Commonwealth fails in $325 million Recovery Bid

COMMONWEALTH FAILS IN $325 MILLION RECOVERY BID

15 May 2020

Nicholas J has rejected the Commonwealth’s claim for damages in the long- awaited decision of Commonwealth of Australia v Sanofi (No 5) [2020], handed down on 28 April 2020 FCA 543.

In this proceeding, the Commonwealth sought compensation for its payments under the Pharmaceutical Benefits Scheme ( PBS ) to subsidise Sanofi’s drug Plavix (clopidogrel). The Commonwealth argued that it had suffered loss of up to $325 million because Apotex was delayed from listing its generic form of clopidogrel on the PBS and triggering a price reduction, due to a wrongly granted interlocutory injunction. The Commonwealth’s claim was rejected because it did not show that Apotex would have listed its products on the PBS in the absence of the injunction on the balance of probabilities.

Background to Proceedings

Sanofi is the originator of the blockbuster multi-billion-dollar drug clopidogrel, an antiplatelet medication which is used to prevent blood clots and reduce the risk of stroke and heart disease.

In Australia, Sanofi Australia Pty Ltd ( Sanofi ) sold clopidogrel under the name Plavix while Bristol-Myers Squibb Australia Pty Ltd sold it under the name Iscover. Both products were registered on the ARTG on 2 December 1998 and listed on the PBS on 1 November 1999.

On 21 August 2007 Apotex Pty Ltd ( Apotex ) registered its clopidogrel products on the ARTG. Shortly thereafter, Apotex commenced proceedings against Sanofi to invalidate the Sanofi clopidogrel patent to clear the way for Apotex to launch its generic version of Plavix ( Apotex Product ) in Australia. Sanofi counter-claimed for infringement. In September 2007, Apotex applied for a PBS listing but its application was filed too late to be listed on the PBS from 1 December 2007. Apotex subsequently withdrew that application. On 25 September 2007, the court awarded an interlocutory injunction to Sanofi restraining Apotex from infringing Sanofi’s clopidogrel patent. To get that undertaking Sanofi gave the usual undertaking as to damages in support of the injunction. In short, it undertook that it would pay any amount as assessed by the Court as just payment of compensation to any person, whether or not that person is a party, adversely affected

Commonwealth. All in all, the Commonwealth claimed $325 million in compensation excluding interest and costs.

by the operation of the interlocutory injunction. Apotex also voluntarily gave the Court an undertaking that it wouldn’t list its products on the PBS until the proceedings were determined or until further order ( Apotex First Undertaking ). Sanofi did not provide an undertaking as to damages in return for the Apotex First Undertaking. At first instance, Gyles J decided that certain claims in Sanofi’s clopidogrel patent were invalid but found that claims 2 to 5 were valid and infringed. As such, he ordered a final injunction restraining Apotex from infringing the patent. Apotex appealed and Sanofi cross appealed that finding to the Full Federal Court. On 13 October 2009, the Full Court made orders allowing Apotex’s appeal and revoked the patent. In doing so it also set aside the final injunction. The High Court then rejected Sanofi’s application for special leave on 12 March 2010 leaving Sanofi’s clopidogrel patent revoked. Pharmaceutical products which are listed on the PBS are subsidised by the Commonwealth. The maximum amount charged by manufacturers/wholesalers of a drug to pharmacists ( Pharmacist Price ) is set by agreement with the Minister. The patient pays a contribution, which is capped. The remainder of the cost is paid by the Commonwealth to the pharmacist. The Pharmacist Price is reduced from time to time by virtue of statutory provisions. The listing of the first generic version of a listed drug results in an automatic reduction (now 25% 1 ) in the Pharmacist Price. Additional price reductions also occur once the first generic is listed, such as an annual drop on nominated dates, and reductions 2 calculated based on the weighted average disclosed price for the drug 3 . Therefore, the listing of the first generic on the PBS triggers an immediate and continuing reduction in the Pharmacist Price, and the reduction in the Pharmacist Price represents a saving to the Commonwealth, and a loss to the originator. Pharmaceutical Benefits Scheme Price Reduction

Court’s Decision

The Commonwealth had to show the following in order to succeed:

– – Apotex would have listed the Apotex Product on the PBS on 1 April 2008, triggering a price reduction but for the interlocutory injunction; – – that the loss flowed directly from the interlocutory injunction; and – – that the loss could have been foreseen at the time the interlocutory injunction was granted. Would Apotex have filed an application to list on the PBS on 1 April 2008? The Commonwealth failed at the first hurdle. Nicholas J found [at 349] on the balance of probabilities that Apotex would not have applied to list the Apotex Products on the PBS on 1 April 2008 if the interlocutory injunction had not been granted. The Commonwealth’s claim for compensation had to be dismissed. While Apotex Australia’s Managing Director provided evidence that he would have pursued PBS listing and launched at risk if the interlocutory injunction was not granted, contemporaneous documents indicated that any such action had to be authorised by senior decision makers from Apotex Canada (Apotex HQ) due to the financial implications of the decision. The documents indicated the decision makers were reluctant to launch at risk and list on the PBS because of the significant exposure to damages caused by the automatic reduction in Pharmacist Price triggered by the listing. Evidence from these decision makers was not adduced by the Commonwealth so the court drew an adverse inference that such evidence would not have assisted the Commonwealth. This was fatal to the Commonwealth’s case.

