Wednesday, April 9, 2014

A Predictable and Consistent Framework for the Assessment of S 8 Damages

Teva Canada Ltd v Pfizer Canada Inc 2014 FC 248 Zinn J
            1,248,540 / 2,199,778 / venlafaxine / EFFEXOR XR

While it is still early days for s 8 damages claims, the Teva Venlafaxine s 8 decision turned largely on factual issues, rather than on novel questions of law. This relative clarity in the law seems to be because the courts have adopted a but-for approach to determination of the loss which is consistent with the general damages principles, rather than creating a new jurisprudence specific to s 8. Consistently with this observation, the most contentious legal issues have related to the start and end date for the compensable period, which are governed directly by the statute, and with respect to double ramp-up, which turns on a statutorily based exception to the general principles of causation. Additionally, Zinn J’s holding on the date from which interest runs raised an interesting point of law relating to s 8 damages generally. With respect to the factual issues, Zinn J expressed a general preference for the so-called “analogue approach” to constructing the but-for world, not as a matter of principle, but because he felt that it will often be more closely tailored to the specifics of the product in question. If this view is shared more broadly in the FC, it will bring further predictability to the assessment of s 8 damages.

In Teva s8 venlafaxine, Zinn J summarized the general framework for assessing damages under s 8 of the PM(NOC) Regulations as follows [27]:

1. Determine the period of liability [the Relevant Period];

2. Determine the overall size of the market for the relevant pharmaceutical [the Relevant Pharmaceutical Market] during the Relevant Period;

3. Determine the portion of the Relevant Pharmaceutical Market 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 the plaintiff [the Plaintiff’s Lost Volume]; and

5. Quantify the damages that would have been suffered by the plaintiff in respect of the Plaintiff’s Lost Volume [the Plaintiff’s Net Lost Profit].

Yesterday’s post discussed the first issue. This post discusses the remaining issues. Recall that, as mentioned in yesterday’s post, Pfizer is the corporate successor to Wyeth, and in 2010, Novopharm changed its name to Teva, and Teva and Ratiopharm then amalgamated. Because the events in issue took place in the 2005 to 2007 period, Zinn J referred to the relevant pharmaceutical companies as Ratiopharm, Novopharm and Wyeth [3].

The Relevant Pharmaceutical Market: What is the size of the overall Venlafaxine Market?
The main issue relating to the size of the overall venlafaxine market was the factual question of whether Wyeth’s withdrawal of promotional efforts on generic entry would have resulted in a drop in demand.

Teva’s expert, Dr Hollis, used an “analogue approach” to answering this question. In effect, he started with the presumption that sales in the but-for world would have been the same as sales in the real world when the generic did actually enter, and then he asked whether there was any reason to believe that the but-for world would have been different [67]. Pfizer’s expert, Dr Tepperman, used a regression analysis [71].

One point of general interest is that “Both experts agreed that where there is a good analogue, that approach is preferred over a regression analysis” [80], and Zinn J accepted this, saying:

[80] In my view, Dr. Hollis’ analogue approach is an adequate and appropriate model for three reasons. First, it accounts for any trends that might be unique to Venlafaxine. Second, the difference in the actual time period between the real world and the but-for world is relatively insignificant as generic entry in the real world occurred on December 1, 2006 and on January 10, 2006, in the but-for world. Third, the market dynamics in the real world closely mirror those in the but-for world. Moreover, I agree with the observation of Justice Phelan in Pantoprazole FC 2013 at para 21 that quantification of damages in the but-for world should be grounded in the experience of the real world, and using an analogue approach where an adequate analogue is available is consistent with that approach.

This clearly indicates that an analogue approach is generally preferable. Note, however, that if there were a longer time between entry in the real world and in the but-for world, the analogue approach would be less appealing.

In the result Zinn J preferred Dr Hollis’ approach. While Zinn J did not say that a regression analysis can never be useful, he did reject Dr. Tepperman’s analysis because of problem with the specific analysis [79].

The Generic Market: What is the size of the Generic Venlafaxine Market?
Again, this was largely a factual issue. The experts both used the same “analogue approach” [82-83], which uses the actual sales as the basis for sales in the but-for world. The main adjustment related to the date of formulary listing [85].

Plaintiff’s Lost Volume: What is Ratiopharm’s Market Share?

            (a) Other Generic Entry
The analogue approach was also used in assessing Ratiopharm’s share of the generic market, but here a tricky adjustment had to be made because of the possibility of entry by other generics. In particular, Wyeth argued that Novopharm and Pharmascience would also have entered. Zinn J held that the burden of establishing entry by the other generics rests on Wyeth [91].

As discussed here, in Apotex s8 ramipril FCA 2014 FCA 68, the FCA held that in the hypothetical world, as the Regulatory barrier to entry which face generics in the real world, including the NOC Regulations, also affect all generics in the but-for world, with the proviso that the claimant generic would have been able to enter as of the start date of the compensable period. I called this the “minimalist approach,” as it assumes the smallest possible deviation from the real world. This means that in assessing whether other generics would entered, we must consider whether they would they have legally been able to enter, as well as whether they would have been motivated and had the manufacturing capacity to do so.

