Generic Damages in Life Sciences Patent Litigation: Strategic Considerations

Christopher C. Van Barr

Kiernan A. Murphy

Generic Damages in Life

Sciences Patent Litigation:

Strategic Considerations

Presenters

2

Christopher Van Barr Partner (Ottawa)

613-786-8675

[email protected]

Kiernan Murphy Associate (Ottawa)

613-786-0273

[email protected]

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

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Brief Background: Regulatory Approval, the PMNOC Regulations and

Section 8 Damages

4

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

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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

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• 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

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• 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).

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Section 8 of the PMNOC Regulations

8. (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).

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Validity of Section 8

Section 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

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Scope of Section 8 Damages

Claims

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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

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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

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Evolution of Section 8

Section 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

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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

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Not Entitled to Innovator Profits at Federal Court

Apotex 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

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Entitlement to Innovator Profits in Provincial Court

Provincial 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)

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Provincial Courts : The New Battlefield

Apotex 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

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Apotex 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

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Apotex 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


Apotex 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


The 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


The 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


The 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.

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Take-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

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Quantifying Section 8 Damages

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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

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The Main Issue in s.8 damages proceedings

Hypothetical (“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)

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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

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Quantification of Damages

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Overall Market

Generic Market

Share of Generic Market

Lost Profits

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

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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)

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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

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)

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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”

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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

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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

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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

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Generic’s Lost Profits

Determine 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

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Generic’s Lost Profits

Determine 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

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)

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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.»

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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)

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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)

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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

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• 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

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• 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

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Thank You

montréal ottawa toronto hamilton waterloo region calgary vancouver beijing moscow london

Christopher C. Van Barr Partner

Tel: 613.786.8675

[email protected]

Kiernan A. Murphy

Associate Tel: 613.786.0273

[email protected]




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Generic Damages in Life Sciences Patent Litigation: Strategic Considerations