III. Issues
[10]
In general terms, the assessment of Teva’s damages involves
five steps:
1.
determine the duration of the Relevant Period;
2.
determine the overall size of the ramipril market during
the Relevant Period (the Ramipril Market);
3.
determine the portion of the market that would have been
retained by Sanofi and the portion that would have been held by generic
manufacturers during the Relevant Period (the Generic Market);
4.
determine the portion of the Generic Market that would have
been held by Teva (Teva’s Lost Volumes); and
5.
quantify the damages that would have been suffered by Teva
in respect of Teva’s Lost Volumes during the Relevant Period (Teva’s Net Lost
Profits).
[11]
In the case before me, these steps require consideration of
a number of issues where the parties are in disagreement. These issues are as
follows:
1.
What is the appropriate period for which losses can be
claimed by a second person under s. 8 of the Regulations? Given that the
parties are agreed that the Relevant Period ends on April 27, 2007, the
remaining sub-issues related to the Relevant Period are:
a.
Can the Relevant Period begin on the date when the second
person would have received its NOC, even where that event occurred prior to the
service of a notice of allegation and imposition of the statutory stay
contemplated by the Regulations?
b.
On the facts of this case, is the appropriate date for the
commencement of the Relevant Period:
i)
July 18, 2003, when Teva received its drug identification
numbers (DINs) for ramipril from Health Canada;
ii)
October 14, 2003, the date Health Canada’s review of Teva’s drug submission was completed and Teva was advised
that an NOC would not issue until the requirements of the Regulations
were met (referred to as the “patent hold” date; see Exhibit 9, Tab 8);
iii)
October 31, 2005, the date Sanofi served and filed a Notice
of Application in respect of a notice of allegation served by Teva on
September 12, 2005, thereby triggering the statutory stay provided for in s.
7(1)(e) of the Regulations; or
iv)
December 13, 2005, the date of expiry of the '457 Patent, which was the subject of the patent hold referred to in ii)
above?
2.
What would have been the size of the Ramipril Market over
the Relevant Period?
3.
How much of the overall Ramipril Market in the Relevant
Period would have been captured by the generic participants?
4.
What would have been Teva’s Lost Volumes during the
Relevant Period? Subsidiary to this question are the following sub-issues:
a.
In assessing Sanofi’s liability under s. 8, is Teva’s
compensation to be assessed on the basis that the second person would be the
sole generic supplier on the market for the entire Relevant Period?
Alternatively, is Sanofi’s liability to be assessed on the basis of a single
“but for” world which includes all potential generic manufacturers?
b.
What other generics would likely have come to market during
the Relevant Period and when? Specifically, would any or all of Apotex,
Laboratoire Riva Inc. (Riva) and/or Pharmascience Inc. (Pharmascience or PMS),
or an authorized generic have launched during the Relevant Period?
c.
What portion of the Generic Market would Teva have captured
during the Relevant Period (i.e. Teva’s Lost Volumes)?
5.
Based on my finding as to Teva’s Lost Volumes, what is
Teva’s Net Lost Profits, having regard to:
a.
the admissibility of evidence of Teva’s “lost business
value” and “second ramp-up” as set out in the report of Teva’s expert witness,
Ms. Suzanne Loomer, as losses that were not “suffered during the period” as
contemplated by s. 8(1) of the Regulations;
b.
the pricing of Teva’s ramipril during the Relevant Period,
having regard to the provincial formularies;
c.
likely trade spend (including discounts and allowances)
that would have been paid by Teva to pharmacists to stock Teva’s ramipril;
d.
likely price of the active pharmaceutical ingredient (API)
for ramipril;
e.
the reasonableness and quantification of any indirect
losses, such as the loss of sales of other products; and
f.
the appropriate calculation of pre-judgment interest?
6.
Is a second person entitled to recover under s. 8 of the Regulations
for lost sales that would have been made as a result of prescriptions that were
aimed at unapproved indications?
IV.
Essential Background
[12]
This action involves a complex statutory framework and a
complicated set of facts. For ease of reference, I attempt to summarize the
statutory framework and the most relevant (and undisputed) background facts
related to the corporate identity of the parties, Sanofi’s patents for ALTACE,
and Teva’s regulatory and litigation history on ramipril.
A. Statutory framework under the PM (NOC) Regulations
[13]
This action arises solely out of the operation of the PM
(NOC) Regulations. Quite simply, Teva was kept off the market for a period
of time by the actions of Sanofi that were ultimately found to be
unsustainable. In his decision in Apotex Inc v Merck & Co, 2008 FC
1185 at paras 35-51, [2009] 3 FCR 234 [Alendronate (FC)], Justice
Hughes provides a comprehensive history and rationale of the Regulations
generally, and s. 8 in particular. Although the decision in Alendronate (FC)
was overturned in part by the Court of Appeal in Apotex
Inc v Merck & Co, 2009 FCA 187, [2010]
2 FCR 389, rev’g 2008 FC 1185, leave to appeal to SCC refused
[2009] SCCA No 347 [Alendronate (FCA)], Justice Hughes’s description of the PM (NOC) Regulations remains
a valuable tool. Rather than restate this history, I commend the identified
passages to the reader.
[14]
The damages suffered by Teva are statutory in that they
arise only because of the operation of s. 8 of the PM (NOC) Regulations.
The liability of Sanofi, in this case, is better understood if s. 8 is examined
in the context of the entire statutory scheme. I will provide a brief overview
of the statutory scheme that gives rise to Teva’s claim. Ms. Anne Bowes, the
director of the Office of Patented Medicines and Liaison of Health Canada, was helpful in explaining the operation of the applicable
regulations and policies engaged on the facts of this case.
[15]
Before a pharmaceutical company can market a prescription
drug in Canada, it must comply with the
provisions of the Food and Drug Regulations, CRC, c 870 [F&D
Regulations] to obtain a Notice of Compliance (NOC). Section C.08.002 of
the F&D Regulations provides, in part that:
|
(1) No person shall
sell or advertise a new drug unless
(a) the
manufacturer of the new drug has filed with the Minister a new drug
submission, an extraordinary use new drug submission, an abbreviated new drug
submission or an abbreviated extraordinary use new drug submission relating
to the new drug that is satisfactory to the Minister;
(b) the
Minister has issued, under section C.08.004 or C.08.004.01, a notice of
compliance to the manufacturer of the new drug in respect of the submission;
|
(1) Il est
interdit de vendre ou d’annoncer une drogue nouvelle, à moins que les
conditions suivantes ne soient réunies :
a) le fabricant de
la drogue nouvelle a, relativement à celle-ci, déposé auprès du ministre une
présentation de drogue nouvelle, une présentation de drogue nouvelle pour
usage exceptionnel, une présentation abrégée de drogue nouvelle ou une
présentation abrégée de drogue nouvelle pour usage exceptionnel que celui-ci
juge acceptable;
b) le ministre a
délivré au fabricant de la drogue nouvelle, en application des articles
C.08.004 ou C.08.004.01, un avis de conformité relativement à la
présentation;
|
[16]
As provided for in s. C.08.002(1)(a) of the F&D
Regulations, anyone who wishes to sell a drug in Canada must submit to the
Minister of Health (through Health Canada), either a new drug submission (NDS) or an abbreviated new drug
submission (ANDS). An NDS is filed by an innovative drug company, or “first
person”, seeking approval to market a new drug product. In contrast and in very
general terms, an ANDS is filed by a generic manufacturer, or “second person”,
that wishes to market a generic version of a drug that has already been
approved. The second person may rely on much of the technical, health and
safety information originally filed as part of the NDS by the first person. In
other words, it may compare its drug with, or make reference to, a brand name
drug (F&D Regulations, above at s. C.08.002.1.(1)).
[17]
An essential element of the regulatory scheme is the
“Patent Register”. The PM (NOC) Regulations allow an innovator who has
filed an NDS or a supplement to a new drug submission (SNDS) to submit a list
of the associated patents to the Minister of Health (Minister) for inclusion on
the register of patents (Patent Register or Register) (s. 4(1)). The Regulations
require that the Minister maintain a register of all listed patents (s. 3(2)).
Subsections 4(2) and (3) of the Regulations describe the eligibility
requirements for listing.
[18]
If a patent is listed on the Patent Register, s. 5 of the PM
(NOC) Regulations provides that the second person, with respect to each
patent on the Patent Register, must, in its application for an NOC:
·
state that it accepts that the NOC will not issue until the
patent expires (s. 5(1)(a)); or
·
allege that:
o
the first person is not the patentee or licensee of the
listed patent (s. 5(1)(b)(i));
o
the patent has expired (s. 5(1)(b)(ii));
o
the patent is not valid (s. 5(1)(b)(iii)); or
o
the second person will not infringe the listed patent (s.
5(1)(b)(iv)).
The second person
identifies its election on the Form V submitted with its application. As
accepted by everyone, the election can be changed at any time.
[19]
If a second person alleges that an NOC should issue in
spite of the listed patents, it must serve a notice of allegation on the first
person (Regulations, above at s. 5(3)). The first person may, within 45
days after service, apply to the Federal Court for an order prohibiting the
Minister from issuing an NOC until the expiration of a patent that is the
subject of the notice of allegation (Regulations, above at s. 6(1)).
This action triggers a “statutory stay” (also referred to as an “automatic
stay”) which remains in place for up to 24 months (Regulations, above at
s. 7(1)(e)).
[20]
The specific circumstances in which the Minister may not
issue an NOC are dealt with in s. 7(1) of the PM (NOC) Regulations. Of
relevance to these proceedings, the Minister may not issue an NOC to a second
person before the latest of:
·
the day on which the second person complies with the
requirements of s. 5 (s. 7(1)(b));
·
the expiration of any patent on the Register that is not
the subject of an allegation (s. 7(1)(c));
·
the expiration of 45 days after the receipt of proof of
service of a notice of allegation under s. 5(3)(a) in respect of any patent on
the Register (s. 7(1)(d));
·
the expiration of 24 months after the receipt of proof of
the making of any application under s. 6(1) (s. 7(1)(e)); and
·
the expiration of any patent that is the subject of an
order of prohibition pursuant to s. 6(1) (s. 7(1)(f)).
[21]
Regardless of the election made by a second person under s.
5(1) of the Regulations, Health Canada will process the application for
all health and safety considerations and will assign a DIN (F&D
Regulations, above at s. C.01.014.2(1)). However, no NOC will issue until
the relevant patents on the Register either expire or have been addressed
through the PM (NOC) Regulations process. The day on which a generic
drug product would have otherwise received its NOC is called the “patent hold
date”.
[22]
At that stage, except for the completion of any proceedings
under the Regulations, the NOC is ready for issuance. As stated by Ms.
Bowes “. . . the NOC itself, full package is in the file cabinet waiting for
its turn to go back out the door”.
[23]
As noted, the service of a Notice of Application triggers
the statutory stay. After hearing the application, the court may dispose of the
innovator’s prohibition application in several ways. First, if the court finds
that none of the generic’s allegations are justified, it must issue an order
prohibiting the Minister from issuing an NOC to the generic (Regulations,
above at s. 6(2)). In that case, the generic will not receive its NOC until
patent expiry (unless the decision of the Federal Court is overturned on
appeal).
[24]
Alternatively, the court may dismiss the innovator’s
application in whole or in part (Regulations, above at s. 6(5)), or the
application may be withdrawn or discontinued by the first person. If an
application is dismissed, withdrawn, or discontinued, the generic will receive
its NOC almost immediately. Most relevant to this case, the generic will also
be able to invoke s. 8 of the Regulations. Section 8 allows a
generic to bring an action against an innovator for compensation for the period
it was kept off the market as a result of the innovator’s unsuccessful
prohibition application.
[25]
The full text of s. 8 is set out below:
|
8. (1) If an
application made under subsection 6(1) is withdrawn or discontinued by the
first person or is dismissed by the court hearing the application or if an
order preventing the Minister from issuing a notice of compliance, made
pursuant to that subsection, is reversed on appeal, the first person is
liable to the second person for any loss suffered during the period
(a) beginning on the date, as certified by the
Minister, on which a notice of compliance would have been issued in the
absence of these Regulations, unless the court concludes that
(i) the certified date was, by the operation
of An Act to amend the Patent Act and the Food and Drugs Act (The Jean
Chrétien Pledge to Africa), chapter 23 of the Statutes of Canada,
2004, earlier than it would otherwise have been and therefore a date later
than the certified date is more appropriate, or
(ii) a date other than the certified date is
more appropriate; and
(b) ending on the date of the withdrawal, the
discontinuance, the dismissal or the reversal.
(2) A second person may, by action against a first
person, apply to the court for an order requiring the first person to
compensate the second person for the loss referred to in subsection (1).
(3) The court may make an order under this section
without regard to whether the first person has commenced an action for the
infringement of a patent that is the subject matter of the application.
(4) If a court orders a first person to compensate
a second person under subsection (1), the court may, in respect of any loss
referred to in that subsection, make any order for relief by way of damages
that the circumstances require.
(5) In assessing the amount of compensation the
court shall take into account all matters that it considers relevant to the
assessment of the amount, including any conduct of the first or second person
which contributed to delay the disposition of the application under
subsection 6(1).
(6) The Minister is not liable for damages
under this section.
|
8. (1) Si la demande présentée aux termes du paragraphe 6(1) est
retirée ou fait l’objet d’un désistement par la première personne ou est rejetée
par le tribunal qui en est saisi, ou si l’ordonnance interdisant au ministre
de délivrer un avis de conformité, rendue aux termes de ce paragraphe, est
annulée lors d’un appel, la première personne est responsable envers la
seconde personne de toute perte subie au cours de la période :
a) débutant à la date, attestée par le
ministre, à laquelle un avis de conformité aurait été délivré en l’absence du
présent règlement, sauf si le tribunal conclut :
(i) soit que la date attestée est devancée
en raison de l’application de la Loi modifiant la Loi sur les brevets
et la Loi sur les aliments et drogues (engagement de Jean Chrétien envers
l’Afrique), chapitre 23 des Lois du Canada (2004), et qu’en
conséquence une date postérieure à celle-ci est plus appropriée,
(ii) soit qu’une date autre que la date attestée
est plus appropriée;
b) se terminant à la date du retrait,
du désistement ou du rejet de la demande ou de l’annulation de l’ordonnance.
(2) La seconde personne peut, par voie d’action contre la première
personne, demander au tribunal de rendre une ordonnance enjoignant à cette
dernière de lui verser une indemnité pour la perte visée au paragraphe (1).
(3) Le tribunal peut rendre une ordonnance aux termes du présent
article sans tenir compte du fait que la première personne a institué ou non
une action en contrefaçon du brevet visé par la demande.
(4) Lorsque le tribunal enjoint à la première personne de verser
à la seconde personne une indemnité pour la perte visée au paragraphe (1), il
peut rendre l’ordonnance qu’il juge indiquée pour accorder réparation par
recouvrement de dommages-intérêts à l’égard de cette perte.
(5) Pour déterminer le montant de l’indemnité
à accorder, le tribunal tient compte des facteurs qu’il juge pertinents à
cette fin, y compris, le cas échéant, la conduite de la première personne ou
de la seconde personne qui a contribué à retarder le règlement de la demande
visée au paragraphe 6(1).
(6) Le ministre ne peut être tenu pour
responsable des dommages-intérêts au titre du présent article.
|
[26]
This then is the context for these Reasons.
B. Corporate background
[27]
The Plaintiff by Counterclaim, Teva, is an Ontario corporation and a manufacturer, vendor, and distributor of
pharmaceutical products. Prior to February 16, 2010, Teva was known as
Novopharm Limited (Novopharm). Teva’s Israeli parent company, Teva
Pharmaceutical Industries (Teva Israel), purchased Novopharm in April of 2000. Teva amalgamated with Ratiopharm
Canada Inc. and Ratiopharm Inc. (ratiopharm) on August 10, 2010.
[28]
Throughout these Reasons for Judgment, the name “Teva” will
be used to refer to either Teva or Novopharm, unless the context requires
greater specificity. Teva’s ramipril product, however, will be called “Novo-ramipril”,
as that was the product’s initial name.
[29]
The Defendant by Counterclaim, Sanofi, is a Quebec corporation and a manufacturer, vendor and distributor of
pharmaceutical products. Sanofi has several corporate predecessors, including
Hoechst Marion Roussel Canada Inc., Rhône-Poulenc Rorer Canada Inc., and
Aventis Pharma Inc. The name “Sanofi” will be used in these Reasons to refer to
Sanofi and its corporate predecessors, unless the context suggests otherwise.
C. Ramipril
patents
[30]
Sanofi, either as patentee or licensee, holds the rights to
a series of Canadian patents that include claims to ramipril or its uses. The
initial patent was Canadian Patent No. 1,187,087 (the '087 Patent) – a
product-by-process patent for ramipril – issued May 14, 1985. The '087 Patent
was originally set to expire on May 14, 2002, after 17 years of patent
protection. Sanofi, in efforts to extend patent protection for ramipril,
proceeded to obtain a further series of patents and to protect those patents
through listings on the Patent Register. Sanofi describes these subsequent
patents and the measures it took, through litigation under the PM (NOC)
Regulations, as “product life cycle management”. Others – including generic
manufacturers – have referred to the subsequent patents as “evergreening”.
[31]
The following chart describes the subsequent patents
involving ramipril or its uses and identifies when each patent was listed on
the Patent Register:
|
Canadian Patent No.
|
Issue Date
|
Patent Register Listing
|
Subject Matter/Indications
|
|
1,246,457 (the '457 Patent)
|
December 13, 1988 (expired December 13, 2005)
|
February 21, 2001
|
Ramipril for the treatment of cardiac insufficiency
|
|
1,341,206 (the '206 Patent)
|
March 20, 2001
|
April 11, 2001
|
The product ramipril
|
|
2,055,948 (the '948 Patent)
|
November 12, 2002
|
June 25, 2004
|
Use of ramipril together with a calcium antagonist for
the prevention and treatment of proteinuria
|
|
2,023,089 (the '089 Patent)
|
January 14, 2003
|
November 1, 2003
|
Use of ramipril in the treatment of cardiac and vascular
hypertrophy and hyperplasia
|
|
2,382,549 (the '549 Patent)
|
March 15, 2005
|
March 17, 2005
|
Use of ramipril in the prevention of cardiovascular
events.
|
|
2,382,387 (the '387 Patent)
|
June 21, 2005
|
June 28, 2005
|
Use of ramipril for the prevention of stroke, diabetes
and/or congestive heart failure.
|
[32]
The '549 and '387 Patents are referred to, collectively, as the HOPE Patents after the
Heart Outcomes Prevention Evaluation study (HOPE study), discussed in more
detail below.
D. Teva’s
regulatory submissions and litigation
[33]
The following chart summarizes the steps involved in the
approval of Novo-ramipril.
|
DATE
|
EVENT
|
|
December 24, 2001
|
Teva files ANDS for Novo-ramipril capsules. The ANDS include Form Vs,
stating Teva would await expiry of the '087, '206 and '457 Patents
|
|
July 18, 2003
|
Teva obtains DINs for Novo-ramipril 2.5, 5 and 10 mg capsules
|
|
October 14, 2003
|
Teva is placed on “patent hold”
|
|
September 12, 2005
|
Notice of allegation #1 – '206 Patent
|
|
September 14, 2005
|
Notice of allegation #2 – '089, '948, '549 and '387 Patents
|
|
October 31, 2005
|
Sanofi files a Notice of Application with respect to notice of
allegation #1 (Court File No. T-1965-05)
|
|
November 2, 2005
|
Sanofi files a Notice of Application with respect to notice of
allegation #2 (Court File No. T-1979-05)
|
|
December 13, 2005
|
'457 Patent expires
|
|
September 25, 2006
|
Federal Court dismisses T-1965-05 “as an abuse of process”
(Sanofi-Aventis Canada Inc v Novopharm Limited , 2006 FC 1135,
306 FTR 56)
|
|
December 8, 2006
|
The Minister of Health advises that Teva was required to address the
'089 and '948 Patents, but not the '549 and '387 Patents
|
|
December 15, 2006
|
Teva withdraws, without prejudice, portionsof notice of allegation #2
relating to the '549 and '387 Patents
|
|
April 27, 2007
|
Federal Court of Appeal dismisses T-1979-05 (notice of allegation #2) as
an abuse of process (Sanofi-Aventis Canada Inc v Novopharm Ltd, 2007 FCA 167,
rev’g 2006 FC 1547)
|
|
May 2, 2007
|
Teva receives an NOC for Novo-ramipril 2.5, 5 and 10 mg capsules
|
[34]
To provide a complete picture, it should be noted that Teva
was not the only company challenging the “evergreening patents”; beginning in
February 2003 and continuing up to December 2006, Pharmascience,
Riva, Apotex, Cobalt Pharmaceuticals Inc. (Cobalt)
and Sandoz Canada Inc. (Sandoz) also served notices of allegation. In each and
every case, except for Cobalt’s August 2006 notice of allegation, Sanofi chose
to bring prohibition applications under the Regulations.
