Generic Damages in Life Sciences Patent Litigation: Strategic Considerations


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Generic Damages in Life Sciences Patent Litigation: Strategic Considerations by Christopher Van Barr and Kiernan Murphy

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Generic Damages in Life Sciences Patent Litigation: Strategic Considerations

  1. 1. Generic Damages in Life Sciences Patent Litigation: Strategic ConsiderationsChristopher C. Van BarrKiernan A. Murphy
  2. 2. PresentersChristopher Van BarrPartner (Ottawa)613-786-8675christopher.vanbarr@gowlings.comKiernan MurphyAssociate (Ottawa) 2
  3. 3. Outline• Brief background• Recent developments regarding the scope of the section 8 cause of action• Recent developments regarding quantification of generic damages• Strategic considerations relating to generic damages proceedings 3
  4. 4. Brief Background:Regulatory Approval, the PMNOC Regulations and Section 8 Damages 4
  5. 5. Drug regulatory approval process• Innovator • Files new drug submission (NDS) • Obtains notice of compliance (NOC) • Submits patent list of eligible patents in respect of drug to Minister of Health for inclusion on patent register• Generic • Files abbreviated new drug submission (ANDS) referencing innovator drug• demonstrate bioequivalence to innovator drug• Market entry – but subject to PMNOC Regulations 5
  6. 6. Patented Medicines (Notice of Compliance) Regulations• PM(NOC) Regulations – linkage regulations that replaced compulsory licensing in 1993• Minister of Health maintains Patent Register on which innovators list relevant patents against drugs• Generic must address listed patents by providing Notice of Allegation and Detailed Statement • Allegations include patent invalidity, non-infringement, etc 6
  7. 7. Patented Medicines (Notice of Compliance) Regulations• Innovator may commence an application to prohibit the Minister from issuing a NOC within 45 days of receiving NOA • Minister is temporarily prohibited from issuing the NOC (“statutory stay”)• If generic allegations are justified, application is dismissed • Minister may then issue NOC if approvable 7
  8. 8. Patented Medicines (Notice of Compliance) Regulations• Merck v Apotex, 2009 FCA 187• The PM(NOC) Regulations had to be construed having regard to the Patent Act read as a whole and the balance which it seeks to create between the effective enforcement of patent rights through the use of the PM(NOC) Regulations (subsection 55.2(4)) and the timely entry of lower price generic drugs through the use of the “early working” exception (subsection 55.2(1)) (Biolyse, supra, para. 50). 8
  9. 9. Section 8 of the PMNOC Regulations8. (1) If an application made under subsection 6(1) is withdrawn or discontinued by the first person or is dismissed by the court hearing the application or if an order preventing the Minister from issuing a notice of compliance, made pursuant to that subsection, is reversed on appeal, the first person is liable to the second person for any loss suffered during the period (a) beginning on the date, as certified by the Minister, on which a notice of compliance would have been issued in the absence of these Regulations, unless the court concludes that (i) the certified date was, by the operation of An Act to amend the Patent Act and the Food and Drugs Act (The Jean Chrétien Pledge to Africa), chapter 23 of the Statutes of Canada, 2004, earlier than it would otherwise have been and therefore a date later than the certified date is more appropriate, or (ii) a date other than the certified date is more appropriate; and (b) ending on the date of the withdrawal, the discontinuance, the dismissal or the reversal.…(5) In assessing the amount of compensation the court shall take into account all matters that it considers relevant to the assessment of the amount, including any conduct of the first or second person which contributed to delay the disposition of the application under subsection 6(1). 9
  10. 10. Validity of Section 8Section 8 Damages• Challenges to s.8 by Innovators have been unsuccessful • Merck v Apotex, 2009 FCA 187 • not ultra vires Patent Act - falls within s.55.2(4) the Act • is within the authority of Parliament pursuant to section 91(22) of the Constitution Act, 1867 • Court has jurisdiction to hear s.8 cases • Apotex v AstraZeneca, 2012 FC 559; Sanofi v Apotex, 2012 FC 551 • Not unconstitutional for “vagueness” or “harshness” • Not invalid delegated legislation • Not invalid in the face of TRIPS and NAFTA 10
  11. 11. Scope of Section 8 Damages Claims 11
  12. 12. Lost Future Profits are Not Available to Generics• FCA held that generics’ lost future profits cannot be claimed under s.8 (Apotex v Merck 2009)• Damages are constrained by s. 8. • “The Governor in Council could have extended the measure of the losses to include those caused [as opposed to “suffered”] during the period, regardless of when they are suffered. However, it did not do that.”• Trial decision was the first decision on the merits for s.8 • Trial judge had awarded lost future profits, considering them to be an issue of quantity and not injury 12
