Apotex Inc. v Takeda Canada Inc. 2013 FC 1237

Background

This is an application under section 8 of the PM(NOC) process dealing with lost revenue that Apotex suffered as a result of being held of the market due to a statutory stay. The drug at issue is Pantoloc – which is a protein pump inhibitor used for treatment of acid reflux by controlling acid production in the stomach.

Pantoprazole was covered by five patents:

• 2,109,697
• 2,310,585
• 2,092,694
• 2,089,748
• 1,254,215

Many of the issues that need to be dealt with were agreed upon by the parties. The issues that were not agreed upon (or needed to be decided) were:

• The burden of proof
• The number and identity of generic market entrants
• Apotex’s percentage of market share if there was market competition
• Price
• Inventory adjustment
• Double Ramp-up
• Rebates
• Interest
• Discretion to reduce the award based on Apotex’s misconduct

Analysis

Burden

Two issues were raised with respect to burden: who bears the burden for each issue and whether a percentage probability calculation to apportion damages is appropriate. Justice Phelan rejected the percentage probability based approach.[20] The appropriate burden is the civil standard of a balance of probabilities.[22]

Number and Identity of Generic Market Entrants

Since Takeda raised this issue Takeda bears the burden of establishing generic market entrants and market competition.[23] In the hypothetical world Apotex was found to act independent of the obligations or limitations of the Regulations. As well Justice Phelan notes that in the real world Takeda did not implement a strategy to compete with Apotex’s generic launch and so they would not have done so in the hypothetical world.

Evidence indicated that Takeda had at least a confusing strategy that minimized the likelihood of launching a generic version to compete with Apotex.[46] Apotex points to the real world launch of an authorized generic as a thinly veiled attempt to minimize their section 8 damages. Based on the evidence Takeda could not have launched with an authorized generic no earlier than June 9, 2007.

Takeda also took the position that it would have allowed competing generics such as Teva into the market earlier than Apotex actually entered. Takeda proposes either September 1, 2006 or October 20, 2006 as the date that they would have approved Teva’s entry.[61] However in the real world Teva’s entry was resisted by Takeda just as Takeda resisted Apotex’s entry.[64]

Ranbaxy would therefore enter three months after Apotex and Teva would enter on its NOC hearing date. The remaining generics would enter on their patent hold dates.[68]

Apotex’s Share of the Generic Market

Apotex bears the burden of establishing its share of the generic market since it is an issue that Apotex raised. The Court accepted the Harrington Report as the most fair accounting of the generic market in the hypothetical world.[86]

Apotex’s Lost Revenue/Pricing

Apotex argued that in a sole generic market there is an incentive to keep prices high while there is no competition since profits are significantly lowered in a competitive environment.[90] Takeda responded by saying that Apotex would never be the sole source in the marketplace.[93] The court ultimately relied upon the representatives from three key provincial formularies.[94]

These independent experts indicated that to list higher than the formulary pricing index you would need to seek an exception.[95] The evidence of these experts indicated that Apotex would likely not receive an exemption to charge near the brand price but would rather sell at around 60% of the brand price.[103]

Apotex’s pricing was reflective of the 70/90 rule (70% of brand for first generic, 90% of the first generics price for subsequent generic entries).

Inventory Adjustment

Apotex bore the burden of establishing that they could overcome initial production issues that result in a lag in ‘pipe fill’.[110] Pipe fill is the delay as a result of supply lagging behind demand at the initial product launch date. Until steady state is reached limited data is available. The parties disagreed over two weeks of inventory adjustment.

The Court ultimately adopted Takeda’s experts report but requested that corrections be made to some of the numbers used.[118]

Double Ramp Up

Double ramp up relates to income expenses Apotex would incur in both the real world as well as in the but-for world. The ramp up period relates to the period of time before Apotex reaches steady state with its drug production and delivery.[122]

Apotex experiences loss of income due to ramp up in the hypothetical world resulting in a deduction from what should be steady state revenue. Then Apotex experiences the ramp up consequences again in the real world. There is therefore a disadvantage to Apotex and an advantage to Takeda.[125]

The second ramp up is outside the Relevant Period.[127] The Court of Appeal concluded that Apotex could not claim the loss of the ramp up it actually faced as a result of it occurring outside the period of the statutory stay.[129] The arguments combined with the factors unique to this case are different than those previously faced.[131] Apotex’s future loss claim is an attempt to shoehorn the future losses into a present value. It is the artificiality of this argument that appears to have caused the Court of Appeal to turn aside the future losses.[137] Unlike in the FCA a loss of revenue is being double counted against the successful party granting Takeda a windfall.[138] Both experts(Takeda’s and Apotex’s) in this case confirm that ramp up loss should be counted only once.  

Section 8(5) of the NOC Regulation allows all matters relevant to the assessment of compensation to be considered. The court therefore has discretion to consider any matter relevant to compensation provided it is exercised in a manner consistent with the purpose of section 8. Double counting (for or against) is relevant to assessing compensation.[145] As a result ramp up is not included in the Relevant Period where ramp up was experienced in the real world. [148]

Rebates

Fostering sales via rebates also can have a negative impact on revenues. Apotex bore the burden of demonstrating that it would have paid fewer (or no) rebates. Apotex’s position was that no rebates (or very few) would be offered as the first generic on the market. This position was rejected as being impractical given the ongoing relationship with its customers. The rebates Apotex would give in a competitive market would have been 44.7%.[155] A rebate of 8.9% is the most reasonable rebate while a sole generic.[162]

When in competition with Ranbaxy the relative size of the companies was a factor in determining how their sales would be accounted for.[164] Ultimately in a competitive environment a 44.7% rebate was applied to the chains while a lower rate for non-chains of 15% was accepted.

Prejudgment Interest

The prejudgment interest is calculated from the patent hold date at a rate of 3.3%.[174]

Discretion to Reduce Damages

Apotex is alleged to have breached an undertaking given to Justice Gauthier not to make or promote the drug.[176] A pleading in an NOA is not an enforceable undertaking unless it is phrased as an undertaking. Justice Gauthier did not indicate that the existence of an undertaking had a critical impact on her decision.[187] Takeda has therefore not made out their allegation of a breach of a non-existent undertaking.

Breach of Undertaking

If the court of appeal were to find an undertaking was given the issue for Takeda is the iPharmacist platform. Apotex owns 10% of the company which produces the iPharmacist software suite but does not exercise control.[194] The software lists the patented solution using Apo-pantoprazole for treatment of the disease.[196]

Given that Apotex owns iPharmacist, assists in development of the software and owns the trade-mark, and that iPharmacist is a prominent part of Apotex’s customer loyalty program, Apotex took no steps to prevent the marketing and promoting of Apo-pantoprazole for the patented therapy. However this is an alternative conclusion.[202]

Comments

This decision represents a major shift from previous decisions which have reluctantly sided with the Federal Court of Appeal’s decision to ignore the impact of double ramp up costs on the generic. The approach taken by Justice Phelan is reflected in the evidence of both of the parties – that ignoring double ramp up costs is incorrect when attempting to obtain an accurate calculation of the financial impact of being held off of the market. By excluding ramp up losses from his calculation of losses during the Relevant Period Justice Phelan has squarely addressed an issue that many practitioners have felt was overdue for change.