[35]
Following the issuance of Teva’s NOC, Sanofi commenced an
action against Teva claiming that Teva had infringed the '206 Patent (Court
File No. T-1161-07). In a decision dated June 29, 2009, this Court
dismissed that action and a companion claim against Apotex in Court File No.
T-161-07, and declared the '206 Patent to be invalid (Sanofi-Aventis Canada
Inc v Apotex Inc, 2009 FC 676, 350 FTR 165). That decision was affirmed by
the Court of Appeal (Sanofi-Aventis Canada Inc v Apotex Inc, 2011 FCA
300, 426 NR 196). At the time of writing, Sanofi’s application for leave to
appeal to the Supreme Court of Canada remains pending.
V. Relevant
Period
[36]
Section 8 allows a second person to claim compensation for
the losses it suffered because it was kept off the market during the period of
the automatic stay (Alendronate (FC), above at para 97; Alendronate
(FCA), above at para 71). A critical determination for the Court is thus
the commencement and end dates of the period of liability, defined in these
Reasons as the Relevant Period. The parties agree that the end date for the
Relevant Period is April 27, 2007. There is no agreement on the appropriate
commencement date.
[37]
As set out in s. 8(1)(a) of the PM (NOC) Regulations,
a first person (Sanofi) is liable to a second person (Teva) for any loss
suffered during the period:
|
(a) beginning on the date, as certified by
the Minister, on which a notice of compliance would have been issued in the
absence of these Regulations, unless the court concludes that
. . .
(ii) a date other
than the certified date is more appropriate . . .
|
a) débutant à la date, attestée par
le ministre, à laquelle un avis de conformité aurait été délivré en l’absence
du présent règlement, sauf si le tribunal conclut :
. . .
(ii) soit
qu’une date autre que la date attestée est plus appropriée;
|
[38]
In Alendronate (FC), above at paragraphs 106-116,
Justice Hughes explained that s. 8 thus gives the Court discretion to select a
more appropriate date for the beginning of the liability period, although the
presumptive period begins on the patent hold date.
[39]
Here, the parties appear to agree that “the date, as
certified by the Minister, on which a notice of compliance would have been
issued” is October 14, 2003. This date is set out in a letter dated October 17,
2003 from Health Canada to
Teva.
[40]
In spite of the certification date, each of Sanofi and Teva
argues that I should find a different date for the commencement of the Relevant
Period. Teva urges me to find a commencement date of July 18, 2003 or, at
least no later than August 1, 2003, while Sanofi asserts that the Relevant
Period should not begin until December 13, 2005. From the evidence before me,
it appears that the following dates should be considered as possible
commencement dates:
1.
July 18, 2003, when Teva received its DINs for ramipril
from Health Canada;
2.
October 14, 2003, when Health Canada completed its review of Teva’s drug submission and Teva was advised that an
NOC would not issue until the requirements of the Regulations were met;
3.
October 31, 2005, when Sanofi served and filed a Notice of
Application in respect of a notice of allegation served by Teva on September
12, 2005, thereby triggering the statutory stay provided for in s. 7(1)(e) of
the Regulations; and
4.
December 13, 2005, the date of expiry of the '457 Patent, which was the subject of the patent hold referred to in 2
above.
[41]
Teva submits that, but for the Regulations, an NOC
would have been issued to it soon after July 18, 2003, when it received its
DINs for Novo-ramipril 2.5, 5 and 10 mg capsules. As of
that date, Teva had satisfied all of the clinical and manufacturing
requirements set out in the F&D Regulations. As adamantly stated by Mr. Windross, upon receipt of the DINs on July 18,
2003, Teva would have been “in a launch mode pending the receipt of the Notice
of Compliance”. [Redacted] Thus, Teva asserts that either July 18, 2003
or – at the latest, August 1, 2003 – must be the beginning date contemplated
by s. 8(1)(a) of the Regulations. In addition, Teva
argues that at the very latest, the damages period should be calculated
beginning on the certification date of October 14, 2003. As at any of those
dates, in the absence of the Regulations, Teva argues that it would have
been able to enter the market.
[42]
I have no reason to doubt Teva’s submissions that it could
have physically been prepared to launch Novo-ramipril in the 2.5, 5 and 10 mg
strengths on or about August 1, 2003. The question, however, is whether that is
the correct date for the assessment of damages under the PM (NOC)
Regulations. In particular, Teva’s arguments must be considered in light of
the fact that, as of Teva’s patent hold date, Teva had agreed, through its
election in its Form V, to await the expiry of the '457 Patent. Moreover, the statutory stay did not begin until October 31,
2005, when Sanofi filed its first of two Notices of Application in response to
Teva’s notices of allegation.
[43]
This case thus presents the somewhat unusual situation in
which the certified, or “patent hold” date precedes the beginning of the
statutory stay. The first sub-issue related to the commencement date is
accordingly whether the Relevant Period can begin prior to the statutory stay.
A. Can the Relevant
Period begin prior to the imposition of the 24-month statutory stay?
[44]
Whether the Relevant Period can begin prior to the
imposition of the 24-month statutory stay is a question of statutory
interpretation of the relevant provisions of the Regulations. Once this
determination is made, the question that follows is to determine what would be
the appropriate date for the beginning of the period.
[45]
Teva’s argument for a date prior to both the certification
date and the beginning of the statutory stay is premised on its claim that the
start date must be determined “in the absence of these Regulations”.
According to Teva, the consequence of these words is “that the second person’s
losses are to be assessed on the basis it was able to come to market as soon as
the health and safety review of its submission had been completed”. More
specifically, Teva says that it means “the date on which the requirements of
the Food and Drugs Act were complied with such that the second person
would have received its NOC”. Teva asserts that factors such as the
existence of patents on the Patent Register, Form Vs and the timing of notices
of allegation are “irrelevant” in a world where there are no PM (NOC)
Regulations. Teva submits that, in the absence of the Regulations,
the Minister would have had a “legal duty” to issue its NOC as of July 18, 2003
(see Abbott Laboratories Ltd v Canada (Minister of Health), 2007 FC 622
at para 11, 57 CPR (4th) 450; Apotex Inc v Canada (Attorney General)
(1993), [1994] 1 FC 742, [1993] FCJ No 1098 (CA)).
[46]
Teva buttresses its contention that all aspects of s. 8
damages must be calculated “in the absence of [the] Regulations” with a number
of arguments. In summary form, Teva points out that ss. 8(1)(a), 8(2), and 8(4)
all refer to s. 8(1); and that Sanofi commenced proceedings in full knowledge
of the fact that Teva had approval in July 2003, and thus knowingly accepted a
“black box of liability”. Teva also stresses that s. 8 must have a deterrent
effect, and alleges that Sanofi’s arguments “co-mingle” real events with the
“but for” world.
[47]
Teva expressly rejects the argument that the liability
period cannot begin before the commencement of the statutory stay on the basis
that such a position would require an impermissible “radical re-writing and
reading in” of the Regulations. This, Teva says, is because the
legislator clearly chose not to draft s. 8(1)(a) to provide that the liability
begins on the later of the certification date or the date of the commencement
of a prohibition application. While acknowledging that an application is
necessary, Teva maintains that it is “not determinative of the start date”.
[48]
At its heart, Teva’s argument is founded on a
misinterpretation of the phrase “in the absence of these Regulations”, which
inappropriately divorces s. 8 from the rest of the Regulations. For the
reasons explained below, Teva’s arguments must be rejected.
[49]
First, Teva’s claim that the start date must be determined
“in the absence of [the] Regulations” overstates the effect of that phrase in
s. 8(1)(a). As stated by the Court of Appeal in Alendronate (FCA), above
at paragraph 83,
The words of section 8 must be read in their entire context
and in their grammatical and ordinary sense, harmoniously with the scheme of
the PM(NOC) Regulations, their object, and the intention of Parliament (Bell
ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559
at paras. 29 and 30, as applied in Biolyse, supra, at para. 43).
Where regulations are concerned, the purpose of the enabling statute must also
be considered (Biolyse, supra, para. 47).
[50]
The phrase “in the absence of these Regulations” appears
only in s. 8(1)(a), and immediately follows the phrase “on which a notice of
compliance would have been issued”. Read in their ordinary and grammatical
sense, the phrase “in the absence of these Regulations” only modifies the
certification date. While Teva points out that ss. 8(2) and (4) both refer to
s. 8(1), it is notable that the phrase “in the absence of the Regulations” does
not itself appear in any of those subsections. Nor does it appear in s. 8(5),
which describes the factors the Court may consider in assessing the amount of a
second person’s compensation.
[51]
The decision in Norfloxacin (FCA),
above, also supports limiting the effect of the words “in the
absence of these Regulations” to the certification date. In that case, at
paragraph 75, the Court of Appeal defined the issue presented by s. 8 as “what
would have happened had Merck not brought an application for prohibition”
(emphasis added). The Court of Appeal did not define the issue as “what would
have happened if the Regulations did not exist”. The phrase “in the
absence of these Regulations” in s. 8(1)(a) therefore logically refers to the
absence of the s. 6 prohibition order, not to the absence of the PM (NOC)
Regulations generally.
[52]
If accepted, Teva’s interpretation would artificially
separate s. 8 from the rest of the Regulations. While Teva rightly
points out that the Regulations do not explicitly state that the
liability period begins on the date that a first person commences a prohibition
application, this, as Sanofi argues, is the necessary consequence of the fact
that s. 8(1) makes a prohibition application a prerequisite for recovery.
Subsection 8(1) expressly refers to the statutory stay by predicating a first
person’s liability upon the withdrawal, discontinuance, or dismissal of a
prohibition application “made under subsection 6(1)” (emphasis added),
or the reversal of a prohibition order. As described above, s. 6(1) allows a
first person who has been served with a notice of allegation to apply to a
court for an order prohibiting the Minister from issuing an NOC until after the
expiration of the patent that is the subject of the notice of allegation. It is
this application by the first person that prevents the Minister from issuing an
NOC to a second person (Regulations, above at s. 7(1)(e)). Contrary to
Teva’s suggestion, limiting a first person’s liability to some period following
the commencement of the statutory stay would therefore not require a “radical
re-writing and reading in” of the Regulations, as s. 8(1) already
references the statutory stay.
[53]
This interpretation of s. 8 is consistent with the Court of
Appeal’s decision in Alendronate (FCA). In
determining whether Justice Hughes had erred in holding that he had
jurisdiction to hear Apotex’s s. 8 claim, the Court of Appeal noted that s. 8
provides a remedy in respect of patents pursuant to s. 20(2) of the Federal
Courts Act, RSC 1985, c F-7 by “allowing a second person to
recover losses arising from the automatic stay triggered by a first
person when the attempt to assert its patent rights fail” (Alendronate (FCA),
above at para 71[emphasis added]). Similarly, in assessing
the constitutionality of s. 8, the Court of Appeal stated, at paragraph 66 of
its decision, that “an award of damages under section 8 logically flows from
the section 6 prohibition proceedings”. The period of
liability is thus clearly linked to the operation of the automatic stay.
[54]
This conclusion is also reinforced by the Regulatory Impact
Assessment Statement (RIAS) filed with the introduction of each of the 1993,
1998 and 2006 versions of the Regulations. In describing the anticipated
impact of the Regulations, the 1993 RIAS explained that, although the Regulations
may unjustifiably delay generics from entering the market (for example, where
the patents are later found to be invalid or not infringed), “the frequency and
costs associated with any such delays arising from these Regulations will be
minimized by the fact that such a patentee will be liable for all damage
suffered from the delay” (Regulatory Impact Analysis Statement, (1993) C Gaz
II, 1387 at 1388 [1993 RIAS] [emphasis added]). The 1993 RIAS thus clearly
links a second person’s damages to the operation of the stay.
[55]
A similar statement is found in the 1998 RIAS. That
document explains that amendments to the Regulations clarified “the
circumstances in which damages could be awarded to a generic manufacturer to
compensate for loss suffered by reason of delayed market entry of its
drug” (Regulatory Impact Analysis Statement, (1998) C Gaz II, 1055 at 1056
[emphasis added]). The 2006 RIAS also links a first person’s liability to the
operation of the stay by explaining that amendments to s. 8 “further specify
the matters the court may take into account when calculating the period of
delay for which an innovator may be held liable” and “remove the word ‘profits’
from the provision prescribing the remedies available to a generic manufacturer
seeking compensation for any loss arising from that delay” (Regulatory
Impact Analysis Statement, (2006) C Gaz II, 1503 at 1521 [2006 RIAS] [emphasis
added]).
[56]
While Teva points to Alendronate (FC) in support of
the proposition that the service of an NOA is “entirely irrelevant” to the
commencement date, its reliance on that case is misplaced. Specifically, Teva
points to paragraph 106, where Justice Hughes observed that “[t]here is nothing
to suggest that the Minister knew about or even cared when the Notice of
Allegation was served . . .”. However, the issue in Alendronate (FC) was
whether another date was more appropriate under s. 8(1)(a) in light of the fact
that Apotex had allegedly delayed serving its notice of allegation for 66 days.
Justice Hughes rejected Merck’s argument on the basis that there was no
evidence to suggest that the date of service of Apotex’s notice of allegation
impacted the sending of the Minister’s patent hold letter (Alendronate (FC),
above at paras 112-116). The issue of whether the liability period could
begin prior to the statutory stay did not arise in Alendronate (FC)
because, on the facts before Justice Hughes, the notice of allegation was sent
and prohibition proceedings were commenced almost one year before
Apotex’s patent hold date (see Alendronate (FC), above at para 5). The
issue that arises in the case before me is not simply whether the patent hold
letter would have been sent on some other date; rather, the question is whether
the liability period can begin prior to the statutory stay.
[57]
Teva’s claim that it is “inequitable” to link causation to
the commencement of the stay because “Sanofi benefited from having listed
patents on the Patent Register for a much more extensive period” is
similarly wide of the mark. The very purpose of s. 8 damages is to compensate a
second person for “losses arising from the automatic stay” (Alendronate
(FCA), above at para 71). It is irrelevant whether, as Teva alleges, Sanofi
would have commenced proceedings against Teva at whatever time Teva sent its
notices of allegation.
[58]
Even if Teva’s interpretation of s. 8 were accepted,
ordinary damages principles would prevent a second person from recovering for
any loss suffered prior to the beginning of the statutory stay. First, no
conduct by Sanofi can be said to have “caused” any damage to Teva during that
period. While Teva accuses Sanofi of incorrectly seeking to “narrowly tie
causation to its commencement of proceedings under the Regulations”,
Teva does not point to any other conduct by Sanofi that can be said to have
caused Teva’s alleged losses prior to the commencement of the stay. Teva’s only
argument appears to be that Sanofi benefited from listing successive patents on
the Patent Register. However, Teva does not specifically link that conduct to
any of its alleged losses. This is insufficient to establish causation.
[59]
Further, Sanofi correctly argues that any loss suffered by
a second person prior to the service of a notice of allegation is
unforeseeable, because, at that time, the first person has no knowledge of a
second person’s confidential drug submission. The evidence is clear that ANDS
submissions and subsequent actions by Health Canada (such as the issuance of DINs and patent hold letters) are confidential.
Ms. Bowes testified that ANDS are not typically disclosed, with the exception
of portions disclosed pursuant to orders made under the Regulations and
product monographs that become public. Prior to the service of the notice of
allegation, then, Sanofi had no notice of Teva’s intentions. If some conduct by
Sanofi had been capable of triggering its liability during this period, then
Sanofi would have had no opportunity to alter its actions so as to reduce or
avoid liability. The fact that Sanofi knew, from the date it received Teva’s
first notice of allegation, that Teva had approval in July 2003, is not enough.
It would still be fundamentally unfair to hold Sanofi liable for any loss Teva
suffered when Sanofi had no ability to control its liability.
[60]
For the foregoing reasons, Teva’s interpretation of s.
8(1)(a) and the effect of the words “in the absence of these Regulations” on
the commencement date must be rejected. Reading the words
of s. 8 in their entire context and in their grammatical and ordinary sense,
harmoniously with the scheme of the PM (NOC) Regulations, their object,
and the intention of Parliament results in a conclusion that the liability period cannot predate the statutory stay.
B. What is
the appropriate commencement date for the Relevant Period?
[61]
Given that I have
determined that the Relevant Period cannot begin prior to the date of a
statutory stay imposed by the Regulations, the question is whether, on
the facts of this case, the “more appropriate” date is: (a) October 31, 2005,
the commencement of the statutory stay; or (b) December 13, 2005, the date of
the expiry of the '457 Patent.
[62]
Sanofi argues that December 13, 2005, the date of the
expiry of the '457 Patent, is the
appropriate commencement date. In support of its position, Sanofi relies on the
facts surrounding Teva’s choices as to when and how it would approach
regulatory approval for its ramipril.
[63]
As described above, Teva filed its ANDS for Novo-ramipril
on December 24, 2001. In that filing, Teva included an acknowledgement in its
Form V that it would await the expiry of the '087, '206 and '457 Patents before coming to market. According to the Form V filed with
the Minister, Teva had no intention of bringing its ramipril product to market
until the expiry of several of the related patents. This situation did not
change until September 12 and 14, 2005, when Teva filed its notices of
allegation for ramipril. Even then, however, Teva did not allege invalidity or
non-infringement of the '457 Patent.
[64]
I accept that the changing of a Form V is an administrative
amendment. It is clear that Teva could have amended its Form V and proceeded to
serve a notice of allegation with respect to the '457 Patent. However, it never did so.
[65]
I also accept the evidence of Teva’s fact witnesses – most
notably, Mr. Fishman, Mr. Windross and Dr. Denike – who spoke to the
aggressiveness of Teva (then Novopharm) in and around 2003 in acquiring rights
to new drugs. In particular, they spoke to the interest of the company in
ramipril. Their evidence, however, rings a little hollow when the company
indicated clearly on every administrative form (its Form V and its initial
notices of allegation) that it would await the expiry of the '457 Patent. Quite simply, Teva failed to take one of the most basic of
steps – a notice of allegation with respect to the '457 Patent – in gaining the right to market ramipril.
[66]
In my view, the actions of Teva were more consistent with a
decision to wait for the expiry of the '457
Patent before launching Novo-ramipril.
[67]
By not amending its Form V and by not, at any time,
commencing a challenge of the '457
Patent, Teva implicitly agreed to live by the decisions made with respect to
other companies (specifically, Apotex and Riva) who did challenge the '457 Patent. Two of those decisions are of particular relevance in this
case.
[68]
The first decision arose from Apotex’s notice of allegation
alleging non-infringement of the '457
Patent served in August 2003. In a decision dated October 11, 2005, Justice
Simpson determined that Apotex’s allegation of non-infringement of the '457 Patent was not justified and issued an Order of Prohibition,
prohibiting the Minister of Health from issuing an NOC for ramipril to Apotex
until the expiry of the '457 Patent (Aventis Pharma
Inc v Apotex Inc, 2005 FC 1381, 281
FTR 233 [Apotex]).
Although Apotex commenced an appeal of this decision (Court of Appeal File No.
A-494-05), the appeal was subsequently discontinued on October 13, 2006. In
sum, on the evidence before me, Apotex was subject to an order of this Court
that prohibited the Minister of Health from issuing an NOC to Apotex until
December 13, 2005.
[69]
On June 9, 2004, Riva served a notice of allegation
alleging invalidity of, inter alia, the '457 Patent. The NOC proceedings related to Riva’s notices of allegation
were heard and disposed of in a decision of Justice Harrington dated May 17,
2007 (Sanofi-Aventis Inc v Laboratoire Riva Inc, 2007 FC 532, 315 FTR 59
[Riva]). This was after the expiry of the '457 Patent. While Justice Harrington dismissed the Application of Sanofi
with respect to the '206 Patent, he refused Riva’s
request to make any determination with respect to the '457 Patent (Riva, above at paras 105-106).
[70]
In sum, both Apotex and Riva had the determination to
address the '457 Patent head on. In the
case of Apotex, the result was a prohibition order that prevented Apotex from
coming on to the market prior to the expiry of the '457 Patent. Riva’s challenge was wrapped up with the '206 Patent and was not decided prior to the expiry of the '457 Patent.
[71]
Another way of looking at this situation is to consider the
behaviour of Teva in a hypothetical scenario that would exist in the total
absence of the PM (NOC) Regulations. In that “but for” world, patents
would exist. The rights and obligations associated with those existing patents
would be governed by the Patent Act, RSC 1985, c P-4 [Patent Act].
The patents are presumed to be valid. In the face of an existing patent, a
third party seeking to use the patent may do a number of things; five that come
to mind are as follows:
1.
it may use the patented subject matter and await the
consequences of an infringement action;
2.
it may negotiate a licence agreement with the patentee;
3.
it may commence an impeachment proceeding;
4.
it may wait for the expiry of the patents; or
5.
it may wait for another third party to succeed in
impeaching the relevant patent.
