FEDERAL COURT OF AUSTRALIA

Merck Sharp & Dohme Corp v Apotex Pty Ltd [2012] FCA 928

THE COURT ORDERS THAT:

Upon the applicants by their Counsel undertaking to the Court:

(a)    to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of the interlocutory order specified in para 1 below or any continuation (with or without variation) thereof; and

(b)    to pay the compensation referred to in (a) to the person there referred to,

1.    Order that, until further order or the final determination of these proceedings, the respondent, whether by itself, its servants, agents or otherwise howsoever, be restrained from infringing Letters Patent No. 691880, including by supplying, offering to supply, selling or offering to sell:

(a)    APO-MOMETASONE NASAL SPRAY mometasone furoate 50 microgram/actuation suspension bottle;

(b)    APOTEX-MOMETASONE NASAL SPRAY mometasone furoate 50 microgram/actuation suspension bottle;

(c)    CHEMMART MOMETASONE NASAL SPRAY mometasone furoate 50 microgram/actuation suspension bottle;

(d)    GENRX MOMETASONE NASAL SPRAY mometasone furoate 50 microgram/actuation suspension bottle;

(e)    TERRY WHITE CHEMISTS MOMETASONE NASAL SPRAY mometasone furoate 50 microgram/actuation suspension bottle.

Note:    Settlement and entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BACKGROUND

1    These reasons for judgment concern an application for interlocutory orders to restrain alleged infringements of a patent pending the final hearing.

2    The first and second applicants respectively are the patentee and the exclusive licensee in Australia of Australian Patent No 691880 (the patent). The patent relates to the once-daily intra-nasal use of mometasone furoate (MF), a corticosteroid, to treat allergic rhinitis. The patent was lodged on 26 January 1995, claims a priority date of 26 January 1994 and expires on 26 January 2015. For convenience the first and second applicants are referred to together as Merck in these reasons.

3    Merck commenced the proceeding for alleged infringement on 2 July 2012. The respondent, referred to as Apotex, denies infringement on the ground that the claims of the patent are invalid and seeks revocation in a cross-claim filed 25 July 2012. For present purposes Apotex’s contention of invalidity is based on one ground – lack of inventive step. It is also common ground for present purposes that if the patent is valid Apotex’s conduct which is sought to be restrained will infringe the patent. The conduct in question is the marketing and proposed supply of five generic once-daily nasal spray products using MF for the treatment of allergic rhinitis. The products were registered on the Australian Register of Therapeutic Goods in June 2012. Apotex has commenced marketing the products and intends to commence supply, unless restrained, in early September 2012.

PRINCIPLES

4    Although there is no dispute about the principles relevant to the resolution of an application for interlocutory relief, there is a dispute about the application of the principles to the circumstances of this case. Merck’s position is that as the only defence is invalidity it follows that it has a prima facie case of infringement, the relevant question being the balance of convenience. Apotex’s position is that it has such a strong case of invalidity Merck does not have a prima facie case of infringement or that the prima facie case is sufficiently weakened by the arguments on invalidity so as to weigh materially in Apotex’s favour on the question of the balance of convenience. These apparent differences may be the result of different perceptions of the strength or weakness of Apotex’s arguments about invalidity. It seems to me that both positions are capable of being consistent with the relevant principles depending on the facts of the case for resolution, in particular the relative strengths of the competing arguments on invalidity.

5    I proceed on the basis that as the applicant for interlocutory relief Merck must establish that there is a serious question to be tried in the sense that a prima facie case for the relief it seeks at final hearing exists, that damages will not be an adequate remedy, and that the balance of convenience favours the granting of the interlocutory relief. I acknowledge also that in terms of the prima facie case what is required is that Merck show “a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial” (Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 at [65]). The concept of sufficient likelihood of success by Merck necessarily encompasses an assessment of the strength of Apotex’s case on invalidity. The mere fact that the patent exists does not obviate the need for that assessment given the challenge to validity (consistent with the approach in Interpharma Pty Ltd v Commissioner of Patents (2008) 79 IPR 261; [2008] FCA 1498 at [17]).

6    The assessment of the strength of Apotex’s case for invalidity, however, is not without difficulty. The case depends heavily on expert evidence. No doubt if Apotex’s evidence were the only evidence available, the assessment would be straightforward. As might be expected, Merck also adduced expert evidence addressing Apotex’s invalidity case. None of this expert evidence was, or could be, tested in the present context of an application for interlocutory relief. All of the evidence was prepared by apparently well-qualified experts and, on its face, appears rational and persuasive. Yet the evidence of the experts would lead to different conclusions. If the expert evidence adduced by Apotex is preferred, it would follow that Apotex has a strong case that the patent is invalid for lack of inventive step. If the expert evidence adduced by Merck is preferred, it would follow that Apotex has a weak case that the patent is invalid for lack of inventive step.

