Aktiebolaget Hassle v Biochemie Australia Pty Ltd

The Proceedings 1 This is the latest in a series of proceedings brought by the patentee of a patent for an oral pharmaceutical preparation, the active ingredient of which is a compound known as omeprazole. Omeprazole is one of a class of drugs known as proton pump inhibitors ("PPIs") used in the treatment of gastro-intestinal diseases. When absorbed in the upper part of the small intestine, omeprazole inhibits gastric fluid secretions and is used specifically to treat gastric and duodenal ulcers. 2 The first applicant ("Hassle") is the patentee and the second applicant ("AstraZeneca") is the exclusive licensee of Australian Patent No 601,974 ("the Patent"). The patent is a combination patent for an invention entitled "New Pharmaceutical Preparation for Oral Use". The term of the Patent is twenty years from 23 April 1987. The Patent will therefore remain in force until 22 April 2007. The applicants are both members of the Astra Pharmaceuticals Group, the head office of which is in Sweden. I refer to the applicants, without differentiation, as "Astra", although I sometimes use their own names. 3 Until relatively recently, Astra enjoyed a monopoly in omeprazole formulation in Australia because it was the proprietor of a patent for the compound. The compound patent, however, has expired. Hence the significance of the combination patent. 4 Astra manufactures and offers for sale in Australia omeprazole tablets under the brand name "Losec". Astra also manufactures and supplies omeprazole tablets to Alphapharm Pty Ltd ("Alphapharm") which Alphapharm distributes under the brand name "Acimax". Both Losec and Acimax tablets contain omeprazole formulated in accordance with the Patent. Astra has also recently begun to manufacture and offer for sale a PPI, esomeprazole, an isomer of omeprazole, under the brand name "Nexium". 5 The respondent, Biochemie Australia Pty Ltd ("Biochemie"), is part of the Biochemie Group, which in turn is part of the Novartis Group based in Basel, Switzerland. The Biochemie Group distributes "generic" pharmaceutical products in many countries. Generic pharmaceutical products are preparations or compounds containing the same active ingredient as the originator drug and usually appear on the market after the patent for the originator drug has expired. 6 Biochemie imports and offers for sale in Australia omeprazole capsules under the brand name "Probitor". Astra alleges that Probitor capsules infringe the Patent. It seeks an interlocutory injunction restraining the respondent from infringing the Patent or procuring, authorising or assisting others to do so. It instituted the present proceedings on 17 February 2003 and its application for interlocutory relief was heard on 5 and 7-9 May 2003.

The Alphapharm Proceedings 7 The Patent has been the subject of a challenge to its validity by Alphapharm in proceedings ultimately determined by the High Court: Aktiebolaget Hassle v Alphapharm Pty Ltd (2002) 194 ALR 485. The joint judgment of four members of the High Court (Gleeson CJ, Gaudron, Gummow and Hayne JJ) in that case conveniently summarised the significance and structure of the Patent as follows (at 487): "The discovery of omeprazole and the grant of the compound patent was not itself sufficient to bring about the commercial exploitation of the compound by oral dosage. This was because the compound was not easily formulated into a satisfactory pharmaceutical composition. There was a problem in the administration of the drug which was answered with the formulation claimed in the patent. The problem had several aspects. In broad terms, omeprazole rapidly degrades in an acid or neutral solution and, further, its stability also is affected by moisture and organic solvents. For omeprazole to work as a drug, it must be protected from acidic gastric juice on its way through the stomach and must be released rapidly when it reaches the top of the small intestine. The patent has 17 claims. Claims 1-12 are product claims, each for a pharmaceutical preparation comprising a particular combination of constituents. Claims 1-11 are for a tablet or pellet and claim 12 is for capsules. Claims 2-12 are dependent upon claim 1. Claims 13 and 14 are process claims and claim 15 is for a preparation obtained by the process claimed in claims 13 and 14. Claim 16 is for the use of a preparation according to any one of claims 1-12 and 15 for the manufacture of a medicament for the treatment of gastrointestinal diseases. Claim 17 is a method claim, the method being the administration in a therapeutically effective amount to a host in need of treatment for gastrointestinal disease. However, the focus in the litigation has been upon the broadest of the product claims, claim 1…. The tablet or pellet claimed in claim 1 is a combination of three integers or elements. The first is the "core material" containing omeprazole as the active ingredient with an alkaline reacting compound; an alkali is a substance which neutralises or effervesces with acids. The second is one or more inertly reacting subcoating layer(s) on the core material, and the third an outer layer which is an enteric coating. An enteric coated tablet or pellet is one which assists through the stomach unaltered the contents then released in the intestine. The inert reacting subcoating layer(s), the second integer, comprise(s) excipients, that is to say, inactive substances that serve as a vehicle or medium for the core material. The excipients are soluble or rapidly disintegrating in water or are polymeric, water soluble, film-forming compounds optionally containing pH-buffering alkaline compounds. The tablet or pellet thus claimed is a combination in the proper sense of that term, combining three elements which interact with each other to produce the new product; it is the interaction which is the essential requirement of invention and such a combination may be constituted by integers each of which is old or some of which are new."

8 In Alphapharm, Astra sought orders against Alphapharm, a marketer of generic drug formulations, restraining an apprehended infringement of each of the claims in the Patent. Alphapharm admitted that it proposed to import and market a pharmaceutical preparation containing omeprazole for therapeutic use in the treatment of gastro-intestinal disorders. The preparation it in fact has ultimately marketed is in capsule form and is called "Maxor". Alphapharm denied that its marketing of Maxor infringed the Patent, and by its cross-claim sought revocation of the Patent. 9 Lehane J rejected all grounds of Alphapharm's cross-claim except one. His Honour rejected contentions, inter alia,that the Patent lacked novelty and was not fairly based on the specification. However, his Honour upheld Alphapharm's contention that the claimed invention was obvious within the meaning of s 100(1) of the Patents Act 1952 (Cth) (the "1952 Act"): Aktiebolaget Hassle v Alphapharm Pty Ltd (1999) 44 IPR 593. (The 1952 Act was repealed by s 230 of the Patents Act 1990 (Cth) ("1990 Act"), but the transitional provisions of the 1990 Act had the effect that Alphapharm could succeed only if it could bring its case on obviousness within the terms of the 1952 Act.) Accordingly, Lehane J granted the relief sought on the cross-claim, although the relief was stayed pending the appeals. In a separate judgment, his Honour held that, assuming (contrary to his opinion) that the Patent was valid, that which Alphapharm threatened to do infringed the patent: Aktiebolaget Hassle v Alphapharm Pty Ltd [1999] FCA 1394. 10 An appeal by Astra to the Full Court was dismissed: Aktiebolaget Hassle v Alphapharm Pty Ltd (2000) 51 IPR 375. The Full Court upheld Lehane J's finding as to obviousness. Their Honours did not consider the other challenges to validity raised by Alphapharm in its notice of contention. 11 Astra appealed by special leave to the High Court which, by majority (Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ, McHugh and Kirby JJ dissenting) allowed the appeal on 12 December 2002. The majority held that Lehane J and the Full Court had erred in their approach to the question of obviousness. The orders made by the Full Court dismissing the appeal from Lehane J were set aside. The matter was remitted to the Full Court for determination of the remaining grounds on Alphapharm's notice of contention. The order for revocation of the patent made by Lehane J was further stayed until further order of the Federal Court. The proceedings remitted to the Full Court have not been determined and, so it appears, are likely to be resolved by agreement between Astra and Alphapharm. Thus all challenges that have so far been made to the validity of the Patent have failed.

The Patent 12 Lehane J described the specification of the Patent in some detail in his judgment in Alphapharm (at 595-600). It is not necessary to repeat that analysis here, although it repays careful reading. It is enough to set out claims 1 and 13-17 of the Patent: "1. An oral pharmaceutical preparation in the form of a tablet or pellet containing omeprazole as the active ingredient, characterized in that it is composed of: (A) core material containing omeprazole together with an alkaline reacting compound, or an alkaline salt of omeprazole optionally together with an alkaline reacting compound; (B) one or more inert reacting subcoating layer(s) on said core material; and (C) an outer layer, which is an enteric coating, said inert reacting subcoating layer(s) between said core material and said outer layer comprising tablet excipients which are soluble or rapidly disintegrating in water, or polymeric, water soluble, filmforming compounds, optionally containing pH-buffering, alkaline compounds. … 13. A process for the preparation of an oral pharmaceutical formulation in the form of a tablet or pellet containing omeprazole, in which cores containing omeprazole mixed with an alkaline reacting compound or compounds or an alkaline salt of omeprazole optionally mixed with an alkaline reacting compound or compounds are coated with one or more inert reacting subcoating layers, whereafter the subcoated cores are further coated with an outer layer which is an enteric coating, said inert reacting subcoating layer(s) between said core material and said outer layer comprising tablet excipients which are soluble or rapidly disintegrating in water, or polymeric, water soluble, filmforming compounds, optionally containing pH-buffering, alkaline compounds. 14. A process according to claim 13 wherein an oral pharmaceutical preparation according to any one of claims 1 to 11 is prepared. 15. An oral pharmaceutical preparation obtained by the process according to claim 13 or 14. 16. The use of a preparation according to any one of claims 1 to 12 and 15 for the manufacture of a medicament for the treatment of gastrointestinal diseases. 17. A method for the treatment of gastrointestinal disease, characterized in that a preparation or medicament according to any one of claims 1 to 12, 15 and 16, respectively, is administered to a host in the need of such treatment in a therapeutically effective amount."