[72]
While the evidence shows that Teva was aggressively
attempting to bring new products to market in 2003, I have no evidence that
Teva would have launched ramipril in the face of a valid '457 Patent. There is no evidence that Teva had obtained a legal opinion on
the validity of the '457 Patent. We know that Teva
never attempted to negotiate a licence agreement; nor did it commence any
impeachment proceedings on the '457
Patent. It seems to me that the facts demonstrate that, given the '457 Patent was set to expire in the not-too-distant future, on December
13, 2005, it is more likely than not that Teva was prepared to wait and to
enter the market when the '457
Patent expired. Alternatively, Teva was waiting for another party to
successfully challenge the '457
Patent. In either case, Teva would not have come on to the market until
December 13, 2005.
[73]
Dr. Denike, who testified on behalf of Teva, was intimately
involved with all aspects of Teva’s litigation strategy in 2002 when the
company was examining its ability to launch ramipril. The following exchange is
highly telling of Teva’s strategy with respect to patent litigation:
THE
WITNESS: . . . We do know once another generic started in litigation, the
practice that I had while I was there and after I left was, seeing somebody
else was already litigating, I might as well sit and learn what was happening
there and react to what was happening, because they are going to allow the
other generics to go forward anyway. So if there was a problem in the first
generic litigation, I could take a different strategy, because I believe I was
going to be released at the same time, there was no point in starting right
away. I might as well sit back and get the free information that's there
and deal with it.
JUSTICE SNIDER: On
the basis of that assumption, you would not be first, you'd just be one of?
THE WITNESS: One of.
First or tied for first.
JUSTICE SNIDER: And
that was good enough?
THE WITNESS: Tied for
first -- first was always the golden chalice. But tied for first was clearly
the expectation and always the number one target. If you can't be first, make
sure you're tied.
JUSTICE SNIDER: So
by sitting back, Novopharm was admitting, in a hypothetical because you weren't
there at the time, but in general, based on your experience when you were
there, by sitting back you were agreeing, well, can't be first, we're going to
be tied?
THE WITNESS: Tied
for first.
[Emphasis added]
[74]
Teva offered many excuses for initially indicating that it
would await the expiry of the '457
Patent on its Form V. However, at the end of the day, Teva made a business
decision. There are consequences to business decisions. Teva voluntarily sat on
the sidelines while others actively – and unsuccessfully – sought to gain
market entry in the face of the '457
Patent. While Teva could have amended its Form V, it did not do so. While Teva
could have challenged the '457
Patent through the PM (NOC) Regulations or through an impeachment
action, it did not do so.
[75]
Accordingly, I conclude that the appropriate commencement
date, for the purposes of s. 8 of the Regulations, is the date of the
expiry of the '457 Patent – December 13,
2005.
[76]
Indeed, even if I had found that the Regulations
permit the period of liability to commence prior to the imposition of the
statutory stay, I would still conclude that, on the evidence before me, the
appropriate date for the beginning of the Relevant Period is December 13,
2005.
VI. Overall
Size of the Ramipril Market
[77]
Having determined the Relevant Period of December 13, 2005
to April 27, 2007, the next step is to assess the size of the total ramipril
market during this hypothetical period. Stated in different terms, I must
estimate the total number of capsules of ramipril that would have been
sold by all manufacturers during the Relevant Period. This figure represents
the Ramipril Market. In this task, I was assisted by two economists, Dr. Anis
(produced by Teva) and Dr. Carbone (produced by Sanofi). Each of these
experts prepared estimates of the size of the Ramipril Market, using very
different modeling techniques. In addition, I had the evidence of
Dr. Cockburn whose mandate was, as I see it, to do no more or less than to
criticize Dr. Anis’s expert opinion. Dr. Cockburn made no estimate of his own.
[78]
Each of Dr. Anis and Dr. Carbone was asked to provide
opinions on the size of the overall Ramipril Market in a number of scenarios.
Each expert addressed one scenario that closely matches the Relevant Period of
December 13, 2005 to April 27, 2007. Specifically:
·
Dr. Anis defines his Scenario 5(ii) as “Teva Canada entered together with Apotex and another generic” for the
period “December 2005 to May 2, 2007” (Exhibit 47 at para 65).
·
Dr. Carbone defines his Scenario 5 as simultaneous entry
into the generic market by Teva, Apotex and an AG on December 13, 2005, prior
to entry by PMS and Riva (Exhibit 86, vol 1 at paras 128-129). Dr. Carbone
calculates the size of the anticipated market until April 27, 2007.
[79]
I note that Dr. Anis’s definition of Scenario 5(ii) differs
from the “but for” world defined in these Reasons in two ways. First, Dr.
Anis’s evaluation period appears to be slightly longer than the Relevant
Period. Second, Dr. Anis appears to indicate that the third generic (other than
Teva and Apotex) is not an AG (I discuss competition in the Generic Market in
Part VIII. C, below). In spite of these two variances, it appears that this
scenario most closely aligns with the “but for” world that I find in these
Reasons and is, therefore, the best available comparison to Dr. Carbone’s
results.
[80]
The experts arrived at different estimates of the size of
the total Ramipril Market in the “but for” world. These differences resulted
from their divergent conclusions regarding the effect of a cessation of
promotion by Sanofi upon the entry of generic manufacturers into the ramipril
market (also referred to as the “genericization” of the market). Both Dr. Anis
and Dr. Carbone conducted their analyses on the basis that Sanofi would have
ceased its advertising efforts upon the genericization of ramipril (Exhibit 47
at para 113; Exhibit 86, vol 1 at paras 67-70). I would accept this as a
reasonable assumption.
[81]
In his analysis, Dr. Anis assumes that the cessation of
advertising would not have had a significant impact on the size of the
Ramipril Market. Dr. Anis thus concludes that the total quantity of Ramipril sold
in the “but for” world would have been equal to the actual quantity of Ramipril
sold during the Relevant Period (Exhibit 47, Schedule “K” at
11). Dr. Anis therefore uses actual monthly sales data for
all ramipril products sold during the Relevant Period to calculate the Ramipril
Market size.
[82]
To test his assumption, Dr. Anis performs a “sensitivity
analysis” by constructing two regression models (Models S1 and S2) to estimate
the effect of advertising on the size of the Ramipril Market. From these models,
Dr. Anis concludes that ceasing promotion is not a statistically significant
determinant of Ramipril Market size (Exhibit 47, Schedule “K” at
12).
[83]
In contrast, Dr. Carbone assumes that the Ramipril Market would
be influenced by Sanofi’s advertising behaviour. In support of his opinion, Dr.
Carbone points out that the actual ramipril market did in fact shrink upon
genericization (Exhibit 86, vol 1 at para 68).
[84]
Based on his assumption that a decline in advertising is
significant, Dr. Carbone employs a time-series forecasting method to estimate
the impact of generic entry on the size of the Ramipril Market. This method
involves four phases:
·
Phase One: Dr. Carbone uses
market data for the period prior to the actual formulary listing of generic
ramipril to forecast the size of the ramipril market after the formulary
listing date, assuming that no generics entered the market.
·
Phase Two: Dr. Carbone subtracts
the forecasted sales of ramipril after the formulary listing date (i.e. the
quantity forecasted in Phase One) from actual sales of ramipril after the
formulary listing date. He then divides this difference by the forecasted
sales. His calculation produces a series of “impact percentages” which
represent the impact of generic competition on the size of the ramipril market
(see Exhibit 86, vol 1 at Table 7). Dr. Carbone observes that generic
competition reduced the size of the ramipril market over time for all
formulations except the 1.25 mg strength (Exhibit 86, vol 1 at para 66).
·
Phase Three: Dr. Carbone constructs
an “impact model” using a process called Bass Diffusion modelling. This
technique estimates the change in ramipril sales over time based on the manner
in which demand reacts to influences on product diffusion such as advertising,
media coverage and word of mouth by customers already using the product (the
Impact Model) (Exhibit 86, vol 1 at Appendix “J”). The
purpose of the Impact Model is to predict the (negative) linear trend in
ramipril market size based on the impact percentages calculated in Phase Two.
·
Phase Four: Dr. Carbone subtracts
the values generated by the Impact Model from the size of the ramipril market
(without generic competition) forecasted in Phase One. The result is the total
forecasted size of the Ramipril Market over the Relevant Period.
[85]
It is important to note that, although Drs. Anis and
Carbone were generally characterized as using contrasting “econometric” and
“time-series forecasting” models, that distinction does not apply to this
aspect of their analyses. That is because Dr. Anis does not use an econometric
model to predict the size of the Ramipril Market. Instead, he assumes that
ceasing promotion would not affect the overall size of the market, and uses his
model to test that assumption. The “time-series forecasting” and “econometric”
methods used by the experts therefore do not conflict at this stage of the
analysis. The question that I must instead answer is whether, based on the
evidence before me, it is reasonable to assume that Sanofi’s decision to stop
promoting ALTACE upon genericization would impact market demand for the drug.
[86]
Dr. Carbone criticized Dr. Anis’s conclusion that generic
entry would have no impact on the size of the Ramipril Market. He argued that
Dr. Anis’s econometric model is of no statistical value because it does not
include enough observations (data points) to render accurate predictions. In
support of his argument, Dr. Carbone pointed out that Dr. Anis’s model failed
to predict the known impact of the HOPE study on ramipril sales (Exhibit 87 at
para 44).
[87]
Dr. Cockburn was also critical of Dr. Anis’s conclusion on
this point. In particular, he criticized Dr. Anis for not including factors
such as the availability of alternative treatments in his model, and reiterated
Dr. Carbone’s concern that Dr. Anis’s dataset is not sufficiently large to
produce reliable estimates. In addition, Dr. Cockburn noted that Dr. Anis does
not account for the persistent effect of advertising over time, and fails to
explain how he constructs an average price for competing products (Exhibit 158
at paras 59-62).
[88]
In response, Dr. Anis offered the pragmatic observation
that the differences in the Ramipril Market size estimated by himself and Dr.
Carbone are “minimal and not significant” (Exhibit 48 at para 19). Dr. Anis
quantifies these differences for Dr. Carbone’s Scenario 5 in Table 2 of his
Responding Report (reproduced below) and provides a visual representation of
these differences in Figures 2.1 to 2.18. The percent difference between Dr.
Anis’s and Dr. Carbone’s predicted Ramipril Market size for all years
ranges from 0.58% to 3.2%, depending on the formulation, although these
differences are higher in some years:
[89]
While these differences may be relatively small, I find
that the criticisms of Dr. Anis’s approach are valid and call into question the
explanatory power of his econometric Models S1 and S2. All else being equal,
the reliability of an econometric model increases with the number of
observations included in the data set. Models that test a hypothesis or
assumption on the basis of a small number of observations are statistically
less reliable than those estimated using a large number of observations. From a
methodological standpoint, Dr. Anis’s models simply do not appear to contain
enough information on which to make a reliable finding that ceasing or
decreasing advertising would not affect the size of the Ramipril Market in the
“but for” world.
[90]
I also accept Dr. Carbone’s observation that actual demand
for ramipril did, in fact, decline after generic entry. To the extent that this
observation is accurate, it supports Dr. Carbone’s conclusion that
Sanofi’s decision to cease advertising would have also led to a decrease in the
size of the Ramipril Market in the “but for” world.
[91]
I am unable to draw any specific conclusions about the
comparative validity of Dr. Carbone’s time-series forecasting approach to
predict the size of the Ramipril Market. Dr. Anis does not offer any
specific criticisms of this approach at this stage of the analysis. I can only
conclude that Dr. Carbone’s approach appears to provide one means to account
for the effect of genericization on the size of Ramipril Market, assuming that
such an effect would have occurred in the “but for” world and can be estimated
using available data from the observed ramipril sales. For this reason, I am
prepared to accept, as reasonable, Dr. Carbone’s estimate under his Scenario 5
as the size of the Ramipril Market during the Relevant Period.
[92]
The following table presents the total number of ramipril
capsules (10, 5 and 2.5 mg formulations) calculated using Dr. Carbone’s
predictions for his Scenario 5 (Exhibit 88 at Supplemental Appendix S). This
number represents the size of the total Ramipril Market:
Total Number of Pills,
Carbone Scenario 5
|
|
December 2005 - April 2007
|
|
Total Ramipril Market Size
|
611,122,083
|
VII. Size
of the Generic Market
[93]
Having determined the size of the overall Ramipril Market
during the Relevant Period, the next step is to establish the size of the
Generic Market. This requires that I calculate the percentage of the Ramipril
Market that generic entrants would have captured. The notion that generic
manufacturers would have acquired a portion of the Ramipril Market is described
as “market penetration” or, from the innovator’s perspective, “market erosion”.
In either case, the issue is to determine how ALTACE and generic versions of
ramipril would have shared the Ramipril Market.
[94]
Once again, I turn to the economists, Dr. Anis and Dr.
Carbone, for assistance. Again, I focus on Dr. Anis’s Scenario 5(ii) and Dr.
Carbone’s Scenario 5, both of which approximate the Relevant Period.
[95]
At this stage of the analysis, the experts took quite
different approaches. Dr. Anis assumed that the erosion curve for ALTACE could
be approximated by the average erosion curve of drugs that enjoyed sales in the
top 25% of all drug markets. In contrast, Dr. Carbone estimated ALTACE’s
erosion curve using a time-series forecasting model. Again, I do not find that
the difference between the experts turns on the distinction between econometric and time‑series forecasting models, as Dr. Anis did not
employ an econometric model for his analysis. I must accordingly find some
other basis for determining which approach, if any, is of assistance in
determining the size of the Generic Market.
[96]
Dr. Carbone directed a number of criticisms at Dr. Anis’s
method of constructing and selecting the appropriate erosion curve. These
include:
1.
Dr. Anis has improperly calculated his average quartile
erosion curves using post-genericization dollar sales (Exhibit 87 at paras
27-28);
2.
erosion curves for individual provinces should have been
estimated separately given provinces’ different formulary listing dates and
observed differences in erosion rates for cardiovascular products between
provinces (Exhibit 87 at para 18);
3.
erosion curves based on the Canadian Drug Store and
Hospital Purchases (CDH) audit data will tend to over-state the erosion rate at
the beginning of the period after generic entry because it does not account for
accumulated inventory after the formulary listing date (Exhibit 87 at para 21);
4.
Dr. Anis’s approach lacks transparency because it is
impossible to link his average erosion curves to the underlying data. Dr. Anis
does not present specific erosion rates (only the graphical curves) and his
choice of the Q4 average erosion curve appears to be based only on a subjective
visual evaluation;
5.
Dr. Anis’s method fails to control for additional factors
that may impact on the erosion rate of ALTACE; and
6.
the Q4 erosion curve is not a “conservative estimate” of
ALTACE’s erosion rate, as Dr. Anis claims – particularly for Quebec, where the observed ALTACE curve is above the average Q4
curve for the first 24 months after initial generic entry.
[97]
In oral testimony, Dr. Anis clarified that Dr. Carbone’s
first criticism is based on a misunderstanding of his method. Dr. Anis
explained that:
We looked at the sales
of each one of the molecules in my sample and, according to the magnitude of
the sales, companies or manufacturers got into different quartiles, depending
on the size of the thing; this is the pre-genericization sales. And
subsequently, the erosion curves were made on physical units; it has nothing to
do with dollars or adding sales volumes.
[98]
The third criticism involves Dr. Anis’s use of CDH data. By
way of background, both experts prepared their reports using data provided by
IMS, an independent firm that collects and provides audited drug consumption
data. Two of those audits are the Canadian CompuScript audit and the CDH audit.
Dr. Anis explained that the CompuScript audit tracks the number of
prescriptions dispensed by Canadian retail pharmacies. In contrast, the CDH
audit provides the dollar value and unit volume of pharmaceutical and
diagnostic products purchased by Canadian retail pharmacies and hospitals. Dr.
Anis testified that transactions will appear in the CDH database as soon as the
drug is shipped to the wholesaler or pharmacist; they will not appear in the CompuScript
database until a prescription is dispensed.
[99]
In response to Dr. Carbone’s criticism, Dr. Anis argues
that the CDH dataset is appropriate because “the erosion process should be
considered to have started as soon as the generic product is available” and not
adjusted for the “inventory” factor. He argues that the relevant transaction
for the purposes of calculating damages in this proceeding is between Teva and
the supplier. Apart from this issue, Dr. Anis does not offer any further
criticism of Dr. Carbone’s time-series forecasting method for predicting
the Generic Market size.
[100]
With respect to the fifth criticism, Dr. Anis testified
that he did not expect matters such as therapeutic class, type of product, or
provincial regulations to impact on his calculation of the average erosion
rate.
[101]
Because, as Dr. Carbone points out, Dr. Anis has failed to
provide actual erosion rates for his calculated average Q4 erosion curve, it is
not possible to quantify the extent to which the experts’ methods yield different
predictions of the size of the Generic Market. Without this kind of
quantitative comparison, it is difficult to draw any reliable conclusions as to
the significance of Dr. Carbone’s remaining criticisms.
[102]
In light of Dr. Anis’s clarifications, there do not appear
to be any significant flaws in his method of calculating average quartile
erosion curves. However, I observe that Dr. Anis has failed to provide a
rigorous explanation to justify his choice of the Q4 curve. Dr. Anis puts
forward the hypothesis that drugs with relatively large sales volumes prior to
generic entry would attract greater generic interest and competition because
they are potentially more profitable. Therefore, he expects branded drug sales
to erode “faster” and “deeper” the larger the size of the market before generic
entry (Exhibit 47 at paras 82, 88). Presumably, Dr. Anis could have constructed
an econometric model to test this hypothesis using an approach similar to the
one he employed in estimating the size of the Ramipril Market. No such model
was provided, nor did Dr. Anis offer an explanation for this choice.
[103]
Regrettably, I am unable to draw any specific conclusions
as to the validity of Dr. Carbone’s time-series forecasting approach aside
from the fact that accepting Dr. Anis’s claim that CDH data is more
appropriate would mean that Dr. Carbone’s predictions may underestimate the
size of the Generic Market. The only observation that I can make is that
Dr. Carbone’s use of a forecasting approach is conceptually consistent with
his methodology in estimating the size of the Ramipril Market, whereas Dr. Anis
apparently chose to rely on different methodologies at each of these stages.
[104]
Marginally, I therefore prefer the analysis and, hence, the
results obtained by Dr. Carbone with respect to the size of the Generic Market.
[105]
The following table presents Dr. Carbone’s estimates for
both the Ramipril Market and the Generic Market (Exhibit 88 at Supplemental
Appendix S):
Total Number of Pills,
Carbone Scenario 5
|
|
December 2005 - April 2007
|
|
Total Ramipril Market Size
|
611,122,083
|
|
Total Generic Market Size
|
374,092,845
|
[106]
Having made this determination, I can move on to the two
remaining issues – Teva’s share of the Generic Market (i.e. Teva’s Lost
Volumes) and the calculation of Teva’s losses during the Relevant Period (i.e.
Teva’s Net Lost Profits).
VIII. Teva’s
Lost Volumes
[107]
The next step in the analysis is for me to determine Teva’s
share of the Generic Market.
[108]
I begin by observing that Sanofi does not argue that Teva
would have been unable to produce sufficient quantities of ramipril to supply
whatever market share it would have acquired in the “but for” world. The
evidence before me is clear and compelling that Teva would have had the means
to obtain sufficient quantities of API and incipient ingredients and sufficient
plant capacity to meet market demand throughout the Relevant Period.
[109]
Having found that Teva could have supplied the
entire market, the question is whether Teva would have captured the entire
Generic Market. Before I can quantify Teva’s share of the generic market,
preliminary questions regarding the composition of the Generic Market must be
resolved.
[110]
Teva submits that, as a matter of law and principle, it
should be considered to be the only generic manufacturer of ramipril during the
Relevant Period. Even if I decide that other generics could have entered
the market, Teva urges me to ignore the hypothetical actions of other generics
during the Relevant Period.
[111]
Sanofi, on the other hand, asserts that the “but for” world
should include other generic manufacturers. Indeed, Sanofi’s position is that
there can only be one “but for” world that must apply to all potential s. 8
litigants. On the facts of this case, Sanofi suggests that it is likely that
both Apotex and an authorized generic would have entered the market
simultaneously with Teva on December 13, 2005.
[112]
I will consider each party’s arguments in turn, as they
each raise distinct sub-issues. I will then proceed to determine the volume of
ramipril capsules that Teva would have sold on the basis of any competition in
the “but for” world.
A. Should
the assessment be made on the basis that Teva would be the sole generic in the
“but for” world?
[113]
Teva advances several arguments in support of its position
that s. 8 does not require consideration of the actions of third party
generics. In summary form, Teva’s arguments are that s. 8 should reflect the
exclusive dispute between a first and second person under s. 6; Sanofi’s
liability would be unfairly limited if other generics were included in the
analysis; and considering the actions of third parties would allow Sanofi to
“cherry-pick evidence”. For the reasons set out below, I find that Teva’s
arguments are unpersuasive. Teva’s damages must be assessed in light of any
competition that would have existed in the Generic Market.
