Canada’s Competition Bureau Prescribes Policy Solutions for Generic Drug Sector

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From the desk of Nathaniel Lipkus... ;)

On November 25, 2008, the Canadian Competition Bureau released the second phase of its generic drug sector study, entitled “Benefiting from Generic Drug Competition in Canada: The Way Forward”. The report comes just thirteen months after the Bureau released its initial report, which had found that strong competition exists among generic drug manufacturers, but that in many cases this competition is not passed on to public or private drug plan payers, or to direct consumers.

Bureau Commissioner Sheridan Scott released the report at an Economic Club of Toronto luncheon on November 25. In her remarks, Commissioner Scott stated that the new report provides a “timely prescription for change”, offering several possible ways for achieving savings in both the public and private sectors. She emphasized the importance of swift action, in light of the $800 million in potential savings available to public and private drug plans, which she said would climb significantly over the next three years as blockbuster drugs released in the mid-1990s go off-patent.

The report separately analyses possible policy solutions for Canada’s public and private drug purchasers. Public payer recommendations include alternative mechanisms for listing generic drugs on provincial formularies and revealing the true net prices paid to manufacturers by retailers. The Competition Bureau emphasizes the importance of coordination among provinces in adopting any policy solution. Private sector recommendations draw heavily on the experience of pharmacy benefit managers (PBMs) in the United States, which have been successful in sharing in the savings from increased generic drug utilization.

The Competition Bureau’s report can be found on the Bureau’s website at http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/vwapj/GenDrugStudy-Report-081125-fin-e.pdf/$FILE/GenDrugStudy-Report-081125-fin-e.pdf.

Nathaniel Lipkus
Gilbert's LLP

New this morning: SCC decision approving selection patents, plus tests for anticipation and obviousness

Today was a hectic day at work. Not only have we just come off the madness of the three-day summer student recruitment period (meaning no one has done any legal work the last three days), but the Supreme Court of Canada released the highly-anticipated decision in Apotex v. Sanofi-Sythelabo. This case was closely watched because Apotex challenged the basic validity of all selection patents as a matter of law. Perhaps unsurprisingly, the Supreme Court affirmed selection patents in principle. However, the Court also went on to establish general tests for anticipation and obviousness that will apply to all Canadian patents.

In response, we quickly created and fired off a newsletter to our clients quickly outlining the case, and promising a more in-depth analysis to come. Here is the quick analysis.

This morning, the Supreme Court of Canada released a decision addressing the doctrine of selection patents and the tests for anticipation and
obviousness.

Selection patents are of considerable importance in Canadian patent law, particularly in the area of pharmaceuticals. This is the first decision of the Supreme Court to directly approve of selection patents. The Court’s statements on anticipation and obviousness also extend to all patents, selection or not.

Our preliminary analysis is that while Apotex lost this particular case, the Supreme Court has not given a green light to every selection patent. The validity of Canadian selection patents will very much depend on whether the claims are something special and inventive above the known prior art.

Apotex Inc. v. Sanofi-Synthelabo Canada Inc., 2008 SCC 61

Procedural History:

Sanofi-Synthelabo Canada Inc. is the owner of Ca-nadian Patent No. 1,336,777 (the “777 Patent”). Sanofi had previously obtained Canadian Patent No. 1,194,875 (the “875 Patent” or the “genus patent’) which covered a large class of compounds useful in the treatment of coronary artery, peripheral vascular and cerebral vascular diseases. The 777 Patent covered a subclass of compounds that were previously disclosed in the 875 Patent, including clopidogrel bisulfate, a particular compound with properties superior to the compounds generally disclosed in the 875 Patent. Sanofi commenced NOC proceedings against Apotex, who wished to launch their own clopidogrel bisulfate product, and Sanofi won at the FC and FCA level on the basis that Apotex’ product would infringe Sanofi’s 777 patent. Apotex appealed to the SCC on the basis that this selection patent was invalid on the grounds of anticipation, obviousness and double patenting.

The Decision:

Justice Rothstein, writing for a unanimous court, dismissed Apotex’ appeal on all grounds.

