Would Apotex would have applied to list its clopidogrel products from 1 April 2008?
219 In early 2006, Apotex Australia began exploring the possibility of launching a generic clopidogrel product in the Australian market. At that time there were no generic clopidogrel products registered on the ARTG or listed on the PBS in Australia.
220 Beginning in March 2006 when he took up his position as Managing Director, Mr Millichamp required his senior management team to prepare regular launch forecasts and plans for all key Apotex Australia generic product launches (including for clopidogrel) generally covering a three-year period following launch. These included calculations of possible market share, discounts to be offered by Apotex Australia, and forecasts as to the amount of stock needed.
221 Mr Millichamp sent an email on 2 May 2006 to Karen McTavish (Apotex Australia's Supply Chain Manager) in which he stated with reference to clopidogrel "[c]learly we are keen to get to market as soon as we can with this molecule". The email is heavily redacted. Appended to Mr Millichamp's email was an email from Mr Michael Ascnzo, whose position is shown as Analyst, Product Selection, Apotex International. The whole of Mr Ascnzo's email is also redacted.
222 On 16 May 2006 Marnie Peterson, Assistant Marketing Manager with Apotex Australia provided to Mr Millichamp what she described as an updated forecast model in respect of clopidogrel.
223 On 19 June 2006, Mr Weingarten sent to Dr Sherman forecasts of net margins for the first three years supplying clopidogrel in Australia assuming a "launch date" in October 2007. Mr Weingarten said:
The information contained above outlines a very conservative scenario, with [Apotex Australia] taking 20% generic segment market share. The reality is, assuming that we have a solid patent strategy, that we should be the only generic on the market on approval in October 2007. I would like your advice on how to proceed, in order to ensure that we are able to launch, on approval, in Australia.
224 On the same day, Dr Sherman responded to Mr Weingarten's email as follows:
By then [October 2007] the litigation should be over in both US and Canada. If we win, we will launch at risk in Australia on approval. If we lose in US and Canada, we will not launch.
225 At that point in time, therefore, it appears to have been Dr Sherman's intention to launch at risk once TGA approval was obtained (expected to be obtained by October 2007) but only if Apotex succeeded in the litigation that was pending in the United States and Canada.
226 On 27 June 2006, Apotex Australia (then still known as GenRx) submitted a dossier for its generic clopidogrel products to the TGA for acceptance as of 30 June 2006. That was the earliest possible date following the expiry of the five year "data exclusivity" period, during which Sanofi Australia (as submitter of the original data supporting the quality, safety and efficacy of the originator product for registration on the ARTG) could have objected to the TGA relying upon that data in order to evaluate the generic products.
227 On 1 January 2007, Apotex Canada and Apotex Australia entered into a Transfer Pricing & Indemnity Agreement in respect of clopidogrel ("the TPI Agreement"). It recited that "Apotex will supply the Product" - defined as "the generic pharmaceutical product Clopidogrel" - "to GenRx to market and sell the Product in the [Australia]" and provided that Apotex Canada would defend, indemnify and hold Apotex Australia harmless against, inter alia, any claims, damages, liabilities or obligations which Apotex Australia "may suffer, incur or become liable for as a result of or in connection with any claim asserted against [Apotex Australia] to the extent such claim is based upon a contention that the manufacture of the Product by [Apotex Canada] for distribution and sale by [Apotex Australia] in [Australia] infringes the patent or other intellectual property rights of [Sanofi and/or its affiliates] or any other third party in [Australia]". The TPI Agreement also gave Apotex Canada "the sole right to determine if the parties will or will not commence legal proceedings to challenge any third party patent which may affect the sale of the Product in [Australia]".
228 On 15 February 2007, Mr Millichamp sent an email to Mr Weingarten (who was at the time Mr Millichamp's immediate superior) stating:
As you know we expect TGA approval for clopidogrel in July / August of this year. Our current understanding is that we should wait to see if we launch depending on the outcome (successful or not) of Canadian and US litigation.
[redacted]
[redacted] The potential upside to the Australian business is huge if we can launch.
