug products sold in Canada, then it would appear to make sense that combining the prices of these existing drug products in the proportion to which they are used in the combination medicine would yield a fair maximum non-excessive price. Having reviewed the evidence before the Board as relates to Dovobet, the choice of the two active components as the closest comparators also appears reasonable in this particular case.

 

[29]            The applicant argues that the problem with such a generalized approach lies in the possibility that a patentee will be precluded from charging any incremental price for the patentable invention that combined the two medicines in the same ointment, as a Category 3 new drug product will be presumed to be excessive if it exceeds the prices of all of the comparable drug products in its therapeutic class. In other words, this definition of the therapeutic class as being limited to the active ingredients sold as separate medicines does not allow for the possibility that the combination medicine in question might be more than the sum of its parts.

 

[30]           Recognizing this possibility, the Board did consider that this approach might not be appropriate in situations where combination medicine demonstrated a material improvement on its active components. This caveat raises the further issues of what may be deemed to be a ‘material’ improvement, and how such improvement could be demonstrated to a degree that would satisfy the Board, which is essentially, as suggested by the applicant, a question of the assessment of the evidence by the Board.

 

[31]           The Board’s approach for weighing such evidence results, as noted in the decision, from a purposive and contextual interpretation of subsection 85(1) of the Act, and the application of scientific and practical judgment. The Board’s approach is further supported by the existing pharmacological presumption regarding combination medicines that, absent persuasive scientific evidence to the contrary, the clinical effectiveness of a combination medicine is equal to the effectiveness of the combined use of its active ingredients. This approach is known as the “null hypothesis”. In order to rebut this null hypothesis, expert witnesses for the Board Staff suggested that properly administered trials (presumably double-blind, head-to-head, statistically sound clinical trials), should be preferred, while expert witnesses for the applicant suggested that reviews of other forms of trials and clinical observations could suffice. The Board considered both approaches and ultimately endorsed the position of the Board Staff, finding that “[t]he evidence on this point was scientifically compelling, logically intuitive and consistent with the expectations of members of the hearing panel”.  While the applicant submitted expert testimonies from dermatologists to the effect that Dovobet was more effective than a combination therapy of its components, this evidence was rejected by the Board which, stated that the only reliable evidence would be a properly structured and administered clinical trial, which was not performed in this case. As such, the Board’s conclusion was that Dovobet had not been demonstrated to provide a material improvement over the combined use of its active components and as such, there was no justification for expanding the therapeutic class.

 

[32]           The Board then went on to state that this requirement for expanding the therapeutic class was not to be confused with the test used to determine whether a medicine demonstrates a substantial improvement over existing comparable medicines to be classified as a Category 2 medicine. While each of these two tests involve an inquiry into the effectiveness of comparable existing medicines, the inquiries will not necessarily consider the same criteria or require the same degree of relative improvement over existing medicines. The problem with this statement is that, upon looking at the Guidelines, it would appear that the Board is in fact applying, at least in part, the requirements for demonstrating substantial improvement to be classified as a Category 2 new drug products. Section 7.2 of the “Scientific Review Procedures” found in the Guidelines states that “evidence considered to determine if a medicine provides increased efficacy should derive from well-controlled, double-blind, statistically sound clinical trials”. The distinction drawn by the Board appears to be with respect to the degree of improvement that will be required in each case but, given the absence of clinical trials in this case, the Board decided not to delve into this issue other than to say that the difference in clinical effectiveness would have to be “at least statistically significant and therapeutically relevant”.

 

[33]           Overall, while I do have some concerns over the line in the sand that appears to be drawn by the Board between a Category 3 combination product which provides “material improvement” so as to defeat the null hypothesis while not providing the necessary “substantial improvement” to be classified as a Category 2 drug product, I do not believe that such concerns are sufficient to conclude that the Board’s decision was unreasonable. In other words, the Board’s definition of the proper therapeutic class can withstand a ‘somewhat probing examination’, and should not be disturbed.