The Court accepted selection patents in principle. Rothstein J. cited the UK In re I.G. Farbenindustrie case to find that a selection of compounds from those described in general terms and claimed in a fist or genus patent may be claimed in a second patent if:

1. There is a substantial advantage to be se-cured or disadvantage to be avoided by the use of the selected members;

2. The whole of the selected members (subject to “a few exceptions here and there”) possess the advantage in question; and

3. The selection must be in respect of a quality of a special character peculiar to the selected group. If further research revealed a small number of unselected compounds possessing the same advantage, that would not invalidate the selection patent. However, if research showed that a larger number of unselected compounds possessed the same advantage, the quality of the compound claimed in the selection patent would not be of a special character.

The Court emphasized that selection patents still must meet the standards of anticipation and obviousness.

Anticipation:

In order to determine whether a patent has been anticipated, a two-step approach should be taken. First, did the prior art disclose subject matter which, if performed, would necessarily (without trial and error) infringe the patent? Second, the person skilled in the art (PSITA) must be enabled by the prior art to perform the invention without undue bur-den. A question at the enablement stage is how much trial and error or experimentation is permitted.

In the case of selection patents, the Court interpreted the disclosure test as whether the first patent dis-closed the special advantages of the invention covered in the second patent. In the case at hand, the Court found that the 777 patent was not anticipated because the 875 Patent did not disclose the special advantages of clopidogrel bisulfate disclosed in the 777 Patent.

Obviousness:

The obviousness test adopted by the SCC followed a four-step approach derived from the UK case of Windsurfing International Inc. v. Tabur Marine (Great Britain) Ltd.

• First, the PSITA and his / her relevant general knowledge is determined.

• Second, the inventive concept of the claim in question is determined.

• Third, differences between the “state of the art” and the inventive concept of the claim must be identified.

• Fourth, the court decides whether the differences are obvious or would have required any degree of inventiveness.

The fourth step is done without any consideration of the alleged invention as claimed.

In the analysis of inventiveness, the court adopted an “obvious to try” approach in which routine experimentation does not make the patent inventive. Rather, some testing is explicitly permitted without rendering the invention non-obvious. The analysis requires looking at four factors:

(a) is it self-evident that what is being tried ought to work, and is the number of predictable solutions finite?

(b) how much effort is required to achieve the invention?

(c) is there a motive provided to find the solution the patent addresses?

(d) perhaps considering the evidence of the actual course of conduct (a long and expensive or short and inexpensive effort?) which resulted in the making of the invention.

However, Rothstein J. cautioned against over-application of the “obvious to try” test, writing that it is “not a panacea for alleged infringers.” Notably, the test is not a simple conclusion that if X is obvious to try, then X is obvious. Even if X is obvious to try, X may still be non-obvious if it succeeds only after difficult or expensive experimentation.

In this case, the Court found that the invention was not self-evident from the prior art, and most importantly that Sanofi had spent “millions of dollars and several years developing [the racemate] up to the point of preliminary human clinic trials” before the discovery that the invention of the 777 Patent was superior to other compounds disclosed in the 875 Patent. Therefore, the 777 Patent is not obvious.

Double patenting:

The Court found that there is no inherent conflict be-tween the doctrines of double patenting and selection patents. The SCC acknowledged that evergreening is problematic, but left that concern to be addressed through the tests for anticipation, obviousness and double patenting. The Court stated that there is a valid general concern about double patenting, but selection patents can play an impor-tant role in encouraging improvements over the original genus patent.

We will be completing a more fulsome analysis of the case in the coming days. In the meantime, please feel free to contact us.

Emily Kettel (Student-at-law)
Alexander Stack
Sara Zborovski

Gilbert's LLP

Federal Court of Canada awards damages to generic company

The first decision to substantially address section 8 of the Patented Medicine (Notice of Compliance) Regulations

The Federal Court of Canada issues its first decision on a regulatory provision allowing a generic to claim damages from a brand company for being improperly kept off the market.

In Canada, the Patent Act is linked to the drug ap-proval system by the Patented Medicine (Notice of Compliance) Regulations (the “Regulations”) which allow a brand company to prevent marketing ap-proval of generic drug product for up to two years pending the resolution of patent disputes.

The Regulations contain a provision, section 8, which grants a right of action to a generic company whose drug product has been wrongly kept off the market on the basis of a proceeding commenced by a brand company pursuant to the Regulations.

Section 8 has existed since 1993 but this is the first substantive decision that the Federal Court has is-sued in respect of it.

In the case, Apotex sought damages from Merck for improperly preventing it from obtaining marketing approval for its alendronate product.