7    I asked the parties for assistance in determining whether (and, if so, how) I could prefer the evidence of one expert over another on a rational basis when there is no lack of persuasive force apparent from the face of the expert reports and none of the evidence has been tested. Merck focused on the fact that the experts adduced by Apotex were not Australian and thus were said not be able to give evidence relevant to the Australian context. If this submission carried weight it would be a rational basis to prefer Merck’s evidence, at least at this stage. Given the contrary evidence that the relevant art is international I am not persuaded that this is a real point of difference. Merck also noted that the evidence of Dr Archer, on which Apotex relied, was given with knowledge of the claimed invention and thus with the benefit of hindsight. This too might ultimately be a relevant point of distinction but, at least at this stage, it is not sufficient to persuade me that this evidence should be given less weight than that of the expert evidence on which Merck relied. In these circumstances, consideration of the apparent cogency of the particular aspects of the evidence on which the parties relied is required.

INVENTIVE STEP

8    Apotex formulated the relevant question (the so-called “Cripps question”) for the present case in these terms:

Would the hypothetical addressee or team at the relevant date, possessed of the common general knowledge within the field at that time, which included the nature and use of other corticosteroids as an intra-nasal treatment of allergic rhinitis, directly be led as a matter of course to try mometasone furoate as an intra-nasal once-daily initial or maintenance treatment of allergic rhinitis, with the substantial absence of systemic levels of mometasone furoate in the bloodstream, in the expectation that it might well produce a useful result or a better alternative than existing intranasal corticosteroid treatments of allergic rhinitis?

9    As formulated this question avoids the effect of some of the disputed evidence. Professor Hogger, for example, says that the relevant field of discourse about the treatment of allergic rhinitis would not have been confined to corticosteroids. She thus takes issue with the starting point assumed by Dr Weiner on behalf of Apotex who was asked what he would have done if confronted with the problem of finding a corticosteroid therapeutically effective for the treatment of allergic rhinitis. Professor Hogger’s evidence is that she would have considered not just corticosteroids but also leukotriene antagonists and antihistamines and possibly some other new therapy altogether. Further, certain factors at the priority date would have led her away from corticosteroids. Although known for topical use, the nasal passage is different from the skin and one could not extrapolate from the skin to the nose (a point made also by Dr Yan). There were also concerns about the long term use of corticosteroids and their use in children or pregnant women. According to Professor Hogger MF had also been reported at the time to have several metabolites and had very low solubility in water. Although Apotex noted that it is not apparent that Professor Hogger would have been aware of the metabolites at the time there is evidence (including from experts on which Apotex relied) of the type of literature searches that would have been carried out and which might reasonably be inferred to have disclosed the information to which Professor Hogger refers.

10    Professor Hogger’s evidence indicates that there is a real issue between the parties as to the relevant starting point for the inquiry. It provides a rational basis for querying whether Apotex’s evidence involves the correct starting point or not.

11    Apotex emphasised the evidence of Professor Archer that it was well known at the priority date that MF has low systemic bioavailability “either through topical absorption or oral ingestion. In practice, it was widely used and prescribed for inflammatory conditions and highly effective with very few adverse side effects”. Apotex noted that if, as Professor Archer said, MF was safe for oral ingestion it was obvious that it would be safe for nasal inhalation. As Merck submitted, however, there are some difficulties with Professor Archer’s reference to oral ingestion. Although these difficulties ultimately may be capable of resolution they are not able to be resolved in the present context. First, although Professor Archer refers to the oral ingestion of other corticosteroids he does not give examples of the oral ingestion of MF other than in the statement on which Apotex relies. Second, none of the literature to which Professor Archer refers (including the patent and certain documents relied on by Apotex as forming prior art) identifies oral ingestion of MF as opposed to topical application. Third, none of the other experts refer to oral ingestion of MF as opposed to topical application. These circumstances indicate that this statement of Professor Archer may not be capable of bearing the weight which Apotex sought to place upon it. The circumstances call into question the reliability of the statement or, at the least, demand explanation which is not presently available.

