Double Ramp-up, Authorized Generics and Off-Label Indications in NOC Section 8

Apotex Inc v Sanofi-Aventis Canada Inc [Apotex s 8 Liability Appeal] 2014 FCA 68 Sharlow JA, Pelletier JA concurring, Mainville JA dissenting, var’g 2012 FC 553 Snider J ( blog blog);
Teva Canada Ltd v Sanofi-Aventis Canada Inc [Teva s 8 Liability Appeal] 2014 FCA 67 Sharlow JA, Dawson JA concurring, Mainville JA dissenting, var’g 2012 FC 552 Snider J (blog blog)
            ramipril / ALTACE

My two previous posts on these companion cases have dealt with the construction of the hypothetical world, and the start and end dates for the liability period. This post deals with some remaining miscellaneous issues, which are important as a practical matter, but which can be dealt with more briefly. Unless otherwise indicated, paragraph references will be to the Teva decision.

Double ramp-up
When a generic enters a new market, it takes some time to “ramp up” from zero to its full volume. At trial, the expert reports accepted by Snider J took account of this ramp-up period in constructing the hypothetical world, thus resulting in lower hypothetical sales volume, and lower hypothetical to the generic [250fcT]. The generics argued that this resulted in under-compensation because when they finally did launch in the real world, they experienced an actual ramp-up period of lower sales, which they would not have experienced at that time had they not been prevented from entering earlier by the statutory stay. In effect, the generics were subject to “double ramp-up” – once in the hypothetical world, and once in the real world. The generics argued that in order to avoid under-compensation due to double ramp-up, in the hypothetical world they should be assumed to have been able to enter immediately, without ramp-up. Snider J rejected this argument on the basis that it would amount to compensation for losses suffered after the end of the s 8 period, and this was prohibited by the FCA Alendronate 2009 FCA 187 decision, in which the FCA held, as Mainville J described it, “that section 8 of the NOC Regulations does not include compensation for losses suffered outside the section 8 liability period” [131].

It is not disputed that the generic’s argument is logically correct, and that a ramp-up period in the hypothetical world does result in under-compensation to the generics. The difficulty is that that the Alendronate decision, which refused to allow springboard losses to the generic (losses for reduced market share after the end of the s 8 liability period, resulting from late entry), clearly results in under-compensation. The FCA in Alendronate justified its conclusion on the text of the Regulations, and not on any point of principle. Consequently, the only question regarding double ramp-up is whether it is covered by Alendronate. Snider J held it was [253fcT], and the majority of the FCA agreed [189A]- [193A], even though Sharlow J expressly acknowledged “that not recognizing the double ramp-up represents a windfall for Sanofi. Indeed, it may well represent a windfall for other innovator drug companies in future cases. However, in my view that is the inevitable consequence of the decision of the Governor-in-Council to limit section 8 damages to losses incurred within the section 8 liability period” [192A]. Mainville J would have distinguished Alendronate, essentially on its facts [134]. I am sympathetic to Mainville J’s position, as I am inclined to think that Alendronate was wrongly decided, but given that it is established law, which even Mainville J did not seek to overrule, I have to agree with the majority that double ramp-up is covered by the Alendronate principle.

As Mainville J noted, there has been some controversy over double ramp-up in FC decisions by Phelan J and Hughes J. Mainville J agreed with Phelan J’s analysis [135].

Authorized generic [100T]
The FCA held that entry by an authorized generic could be considered as part of the hypothetical world, for the reasons given by Snider J in coming to the same conclusion (blogged here) [100]-[103].

Off-label indications
The FCA held that the generics were entitled to compensation for lost sales attributable to off-label indications, in this case the so-called HOPE indications, which were developed after the initial marketing authorization for ramipril for other indications.

Sanofi argued that sales attributable to the HOPE indications should not be compensable losses because they would have infringed Sanofi’s HOPE patents, which had not been challenged by Teva [311fcT]. Teva had also withdrawn the HOPE indications from its product monograph. Snider J rejected this argument for several reasons, summarized by Mainville J [67]:

(a) generic products are not promoted for specific uses, but rather sold as drug products; (b) off-label prescribing and substitution commonly take place and there appears to be nothing illegal about this practice; (c) Sanofi has not opposed in the real world the listing of Teva’s generic version of ramipril as fully interchangeable with its own product ALTACE; and (d) the availability to Sanofi of an action for patent infringement with respect to the HOPE patents:

In affirming Snider J, the FCA relied primarily on point (c): “Sanofi has taken no measure to enforce its HOPE patents, and has not opposed the listing of generic versions of ramipril as substitutes to ALTACE for any indication. . . . If Sanofi is not enforcing its HOPE patents in the real market, and is allowing the sale of generic versions of ramipril for HOPE indications in the real market without any serious opposition, I fail to understand why the situation should be deemed different in the hypothetical market” [115]. This leaves open the possibility that notwithstanding Snider J’s other points, losses from off-label indications might not be recoverable if the patentee had been opposing them through an infringement action in the real world.