 

2) Did the Board err in its application of the test for international pricing comparison under paragraph 85(1)(c) of the Act?

 

 

[34]           Turning to the international pricing comparison for Dovobet under paragraph 85(1)(c) of the Act, the Board first noted that, as a minimum, the requirement in the Guidelines that Canada not be the country in which the medicine in question is the most expensive amongst the comparator countries, is an appropriate conclusion to draw from the requirements of paragraph 85(1)(c).  The Board then proceeded with the test in two stages, by comparing first the price at which Dovobet itself is sold in Canada to that of the comparator countries, before comparing the price of the drug products in the therapeutic class.

 

[35]           The conclusion of the Board on paragraph 85(1)(c) was that “Dovobet was priced higher in Canada than the international prices of medicines said to be in its therapeutic class, whether reference was had to the therapeutic class found to be appropriate by the Board or the broader therapeutic class advocated by LEO Pharma”.

 

[36]           Once again, the first step in determining the reasonableness of the Board’s decision is to look at the wording of the Act, Regulations, and Guidelines. Paragraph 85(1)(c) of the Act reads as follows:

 

[37]           With no further guidance from the Act or the Regulations on how to proceed with the international pricing comparison or what its significance should be in the overall pricing determination, most of the relevant information can once again be found in the Guidelines. Section 7.1 of the “Excessive Price Guidelines” states that “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”.  Section 1 of “Schedule 3 – International Price Comparison” states that “[t]he general objective of the international price comparison is to compare the price of the DIN under review with the prices of the same dosage form and strength of the medicine sold in the countries listed in the Patented Medicine Regulations”. These countries are: Germany, France, Italy, Sweden, Switzerland, the United Kingdom and the United States. No reference is made in the Guidelines to the international pricing comparison of other medicines in the same therapeutic class.

 

[38]           At the time of its introduction in Canada, Dovobet was only sold in two of the comparator countries. At the time of the Board’s decision, it was sold in six out of the seven comparator countries. In all cases, the price of Dovobet was higher in Canada. The only country where Dovobet was not sold at the time of the Board’s decision was the United States.

 

[39]           On this issue, the applicant first submits that the Board erred by adopting a ‘strict’ test that a medicine would invariably be excessively priced in Canada if its Canadian price exceeded the price of the same medicine in the comparator countries, regardless of the number of those countries in which the medicine has been introduced. The adoption of this strict test was also reflected in the Board’s conclusion that the proper MNE price for any given year would be “the lower of the CPI-adjusted benchmark price established by the therapeutic class comparison and the highest international price”.

 

[40]           On the issue of the ‘strict’ test applied by the Board, I find that I must disagree with the applicant. While the Board did acknowledge the presumption in the Guidelines that the price of a medicine sold in Canada will be considered excessive if it is higher than in any of the comparator countries, it also clearly stated that this is merely a presumption which a patentee can challenge before the Board. As long as the Board did not consider itself bound by the Guidelines, but simply found them to be appropriate in the case at hand, then it cannot be said to have erred by applying the Guidelines. As the Board stated in the decision, the Board “could conclude otherwise, but there was no evidence in this proceeding that convinced the Board to do so”.

 

[41]           The applicant further argues that the Board erred by failing to consider the fact that Dovobet was launched in Canada before many of the other comparator countries, to the benefit of Canadians, which could justify a higher price. As this was clearly a subsidiary argument, and as there is a presumption, recognized by the Supreme Court of Canada in Woolaston v. Canada (Minister of Employment and Immigration), [1973] S.C.R. 102, that the decision-maker considered all of the evidence in the record before rendering its decision, the Board’s failure to mention this argument in its decision cannot be considered to be a reviewable error.