[redacted]
229 On 20 February 2007, Dr Sherman sent an email to Mr Weingarten and Mr Ivor Hughes. Mr Hughes was a lawyer who appears to have worked closely with Apotex Canada's senior management (including Dr Sherman) providing advice on intellectual property and litigation strategy in respect of Apotex's operations in Canada, the USA and Australia. Dr Sherman's email which he copied to Mr Millichamp, stated:
Plan is as follows:
[redacted]
2. In May or June, we will file suit in Australia to invalidate the patent. [redacted]
3. We will then advise Sanofi that we will launch unless they move for and obtain an injunction, in which case they will have to give an undertaking for our damages.
4. If they do not give an undertaking for our damages and do not get an injunction, we will launch.
230 Although the first step in the plan has been redacted for privilege, the remaining three steps were to commence proceedings against Sanofi to revoke the Patent at or about the time Apotex Australia obtained ARTG registration for its clopidogrel products (then thought to be May or June 2007), to notify Sanofi that Apotex Australia intended to launch those products on the Australian market unless restrained by an interlocutory injunction, and to launch at risk if not restrained.
231 There was some cross-examination of Mr Millichamp that focused on the language used in point 4 to describe the conditions that would trigger the launch at risk. However, in my view the message conveyed was clear. According to this email, Dr Sherman was, at this stage, intending to have Apotex Australia launch at risk in the event that Sanofi did not obtain any interlocutory injunction. The email also reflects a clear awareness on Dr Sherman's part of the requirement for Sanofi to give an undertaking as to damages in return for any interlocutory injunction that it may obtain.
232 By 20 February 2007 the plan for clopidogrel in Australia no longer depended on the outcome of the litigation in Canada or the United States. By that date, the Federal Court of Appeal in Canada had already dismissed Apotex Canada's appeal from the decision preventing the issuance of a NOC, and the US Court of Appeal had dismissed the Apotex entities' appeal against the preliminary injunction granted by the US District Court on 31 August 2006.
233 In an email sent by Mr Kay to Mr Steven Lydeamore concerning clopidogrel on 13 April 2007, Mr Kay stated that "Australia is first up and Barry's instruction is to attempt to launch at risk and then invalidate". It is not clear whether the "launch at risk" referred to in this email was one that would involve a PBS listing for a generic clopidogrel product. In any event, it is apparent that Mr Kay understood at that time that Dr Sherman was proposing to "attempt to launch at risk" in Australia before a final hearing at which the validity of the Patent would be determined.
234 On 22 June 2007, after the US District Court gave its decision of 19 June 2007 upholding the validity of Sanofi's US Patent, Mr Millichamp sent an email to Mr Kay. Up until that point, Mr Millichamp had reported to Mr Weingarten, but Mr Millichamp commenced to report to Mr Kay directly after Mr Weingarten suffered a heart attack. Mr Millichamp's email referred to a recent discussion he had with Mr Kay with regard to clopidogrel and it explained Apotex Australia's recommendation that it launch a range of clopidogrel products in Australia. Mr Millichamp's email included the following:
Our recommendation is that we should launch for the following reasons:
1) Commercial rationale - A launch of a product like Clopidogrel personifies everything that Apotex stands for as a company.
• Apotex/ GenRx has positioned itself as an organisation that is prepared to involve itself in litigation and fight to bring high quality and cost effective medicines to the market as soon as possible.
• We have been first to market with Perindopril, Perindopril / Idapamide, Carvedilol and Meloxicam - We want to build on our credibility and success to date by, in this case, launching a "blockbuster" molecule.
• We strongly believe that if we handle the communication appropriately (which we will) a launch of Clopidogrel will only serve to build our reputation, enhance our credibility and most importantly gain us significant incremental business through the acquisition of new customers. As recently as yesterday we were asked by a major customer (API) for whom we are tendering to win their business, if we will continue to bring products to market whilst challenging patents as they see that as a major reason to trade with us and support our business.
• The financial upside from the launch of the molecule itself is considerable notwithstanding [sic] the additional sale of products in the rest of our portfolio that we will gain as our customer base expands.
• Scenario 1 - no Authorised Generic Launch - 35% Market share - discount 50% (after 12.5% price drop) - Year 1 net margin at Management price = 20,077,236 AUD
• Scenario 2 - Authorised Generic launch - 17% Market share - discount 60% (after 12.5% price drop) - Year 1 net margin at Management price = 9,751,800 AUD
…
235 The email included some projected sales figures for each of the two scenarios discussed.
236 It is important to note that Mr Millichamp's email was heavily redacted for privilege. However, what the disclosed portions of Mr Millichamp's email do not disclose is any consideration of the financial impact on Apotex Australia or Apotex Canada were the validity of one or more of the relevant claims to have been upheld. I will return to this issue shortly when considering email correspondence exchanged between Mr Millichamp and Mr Kay in late July 2008 as to how Apotex Australia should respond in the event that Gyles J found in favour of Apotex Australia and refused Sanofi final injunctive relief.