Miscellaneous
Teva also raised a number of specific challenges to Snider J’s assessment, which were all rejected on the facts: [119]-[129]. The are two points of some more general interest. One is that the FCA rejected Teva’s claim for lost business value, on the basis that it “is essentially a claim for lost future profits which is precluded by the decision of this Court in Alendronate” [119]. The other related to Teva’s claim for its lost opportunity to reinvest the profits it would have made during the liability period. Affirming Snider J, Mainville J rejected this, pointing out:

[123] Moreover, as a matter of law, to the extent that Teva has lost an opportunity to invest the profits it would have made during the liability period, the Trial Judge was correct in concluding that pre-judgment interest was the accepted method for compensating this loss unless there is clear and non-speculative evidence of a lost opportunity that would exceed the interest otherwise payable:

Start and End Dates for Section 8 Liability Period

Apotex Inc v Sanofi-Aventis Canada Inc [Apotex s 8 Liability Appeal] 2014 FCA 68 Sharlow JA, Pelletier JA concurring, Mainville JA dissenting, var’g 2012 FC 553 Snider J ( blog blog);
Teva Canada Ltd v Sanofi-Aventis Canada Inc [Teva s 8 Liability Appeal] 2014 FCA 67 Sharlow JA, Dawson JA concurring, Mainville JA dissenting, var’g 2012 FC 552 Snider J (blog blog)
            ramipril / ALTACE

Under the patent linkage set provided for in the PM(NOC) Regulations, a generic that would otherwise be in a position to receive an NOC as a result of an ANDS will be placed on “patent hold” until it has addressed all the patents listed against the drug in question by the innovator / patentee whose drug was the reference product for the ANDS. The generic can respond with a Notice of Allegation, alleging invalidity or non-infringement, and if the patentee responds, a statutory stay is triggered under s 7, preventing the generic from receiving its NOC until the patents have expired or the generic has prevailed on its allegations in NOC proceedings. If the generic is successful, s 8(1) makes the patentee liable to the generic for losses suffered from having been wrongly (in hindsight) held off the market by the statutory stay. The patent linkage system is analogous to an automatic interlocutory injunction, and s 8 is analogous to the undertaking in damages which is usually required for a plaintiff to obtain such an injunction.

The Apotex and Teva s 8 Liability Appeals raise some unusual issues regarding the start and end dates for the section 8 liability period (which I have previously called the compensable period). While the facts were unusual, this means that the FCA had the opportunity to clarify some principles which are not as apparent in more routine situations.

What is the "But For" World under S 8 of the NOC Regulations?

Apotex Inc v Sanofi-Aventis Canada Inc [Apotex s 8 Liability Appeal] 2014 FCA 68 Sharlow JA, Pelletier JA concurring, Mainville JA dissenting, var’g 2012 FC 553 Snider J ( blog blog);
Teva Canada Ltd v Sanofi-Aventis Canada Inc [Teva s 8 Liability Appeal] 2014 FCA 67 Sharlow JA, Dawson JA concurring, Mainville JA dissenting, var’g 2012 FC 552 Snider J (blog blog)
            ramipril / ALTACE

In these companion cases, the FCA has split on a very difficult issue relating to calculation of damages under s 8 of the NOC Regulations.* Damages generally are assessed by a comparison of the actual world with a “but for” or hypothetical world in which the wrong had not occurred. Sharlow J for the majority in the FCA, Mainville J in dissent, and Snider J at trial, all accepted that this basic principle should apply to s 8. The question is how exactly to construct the hypothetical world in assessing damages under s 8. Should we assume that NOC Regulations were effective against all generics, so that everything would have unfolded exactly as it did, except that the claimant would have received its NOC, and entered the market, notwithstanding the statutory stay? Should we assume that the NOC Regulations did not exist at all in the compensable period, for either the claimant or other generics which might have entered the market? Should we assume that NOC Regulations were effective against all generics except the claimant? These were essentially the positions taken by Sharlow J, Mainville J, and Snider J respectively. In the end, there is no perfect answer to this question.