Probitor 13 Probitor is the name used in Australia for a 20 mg omeprazole capsule developed and manufactured by Liconsa, Liberación Contralada de Sustancias Activas, SA ("Liconsa"), a Spanish corporation. Like Losex and Acimax, Probitor is used to treat gastric acid related disorders in humans. The active ingredient is omeprazole. 14 In June 2000, Liconsa entered an agreement with Biochemie GmbH to obtain authorisation to market and distribute Probitor in Australia, New Zealand and South Africa. In 2001, Biochemie applied for approval to market, sell and distribute Probitor capsules in Australia. Probitor was listed on the Pharmaceutical Benefits Scheme ("PBS") schedule on 1 August 2002, and the product was launched on that date. At that time, the combination patent had been found by Lehane J to be invalid and his Honour's decision had been upheld by the Full Court. However, on 23 November 2001, the High Court had granted Astra special leave to appeal from the judgment of the Full Court and argument on the appeal had taken place on 29 and 30 May 2002. The High Court ultimately delivered judgment in favour of Astra on 12 December 2002. 15 Probitor products are manufactured at Liconsa's manufacturing facilities in Spain. The manufacturing process is the subject of a number of patents held by Liconsa, including Australian patent No 751, 609 entitled "Oral pharmaceutical preparation comprising an anti-ulcer activity compound, and process for its production" (the "Liconsa Patent"), claiming priority from a Spanish patent application filed on 31 July 1997. The evidence indicated, however, that the manufacturing process in fact used may depart in certain respects from the teaching of the Liconsa Patent. 16 Mr Darder, the managing director of Liconsa, said that Probitor capsules comprise the following ingredients: "(a) an inert seed (nonpareil) core of corn starch and sucrose having a diameter of between 1.0 to 1.18mm;

(b) an active layer that is applied to the said inert core, which is comprised of omeprazole, sodium lauryl sulphate, anhydrous disodium phosphate, mannitol and hydroxypropylmethyl cellulose (HPMC); and

(c) an outer layer, which is an enteric coating that is applied to the active layer, which is comprised of Macrogol 6000, talc, polysorbate, titanium dioxide and Eudragit L 30D-55."

17 Mr Darder described the manufacturing process. He said, in summary, that Probitor is manufactured with an active layer and an enteric coat which are respectively sprayed onto an inert core. In manufacturing Probitor, Liconsa does not apply and has never applied any layer or coating in between the omeprazole-containing active layer and the enteric coat. According to Mr Darder, in the finalised Probitor product, the omeprazole containing layer is immediately adjacent to the enteric coat. The significance of this for present purposes is that an integer of claim 1 of the Patent is an inert reacting subcoat layer, between the core material containing omeprazole and the outer layer (the enteric coating). 18 Mr Darder emphasised that a critical part of the manufacturing process is the spraying of the ingredients in a warm dry environment and carrying out drying steps which prevent any significant reaction between the active layer and the enteric coat. These steps involve: · drying the charged (coated) nuclei (that is, sugar spheres sprayed with the active substance) in a piece of equipment known as a fluid bed for a period of about 1.3 hours, by increasing the temperature of the air in the tank to obtain a residual moisture of no more than 1%; and · transferring the microgranules (on which the enteric layer has been sprayed) to a bi-conic dryer and drying them at 40°C under a high vacuum for 24 hours until the residual moisture is less than 1%. It is also critical to the process to use specially designed spray guns that allow the active layer and the enteric coat to be applied to the microgranules in a relatively dry state. Mr Darder said that the removal of moisture from the active ingredient layer and the enteric coat effectively prevents degradation of the omeprazole. In the absence of polar solvents such as water, there is no acid-base reaction between the active layer and the enteric coat.

Astra's Contentions 19 Astra says that it is prima facie entitled to enforce the exclusive rights granted by the Patent which, to date, has survived all challenges made to it. So far as infringement is concerned, Astra relies on claim 1 of the Patent. Astra accepts that it must ultimately show that Biochemie has taken each and every one of the essential integers of one or more of the claims in the Patent: Nicaro Holdings Pty Ltd v Martin Engineering Co (1990) 91 ALR 513, at 527-528, per Gummow J 20 Astra contends that, on its proper construction, claim 1 of the Patent will be infringed if the three characteristics of the formulation are present, that is, each of (A), (B) and (C) as specified in claim 1. According to Mr Jackman SC, who appeared with Ms Howard and Mr Darke for Aktiebolaget Hassle, it is not to the point that the process of manufacturing Probitor does not involve the application of a separate subcoat or layer between the active core and the outer enteric coating. Mr Jackman emphases that claim 1 is a claim to a product, not a claim to a process of manufacture. He submits that Probitor infringes claim 1 even if the process of manufacture does not infringe claims 13 or 14 (the process claims) and the product does not infringe claim 15 (the product by process claim). 21 Astra relies on the evidence of Dr Lindquist, an analytical chemist employed by AstraZeneca AB in Sweden, to establish that there is at least a serious issue to be tried on the question of infringement. It says that experiments conducted by Dr Lindquist on 23 October 2002 and 14 April 2003 on pellets derived from Probitor capsules revealed the presence of each of the three integers of claim 1 of the Patent. Specifically, according to his evidence, Dr Lindquist observed

• core material consisting of a non-pareil (sugar sphere) surrounded by a layer containing omeprazole and excipients;

• a middle layer containing hydroxy propyl methyl cellulose ("HPMC"), a water soluble polymer, and talc; and

• an outer layer containing methacrylic acid-ethyl acrylate-copolymer, a copolymer conventionally used for enteric coating, and talc.

Dr Lindquist expressed the opinion that all elements of claim 1 of the Patent were present in the Probitor product tested. Dr Lindquist's evidence was supported by Professor Junginger, Professor and Head of the Department of Pharmaceutical Technology at Leiden University in The Netherlands. Professor Junginger did not conduct any tests himself, but expressed the opinion, notwithstanding criticisms of Dr Lindquist's methodology and conclusions by experts who gave evidence for Biochemie, that Dr Lindquist's tests demonstrated the existence of a middle layer or subcoat in Probitor.

