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LAw times • August 22, 2011 FOCUS PAGE 11 Ruling subjects drug licensees to pricing board review But appeal of decisions means regulation question remains ongoing matter BY ROBERT TODD Law Times could have major implications for generic drug companies that lease patents to sell their products. Matthew Estabrooks, an associate at Gowling Lafl eur Henderson LLP in Ottawa, notes the case deals with the question of whether compa- nies that sell medicines under licensing agreements with the owners of the patents are pat- entees in relation to the juris- diction of the Patented Medi- cine Prices Review Board. Th e answer to that question comes in a pair of recent board rulings. Th e fi rst is its May 27 ratio-Salbutamol decision, which is being appealed to the Federal Court. Th e same issues arose in a A June 30 decision in which the board ruled that under such circumstances, generic drug companies must report sales and pricing information. In that case, board staff sought an order requiring ratiopharm Inc., a generic drug company, to off er up information re- quired under the patented medicines regulations. Th e regulations force patent hold- ers to supply data outlining a drug's sales, pricing, revenues, research, and development ex- penditures, notes Estabrooks. Board staff argued that any drug distributor that purchases pharmaceuticals from a pat- ent holder for resale and holds a notice of compliance should be considered a patentee under relevant legislation and regula- tions. Ratiopharm countered by arguing that it couldn't carry out patent rights on the products in question as the innovative com- panies had kept all of them. Th e company said it was simply slot- ted into a position within the distribution chain of the product and wasn't a patentee. "Th e board essentially said, 'You're exercising a right in re- lation to the patent, and if we don't exercise jurisdiction in cases like this, it will be possible for drug companies to simply arrange their businesses in such a way that all of their patented products are manufactured and sold by an arm's-length compa- ny,'" Estabrooks notes. "Th en they can just make this argument that, well, one of them is not selling the drug and one of them is not a paten- tee, and therefore the board is afraid that it's going to lose all of its jurisdiction." Estabrooks fi nds that line of argument "a little bit apocalyp- tic." Regardless, the decision, in his opinion, greatly expands the board's reach. "What it does is expand the board's jurisdiction to all generic drug companies that operate in a way that's similar recent decision of the Patented Medicine Prices Review Board to the way ratiopharm op- erates in the sense that they license intellectual property from other companies and sell their own versions of it," he says. In addition, the board panel ruled that a company doesn't necessarily have to manufacture a medicine or even hold a patent in relation to it in order to be within the board's jurisdiction. It said that the board's jurisdiction is established if an entity is owed "any rights in relation to" a patent held in connec- tion with any medicine on the shelf in Canada. Th e board made some additional noteworthy ob- servations in the decision, including the following: "Th e generic pharmaceutical industry is not a defi ned entity in either the legal or practical sense," it wrote. "Th ere are some obvious rights in the sense argued for by ratiopharm. Indeed, some generic companies could hold more patents than some brand-name companies or be entitled to rights in relation to more patents than some brand-name companies." Estabrooks also points out that while the ratio- Salbutamol matter dealt with pricing, the ratiopharm case dealt with over reporting. Reporting, he notes, is a pre- cursor to pricing. "Th e board establishes jurisdiction a The decisions greatly expand the Pat- ented Medicine Prices Review Board's reach, says Matthew Estabrooks. divisions between the generic and brand-name pharmaceuti- cal industries and rough lines can be drawn. However, this is not conducive to defi ning legal medi- cine, requires the seller of that medicine to report data about its sales, and then uses that data to decide whether the price is excessive," says Estabrooks. Th e ratiopharm decision could have signifi cant impli- cations for the company's bot- tom line and approach to its stable of products. If it doesn't successfully appeal the decision, the company will have to issue reports to the board on at least 12 of its products and perhaps two more. Board staff will use the information collected dur- ing that process to determine whether any of those products are excessively priced. As a result, the decision could have wide-ranging im- plications for the cost of ge- neric drugs in the province and the operations of all companies that distribute them. "Th ere's a lot of generic drugs out there that are being sold under this sort of arrange- ment, and it may be that they are now subject to scrutiny on their prices from the board," says Estabrooks. "Th e real impact here is for generic drug companies, and I think they're just going to have to be careful about the way they set up their licensing agreements in the future." 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