[114]
With respect to its first argument, Teva submits that the Regulations
are a complete code, and that s. 8 arises out of an exclusive dispute between a
first and second person. It follows, in Teva’s view, that a second person’s
losses should be quantified on this same “exclusive” basis, and that it is “not
fair or reasonable to look at all generics under section 8 … when section 6
restricts the universe to the first and the second person”. Teva also argues
that “it would be manifestly unworkable to approach this otherwise”, noting
that multiple scenarios would have to be modeled and that extensive document
discovery would be required. The task of recreating a single hypothetical
market is so complex, Teva says, that Parliament would have had to expressly
provide for that result had it been intended.
[115]
In this argument, Teva conflates the cause of action with
the remedy. In particular, Teva’s position overstates the effect of s. 6, which
describes a first person’s right to apply for a prohibition order. Section 6
does not define the factors that the Court may consider in assessing any
damages to which a second person may become entitled under s. 8.
[116]
Teva’s interpretation of s. 8 also ignores the clear words
of s. 8(5), which requires that a court assessing a second person’s compensation
“take into account all matters that it considers relevant to the
assessment of the amount” (emphasis added). Competition in the generic market
is clearly relevant to a second person’s recovery. While the Regulations
are, as Teva argues, a “complete code” (Apotex Inc v Syntex Pharmaceuticals
International Ltd, 2005 FCA 424, [2006] 3 FCR 318 and Merck Frosst
Canada Inc v Apotex Inc, [1997] 2 FC 561, [1997] FCJ No 149 (CA)), the
Court of Appeal has held that s. 8(5) gives the Court a “broad discretion” to
consider a number of factors in assessing the amount of a second person’s
compensation (Apotex Inc v Merck & Co, 2011 FCA 364 at paras 37-38,
[2011] FCJ No 1865). Consideration of the market share that would have been
captured by competitors is relevant to a s. 8 claim, much as it is to any
damages claim. This follows from general damages principles, which seek to
place a successful plaintiff in the position he or she would have occupied but
for the defendant’s wrong.
[117]
Although, as Teva suggests, the s. 8 calculation would be
somewhat simpler if the Court ignored other generics, the fundamental question
would remain the same; Teva would still be required to prove its lost sales.
More importantly, “[p]rocedural simplicity and economy” are not ends in themselves.
These principles do not appear in s. 8, and, in any event, cannot usurp the
Court’s obligation to arrive at an assessment of the amount of compensation
equivalent to the loss Teva suffered during the liability period. As the Court
of Appeal noted in Alendronate (FCA), above at paragraph 89, “[t]he
compensation provided is for prejudice actually suffered by a second person by
reason of the operation of the stay”. Sanofi is correct in
pointing out that s. 8 damages must be consistent with both reality and the
principle that s. 8 damages are compensatory in nature.
[118]
While Teva is similarly correct in stating that each case
must be decided on its own facts, that principle is not inconsistent with
consideration of other generic manufacturers. The findings a court makes as to
the market share each generic would have captured in the hypothetical world
must be made on the facts of each case, and will depend on the evidence each
party is able to marshal. Considering the conduct of other generics does not
require that the Court import findings made in one proceeding into subsequent
actions.
[119]
Teva’s second argument – that Sanofi’s liability would be
“capped inappropriately” if the Court considered other generic competitors – is
also unpersuasive. The heart of this argument appears to be the fact that
Sanofi’s total s. 8 liability is less than its profits. Including other
generics in the s. 8 analysis, Teva says, would further reduce each generic’s
damages, as they “would be left fighting over damages that cumulatively amount
to substantially less than the profits Sanofi actually made”.
[120]
While Teva’s argument may have some appeal from a policy
perspective, it fundamentally misconceives the nature of s. 8 damages.
Subsection 8(1) makes a first person liable to a second person for “any
loss suffered during the [liability] period”. There is no
requirement that Sanofi’s total liability resemble the profits it earned on the
sale of ALTACE during the period of the stay. Moreover, it is settled law that
s. 8 does not entitle a second person to disgorgement of a first person’s
profits (Alendronate (FCA), above at paras 89-91; Apotex Inc v Eli
Lilly Canada Inc, 2011 FCA 358 at para 23, 426 NR 173). Teva’s argument
attempts to obtain a form of disgorgement by another means, and must be
rejected.
[121]
Finally, Teva argues that the Court should refuse to
consider Sanofi’s contention that other generics would have entered the market
during the liability period because “[h]aving abused the Regulations,
evergreened its monopoly and obstructed and delayed Teva’s market entry, Sanofi
ought not to be permitted to cherry-pick evidence from non-parties, and create
its own ideal ‘but for’ world to try to reduce Teva’s section 8 damages”. This
concern is addressed by the ordinary rules of evidence and the standard of
proof.
[122]
In finding that s. 8 requires consideration of generic
competition in the hypothetical world, I note that this approach is consistent
with the decision of the UK courts in Les Laboratoires Servier and another v
Apotex Inc and others, [2008] EWHC 2347 (Ch) (QL), [2008] All ER (D) 79
(Oct), rev’d on other grounds [2010] EWCA Civ 279,
[2010] All ER (D) 238 (Nov) [Servier]. That case arose out of Servier’s patent for
perindopril, and concerned the enforcement of a cross undertaking in damages.
Servier had obtained an interim injunction restraining Apotex from selling
perindopril until trial, while permitting it to fulfill existing binding
orders. Servier’s patent was subsequently found to be invalid, and the
injunction was discharged. This decision concerned the quantification of
Apotex’s losses. In setting out the applicable legal principles, the court
noted at paragraph 5(e) that “[t]he profits that Apotex would have made from
its exploitation of the opportunity to sell generic perindopril depend in part
upon the hypothetical actions of third parties (other potential market
participants) and in part upon Servier’s response to them”.
[123]
In assessing Teva’s share of the Generic Market, I will
accordingly consider the market share that other generics would have captured
in the “but for” world.
B. Should the
assessment be made on the basis that there is only one “but for” world?
[124]
Sanofi not only argues against Teva’s “sole generic”
interpretation of the Regulations, but further asserts that there can be
only one “but for” world that should apply to all s. 8 claims for ramipril. In
Sanofi’s view, a second person would receive an inappropriate windfall if all
other generics were not considered. Sanofi explains that, absent a single
finding as to the overall generic market in the “but for” world, damages would
have “no relationship to the multi-generic market that actually exists”, and
“would be proportional to the number of players in the market”. Sanofi
elaborates on this last point by explaining that “[i]f there [were] 10 generic
entrants into the marketplace you could have 10 parties asserting a claim they
would have been the sole generic”. Sanofi submits that considering each generic
as a sole source manufacturer is contrary to common sense, and would create a
situation in which generics “would be better off litigating under the
regulations than actually selling their drug in the competitive marketplace”.
This, Sanofi says, would run contrary to the purpose of the Regulations, which
it believes “are supposed to encourage generic competition”. Finally, Sanofi
argues that such an interpretation would be “completely inconsistent with
reality and completely inconsistent with the compensatory nature of section
8”.
[125]
While I agree with Sanofi that the “but for” world must
consider the presence of potential competitors, I do not go so far as Sanofi
asserts. In other words, I reject Sanofi’s urging that I establish one “but
for” world that will apply in this case and in any others involving the
genericization of ramipril.
[126]
The assessment of damages can and should be made on the
facts of each case. To the extent that there are common elements that impact on
the quantification of damages, these will more likely than not come forth
during the trial.
[127]
A serious flaw in Sanofi’s argument is that the evidence in
one case may establish a different Relevant Period than in another case. This
will impact on many elements of the assessment of damages. In this case, for
example, I have determined that Teva would have entered the market on December
13, 2005. This finding means that different considerations will come into play
with respect to the possible entry of an authorized generic than if I had
concluded that a different entry date was more appropriate. In the companion
Apotex case (Court File No. T-1357-09), I have concluded that a different
Relevant Period is applicable; different considerations flow from that finding.
Accepting Sanofi’s position would, accordingly, require that I disregard
evidence in either Apotex’s case or this one. Such a result is unsupportable.
[128]
I agree with Sanofi that the PM (NOC) Regulations
contemplate a “multi-generic” universe. However, where I disagree with Sanofi
is that the Court must develop one “universe” that accommodates each and every
possible s. 8 case. By their very nature, s. 8 damages are hypothetical. It
follows that estimates must be made and a market constructed that will not be
perfect. As pointed out by Lord Shaw in Watson, Laidlaw & Co Ld v Pott,
Cassels, and Williamson (1914), 31 RPC 104 at 118 (HL):
The restoration by way
of compensation is therefore accomplished to a large extent by the exercise of
a sound imagination and the practice of the broad axe.
[129]
With respect to ramipril, Sanofi has identified only Teva,
Apotex and Riva as participants in the “but for” world. I am quite certain that
the damages of those three actions will not be greatly – if at all – in excess
of the award of damages that would be made had the three cases been joined and
one “but for” world established. Since Sanofi is the defendant in all three
cases, it is well aware of the total damages being claimed. If that amount
raised a real possibility that Sanofi’s total liability would exceed the bounds
of rationality, Sanofi could urge the Court to consider an adjustment pursuant
to s. 8(5).
[130]
There may be a situation where Sanofi’s fear has some
merit. It certainly is not this case.
C. What other generics would have entered the market?
[131]
Having determined that other generics should be considered
in the “but for” world, the next task is to establish which generics would have
entered the market during the Relevant Period and when they would have entered.
Before I examine the individual market entrants, I note some disagreement as to
the burden.
(1) Burden
[132]
Teva submits that it bears the burden of establishing its
losses, but that this only requires demonstrating that it had the capacity to
supply the entire market at the relevant time. Teva argues that it is not
required to “prove the negative”, or “that no one else would have taken its sales”.
According to Teva, “the burden is resoundingly on Sanofi to disprove Teva’s
entitlement to all of its losses”. In particular, Teva says that Sanofi bears
the burden of establishing what actions Riva, Pharmascience and Apotex would
have taken in the “but for” world. Teva explains that Sanofi should have to
prove precise entry dates, capacity, API supply, uninterrupted production,
willingness to tolerate an at risk launch, competitive impact, and that each
generic went to market with the approved formulation – in other words, “the
same things … that Teva has had the burden of proving in order to establish its
claim for damages and losses”.
[133]
Teva cites Norfloxacin (FCA) as authority for the
proposition that a claimant bears the burden of proving what would have likely
happened in the but for world, but argues that it cannot be Teva’s burden to
“call … every potential participant in the market and prove that they wouldn’t
have launched”. Teva also draws an analogy to the burden in an accounting of
profits, explaining that Teva would have to prove that it was likely to make
its claimed sales, while Sanofi would have to prove that there is a reason to
reduce them.
[134]
In addition, Teva argues that, “[h]aving taken the
advantage of the automatic prohibitions, it is only fitting that Sanofi should
bear the burden of convincingly demonstrating any exculpatory factors it wants
the Court to consider”.
[135]
Sanofi rejects Teva’s claim that Sanofi bears the burden of
proving that there would have been other generics in the market, arguing
instead that Teva must prove that it would have been the sole generic, and that
it would have made the claimed sales. Further, Sanofi cites Eli Lilly and Co
v Apotex Inc, 2009 FC 991 at paras 762, 771-841, 859, aff’d 2010 FCA
240, 409 NR 173, leave to appeal to SCC refused, [2010] SCCA No 434, for the proposition that a plaintiff “has the burden of establishing that
it did suffer damages, not simply that it ‘could’ have suffered damages”.
[136]
It is trite law that there are both legal and evidential
burdens in a trial. In Hoffmann-La Roche Ltd v Canada
(Minister of National Health and Welfare) (1996), 205 NR 331 at
para 8(3) (CA), 70 CPR (3d) 206, the Court of Appeal
explained that:
[The primary] burden,
known in a civil case as either the “persuasive burden” or the “legal burden”,
is the burden of establishing a case to the civil standard of proof. By
contrast, the “evidential burden” consists of the burden of putting an issue in
play and means that a party has the responsibility to ensure that there is
sufficient evidence of the existence or nonexistence of a fact or an issue on
the record to pass the threshold for that particular fact or issue.
[137]
The legal burden does not shift over the course of a trial,
but the evidential burden does. Once there is “prima facie proof or
presumption of the truth of an allegation, which ought therefore to be found
true in the absence of further evidence”, the evidential burden shifts to a
defendant “to adduce evidence in answer to the prima facie proof” (Ontario
Equitable Life and Accident Insurance Co v Baker, [1926] S.C.R. 297 at 308-309
[Baker]). At the end of a case, the court must weigh all of the
evidence called by both parties (Baker, above).
[138]
It cannot be Teva’s burden to call every potential
participant in the market and prove that they would not have launched. In this
regard, the position of Teva is much like the situation faced by the defendant
in Rainbow Industrial Caterers Ltd v Canadian National Railway Co.,
[1991] 3 S.C.R. 3, [1991] SCJ No 67. In that case, involving an action in tort, Rainbow was seeking damages
from Canadian National Railway (CN) for, inter alia, negligent
misrepresentation in respect of a catering contract. CN argued that the claimed
loss was not all attributable to CN since Rainbow would have entered into other
contracts. On the issue of burden, at page 15, the Supreme Court states that:
Once the loss
occasioned by the transaction is established, the plaintiff has discharged the
burden of proof with respect to damages. A defendant who alleges that a
plaintiff would have entered into a transaction on different terms sets up a
new issue. It is an issue that requires the court to speculate as to what
would have happened in a hypothetical situation. It is an area in which it is
usually impossible to adduce concrete evidence. In the absence of evidence to
support a finding on this issue, should the plaintiff or defendant bear the
risk of non-persuasion? Must the plaintiff negate all speculative hypotheses
about his position if the
defendant had not
committed a tort or must the tortfeasor who sets up this hypothetical situation
establish it?
[Emphasis added]
[139]
In holding that CN bore the burden, the Supreme Court
commented as follows, at page 16:
The appellant CN
alleged that the loss was not all attributable to the misrepresentation because
Rainbow would have entered into a different contract on other terms which would
have resulted in at least some of the loss. What the respondent would have done
had it not been for the tortious act requires a great deal of speculation, and,
on the basis of the principles which I have reviewed above, I would apply the
legal burden of proof against the appellant.
[140]
In the context of an undertaking in damages, a successful
defendant bears the onus of proving its loss (see e.g. Servier, above at
para 9). However, in Algonquin
Mercantile Corp v Dart Industries Canada Ltd (1987), [1988] 2 FC 305 (QL)
at para 8 (CA), [1987] FCJ No 540), the Federal Court of Appeal held that an
unsuccessful plaintiff bears the burden of proving cannibalization where that
issue was raised by the plaintiff:
[T]he existence of cannibalization was a question which was
introduced into the debate as a result of plaintiff’s allegations. Accordingly,
it was for plaintiff to prove it, not for defendant to show, as the Trial Judge
said, that it “would not have occurred”.
[141]
Taking all of this into consideration, in my view, the
proper approach is the following: Once Teva has led prima facie evidence
of its losses, the evidential burden shifts to Sanofi to adduce evidence in
response. Sanofi cannot simply allege that other generics would have entered
the market without leading evidence in support of such assertions.
[142]
In this case, Teva does not, at least initially, bear the
burden of disproving the hypothetical sales of third party generics. However,
Teva, at all times, bears the legal burden of proving its losses, and the
evidence adduced by Teva must ultimately be weighed against any evidence
adduced by Sanofi establishing sales by third party generics. To the extent that
Sanofi succeeds in discharging its evidential burden by proving third party
sales, Teva must address that evidence in order to discharge its legal burden.
(2) Apotex
[143]
Sanofi submits that Apotex would have been a participant in
the hypothetical world during the entire Relevant Period. Specifically, it
seems to be Sanofi’s preferred position that Apotex would have commenced sales
of ramipril on December 13, 2005, a date that coincides with the date of entry
of Teva. Teva submits that Sanofi has entirely failed to meet its burden of
proving that Apotex was in a position to enter the market and would have done
so.
[144]
There are two aspects to the question of whether Apotex
would have commenced sales in the hypothetical world. The first step is to
examine the regulatory context to determine whether there were regulatory
impediments to Apotex’s entry. The analysis of this question will lead to a
determination of the possible date for Apotex’s launch of a generic version of
ramipril. As a second step, I must address the practical considerations that
would have likely arisen as of the hypothetical entry date. Such matters as
plant capacity, access to API and motivation are relevant at this second step.
[145]
In the hypothetical world that I am creating for the
purposes of determining Teva’s claim, from a regulatory and practical
perspective, would Apotex have been able to come to market and, if so, when?
[146]
We know that, in the real world, Apotex submitted its ANDS
for approval of Apo-ramipril on July 31, 2003. As summarized in Exhibit 143,
the subsequent steps involved in obtaining approval to sell Apo-ramipril were
as follows:
|
DATE
|
EVENT
|
|
July 31, 2003
|
Apotex filed ANDS for Apo-ramipril capsules
|
|
June 20, 2003
|
NOA #1 – '206 Patent; postmarked August 5, 2003
|
|
September 23, 2003
|
T-1742-03 (NOA #1) commenced
|
|
August 20, 2003
|
NOA #2 – '457 Patent – non-infringement
|
|
October 8, 2003
|
T-1851-03 (NOA #2) commenced
|
|
November 10, 2003
|
NOA #3 – '457 Patent – validity
|
|
November 17, 2003
|
NOA #4 – '089 Patent
|
|
December 29, 2003
|
T-2459-03 (NOA #3) commenced
|
|
January 5, 2004
|
T-11-04 (NOA #4) commenced
|
|
April 6, 2004
|
Apotex’s “patent hold”
|
|
June 28, 2004
|
NOA #5 – '948 Patent
|
|
August 16, 2004
|
T-1499-04 (NOA #5) commenced
|
|
September 20, 2005
|
Federal Court dismisses T-1742-03 (NOA #1)
|
|
October 6, 2005
|
Federal Court issues a prohibition Order until the expiry of the '457
Patent in T-1851-03 (NOA #2)
|
|
October 27, 2005
|
Federal Court dismisses T-11-04 (NOA #4)
|
|
November 4, 2005
|
Federal Court dismisses T-2459-03 (NOA #3)
|
|
November 29, 2005
|
NOA #6 – '549 and '387 Patents
|
|
December 13, 2005
|
'457 Patent expires
|
|
January 17, 2006
|
T-87-06 (NOA #6) commenced
|
|
June 27, 2006
|
Federal Court dismisses T-1499-04 (NOA #5)
|
|
December 8, 2006
|
Minister advises that Apotex was not required to address the '549 and
'387 Patents
|
|
December 12, 2006
|
Apotex receives NOC
|
|
May 2, 2008
|
Federal Court dismisses T-87-06 (NOA #6) “as moot”
|
[147]
Apotex received its “patent hold” letter on April 26, 2004
(Exhibit 142, Tab 7). That is, as of April 26, 2004, Apotex was advised that
the examination of its ANDS was complete, but that an NOC would not issue until
the requirements of the Regulations had been met. Ultimately, Apotex
received approval to sell four strengths of ramipril on December 12, 2006.
[148]
There was one very serious constraint on Apotex’s
participation in any market – real or hypothetical. This was the Prohibition
Order dated October 6, 2005, prohibiting the Minister from issuing an NOC to
Apotex until the expiry of the '457
Patent on December 13, 2005. The Order arose from the decision of Justice
Simpson in Apotex, above, in which she concluded that Apotex’s
allegations of non-infringement in its Notice of Allegation #2 were not
justified. Although Apotex commenced an appeal of this decision (see Court of
Appeal File No. A‑494‑05; Exhibit 142, Tab 18), the appeal was
subsequently discontinued on October 13, 2006 (Exhibit 142, Tab 19). On the
basis of the Prohibition Order, Apotex could not have come to market with
Apo-ramipril any earlier than December 13, 2005, that being the date of expiry
of the '457 Patent.
[149]
As of December 13, 2005, three other NOC proceedings
commenced by Sanofi had already been dismissed:
·
Notice of Application #1, with respect to the '206 Patent, had been dismissed by a decision of this Court dated September
20, 2005 in Court File No. T-1742-03 (Aventis Pharma Inc v Apotex Inc,
2005 FC 1283, 278 FTR 1);
·
Notice of Application #4, with respect to the '089 Patent, had been dismissed by a decision of this Court dated October 27,
2005 in Court File No. T-11-04 (Aventis Pharma Inc v Apotex Inc, 2005 FC
1461, 283 FTR 1); and
·
Notice of Application #3, with respect to the validity of
the '457 Patent, had been
dismissed by a decision of this Court dated November 4, 2005 in Court File No.
T‑2459-03 (Aventis Pharma Inc v Apotex Inc, 2005 FC 1504, 283 FTR
171).
