IP SPOTLIGHT 25 MAY 2020

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 2 also occur once the first generic is listed, such as an annual drop on nominated dates, and reductions 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. COMMONWEALTH ’S DAMAGES CLA IM 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 Commonwealth. All in all, the Commonwealth claimed $325 million in compensation excluding interest and costs. COURT ’S DECI S ION 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 – – 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 on the PBS the Apotex Products 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. 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 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 Other findings by the Court

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. 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 by the operation of the interlocutory injunction. Apotex also voluntarily gave the Court an undertaking that it would not 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 and 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. PHARMACEUT I CAL BENEF I TS SCHEME PR I CE REDUCT ION 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.

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 had not been granted, the Apotex First Undertaking would not 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

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.

2 | wrays.com.au