237 On 22 June 2007, Mr Kay sent an email to Mr Millichamp asking him for some additional information including "a timetable scenario of events going forward, registration date, launch, PBS listing, visibility to Sanofi etc". Mr Millichamp sent an email to Mr Kay on 25 June 2007 providing the following additional information:
Our expected timetable of events going forward is as follows:
* Registration (ARTG) approval date - Expected towards the end of July, latest early August (Please note however that the TGA have been surprising us and approving our dossiers earlier than expected. Gabapentin 600mg and 800mg tablets are likely to be approved 3 months ahead of our expected timing).
* We propose launching to the trade, by taking orders, on the day that we appear on the ARTG i.e. have regulatory approval.
* We propose notifying Sanofi of our planned launch by applying to revoke their patent either on the same day that we launch or a few days earlier. The idea is to notify Sanofi as soon as we know for sure that we can launch, i.e. when we know that TGA approval will be granted but not give Sanofi time to try and block our initial launch efforts.
* We will submit our application for PBS listing once we are sure that no injunction will be imposed by the courts (PBS listing is granted roughly three months after initial application).We will, of course, have to get to court before we know this outcome. If we apply for PBS listing as soon as we launch we will trigger the 12.5% price drop and Sanofi will argue that pricing has been dropped and therefore their damages cannot be readily measured, will cause irreparable harm and the decision cannot be reversed etc.
When we get to court we will need to let the judge know that we plan to PBS list. In court the idea, in relation to the 12.5% drop and further launch activities, is that we will argue that damages are an adequate remedy, give undertakings that we will record all sales, and provide a bank guarantee in order to pay costs and damages in the event that we are not successful at final trial. We will have to give a bank guarantee that is effective in Australia, but supported by Apotex, as GenRx have no assets or profits at this stage in this jurisdiction to prove that we can pay out in the event of a Sanofi success.
* It is difficult to forecast the amount that we would have to put up as a bank guarantee but we estimate that it could be in the range of 50 -70 Million AUD (for one year's damages) depending on what Sanofi argues in court.
* We would not propose continuing with launch activities i.e. takings orders and supplying stock if we do not gain PBS listing. Our sales will be very low, virtually zero without PBS reimbursement. In this case we would continue with our patent revocation case but not apply for PBS listing and so not trigger the 12.5% price reduction. We will of course be notifying our customers when we launch that this is a high risk launch and subject to legal action so that they are not misled if we are not able to deliver stock for a considerable time.
Andrew, this is what we are planning but if there is a different approach that is proposed from your side we will be happy to take that advice and recommendation.
238 There are a number of observations to make in relation to this email from Mr Millichamp to Mr Kay.
239 First, the email is consistent with other evidence which indicates that Apotex Australia had no real interest in launching and marketing its clopidogrel products unless it could obtain a PBS listing for them. I am satisfied there would have been no significant market for the Apotex Australia clopidogrel products in Australia unless they could be supplied to pharmacists at prices that were subsidised under the PBS and that there would have been no commercial benefit to Apotex Australia if it were to market its clopidogrel products in Australia in the absence of a PBS listing.
240 Secondly, in his email Mr Millichamp foreshadowed the need for Apotex Canada to facilitate the provision of a bank guarantee to secure any costs and damages that might ultimately be payable to Sanofi in the event Apotex Australia was not successful at trial. Mr Millichamp said that the amount of the bank guarantee could be in the range of A$50 to A$70 million dollars in respect of "one year's damages". Beyond that indication, there is nothing in Mr Millichamp's email to show that he had undertaken any analysis of Apotex's financial exposure if it were to launch its clopidogrel products, obtain a PBS listing for them, but later see its challenge to the validity of the Patent fail.
241 On the same day Mr Millichamp sent his email, Mr Kay sent an email to Dr Sherman which included the following:
Would you please re-confirm or otherwise our approach in Australia.
We expect TGA approval for our application July / August this year.