S 8 NOC Permits Recovery for Losses from Off-Label Indications

Sanofi v Teva / ramipril (NOC) 2014 FCA 69 Mainville JA: Sharlow, Dawson JJA aff’g 2012 FC 551 Snider J (blog)
            ramipril / ALTACE

Sanofi has been engaged in s 8 NOC litigation with both Teva and Apotex over ramipril. In Teva / ramipril (s 8) 2012 FC 552 (blogged here) and Apotex / ramipril (s 8) 2012 FC 553 (blogged here and jointly here), Snider J assessed s 8 damages against Sanofi. These are the first s 8 cases to go all the way to assessment of damages. They are referred to by the FCA as the Teva Liability Judgment (FC) and the Apotex Liability Judgment (FC), respectively. The FCA has apparently issued its decision on appeal from these liability judgments, largely confirming Snider J’s decision [4], [7], but these appeal decisions are not yet publicly available on the FCA website.

In the course of the same litigation, Sanofi also challenged the validity of s 8 of the NOC regulations on a variety of grounds. In the decision under appeal, 2012 FC 551 (referred to by the FCA as the “Validity Judgment,”) Snider J dismissed these challenges to s 8, as described here.

In this appeal, Sanofi appealed on a single question, namely “whether section 8 of the NOC Regulations can validly allow compensation to be paid to a generic drug manufacturer for lost sales attributable to so-called “unapproved” indications,” in particular the so-called HOPE (“Heart Outcomes Prevention Evaluation”) [14], which were covered by two patents (the HOPE patents). As I described in my post on the Teva Liability Judgment (FC):

Teva did not address the HOPE patents, as it chose instead to withdraw those indications from its product monograph 2012 FC 552 [311]. Snider J held that Teva was nonetheless entitled to recover for lost sales attributable to off-label indications, on the basis that in fact, such sales would likely have taken place [319], and the off-label prescribing by physicians is not itself illegal [314].

It appears that these conclusions have been affirmed in the not-yet-available FCA Liability Judgment [22], but “Sanofi nevertheless submits that, as a matter of jurisdiction, section 8 of the NOC Regulations cannot allow compensation to be paid to generic drug manufacturers with respect to sales for unauthorized indications such as the HOPE indications” [23]:

Sanofi essentially argues that since section 6 of the NOC Regulations only gives an innovator drug manufacturer the right to apply for a prohibition order with respect to a listed patent where that patent is worked on by the generic drug manufacturer for the purposes of securing its NOC, the generic drug manufacturer’s right to compensation under section 8 of the Regulations should therefore be limited to the lost sales arising from the uses identified in the patent which the generic drug manufacturer must deal with under the Regulations

The FCA rejected this argument, saying “Sanofi’s submission is a misguided attempt to transform a factual issue into a question of jurisdiction” [24]:

[26] The purpose of section 8 of the NOC Regulations is precisely to ensure that when an innovator drug manufacturer reaps the benefits of those Regulations by initiating unfounded prohibition proceedings, the generic drug manufacturer can then seek appropriate compensation for having been impeded from entering the market earlier as a result of those proceedings.

[28] In the case of both Teva and Sanofi, the Trial Judge simply determined as a matter of fact that “any loss suffered during the period” as referred to in subsection 8(1) of the NOC Regulations (emphasis added), included the sales related to the HOPE indications.

As I noted in my post on Snider J’s Liability Judgments “Generally, Snider J constructed the hypothetical world almost entirely as a matter of determining what would in fact have happened, without regard to various arguments that particular consequences should be ignored for policy purposes.” The FCA decision on the validity of s 8, with its refusal to treat the issue as being one of law, broadly affirms this approach. Compensation under s 8 is to be determined on the basis of an almost purely factual inquiry, rather than by holding that various types of loss are, or are not, recoverable as a matter of law. The major departure from this factual approach is the rule that springboard damages are not recoverable under s 8 as a matter law: Merck Frosst v Apotex Inc / alendronate (NOC) 2009 FCA 187. That rule is looking increasingly anomalous, but it is doubtless too well entrenched to be changed at this point.