 

[42]           The applicant then submits that the Board erred by taking a two-step approach to the international pricing comparison itself, by first comparing the price of Dovobet in Canada with the price of Dovobet in the comparator countries, before comparing the price of the drug products in the therapeutic class with those same products in the comparator countries, and by assigning more weight to the first comparison. On this issue, I must agree with the respondent that the Board’s approach in this respect was perfectly reasonable. Simple common sense dictates that when the exact same product is available for comparison, proceeding with an international therapeutic class comparison should be secondary, as the results from a direct comparison are bound to be much more relevant.

 

[43]           Finally, the applicant took issue with the median approach taken by the Board as part of its international comparison of the prices for the drug products in the therapeutic class. However, given that the Board made it clear that it did not give significant weight to this comparison, as discussed above, such an issue may be deemed to be peripheral and would not affect the reasonableness of the decision. Furthermore, the Board’s reasoning for using the median international prices of the medicines in the therapeutic class, given the potential impact of outlier prices, was sound, as it stated that “Canadian consumers would not be protected if the MNE of a medicine were governed by a comparison to (1) the highest price of; (2) a medicine sold outside Canada; that is (3) not the medicine under review”.

 

[44]           Overall, I am satisfied that the approach taken by the Board, including its decision to follow the Guidelines closely, was reasonable.

 

3) Did the Board err by refusing to consider the impact of the applicant’s distribution of free Dovobet on the calculation of the average transaction price?

 

[45]           The Board was also asked to consider the impact of the applicant’s program to distribute free Dovobet on the average transaction price of the medicine. The Board chose not to consider the applicant’s program, created following the notification of the applicant by the Board Staff that an investigation into the pricing of Dovobet had been commenced. The Board concluded that it did not constitute a genuine compassionate use program, but was rather “an attempt to reduce artificially the average transaction price of Dovobet in an effort to avoid the application of the Guidelines”.

 

[46]           Under section 80 of the Act, a patentee is required to provide the Board with information on the price at which the medicine is or has been sold in Canada:

 

[47]           A plain reading of the Act leads to the logical conclusion that it is on the basis of this information provided by a patentee under paragraph 80(1)(b) of the Act that the Board will be able to determine the first factor listed under paragraph 85(1)(a) of the Act, namely the price at which the medicine has been sold in the relevant market. Furthermore, the “Excessive Price Guidelines” refer specifically to the calculation of average price and net revenue as set out in the Patented Medicine Regulations, 1994, S.O.R./94-688 (the Regulations), which state at paragraph 4(1)(e):

 

 

[48]           Subsection 4(4) of the Regulations further holds that :

 

[49]           The Regulations also provide, at subsection 4(2), that the pricing information must be provided in respect of :

 

[50]           It should be noted that no reference is made in either the Act or the Regulations to the establishment of compassionate use programs. Rather, the Regulations speak of the “reduction given as a promotion or in the form of rebates, discounts, refunds, free goods, free services, gifts or any other benefits of a like nature”, with no mention of the intent behind such distribution.

 

[51]           Turning to the Guidelines, section 5.2 of the “Excessive Price Guidelines” states that “[a]djustments made for free goods should only include products provided to customers in a saleable form, and in the same package sizes as those being offered for sale” and that “[s]amples provided to physicians are not considered free goods”. Section 5.3 provides the first reference to a “compassionate release program”, stating that products supplied under such a program “can be either included or excluded so long as the inclusion or exclusion thereof is consistent in all reporting periods”.

 

[52]           Further clarification is then provided in the Board’s NEWSletter (vol. 4, issue no. 2, April 2000) at page 5:

In summary, it is the Board’s intention in these circumstances that its policies and procedures not discourage a patentee from offering an incentive program or entering into an agreement which would benefit patients. However, the patentee must be consistent in reporting such programs from one reporting period to the next so as to avoid artificial fluctuations in the price calculated for price review purposes.