  13. 13. Disgorgement of Innovator Profits• Generic claims to Innovator profits• Generic argue that • Innovators charge more than generics and therefore obtain larger profits • Because of that difference in profits (), it may be still beneficial to trigger the statutory stay even if payment of generic losses must be made • Disgorgement of profit is therefore a necessary disincentive to triggering the statutory stay 13
  14. 14. Evolution of Section 8Section 8 1993 : 8(1) The first person is liable to the second person for all damages suffered by the second person … 8(2) … by way of damages or profits as the circumstances require… 1998 : 8(1) … the first person is liable to the second person for any loss suffered … 8(4) … by way of damages or profits as circumstances require… 2006: 8(1) … the first person is liable to the second person for any loss suffered … 8(4) … by way of damages as circumstances require. RIAS: Government believes arguments re accounting of profits should no longer be open to generics invoking section 8 14
  15. 15. Not Entitled to Innovator Profits at Federal Court• Innovator profits are not available as a measure of damages under s. 8 (Apotex v Merck 2009 FC/FCA) • Apotex argued that inclusion of the word “profits” in subsection 4 could not be redundant with the word “damages”, and thus must refer to Merck’s profits • S.8(4) has since been amended to remove the word “profits” • S. 8 compensated for having been kept off the market • The reasonable interpretation was that the generic can seek only its own lost profit as a measure of its damages• Subsequent lower court decisions came to similar conclusions 15
  16. 16. Not Entitled to Innovator Profits at Federal CourtApotex v Eli Lilly, 2011 FCA• No jurisdiction to award profits for causes of action arising from section 8 including claims for equitable relief arising from same facts • Parliament considered this issue and removed the reference in s.8 to profits• What about causes of action independent of facts giving rise to the operation of s.8? • None was alleged in that case 16
  17. 17. Entitlement to Innovator Profits in Provincial CourtProvincial Courts • Prior to Lilly, Generics moved the s.8 damages battle to provincial courts to claim other remedies including equitable claims such as unjust enrichment • Reason: Provincial Superior courts are courts of inherent jurisdiction and do not require statutory grants of jurisdiction • Ex. Courts of Justice Act, RSO 1990, c C-43, s 96(1) 17
  18. 18. Provincial Courts : The New BattlefieldApotex v Abbott 2010 ONSC (lansoprazole)• Whitaker J.’s Decision • Motion to Strike unjust enrichment/disgorgement of profits • Whitaker J. held that it was not plain and obvious that the PMNOC Regulations constituted a complete code • None of the cases concerned the ousting of all common law causes of action or remedies • Law is still “muddy”; in its infancy 18
  19. 19. Provincial Courts : The New BattlefieldApotex v Abbott 2010 ONSC (lansoprazole)• Whitaker J.’s Decision • Enrichment and deprivation were pled • Only issue concerned the juristic reasons branch of the test • Disposition of law “has been understood to mean enrichment and deprivation “required” by law” • Held - Abbott was not required to invoke the PMNOC Regulation for some purpose other than to protect the patents • Would require an examination of all the circumstances • Not plain and obvious that the claim would fail 19
  20. 20. Provincial Courts : The New BattlefieldApotex v Abbott, Takeda 2011 ONDivCt (lansoprazole)• Leave to appeal Whitaker J. Decision (Swinton J) • No decisions on whether unmeritorious commencement of NOC proceedings can give rise to a claim in unjust enrichment • Not plain and obvious that reliance on permissive law constitutes a juristic reason • Not plain and obvious that PMNOC Regulations are a complete code and that unjust enrichment would undermine its purpose 20
  21. 21. Provincial Courts : The New BattlefieldApotex v Eli Lilly, 2012 ONSC (atomoxetine)Justice MacDonald : • Motion to strike • Law in respect of claims pursuant to s 8 is not fully settled • Not plain and obvious that PM(NOC) Regulations limit claims or only remedies which s.8 provides are available 21
  22. 22. Provincial Courts : The New BattlefieldThe Pending Decisions: Apotex v Abbott, Takeda ONSC (lansoprazole)• Motion for summary judgement (Quigley J)• Focus on Apotex pleadings • “wrongful invocation” of the PMNOC Regulations • Settlement Agreement• Defendants argued that Apotex v Eli Lilly 2012 FC governed • ie. no independent cause of action exists 22