Biochemie's Contentions 22 Biochemie submits that it is necessary to see the case on infringement and the case on validity as interrelated. According to Mr Catterns QC, who appeared with Mr Burley for Biochemie, Astra faces something of a dilemma because the greater the breadth of construction of a claim which a patentee must adopt for infringement, the greater the risk of invalidity on novelty, obviousness and, in particular, fair basis. 23 Biochemie accepts for the purposes of the interlocutory proceedings, that it is arguable that integer (A) of claim 1 of the Patent (core material containing omeprazole together with an alkaline reacting compound) is present in Probitor pellets. It also accepts that integer (C) of claim 1 (an outer layer which is an enteric coating) is present. Biochemie disputes, however, that integer (B) is present in Probitor pellets. 24 Mr Catterns submits that claim 1 does not embrace a two step process which does not include the application of a subcoating layer on the active core. He contends that the construction is supported by the references in claim 1 to "subcoating layer(s) on said core material" and to "subcoating layer(s) between said core material and said outer layer" (emphasis added). Mr Catterns also argues that the specification backs away from the invention claimed insofar as it claims a formulation of omeprazole consisting of the application of an enteric coat directly onto an omeprazole-containing layer. He points to reference in the body of the specification explaining that omeprazole decomposes when in direct contact with ordinary enteric coating and referring to the enteric coating layer being applied to the "sub-coated cores by conventional coating techniques". The essential disclosure of the specification as a whole is that a three or more stage process is required in order to prepare pharmaceutical preparations of omeprazole for oral use. 25 Biochemie submits that if, contrary to the first contention, Probitor infringes claim 1 of the Patent, the claim is "hopelessly bad" for want of a fair basis. The inventive step, disclosed in the specification, so it is argued, is wholly related to the addition of a water soluble subcoating layer during manufacture. Thus the broad construction of the claim advanced by Astra "travels beyond the matter disclosed in the specification": Olin Corporation v Super Cartridge Co Pty Ltd (1977) 180 CLR 236, at 240, per Barwick CJ; Kimberley-Clark Australia Pty Ltd v Arico Trading International Pty Ltd (2001) 207 CLR 1, at 12, per curiam. Accordingly, the Patent fails to comply with the requirement in s 40(3) of the 1990 Act that the claim or claims must be clear and succinct and fairly based on the matter described in the specification. Mr Catterns acknowledges that Lehane J rejected a fair basis argument in Alphapharma, but says that the argument was put quite differently in that case. 26 Biochemie then submits that even if Astra has established a serious issue to be tried on the question of construction of claim 1 and does not fall foul of the fair basis principle, it has failed on the evidence to make out a serious issue to be tried that Biochemie has infringed the Patent. Biochemie relies on two contentions: · first, the evidence simply does not show that the Probitor pellets have a separate subcoat or layer between the active core and the outer enteric layer; and · secondly, even if it does, Astra has failed to show that the separate layer is an inert reacting subcoat layer because it has not adduced evidence or satisfactory evidence that the subcoated layer is substantially omeprazole free. The second of these factual submissions rests on the proposition that integer (B) of claim 1 requires the subcoating layer to be omeprazole free. As I shall explain later, ultimately this proposition was not in dispute. 27 In support of the first proposition, Biochemie relies primarily on the evidence of Dr Crank, an expert in chemical analysis, who expressed the view that Dr Lindquist's experiments had not shown the existence of a separating layer in Probitor pellets. According to Dr Crank, to the extent that the experiments suggested the existence of a layer, the layer is in truth an "artefact" created in the course of the experiments. This had occurred through the use of acetone wash, which dissolved a number of products in the enteric coat (outer layer) and the active layer (the core), thereby leaving residual talc from the enteric coat and exposing HPMC in the active layer. 28 Mr Catterns also raises obviousness and want of novelty as grounds for the invalidity of the Patent. He maintains these grounds notwithstanding the High Court's rejection of the first in Alphapharm and Lehane J's rejection of the second in the same case. However, as I understand Mr Catterns' argument, he accepts that these grounds cannot advance his case in the current interlocutory proceedings any further than the fair basis argument.

Principles 29 The Court has a discretion to grant interlocutory relief pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth): see, too, Patents Act 1990 (Cth), s 122. The relevant principles governing the exercise of the discretion are not in dispute. Astra accepts that in order to secure an interlocutory injunction it must show "(1) that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; (2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and (3) that the balance of convenience favours the granting of an injunction":

Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148, at 153, per Mason ACJ. As Ashley J observed in AB Hassle v Pharmacia (Australia) Pty Ltd (1995) 33 IPR 63, at 76-77, there has been a tendency to treat the requirement of irreparable injury as going to the balance of convenience, rather than as an anterior condition. Nonetheless, Astra is apparently content to follow the approach of Mason ACJ in Castlemaine Tooheys v South Australia. 30 The fact that this is a patent case does not displace or qualify the fundamental principles which govern applications for interlocutory injunctions generally: Appleton Papers Inc v Tomasetti Paper Pty Ltd [1983] 3 NSWLR 208, at 219, per McLelland J; Martin Engineering Co v Trison Holdings Pty Ltd (1988) 81 ALR 543, at 547, per Gummow J. Where the respondent challenges the validity of the patent, it is for the respondent to establish that want of validity is a triable issue: AB Hassle v Pharmacia (Australia) Pty Ltd (1995) 33 IPR 63, at 69, per Ashley J. In this case, Astra has the advantage of judicial determinations upholding the validity of the Patent (cf Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, at 624), although that does not of itself preclude Biochemie from showing that there is merit in the ground on which it alleges the Patent is liable to be revoked. 31 Whether there is a sufficiently serious question to be tried and whether the balance of convenience favours Astra are not issues to be considered in strict isolation. The strength, or weakness, of the case can affect the balance of convenience: Tidy Tea Ltd v Unilever Australia Ltd (1995) 32 IPR 405, at 416, per Burchett J.

construction 32 There is no dispute as to the principles of construction applicable to patents. They are stated in Décor Corporation Pty Ltd v Dart Industries Inc (1989) 13 IPR 385, at 391, per Lockhart J; at 400, per Sheppard J; see also Flexible Steel Lacing Co v Beltreco Ltd (2000) 49 IPR 331, at 347-350, per Hely J . 33 The general principle is that the plain and unambiguous meaning of a claim cannot be varied or qualified by reference to the body of the specification, but terms in the claim which are unclear may be defined or clarified by reference to the body of the specification: Kimberly-Clark Australia Pty Ltd v Arico Trading International Pty Ltd, at 12, per curiam. However, one reads the specification as a whole as part of the process of determining whether the terms of the claim are clear and unambiguous or whether only one meaning is necessarily conveyed by the relevant expression: Flexible Steel, at 348. Ordinarily, the Court will construe claims so as to give a different meaning to different claims, otherwise some will not be effective: Parkinson v Simon (1894) 11 RPC 493, at 502, per Lord Esher MR. 34 I have not been asked to resolve the question of construction in these proceedings. It is enough to say that I think it clearly arguable that claim 1 is not confined to a subcoating layer which is applied discretely, by coating the active core. As Mr Jackman points out, claim 1 is a product claim, not a process or product-by-process claim. In conformity with the dictionary definition of "coating", the expression "subcoating layer" is apt to refer to a layer of any substance spread over a surface, regardless of the means by which the layer is brought into existence. The words "on" and "between" in claim 1, in context, would seem, at least arguably, to refer to the position of the layer in the product, rather than the process by which the layer comes into existence. 35 Claim 13, the process claim, refers to the active core being "coated with one or more inert reacting subcoating layers". This language does not suggest that being coated is necessarily the only process by which a subcoating layer can be created. Further, it is not easy, despite Mr Catterns' efforts, to see what practical difference there could be between claim 15 (the product by process claim) and claim 1, if Biochemie's construction were adopted. 36 The body of the specification does not seem to define terms in a manner that makes a narrow construction of claim 1 inevitable. The subcoating layer is referred to as the "separating layer" which "consists of one or more water soluble or in water rapidly dissolving inert layer, optionally containing pH-buffering compounds". The definition or explanation of "separating layer" does not seem to imply that it can be produced by only one process. 37 I do not intend to suggest that Biochemie's narrower approach to the construction of claim 1 is untenable. Mr Catterns has identified several factors that could support that construction. I think, however, that Astra has established that its construction of claim 1 is clearly arguable.