 

 

[53]           In this case, no distribution of free goods under a compassionate release program was reported by the applicant for the first few years, as no such program existed until 2004. The timing of this program, coupled with the distribution of only the larger size (and thus more expensive) tubes of Dovobet and the lack of requirement that physicians assess the financial needs of the patients when distributing the free Dovobet, convinced the Board that this program was introduced primarily for the purpose of reducing artificially the average transaction price of Dovobet as reported to the Board, and thus was not really a compassionate use program. The Board did not foreclose on the possibility of considering a genuine compassionate use program, should the applicant implement one, in the future determination of the price of Dovobet. The Board ultimately concluded that such a program, to be genuine, should not be used for marketing purposes nor as an attempt to artificially reduce the average transaction price of a medicine, and that any distribution of free good should be exclusively at the request of the particular physicians to whom it is distributed.

 

[54]           The first question to address is whether the Board’s conclusion with regards to the ‘compassionate’ nature of the applicant’s distribution of free Dovobet was reasonable. The applicant insists that the Board erred in its assessment of the genuineness of the program since free Dovobet was in fact distributed to doctors upon requests and forms were sent to physicians in connection with the program indicating that the program was for “patients of limited financial means and with no private insurance”. On this point, I must agree with the respondent that, even if the Board had erred on this specific conclusion, a sudden distribution of large quantities of Dovobet two years after the introduction of it to the market and following a letter of investigation, provides a sufficient basis for the findings of the Board that this was not a genuine compassionate use program.

 

[55]           That being said, I find that I cannot reconcile the general requirement that free goods be distributed for ‘compassionate’ reasons in order to be considered in the calculation, with the statement in the Regulations that free goods can be included in calculating the average price of a medicine, without any reference to the intent of the patentee in distributing such free goods. In fact, I remain unclear as to why such a distinction was ever drawn in the first place in the Guidelines. While Parliament may have been rather vague in setting out the considerations that should apply when performing a domestic therapeutic class comparison or an international price comparison, it did provide, through the Regulations, very clear directives on the assessment of the average price of a medicine, making the need for additional guidelines on this point much less clear.

 

[56]           Furthermore, the fact that the distribution of free goods may benefit the patentee should not make such a distribution any less valuable to the patients who receive the free medicine. In fact, it seems much more reasonable to assume that Parliament, through section 4 of the Regulations, sought to increase access to patented medicines for Canadians, many of whom do not have extensive drug insurance coverage. To achieve this objective, the Regulations were drafted so as to provide incentives for patentees to distribute free medicine, by allowing them to include these goods in the average price calculation under section 80, and by extension section 85, regardless of their actual ‘intent’ in distributing such free goods.

 

[57]           Therefore, I find the decision of the Board to refuse to consider the free distribution of Dovobet in establishing the average price of Dovobet to be unreasonable.

 

4) Does the Board lack sufficient institutional independence and impartiality to provide a fair hearing in accordance with the principles of fundamental justice?

 

[58]           Finally, the applicant objects to the jurisdiction of the Board on the basis that the Board, as established pursuant to the Act and as it operates in practice, lacks sufficient institutional independence and impartiality to provide the applicant with a fair hearing in accordance with the principles of fundamental justice, contrary to the common law duty of fairness and the Canadian Bill of Rights, S.C. 1960, c. 44. The applicant seeks to distinguish the present situation from that of Hoechst, above, where Madam Justice Heneghan, concluded that there was no violation of procedural fairness and stated, in reference to the Supreme Court decision in Ocean Port Hotel Ltd. v. British Columbia (General Manager, Liquor Control and Licensing Branch), [2001] 2 S.C.R. 781, that no constitutional argument was raised in the application for judicial review. Here, the applicant claims to present a constitutional argument, as he expressly relies on the right to a fair hearing contained in the Canadian Bill of Rights, which rights cannot be derogated by a statute of Parliament, absent a declaration by Parliament that a statute is to act notwithstanding the Canadian Bill of Rights.