  23. 23. Provincial Courts : The New BattlefieldThe Pending Decisions: Apotex v Abbott, Takeda ONSC (lansoprazole)• Plaintiff: pleadings re. wrongful invocation and Settlement Agreement supported unjust enrichment • However: • no further material facts presented, ex. regarding wrongful invocation, intent of the parties • Apotex declined opportunity to conduct examinations for discovery• Decision expected in early 2013 23
  24. 24. Provincial Courts : The New BattlefieldThe Pending Decisions: Apotex v Eli Lilly ONDivCt (atomoxetine)• Leave to appeal MacDonald J decision (Ducharme J)• Defendants argue that motions judge considered the wrong question • Correct question: did Parliament intend on excluding innovator profits, not whether Parliament intended on excluding all other causes of action. 24
  25. 25. Provincial Courts : The New BattlefieldTake-away points to date• Ontario Superior Court has not conclusively held that claims for unjust enrichment in section 8 actions are proper • They have merely delayed deciding the issue• Availability of disgorgement of profits in the context of s.8 claims may be clarified in early 2013 25
  26. 26. Quantifying Section 8 Damages 26
  27. 27. Section 8 Damages Finally Quantified• First quantification judgments issued 2012 • Apotex v Sanofi-Aventis, T-1357-09, November 2, 2012 • $215,529,129 awarded to Apotex • Apotex v Merck, T-1144-05, December 4, 2012 • $54,168,579 awarded to Apotex 27
  28. 28. The Main Issue in s.8 damages proceedingsHypothetical (“But for”) World• The main issue is the “hypothetical question”: What would have happened had the first person not brought an application for prohibition? (Apotex v Merck 2011 FCA) • Note issue below: Is hypothetical world one with no Regulations or no Notice of Application?• In other words, Court must construct a hypothetical, or “but for”, world during a defined period of time in the past in order to determine the market share the generic would have captured (Apotex v Sanofi; Teva v Sanofi 2012 FC) 28
  29. 29. Quantifying Section 8 Damages• Framework for quantifying s.8 damages 1. determine the “Relevant Period”; 2. determine the “Drug Market”; 3. determine the “Generic Drug Market”; 4. determine the “Second Person’s Lost Volumes”; and 5. determine the “Second Person’s Lost Profits”. (Apotex v Sanofi, Teva v Sanofi 2012 FC; Apotex v Merck 2012 FC)• Overall burden on generic • Generic: evidential burden re compensation • Innovator: evidential burden re disqualifying compensation 29
  30. 30. Quantification of Damages Overall Market Generic MarketShare of Generic Market Lost Profits 30
  31. 31. Start Date of the Relevant Period• Presumptive start date: “patent hold date” • Court has discretion to select more appropriate date (Apotex v Merck 2008 FC; Apotex v Merck 2012 FC)• Relevant period cannot start before statutory stay (Teva v Sanofi 2012 FC)• Other factors (ex. infringement, manufacturing capacity) likely fall under other inquiries 31
  32. 32. End Date of the Relevant Period• Court has no discretion? (s 8(1)(b)) • Date of withdrawal, discontinuance, dismissal or reversal• However: • Multiple prohibition proceedings? • Date of issuance of NOC? • End date was issuance of NOC by Minister despite pending application (Apotex v Sanofi 2012 FC) 32
  33. 33. Overall Size of the Market• Overall volume sales in units for all manufacturers• However, consider impact of genericization • Overall market often decrease after genericization • None or very little effect according to a report from PMPRB report • Consider real world outcome • Ex. did innovator stop promoting (Apotex v Sanofi, Teva v Sanofi 2012 FC) • Court has come to opposite conclusions on the same drug (Apotex v Sanofi, Teva v Sanofi 2012 FC) 33
  34. 34. Generic Market Size• % of overall volume made by all generic manufacturers• Real world share is an important predictor• Factors include: • Market penetration • Erosion rate, number of generic entrants • Timing of formulary listings• Number of market entrants and their timing might not impact the generic market size (Apotex v Sanofi 2012 FC) 34
  35. 35. Share of the Generic Market• % of the specific generic’s volume• Different hypothetical worlds may exist in different cases • Compare Apotex v Sanofi 2012 FC and Teva v Sanofi 2012 FC• Considerations: • Competition from other generics • Competition from Authorized Generic • Generic manufacturing capacity • Motivation (Willingness to assume “at risk” launch) • “Pipeline adjustment” or “channel stuffing” 35
  36. 36. Share of the Generic Market – Competing Generics• Generic’s market share must be assessed in light of any competition that would have existed (Apotex v Sanofi; Teva v Sanofi 2012 FC) • Factual determination: competition not included/excluded by default• Are there any regulatory or practical impediments to generic competition? • Impact of absence of underlying prohibition proceedings (Apotex v Sanofi 2012 FC) • Competitors’ motivation (ex. at risk entry) (Apotex v Merck 2012 FC) • Inability to manufacture drug 36