12    Taking into account these circumstances it is apparent that Merck’s arguments to the effect that corticosteroids were not the obvious starting point for the treatment of allergic rhinitis at the priority date and that MF was not an obvious candidate for a once-daily dose for such treatment cannot be dismissed as specious or unconvincing. Nor is it apparent that Merck’s experts require some degree of scientific certainty not justified by relevant principle. On the evidence Merck has real arguments to counter those of Apotex as to invalidity on the basis of common general knowledge in the art. There is evidence of other agents being relevant candidates for development, not just corticosteroids and not necessarily MF. There is evidence that the nasal passages are different from the skin and that low systemic bioavailability from topical application could not be assumed to mean low systemic bioavailability from nasal inhalation at the priority date. There is evidence that MF was known by at least some skilled in the art to have metabolites. There is evidence that because of its low solubility formulation of the nasal spray would not be anywhere near as straightforward as Dr Rowe suggests.

13    As a result I am not persuaded that Apotex has a strong case that as at the priority date, by reason of the common general knowledge, the notional research group would have been directly led as a matter of course to try MF as an intra-nasal once-daily treatment of allergic rhinitis with the substantial absence of systemic levels of MF in the bloodstream in the expectation that it might well produce a useful product or process. On analysis of the expert evidence there are certain matters assumed by the expert evidence adduced by Apotex which may be found questionable (the starting point for the exercise) and certain assertions (that of oral ingestion and the ease of formulation) which at the least require explanation. Accordingly, insofar as it is possible to weigh the competing evidence at this stage it is the evidence of Merck which appears to carry greater persuasive force.

14    The same conclusion applies to the question of the prior art. Apotex identified three key documents as ones which have been ascertained and understood by a person skilled before the priority date and which would have made the invention obvious in the sense of lacking any inventive step. The documents are United States Patent No 4,472,393 (the Shapiro patent), International Patent Application No PCT/US91/06249 (Yuen) and an article by Chang-Jin Wang et al “A Competitive Enzyme Immunoassay for the Direct Determination of Mometasone Furoate (SCH 32088) in Human Plasma (1992) 10 Journal of Pharmaceutical & Biomedical Analysis 473-479 (Wang).

15    There were issues between the parties as to whether the Shapiro patent and Yuen would have been ascertained by the hypothetical skilled addressees at the priority date and, if ascertained, understood in combination as Apotex contended. Let those matters be assumed in Apotex’s favour. There was evidence from the experts upon whom Apotex relied that these publications would have led them as a matter of course to try MF as an intra-nasal once-daily treatment of allergic rhinitis with the substantial absence of systemic levels of MF in the bloodstream in the expectation that it might well produce a useful product or process. There was also evidence from the experts upon whom Merck relied to the contrary. Again, accordingly, it is necessary to examine the substance of the documents relied upon as prior art.

16    The Shapiro patent relates to novel compounds including MF useful for the treatment of inflammatory conditions. It refers to the compounds’ high topical anti-inflammatory properties. It says the compounds may be applied topically or locally in any of the conventional pharmaceutical forms including topically in creams, lotions, aerosols or ointments in the treatment of all corticosteroid responsive dermatoses “or in the form of ophthalmic suspensions or nasal sprays”. It says that the steroid may be formulated into a preparation suitable for topical application in a conventional manner and examples include “ointments, lotions, creams, sprays, drops…and aerosols”. Yuen concerns the novel compound MF monohydrate and refers to MF as known to be useful in the treatment of inflammatory conditions. It refers to the pharmaceutical compositions of particular interest as “aqeous suspension compositions of [MF] monohydrate, eg for nasal inhalation”. Wang refers to MF as a synthetic corticosteroid which has topical anti-inflammatory activity and is a “promising new candidate by oral and nasal inhalation for the treatment of asthma and allergic rhinitis”.

17    Dr Yan makes the point that the Shapiro patent does not refer to the safety or efficacy of any of the compounds for the treatment of allergic rhinitis, Yuen does not include any information from clinical trials about the aqueous suspension or whether the nasal suspension is safe and efficacious, and Wang describes the development of an assay for measuring the content of MF in blood plasma and, while Wang states MF is a promising candidate for the treatment of allergic rhinitis, also identifies that its metabolism, pharmacokinetics and toxicokinetics have not been evaluated. Accordingly, none of these documents (if ascertained at all) would have directly led Dr Yan as a matter of course to try MF as an intra-nasal once-daily treatment of allergic rhinitis with the substantial absence of systemic levels of MF in the bloodstream in the expectation that it might well produce a useful product or process.