 

[59]           The respondent for his part submits that this issue, including the Canadian Bill of Rights argument, was raised in Hoechst, above, and that the analysis performed by Madam Justice Heneghan in that decision is a complete and full response to the allegations raised by the applicant in this case. The reliance of the applicant on the Canadian Bill of Rights does not alter the analysis of this Court to determine procedural fairness, nor does it affect the outcome of the analysis. The respondent thus concludes that there is no lack of procedural fairness arising from this process and as such, the challenge of the applicant must fail.

 

[60]           In Hoechst, above, Madam Justice Heneghan applied the criteria set out in Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817, to determine the content of procedural fairness owed by the Board to a patentee. She then concluded at paragraph 73:

¶ 73      As the basis of the foregoing, I conclude that the basic requirements of procedural fairness, as described by the Supreme Court of Canada in Lakeside Colony of Hutterian Brethren v. Hofer, [1992] 3 S.C.R. 165, that is the right to an unbiased tribunal, the right to notice and the opportunity to make representations, apply to the Board's actions. However, I would grant a considerable degree of flexibility to the Board in respect of the procedural requirements in light of the factors described in Baker, supra. Subsection 97(1) of the Act clearly states that proceedings of the Board are to be dealt with as informally and expeditiously as the circumstances and considerations of fairness permit, providing ample room for flexibility on the part of the Board, as long as natural justice and procedural fairness are respected.

 

 

[61]           As was the case in Hoechst, above, the applicant in this case does not allege a violation of the right to notice or of the right to make representations, but focuses solely on the right to an unbiased tribunal, which it submits is being violated as a resulted of an overlap of investigative, prosecutorial and adjudicative functions.

 

[62]           As recognized by Madam Justice Heneghan, the proper test for determining a reasonable apprehension of bias is the one set out by Mr. Justice Louis-Philippe de Grandpré in the Supreme Court of Canada decision Committee for Justice and Liberty v. National Energy Board, [1978] 1 S.C.R. 369 at 394-395:

…the apprehension of bias must be a reasonable one held by reasonable and right minded persons, applying themselves to the question and obtaining thereon the required information. In the words of the Court of Appeal, that test is “what would a informed person, viewing the matter realistically and practically – and having thought the matter through – conclude. Would he think that it is more likely than not that [the decision maker], whether consciously or unconsciously, would not decide fairly”.

 

[63]           In addressing the argument of an impermissible overlap of functions, Madam Justice Heneghan performed the following analysis at paragraphs 77 to 85:

¶ 77      The fact that an administrative tribunal may perform multiple functions does not, by itself, create a reasonable apprehension of bias. In this regard, the Supreme Court of Canada in Bell Canada v. Canadian Telephone Employees Association, [2003] 1 S.C.R. 884, made the following comments at paragraph 40:

[O]verlapping of different functions in a single administrative agency is not unusual, and does not on its own give rise to a reasonable apprehension of bias [see 2747-3174 Québec Inc., supra at paragraphs 46-48, per Gonthier J.; Newfoundland Telephone, [1992] 1 S.C.R. 623, supra, at page 635, per Cory J.; Brosseau, [1989] 1 S.C.R. 301, supra.] As McLachlin C.J. observed in Ocean Port, supra, at para. 41, "[t]he overlapping of investigative, prosecutorial and adjudicative functions in a single agency is frequently necessary for [an administrative agency] to effectively perform its intended role."

 

¶ 78      As well, in Ocean Port Hotel Ltd. v. British Columbia (General Manager, Liquor Control and Licensing Branch), [2001] 2 S.C.R. 781, the Supreme Court of Canada observes that the common law does not outweigh legislative provisions that are reasonably clear, since this would have the effect of reducing procedural fairness rights. In Ocean Port, supra at paragraph 41, Chief Justice McLaughlin went on to say that "without deciding the issue, I would note that such flexibility may be appropriate in licensing schemes involving purely economic interests."