EXISTENCE OF THE SUBCOATING LAYER 38 In this case both parties made detailed submissions as to the strength of their respective arguments, particularly on the factual questions relating to infringement. While the Court does not undertake a preliminary trial with a view to forecasting the ultimate result (Beecham Group v Bristol Laboratories, at 622), it is appropriate to refer, at least in outline, to the evidence given by the technical experts. This evidence bears on whether Astra has established that there is a serious issue to be tried as to whether the subcoating layer exists and, if so, whether it is omeprazole free. 39 It is common ground that, assuming Astra's construction of claim 1 of the Patent to be correct, Biochemie has not infringed unless the Probitor pellets have integer (B) in claim 1, namely an inert reacting subcoating layer on the core material. As I have explained, Biochemie disputes that Astra has made out an arguable case that the Probitor pellets have a subcoating layer. In order to address this issue, Dr Lindquist's first affidavit explained that he bisected a pellet from a Probitor capsule using a microtome blade. He applied hydrochloric acid vapour to the exposed surface of the bisected pellet. This stained the omeprazole a yellow-brown colour because omeprazole degrades quickly when exposed to hydrochloric acid vapour. The bisected pellet was heated at 60° to 65° Centigrade to promote degradation. 40 Dr Lindquist then took photomicrographs of the stained pellet. The micrographs are in evidence as Exhibit JL3. One of the micrographs was taken with a stereomicroscope, while the other was taken with a fluorescent microscope. According to Dr Lindquist, the second of the micrographs clearly show the structure of the pellet, as follows: · a sugar sphere (non-pareil); · a yellow-brown omeprazole-containing layer, which also contained excipients, apparently spraycoated onto the sugar sphere; · a middle layer; and · an outer layer. 41 Dr Lindquist then took another whole pellet and removed a thin slice from the outer layer by shaving the surface. He used the FT-IR, ATR (Fourier Transform Attenuated Total Reflectance) spectrometer to record spectra of the outer layer thus exposed (Exhibit JL4). This showed methacrylic acid-ethyl acrylate polymer to be present, together with talc. 42 Next, Dr Lindquist removed the enteric coat of a new pellet by dissolving and rinsing it sequentially in two 0.5ml portions of acetone. He proceeded to record an FT-IR, ATR spectrum of the surface (Exhibit JL5). The comparison with a reference spectrum of HPMC and talc showed that the "middle layer" contained these two substances. 43 In view of these findings, Dr Lindquist concluded that all elements of claim 1 of the Patent were present in the pellets in the Probitor capsules. In particular, he identified a middle layer containing HPMC, a water soluble polymer, and talc. 44 Dr Crank made several criticisms of Dr Lindquist's methodology. I refer to some of them shortly. It is important to appreciate, however, that Dr Crank was not asked by Biochemie to conduct any experiments of his own on Probitor pellets. He acknowledged in cross-examination, as one would expect, that to form an opinion as to the existence of the subcoat it would have been desirable for him to conduct his own examination of pellets taken from Probitor capsules. 45 First, Dr Crank said that the use of hydrochloric acid vapour is a very aggressive process that can degrade and char excipients, possibly forming structures that could be mistaken for distinct layers. In his view, Exhibit JL3 is a photomicrograph of a chemically altered pellet that could have reflected a chemical effect within the test sample. In short, the apparent subcoat could have been an artefact of the exposure of Probitor pellets to hydrochloric acid vapour. 46 Dr Lindquist responded by undertaking further tests of Probitor pellets on 14 April 2003. These included taking photomicrographs of a bisected Probitor pellet without exposing it to hydrochloric acid vapour. Dr Lindquist obtained tests corresponding to those in Exhibit JL3 (Exhibits JL10a and JL10b). Dr Crank in his second affidavit maintained that the apparent subcoat might well be explained by changes in the relative concentrations of HPMC and omeprazole at the margins of the active layer. 47 Secondly, Dr Crank expressed the view, based on his scrutiny of Exhibit JL3, that the apparent layer identified by Dr Lindquist as a subcoat "is likely to be an artefact", that is something that appears to be part of the sample material but which in fact is the result of the technique being utilised by the experimenter. In his second affidavit, Dr Lindquist restated his view that the lower of the two photomicrographs showed a distinct layer distinguishable from the other layers of the formulation. He rejected the suggestion that what could be seen from the use of fluorescent microscopy in Exhibit JL3 was merely the interface and the change in refractive index between the omeprazole-containing layer and the enteric coat. Dr Lindquist considered that the fluorescence of the middle layer or subcoat is far greater than at the interface between the enteric coat and the air and is continuous and consistent, in contrast to the fluorescence of the interface between the omeprazole layer and the sugar non-pareil. 48 Thirdly, Dr Crank suggested that the acetone washing left a residue of talc (from the enteric layer) and HPMC (from the surface of the active layer), which Dr Lindquist mistook for a distinct middle layer. Dr Lindquist said that this could not be the case because HPMC is insoluble in acetone and because the spectrum of the subcoat is different from that of the enteric coat. Moreover, as he explained in his second affidavit, Dr Lindquist repeated the procedure and took photomicrographs of a Probitor pellet after it had been washed with acetone. According to Dr Lindquist, this revealed the existence of a subcoat or separate layer (Exhibit JL11). 49 Professor Cox also criticised Dr Lindquist's methodology. Like Dr Crank, Professor Cox acknowledged that he could have undertaken tests or experiments on Probitor pellets, but had not been asked to do so. Indeed he was not asked to express an opinion as to whether the subcoat is present. I mention two of Professor Cox's criticisms. 50 First, Professor Cox suggested that Dr Lindquist should have used advanced techniques of fluorescent microscopy to overcome the problem of distortion of the images of fluorescent objects. In response to this criticism, Dr Lindquist, in his second set of tests, analysed a pellet using confocal laser scanning microscopy ("CLSM") and again observed the existence of a subcoat or layer (Exhibits JL9, 10, and 11). Professor Cox offered further criticisms of Dr Lindquist's use of CLSM, suggesting, for example, that he had failed to make effective use of the technique. 51 Secondly, Professor Cox expressed the view that in order to establish that the bright line appearing on the image created by the fluorescent microscopy is in fact a specific subcoat or layer, it is necessary to exclude purely optical explanations resulting, for example, from the optical properties of any layered structure where there is a variation in refractive index between layers. In Professor Cox's opinion, Dr Lindquist had neither done this nor had he identified a source of fluorescence for the apparent layer. Professor Cox suggested that a micrograph should be taken of a bisected pellet, after the enteric layer had been removed. If this showed the purported "middle layer" it would be the "clearest evidence" for the presence of two layers external to the omeprazole layer. 52 Dr Lindquist's response was to rely on Exhibit JL11. In his oral evidence, Professor Cox disputed a suggestion (made by Professor Junginger) that the layer revealed by Exhibits JL10 and JL11 was of uniform thickness. Otherwise, however, Professor Cox accepted that Exhibit JL10, in particular, shows a quite clear region of enhanced fluorescence. 53 Mr Darder offered the opinion that Liconsa's manufacturing process could not produce a "middle layer" as thin as that identified by Dr Lindquist. While he was not cross-examined on that opinion, he did not conduct or participate in any tests or experiments to support that view. 54 Dr Lindquist's conclusions on the existence of the subcoating layer received support from the evidence of Professor Junginger, who observed the second series of tests carried out by Dr Lindquist. Professor Junginger gave two explanations for the existence of the intermediate layer or subcoat. One related to the method of spraying the drug-containing layer, but that is inconsistent with the evidence of Mr Darder and, as Professor Junginger accepted, in view of that evidence is not tenable. The second explanation is that the drug-containing layer includes excipients which have a low molecular weight and therefore will dry the most quickly. The highest amount of agent is HPMC. This is a high molecular substance that will dry more slowly, due to its high water binding capacity. Professor Junginger explained in his oral evidence that the relatively low temperature used during the spraycoating process would leave a watery layer to which the HPMC would diffuse. Accordingly, there may have been diffusion of the HPMC molecules to the surface during the spray coating process, thereby resulting in the formation of an intermediate layer or subcoat. Dr Crank challenged this theory and Mr Darder thought it "highly unlikely", but their evidence does not lead me to conclude, at this interlocutory stage of the proceedings, that Professor Junginger's theory is implausible. 55 I think that Astra has established that there is a serious issue to be tried as to the existence of a separate subcoating layer between the omeprazole-containing core and the enteric layer. That is not to say that Dr Crank and Professor Cox have not advanced some substantial criticisms of Dr Lindquist's methodology and conclusions. Nor is it to deny that some aspects of Dr Lindquist's evidence may not have been entirely satisfactory. I have in mind his failure to disclose in his affidavits a TOF-SIMS ("Time of Flight - Secondary Ion Mass Spectrometry") image which, on one reading, does not support the existence of a subcoating layer. I also have in mind that Dr Lindquist's oral evidence indicated that the results recorded in Exhibit JL3 were rather more equivocal than his affidavit may have suggested. Nonetheless, the fact remains that neither Dr Crank nor Professor Cox has yet conducted tests themselves that (depending upon the outcome) would enable them to refute the evidence given by Dr Lindquist and Professor Junginger. I appreciate that the timing of these proceedings may have given Dr Crank and Professor Cox a limited opportunity to conduct their own experiments, but the evidence does not establish that they could not have done so. At the trial, of course, with the benefit of further experiments, Biochemie may be able to make out its contention that the subcoating layer observed by Dr Lindquist is a mere artefact or a residue produced by his investigative techniques. But on the evidence before me there is a serious issue to be tried.