[150]
There could obviously have been some interplay between the
Court’s dismissal of Notice of Application #3 and the Prohibition Order. Both
addressed the '457 Patent. Perhaps, there
was a way in which Apotex could have challenged the Prohibition Order. In
this trial, however, neither Sanofi nor Teva argues that the Prohibition
Order would have been without effect or unenforceable as of November 4, 2005.
Accordingly, on the record and arguments before me, I will assume that the
Prohibition Order remained in place as an impediment to Apotex’s market entry
until December 13, 2005.
[151]
As of December 13, 2005, two notices of allegation remained
outstanding with respect to the '948
Patent (#5) and the '549 and '387 Patents (#6). The subject matter of the '948 Patent was ramipril together with a calcium antagonist for the
treatment of proteinuria. This is not an indication for which Apotex ever
sought approval. Similarly, the '549
and '387 Patents were for the use
of ramipril for what has been called the “HOPE indications”, discussed in
greater detail in Part IX.G, below. In the real world, Apotex was permitted to
obtain its NOC when it removed the HOPE indications from its product monograph.
Neither Sanofi nor Teva argues that the outstanding Notices of Application
would have prevented Apotex from coming to market on December 13, 2005.
[152]
Teva points to two alleged problems in the evidence of
Apotex’s approvability. First, Teva states that there is no evidence of any
letter from the Minister of Health certifying that, in the absence of the Regulations,
Apotex would have received its NOC in April of 2004. Absent such evidence, Teva
argues, there is no basis to assume that the letter from Health Canada to Apotex dated April 29, 2004 advising Apotex of its
April 26, 2004 patent hold date (Exhibit 142, Tab 7) was not superseded by
a later letter. In my view, there is no need for Sanofi to “prove” that Apotex
received a letter of certification. I am not attempting to establish a
commencement date for Apotex’s s. 8 damages claim. Rather, I am examining a
hypothetical situation. A certification letter regarding Apo-ramipril would
have been helpful and relevant, but it is not the only evidence that can assist
me. As is widely understood, an NOC will issue following the approval of an
ANDS. Moreover, Teva could have asked Apotex’s chairman and chief executive
officer, Dr. Sherman, or Ms. Bowes whether the letter of April 29, 2004 had
been superseded. On the basis of the record before me, I accept the “patent
hold” letter from Health Canada to Apotex dated April 29, 2004 as sufficient evidence to establish
Apotex’s approvability as of December 13, 2005.
[153]
Teva’s second assertion is that there is no evidence that
the formulation actually sold by Apotex is the formulation that was approvable
in April of 2004. Apotex’s approved product monograph (dated December 12, 2006)
bears two submissions numbers, #85886 and #91920. Teva points out that this
means that there are two submissions which relate to that product monograph and
that no evidence was led to explain this additional submission (#91920),
including whether it relates to a different formulation. Thus, according to
Teva, Sanofi has failed to establish that Apotex is even selling Apo-ramipril
pursuant to the submission that was approved in April 2004 (#85886). This
argument, in my view, unhelpfully mixes the real world with the hypothetical
scenario that I am trying to build. I am satisfied that, in the “but for”
world, Apotex would have been able to bring Apo-ramipril to market based on the
April 2004 approval. The question as to which formulation was actually brought
to market in late 2006 is simply irrelevant.
[154]
For these reasons and based on the record before me, I
conclude that Apotex would likely have had the necessary regulatory approvals
to bring Apo-ramipril to market as of December 13, 2005. I turn now to the
practical issues.
[155]
On the practical side, it is necessary to address two
questions: Would Apotex have been able to obtain sufficient quantities of
ramipril API; and would Apotex have had adequate plant capacity to supply the
Generic Market (or at least its share of the hypothetical market)?
[156]
Teva submits that Sanofi has failed to establish the following:
·
Sanofi led no evidence identifying Apotex’s API supplier or
its ability to supply.
·
Sanofi has not proved that Apotex had the capacity to
manufacture Apo-ramipril capsules.
·
It is not clear that, if faced with being alone in the
market, in an “at risk” situation, Apotex would have launched ramipril
aggressively or at all.
[157]
Dr. Sherman was subpoenaed by Sanofi to testify in this
trial. On the basis of his evidence, I am persuaded that it is more likely than
not that Apotex would have been able to acquire sufficient API to meet its
needs in the “but for” world. Ramipril API, as discussed by Dr. Sherman,
would have been available in the Relevant Period. There was no need for Sanofi
to identify any particular supplier of Apotex’s API since this is a
hypothetical analysis. Based on the evidence of many witnesses, including a
representative from the API supplier, [Redacted], who was put forward by
Teva, I am satisfied that API would have been as easily obtained by Apotex as
it would have been by Teva. Moreover, logically, if Teva, as it insists, could
have acquired enough API to supply the entire market, there must have been
sufficient API available to Apotex to supply a part of that market. Finally, no
one has pointed to any problems with the supply of ramipril API following the
actual entry of generics into the market.
[158]
With respect to plant capacity, Dr. Sherman was presented
with a chart showing annual production at Apotex’s solid dosage plants (Exhibit
142, Tab 8). This chart demonstrates that Apotex would have had ample capacity
to produce large volumes of Apo-ramipril over the Relevant Period.
[159]
The final point made by Teva relates to Apotex’s likely
behaviour in the face of an “at‑risk” launch. That term is commonly used
to refer to the situation in which a generic manufacturer succeeds in obtaining
an NOC under the Regulations, but faces the possibility of being sued
for patent infringement upon the launch of its product. Dr. Sherman
admitted that Apotex assesses patent risk and takes steps to minimize its
exposure in “at risk” situations, for example through seeking higher prices for
product (e.g. perindopril), agreements with brand companies (e.g. atorvastatin)
and development of non-infringing processes and formulations (e.g.
esomeprazole). Teva submits that there is a lack of convincing evidence to
suggest that Apotex would not have taken such precautions in the case of
ramipril.
[160]
I do not accept this “spin” on Dr. Sherman’s evidence. Teva
put forward no evidence of its own to question the credibility of Dr. Sherman.
Indeed, Dr. Sherman, who was very credible on this point, described the
aggressiveness of Apotex in taking litigation risks. When asked whether Apotex
was the first Canadian company to develop a “first-and-alone” strategy, Dr. Sherman
provided the following response:
I think all generic
companies essentially have the same strategy. We have certainly grown because
we have been the best at it in many cases where we came to market well ahead of
competitors who for various reasons didn’t see certain opportunities, and the
reverse has happened too.
[161]
The very fact that Apotex was prepared to commence multiple
attacks on the validity of any and all of Sanofi’s patents on ramipril, while
Teva stood by for years, speaks volumes to Apotex’s willingness to assume risk.
Between June 2003 and November 2005, Apotex served six notices of allegation
covering every one of the ramipril patents. In addition, I am not even certain
that Apotex’s hypothetical launch on December 13, 2005 would have been an
at-risk launch. As discussed above, by that date, Apotex would likely have
cleared all of the regulatory impediments to its launch of Apo-ramipril.
[162]
I am satisfied that, throughout the Relevant Period, Apotex
would have been able to obtain ramipril API and had the plant capacity to
manufacture sufficient quantities of Apo‑ramipril to supply its
hypothetical share of the market. In addition, Apotex would have likely met its
regulatory requirements and chosen to launch its product.
[163]
Overall, the evidence supports a conclusion that Apotex
would have been a market participant during the entire Relevant Period.
(3) Riva
[164]
Several possible scenarios were discussed during the trial
that involved the participation of Riva in the “but for” world. As with the
possible participation of Apotex in the hypothetical market, there are two
aspects to Riva’s possible entry during the Relevant Period. The first step is
to examine the regulatory context to determine whether there were regulatory impediments
to Riva’s entry. The second step is to address the practical considerations
that would have likely arisen as of the hypothetical entry date. Such matters
as plant capacity, access to API and motivation are relevant at this second
step.
[165]
The problem is that the evidence before me establishes that
Riva could not have received an NOC for its ramipril during the Relevant
Period. Thus, even if Riva could have made arrangements to market ramipril in
some or all parts of Canada, it could not have come to market in the Relevant Period due to a
regulatory or legal impediment.
[166]
On June 8, 2004, Riva submitted its ANDS to Health Canada for ramipril capsules in the 2.5, 5 and 10 mg strengths
(Exhibit 115, Tab 74).
[167]
On June 21, 2004, Health Canada advised Riva that its examination of the submission was completed and
that the NOC would not issue until the requirements of the PM (NOC)
Regulations were met. At the time, although they were not listed in the
letter, those requirements included addressing the listed patents. A further –
and ultimately more problematic – issue for Riva arose from its submission to
cross-reference the submission of Pharmascience for pms-ramipril. In Riva’s
case, the company submitted a cross-referenced ANDS which was substantially identical
to Pharmascience’s original submissions (Exhibit 115, Tab 74). Riva’s
submission also included a copy of Pharmascience’s letter providing access to
its data in support of Riva’s application. In addition, Riva requested that new
DINs be assigned for its products (Exhibit 115, Tab 74).
[168]
As confirmed by Ms. Bowes, Health Canada’ policy and its advice to Riva was that it could not get an NOC for
ramipril in advance of Pharmascience obtaining its NOC. Riva was informed of
this regulatory hurdle in a letter from Health Canada dated April 24, 2007 (Exhibit 115, Tab 66) in which Riva was advised
as follows:
[W]e would note that,
since Riva’s submission has been cross-referenced with another submission, the
NOC will not be issued to Riva until the NOC is issued for the cross-referenced
submission for pms-ramipril, in accordance with Health Canada’s Policy
entitled “Filing of Supplemental New Drug Submissions, Supplemental Abbreviated
New Drug Submissions, Notifiable Changes and Cross-Referenced Submissions”.
[169]
On May 24, 2007, Riva brought an application for judicial
review of Heath Canada’s
refusal (Exhibit 115, Tab 67; Court File No. T-896-07). Health Canada subsequently reversed its position and, in a letter dated
June 21, 2007 (Exhibit 115, Tab 69), Riva was informed as follows:
Health Canada is no
longer of the view that Riva cannot receive a notice of compliance until such
time as the Pharmascience submission to which Riva’s product is
‘cross-referenced’ is itself approved. As a result, should Riva ultimately be
successful in the prohibition proceedings ongoing in T-127-07, and otherwise
meet all of its obligations under the Patented Medicines (Notice of
Compliance) Regulations, it will be eligible to receive a notice of
compliance, regardless of whether the Pharmascience submission has fully
complied with the NOC Regulations and received a notice of compliance.
[170]
The application for judicial review was discontinued.
However, the fact is that, separate and apart from any notice of allegation proceedings
under the Regulations, Riva could not have entered the ramipril market
before Health Canada changed its position on
Riva’s cross‑referenced ANDS. The earliest that Riva could have obtained
an NOC is June 21, 2007, after the end date of the Relevant Period in this
trial. Neither Sanofi nor Teva presented evidence or argument that Riva could
have entered the market during the Relevant Period.
[171]
Given the facts before me in this case, I conclude that
Riva would not have been a participant in the generic “but for” world during
the Relevant Period.
(4) Authorized generic
[172]
There was disagreement between the parties as to whether
and when an authorized generic version of ramipril would have been introduced
in the “but for” world.
[173]
As described by a number of witnesses, the term “authorized
generic”, or “AG”, refers to a drug that is manufactured by an innovative drug
company – in this case, Sanofi – but sold by a generic company under the
generic’s name. While the composition of the authorized generic product is
identical to the innovator’s product, it has a separate DIN. Authorized
generics obtain regulatory approval by submitting an administrative NDS instead
of an ANDS. No bioequivalence study is required, as the authorized generic
product is manufactured by the innovator. As a result, it is faster for
authorized generics to obtain approval. Ms. Friedman explained that authorized
generic agreements allow innovators to participate in both the brand and
generic markets, as the innovator effectively sells two distinct, but identical
products.
[174]
In a genericized market, the introduction of an AG permits
the brand company to recoup some of the market that has been lost to generics.
It is obvious that a brand company will not introduce a generic until and
unless there is an unauthorized or “true” generic manufacturer coming on to the
market. Otherwise, the AG would only cannibalize sales of the brand drug.
[175]
When ramipril was finally genericized in late 2006, the
first market entrant was ratiopharm operating as an AG of Sanofi. Anticipating
a generic entrant, Sanofi had entered into an agreement with ratiopharm
allowing it to rely on Sanofi’s regulatory filings to obtain an NOC ahead of
the pack. Would Sanofi have undertaken the same actions in the “but for” world
and launched an authorized generic during the Relevant Period? Teva argues that
it would not have done so and Sanofi submits that it would have. There are
three sub-issues to be addressed: (a) should the Court consider an AG in the
analysis of the generic market in the “but for” world; (b) would Sanofi have
launched an AG; and (c) could Sanofi have been in a position to launch an AG as
of December 13, 2005?
(a) The inclusion of an AG in the “but for” world
[176]
Teva argues, as its first position, that the Court should
not consider an AG in the analysis of its compensation because:
1.
Such arguments are
self-serving and in most cases will lack an evidentiary foundation.
2.
The fact that Sanofi
“aggressively listed patents” and “pursued applications in the Federal Court
despite having no chance of success” makes it inequitable to reduce Teva’s
damages on the basis of an AG.
3.
It would reduce Teva’s
damages.
4.
The AG argument is
“repugnant to the underlying purpose and intent of the regulations”.
[177] Sanofi’s main response to these arguments
appears to be that the evidence demonstrates that Sanofi’s claim is not
self-serving because Sanofi genuinely contemplated an AG as a means of
mitigating its losses. Sanofi thus appears to acknowledge that there is a
potential for an AG argument to be used as a “shield of liability”.
[178]
As discussed below, the evidence in this case indicates
that it is more likely than not that Sanofi would have launched an AG in the
“but for” world. Teva’s first argument is, therefore, inapplicable on the facts
of this case, although it could be relevant in a future case. That is
particularly so in light of Dr. Sherman’s testimony regarding what he describes
as the anti‑competitive nature of AGs. In particular, Dr. Sherman
testified that AGs are unfair for at least two reasons. First, AGs allow
innovators to reduce a generic’s potential profits (and s. 8 damages) and thus
dissuade generics from investing in certain products. Second, an AG’s low price
is subsidized by the sales an innovator continues to make at a high price, as
well as the tax subsidy innovators receive by recording the loss they suffer
from selling an AG below cost against income earned from the higher priced
sales of the innovator’s own product. Dr. Sherman also testified that AGs are
subsidized because they do not have to engage in litigation or research and
development, and do not face any risk of liability for infringement from the
innovator. In a future case where the evidence is different, such
considerations might be relevant to an analysis under s. 8(5) of the Regulations.
I admit to sharing some of the concerns expressed by Dr. Sherman. In this
case, however, the evidence establishes that Sanofi would in fact have launched
an AG in the “but for” world. Moreover, there is no legal impediment to Sanofi
so doing.
[179]
Teva’s second point, that it would be inequitable to reduce
its damages on the basis of an AG because Sanofi “aggressively listed patents”
and “pursued applications in the Federal Court despite having no chance of
success”, is irrelevant. This is because there is no apparent connection
between Sanofi’s ability to argue that it would have launched an AG and its alleged
conduct in other proceedings. Teva inappropriately characterizes the ability to
make an AG argument as a privilege.
[180] Teva’s third and fourth points can be considered together. It is
unarguably the case that the inclusion of an AG in the “but for” world results
in a lower award of damages to the second person. However, I am not persuaded
that s. 8 precludes the consideration of an AG in assessing the second person’s
losses.
[181] As
pointed out by Sanofi, the Regulations, as a whole, contemplate the
existence of AGs. Pursuant to s. 7(3), a generic manufacturer can obtain an NOC
with the consent of the first person. An AG is a manufacturer entering with the
consent of the first person.
[182] Generic
drug companies have raised the allegation of inequities caused by AGs in the
past. The 2006 RIAS, above at 1525, contains the following remarks:
As a final note, certain generic drug companies also argued
very forcefully that the Government should incorporate measures in these
amendments to address what they perceive as diminishing market incentives in
their industry. More specifically, they contend that innovators are
increasingly entering into licencing arrangements with willing generic
companies (so-called “authorized generics”) in order to pre-empt genuine
generic competitors and retain market share past patent expiry. This practice,
which is also said to be prevalent in the US, is currently being studied by the US Federal Trade
Commission. While the Government is of the view that there is insufficient
information on the impact of this practice on market dynamics in the industry
to support regulatory action at this time, it will be examining this
practice more closely in response to these concerns.
[Emphasis added]
At that time, the Governor in
Council was aware that there was an issue surrounding AGs and chose not to make
amendments to exclude consideration of AGs in a claim under s. 8. In the
absence of clear statutory language, I cannot simply, as urged by Teva, exclude
the AG from the s. 8 assessment.
[183]
Section 8 damages compensate a second person for losses it
suffered as a result of the automatic stay (Alendronate (FCA), above at
para 71). In other words, I am being asked to assess damages as though no
prohibition application had been brought (Norfloxacin (FCA), above at
para 75). Excluding an AG where the evidence demonstrates that an AG would have
been present would artificially increase Teva’s compensation under s. 8. This
is because, in such a situation, not only would Teva have been able to launch,
but there also would have been no impediment to the launch of an AG by Sanofi.
It follows that, by excluding the AG from the “but for” world, Teva’s damages
would exceed the revenues it would have earned had Sanofi not brought a
prohibition application.
[184]
In brief, I share the concerns expressed by Teva.
Nevertheless, I can see no legitimate means to exclude the existence of an AG
(where demonstrable on the facts) from the “but for” market. The Governor in
Council would have to make that decision.
(b) Decision to launch an AG
[185]
The next question is whether it is more likely than not
that Sanofi would have decided to launch an authorized generic in the “but for”
world.
[186]
There are a number of factors that lead me to conclude that
Sanofi would have decided to launch an AG to coincide with the hypothetical
launch of Teva and Apotex in December 2005, the beginning of the Relevant
Period.
[187]
Mr. Gravel provided very credible testimony about Sanofi’s
approach to AGs. He acknowledged that Sanofi does not launch AGs for all of its
products upon genericization, and explained that Sanofi considers a number of
factors before deciding whether to launch an authorized generic. [Redacted]
[188]
One of the most important factors in determining whether
Sanofi would have decided to launch an AG is the importance of ALTACE to
Sanofi. Mr. Gravel testified that, following the publication of the HOPE study,
ALTACE sales “increased significantly year-over-year and became the leading
product in Canada”. He also stated that at one
point, ALTACE was Sanofi’s largest product.
[189]
A second factor weighing in favour of an AG launch in 2005
is the real world action of Sanofi in authorizing ratiopharm to market ramipril
in 2006.
[190]
Teva points to a number of instances of “large molecules”
where Sanofi did not launch an AG. However, Mr. Gravel explained that, in
situations where Sanofi already has a non-generic partner, as it does with
Bristol-Myers Squibb in the case of PLAVIX, it must consider that it will be
sharing profits with both the AG manufacturers and its partner. On cross‑examination,
Mr. Gravel acknowledged that Sanofi did not launch an AG upon the
genericization of a numbers of its products but maintained that such decisions
were made because an AG would not have been profitable for Sanofi. With respect
to PLAVIX, Ms. Decelles agreed that even in the context of extremely large
drugs, there can be barriers or business considerations that lead Sanofi to
forego the loss mitigation it could gain from an AG. [Redacted] Sanofi’s
failure to introduce an AG for a drug it sold in a partnership arrangement does
not lead me to conclude that Sanofi would have made the same decision with
respect to ALTACE.
[191]
Teva’s argument that AGs accounted for only a small part of
Sanofi’s business and accounted for profits of less than $10 million in 2004 is
largely irrelevant. What matters is whether Sanofi would have launched an AG
for ramipril.
[192]
The evidence clearly establishes that Sanofi had
contemplated the possibility of generic entry and the launch of an AG for
ramipril since at least 1999, due to the fact that the '087 Patent was set to expire in May 2002. Mr. Leprince testified that
Sanofi considered the same options in response to the expiry of the '087 Patent as it considered with respect to many patents, and that the
“usual process” involved allowing a company called Altimed to market an AG two
or three months prior to patent expiry. In that regard, Mr. Leprince spoke to a
document which contemplated generic entry in mid-2002. While the document
Mr. Leprince spoke to did not actually model the introduction of an AG, it
is clear that Sanofi considered that possibility.
[193]
Although the issuance of the '206 Patent in 2001 averted the threat of generic entry for a time, Mr.
Leprince testified that that threat resurfaced in 2003, when Pharmascience
filed a notice of allegation, followed quickly by Apotex. Sanofi also points
out that Dr. Sherman’s patent application for a ramipril formulation came
to Sanofi’s attention on April 16, 2003. This application would have
raised the threat of an attack on ALTACE by Apotex (Exhibit 97, Tab 59).