Upon grant we will move towards launch and initiate revocation proceeds of the enantiomer patent.
[redacted]
We shall pursue a PBS re-imbursement listing, this will trigger a 12.5% price cut for the product in the market if we are not injuncted and able to sell.
[redacted]
The cost of pursuing revocation are likely to be up to $2m. [redacted]
[redacted]
Utilising the HBr salt under development will require a new dossier and filing and a delay of some 18 months.
Do you want us to continue to launch and to invest in the revocation proceedings?
242 Mr Kay's email to Dr Sherman of 25 June 2007 is also heavily redacted for privilege. It was followed by other email communications on that date, over which privilege was claimed by the Apotex parties, involving Mr Hughes, Mr Peter Chalk (Apotex Australia's lawyer), Mr Millichamp, Mr Baxter, and Dr Jeremy Desai. Mr Baxter was the next most senior officer within the Apotex group after Dr Sherman.
243 On 27 June 2007, Mr Kay sent a further email to Dr Sherman (copied to, amongst others, Mr Baxter, Mr Millichamp and Dr Desai) asking him to "advise" when he had "decided whether to pursue revocation of the enantiomer patent, and if you wish us to move to launch at risk". This is a significant communication because it reflects an understanding on the part of Mr Kay that it was necessary, or at least desirable, to obtain confirmation from Dr Sherman as to his intention with respect to Australia and whether or not Apotex Australia should seek to revoke the Patent and "launch at risk".
244 Dr Sherman responded to Mr Kay's email on 27 June 2007 at 4.44am at what appears to be Australian time, but privilege has been claimed over the whole of its contents. The email was addressed to (amongst others) Mr Kay and Mr Hughes. It was also copied to Mr Millichamp, Ms Keast (Apotex Australia's Regulatory Affairs Manager), Mr Baxter and Dr Desai.
245 Dr Sherman sent a supplementary response to the same people a little under 30 minutes later at 5.12am. Apotex Australia has also claimed privilege over the whole of that communication so it is not possible to know what Dr Sherman said in that email in answer to Mr Kay's emails to Dr Sherman of 25 and 27 June 2007. Later that morning Mr Millichamp sent an email to some of his colleagues in Apotex Australia with the subject "Clopidogrel in Australia" appending copies of the email correspondence of 22, 25 and 27 June 2007 and saying nothing more than "FYI - game on!!!"
246 The evidence also includes an email sent from Mr Millichamp to Mr Haas on 27 June 2007 at 1.59pm. Again, it has been heavily redacted for privilege but it includes the following:
[redacted]
[redacted] If we are successful in avoiding an injunction we will plan to launch subject to Barry's further advice / approval.
If anything changes I'll let you know.
247 Appended to Mr Millichamp's email was a copy of Dr Sherman's email of 27 June 2007 sent at 5.12am. It is therefore clear that Mr Millichamp had already received that email at the time of sending his email to Mr Haas.
248 Mr Millichamp's email to Mr Haas suggests that at the time it was sent it was Mr Millichamp's understanding that even if Apotex Australia was successful in avoiding an interlocutory injunction, the launch of a generic clopidogrel was subject to Dr Sherman's further advice or approval. That is not consistent with the understanding that Mr Millichamp claimed to have held at this time based on Dr Sherman's email of 20 February 2007. On the contrary, it reflects an understanding on Mr Millichamp's part that even if the application for the interlocutory injunction was successfully resisted by Apotex Australia, Mr Millichamp would still need to consult with Dr Sherman (either directly or more likely through Mr Kay or Mr Baxter) for the purpose of obtaining Dr Sherman's authority to proceed with a product launch.
249 Mr Millichamp was cross-examined by Mr Sheahan QC on the email to Mr Haas as follows:
MR SHEAHAN: Now, what you were indicating to Mr Hass, I suggest, was that the final decision to launch, even if you were successful in avoiding an injunction, would be a decision made by Dr Sherman at that time; correct? --- And I think the thinking was that Dr Sherman gave the initial instructions. Andrew Kay had then clarified things with Dr Sherman. Again, we need to show him respect. If there was anything we needed to go to him with, we would. But, if there was no change on the instructions he had given, we would just move ahead.
So do you say to his Honour that what - the only possibility you're addressing here is that after having informed Canada of your success on the interlocutory injunction, then, out of the blue, as it were, they might indicate to you that they had had a change of heart? --- Very unlikely.