Is the Subcoat Omeprazole free? 56 As I have noted, Biochemie submits that Astra, in order to succeed in its infringement case, must show that any subcoating between the omeprazole-containing core and the enteric outer coat does not contain omeprazole. This submission is founded on the terms of integer (B) of claim 1 of the Patent, namely that there must be one or more "inert reacting subcoating layer(s) on said core material". Mr Catterns submits that, the expression "inert reacting" is to be contrasted with the reference in claim 1 to omeprazole as the "active ingredient". He further contends that this construction of integer (B) is reinforced by the reference to the subcoating "on said core material", since this draws a spatial distinction between the subcoating layer and the core material containing omeprazole as its active ingredient. Finally, he points to the reference in claim 1 to the subcoating layer "comprising tablet excipients", an expression which implies that the layer contains no other substance. 57 Although Mr Jackman's opening suggested that Astra may have intended to contest this construction of claim 1 of the Patent, his closing submissions appear not to dispute that integer (B) of claim 1 requires the subcoating layer to be substantially free of omeprazole. I proceed, accordingly, on the basis that the relevant question is whether Astra has shown, on the evidence, that there is a serious issue to be tried as to whether the subcoating layer is omeprazole free. 58 The evidence relating to this issue is incomplete and, in some respects, unclear. The difficulty has come about, in my opinion, largely because neither Dr Lindquist nor Professor Junginger, in their affidavits, specifically considered or offered an opinion as to whether what Dr Lindquist called the "middle layer" was omeprazole free. However, it is now common ground that the spectrum of the middle layer reproduced in Exhibit JL5 suggests that no omeprazole is present. Both Dr Lindquist and Professor Junginger referred to Exhibit JL5, although not specifically for the purpose of showing that the middle layer was omeprazole free. It will be recalled that Exhibit JL5 was prepared by Dr Lindquist after he had removed the enteric coating from a Probitor pellet by means of an acetone wash. 59 Dr Crank expressed the view in his first affidavit that what Dr Lindquist observed, after applying acetone wash to remove the enteric coat, was part of the active layer of the Probitor pellet, together with residual talc derived from the enteric coating. Dr Crank said that the active layer contained, among other things, HPMC, which is not soluble in acetone. He also observed that talc would not be efficiently removed by the acetone wash and some would have remained on the surface of the active layer. He also noted that omeprazole is soluble in acetone wash and thus the procedure adopted by Dr Lindquist "is likely to have dissolved out [the omeprazole] on the surface of the active layer". 60 In his second affidavit of 1 May 2003, Dr Crank noted that the photomicrographs in Exhibits JL 10a, JL10b and JL11 had been taken using a specific kind of light filter. He suggested that while the "subcoat" identified in these Exhibits might well have a higher concentration of HPMC than portions of the active layer closer to the centre: "it is impossible to determine whether the "subcoat" contains omeprazole and thus whether it should properly be regarded as a separate coat or merely a region where the relative concentrations of omeprazole and HPMC varies from that at other parts of the active layer. In short, however, the fluorescence of omeprazole might have been filtered out because of the choice of experimental conditions." 61 Dr Crank pointed out that HPMC does not exist as an individual molecule, but as a network of molecules that is often used as a binding agent. He considered it highly unlikely that a large polymeric molecule such as HPMC, if it did diffuse, would do so on its own. Accordingly, he expressed the opinion that if a subcoat identified by Dr Lindquist is a physical phenomenon, it is highly unlikely that the subcoat is "pure HPMC from the active layer". Dr Crank continued as follows: "[w]hile it is possible that there is a greater concentration of HPMC at the outer extremity of the active layer relative to the rest of that layer, there would also be a greater concentration, or at least the presence of the other substances present in the active layer … including omeprazole". 62 The second series of experiments conducted by Dr Lindquist was apparently not designed to explore further the question of whether the middle layer identified by him was omeprazole-free. In any event, Dr Lindquist's second affidavit, sworn on 17 April 2003, although undertaking further tests suggested by Dr Crank in his first affidavit, does not specifically deal with this issue. 63 On the first day of the hearing, Mr Catterns cross-examined Dr Lindquist as to the significance of the TOF-SIMS test (the results of which had been produced to Biochemie's representatives before the hearing). Mr Catterns put to Dr Lindquist, who gave evidence by videolink from Sweden, that the TOF-SIMS test showed that the enteric coating (with talc) met the active layer and that this was inconsistent with the existence of a separate subcoating layer between the omeprazole-containing core and the enteric outer coating. Mr Catterns did not, however, specifically put that the TOF-SIMS test showed that, if there was a separate middle layer, it contained omeprazole. 64 On the same day Professor Junginger gave evidence, also by videolink, from The Netherlands. He was asked in chief by Mr Jackman whether he had any response to make to particular paragraphs of Dr Crank's affidavits. In answering that question, Professor Junginger said that he "would still affirm … that this subcoat is as far as we could detect omeprazole free".

It is not clear why Professor Junginger used the word "affirm", as his affidavit does not specifically address this question.

65 Mr Catterns cross-examined Professor Junginger on his answer. The substance of the cross-examination is as follows: "You said to my friend, as far as we can detect, I think you said, the subcoating layer is omeprazole free, do you remember that. Did I hear you correctly? --- Yes. What tests enabled you to detect that? --- Basically as you know, the omeprazole is straight open as in a crystalline form. And if the layer would contain omeprazole crystals we certainly would be able to detect them. By what method? --- Microscopically. Are you saying by fluorescence methods? --- I have not said this, but I think you could do this with fluorescent microscopy. But you have done no test which shows that layer is omeprazole free, have you? --- I have not done any test, so the tests if at all, have been done by Dr Lindquist. What, by his tests, shows that layer is omeprazole free? --- He has done some infra-red spectroscopy measurements proving that this layer consists of hydroxy propyl methyl cellulose and [talcum], and that there was no evidence to show in this spectrum, omeprazole. Are you referring to the tests whose spectrums are his exhibit JL5. That's his first affidavit? --- Yes, I am referring to this spectra. And your statement that as far as we can detect it is omeprazole free is based upon the spectrum JL5, is that correct? --- This is correct, at least he could not detect in this spectrum any peaks of omeprazole. And because the layer is so thin, we certainly would be able to do so. That layer has been achieved by removing the enteric coat with a relatively large proportion of acetone in two acetone washes, is that correct? --- That's correct. And omeprazole is soluble in acetone, isn't it? --- Omeprazole is soluble in acetone. I have no clear data about the solubility, but I assume that it's soluble. … How do you know that omeprazole isn't in there? --- I refer to the straight coating process of Mr Darder. You see he is warming up the solution in order to dissolve I think mannitol [and] sodium lauryl sulphate and anhydrous sodium phosphate, and then he is cooling down to 20 degrees if I remember correctly. Then he is adding the slurry of omeprazole and also HPMC and then he says it has to be stirred until all has been dissolved with the exception of omeprazole which still is dispersion. I would like to add here that certainly if this process, omeprazole is in contact with an alkaline reacting salt watery solution, that there is a chemical reaction at the surface making - at least at the surface omeprazole sodium salt. And this refers again to my opinion that if we would have omeprazole in the sub-coat, it would not dissolve to a great extent in acetone because it is a salt at the surface. Just looking at JL5, would you agree that the only possible source of the talc is from the enteric coat? --- Yes. Would you agree that the only possible source of the HPMC is from the active layer that is sprayed on? --- Yes. You have an explanation as to how HPMC can come out to the outside, is that correct? --- I don't think - as far as I understood you it's correct. It would refer to the washing procedure, the enteric coat would have been washed off by firstly a solution of acetone containing .5 per cent of water. This gave this milky slurry which consists of titanium dioxide and ticom and there is a second washing portion of .5 millilitre, we have tried - or Dr Lindquist has tried to remove all the adherent talc particle at the surface of the sub-coat. This was not completely possible because we also have seen this in the fluorescent microscope pictures that there was some residue at the surface. This gives us also the hint that those spectra contain both at the surface of hydroxy propyl methyl cellulose and [talcum]. The HPMC is from the surface of the active layer? --- Yes." 66 Mr Catterns then asked Professor Junginger about the TOF-SIMS image. Professor Junginger said that the image was insufficiently sensitive to establish that the talc was immediately adjacent to the omeprazole. 67 Another document produced to Biochemie by Astra, but not referred to in Dr Lindquist's affidavits, was a spectrum of the active core of a Probitor pellet taken by him after the application of the acetone wash (the spectrum was part of Exhibit A). Dr Crank was the only witness who was asked about the Exhibit A spectrum. He said that he could see no sign of omeprazole in that spectrum. He also said that he would assume that the omeprazole "had been washed out by the acetone washing because omeprazole is soluble in acetone and therefore it could have been taken from the surface before the spectrum was run". 68 The significance of the Exhibit A spectrum is that it suggests, in the absence of any other explanation, that the acetone wash removed the omeprazole from the active core. If that is so, the absence of any trace of omeprazole in Exhibit JL5 (the spectrum of the middle layer) is likely to reflect the fact that omeprazole was removed as a result of the use of the acetone wash. Exhibit JL 5 would therefore say nothing about whether the middle layer did or did not contain omeprazole before the application of the acetone wash. 69 Unfortunately, Mr Catterns did not ask Dr Lindquist or Professor Junginger about the significance of the Exhibit A spectrum for the purpose of determining whether the subcoating layer is omeprazole free. Mr Catterns frankly acknowledged that the omission came about because the significance of the Exhibit A spectrum was not appreciated at the time cross-examination took place. Neither party applied to recall Dr Lindquist or Professor Junginger to elicit their response to the Exhibit A spectrum. 70 Dr Crank was cross-examined about his response to Professor Junginger's hypothesis that the diffusion of the HPMC molecules during the spraycoating process is the likely explanation for the intermediate subcoat. In particular, he was cross-examined as to the assumptions he had made when expressing his views. He was specifically questioned as to the difference between the teachings of the Liconsa patent (which Dr Crank assumed had been followed) and the process actually used. He said that the difference drawn to his attention, which related to drying time and air volume, would not alter his opinion. 71 In this state of the evidence, Mr Catterns submits that Astra has failed to establish that there is a serious issue to be tried on the question of whether the subcoating layer is omeprazole free. He relies on the following: · Professor Junginger's opinion that the subcoating is omeprazole free is based essentially on Exhibit JL5. Since Exhibit JL5 is plainly the product of the "massive acetone wash", as demonstrated by the Exhibit A spectrum, Professor Junginger's opinion lacks a firm foundation. · The TOF-SIMS image rules out the presence of an omeprazole free layer between the core and the enteric coating, whether or not there may be a different concentration of HPMC or something else fluorescent at the boundary. · Dr Lindquist's evidence was unsatisfactory because he withheld both the TOF-SIMS image and the Exhibit A spectrum, both of which are highly relevant to the composition of any middle layer. Indeed, Mr Catterns goes so far as to submit that Dr Lindquist deliberately gave false evidence about the significance of the TOF-SIMS analysis. · Since omeprazole is fluorescent, the fluorescent bands on which Astra relies to establish the existence of a middle layer are consistent with its presence in that layer. · Professor Junginger's explanation as to why omeprazole does not form part of the middle layer is unconvincing. If, as he suggests, salt forms at the surface, thereby acting as a barrier, presumably the barrier would prevent the omeprazole in the active core dissolving in the acetone wash. · Dr Crank's evidence supports the proposition that any subcoating layer would have included omeprazole. 72 Mr Jackman submits that the evidence is sufficient at least to show that there is a serious issue to be tried on the question of whether the subcoating is omeprazole free. He says the following: · Dr Lindquist's first affidavit should be read as asserting that the middle layer is omeprazole free. While Dr Lindquist said only that the layer contains HPMC and talc, that should be understood as meaning that the layer contains only those substances. Mr Jackman points out that Exhibit JL5, to which Dr Lindquist refers, does not reveal any omeprazole and that Dr Lindquist expresses the opinion that all integers of claim 1 of the Patent are present in Probitor pellets. · Professor Junginger's evidence is to the effect that the acetone wash would not have removed omeprazole from the subcoating layer. Accordingly, Exhibit JL5 provides a sound basis for reaching the conclusion that the subcoating layer is omeprazole free. · Professor Junginger said in his evidence that if omeprazole was present, he would have been able to detect it microscopically (although he was referring to the position after the acetone wash had been applied). · The significance of the Exhibit A spectrum was never put to Dr Lindquist or Professor Junginger. They therefore did not have an opportunity to respond to Dr Crank's evidence on the topic. · The TOF-SIMS image is of no significance on the present question. 73 In my view, there is some evidence suggesting that the middle layer identified by Dr Lindquist does not contain omeprazole. Despite Mr Catterns' invitation, in effect, to reject the evidence of Dr Lindquist and Professor Junginger on this issue as of no value, I do not think it appropriate to take that course. While I have reservations about Dr Lindquist's failure to include the TOF-SIMS image in his affidavits, I do not think that he should be criticised for not referring to the Exhibit A spectrum in his affidavits, in the absence of the criticism being put to him directly. Nor am I prepared to find that he deliberately gave false evidence. 74 On the other hand, the evidence on this issue is somewhat fragmentary, largely because neither Dr Lindquist nor Professor Junginer specifically focussed on this issue in their affidavits. That omission may have come about because it was not until Dr Crank's second affidavit (of 1 May 2003) was served that the issue was clearly identified. Nonetheless, the onus is on Astra to adduce sufficient evidence to make out an arguable case that integer (B) of claim 1 of the Patent is present in Probitor pellets. 75 The evidence of Dr Lindquist and Professor Junginger that the middle layer is omeprazole free rests heavily upon Exhibit JL5 and observations made by them after the application of the acetone wash. It is necessary to set against that Dr Crank's evidence that if there is a diffusion process involving HPMC, as Dr Junginer suggested, the likelihood is that omeprazole would also be present at the "outer extremity of the active layer". It is also necessary to take account of the effects of the acetone wash on the middle layer, in particular, its propensity, given that omeprazole is soluble in acetone, to remove omeprazole from that layer. The evidence, independently of the Exhibit A spectrum, leaves me with significant doubts as to whether the absence of omeprazole after the acetone wash (as revealed by Exhibit JL5) is due to the application of the wash, rather than to the fact that the middle layer simply does not contain omeprazole. Those doubts are not substantial enough to conclude that Astra has failed to establish an arguable case, but they suggest that Astra's position, on the current state of the evidence, is relatively weak. 76 Further doubt is cast on Astra's case on this issue by the Exhibit A spectrum. It is true that Dr Lindquist and Professor Junginger were not asked about the Exhibit A spectrum. I think that reduces the evidentiary significance that the spectrum might otherwise have. But I do not think that I can ignore it altogether. Dr Crank gave evidence concerning the Exhibit A spectrum without objection. If the Exhibit A spectrum is taken into account, it tends against Astra's contention that the acetone wash is unlikely to have removed omeprazole from the subcoating layer. That in turn casts further doubt on the probative value of Exhibit JL5 as support for the proposition that the subcoating layer is omeprazole free. I do not regard the Exhibit A spectrum by any means as decisive, but it supports the conclusion that on the current state of the evidence Astra's case on this issue is relatively weak. 77 Of course, the evidence on this question may be very different at trial. However I approach the balance of convenience on the basis that Astra has shown that there is serious issue to be tried, but that its case on the present evidence is not a strong one.