18    Apotex’s arguments about the prior art are plainly not without substance. The references upon which Apotex relied provide a real foundation for the argument that the invention claimed lacked an inventive step. The countering evidence of Merck, however, also has persuasive force, at least on its face. That evidence, properly analysed, cannot be reduced to a position that nothing can be known without clinical trials. The evidence relates specifically to MF and the lack of clear direction in the documents in respect of the use of MF to treat allergic rhinitis without substantial side effects.

19    Accordingly, although I do not accept Merck’s arguments that Apotex’s case for invalidity is so weak that it fails to raise a triable issue, I am not satisfied that Apotex’s case is of sufficient strength to deny the existence of a prima facie case of infringement on Merck’s part. Merck has established a prima facie case of infringement. When dealing with the strength of that prima facie case in assessing the balance of convenience I recognise that Merck’s position on infringement is not unassailable. There are real arguments against validity which, if established, would remove the foundation of Merck’s claimed right to final and thus interlocutory relief.

BALANCE OF CONVENIENCE

20    Merck relied on the evidence of Mr Moore who is the Director, Sales and Marketing, Primary Care for the second applicant. Mr Moore explained that Nasonex is the brand name of an inhaled corticosteroid for the treatment of nasal allergy symptoms, the active ingredient of which is MF. Nasonex has been marketed continually in Australia since 1998. Nasonex was the second applicant’s fifth highest selling Primary Care product in 2011 with sales worth $24.6 million representing 8.4% of the second applicant’s revenue from sales of Primary Care products. According to Mr Moore Nasonex is also the most popular intra-nasal corticosteroid supplied on the Australian market with a market share of around 60% and the remaining 40% being shared amongst other various third-party products.

21    According to Mr Moore, although Apotex has to date only marketed and invited orders for the Apotex products, he has observed a substantial decline in orders for and sales of Nasonex for June 2012. Those orders and sales have reached only 61% of budget, representing a 39% decrease on June 2011 orders and sales. Mr Moore is not aware of anything which could have caused this decline other than Apotex’s marketing and proposed supply of the Apotex products.

22    Mr Moore noted that the second applicant had planned to increase the price of Nasonex to wholesalers by 2.5% from August 2012 but given the threatened entry of Apotex products onto the market the second applicant is now unlikely to implement this price increase. In Mr Moore’s view, even if Merck is ultimately successful in this proceeding, if Apotex is not restrained on an interlocutory basis it is very unlikely that the second applicant would be able to raise prices for Nasonex back to current levels once the proceeding had concluded as to do so would involve a loss of goodwill and a potential negative impact on the second applicant’s corporate reputation. Mr Moore noted that one option available to the second applicant would be to launch a second brand itself to compete with Apotex but Mr Moore considered that this might take 12 months to finalise including registration and manufacture of a sufficient quantity of the product. As such, Mr Moore said that if Apotex is not restrained he considers it likely that Nasonex will become a significantly less profitable product for the second applicant with the consequence that marketing expenditure on Nasonex would have to be reduced including the termination of the experienced sales representatives presently employed to market Nasonex. Mr Moore is also concerned that if the Apotex products are ultimately restrained from sale marketers will have to be hired and trained, and patients will be forced to switch back to Nasonex for which the second applicant will be blamed, thereby further diminishing the goodwill associated with Nasonex and the second applicant’s corporate standing.

23    Mr Moore observed that Apotex’s assumption that if the Apotex products enter the market every sale not made by the second applicant will be a sale made by Apotex is incorrect. First, based on his experience, if Apotex is permitted to enter the market Mr Moore expects that other generic drug companies will quickly follow. Second, Nasonex does not have 100% of the market but only about 60% of the market so assuming that all sales of the Apotex product would have been sales of Nasonex is invalid. Third, in Mr Moore’s view, proving a loss from a decline in Nasonex sales would prove every bit as involved and as complicated as Apotex anticipates for proving its own loss should it be restrained on an interlocutory basis but the patent ultimately be found to be invalid. Reasons for this according to Mr Moore include the potential confounding effects of the marketing strategies of the competitor products, the need for the existing price of Nasonex to be substantially reduced in order to compete with the Apotex products, and the difficulty in returning the pricing for Nasonex to existing levels, as well as the potential for overall structure change to the market. In particular Mr Moore would expect the price of competitor products also to be lowered in order to compete with the Apotex products, Mr Moore defining the relevant market as the intra-nasal corticosteroid market.