[194]
Mr. Gravel similarly testified that Sanofi was considering
the possibility of generic entry into the ramipril market when he became
involved with ALTACE at the end of 1999 and beginning of 2000.
[195]
On the basis of this evidence, I am persuaded that it is
more likely than not that Sanofi would have determined that it would launch an
AG during the Relevant Period to respond to the generic entry by Apotex and
Teva.
(c) Timing of AG
launch
[196]
The next question is whether Sanofi would have been
prepared to launch an AG to coincide with the entry of Teva and Apotex on
December 13, 2005. When would Sanofi have realized that generic entry was
imminent? Would Sanofi have been able to find a partner in the “but for” world?
Would Sanofi and the AG partner have been able to make the necessary
arrangements in time to launch on December 13, 2005?
[197]
With respect to Sanofi’s knowledge of the imminent market
entry of Teva or Apotex, there are a number of factors at play. Sanofi would
have known that the Prohibition Order preventing Apotex from coming to market
would expire on December 13, 2005. Moreover, on September 20, 2005 and October
27, 2005, the Federal Court dismissed two notices of application brought by
Sanofi against Apotex’s notices of allegation. The only remaining impediments
to Apotex’s entry were related to three use patents; Sanofi must have known of
the weakness of its reliance on those patents. Sanofi also knew about Dr.
Sherman’s patent application. Sanofi would have had a clear period of about
three months in which to initiate the launch of an AG on December 13, 2005.
[198]
Teva submits that ratiopharm would not have likely agreed
to launch an AG with Sanofi. The first problem with Teva’s argument is that it
relates to genericization in 2003; the situation may have been much different
in and around the fall of 2005. The evidence demonstrates that Sanofi likely
would have been able to find an AG partner between September and December 2005
– if not ratiopharm, then another generic manufacturer. The evidence of Dr.
Denike and others was to the effect that there would have been substantial
interest in partnering with Sanofi for a ramipril AG. Mr. Gravel testified that
Sanofi was also contacted by [Redacted] and [Redacted] with
respect to ramipril in 2005. Ms. Decelles stated that [Redacted] and [Redacted]
contacted her in 2006 regarding an AG agreement for ramipril. Sanofi also
considered [Redacted] as a potential AG partner. Moreover, Mr. Gravel
pointed out that generics would have been interested because ramipril would
have been the largest product to be genericized. While Mr. Gravel acknowledged
that generics are “not all equal in terms of which one would be the best
partner for [Sanofi]” [Redacted], it is more likely than not that Sanofi
would have found an acceptable partner in either [Redacted], as the
latter company was also listed as a feasible partner in one of Sanofi’s
analyses. In addition, Ms. Decelles testified that Sanofi also considered
partnering with [Redacted].
[199]
The final question is whether the arrangements could have
been in place to allow a launch of the AG in December 2005. In my view, it is
more likely than not that Sanofi could have launched an AG to coincide with the
launch of unauthorized generics by Teva and Apotex on December 13, 2005. The
company would have had approximately three months, beginning from the dismissal
of its first Notice of Application on September 20, 2005, to prepare for Apotex
and Teva’s December 13th launch. The evidence demonstrates that
Sanofi likely could have been able to prepare an AG for launch within that time
frame.
[200]
Teva correctly points out that the negotiation of Sanofi’s
real-world AG agreement with ratiopharm required [Redacted]. Sanofi and
ratiopharm appear to have first discussed the possibility of an AG sometime in [Redacted],
and at least by [Redacted]. An agreement in principal was reached in [Redacted],
and a letter of intent signed in [Redacted]. The final agreement was not
concluded until [Redacted].
[201]
However, Sanofi persuasively argues that the process could
have been expedited in several ways. Both Mr. Gravel and Ms. Decelles testified
that Sanofi’s lengthy negotiations with ratiopharm reflected the fact that
there was no time pressure in the real world. Ms. Decelles testified that the
negotiations could have been expedited by [Redacted], thus permitting
Sanofi to proceed with some of the operational elements, such as the
cross-reference.
[202]
With the motivation of generic entry looming in two to
three months, it is more likely than not that Sanofi would have done everything
possible to complete an agreement with a generic manufacturer for generic
launch as of December 13, 2005.
[203]
I am also satisfied that Sanofi would have been able to
obtain regulatory approval in time to meet the December 13, 2005 launch date.
Ms. Mancino testified that, since 2001, the regulatory requirement for an AG
has essentially been an administrative submission which includes a copy of
administrative forms such as an HBP 30-11 form, the product monograph, a copy
of the package labels, a letter of authorization from the innovator authorizing
the generic to cross-reference the innovator’s files in support of its
application, as well as a letter of consent for the making, constructing and
selling of the innovative product.
[204]
In addition, Ms. Mancino testified that, although the
administrative submission may involve a review of up to 45 days by Health
Canada, she has found that such submissions normally only require 30 days. Mr.
Woloschuk similarly testified that on average, the issuance of a cross-licence
NOC takes 30 days. Moreover, Ms. Decelles testified that, in the actual world, [Redacted].
[205]
There are some additional steps to production – such as
labelling and preparation of the product. Any such steps could be undertaken
quickly. [Redacted]
[206]
In order to launch an AG, Teva asserts that Sanofi may have
also been required to proceed through the company’s internal process for
approving financial investments, or “AIF” process, [Redacted]. [Redacted].
It is not clear whether the AIF process would have applied if Sanofi had
commenced the negotiation of an AG agreement in September or October of 2005.
However, even if an AIF process had been required, common sense tells me that
offshore approval for Sanofi’s most important and profitable drug would have
been almost immediate.
[207] [Redacted], other evidence before me demonstrates that Sanofi
could have launched an AG in less time in an urgent situation. The arrangements
to enter the market with an AG would, in my view, have been longer than the [Redacted]
days asserted by Sanofi but likely within the three month window that I
believe Sanofi would have had.
[208]
In conclusion on this point, I am satisfied that it is more
probable than not that Sanofi would have decided to launch an AG, would have
found a partner and would have been able to launch an AG version of ramipril on
or about December 13, 2005.
D. Teva’s Lost
Volumes
[209]
For the reasons set out above, I have concluded that it is
likely that the Generic Market during the Relevant Period would have consisted
of Teva, Apotex and an AG, all of which would have entered the market on
December 13, 2005. My next task is to determine how these three competitors
would have shared the Generic Market. To assist, I turn to the economists who
provided opinions on this issue – Drs. Carbone and Anis.
[210]
There were significant differences in the determinations
made by Drs. Carbone and Anis, and much criticism of each by the parties.
However, many of the differences with respect to the sharing of the generic
market are minor when one considers the appropriate scenario. As discussed at
paragraphs 78 to 79 above, the most relevant scenarios for comparison are
Dr. Anis’s Scenario 5(ii) and Dr. Carbone’s Scenario 5. I will proceed to
consider each expert’s analysis of the appropriate scenario.
[211]
Dr. Anis’s approach is to construct an econometric model
that incorporates explanatory factors in order to estimate Teva’s market share.
Although his report does not make his methodology explicit, Dr. Anis appears to
rely on his Model 3 to perform this task in Scenario 5(ii). Dr. Anis constructs
his Model 3 using data from actual markets with three simultaneous entrants,
limited to periods before the entry of a fourth generic. Dr. Anis further
restricts his Model 3 dataset to markets where both Apotex and Teva were among
the first entrants. These specifications result in a dataset that includes six
formulations of three molecules (Exhibit 47, Schedule “K” at 7).
[212]
Dr. Anis uses his Model 3 to predict the market share of
generic manufacturers in markets with three first movers (called the
“independent variable”). Dr. Anis reports that he uses two types of
“explanatory variables” in this model: (1) the identity of each generic
manufacturer; and (2) whether each generic manufacturer was an AG or not. An
explanatory variable contains data that is assumed to explain some portion of
the variation in the independent variable across observations. In other words,
Dr. Anis seeks to explain why one might observe differences in the market share
of generic manufacturers in different markets based on the identity of the
generic manufacturer and whether or not a generic manufacturer was an AG. For
example, some generic manufacturers might have a competitive advantage over
other generic manufacturers and therefore tend to capture a greater share of
the market. Dr. Anis’s model is designed to test this type of hypothesis and to
help identify the direction and magnitude of any statistically significant
effects.
[213]
Dr. Anis’s Model 3 predicts that, when there are three
simultaneous entrants in the generic market for a given molecule and
formulation, the market share of Teva will on average be 33%, or roughly
one-third. As explained by Dr. Anis,
The finding of
relevance from Model 3 was that in those instances where Teva Canada
competed in markets where 3 generics (Teva Canada, Apotex plus another generic)
entered the market at the same time and when there were 3 generics competing,
on average, Teva Canada had [generic market] share of 33%.
(Exhibit 47 at para 96
[emphasis in original])
[214]
Dr. Carbone does not construct a model to estimate Teva’s
share of the Generic Market. Instead, he applies an “even proportional rule” to
determine “the allocation between multiple generic manufacturers entering the
same market at the same time” (Exhibit 86, vol 1 at para 99). Dr. Carbone thus
assumes an even allocation of market share in the case of simultaneous entry.
His main reason for allocating the Generic Market equally is that he is not
able to access data about rebates and discounts that could, at the end of the
day, have significant impacts on a particular generic’s ability to compete.
While his approach, in general, appears to be quite arbitrary, the facts in
this trial support his conclusion.
[215]
In the hypothetical Generic Market that I have found to be
likely, Dr. Carbone’s “even proportional” assumption produces a generic market
share for Teva of 33.3%, roughly equal to Dr. Anis’s estimate of 33%. Drs. Anis
and Carbone thus generate roughly the same predictions regarding Teva’s
relative share of the Generic Market. As a result, there appears to be no issue
in dispute between these two experts.
[216]
There was considerable testimony before me about the
ability of an AG to compete in the Generic Market. However, that evidence was
anecdotal and incomplete. With respect to Teva and Apotex, there is nothing
before me that would lead me to conclude that, with simultaneous entry, either
would have a competitive advantage over the other.
[217]
In the face of the opinions of Drs. Carbone and Anis, I am
prepared to conclude that, in the “but for” world, Teva, Apotex and the AG
would have shared the Generic Market equally. In other words, I accept the
results of Dr. Carbone’s analysis.
[218]
In order to calculate Teva’s Lost Volumes, I must make the
appropriate inventory adjustment. Mr. Hamilton explained this issue in the
following terms (Exhibit 163, Schedule 5.4 at fn 3):
I understand that the
forecast information included in the [Carbone Report] has been developed based
on IMS EUTRx data, which reflects the Teva prescriptions filled by pharmacists
as opposed to Teva sales made to wholesalers and pharmacists. My analysis of
Teva’s lost profits is based on Teva’s lost sales and therefore, an adjustment
to the forecast data was required to account for the time lag between Teva
making a sale and a pharmacist filling a prescription with Teva-Ramipril
capsules. I estimated that this time lag is on average approximately 2 months
based on review of Teva’s actual sales of Teva-Ramipril subsequent to launch
compared to IMS data for the same period of time. Accordingly, my adjustment
includes an additional 2 months of capsule sales, which I have assumed to be
the first 2 months following the end of the Delay Period ending April 27, 2007
as forecasted in the [Carbone Report].
[219]
Applying Mr. Hamilton’s inventory adjustment to Dr.
Carbone’s estimate of Teva’s market share, I find that Teva would have sold
147,092,478 capsules during the Relevant Period.
[220]
I observe that the number used for Teva’s lost sales in
Schedule 5.1 of the Final Schedules to the Hamilton Reports is 147,092,476
(Exhibit 163, Tab 5 at 1)), which differs from my calculation by two pills. It
appears that the source of this difference is that some of the monthly totals
used by Mr. Hamilton in his report differ by a few pills from Dr. Carbone’s
estimates in his Appendix S. I am unaware of the reason for this difference,
but note the very small magnitude of the discrepancy and am content to use Mr.
Hamilton’s calculation. I thus arrive at the following quantification of
Teva’s share of the Generic Market during the Relevant Period:
|
|
December 2005 -
April 2007
|
Inventory
Adjustment
|
Ramipril sales in
the “but for” world
|
|
Total Ramipril
Market Size
|
611,122,083
|
|
|
|
Total Generic Market
Size
|
374,092,845
|
|
|
|
Teva Lost Sales
|
124,697,615
|
22,394,864
|
147,092,476
|
IX. Teva’s Net Lost Profits
[221] The
final step is to quantify Teva’s losses. Leaving the economists, I turn to the
experts who provided pricing and drug formulary information and to the expert
accountants who prepared the final damages calculation. In general, lost
profits on the sale of ramipril are calculated by multiplying the volume of
lost capsules by the price and deducting expenses.
[222] To a
large extent, the accounting experts agreed on many of the expenses, when one
examines the closest scenarios to the “but for” world. Those are Ms. Loomer’s
Scenario 7, which has Teva entering with Apotex and another generic for an
evaluation period of December 2005 to May 2, 2007, and Mr. Hamilton’s Scenario
5, which runs from December 13, 2005 to April 27, 2007 with Teva, Apotex
and an authorized generic entering the market on December 13, 2005.
[223] As
noted at paragraphs 11(5) and11(6) above, by the end of the trial, only the
following areas of disagreement remained:
a.
the relevance and admissibility of portions of Ms. Loomer’s
reports regarding Teva’s “lost business value” and “second ramp-up” – Sanofi
brought a motion to strike these passages and my ruling on that motion appears
in these Reasons;
b.
the pricing of Teva’s ramipril during the Relevant Period,
having regard to the provincial formularies;
c.
likely trade spend (including discounts and allowances)
that would have been paid by Teva to pharmacists to stock Teva’s ramipril;
d.
likely price of API;
e.
the reasonableness and quantification of any indirect
losses, such as the loss of sales of other products;
f.
the appropriate calculation of pre-judgment interest; and
g.
recovery for unapproved indications, specifically, the HOPE
indications.
[224] I
will consider each of these issues in turn.
A. Sanofi’s motion to
strike
[225]
Teva claims that it is entitled to compensation for any
capital losses that it suffered during the relevant period. Teva submits that
“lost business value” is a recoverable capital loss. To provide the Court with
assistance, Ms. Loomer described and quantified this alleged loss.
[226]
Sanofi objects to the inclusion of this amount in Teva’s
damages, arguing that the “lost business value” put forward by Teva is nothing
more than a thinly-veiled claim for future profits. As the jurisprudence
establishes that Teva is not entitled to any claim for losses incurred outside
the Relevant Period, Sanofi asserts that these amounts should not be allowed.
[227] During the trial, before I had heard Ms. Loomer’s testimony, Sanofi
brought a motion to strike portions of the Expert Report in Chief and
Responding Report of Ms. Suzanne C. Loomer. The impugned passages are:
1.
From the Report in Chief: those passages related to “Lost
Business Value” contained at paragraphs 230 to 310 and Appendix E and the
column labeled “Lost Business Values” in the table under paragraph 28 and in
Schedule 1 and related portions of the graph in Schedule 2 and related portions
of all appendices and schedules.
2.
From the Responding Report:
·
those passages related to “Lost Business Value”, consisting
of paragraphs 57-73 and 88-91 and Appendix E and Appendix B,
Schedules A1 and E3 and the row in the table under paragraph 76 labeled
“Lost Business Value” and the column in the table under paragraph 96 labeled
“Lost business Value” and related appendices and schedules; and
·
those passages related to “ramp-up”, consisting of
paragraphs 45-49, 77(d), 83‑85, 90 (second sentence), Schedules 2-3,
Appendix B, Schedule E5, and the row in the table under paragraph 50
titled “Duplicate Ramp-up adjustment” and all related appendices and schedules.
[228]
After hearing oral submissions from the parties, I observed
that, at that point in the trial, I had not heard Ms. Loomer
explain her evidence or, more importantly, respond to questions on
cross-examination. Nor did I have the benefit of hearing the evidence of Mr.
Hamilton or Ms. Frederick, both of whom addressed various aspects of Ms.
Loomer’s reports. Moreover, I was advised that Sanofi had already prepared and
delivered the report of Ms. Frederick in response to Ms. Loomer and that Mr.
Hamilton would be prepared to address portions of the impugned evidence,
thereby reducing prejudice to Sanofi. At that stage, I felt unable to rule on
the admissibility of the evidence and advised the parties that I would reserve
my ruling. During final argument, further submissions were made by both parties
on the issue.
[229]
For the reasons that follow, I will strike the impugned
passages and have no regard to Teva’s claim to “lost business value” or to the
“second ramp-up”.
[230] The
basis of Sanofi’s argument with respect to the impugned passages from both of
Ms. Loomer’s reports that relate to “lost business value” is that these
statements or opinions are not relevant to the pleadings and are an abuse of
process in view of: (a) the striking of the “permanent loss of market share”
claims from Teva’s counterclaim (see Sanofi-Aventis Canada
Inc v Teva Canada Ltd, 2010 FC 1210, 377 FTR 293,
aff’d 2011 FCA 149, 420 NR 115, leave to appeal to SCC
refused, [2011] SCCA No 326 [Sanofi 2010]); and (b) the
Federal Court of Appeal decision in Alendronate (FCA),
above.
[231] With
respect to the “ramp-up” passages of Ms. Loomer’s Responding Report, Sanofi
argues that these passages suffer from the same problems as the “lost business
value” passages and, in addition, they are not proper reply.
[232] In
its response to this motion, Teva argues that the impugned passages are
relevant to paragraphs 76 (h1)(ix), 143D, and 143G of its pleadings.
Moreover, Teva, recognizing the limitations imposed by decisions of the Court
in both Alendronate (FCA) and Sanofi 2010,
submits that it has carefully restricted its case to a consideration of damages
during the Relevant Period ending April 27, 2007.
[233]
As the parties are well aware, the admissibility of expert
evidence is governed by both Rule 279 of the Federal Courts Rules,
SOR/98-106 and by the common law.
[234] The Supreme Court enunciated the common law principles governing the
admissibility of expert evidence in R v Mohan, [1994] 2 S.C.R. 9 at 20,
[1994] SCJ No 36 [Mohan]. In addition to the
well-established factors of relevance, necessity to the trier of fact, the
absence of any exclusionary rule and a properly qualified expert set out in Mohan, the jurisprudence teaches that these factors must be weighed
against the counterweights of consumption of time, prejudice and confusion (see
e.g. R v J-LJ, 2000 SCC 51 at para 47, [2000] 2 S.C.R. 600). Even where
expert evidence is relevant, the trial judge may exclude it on the basis that
any probative value is overborne by its prejudicial effect. Such matters as the
efficient conduct of the trial and prejudice to the other party are certainly
relevant to an assessment of admissibility.
[235] A
second issue raised by Sanofi with respect to the portions of Ms. Loomer’s
Responding Report is that these passages are not proper reply. In Halford v
Seed Hawk Inc, 2003 FCT 141, 24 CPR (4th) 220, Justice Pelletier very
helpfully set out some guiding principles in respect of the admissibility of
reply evidence. Of key importance to this motion, Justice Pelletier identified
the requirement that the evidence sought to be admitted must be relevant to a
matter in issue.
[236] In
this motion, Sanofi does not dispute the qualifications of Ms. Loomer; nor does
Sanofi identify any exclusionary rule that might apply. Moreover, I am prepared
to accept that, if the evidence is otherwise admissible, it would assist me in
this trial.
[237]
This leaves relevance as the determinative criterion.
Relevance is a threshold requirement for any evidence. Sanofi 2010 and Alendronate (FCA), above, have delineated
boundaries on what evidence is relevant to the determination of s. 8 damages.
[238]
The scope of a claim under s. 8 of the PM (NOC)
Regulations was addressed by the Court of Appeal in Alendronate (FCA). In
that case, Apotex had pleaded that, under s. 8 of the Regulations, it
was entitled to damages in respect of “lost sales and permanent market share”
(see Alendronate (FC), above at para 118 [emphasis added]). The Court of Appeal held that s. 8 does not include damages for “future
losses”, such as decreased market share due to delayed entry into the generic
market. It is worthwhile repeating the determinative portion of the decision,
at paragraphs 99 to 102:
[99] According to the analysis of the Federal Court
Judge, the losses claimed by Apotex were caused during the period since
that is when Apotex was prevented from occupying the market and obtaining the
market share which, based on its claim, it would otherwise have had. No one
takes issue with this reasoning. The question is whether the decrease in sales
which occurs in future years as a result of this decreased market share comes
within section 8. The Federal Court Judge, by allowing the claim for losses
“beyond May 26, 2005” to proceed, answered this question in the affirmative.
[100] When regard is had to the broad grant of authority
conferred by subsection 55.2(4) of the Patent Act, it seems clear that
the measure of the compensation which can be awarded under the PM(NOC)
Regulations is a matter within the discretion of the Governor-in-Council.
It is also clear that in keeping with the purpose of the PM(NOC)
Regulations and the balance which the Patent Act seeks to achieve, a
range of compensation was open to the Governor-in-Council in the exercise of
this discretion.