 

¶ 79      In my opinion, that description is applicable to the type of regime at issue in this case. The Board is responsible for ensuring that patentees of patented medicines are not selling their products at prices that exceed the guidelines. The Board is carrying out a type of economic regulatory function, as noted by the Federal Court of Appeal in Ciba-Geigy, supra. As such, it must be accorded a degree of flexibility.

 

¶ 80      Again, I refer to Ocean Port, supra, relied on by the Intervener, where the Supreme Court made the following observation at paragraph 42:

Further, absent constitutional constraints, it is always open to the legislature to authorize an overlapping of functions that would otherwise contravene the rule against bias. Gonthier J. alluded to this possibility in Régie, at para. 47, quoting from the opinion of L'Heureux-Dubé J. in Brosseau, supra, at pp. 309-10:

 

As with most principles, there are exceptions. One exception to the "nemo judex" principle is where the overlap of functions which occurs has been authorized by statute, assuming the constitutionality of the statute is not in issue.

 

...

 

In some cases, the legislator will determine that it is desirable, in achieving the ends of the statute, to allow for an overlap of functions which in normal judicial proceedings would be kept separate. ... If a certain degree of overlapping of functions is authorized by statute, then, to the extent that it is authorized, it will not generally be subject to the doctrine of "reasonable apprehension of bias" per se.

 

¶ 81      The Applicant has not raised a constitutional argument in this application for judicial review.

 

¶ 82      The legislative scheme here in issue specifically contemplates that the Board will discharge multiple functions, including investigation, prosecution and adjudication. Subsections 96(2) and (3) of the Act authorize the Board, subject to the approval of the Governor in Council, to make rules regulating its own practices and procedures, to make by-laws for conducting its work, for the management of its internal affairs and for the duties of its staff. The existence of this legislative scheme militates against finding the existence of inherent institutional bias or lack of impartiality.

 

¶ 83      I am not persuaded by the Applicant's arguments that the Board lacks sufficient institutional impartiality as a result of overlapping functions as performed by individuals working as Board Staff or serving as members of the Board Panel. The Applicant concedes that an overlap of functions may be authorized by statute, if validly within the power of the legislation. The Applicant also recognizes that the Board may establish its own policies and procedures.

 

¶ 84      The Federal Court of Appeal in ICN, supra found that while the Board is required to act as both prosecutor and adjudicator in fulfillment of its statutory mandate, the Board through its Policy has decided, in fact, to operate independently of Board Staff. The Court, in ICN, supra noted that the relationship between the Board and its staff was described by the majority of the Board in Genentech Canada Inc. (Re) (1992), 44 C.P.R. (3d) 316 (P.M.P.R.B.) at p. 320 as follows:

In conducting hearings with respect to the price of a patented medicine, the Board's staff is segregated from the Board. The Board's staff, through its own counsel, adduces evidence, tests evidence of other parties, and makes submissions on procedural, jurisdictional, legal, and substantive issues arising during the course of the proceeding.

 

¶ 85      The Board's Policy serves to enforce the principles of procedural fairness and natural justice, by attempting to ensure a separation of functions and necessary safeguards beyond what is provided for by the Act itself.

 

 

[64]           As I am in agreement with Madam Justice Heneghan’s analysis, I see no reason to revisit the question. As for the applicant’s contention that its reliance on the Canadian Bill of Rights raises a constitutional question, I can find no merit to this argument, as the Canadian Bill of Rights is not considered to be a constitutional document (at best, it can be described as a quasi-constitutional argument). Furthermore, regardless of the nature of the Canadian Bill of Rights, the issue raised in Hoechst, above, was whether the overlap of the Board functions as investigator, prosecutor and adjudicator, created a reasonable apprehension of bias “which is not excused at law and is contrary to the principles of fundamental justice and the Canadian Bill of Rights”. It is clear that the argument raised with respect to the reasonable apprehension of bias in Hoechst, above, did rely on the right to a fair hearing guaranteed under the Canadian Bill of Rights and as such, this is not a ‘novel’ argument that should be used to distinguish Madam Justice Heneghan’s analysis.

