Financial pitfalls associated with interim injunctions

In AstraZeneca v KRKA Justice Sales of the UK High Court considered the merits of arguments put forward when trying to recover damages following a cross-undertaking in respect of an interim injunction that was subsequently discharged. Significantly, the judge chose to rely on the evidence of medicine managers (experienced pharmacists employed by the NHS primary care trusts) rather than that of expert economists when assessing the loss of first-mover advantage.

Facts
AstraZeneca owns a European (UK) patent that provides protection for Nexium®, a proton pump inhibitor containing esomeprazole that is used to treat a range of gastric conditions. Nexium was launched in the United Kingdom in 2000 and was the only product of its kind on the market until 2011, during which time it commanded a high price.

In October 2010 AstraZeneca obtained an interim injunction in the United Kingdom that prevented KRKA from marketing Emozul®, a generic equivalent of Nexium, in order to preserve the status quo pending a trial. KRKA claimed that Emozul did not infringe AstraZeneca’s patent.

At the time that AstraZeneca obtained its injunction against KRKA, the validity of AstraZeneca’s patent for Nexium was being challenged in the United Kingdom by Ranbaxy, which also sought to market a generic equivalent of Nexium in the United Kingdom. A speedy trial concerning the issues of infringement found that Ranbaxy’s product did not infringe AstraZeneca’s patent.

Following the Ranbaxy judgment, AstraZeneca applied for the interim injunction against KRKA to be discharged because it recognised that its patent infringement claim could not succeed. The interim injunction against KRKA was finally discharged in July 2011.

Market activity
A number of generic equivalents of Nexium were marketed in the United Kingdom following the Ranbaxy judgment. Ranbaxy marketed its equivalent in September 2011, Mylan in November 2011 and Teva in December 2011. AstraZeneca also teamed up with Arrow (another generics company) to sell a "branded generic" version of Nexium in July 2011. The branded generic version was launched in the United Kingdom two days after the Ranbaxy judgment. AstraZeneca’s market share for Nexium fell following the arrival of several lower -riced generic equivalents onto the marketplace.

Considerations for assessment of damages
In order to assess the damages payable by AstraZeneca under the cross-undertaking, the court considered the commercial impact that the interim injunction had on KRKA by delaying its entry into the marketplace until after several other generic versions of Nexium were available in the United Kingdom, referred to as the loss of first-mover advantage. There was a significant divergence between AstraZeneca and KRKA as to the value of the loss of first-mover advantage. AstraZeneca estimated the loss to be £6 million, whereas KRKA claimed that it was £32 million.

There was universal agreement that the court should apply the principles set out in Les Laboratoires Servier v Apotex Inc ([2008] EWHC 2347) when assessing damages and determining the loss that the injunction caused KRKA. Those principles are summarised as follows:

• The approach is essentially compensatory and not punitive.
• The assessment is made on the same basis on which damages for breach of contract would be assessed.
• The court should attempt a principled approach, even if it may not be possible to calculate the defendant's losses with certainty or precision.
• The damages should be assessed on a particular hypothesis and then multiplied by the percentage chance of that hypothesis occurring.

The court went on to clarify the approach in certain aspects – namely, that:

• so-called "restitutionary" damages can be considered if a wrongful extension of patent term results in benefit to the patent holder that exceeds and outstrips the loss to the generic company; and
• damages are to be "liberally assessed". Although the party giving the cross-undertaking of damages is not a wrongdoer, the approach to damages is the same as when considering damages against a wrongdoer.

In assessing damages, the court had to consider a complicated and highly regulated marketplace. The court considered the premium price paid for patented drugs where no generic equivalents are available, and the lower price paid for drugs when several alternative generic products are available. The court also considered factors that influence switching patients to a new (less expensive) entrant into the marketplace.

In this case, KRKA argued that it would have been able to charge a higher price for Emozul if it had benefited from the first-mover advantage in October 2010. KRKA also argued that it would have established and maintained some of its market share had it benefited from the first-mover advantage because there would have been reluctance to switch patients to an alternative drug for a second time.

In response, AstraZeneca argued that it would have dropped the UK price for Nexium following a loss of market share. However, if the price for Nexium in the United Kingdom fell, the prices in certain other European countries would also fall because the UK price for Nexium was used as a reference point for the price payable in other countries.

Outcome
The court was not persuaded that AstraZeneca would have reduced the UK price for Nexium.

The judge concluded that if KRKA had been able to launch Emozul in the United Kingdom in October 2010, there would have been a substantial switch of patients from Nexium to Emozul. However, as the launch of Emozul was delayed until September 2011, Emozul was competing with Nexium and five other generic products. The opportunity to charge a higher price and establish market share for Emozul had been lost because a competitive environment had developed. The judge invited the parties to agree on the damages payable.

Comment
This case serves as a reminder that interim injunctions can be costly. It also presents an interesting insight into the commercial approach that the UK courts might take in pharmaceutical cases when assessing damages for a defendant that seeks to benefit from a cross-undertaking following an interim injunction.