  37. 37. Share of the Generic Market – Authorized Generic• Authorized Generics are not excluded from the hypothetical world (Apotex v Sanofi; Teva v Sanofi 2012 FC)• Factors include: • real world actions (ie. launch of AG upon genericization) • importance of drug • contemplation of AG prior to commencing prohibition proceedings 37
  38. 38. Share of the Generic Market – Authorized Generic• Innovator will be “caught of guard”? (Apotex v Sanofi 2012 FC) • Regulatory process is confidential and generic need not provide NOAs in the Hypothetical world • Would have required 3 months after generic launch • Different hypothetical world for Authorized Generic? • Absence of Regulations v Absence of application? • Inconsistent with other aspect of s.8 decisions 38
  39. 39. Generic’s Lost ProfitsDetermine Generic’s lost revenues • Key determinant is pricing • Public or private regime? • Public regime is governed by the public formularies • Maximum prices typically established as a percentage of innovator prices • Pricing regimes have changed significantly in the last few years 39
  40. 40. Generic’s Lost ProfitsDetermine Generic’s cost of sales• Sales returns• Trade spend (ex. discounts, allowances, “rebates”)• Operational costs, ex. manufacturing costs, freight, distribution, plant capacity• Free Goods• Cost of Active Pharmaceutical Ingredient (API)• Ramp-up costs • Double ramp-up has been rejected (Apotex v Sanofi 2012 FC) • However, this view has been questioned by the FC (Apotex v Merck 2012 FC) 40
  41. 41. Generic’s Lost Profits - Adjustments• Indirect losses • Lost profits on sales of other products • Rejected by FC for lack of support (Teva v Sanofi 2012 FC) • Not rejected as a head of damages • Indirect lost profit, ie. through investment • Rejected as a head of damages because alleged losses are speculative and too remote (Teva v Sanofi 2012 FC) 41
  42. 42. Other Factors (s.8(5)) – Unapproved Indications• Unapproved indications («off-label») • Damages for losses which more likely than not would have included off-label sales (Apotex v Sanofi 2012 FC) • Court considered the facts, including: • Generics do not promote drugs for specific indications • Off-label prescribing and substitution take place and product monographs are not relevant to physicians • In the real world, Sanofi didn’t oppose interchangeability of generic drug • Sanofi can sue for infringement for the off-label use • But: «That is not to say that a second person may always recover for unapproved indications.» 42
  43. 43. Other Factors (s.8(5)) - Infringement• Infringement (Ex Turpi Causa) • Court may exercise “judicial discretion to assess the appropriate amount of compensation payable (including nil)” (Apotex v Merck 2011 FCA) • If generic “would have likely” infringed, Court will exercise discretion and disallow recovery for the relevant amounts (Apotex v Merck 2012 FC) • Court disallowed all but one month of recovery • But, no pending infringement actions (Apotex v Astra 2012 FC) 43
  44. 44. Other Factors (s.8(5)) - Mitigation• Failure to mitigate damages • Section 8 provides a claim for damages and thus might require generic to mitigate • Argument not rejected by FC (Apotex v AstraZeneca 2012 FC) • Delay in serving NOA not a basis for finding failure to mitigate (Apotex v AstraZeneca 2012 FC) 44
  45. 45. Strategic considerations and Take-away points• Quantification of section 8 damages is highly factual • Many factors remain to be raised • Scope of discovery will depend on claims and arguments raised • Early negotiations re scope may limit documentary productions• Evidence in s.8 proceedings often relates to sensitive business information • Start discussions about protective / confidentiality orders and appropriate designations early 45
  46. 46. Strategic considerations and Take-away points• Information about competing generics is key • Make Access to Information requests for competing generics’ drug submissions • Compile documentation re post-genericization plans • Consider obtaining IMS data regarding generic competition• Consider Authorized Generics early 46
  47. 47. Strategic considerations and Take-away points• Counterclaims for infringement may be brought in s.8 proceedings • Infringement can assist as a defence to a s.8 claim • However, must also show infringement in hypothetical world • A counterclaim for infringement may expand the scope of discovery • Innovator may have to produce documents in support of their lost profits • May be conflicting levels of profits for the hypothetical and real periods of infringement 47
  48. 48. Barreau CreditsReminder: If you require Barreau credits, please take a moment to complete the survey that will pop up when you log out of the webinar or email us confirming: • The name of the webinar • The date you attended • For how long you participated to 48
  49. 49. Thank You Christopher C. Van Barr Partner Tel: 613.786.8675 Kiernan A. Murphy Associate Tel: 613.786.0273 kiernan.murphy@gowlings.commontréal  ottawa  toronto  hamilton  waterloo region  calgary vancouver  beijing  moscow  london