invalidity of the patent 78 In my view, Biochemie has an arguable, although not compelling, case that claim 1 of the Patent, assuming it should be construed as Astra suggests, is not fairly based on the specification.

THE CONTENTIONS 79 Astra maintains that it would suffer irreparable harm, for which damages would not be an adequate remedy, if interlocutory relief is not granted to restrain infringement of its Patent. It points to three matters in particular. (i) it is likely that Biochemie will reduce the price of Probitor. This in turn will lead to a reduction in the benchmark price under the PBS for PPIs, including Losec, Acimax and Nexium. A fall in the benchmark price for these products would effectively be irrecoverable by Astra because, according to Mr Lilley, AstraZeneca's managing director, the Commonwealth has never raised the reference price of a pharmaceutical after it has fallen. (ii) If sales of Probitor are not restrained, Astra will lose the full advantage of the "headstart" for which the Patent provides. By this Astra means that it will lose the advantage of exploiting Losec without additional competition for the balance of the term of the combination patent and will thereby lose the opportunity to entrench itself in the marketplace: cf AB Hassle v Pharmacia, at 77, per Ashley J. (iii) The presence of competitors in the market for PPIs makes it extremely difficult, if not impossible, reliably to quantify lost sales or to attribute lost sales to Probitor as distinct from other competitors. It is necessary to take account of the fact that there are a number of PPIs competing with omeprazole. 80 Astra relies on these matters as supporting its contention that the balance of convenience is in favour of injunctive relief. It says, further, that Biochemie's predicament is of its own making, since it launched Probitor knowing full well that Astra's High Court appeal might succeed. It took the risk with "its eyes open". Any harm is therefore self-inflicted. 81 Biochemie counters with these arguments: (i) The grant of an interlocutory injunction would effectively be final relief because the evidence suggests that the litigation, allowing for the apparently inevitable appeals, will take several years to complete. As a practical matter, Biochemie will be unable to sell Probitor until actual expiry of the Patent in 2007. (ii) Damages are an adequate remedy for Astra, since they are easily quantifiable and capable of ready assessment. Sales of Probitor will be known and recorded; Astra maintains complete records that will enable the impact of changes in its market share on the profitability of its products to be assessed; and the sales of other participants in the market will also be recorded. Moreover, as the evidence discloses, Astra itself has licensed Alphapharm, a generic distributor, to sell Acimax in the PPI market and has not sought to impose restrictions on Alphapharm as to the price at which it can sell Acimax. Biochemie offers a guarantee from its parent, Novartis AG, guaranteeing payment of any damages finally awarded against Biochemie. (iii) In any event, it is unlikely that Astra will suffer significant losses if no injunction is granted. If the benchmark price is reduced, Astra could simply increase the brand premium for Losec (that is, Astra could charge a price above the benchmark, leaving the "premium" to be paid by the consumer). In any event, there is nothing to suggest that Biochemie will lower the price of Probitor or that Probitor will be a price leader in the PPI market (as distinct from the other participants). (iv) If an injunction is granted, Biochemie will suffer irreparable harm. This is because it will need to re-enter the market, re-establish its marketing strategy and sales force and overcome a loss of reputation. These matters are very difficult to quantify as is the value loss of opportunity in the market.