24    Evidence was given on behalf of Apotex by Mr Millichamp, the Managing Director of Apotex. Mr Millichamp noted that Apotex has taken significant orders for the supply of the Apotex products to Australian pharmacies since June 2012. The inclusion of an MF nasal spray product in Apotex’s portfolio is anticipated by Mr Millichamp to allow Apotex to compete more effectively for significant individual pharmacy and pharmacy group business. It is Mr Millichamp’s experience that the first generic version of a drug to market with a period of exclusivity rapidly acquires market share, sometimes 50% or better, and retains most of that market share even when additional generic brands are subsequently launched. This is known as “first mover advantage”. If restrained Mr Millichamp anticipates that other generic companies will seek to enter the market during the period of injunction and will at the least erode the significant head start which Apotex believes it currently has. Mr Millichamp identified the relevant market as the MF nasal spray market in which Nasonex is the only product.

25    Mr Millichamp is of the view that any attempt to reconstruct the market for the products which Apotex will not be able to sell if restrained is virtually impossible to do with any precision. In this regard Mr Millichamp is currently involved in a matter where Apotex is attempting such a reconstruction which has proved exceedingly complex. In Mr Millichamp’s opinion his experience has demonstrated that the complexities of trying to reconstruct a lost market are far more significant than would be a calculation of damages for lost sales in an otherwise monopoly market if an injunction is not imposed. For these reasons Mr Millichamp is of the view that damages would be an adequate remedy for Merck but not an adequate remedy for Apotex.

26    Based on Mr Millichamp’s evidence Apotex advocated the same approach to the balance of convenience as taken in Cephalon, Inc v Orchid Europe Limited [2010] All ER (D) 229; [2010] EWHC 2945 at [70] in which it was decided that the risk of unquantifiable loss to the defendant was greater than the same risk to the plaintiff.

27    The primary difficulty I have with Mr Millichamp’s evidence is that he expressly assumes that the relevant market is for Nasonex alone which seems to me to be unlikely. It is true that Nasonex is the only product using MF but MF is a member of a class known as corticosteroids and there are other corticosteroids on the market for treatment of precisely the same disease, allergic rhinitis. As Mr Moore said Nasonex has only 60% of this market with the other products (Rhinocort, Avamys, Budamax, Flixonase and Omnaris) sharing the rest of the market. On the evidence, accordingly, there are at least six participants in the market. Mr Moore’s evidence of structural change in the market should Apotex be permitted to enter it is not mere speculation. Mr Millichamp’s own evidence demonstrates the dramatic effect on a market of the first entry by a generic product. Mr Moore’s anticipation that the other participants in the market of intra-nasal corticosteroid sprays will respond both in terms of marketing and price is persuasive. As such Mr Millichamp’s evidence of the different complexity confronting assessment of Apotex’s loss compared to Merck’s loss lacks force.

28    Despite Apotex’s submissions to the contrary I am satisfied on the evidence that it is likely that Apotex’s entry into the market (being the market of intra-nasal corticosteroid sprays) will cause significant structural change in terms of pricing and market shares which will not be readily changed should Merck obtain final relief and which exposes Merck to unquantifiable loss not only in terms of pricing changes but also loss of staff, the need to re-train staff if Apotex is ultimately restrained, as well as loss of goodwill.

29    For the reasons given by Merck I am also not persuaded that apart from Apotex itself there will be any material harm to third parties. Although the introduction of the Apotex products to the market will give pharmacists and pharmaceutical wholesalers an opportunity to make a greater profit the extent to which patients might lose the opportunity to benefit from lower prices depends upon the extent to which cost savings are passed on to patients which is unknown.

30    In these circumstances I am satisfied that Merck has established that it will suffer harm for which damages will not be an adequate remedy. Although I am also satisfied that Apotex will itself suffer harm which is not necessarily quantifiable or will be difficult to quantify in the various ways which Mr Millichamp has explained, the question of the balance of convenience overall is not determined by reference to that fact alone.

31    In its written submissions Merck identified five matters which I consider are entitled to weight in this assessment having regard to the fact that it is apparent from the evidence that both parties will be exposed to significant harm depending upon the outcome of the application for interlocutory relief. The five matters are: – (i) Apotex has no established position in the market, (ii) Merck has a substantial existing market in Nasonex, (iii) Apotex has sought to enter the market knowing of Merck’s patent and the rights it asserts, (iv) the patent on which Merck relies is long-standing and has not been the subject of challenge by way of re-examination or revocation, and (v) Apotex’s entry into the market will cause significant and most likely irreparable upheaval in the existing market, including by way of price pressure on Merck across its entire range and substantial erosion of Merck’s market share.

32    In all of the circumstances I consider that Merck has established that the balance of convenience favours protecting the status quo pending the outcome of the hearing.

33    For these reasons the interlocutory orders which Merck seeks should be made.

Associate:

Dated:    31 August 2012