[101] In this case, we have the advantage of knowing
that in 1998 the Governor-in-Council focused on this very issue, and chose to
limit the measure of the losses which can be compensated by way of damages to
those suffered during the period. No issue of principle flows from this.
The Governor-in-Council could have extended the measure of the losses to
include those caused during the period, regardless of when they are suffered.
However, it did not do that.
[102] The Governor-in-Council’s clearly expressed intent
must be given effect to. This excludes compensation for losses occurring in
future years since such losses cannot be said to have been suffered during the
period. It follows, for instance, that Apotex’s entitlement to damages for lost
sales resulting from the alleged decrease in its market share must be confined
to sales that can be shown to have been lost within the period. In order to be
compensated, the losses must be shown to have been incurred during the period.
I therefore conclude that the appeal should be allowed on this limited point.
[Emphasis in original]
[239]
Subsequent to that decision, in the context of the
litigation now before me, Sanofi was successful in a motion to strike portions
of Teva’s pleadings (see Sanofi 2010). In Sanofi 2010, above, the
Federal Court of Appeal affirmed decisions of a Prothonotary and Judge of this
Court striking paragraphs of Teva’s pleadings that claimed damages for
“permanent loss of market share”. The Court of Appeal, in its very short
decision, followed Alendronate (FCA) and affirmed the decision to strike
the impugned pleadings.
[240]
In the motion on admissibility, Sanofi objects to
consideration of both “lost business value” and “duplicate ramp-up adjustment”.
(1) Lost business value
[241]
The key to a decision on this question is the proper
characterization of the lost business value calculation carried out by Ms.
Loomer. If the losses claimed were suffered in subsequent years, although
caused during the Relevant Period, they are not recoverable.
[242]
In the impugned section of her Report in Chief, Ms. Loomer
carries out calculations to determine “Lost Business Value” for Teva as at
April 27, 2007. One example of the opinions that she expresses is seen at
paragraph 236:
Had the Alleged Actions by the Defendant
not occurred, Teva Canada’s business value as at the Valuation Date would have been
higher than it actually was if the expected future cash flows for Teva Canada at the
Valuation Date would have been higher.
[Emphasis added]
[243]
At paragraph 238, Ms. Loomer acknowledges that she has
considered “the degree to which the losses would reasonably continue after
the end of the relevant period” (emphasis added). In paragraph 238(a), she
describes “Lost Profits on Sale of Ramipril”. Both of these notions (along
with others in the impugned passages) relate to losses that are properly
described as future losses. However, throughout her reports, Ms. Loomer
carefully relates such matters to April 27, 2007. The question that I am left
with is whether there is any legitimate basis – in light of Sanofi 2010
and Alendronate (FCA) – to incorporate “lost business value” into the
calculation of damages. I conclude that there is not.
[244]
Simply stated, the calculation performed by Ms. Loomer is a
calculation of future lost profits. If she had been asked to quantify future
lost profits, I cannot see how her calculations would have been any different.
By capitalizing those lost profits to the last day of the Relevant Period, she
does not, in my view, change the proper characterization of those amounts.
[245]
Teva argues that, by using the valuation date of April 27,
2007, Teva is claiming for a loss within the Relevant Period. This argument
does not overcome the fact that the loss relates to losses that do not arise
until after April 27, 2007. The claimed losses – however named – fall squarely
within the exceptions set out in Alendronate (FCA) and are not
recoverable.
[246]
The characterization of lost business value was considered
by both Mr. Hamilton and Ms. Frederick. Ms. Frederick described the
alleged losses as “the reduction in value based on Teva’s lost future profits
from April 27, 2007 onwards in perpetuity” (Exhibit 140 at para 37). Mr. Hamilton
described Ms. Loomer’s calculations as follows (Exhibit 162 at para 141) and
concluded, therefore, that these losses should not be included in the
calculation of Teva’s losses during the Relevant Period:
[T]he Loomer Report’s estimate of lost
business value is calculated based on the present value of Teva’s estimated
future losses of Teva-Ramipril after April 27, 2007. Therefore, the Loomer
Report has included losses after the Delay Period (i.e. subsequent to
April 27, 2007) in its estimate of Teva’s losses.
[247]
I accept the characterization of both Mr. Hamilton and Ms.
Frederick. The claimed “lost business value” is a claim to future profits and
not a recoverable loss under s. 8.
[248]
I appreciate that, in this action, Teva has pleaded harm
due to “[r]eduction in the overall value of the business due to being held off
the market with respect to Teva’s generic ramipril” (Seventh Amended Statement
of Defence and Counterclaim at para 76(h1)(ix)). Sanofi did not move to strike
this statement, in spite of the fact that it successfully moved to strike other
paragraphs referring to future profits (see Sanofi 2010, above). The
fact that Sanofi did not move to strike paragraph 76(h1)(ix) does not mean that
that paragraph in the pleadings and the evidence allegedly related to it become
relevant to a s. 8 claim. The problem with Teva’s argument is that it ignores
the reality that Sanofi could have had no idea of how Teva intended to “prove”
lost business value. It is quite possible that, had Sanofi understood the scope
of this pleading, it would have moved to strike it. Until Sanofi (and this
Court) had an opportunity to review the evidence in support of this claim, the
claim was capable of many interpretations. Only upon reviewing
Ms. Loomer’s expert report in light of all the evidence on this issue was
everyone able to fully understand the meaning of this claim.
[249]
Teva also argues that Alendronate (FCA) can be
distinguished on the basis that lost business value was not pleaded in that
case. Rather, Apotex pleaded only lost sales and loss of permanent market
share, both of which clearly occurred outside the relevant period. Thus, Teva
submits, the sole ratio that can be drawn from the Court of Appeal’s
decision is that a second person cannot claim for lost future sales and loss of
permanent market share. That is exactly the problem with Teva’s evidence; it is
a claim for lost future sales or permanent market share, no matter how worded
in the pleadings. The ratio of Alendronate (FCA) is directly
applicable.
(2) Duplicate ramp-up adjustment
[250]
The second aspect of Sanofi’s motion deals with the
“Duplicate Ramp-up adjustment” that first appeared in Ms. Loomer’s Responding
Report. At paragraph 83 of her Responding Report, she describes this concept as
follows:
In both the Hamilton and Loomer
Statements, the Lost Sales of Ramipril during the Relevant Period, takes into
account a ramp-up in volumes from zero to a sustained ongoing level (Run Rate).
This same ramp-up in volumes was also experienced when Teva actually entered
the market in 2007. Had Teva generated the Lost Volumes of Ramipril, it would
not have experienced two periods of ramp-up volumes. Therefore, the duplicate
ramp-up period should be eliminated.
[251]
In general terms, as I understand it, the term “ramp-up”
refers to the period of time that it takes a drug manufacturer after initial
approval of its drug to reach its final level of sales. It takes some time to
negotiate agreements with pharmacies and distributors, to acquire formulary
listings and to physically move product to drug stores. In the “but for” world,
both Mr. Hamilton and Ms. Loomer base their analyses on a ramp-up period of
about two months beginning on December 13, 2005. In the actual world, once Teva
came to market in late April 2007, it experienced a “real world” ramp-up.
According to the calculations of Ms. Loomer, Teva took about 14 month months to
reach its sustained level of sales. Teva, supported by Ms. Loomer, argues that
this second ramp-up would not have existed had it been able to come to market
in the absence of the Regulations.
[252]
The loss claimed by Teva is the difference between what
Teva would have sold had it been fully ramped up on April 27, 2007 and what it
actually sold during the 14-month ramp-up period. Initially, Ms. Loomer
calculated this second ramp-up adjustment as $5.6 million. Based on Mr.
Hamilton’s correction, it appears that this amount, if claimable, would be
$2.067 million.
[253]
Although the value of the second or duplicate ramp-up period
may well be characterized as a loss to Teva, it is a loss occurring after the
Relevant Period. Once again, Teva comes up against the clear and unequivocal
finding in Alendronate (FCA).
(3) Conclusion on lost business value and duplicate ramp-up
[254]
As in Alendronate (FCA), both the “lost business
value” and “duplicate ramp-up period” were caused during the Relevant
Period since that is when Teva was prevented from occupying the market and
obtaining the market share which, based on its claim, it would otherwise have
had. Nevertheless, I am bound by the decision of the Court of Appeal to
conclude that Teva is not entitled to these claimed losses. It follows that the
impugned passages from Ms. Loomer’s Report and Responding Report are irrelevant
to the issue to be decided. The motion of Sanofi is allowed and the impugned
portions of Ms. Loomer’s reports are struck. As a consequence, no amounts in
respect of duplicate ramp-up period or lost business value will be awarded.
B. Pricing over the
Relevant Period
[255]
To calculate Teva’s gross losses over the Relevant Period,
both Mr. Hamilton and Ms. Loomer took Teva’s Lost Volumes and multiplied
that volume by an average weighted cost of Novo-ramipril over the Relevant
Period. The product of estimated volumes and the selling price equals the
estimated lost gross sales. The differences in their conclusions appear to
relate to the input data provided by Mr. Palmer (to Mr. Hamilton) and Ms.
Bacovsky (to Ms. Loomer).
[256]
A quantification of Teva’s Lost Volumes is set out above at
paragraph 220.
[257]
There is no disagreement that, in a multi-generic scenario
for the Relevant Period, the average price for generic ramipril would be 63% of
the brand price for the period December 13, 2005 to December 2006. In June
2006, Ontario enacted Bill 102, Transparent Drug System for Patients Act,
2nd Sess, 38th Leg, Ontario, 2006 [Bill 102]. Under this
legislation, which came into force in late 2006, the reimbursement level for a
generic could not exceed 50% of the price of the brand product.
[258]
Ms. Loomer carried out the necessary calculations in her
reports. She was instructed to assume a price of 63% of the brand price for
ALTACE during any period where Teva was in competition with other generic
manufacturers.
[259]
Ms. Loomer calculated a “weighted average price per unit”
for each strength and then multiplied the weighted average price by the total
lost volumes by strength to arrive at the lost gross revenues (see Exhibit 28,
vol 1 at para 82). Ms. Loomer concluded that, under her Scenario 7
(multi-generic, December 2005 to May 2, 2007), the weighted average gross
selling price/unit would have been $0.59 (Exhibit 29, vol 1 at Schedule 1).
[260]
Mr. Hamilton, under his Scenario 5 (multi-generic, December
13, 2005 to April 27, 2007), found a weighted average gross selling price of
$0.56.
[261]
In his Responding Statement (Exhibit 162, at para 42(a)),
Mr. Hamilton opined that Ms. Loomer’s weighted average calculations
contained two errors. Only one of those errors is relevant to Ms. Loomer’s
Scenario 7 (three generics entering simultaneously in December 2005):
Ms. Loomer
overstated the weighted average price for the time period August 1 to November
30, 2006. This resulted from an overstatement of the weight assigned to the Ontario
non-[Ontario Drug Benefit (ODB)] price as indicated in Loomer Report Schedule
B7. The weight assigned to the Ontario non-ODB price should have been reduced by 16.2% to account
for the weight assigned to the ODB price. This error results in a total
weighted average price of 116.2%, rather than 100%, for August to November
2006.
[262]
According to Mr. Hamilton, Ms. Loomer’s prices in 2006 were
higher than in 2005 due to this error, “which resulted in an increased price of
approximately $0.04 in 2006” (Exhibit 162 at para 41(c)). When the corrected
price for 2006 is plugged into the calculations, the result would be a downward
adjustment to the overall weighted average price found by Ms. Loomer.
[263]
Ms. Loomer did not provide a response to these alleged
errors. Significantly, Ms. Loomer noted that her prices were “fairly in line
with Mr. Hamilton” and that “pricing is not the culprit in terms of overall
difference”. Accordingly, subject to the discussion below with respect to Quebec pricing, I accept Mr. Hamilton’s calculations to establish
the overall weighted average price for the Relevant Period.
[264]
In oral submissions, Teva stated that there was some
dispute regarding the exact time at which Ontario’s Bill 102 took effect. In particular, Teva says that there was evidence
that no prices were reduced until early 2007. However, Teva did not base its
estimates on that position, as its own expert (Ms. Loomer) indicated that she
was asked to assume that Teva would have charged 50% of the brand price for ODB
sales after October 1, 2006, and that she understood that Ontario’s regulations
were implemented “in or around October 1, 2006” (Exhibit 28, vol 1 at para
72(d), fn 18).
[265]
With respect to pricing in Quebec, Mr. Hamilton explained
that Ms. Loomer assumed that Quebec pricing changed to 50% after April 2007, whereas he assumed that the
change occurred on April 1, 2007. Mr. Hamilton noted that, because the
accounting ends on April 27, there is only a one month difference.
[266]
While Mr. Hamilton’s opinion finds some support in Mr.
Palmer’s report, it is unlikely that the price for Teva’s ramipril product in Quebec would have been reduced prior to the end of the Relevant
Period. In his report, Mr. Palmer explained that Quebec’s guaranteed selling price (BAP-15) policy meant that price changes
cannot normally be implemented until the next update of the province’s Liste de
Médicaments. According to Mr. Palmer, the next update after the implementation
of Ontario’s Bill 102 in October 2006
was not until April 2007 (Exhibit 62, vol 1 at para 90). However, Mr. Palmer
also confusingly reported that Quebec did not change its pricing policy in response to Ontario’s legislation until June 2007 (Exhibit 62, vol 1 at para 90). In
addition, he testified that it took “a couple years” for Quebec prices to be
brought in line with Ontario pricing, and that transitional measures were in place during that period.
While Mr. Palmer testified that “there was some discussion about [Quebec] being reimbursed” for the higher prices charged during
the transition period, he had no first hand knowledge of that.
[267] On the whole, Mr. Palmer’s evidence suggests that it is more likely than
not that Quebec’s prices did not change
until after the Relevant Period, as the operation of BAP-15 clearly meant that
there would be some time lag, and Mr. Palmer himself stated that it took two
years for prices to conform. Mr. Palmer’s suggestion that the excess pricing
may have been reimbursed at a later date is not supported by an adequate
evidentiary basis.
[268]
Overall, I am left with a somewhat confused record on this
important consideration. However, it appears that Mr. Palmer’s results should
have taken a higher price into account for Quebec for a portion of the Relevant Period. It follows that Mr. Hamilton’s
overall weighted average price of $0.56/unit would need to be adjusted upwards
to take this into account. Because of the other minor problems with Ms.
Loomer’s calculations, the increase should be applied to the analysis and
calculations provided by Mr. Hamilton.
C. Trade spend
[269]
The parties are in disagreement as to the appropriate level
of “trade spend” that must be deducted from Teva’s profits as an expense.
During this trial, I heard much evidence related to what is referred to as
“trade spend”. Trade spend encompasses allowances provided to pharmacists and
the distribution allowance paid to wholesalers. For purposes of this part of
the decision, I have not addressed the items described as “free goods” and
prompt payment discounts; there appears to be no dispute as to the valuation of
those amounts.
[270]
The calculation of Teva’s damages must take into account
trade spend that would have been paid during the Relevant Period. The higher
the trade spend, the lower the profit that Teva would have earned and the lower
the award of damages. Each of Mr. Hamilton and Ms. Loomer was asked to
incorporate trade spend into their calculations of damages on the basis that
Teva would have been a sole generic manufacturer of ramipril and on the basis
that there would have been other competitors in the market during the Relevant
Period. Since I have concluded that Teva would have faced competition in the
hypothetical market, I can ignore the sole generic calculations by each expert
and focus on the level of trade spend for a multi-source market.
[271]
One point that is not in dispute is that a manufacturer’s
trade spend is much higher when it is selling a product into a multi-generic
market. The reason is simple; in a multi-generic market, a company faces stiff
competition to convince pharmacies and wholesalers to stock its version of a
generic product.
[272]
Ms. Loomer, in her Report, (see Exhibit 28, vol 1 at para
88ff) described her method to calculating an appropriate level of trade spend.
Very helpfully, she provides a general description of trade spend as follows:
89. Tradespend, generally, is an allowance off of the
formulary price that is given to pharmacies and wholesalers. The amount of
Tradespend will vary by Customer. Various factors are considered by Teva in
determining how much Tradespend to offer to a Customer, [Redacted].
90. These discounts generally fall into a number of
categories, but are referred to collectively herein as “Tradespend”. [Redacted]
[273]
Ms. Loomer examined a number of Teva documents showing
total trade spend that Teva had paid during the period 2002 to 2010 on all of
its products and based her opinions on these figures. Her approach (described
in Exhibit 28, vol 1 at para 98) for a multi-source market can be summarized as
follows:
1.
Multiply the Lost Gross Sales of Ramipril by the [Redacted]
prompt payment discount and then multiply this by the Take-up Rate for all
of Teva’s products for the corresponding fiscal year.
2.
Multiply the Lost Gross Sales of Ramipril in each date
increment by the [Redacted] Distribution Allowance and then multiply
this by the proportion of total sales that Teva made to wholesalers for all of
Teva’s products for the corresponding fiscal year.
3.
Multiply the Lost Gross Sales of Ramipril by the trade
spend rate for all other discounts where the trade spend rate is reflective of
average rates charged for non‑Single-Source products.
4.
As reflected in Schedule B23 to her Report, the trade spend
for the years included in the Relevant Period was: [Redacted] in 2005; [Redacted]
in 2006 and [Redacted] in 2007.
[274]
Mr. Hamilton was asked to assume a trade spend rate of [Redacted]
of sales for a sole generic and [Redacted] in a multi-generic market
(Exhibit 161, vol 1 at para 51). Mr. Hamilton assessed the reasonableness of
these assumptions against Teva’s actual trade spend for all products for the
years 2003 to 2007 (Exhibit 161, vol 1 at para 52), which he found to be [Redacted].
He also reviewed the Loomer Report. In Mr. Hamilton’s opinion Teva’s actual
trade spend percentage relating to its ramipril sales between 1999 and July 31,
2008 was equal to [Redacted]. Based on his review, Mr. Hamilton
concluded that [Redacted] in a competitive environment was reasonable.
This rate is higher than those shown by Ms. Loomer for the relevant years.
[275]
I question the inclusion by Mr. Hamilton of the later years
in his reasonableness assessment of trade spend. Mr. Fishman, Dr. Sherman, Ms.
Decelles and Mr. Doug Sommerville, who is Teva’s vice president of marketing
and sales, all testified that trade spend rates have increased over the past
few years. Given this evidence, the inclusion of data beyond 2007 may skew the
level of trade spend higher.
[276]
I conclude that a level of [Redacted] for the entire
Relevant Period is a reasonable approximation of the trade spend that would
have been paid.
D. Price of the active
pharmaceutical ingredient
[277]
The calculation of Teva’s damages must take into account
the cost of materials used to produce Novo-ramipril in the Relevant Period.
Stated simply, the higher the cost of materials, the lower the profit that Teva
would have earned, and the lower the award of damages. One area of disagreement
between Mr. Hamilton and Ms. Loomer was the cost at which Teva could have
acquired ramipril API during the Relevant Period. Mr. Hamilton explained
his API pricing assumption as follows (Exhibit 161, vol 1 at para 72):
I have assumed that
the weighted average price paid by Teva for ramipril [API] in 2006 and 2007 is
representative of the price Teva would have paid for ramipril in the years 2003
to 2007. I applied the average US$/CDN$ exchange rate for each respective year
to this weighted average price in estimating the cost of ramipril in each year
as the ramipril invoices were denominated in US dollars.
[278]
In paragraph 78 of his report (Exhibit 161, vol 1), Mr.
Hamilton stated that, for Teva’s weighted cost of ramipril for 2006 and 2007,
he used a cost of [Redacted]. Mr. Hamilton also acknowledged that, if he
had used an API cost of [Redacted], there would need to be a reduction
in incremental cost of sales (and, hence, an increase in lost incremental profits)
of [Redacted].
[279]
Ms. Loomer provided two API prices: [Redacted] if
Teva were sole source and [Redacted] for multi-source scenarios (Exhibit
28, vol 1 at para 138(c)):
[Redacted]
During
cross-examination, Ms. Loomer acknowledged that she did not make any
independent investigations into the market for ramipril API during the Relevant
Period.
[280]
Teva submits that Mr. Hamilton arbitrarily selected
purchases in 2006 and 2007, thus inflating the price for API. Teva points out
that the inclusion of 2007 and 2008 – as was done by Ms. Loomer – results in a
lower API average price.
[281]
I do not find Mr. Hamilton’s use of 2006 and 2007 to be
“arbitrary”. In the 2006 to 2007 period, Teva was competing with other generics
in a multi-source market, as it would have been in the “but for” market. The
price drop in late 2007 appears to have been related to global expansion of
ramipril sales, including the entry of generics into the US ramipril market [Redacted]. That is an event that
would not have occurred in our “but for” world. Hence it was reasonable of Mr.
Hamilton to base his estimate of API cost on the real world experience of Teva
in 2006 and 2007, as that period more closely resembles the competitive
landscape in the “but for” world.