 

[65]           Therefore, I must reject the applicant’s argument that the Board lacks sufficient institutional independence and impartiality to provide the applicant with a fair hearing in accordance with the principles of fundamental justice.

 

Conclusion

[66]           For the above reasons, I find that the decision of the Board, with respect to the determination of the maximum non-excessive price under subsection 85(1) of the Act, was reasonable. However, the Board erred in determining the average price of Dovobet, as a result of its failure to consider the impact of the free goods distributed by the applicant starting in 2004.

 

[67]           Therefore, the application for judicial review is allowed in part.

 

[68]           The conclusions of the Board are upheld, with the exception of the conclusions on the free distribution of Dovobet pursuant to its compassionate use program, which conclusions are set aside.

 

[69]           The directive of the Board included in its conclusion is upheld, with the following amendment:

Board Staff and LEO Pharma are requested to draft, for the Board’s consideration, an order that will implement the findings in this decision with the most current sales and pricing information available, establishing the MNE for each period as the lower of the prices indicated by the Therapeutic Class Comparison and the Highest International Price test. The determination of the average price per package of medicine for each period must take into account any reduction given as a promotion or in the form of rebates, discounts, refunds, free goods, free services, gifts or any other benefits of a like nature. The order should require the establishment of an MNE and the payment to the Crown of the excessive revenues determined in accordance with this decision. The panel will retain jurisdiction over this matter and if the panel can be of assistance in applying the findings in this decision to the requisite order, the parties may make submissions in that regard. (my emphasis)

 

 

 

 

JUDGMENT

 

1.                  The application is allowed in part;

 

2.                  The conclusions of the Board are upheld, with the exception of the conclusions on the free distribution of Dovobet pursuant to its compassionate use program, which conclusions are set aside;

 

3.                  The directive of the Board included in its conclusion is upheld, with the following amendment:

Board Staff and LEO Pharma are requested to draft, for the Board’s consideration, an order that will implement the findings in this decision with the most current sales and pricing information available, establishing the MNE for each period as the lower of the prices indicated by the Therapeutic Class Comparison and the Highest International Price test. The determination of the average price per package of medicine for each period must take into account any reduction given as a promotion or in the form of rebates, discounts, refunds, free goods, free services, gifts or any other benefits of a like nature. The order should require the establishment of an MNE and the payment to the Crown of the excessive revenues determined in accordance with this decision. The panel will retain jurisdiction over this matter and if the panel can be of assistance in applying the findings in this decision to the requisite order, the parties may make submissions in that regard. (my emphasis)

 

 

“Pierre Blais”

ANNEX

PERTINENT LEGISLATION

Patent Act, R.S.C. 1985, c. P-4.

 

FEDERAL COURT

 

NAME OF COUNSEL AND SOLICITORS OF RECORD

 

 

DOCKET:                                          T-863-06

 

STYLE OF CAUSE:                          LEO PHARMA INC v. ATTORNEY GENERAL OF CANADA

 

PLACE OF HEARING:                    Ottawa, Ontario

 

DATE OF HEARING:                      February 12, 2007

 

REASONS FOR JUDGMENT AND JUDGMENT:          BLAIS J.

 

DATED:                                             March 21, 2007

 

 

 

APPEARANCES:

 

Mr. Nicholas McHaffie Mr. Craig Collins-Williams	FOR THE APPLICANT
Mr. Christopher Rupar	FOR THE RESPONDENT

 

SOLICITORS OF RECORD:

 

Stikeman Elliott LLP Ottawa, Ontario	FOR THE APPLICANT
John H. Sims, Q.C. Deputy Attorney General of Canada	FOR THE RESPONDENT