This FCA decision provides some interesting hints as to how the FCA will handle the quantification of s 8 damages, but the real meat will come with the FCA Liability Judgments, once released.

Is Gunpowder Patentable Subject Matter?

The USPTO has issued new Guidelines on patentable subject matter in light of the USSC decisions in Myriad and Prometheus. It is evident from Examples C and D that gunpowder, if invented today, would not be considered patent eligible subject matter under the Guidelines. This result is peculiar, to say the least. One possibility is that the USPTO has misinterpreted the USSC, but in my view the Guidelines do a good job of reflecting the USSC jurisprudence. The real explanation for this peculiar result is that the USSC jurisprudence has run off the rails. For my argument that this is what has happened, starting with the Funk Bros 333 US 127 (1948) decision, see The Rule Against Abstract Claims: A Critical Perspective on US Jurisprudence, (2011) 27 CIPR 3, available in draft here. I was pleased to recently discover that I am not alone in this view: see this draft article by Jeffrey Lefstin, Inventive Application: A History. (The third possibility is that there really is some good reason why gunpowder should not be patentable subject matter, but I can't really think of any good arguments in favour of that position.)

Admissibility of Expert Evidence Must Be Raised at Trial

Pfizer Canada Inc v Apotex Inc / azithromycin (NOC) 2014 FCA 54 Gauthier JA: Stratas, Webb JJA aff’g 2013 FC 493 O'Reilly J
              ZITHROMAX / azithromycin / 1,314,876

This is an appeal from O’Reilly J’s finding of fact (blogged here) that Apotex’s generic product would not infringe Pfizer’s 876 patent. Pfizer attempted to turn this factual issue into a question of law by arguing that evidence of one of Apotex’s experts was not admissible under the test for the admissibility of novel scientific evidence set out in R v J-LJ, 2000 SCC 51. The FCA rejected this argument, holding first, that in this case the question was not one of the admissibility of novel scientific evidence, but merely the interpretation of recognized tests, so the R v J-LJ analysis was not applicable [6]; and secondly, objections of this sort must be raised at trial [7], in order to allow consideration of the evidence necessary to properly apply the R v J-LJ test [9].

Prizer also argued that O’Reilly J’s made a palpable and overriding error in giving weight to the disputed evidence [12]. The FCA readily dismissed this argument on the usual deferential standard applicable to factual findings.

Literal “Perfect Match” Construction of Claims Required for Patent Register Listing

Eli Lilly Canada Inc. v. Canada (Attorney General) 2014 FC 152 Bédard J
             2,379,329 / spinosad / TRIFEXIS

Bédard J’s Lilly / TRIFEXIS decision applies what is now the FCA’s established interpretation of the product specificity requirement in s 4(2) of the NOC Regulations to hold that the 329 patenet cannot be listed on Patent Register against TRIFEXIS, notwithstanding that a generic version of TRIFEXIS would necessarily infringe. As Bédard J pointed out, she was bound to come to this conclusion by the FCA decisions in Purdue / TARGIN 2011 FCA 132 (blogged here) and Gilead / COMPLERA 2012 FCA 254 (blogged here), which held that all the active ingredients in the product must be specifically mentioned by name in the claims. While there is no new law here, the decision illustrates the extreme nature of the product specificity requirement. Bédard J held expressly that a generic version of TRIFEXIS would infringe, and the description specifically mentioned the ingredient that was missing from the claims; but as Bédard J pointed out, neither of these points is a principled basis for distinguishing the prior FCA decisions. This further emphasizes that in order to ensure that a patent will be listable against the commercial product, it is not enough that the commercial product would clearly infringe, or even that the patent specifically describes all the ingredients of that product. The claims must specifically name the all of exact compounds found in the NOC. Bédard J aptly referred to this as a requirement of a “perfect match” [73]. References to a class of compounds, that would enable fewer, shorter, and clearer claims, do not suffice to allow listing, no matter whether they are fully adequate for infringement; all the members of the class must be listed in the claims themselves in order to ensure that a patent can be listed against the ultimate commercial product. This is a purely formal requirement, since all of the specific compounds could in principle be named in the claim itself, without changing the meaning of the claim, though it would make the claims bloated and difficult to interpret. This product specificity requirement also has the perverse effect of making it relatively easy to list an “evergreening” patent, in which a very specific change is made to an existing formulation, while making it almost impossible to list a true breakthrough patent, where the precise formulation of the ultimate commercial product is unknown at the time of filing.