The PBS Scheme 82 To assess the competing contentions of the parties it is necessary to say something about the market for PPIs and the operation of the PBS. 83 The purchase of pharmaceuticals listed on the PBS is subsidised by the Commonwealth, up to a price negotiated between the Pharmaceutical Benefits Pricing Authority and the manufacturer. About 75 percent of ethical drugs consumed by Australia are listed on the PBS. 84 Since about 1998, a Therapeutic Group Premium Policy has been applied to the PBS. Under this policy, products within a particular therapeutic group are subsidised up to the price of the cheaper product. The price at which the maximum quantity of the drug is dispensed by pharmacists is known as the "benchmark" or "reference" price. In practice, all PPIs are treated as a group and are subsidised to the extent of the lowest priced PPI. The manufacturer or supplier may charge a higher price for a particular drug, but the amount above the benchmark must be borne by the patient. This excess is known as the "therapeutic group premium". A similar policy applies between different brands of the same drug, such as omeprazole. Once again, a manufacturer or supplier may charge a higher price than the benchmark, but the excess (known as the "brand premium") must be borne by the patient. 85 The present benchmark for PPIs and for omeprazole is $46.15, of which the patient must contribute $23.40. This is the price, for example, of Acimax tablets and Probitor capsules. However, the price charged by Astra for Losec is $47.65. It is therefore subject to a brand premium of $1.50. If a patient is prescribed Losec, he or she must bear that additional cost: that is, the patient contribution for Losec is $24.90. 86 If a manufacturer or supplier reduces the price of a PPI, the effect is to reduce the benchmark. A competitor may respond in a variety of ways. It might, for example, reduce the price of its PPI to the benchmark. Alternatively, it might maintain its price, in which case its product will be subject to a brand premium and a patient for whom its drug is prescribed will have to make a greater contribution. 87 The PBS provides a mechanism for fees to be paid to pharmacists. It is not necessary to go into the details of that mechanism. Nor is it necessary to discuss the opportunities for distributors of pharmaceuticals to offer discounts to chemists.

Participants in the Market 88 Losec has been sold in the Australian market since about 1990. Originally it was given an "authority required listing". The effect was that the PBS would subsidise the drug only when the prescribing doctor obtained prior approval from the Health Insurance Commission ("HIC"). In August 2001, Losec's listing was changed to a "restricted listing". The effect of the change is that the product is subsidised only if prescribed for specific therapeutic uses, but HIC authority is no longer necessary. 89 From August 1990 until 1999, Losec steadily gained market share because of its effectiveness in treating reflux oesophagitis. In April 1999, just before the compound patent expired, it held about 80 per cent of the market for PPIs, or 55 per cent of the combined market of PPIs and H2-receptor antagonists (another group of drugs used to treat illnesses associated with overproduction of gastric acid). Losec remains an extremely successful product and represents a substantial proportion of AstraZeneca's turnover. At present, annual sales are very large indeed. 90 In May 1999, Alphapharm, a distributor of generic pharmaceuticals, launched its omeprazole capsules under the name "Maxor". The release of Maxor was delayed by the proceedings in Alphapharm, determined by Lehane J at first instance. It appears that the release of Maxor occurred immediately after his Honour delivered judgment on 12 May 1999. 91 At the time Maxor came onto the market, Astra's compound patent for omeprazole had expired. The price of Losec prior to the release of Maxor was $68.94 ex factory, or $88.60 under the PBS. Maxor was introduced at a price of $44.82 ex factory and $59.12 under the PBS. The result was that the price of Losec was immediately reduced to $44.82 ex factory. Following the decision of the High Court in Alphapharm, an in principle agreement has been reached between Astra and Alphapharm which requires the removal of Maxor from the Australian market and its de-listing from the PBS by August 2003. 92 In June 1999, a tablet form of Losec was launched and was listed on the PBS on 1 August 1999. The evidence is that Losec tablets are superior to capsules in that they have greater levels of release at shorter dissolution times and are free of lactose, thereby minimising the possibility of patient intolerance. On 31 January 2000, AstraZeneca withdrew Losec in its capsule form from the Australian PPS market. This plainly reflects a judgment by Astra that the omeprazole market is essentially a market for tablets, not capsules. 93 In February 1999, Astra launched Acimax, an omeprazole tablet. In about July 2000, after the Full Federal Court had reserved judgment in Alphapharm, AstraZeneca entered into an agreement with Alphapharm for the latter to distribute Acimax in Australia. The effect of that agreement is that Alphapharm can determine the price at which Acimax is to be sold, although AstraZeneca may be able to influence the ultimate price by the amount it charges Alphapharm for the product. 94 On 1 August 2002, Astra introduced Nexium, an isomer of omeprazole. AstraZeneca markets Nexium as a superior drug to omeprazole products. Nonetheless, it intends to sell Losec and Acimax tablets for the foreseeable future. At present, the revenue derived from Nexium is about 40 percent of AstraZeneca's revenue from Losec and Acimax combined. A confidential forecast schedule prepared by Astra, shows that there will be very substantial, albeit declining, sales of Losec until 2007, while Acimax sales are forecast to change to a relatively modest extent. 95 Since Probitor capsules were introduced into the market on 1 August 2002, Biochemie has adopted a primary strategy of encouraging general practitioners to prescribe Probitor for certain "patient segments". They are patients who prefer capsules to tablets and those for whom the brand premium of $1.50 is a significant cost. In the short time Probitor has been on the market, sales have amounted only to a tiny percentage of the sales of Losec tablets, but Probitor sales have been increasing. 96 The present PPI market includes the four brands of omeprazole (Losec, Acimax, Probitor and Maxor, although Maxor is shortly to be withdrawn), together with Nexium. In addition, there are three other PPIs, namely lansoprazole (Zoton), pantoprazole (Somac) and rabeprazole (Pariet).

status quo and delay 97 Both parties accept that, in general, where other factors are evenly balanced, the Court tends to preserve the status quo. Astra submits that the principle favours it because it is the patentee seeking "an injunction to keep the invader of its existing market at bay until a decision has been reached as to whether the invasion is lawful or not": Beecham Group v Bristol Laboratories, at 627, per curiam. Biochemie says that the principle does not apply because it has been on the market since 1 August 2002, when Probitor was launched. It also says that Astra has delayed in instituting and prosecuting these proceedings. 98 Because Biochemie had been in the market for over six months before these proceedings were commenced, this case is different from the paradigm of an invader seeking to enter a market for the first time. It is also true that at the time Biochemie made its preparations to enter the PPI market, the Full Court had held the Patent to be invalid and there was no existing legal impediment to its activities. On the other hand, as Mr Evans, Biochemie's general manager acknowledged, Biochemie was aware that the High Court had granted special leave to appeal and appreciated that there was a "real risk" that the appeal would succeed (as it ultimately did). Indeed, the appeal had been heard some two months prior to the launch of Probitor. Although Mr Evans was not asked to quantify the risk further, I infer that Biochemie was well aware that there was a substantial risk that the validity of the Patent would be upheld by the High Court and that, if that occurred, Biochemie would be met with an infringement suit notwithstanding that other challenges to the validity of the Patent would remain to be determined by the Full Court. 99 Against this, I think that Astra has not pursued its claim for relief with the expedition that might have been expected. It was plainly bound to wait until the High Court delivered judgment (on 12 December 2002) before commencing proceedings. It did not do so until 17 February 2003, notwithstanding that Dr Lindquist had carried out his first set of tests on Probitor on 23 October 2002. Nor did Astra immediately seek interlocutory relief. Rather, having foreshadowed its intention to seek such relief on the first return date (13 March 2003), on that day it sought a further six weeks to prepare its evidence in reply. I infer that the additional time was sought to enable Dr Lindquist to prepare a response to the evidence of Dr Crank and Professor Cox. It is not clear from the evidence why many of their concerns could not have been anticipated or dealt with more promptly. 100 On balance, I think that to the extent that preservation of the status quo is relevant, Astra is entitled to be viewed as being the holder of the Patent seeking to prevent the incursions of an "invader". However, having regard to the unusual circumstances to which I have referred, the principle favouring presentation of the status quo carries significantly less weight than it would had the Patent never been held invalid and had Biochemie never entered the market. By the same token, the assessment of harm to Biochemie has to take account of the fact that it chose to enter the market well aware of the risk it was running.

Lowering of the Benchmark Price 101 Mr Lilley gave evidence that his principal concern is that Biochemie may lower the price of Probitor, thereby lowering the benchmark price for Losec (and Acimax). Mr Evans, for his part, denied that Biochemie has made any decision to lower the price of Probitor below the present benchmark for PPIs, namely $46.15. A practical inhibition on Biochemie lowering the price of Probitor capsules, at least while these proceedings remain on foot, is that it will expose itself to a greater liability in damages should it ultimately fail in the proceedings. I accept that there are no immediate plans to lower the price of Probitor (discussions between Biochemie and the Government in July 2002 involved a proposal for restructuring the arrangements for PPIs). Nonetheless, I cannot rule out the chance that Biochemie will choose to lower the price of Probitor, if it considers there are good commercial reasons for doing so. 102 Of course, the distributors of other PPIs, including Alphapharm as the distributor of Acimax, may choose to lower their prices and thereby affect the benchmark price. This is a matter over which neither Biochemie nor Astra has control (although Astra perhaps may have some influence in relation to Acimax through the prices it charges Alphapharm for the product).