[282]
I prefer Mr. Hamilton’s approach to the pricing of API and
accept his estimated cost of [Redacted] throughout the Relevant Period.
E. Indirect
losses
[283]
Teva claims that it is entitled to recover for certain
indirect losses. In particular, Teva argues that it should be permitted to
recover for lost profits on sales of other Teva products that it could have
made and for lost return on equity. Ms. Loomer included both of these amounts
in her calculations.
(1) Lost profit on sales of other Teva products
[284]
The lost profits on sales of other Teva products was
described by Mr. Sommerville in his testimony. As Mr. Sommerville stated, being
first in the market allows Teva to leverage additional business and additional
profitability. I have no reason to doubt that he is right; there is a strong
element of common sense to his assertion. However, assuming that he is correct
and that the amount could in some way be quantified, the problem is that, in
the “but for” world that I have constructed, Teva is not first to market.
Accordingly, on the evidence before me, I have no support for Ms. Loomer’s loss
under this head of damages.
[285]
Although Ms. Loomer includes an amount for this alleged
loss, her Report describes this loss only in the context of a single source
market for Teva’ ramipril. She does not explain how this loss would or could
arise in the multi-generic world.
[286]
Even if I were to accept a hypothetical world where Teva
was alone on the market, I have nothing beyond the vague statements of Mr.
Sommerville about Teva’s ability to leverage additional business in the
marketplace. Before I award damages in the millions of dollars, I would want to
see something more concrete and measurable.
[287]
The claim for lost profits on sales of other Teva products
is disallowed.
(2) Lost indirect profit
[288]
In her Responding Report, Ms. Loomer describes “lost
indirect profit” as follows (Exhibit 29, vol 1 at para 51):
If the Court finds
that Teva would have entered the market and begun selling ramipril during the
Relevant Period, but for the Alleged Actions of the Defendant, then Teva has
been denied the ability to use and reinvest the profits that would otherwise
have been available to it over the Relevant Period, and up to the date of
trial.
[289]
Both Mr. Dan Youtoff and Mr. Fishman testified that revenue
from the sale of Novo‑ramipril during the Relevant Period would have been
put towards building more value into Teva, for example, through investing in
research and development and litigation.
[290]
I agree with Sanofi that this head of damages is
unrecoverable for the reason that the alleged losses are speculative and too
remote.
[291] As stated by Sanofi:
The head of damages is analogous to a lost opportunity to
enjoy the increased value of a failed second real estate transaction in Kienzle
v. Stringer [(1981), 35 OR (2d) 85 at paras 19-24 (CA)]. In that
case, the plaintiff sued the defendant lawyer for negligently certifying that
the plaintiff had a good title on the first property. The plaintiff purchased
a second property conditional upon his being able to sell the first property.
Due to the title defect, the plaintiff could not complete the sale of the first
property and the purchase of the second. The plaintiff claimed damages for the
lost profit on the increased value of the second property. The Ontario Court
of Appeal rejected the claim, finding that such loss is too remote.
[292] In
addition, there is simply no evidence on the record, beyond the bare assertions
of Mr. Fishman and Mr. Youtoff, that Teva would have made such
investments. The claim is too vague and unsubstantiated to be allowable on the
facts of this case. In his Responding Report, Mr. Hamilton commented (Exhibit
162 at para 130) that:
Teva did not identify or produce any supporting
documentation related to the specific business opportunities that Teva was not
able to undertake over the Relevant Period due to the lost profits on the sale
of Teva-Ramipril and other products.
[293] Finally,
on this point, pre-judgment interest is the accepted method for compensating
for this loss. As pointed out by the Supreme Court of Canada in VK Mason
Construction Ltd v Bank of Nova Scotia, [1985] 1 S.C.R. 271 at 286, [1985] SCJ
No 12, “[i]nterest is the court’s way of compensating . . . for the loss of
the opportunity to invest that money” (see also Seaboard Life Insurance Co v
Bank of Montreal, 2002 BCCA 192 at paras 89-91, 166 BCAC 64). Unless a
plaintiff provides clear and non-speculative evidence of a lost opportunity
that would exceed the interest otherwise payable on the lost sales, it appears
to me that interest is the only remedy available to the plaintiff.
[294]
In sum, the claim for lost indirect profits is not allowed.
F. Pre-judgment interest
[295] While
both parties agree that Teva is entitled to pre-judgment interest, they
disagree on the methodology for calculating the interest. Teva submits that
pre-judgment interest should be calculated in accordance with the method
utilized by Ms. Loomer, both as to time and rate.
[296] Ms.
Loomer only calculated interest from the end of the Relevant Period, explaining
as follows:
Q. Next is lost indirect profit and pre-judgment
interest, can you tell us about that?
A. In my report I calculate two components to this.
I calculate lost [indirect] profit during the relevant period and then I
calculate pre-judgment interest on the loss from the end of the relevant period
up to today.
Mr. Hamilton equates
lost indirect profit to pre judgment interest throughout the relevant period
and up to, I think, it was August 2011 was his cut off.
[297] As
set out above (see para 294), I have disallowed Teva’s claim for lost indirect
profit, on the basis that pre-judgment interest is intended to compensate Teva
for its lost indirect profits (as described by Ms. Loomer). Accordingly, it is
appropriate to include pre-judgment interest to Teva from the commencement of
the Relevant Period up to the date of judgment.
[298] Ms.
Loomer calculated pre-judgment interest at a single fixed rate equal to the
rate in effect on May 1, 2007 under Ontario’s Courts of Justice Act, RSO
1990, c C43 [Courts of Justice Act].
[299] Mr.
Hamilton calculated pre-judgment interest from December 13, 2005. However, Sanofi
instructed Mr. Hamilton to calculate pre-judgment interest “based on the
Ontario Courts of Justice Act quarterly rates in effect from the date
Teva alleges its losses first began to August 31, 2011 on a simple basis”
(Exhibit 161, vol 1 at para 125). In other words, Mr. Hamilton’s
calculation of the rate of interest varied from quarter to quarter. Mr.
Hamilton acknowledged that, typically, “what one does is select the rate in
which the cause of action arose and apply that throughout the period”. That is
the preferred approach.
[300] I
conclude that pre-judgment interest should be calculated from December 13, 2005
at the rate in effect under the Courts of Justice Act at that date.
G. HOPE indications
[301]
Sanofi submits that the “loss” referred to in s. 8 of the PM
(NOC) Regulations does not contemplate recovery by a second person for
sales attributable to an unapproved indication or use. Thus, Sanofi argues, the
damages awarded to Teva should include a “downward significant adjustment” to
reflect sales of Novo-ramipril that would have been attributable to the HOPE
indications.
[302]
One of the last steps in a drug approval process is the
finalization of the product monograph. The product monograph, in part, sets out
the uses or indications for which the drug is intended. The NOC issues with
reference to the product monograph. From time to time, negotiations take place
between Health Canada and
a generic manufacturer as to what the approved indications will be. We know
that Teva amended its proposed product monograph in August 2005 to eliminate
what are known as the HOPE indications. Mr. Windross spoke to a product
monograph for Novo-ramipril revised on August 26, 2005, and agreed that at that
time, Teva decided that it would make allegations and would not seek approval
for the HOPE indications. In our hypothetical world, it is likely that Teva’s
final product monograph, as of December 13, 2005, would not have included
reference to anything other than hypertension. In other words, as of December
13, 2005, Teva would likely have launched its Novo-ramipril with no reference
to the use of ramipril to treat proteinuaria ('948 Patent) or the HOPE indications ('549
and '387 Patents). As we know,
Sanofi had listed these patents on the Patent Register.
[303]
Sanofi, in its pleadings, claims that Teva is not entitled
to damages because “Teva’s ramipril product is only approved for the treatment
of hypertension” (Fifth Amended Reply and Defence to Counterclaim of
Sanofi-Aventis Canada Inc. and Sanofi-Aventis Deutschland GmbH at paras 62,
76). In its reply, Teva admits that allegation (Teva’s Third Amended Reply to
Defences to Counterclaim at para 3).
[304]
By Order dated November 25, 2011, this Court dismissed an
appeal from an Order of Prothonotary Aalto, in which decision he had denied a
motion by Sanofi to amend its pleadings to include specific reference to the
HOPE indications. In the reasons for the Order, I stated that Sanofi was not
precluded from presenting its legal argument that s. 8 does not contemplate
recovery of damages in respect of lost sales of a generic product for an
unapproved indication.
[305]
From the evidence presented and the arguments before me in
this trial, it is clear that the factual context of Sanofi’s argument is
specifically the HOPE indications.
[306]
Three clinicians were put forward as experts. Drs. Lin,
Clark and Brophy provided great assistance in understanding the HOPE
indications, drugs useful in the treatment and prevention of cardiovascular
events and the prescribing practices of physicians.
[307]
As described by the experts and witnesses, the HOPE study
was a Canadian-led study, apparently undertaken with the involvement of
Sanofi’s predecessor company, Hoechst Marion Roussell Canada Inc. The study
assessed the role of ramipril in patients who were at high risk for
cardiovascular events but who did not have left ventricular dysfunction or
heart failure (Exhibit 153 at Tab 4: The Heart Outcomes Prevention
Evaluation Study Investigators, “Effects of an Angiotensin-Converting-Enzyme
Inhibitor, Ramipril, on Cardiovascular Events in High-Risk Patients” (January
20, 2000) 342:3 NEJM 145 at 145 [NEJM]). The investigators found that ramipril
was “beneficial in a broad range of patients without evidence of left
ventricular systolic dysfunction or heart failure who are at high risk for
cardiovascular events” (NEJM, above at 150). In particular, the investigators
reported that “[t]reatment with ramipril reduced the rates of death, myocardial
infarction, stroke, coronary revascularization, cardiac arrest, and heart
failure as well as the risk of complications related to diabetes and of
diabetes itself” (NEJM, above at 150). Thus, the term “HOPE indications” has
come to be associated with the patient profiles from the HOPE study where vascular
protection was demonstrated.
[308]
The results of the HOPE study were first presented in
August 1999 at the European Society of Cardiology meeting in Barcelona, and later reported in the January 20,
2000 edition of the New England Journal of Medicine (Exhibit 153 at fn 4 and
Tab 4). From that point, Mr. Gravel testified, sales of ALTACE increased
quite dramatically.
[309]
As shown in the table at paragraph 31 of these Reasons,
Sanofi did protect any claim to the use of ALTACE for the HOPE indications
until 2005, when the two HOPE Patents were granted and Sanofi obtained two
listings on the Patent Register. By that time, the rate of increase of sales of
ALTACE had reverted to its pre-HOPE levels.
[310]
While the parties disputed the points at which the HOPE
study impacted ramipril sales, it is more likely than not that some sales of
ramipril during the Relevant Period would have related to the HOPE indications.
The question is whether Teva can recover for those sales.
[311]
Sanofi submits that Teva is not entitled to recover in
respect of ramipril sales during the Relevant Period that would have been made
to address the HOPE indications. This, Sanofi says, is because Teva did not
address the HOPE Patents, having instead chosen to withdraw those indications
from its product monograph in August 2005 and to withdraw the portions of its
notice of allegation relating to the HOPE Patents on December 15, 2006. Thus,
Sanofi argues, Teva would have had no entitlement to make sales of
Novo-ramipril for the HOPE indications during the Relevant Period and therefore
cannot now claim a loss attributable to those sales.
[312]
While Sanofi’s argument has logical appeal, it is not
supported by the facts or – in my view – the law, which demonstrate that sales
of generic drugs for unapproved or “off-label” indications can and do, legally,
take place. There are a number of arguments that run counter to Sanofi’s
submission:
·
the fact that generic manufacturers do not promote drug
products for specific indications;
·
the fact that off-label prescribing and substitution take
place;
·
the fact that, in the real world, Sanofi did not oppose the
listing of Novo-ramipril as fully interchangeable with ALTACE; and
·
the availability to Sanofi of an action for patent
infringement with respect to the HOPE Patents.
I will discuss each of
these.
[313]
First, I observe that generic products are not promoted for
specific uses, but are instead sold as drug products. Teva’s position is
supported by the testimony of Dr. Sherman, who stated that removing the HOPE
indications from Apotex’s product monograph “really had no relevance because we
don’t promote for an indication in any event”. Dr. Sherman explained that
Apotex does not promote products to physicians, so the indications in its
monograph have no commercial relevance.
[314]
Second, both Dr. Lin and Dr. Clark testified that they
engage in “off-label” prescribing, or the prescription of a product for a use
that is not set out in a product monograph. Indeed, Dr. Lin testified that
general practitioners commonly prescribe products for non-approved indications
based on medical literature, continuing medical education seminars, and the
opinion of experts. Dr. Clark similarly reported that nephrologists rarely read
product monographs, which “may be somewhat biased”, and instead know of
indications from the literature. According to Dr. Lin, “off-label”
prescribing is an accepted practice (Exhibit 153 at paras 46‑48).
There appears to be nothing “illegal” about off-label prescribing.
[315]
With specific reference to ramipril, Dr. Lin reported that
general practitioners generally assume that generic ramipril products are
therapeutically equivalent to ALTACE in every respect, and therefore that
generic ramipril products can be used for the same uses as ALTACE. It is also
significant that Dr. Lin testified that he does not write “no substitutions” on
ALTACE prescriptions, because he believes pharmacists will dispense a generic
version anyway.
[316]
On the other hand, Dr. Brophy stated that he would
prescribe ALTACE, rather than a generic, for the HOPE indications because the
indication for the generic is the treatment of hypertension. Moreover, Dr.
Brophy stated that, where he works, most pharmacists dispense ALTACE if the
prescription says “ALTACE”, and “occasionally you actually do write no substitution”.
[317]
Dr. Brophy’s testimony seems to be at odds with the other
evidence before me. It seems that a significant number of physicians would have
prescribed generic ramipril for the HOPE indications during the Relevant
Period, even if those indications were not included in the generic’s product
monograph. While I did not hear evidence from any front-line pharmacist, I am
prepared to accept that the more usual practice would be for the pharmacist to
substitute, even where ALTACE is written on the prescription. As Dr. Lin
pointed out, this result would have likely occurred in any event as a result of
mandatory generic substitution.
[318]
While Sanofi argues that it would have opposed the listing
of Teva’s ramipril product as fully interchangeable with ALTACE, that
submission is not supported by the evidence of Sanofi’s actions in the real
world. Specifically, I have no evidence that, at the time when Novo‑ramipril
was actually launched in 2007, Sanofi opposed the listing of Teva’s ramipril
product as fully interchangeable. It is also telling that Sanofi did not
require its AG to obtain a limited listing for its product.
[319]
It is, therefore, more likely than not that Teva would have
been able to make sales for the HOPE indications during the Relevant Period,
without objection. It follows that any sales made during the Relevant Period
which were solely related to the HOPE indications are still lost sales that
Teva would have made in the absence of Sanofi’s prohibition order, and losses
for which Teva is entitled to recover under s. 8.
[320]
Contrary to Sanofi’s assertions, this does not lead to an
“absurd” or “unintended” result by allowing a second person to circumvent the Regulations,
which Sanofi says seek to preclude the infringement of listed patents. This is
because, as Teva points out, generic products are not promoted for specific
uses but rather sold as drug products, and the HOPE Patents are not at issue in
this proceeding. If Sanofi believes that Teva is infringing or inducing
infringement of the HOPE Patents, then Sanofi has a cause of action under the Patent
Act. In that regard, I note that, since Teva and other generics began
selling generic ramipril, Sanofi – who is no stranger to litigation – has not
brought an action against any of the manufacturers for infringement of the HOPE
Patents.
[321]
Even if Sanofi is correct, and s. 8 prevents a second
person from recovering for sales for an unapproved use, there is insufficient
evidence to merit a reduction of Teva’s damages on the facts of this case. Teva
rightly points out that it would be impossible to determine how many patients
were prescribed ramipril solely for the HOPE indications without access to
confidential patient records. This contention is supported by the testimony of
Dr. Lin and Dr. Brophy, who both stated that it would be very difficult to
accurately distinguish between patients taking ramipril for HOPE indications,
hypertension, ventricular dysfunction, or some combination without accessing
their confidential records.
[322] I conclude, therefore, that Teva is not precluded from recovering losses
associated with the HOPE indications. That is not to say that a second person
may always recover for unapproved indications. Another s. 8 claim may
provide a different set of facts that warrants a different finding or a
downward adjustment to the second person’s damages pursuant to s. 8(5) of the Regulations.
But, not in this case.
X. Conclusion
[323]
In concluding, I would like to make a general comment. As
noted at the beginning of these Reasons, right after the trial of this matter,
I heard a companion case in Court File No. T‑1357‑09. There are
obviously many similarities between the two cases. However, each case proceeded
separately, with a different record. I wish to assure the parties and the
readers that my decision in each case was made completely on the basis of the
arguments made and the records before me in the applicable case.
[324]
Having addressed all of the issues before me, I am quite
disappointed that I cannot finalize a quantum of damages. However, I am hopeful
that Sanofi and Teva, with the capable assistance of their lawyers and experts,
can quickly agree on a final amount to be paid by Sanofi to Teva based on these
Reasons for Judgment. Indeed, during the trial, counsel for both parties
repeatedly reassured me of their willingness to co-operate in this regard.
[325]
In summary, the key findings that I have made, on the basis
of the record before me, are as follows:
1.
The Relevant Period for the determination of Teva’s Lost
Profits commences on December 13, 2005 and ends on April 27, 2007.
2.
The Ramipril Market during the Relevant Period would have
been 611,122,083 capsules.
3.
The Generic Market during the Relevant Period would have
been 374,092,845 capsules.
4.
Teva would have entered the market simultaneously with an
authorized generic and Apotex, with each participant sharing the Generic Market
equally. As a result, Teva’s Lost Volumes would have been 147,092,478 capsules.
5.
With respect to the calculation of Teva’s Net Lost Profits:
·
evidence of lost business value and duplicate ramp-up
period is excluded;
·
other than an adjustment to account for pricing in the province of Quebec (as
discussed above), Mr. Hamilton’s overall weighted average price of $0.56/unit
should be applied;
·
the deduction for trade spend should be calculated as [Redacted]
for the entire Relevant Period;
·
a price of [Redacted] for API should be applied;
·
no amount should be allowed for lost profits on sales of
other products;
·
no adjustment should be made for lost indirect profits; and
·
no adjustment should be made in respect of unapproved
indications.
6.
Pre-judgment interest should be calculated from December
13, 2005 at the rate in effect under the Courts of Justice Act as at
that date.
[326] In
addition, there is the question of costs. I would hope that the parties can
agree on costs. In the event that the parties cannot agree on the amount of
costs by June 15, 2012, they may make submissions to this Court, such
submissions not to exceed ten pages. The parties will have a further 15 days to
make reply submissions, if they choose, not to exceed five pages.
[327]
I wish to express my gratitude to counsel for their
diligence, competence and professionalism throughout the pre-trial matters and
the trial. Thank you.
POSTSCRIPT
[1]
The Confidential Reasons for Judgment were released to the
parties on May 11, 2012. Upon release of the Confidential Reasons, the parties
were requested to advise the Court of portions of the Reasons and Judgment that
they wished redacted for the Public Reasons. This version of the reasons
contains redactions of small portions of the Confidential Reasons for Judgment.
[2]
In general terms, Court proceedings should be open and
accessible. This general principle obviously applies to any reasons for
judgment and judgments issued by this Court. I accept that an exception may be
made where risks to a party of the release of sensitive commercial information
outweigh any public interest in having access to that information. However, it
is important that the redacted reasons permit the reader to understand the
context and, thus, the reasoning of the Court.
[3]
Sanofi was reasonable in its request; I have accepted that
all of the suggested redactions will be incorporated into the Public Reasons.
[4]
Teva seeks much more extensive redactions, stating only
that it wishes “to maintain the confidentiality of its information, all of
which was protected under the Protective Order [dated October 21, 2010]”. I
note first that the Protective Order was never intended to provide a cloak of
silence forever. Teva does not attempt to explain why certain information
remains commercially sensitive or prejudicial.
[5]
Nevertheless, I have reviewed each of the redactions
proposed by Teva. For each proposed redactions that I am prepared to allow, I am
satisfied that the risks to a party of the release of the sensitive commercial
information outweigh any public interest in having access to that information.
The accepted redactions include evidence with respect to matters such as levels
of trade spend or the pricing of API. Even with the redactions, I believe that
a reader is able to understand the nature of the evidence and the reasoning
applied to reach the relevant finding. The proposed redactions that I have
rejected consist of information that is historic or general in nature or that
is integral to my reasoning. In any event, I am not persuaded that the
disclosure of any of the information would result in prejudice to Teva that is
not outweighed by the public interest in having those portions of the Reasons
and Judgment in the public domain.
“Judith A. Snider”
Ottawa, Ontario
Public
Reasons – May 23, 2012
Confidential Reasons -
May 11, 2012
Email this Content