Case: Apotex Inc. v. Takeda Canada Inc., 2013 FC 1237
Drug: Protonix ® (pantoprazole)
Nature of case: Damages action under section 8 of the Patented Medicines (Notice of Compliance) Regulations
Date of decision: December 11, 2013
On December 11, 2013 the Federal Court released an important decision pertaining to the determination of damages under section 8 of the Patented Medicines (Notice of Compliance) Regulations (the Regulations). This decision provides new insight into the construction of the hypothetical market in which generic damages are assessed. Most striking is the Court’s acknowledgment that an innovator could face various section 8 claims that may exceed the total of real losses - a risk the Court dismissed as “the loser’s risk.” The true impact of this decision will have to await the release of the Federal Court of Appeal’s decision in Ramipril (A-191-12), which was heard on October 30, 2013 and remains under reserve.
The issues at trial
This action involved the amount of compensation owed to Apotex for its delayed market entry for Apo-pantoprozole for the period March 9, 2007 to March 5, 2008. The trial judge was not asked to quantify the damages owed by Takeda Canada Inc. (Takeda) to Apotex, but rather to determine the following nine disputed issues which would assist the parties in arriving at the final calculation of damages.
The trial judge held that in constructing the hypothetical market from which Apotex’s damages were to be assessed, the Court should “mirror as much as possible real world circumstances” and then “work out what likely would have happened” had the generic not been delayed. The Court rejected “the percentage weight approach” proposed by Apotex. The trial judge reiterated that a section 8 claimant bears the burden of proving its lost sales and the deductions to be made from those sales on a balance of probabilities, while a section 8 defendant bears the burden of proving any affirmative defence, including the presence of other generic competitors in the hypothetical market.
- Number and identity of generic market entrants
Takeda argued that there would have been three other generic competitors as well as simultaneous entry by its authorized generic, Ranbaxy.
The trial judge considered real world evidence surrounding the motivation and timing of Takeda’s decision to launch an authorized generic to determine when this would have occurred in the “but for” world. The Court held that although the approval for Takeda’s authorized generic took about a year in the real world, the launch would have occurred 3 months after Apotex’s market entry. The Court rejected the suggestion that Ranbaxy was a mere “stalking horse” designed to minimize section 8 damages.
The trial judge also considered whether other generic manufacturers that had served NOAs would have competed with Apotex in the “but for” world. The Court considered real world evidence and noted that Takeda resisted Teva’s market entry “at every turn.” This led the Court to conclude that Takeda would have asserted its patents against Teva in the “but for” world and that Teva would not have obtained an NOC until close to the hearing date. Other market entrants who settled section 6 proceedings against Takeda were considered to have entered the market as of their patent hold dates consistent with the Court’s holding in Apotex Inc. v. Merck & Co., Inc. 2012 FC 1235 (Alendronate).
- Apotex’s market share percentage
This issue revolved around how long it would take Ranbaxy to gain market share upon entry and achieve “steady state” in sales. Apotex had the burden of proof. Experts from both sides presented econometric models, none of which found complete favour with the trial judge. The Court ultimately accepted the evidence of Apotex’s expert who applied his “business judgment” to economic “data.”
- Apotex’s lost revenue/pricing
Apotex had the burden of proving the formulary price at which Apo-pantoprazole tablets would have been sold in each of the provinces, whether as the sole market entrant or in a competitive market. As with the trial decision in Ramipril and Alendronate, the trial judge rejected as “self-serving” Apotex’s evidence that its price would have been 80-90% of the brand price during the sole generic period. Instead, the trial judge relied on evidence from provincial formulary representatives from Ontario, Quebec and Alberta and held that during the period when Apotex was the sole generic market entrant, it would have had a 75% list price in Ontario and Alberta, a 60% list price in Quebec (reflecting its “most favoured nation” policy), and a 70% list price in the rest of Canada. In a competitive market, the trial judge found that Apotex’s prices would have dropped to 50% of Takeda’s price in Ontario, Newfoundland and Quebec and 63% of Takeda’s price in the other provinces.