Merck argued, among other things, that section 8 was unconstitutional and beyond the court’s jurisdic-tion, since it does not technically deal with patent issues. The court found against Merck, holding that the Regulations must be considered as a whole, and that section 8, which acts as a disincentive for seek-ing what is in effect an interlocutory injunction, is part of the balance of the Regulations. Accordingly, sec-tion 8 is valid federal legislation properly enabled by the Patent Act, and within the jurisdiction of the Fed-eral Court to enforce.

With respect to the remedy afforded Apotex, the Court held that a generic company is only entitled to claim damages or its own lost profits, as opposed to disgorgement of the brand company’s profits, as Apotex had claimed. All matters related to quantifi-cation of Apotex’s damages will be determined in a later trial.

We anticipate that the decision will be appealed.

Alison Lester
Gilbert's LLP

Pharma challenges PMPRB authority over rebates on patented drugs

I have been neglecting my posts on here! I'll update today with three posts. Here's the first.

Canada’s branded pharmaceutical trade association, Rx&D, and 17 companies have launched an application to challenge the authority of Canada’s Patented Medicines Prices Review Board (“PMPRB”) to require brands to report rebates and discounts to the Federal government.

Canada’s Patent Act vests the PMPRB with the authority to limit a patented drug’s price where it finds the drug’s prevailing market price to be excessive. The Act permits the PMPRB to require companies selling patented drugs to report the selling prices of their drugs to the PMPRB, for the purposes of administering the excessive pricing provisions.

On August 18, 2008, the PMPRB posted a Stakeholder Communiqué requiring companies to provide mandatory reports of all reductions off the manufacturer’s list price for drugs, where a Canadian patent covers an invention pertaining to the drug. Reductions to be reported under the Communiqué include rebates (including rebates/payments to third parties), discounts, free goods, free services, gifts, and other benefits of a like nature. The reporting requirements are set to be implemented in January 2009.

On September 17, 2008, Rx&D brought an application in the Federal Court of Canada seeking judicial review of these new reporting requirements. In its Notice of Application, Rx&D has taken the position that the Patent Act and its regulations do not require reporting of any price reductions paid to anyone except at the ex-factory level (i.e. between the manufacturer and its direct buyer, normally a wholesaler). This interpretation would exclude any indirect buyers, most notably intermediary distributors and wholesalers, pharmacies, and provincial drug program purchasers. The brands argue that any additional reporting requirement, beyond transactions at the ex factory level, is outside the jurisdiction of the PMPRB under the Patent Act and the Federal government under the Canadian constitution.

Rx&D seeks an order from the Court prohibiting the PMPRB from requiring reporting of any benefits granted by sellers of patented drugs to “third parties”, by its Communiqué or otherwise. Interestingly, this relief, if granted, would make it more likely that patented pharmaceutical companies would be found to be pricing their drugs excessively. Any rebate, discount, or equivalent payment reported to PMPRB would lower the average price calculated for the purposes of an excessive pricing calculation. More reported discounts would lead to lower prices, and lower prices are less likely to warrant excessive pricing orders. On the face of it then, the reporting requirements appear beneficial to patentee drug companies.

However, there are various reasons why brands may wish to keep their price reductions secret. Motivations likely vary from company to company, but it is easy to imagine that any supply chain participant not currently receiving a benefit being granted to a similarly-situated competitor (e.g., a provincial government purchaser not receiving the same discount as a private purchaser) may aggressively demand benefits not otherwise thought available. Alternatively, upstream participants in the supply chain, such as wholesalers or regional distributors, may try to capture rebates found to be widespread downstream at the pharmacy level. On the face of the Communiqué, it is unclear to what extent information collected by PMPRB would be accessible to these interested parties.

As an example of the policy implications of PMPRB’s reporting requirements, consider their interaction with Canadian provinces’ latest efforts to reduce the cost of publicly-funded drugs. In the past year, several brands have entered secret agreements to provide substantial rebates off their list prices to provinces in exchange for exclusive supply of their drugs to the provinces’ public drug programs, in situations where generics had successfully entered the national market but patent protection persisted. These payments may become more critical to retaining market share if provinces adopt tendering programs which require companies to offer rebates and/or discounts to compete. Transparency of these payments would thwart provinces’ intent to keep the payments secret.

Time will tell whether Rx&D and its member companies are successful in their judicial review application. In the meantime, companies selling patented drugs will be thinking twice before offering piecemeal deals to Canadian consumers, for fear of PMPRB’s new reporting requirements.

Nathaniel Lipkus
Gilbert's LLP