Canada: Pharma In Brief - Supreme Court To Consider Section 8 Damage Quantification

Case: Sanofi-Aventis et al. v. Apotex Inc. Application for leave to appeal from the judgment of the Federal Court of Appeal 2014 FCA 68 granted with costs in the cause

Drug: ALTACE® (ramipiril)

Nature of case: Appeal in respect of the quantification of damages under Section 8 of the PM(NOC) Regulations

Date of decision: October 30, 2014

Summary

The Supreme Court of Canada announced yesterday that it has granted leave to appeal the decision of the Federal Court of Appeal in a proceeding commenced by Apotex pursuant to section 8 of the Patented Medicines (Notice of Compliance) Regulations (the "PM(NOC) Regulations) in relation to Sanofi-Aventis' drug ALTACE® (ramipril).

The Supreme Court previously refused applications for leave to appeal earlier decisions¹ relating to the vires, constitutionality and scope of section 8 of the PM(NOC) Regulations. Ramipril therefore marks the first time that the Supreme Court of Canada will consider issues related to the remedy fashioned by the Governor-in-Council to compensate generics for delayed market entry under the scheme of the PM(NOC) Regulations. With the Federal Court of Appeal split on some of the key issues at stake, this case will hopefully finally provide innovators and generics alike with a definitive framework for quantifying damages under section 8 of the PM(NOC) Regulations.

The Federal Court of Appeal Decision

The Supreme Court will be considering the decision of the Federal Court of Appeal ("FCA") on appeal of the decision of Madam Justice Snider of the Federal Court who rendered companion decisions in separate actions commenced by Apotex and Teva against Sanofi-Aventis and related companies ("Sanofi") pursuant to section 8 of the PM(NOC) Regulations. Apotex and Teva claimed damages resulting from the delayed market entry for their generic ramipril products as a result of unsuccessful prohibition proceedings initiated by Sanofi. Justice Snider's decisions are widely recognized as the leading authority on the methodology for quantifying section 8 damages. Her "stepped-methodology" for quantifying section 8 damages was not at issue on appeal to the FCA with the FCA decision instead focused on a review of select issues relating to the construction of the hypothetical market in which the determination of Apotex' losses were made. In the result, the FCA was split with a dissenting decision from Justice Mainville, parts of which were agreed to by the majority of the FCA.

The Key Question: the framework for the construction of a hypothetical market

Sanofi sought leave to appeal on the basis that the FCA's judgment raises questions of national importance relating to the legal framework for determining the appropriate compensation owed under section 8. Sanofi argued on its leave application that the current framework for quantifying damages inherently leads to a windfall for the generic claimant with the result that not only has Apotex been overcompensated, but when Teva's award is factored in, the total notional lost sales already amounts to 133% of the maximum sales that could have been made in the real world with a third proceeding brought by Pharmascience Inc. yet to be tried.

A key issue on appeal is whether all generic competitors in the hypothetical market are subject to the scheme of the PM(NOC) Regulations. The legal requirement to deliver notice(s) of allegation pursuant to the PM(NOC) Regulations leads to a delay in the market entry of generic competitors whose presence in the hypothetical market can have a significant effect on the amount of compensation that is owed. Justice Mainville, in dissent, held that the trial judge's methodology would "invariably" lead to windfalls for generic manufacturers pursuing actions under section 8 and would be inconsistent with general principles of compensatory damages.

Other Issues the Supreme Court may Weigh-in On

Some of the other section 8 issues that are likely to be addressed by the Supreme Court include:

• Double Ramp-up - The majority of the FCA held that Apotex and Teva were not entitled to damages for a "double ramp-up" based on the reasoning in Apotex Inc. v. Merck Canada Inc., 2009 FCA 187 ("Alendronate") which held that compensation for lost sales during the actual ramp-up period would have the effect of recognizing a loss suffered after the section 8 liability period.
• Proof of other generic entrants in the hypothetical period - Mainville J.A. held that once a generic drug manufacturer is deemed to have received an NOC in the hypothetical world absent the PM(NOC) Regulations, other generic manufacturers should be presumed to be in a position to receive a NOC subject only to the delays and timelines set out in the Food and Drug Regulations.
• Compensation for unapproved indications - Sanofi argued that Teva should not be entitled to compensation for any losses suffered in respect of unapproved indications (i.e., the HOPE indications). The Court held that the trial judge had the discretion to include these sales in assessing the amount of compensation under subsection 8(5) of the PM(NOC) Regulations, but emphasized that sales related to unauthorized indications may be precluded in other cases, if appropriate.
• Lost indirect profit - The FCA held that Apotex and Teva were not entitled to claim damages for lost opportunity to reinvest profits that they would have made during the section 8 liability period. In obiter, the Court agreed with the trial judge that, as a matter of law, pre-judgment interest was the accepted method to compensate for such a loss.

Link to FCA decision

Apotex Inc. v. Sanofi-Aventis et al, 2014 FCA 68

Footnote

1. Merck Frosst Canada Ltd. v. Apotex Inc. 2009 FCA 187 leave to appeal to the Supreme Court refused [2009] S.C.C.A. No. 347; and Teva Canada Limited v. Sanofi-Aventis Canada Inc. 2011 FCA 149 leave to appeal to the Supreme Court refused [2011] S.C.C.A. No. 326.

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