Commonwealth a step closer to compensation for delayed PBS price drops

The Full Federal Court has held that the Therapeutic Goods Act 1989 (Cth) (TG Act) does not limit the Commonwealth’s ability to seek compensation for losses arising from the operation of an interlocutory injunction restraining the launch of a generic drug.¹

The decision moves the Commonwealth a step closer to its first recovery from an originator who secured an interlocutory injunction but subsequently lost in its final claim for relief from a generic.

Background

Where a patentee seeks an interlocutory injunction to restrain an infringer in advance of a final hearing, it will usually be required to give ‘the usual undertaking as to damages’. That is, an undertaking to compensate any person adversely affected by the injunction, if the Court ultimately finds the patent to be invalid or not to be infringed.

In pharmaceutical patent litigation, patentees often rely on the PBS price drop of 16% that is triggered by the listing of a first generic alternative to support their case for an interlocutory injunction. Where an interlocutory injunction is granted the generic is held off the market, which delays the PBS price drop until a final decision, which can take many years. In the interim, the PBS will continue to pay the non-discounted price for the originator’s drug.

The Commonwealth has sought to recover this price differential by relying on the undertakings given by originators Wyeth and Sanofi in separate cases. In each case, the originator obtained an interlocutory injunction against a generic competitor but was ultimately unsuccessful.

Both Wyeth and Sanofi have argued that the Commonwealth can only make a claim in the circumstances envisaged under the TG Act.

Justice Nicholas, as the docket judge for both cases, stated a case to the Full Federal Court in May 2015 to resolve this issue.

The Decision

The Full Federal Court has decided unanimously that the TG Act does not limit the Commonwealth’s ability to rely on the usual undertaking but rather provides additional bases on which the Commonwealth can seek recompense.

Sections 26C and 26D of the TG Act allow the Commonwealth to seek compensation where an originator has obtained an interlocutory injunction. However, these provisions only apply in restricted circumstances. The originators argued that the legislative intent was to create a ‘code’ regulating the Commonwealth’s rights, which displaces the common law rights of the Commonwealth.

The Commonwealth argued that, rather than intending to displace its common law rights,  Parliament’s intention in passing those provisions was to expand the rights of both the generic drug manufacturer and the Commonwealth to compensation. It argued that the relevant sections entitle the Commonwealth to compensation in different circumstances than those under which it is entitled to compensation pursuant to the usual undertaking.

The Full Court unanimously rejected the originators’ construction of the relevant sections and accepted that any rights created by those sections are additional to any existing rights the Commonwealth had under the usual undertaking.

Next steps and lessons

The stated case dealt only with the question of whether the TG Act limits the Commonwealth’s rights to compensation. The originators continue to contest their liability to compensate the Commonwealth on other grounds. Unless the originators bring an application for special leave to the High Court, the matters will return to the docket Judge to decide on the other arguments.

It remains to be seen if the decision impacts upon the willingness of originators to seek interlocutory injunctions. It may be that only those originators with a very high degree of confidence that their patents are valid and infringed will continue to seek interim relief.

Endnotes

1. Commonwealth v Sanofi [2015] FCAFC 172.