Commonwealth’s Damages Claim

Other findings by the Court

The Commonwealth claimed compensation under the undertaking as to damages. The Commonwealth’s argument was that but for the interlocutory injunction, Apotex would have listed the Apotex Product on the PBS on 1 April 2008, which would have triggered the price reductions, with resulting savings to the

Nicholas J however went on to make the following additional findings based on the evidence and arguments of the parties:

–– The Minister would have approved the application for PBS

1 In accordance with division 3A of Part VII of the National Health Act 1953 a statutory price reduction of 25% is applied to existing PBS-listed products when the first new brand or item that is bioequivalent or biosimilar and has the same manner of administration as an existing brand or item lists on the PBS. This reduction increased from 12.5% to 16% on 1 February 2011, then again from 16% to 25% on 1 October 2018. 2 Drugs listed on F1 are subject to statutory price reductions on the fifth (5%), tenth (10%), and fifteenth (5%) year anniversary of the date that the drug was listed on the PBS. 3 The National Health Act 1953 provides that listed drugs be assigned to formularies identified as F1 or F2. Generally F1 is intended for single brand drugs and F2 for drugs that have multiple brands, or are in a therapeutic group with other drugs with multiple brands. Drugs on F2 are subject to the provisions of the Act relating to statutory price reductions, price disclosure and guarantee of supply. Allocation to F1 or F2 is determined by legislative instrument. Single brand combination drugs are not included in either the F1 or F2 formulary.

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– – On the evidence, it was unlikely that Apotex would have continued to supply after the first instance decision was handed down due to exposure to damages, so the likely scenario was that Apotex would de-list the Apotex Product and cease supply until the determination of the appeal, rather than simply continuing to supply. –– The Commonwealth would have likely exercised its power to reverse the automatic price reduction of 12.5% caused by the initial listing of the Apotex Product (thereby reducing the damage suffered by the Commonwealth) once Apotex de-listed, because this power had been exercised by the Commonwealth in similar circumstances previously. –– The Commonwealth did not need to show that no other generics listed on the PBS as a direct result of the interlocutory injunction (rather than the patent proceeding), because even if other generics were deterred for other reasons, it does not follow that the Commonwealth did not suffer loss as a result of Apotex not being listed before them. – – The Commonwealth was “adversely affected” by the interlocutory injunction . –– None of the discretionary factors raised by Sanofi were sufficient to deny the Commonwealth’s claim for compensation . The delay in the Commonwealth notifying Sanofi that it would make a claim was explained; that the supply of the PI for the Apotex Products would have constituted an infringement of Sanofi’s copyright in its PI was irrelevant when the evidence showed that Sanofi would never have pursued Apotex for copyright infringement in its PI; it was not established that the manufacture of Apotex Products in Canada would have infringed a valid claim of the Canadian patent; and no further public interest considerations arose. –– To determine quantum, it was necessary to identify the market share that the Apotex Product would have achieved . Nicholas J preferred the “backdated actual market share” approach to calculating market share which was based on actual sales figures in the post injunction period, over the “bottom up” approach which was based on an analysis of the clopidogrel market during the injunction period.

listing (if it had been filed) even though the pending litigation may have ultimately restrained Apotex’s ability to supply product in the future. The Minister would have taken Apotex’s assurance of supply (provided in the application process) on face value, and noted the absence of an interlocutory injunction restraining the supply. –– The appropriate hypothetical scenario was that the interlocutory injunction had been refused, and that the opportunity for Sanofi to obtain an interlocutory injunction was foreclosed, and not (as Sanofi contended) that Sanofi had not made an application for an interlocutory injunction but may yet do so. –– The Commonwealth’s loss was not directly caused by the interlocutory injunction because PBS listing was not an act of infringement covered by the interlocutory injunction. While the practical effect of the interlocutory injunction was that Apotex could not obtain PBS listing (because it could not guarantee supply), the Commonwealth’s loss did not directly flow from the interlocutory injunction. The Commonwealth’s loss was a direct consequence of Apotex not being able to list on the PBS and that was a consequence of the Apotex First Undertaking, which stopped Apotex from listing its products on the PBS. As noted above Apotex’s undertaking was volunteered and Sanofi did not provide an undertaking as to damages in return. If the interlocutory injunction hadn’t been granted, the Apotex First Undertaking wouldn’t have been given and there would have been no restraint in place to stop the PBS listing application. However, the terms of the injunction itself did not explicitly or implicitly prevent Apotex from applying for a listing, and did not directly affect the legal rights, obligations or interests of the Commonwealth. The loss suffered by the Commonwealth was a result of Apotex not securing registration for the Apotex Product on the PBS from 1 April 2008. That was not a loss that flowed directly from the interlocutory injunction, but was the direct and immediate consequence of the Apotex First Undertaking. –– The Commonwealth’s loss was reasonably foreseeable, as Sanofi was aware of and understood the various price reduction mechanisms provided in the PBS scheme. The fact that the Commonwealth had not sought compensation of this nature in previous proceedings did not indicate that the loss itself was not foreseeable. – – The appropriate hypothetical scenario for assessing damages was how things would have turned out if the relevant event (i.e. interlocutory injunction) was removed from the equation. Other real world facts such as the timing of trial, final judgment or findings made are not assumed away.

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