Assessment of Astra's Losses 103 It is not in dispute that in the highly regulated market for PPIs, all sales are tracked independently and are readily ascertainable. It follows that independently of any undertaking that might be given by one or other of the parties to keep records of sales, the volume of sales of particular omeprazole products is readily available. 104 Mr Lilley prepared a document for the purposes of the present proceedings quantifying the loss to AstraZeneca caused by Maxor's entry into the market and the consequent lowering of the benchmark price. The cross-examination on the document included the following: "MR CATTERNS: But it in fact contains a calculation of what your Losec units and price would have been versus what your - without Maxor and what your Losec units and actual prices were post-Maxor?---Yes, that's right. So that enables one to quantify the damage to your company's revenue caused by the impact of the entry of the generic Maxor?---I regard it as a means by which you can quantify history. That history being the damage caused to Losec sales and revenue by the impact of the generic Maxor?---Yes. … Yes, so when Maxor comes off the market some time this year you will have a very good idea of what damage Maxor sales caused you from start to finish historically?---Yes, we'll know the history. You undertook formally or informally, and please tell me which, such an exercise in approaching the settlement with Alphapharm?---I did, of course, yes. I looked at the scope of damages based upon the past. … [HIS HONOUR]: Would the entry of a generic into the market place have an effect on volume?---Of course yes, it could. But this document doesn't attempt to incorporate any such---?---Well the lower line there is the number of units. If you take for example there is no top line, the bottom line represents the reality--- By a fixed price?---That's right. Yes, what I'm wondering about is how you take account of any change in pattern of sales that would have taken place but for the entry of the generic?---Well then you would have to add back the known number of units sold by a competitor. Then make some sort of assessment as to what you would have sold---?---Yes. ---but for the entry of Maxor?---That's right. … MR CATTERNS: Given that Maxor was the only, apart from Acimax which was the licensed product, Maxor was the only unlicensed or infringing product and the way that generic substitution works is, a Maxor sale was a lost Acimax or Losec sale?---Yes, it was a lost Losec sale." 105 This evidence suggested the most substantial component of any losses sustained by Astra as the result of Probitor being permitted to enter the market could be quantified quite readily. In particular, the bulk of any losses attributable to a reduction in the benchmark price by reason of actions taken by Biochemie could be quantified without particular difficulty. I accept that some losses that might be sustained by Astra would be less susceptible of ready qualification, in particular the loss of its "head start" in the market. However, Mr Lilley's main concern was the possibility of a lowering of the benchmark price and there was little reference in the evidence to the significance of the loss of the headstart. Moreover, having regard to the fact that there would only be three omeprazole products in the PPI market (leaving aside Nexium), two of which are produced by Astra, the task of assessing overall losses attributable to Biochemie's entry into the market would not seem to be an insuperable task.

Assessment of Biochemie's Losses 106 If Probitor is removed from the market and Astra ultimately fails in the proceedings, Biochemie will suffer losses. Some of its losses will be readily quantifiable, such as initial marketing expenses which would largely be wasted. Others, notably the loss of potential sales in consequence of the issue of an injunction are much more difficult to estimate. This is particularly so in relation to the period after the injunction is lifted, since it would be necessary to take into account the likelihood that a re-launch will be less successful than the original launch and that it is inherently difficult to determine the likely course of sales over a longer period. It might also be difficult, as Dr Beaton ( a marketing consultant) suggested, to value related business opportunities foregone as the result of an injunction. 107 On balance, I think it would be somewhat more difficult to quantify the losses that would be sustained by Biochemie by reason of an injunction being wrongly put in place than it would to quantify Astra's losses if an injunction is wrongly refused.

Duration of the Litigation 108 Both parties seem to be content to adopt an estimate of four years for the possible length of the litigation. From what I have been told, I see no reason why the parties could not be ready for a trial, assuming diligent preparation, in about six to eight months. Allowing for a judgment and the virtually inevitable appeal to the Full Court, it might be expected that the case would be concluded in this Court well within two years. Whether it goes further depends of course on whether there is a successful application for special leave to appeal to the High Court. 109 The outcome of this interlocutory application will not determine the regime between the parties for the entirety of the litigation. The regime pending appeal is likely to depend on the outcome of the trial, as illustrated by the release of Maxor on the market following delivery of Lehane J's judgment in Alphapharm. It may be that the orders (or absence of orders) pending trial will have an influence on the post-trial regime, but I do not think it can be assumed that the interlocutory regime will remain in place pending the appeal process. The consequences of this application therefore may be less significant than the submissions of both parties suggested.

A Guarantee 110 Astra made no submission at the hearing that a factor to weigh in the balance of convenience is the fact that Biochemie appears to have limited assets and therefore may not necessarily be able to meet damages ultimately awarded against it, at least if the damages are very substantial. Nonetheless, Biochemie sought to forestall any such problem by foreshadowing that its parent company would provide a guarantee in relation to Biochemie's potential liability. After the hearing, Biochemie submitted a guarantee in the sum of $12 million, executed by its parent company, in respect of the payment of any amount finally awarded against Biochemie. The proffered guarantee is, however, in favour of Biochemie, not the applicants and expires on 31 December 2003. It is also subject to Swiss law and is apparently intended to be enforceable only in Switzerland. Astra, in supplementary written submissions, argued that the guarantee is not adequate to provide security to it in respect of damages.

the balance 111 I am prepared to assume that Astra is likely to suffer some irreparable harm if injunctive relief is not granted, although I think that any such harm is likely to be modest. Nonetheless, I think that the balance of convenience favours Biochemie provided that it

• gives appropriate undertakings relating to the expeditious conduct of the proceedings;
• keeps appropriate records of its sales; and
• provides adequate security to Astra in relation to any damages for which Biochemie might ultimately be found liable by reason of its continuation in the market after the institution of the present proceedings.

I should say at once that I do not regard the proffered undertaking as satisfying the third of these conditions. 112 I have taken into account the matters to which I have referred. In summary, my reasons are these: (i) Astra's case on infringement is relatively weak. While it has established that there is a serious issue to be tried on the construction of claim 1 of the Patent and on the existence of the subcoating layer, its case that the layer is omeprazole free is not strong. (ii) Astra's principal concern is that Biochemie will reduce the price of Probitor capsules, thereby reducing the benchmark for PPIs including Losec. Astra is of course at risk of a reduction in the benchmark by reason of the pricing policies of other distributors of PPIs over which it has no control. I have also accepted that Biochemie has no immediate plans to reduce the price of Probitor. Nonetheless, there is a risk that it may do so. If it does, however, Mr Lilley's evidence suggests that the losses caused to Astra by Biochemie's actions would be reasonably capable of quantification. (iii) Astra may suffer some irreparable harm if Probitor is permitted to remain in the market, principally in the form of loss of its "head start" (although the evidence on this issue was skimpy). Taking into account the low level of Probitor sales and the clear marketing advantage that (according to Mr Lilley) omeprazole tablets enjoy over the drug in capsule form, I would not assess the likely loss to Astra, should it ultimately succeed in the proceedings, as major. (iv) For reasons I have explained, I think that Biochemie would suffer irreparable losses if it were forced to vacate the market. On balance, I think it would be more difficult to quantify Biochemie's losses if an injunction were wrongly granted than to quantify Astra's damages if an injunction were to be wrongly refused. (v) Astra is entitled to be regarded as the holder of the Patent resisting the incursions of an invader. However, as I have explained, I think that the significance of preservation of the status quo, in the unusual circumstances of the present case is not as great as it might be in some others. 113 I have also taken into account that Astra has a legitimate interest in not being at risk of being unable to recover any damages that might be awarded against Biochemie. Astra ought not to be exposed to the risk that any damages in its favour will be irrecoverable. It is true that Astra did not raise this issue at the hearing, but its attitude may have been influenced by the offer foreshadowed by Biochemie. I think that in the circumstances of the present case, the doubt about Biochemie's capacity to meet a substantial damages award is an important factor to weigh in assessing the balance of convenience. 114 My view is that, provided Biochemie or its parent provides satisfactory security in relation to any possible damages award in favour of Astra, I shall refuse interlocutory relief (subject to being satisfied of the other matters in [111] above). If, however, satisfactory security is not provided, I would be inclined to take a different view.

CONCLUSION 115 Subject to my being satisfied of the matters referred to in [111] above, I would dismiss Astra's application for interlocutory relief. I shall stand the proceedings over to a date to enable those matters to be addressed. I certify that the preceding one hundred and fifteen (115) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice SACKVILLE .

Counsel for the Applicant: Mr I Jackman SC with Ms K Howard and Mr M Darke

Counsel for the Respondent: Mr D Catterns QC with Mr S Burley