The answer to the first question was relatively straightforward with respect to Novopharm, which had entered into an authorized generic agreement with Wyeth which allowed Novopharm to obtain an NOC and seek formulary listing as soon as a second generic receives an NOC [95]. Thus there were no regulatory hurdles to Novopharm entering as soon after Ratiopharm as it was able. Novopharm’s manufacturing capacity was the real issue. There was evidence that Teva Israel, Novopharm’s supplier of venlafaxine, had serious manufacturing difficulties. While there was some suggestion that Novopharm could have entered sooner than it actually did had there been more urgency, in the end Zinn J concluded on the facts that because of the manufacturing problems, it would have entered in the but-for world on the same date as it did in the real world, namely December 1, 2006 [129].

With to respect to Pharmascience, Zinn J held that any generic other than the s 8 claimant must comply with the NOC Regulations even in the but-for world [130]. This is consistent with the FCA’s holding in Apotex s8 ramipril FCA. In view of this, they key question on the facts was whether Pharmascience would even have served an NOA. Zinn J concluded that it would not have done so, essentially because Pharmascience’s strategy was to time its launch to coincide with a positive decision regarding the 778 patent in favour of Ratiopharm, and consequently, it would not have been ready to launch earlier than it actually did [139]. Therefore it would not have served an NOA near the start date of the compensable period in the but-for world, because it would not have been able to launch even if successful.

Consequently Zinn J held that Pharmascience would not have entered the generic market during the Relevant Period [142]. The only two generics would have been Ratiopharm, entering on January 10, 2006, and Novopharm, entering on December 1, 2006 [143].

            (b) Ratiopharm’s Capacity
The next question was whether Ratiopharm would have had the capacity to supply the market. Zinn J held that “the burden of establishing that it could have come to market during the Relevant Period rests with Ratiopharm” [144], and more specifically

[148] To do so, it must both identify an API supplier (since it is the plaintiff generic), and it must show that the API supplier had the capacity to supply the market over the Relevant Period.

On the facts, Zinn J held Ratiopharm had discharged that burden [159].

(c) Formulary Listing
Then the question was when the competing generics would have been listed on the provincial formularies. This was entirely a question of fact [160]-[185]. There are two general points which may be made. First, the formulary analysis illustrates that the s 8 analysis is very fact specific. For example, the precise formulary updating schedule in the different provinces had to be taken into account. Second, in this section (as well as in some other sections), one expert’s evidence was discounted to some extent because of conflicting testimony in a different case [171]. If s 8 cases become common, it will be important for counsel to take the long view of an expert’s evidence, if that expert may be retained in subsequent cases.

Plaintiff’s Net Lost Profit: The Value of Ratiopharm’s Lost Sales

(a) Listing Price
Again, this discussion is very fact intensive. One point of general interest is that in Québec, generic manufacturers had to commit that they would match the best price in any other province in Canada as soon as that price was available [200]. However, in the real world, Novopharm did not drop its price in Québec until four months after the price dropped in Ontario. Zinn J held that:

[201] Although there is no explanation for why in the real world, Novopharm failed to honour its commitment to lower the price in Québec until four months after the price drop in Ontario, I am not prepared to accept that Ratiopharm would have disregarded its obligation, as Novopharm apparently did. It must be assumed in the but-for world that generic manufacturers adhere to their commitments and legal obligations, unless there is convincing evidence that the particular generic does not do so on a regular and consistent basis. There was no such evidence in respect of Ratiopharm’s practices.

This holding is a partial departure from the general rule that the but-for world is constructed purely as a factual inquiry into what actually would have happened, without presumptions or modifications based on rules of law.

(c) Trade-spend
The discussion of trade-spend – the rebates provided by pharmaceutical companies to purchasers – turned entirely on the facts [207] - [232].

Deductions for Regulatory Non-Compliance
Wyeth alleged that “Ratiopharm launched its product without having fully completed its validation and thus Ratiopharm contravened the F&D Regulations. Essentially, Wyeth's argument is grounded in equity: Because Ratiopharm did not comply with all legal requirements at launch, it should be precluded from recovering damages under section 8" [236]. Zinn J held that Wyeth had not established that Ratiopharm breached the F&D Regulations [238], and he therefore never reached the question of whether such a contravention, if established, would be a reason to preclude or reduce recovery of s 8 damages.

Ramp-Up [240]-[254]
In Teva s 8 ramipril FCA, the FCA held that no adjustment should be made to allow for double ramp-up, as discussed here. Zinn J came to the same conclusion, and his decision is therefore consistent with the law as stated by the FCA on this point.

Prejudgment interest is calculated “from the date the cause of action arose to the date of the order” [255]. The question was whether that date is August 1, 2007, when the Court of Appeal dismissed the Prohibition Application, on the view that Ratiopharm had no right to sue for s 8 damages before that time; or January 10, 2006, the start date of the compensable period, which is when Ratiopharm actually began to suffer a loss. Zinn J held that the latter date was appropriate:

[258] The disposition of a Prohibition Application does not ground liability, it simply confirms that liability exists. The cause of action arises on the date that damages that are the basis for the claim begin to be suffered. Typically, this will coincide with when the Relevant Period begins, as it did in Pantoprazole FC 2012 and as it does in this case. However, because the Relevant Period may begin before damage is actually suffered, this need not always be the case. For that reason, prejudgment interest must be tied to when the loss actually begins to be suffered irrespective of whether that date is the same as the start of the Relevant Period.

This is consistent with Zinn J’s general emphasis on the importance of causation, which was noted in yesterday’s post. This works both ways. On the one hand, the patentee will not be liable for losses not caused by the statutory delay, but on the other hand, it is presumptively liable for all losses that were caused by the statutory delay.

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