- Inventory adjustment
The trial judge considered it appropriate to apply an inventory adjustment to reflect the initial “pipefill” that occurs in the real world, but which is not reflected in IMS data because of the delay inherent in the reporting of ex-factory sales. Since this reporting lag continues until inventory levels reach a steady state, the dispute between the parties’ experts centred over the point at which “steady state” or “normalized sales” was achieved which drives the inventory adjustment period. The trial judge considered the methodology adopted by Takeda’s expert to make more sense since he weighted the different provincial markets by population. The appropriate adjustment was held to be in the 11-13% range (by way of a reduction to total sales).
- Double ramp-up
Perhaps one of the most surprising findings in this case was the Court’s decision to award “ramp-up” losses to Apotex, a loss squarely rejected by the Federal Court of Appeal in Apotex Inc. v. Merck & Co., Inc. 2009 FCA 187 and the trial decision in Ramipril and Alendronate. The trial judge held that he was not bound by stare decisis or comity, as the previous decisions did not focus on “the economic loss of not being able to ameliorate “ramp up” which occurs in the relevant period and which he was of the view he could consider under subsection 8(5) of the Regulations which permits the Court to take into account all matters that it considers relevant in assessing the amount of compensation owed. The trial judge concluded that it is a proper exercise of its discretion not to include “ramp up” in the relevant period where “ramp up” was experienced in the real world.
Apotex had the burden of proving what rebates it would have offered in the sole and competitive markets. For the first time, the Court also distinguished between rebates paid to chain pharmacies and those paid to independent (aka banner) pharmacies. Also for the first time, the rebate levels were not redacted from the public version of the decision providing new insight into what has been referred to as a “murky” practice.
The trial judge considered Apotex’s evidence that in a sole source market it would have offered little or no rebates to be overstated and self-serving . The trial judge also rejected Takeda’s argument that Apotex would have paid the same rebates in a sole and competitive market, as this failed to draw a distinction between the buying power of the various purchasers. The trial judge accepted Apotex’s evidence with respect to rebates that would have been paid in a single generic market (8.9%) based on a “comparator drug.” The trial judge held that a rebate of 44.7% would have been paid to chains drug stores in a competitive generic market (representing 55% of the market) based on real world experience. The Court applied a “broad axe” approach in determining that Apotex would have paid a 15% rebate to banner pharmacies in the “but for” world.
- Prejudgment interest
The Court held that Apotex is entitled to simple interest in accordance with Ontario law. Section 127 of the Ontario Courts of Justice Act defines “prejudgment interest rate” as “the bank rate at the end of the first day of the last month of the quarter preceding the quarter in which the proceeding was commenced.” That rate was 3.3% which the trial judge applied as of Apotex’s patent hold date, being the date the cause of action arose.
- Discretion to reduce damages
Takeda asked the trial judge to reduce Apotex’s damage award on the basis of its breach of an undertaking given in the underlying prohibition proceeding not to market or promote Apo-pantoprazole in combination with one or more Helicobacter inhibiting anti-microbial agents for the treatment of H. pyloric diseases. Takeda argued that Apotex had given this undertaking in order to shield itself from an infringement claim only to breach that undertaking upon its entry into the market. The trial judge agreed that the allegation was grave – amounting to a form of contempt – but he was not prepared to characterize the statements in Apotex’s notice of allegation as an undertaking. The Court held that “while statements in an NOA may rise to the level of an undertaking to be relied on by a court, such statements must be clear and unequivocal” and “bare pleadings” in an NOA do not constitute enforceable undertakings.
This decision provides new insight into the construction of the hypothetical market upon which section 8 damages may be calculated. What remains to be seen, however, is whether it will accord with the Federal Court of Appeal’s highly anticipated Federal Court of Appeal decision in Ramipril which is expected to weigh in on critical section 8 issues such as “double ramp up” and the generic market entry “in the absence of the Regulations.”