Monday 9 November 2015

The Patented Medicine (Notice of Compliance) Regulations and The Statute of Monopolies

Do generic drug companies have access to alternative remedies after having been held off the market as a result of a Prohibition Order under section 6 of the Patented Medicine (Notice of Compliance) Regulations? Or is their compensation restricted to the damages scheme outlined in section 8 of the Regulations? In this post, we look at a novel[1] effort on the part of Apotex (Apotex Inc. v Eli Lilly and Company et al, 2015 ONSC 5396) to use an antiquated piece of legislation to do precisely this.

Facts

In 2001, Lilly obtained a patent for the use of a drug called atomoxetine in the treatment of ADHD. Apotex developed its own version of the drug, and would have received its Notice of Compliance to begin selling the drug in late 2008. Lilly filed for, and received, an automatic Prohibition Order under s. 6 of the Regulations that prevented Apotex from selling its atomoxetine until late 2010, when Lilly’s patent was declared invalid.

Apotex pleaded a series of overlapping, alternative claims. It made a claim for damages under section 8 of the Regulations. It also made a claim for unjust enrichment, seeking to disgorge Lilly’s profits while it held its market monopoly. Interestingly, it also brought a claim for treble damages and double costs under the British Statute of Monopolies of 1624 (as well as its more recent Ontario counterpart of 1897). The decision in question concerns the disposition of Lilly’s motion to strike this last part of Apotex’s pleadings.

In rejecting Lilly’s motion, Justice Dunphy noted that Lilly’s “complete code” argument - that the Regulations are a complete code that precludes other sources of financial remedy to the plaintiff generic following the removal of the statutory stay - has not been conclusively determined to apply to the Regulations by any appellate court.  For this reason, he ruled that the arcane statutory cause of action put forth by the plaintiff ought not to be dismissed on a preliminary motion, but instead allowed to proceed to trial where they can be determined on a full factual record. 

It should be noted, of course, that causes of action will only be struck on preliminary motion where it is “plain and obvious” that the cause of action stands no chance of success; therefore, little more can be said at this point about the ultimate merits of the case on these statutes. It may well prove that Apotex’s antiquarian claim receives little more traction than attempts by litigants to obtain a “trial by combat”.

Analysis
Why is it that Apotex has put forth such a creative pleading? It would appear to be a function of Apotex’s continuing efforts to – from its perspective – level the playing field when it comes to the automatic injunctive relief provided by the Regulations.

Under the section 8 damages regime of the Regulations – it has been argued - there is a built-in incentive for the “first persons” or brands to take advantage of the automatic statutory stay provisions of the Regulations, regardless of the merits of the particular patents that it has listed on the patent register. Why is this? Consider that a sale that a generic company was precluded from making during the Relevant Period – i.e. a lost sale for which the brand will pay damages - is a sale that was, in the “real world”, made by the branded drug company. The sole differences are that:

   In the real world, the brand will have made that sale at its brand price, which is set in a monopolistic world.  In the notional “but for” world, the generic drug company (Apotex in this case) is assumed to make many of those same sales, but for only a fraction of the price. For example, during the relevant period for the atomoxetine case (i.e. 2008 to 2010), generic prices in Ontario were equal to roughly 50% of brand prices.

    The level of rebates or customer acquisition costs for branded drugs in a monopolistic world will be negligible. By contrast, the assumed cost of customer acquisition in the “but for” world is quite high, particular when multiple generic entrants are assumed.

As a result, the actual profits per unit made by the brand during the statutory stay period will likely greatly exceed the hypothetical profits that the generic would have made during the time it was kept off the market.  For example, if a brand company sold a drug for $1.00 per tablet in the real world and its variable costs were $0.10 per tablet (for a gross margin of $0.90), and was later found to have wrongly kept a generic off the market, it will pay as little as $0.20 per tablet in damages to the generic to compensate the generic for its losses; the net gain to the brand in such a case will be $0.70 per tablet, no matter the merits of its patent.[2]  Generic drug prices (as a percentage of brands) have continued to drop in recent years; as a result, this gap has continued to widen.
It is this discrepancy between the actual profits of the brand and the potential damages award available to the generics under section 8 that has given rise to Apotex’s (unsuccessful) attempts to recover an award for unjust enrichment (Apotex Inc. v. Eli Lilly Canada Inc., 2011 FCA 358, Apotex Inc v Abbott Laboratories Ltd, 2013 ONCA 555; Apotex Inc v Eli Lilly & Co, 2015 ONCA 305.) The claim for treble damages on the Monopolies Act is simply another attempt to break-out of the “complete code” that the Regulations have been characterized by some courts as being.
Conclusions

Is Apotex likely to recover treble damages? It is probably pointless to predict at this point. As to the broader question of whether the damages component of the Regulations, combined with the automatic right of a brand to injunctive relief, has created an uneven playing field – I am not so sure. Following the Supreme Court’s dismissal of the appeal in Sanofi-Aventis v. Apotex Inc., 2015 SCC 20, there does exist the spectre that, at least in cases involving drugs with multiple generic companies attempting to enter, brands may indeed be left with net losses as a result of multiple, overlapping damages awards or settlements.



[1] Novel for most litigants, anyway; Apotex has played this card several times before. E.g., see Apotex Inc. v. Warner-Lambert Company LLC, 2012 FCA 323
[2] This calculation assumes that the variable costs of producing and selling the medications are similar between the brand and the generics, which is typically the case. The calculation is based on the following assumptions:
 
$1.000 x 50% (formulary standard) x (1-40% rebate) - $0.10 (other variable costs) = $0.20