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UPDATE 3-Canada enacts drug price crackdown, in blow to pharmaceutical industry

By Allison Martell

(Adds comment from industry group, link to Factbox)

By Allison Martell

TORONTO, Aug 9 (Reuters) - The Canadian government announced final regulations on Friday that should cut billions of dollars from patented drug prices that are among the highest in the world, overcoming heavy opposition from pharmaceutical companies who may eventually challenge the new rules in court.

The biggest reform to Canada's drug price regime since 1987 would save Canadians C$13.2 billion ($10 billion) over a decade. The rules will save money for patients, employers and insurers including the government at the expense of drug company profits. They also could eventually cut the earnings of drugmakers in the United States, the world's largest pharmaceutical market.

The Canadian Life and Health Insurance Association called the regulations "a crucial step to lower prescription drug costs for all Canadians." The province of British Columbia also applauded the move, saying in a release: "People in B.C. and across Canada are now better protected against excessive drug prices set by manufacturers."

The new rules were largely in line with a December 2017 draft. They came after months of delay prompted speculation the government would back down in the face of industry lobbying or simply run out of time before Canada's October election.

"We are taking the biggest step in a generation to lower the price of drugs in Canada by moving forward with these regulations," Minister of Health Ginette Petitpas Taylor said in an interview.

Petitpas Taylor said the new rules would lay the foundation for a new national drug program. Prime Minister Justin Trudeau's government is expected to announce a program to cover the cost of prescription drugs for some or all Canadians, but the program's scope is not yet clear.

Canada will change the list of countries the federal drug price regulator, the Patented Medicine Prices Review Board (PMPRB), compares domestic prices to, dropping the United States and Switzerland where prices are highest. It will also let the agency consider cost-effectiveness of new medicines.

It will require drugmakers to disclose some confidential discounts to the PMPRB, which sets maximum prices.

Initially expected to take effect in January, the regulations were delayed so the government could review feedback. They will now go into force on July 1, 2020.

The new features of the regulations, which take into account cost-effectiveness of medicines and their impact on government budgets, apply only to drugs approved by Health Canada after the rules are officially published later this month. Changes in the list of comparison countries could affect prices for some drugs already on the market.


POTENTIAL FOR COURT CHALLENGE

Canada's approach to drug pricing is unusual. Rather than bargaining prices down, the PMPRB declares that some prices are an illegal abuse of patent rights.

Drugmakers base their list prices on the agency's published guidelines. When there is disagreement, PMPRB staff can challenge drugmakers at an internal tribunal. Most cases are settled, but appeals go to federal court and beyond.

In the past, drug companies have gone as far as the Supreme Court of Canada to challenge PMPRB guidelines. With new regulations come new guidelines, and the potential for fresh court challenges.

"We anticipate a considerable uptick in litigation, at least initially, as the industry patentees test the boundaries of the new regime," said Douglas Clark, executive director of the PMPRB, on a call with reporters. "That's to be expected any time you substantially change rules."

University of British Columbia professor Steve Morgan, who studies access to drugs and has advocated for a new national drug program, called the rules "a bold step forward".

"Now the tricky part: implementation, with all the specifics concerning how rules will apply; and, no doubt, legal challenges from industry," he wrote in a tweet.

REFORMS COULD AFFECT U.S. MARKET

Global drugmakers, including Johnson & Johnson, Merck & Co and Amgen Inc, argued against the draft plan.

While the government's focus is on reducing domestic patented drug prices that are among the highest in the world, the new policy could eventually have consequences south of the border.

The Trump administration in July said it would allow U.S. states and other groups to start pilot programs related to importing drugs from Canada. It has also said it may start determining what the U.S. government healthcare program Medicare pays for certain medicines based on prices in some other countries, including Canada.

Reuters reported in February that pharmaceutical lobby groups had tried to head off the Canadian reforms with an offer to give up C$8.6 billion in revenue over 10 years, freeze prices or reduce the cost of treating rare diseases.

Drugmakers argue the reforms could limit Canadians' access to new medicines.

"The industry does take a lot of risk on in creating these products. It does cost money," said Pamela Fralick, president of industry group Innovative Medicines Canada. "Our fear is that globally, decisions will be made that products will not be launched in Canada."

The government said many countries with lower prices have more pharmaceutical industry investment and access to drugs that meets or exceeds Canada's.

($1 = 1.3233 Canadian dollars)

(Reporting by Allison Martell; editing by Denny Thomas, Nate Raymond and David Gregorio)