TRIFEXIS is authorized as an oral dosage form of a drug that contains two active medicinal ingredients: spinosad and milbemycin oxime. The 329 patent claims an oral “formulation” of spinosad. The patent description defines “oral formulation” as follows (Bédard J’s emphasis, [9]):

The formulations of this invention may further include, in combination with the spinosyn component, one or more other compounds that have activity against the specific ectoparasite or endoparasite to be controlled, such as, for example, synthetic pyrethroids, natural pyrethins, organophosphates, organochlorines, carbamates, foramidines, […].milbemycins, […]

The term “oral formulation” means that the spinosyn component or components, either alone or in combination with one or more of the other types of compounds listed supra, formulated into a product or formulation suitable for administering to the animal by mouth.

Consequently, Bédard J construed the relevant claims of the 329 patent to be directed “not only to a formulation including spinosad as the only active ingredient, but also to formulations that include other active ingredients such as, but not restricted to, milbemycin oxime” [69]. Thus she in effect held that a generic version of TRIFEXIS would necessarily infringe the 329 patent.

However, this was not enough. While it is permitted for a patentee to create their own dictionary in the specification for the purposes of claim construction in the context of infringement, this is not permitted for the purposes of the product specificity requirement. The product specificity requirement of s 4(2)(b), requires “a claim for the formulation that contains the medicinal ingredient.” Notwithstanding that the claim of the 329 patent literal “contains” a claim to spinosad, “the medicinal ingredient” has been construed by the FCA as meaning all of the specific ingredients. It is “insufficient for a patent to meet the product specificity requirement by referring to a class of compound rather than to a specific medicinal ingredient” [84]. Rather, as Bédard J put it, there must be “a perfect match” between what is claimed and what has been authorized [73]. Note that the Minister’s position is that the exact text appearing in the NOC must appear in the claim. There are various types of milbemycins, and the Minister’s position was that it would not have been enough to refer to “milbemycin” in the claim; it would be necessary to refer to “milbemycin oxime” [12]. It is not entirely clear whether Bédard J accepted this position. She held that “Referring to the general family of milbemycins in the definition of oral formulation is not specific enough to conclude that the claims match the formulation contained in Trifexis” [85]. It is not entirely clear to me whether what was inadequate was the reference to the general family, or the fact that the reference was only in the specification, or both. That is, would the product specificity requirement have been satisfied if the claims, and not just the disclosure, had referred to milbemycins, but without reference to milbemycin oxime in particular? It is, however, clear that the Minister’s position is that a reference to milbemycin oxime in the claim itself is necessary, and this does seem to follow from the stringent nature of the product specificity requirement.

It must be emphasized that the specificity requirement is purely formal. By defining “oral formulation” in the disclosure, the claims were made more compact, but without changing the meaning of the claim at all, the definition might have been included in the claim by specifically listing synthetic pyrethroids, natural pyrethins, organophosphates, organochlorines, carbamates, foramidines, avermectins, milbemycins, insect growth regulators, nitromethylenes, pyridines and pyrazoles as compounds which would also be included in the formulation. Of course, according to the Minister this would not suffice. It would be necessary to specifically list the various types of milbemycin, namely (according to Wikipedia) milbemectin, milbemycin oxime, moxidectin, and nemadectin; and all the specific types of all the other possible components, such as organophosphates, would have to be similarly extensively listed in the claim itself. None of this would change the substantive meaning of the claim; it would be purely a formal change – and a formal change very much for the worse, as it would bloat the claim, making it much harder to understand.

I must say that I really cannot understand what purpose is served by this purely formal requirement. It is a dramatic departure from the general principle of purposive construction that is otherwise universally used in Anglo-Canadian law for the interpretation of patents and contracts, not to mention statutes. It has a perverse effect of making it relatively easy to list an “evergreening” patent, in which a very specific change is made to an existing formulation, while making it almost impossible to list a true breakthrough patent, where because the precise formulation of the ultimate commercial product will rarely be known at the time of the pioneer patent. Perhaps the answer is that no purpose is served, as the holding of the FCA in Gilead / COMPLERA 2012 FCA 254 (blogged here), was based on a textual analysis. In any event, Bédard J did not address any of these problems of principle, for the very good reason that these problems are inherent in the holdings of the FCA in Purdue / TARGIN and Gilead / COMPLERA, and she is bound by those decisions [73].