…
MR SHEAHAN: You were saying that it's very unlikely that out of the blue Canada would - having been told of your success - just send you a message saying, "We've changed our mind." You agree? --- I agree with that.
…
And because that scenario was unlikely, what I want to suggest to you is that that is not the scenario you were addressing in this email by saying:
We plan to launch subject to Barry's further advice/approval
You were addressing another possibility, weren't you? --- It's - in - in retrospect I - or in - in hindsight or in - I can't actually remember what scenario I was discussing here. It's to Steven Hass [sic]. I guess I'm just covering all angles and just saying look, subject to Barry's further advice/approval - it's a - it's almost a throwaway line. But you know, there could be a scenario, I guess, where Barry could change his mind. I mean, I ..... think he would. But - it would be very unlikely.
What you were addressing here, I suggest, was your intention to confirm the instructions that you had after a successful interlocutory proceeding, to make sure that Canada still wanted to proceed at risk in Australia? --- It's an email to the - I already had the instructions on what to do and had already explained to my boss - this is another email to somebody in production, and I've just put that comment in there. I never at any stage would - I think it would be very, very unlikely indeed that Barry would ever change his mind. And it's only to Steven Hass [sic], who actually is a personal friend of mine. And I put that - put that line in there - I didn't think that I would have to go through another round of approval with - with - with Barry.
250 I found this evidence most unconvincing. In my view it was largely non-responsive and evasive. Mr Millichamp was not asked whether he believed that Dr Sherman was unlikely to change his mind, but he was at pains to emphasise how unlikely it was that Dr Sherman would do so ("very, very unlikely indeed"). The suggestion that Mr Haas was his personal friend, or that he was only "Stephen Haas" or "somebody in production" does not explain why the launch was said by Mr Millichamp to be subject to Dr Sherman's "further advice / approval".
251 I do not accept the explanation given by Mr Millichamp concerning his email to Mr Haas. In particular I do not accept that the relevant statement was a "throw away" line or that Mr Millichamp was merely seeking to "cover all angles". Nor do I accept that it was unlikely that Dr Sherman would change his mind. On Mr Millichamp's own evidence, Dr Sherman had already changed his mind in that the revocation/launch strategy for Australia was originally predicated on a successful outcome of the litigation in the US and Canada. In my view, the terms of Mr Millichamp's email are more likely than not to be correct in so far as they suggest that Dr Sherman had not finally committed to a launch at risk in Australia and that it would be necessary for Mr Millichamp to obtain final approval to launch at risk in the event that no interlocutory injunction was granted.
252 On 8 August 2007, Mr Haas sent an email to Mr Millichamp, Dr Sherman and Mr Kay (amongst others) concerning clopidogrel in Australia which sought information in relation to manufacturing requirements in the event that Apotex Australia required stock of clopidogrel if it were to obtain a PBS listing of its products on 1 December 2007. Mr Kay responded by email sent the same day to (among others) Mr Haas, Mr Millichamp and Dr Sherman. The email is significant because, in my view, it indicates that Mr Kay was not expecting that Apotex Australia would be successful in its efforts to resist an application for an interlocutory injunction. Mr Kay said:
The current plan is to put Sanofi on notice of our intention to launch and so invite them to seek an interlocutory against us launching. We are assuming that this will be successful and are thus not planning to launch at this stage. I'm not sure why this information has not reached you.
253 Mr Kay would have appreciated that it would be necessary for Sanofi to give an undertaking as to damages in the event that it obtained an interlocutory injunction.
254 Several minutes after Mr Kay sent his email, Dr Sherman replied to it stating: "We should put Sanofi on notice ASAP. Who is taking care of it?" Dr Sherman's email does not express any view as to the likelihood of Apotex Australia successfully resisting the application for an interlocutory injunction, but does not express disagreement with what Mr Kay said in his email. Mr Kay responded to Dr Sherman's email the following day but the whole of his response has been redacted for privilege.
255 On the basis of the emails exchanged between Mr Kay and Dr Sherman on 8 August 2007, and in the absence of evidence to the contrary, I infer that neither Dr Sherman nor Mr Kay were expecting that Apotex Australia would be successful in resisting an application for an interlocutory injunction by Sanofi.
256 On 14 August 2007, Mr Millichamp signed a certificate under s 26B(1) of the Therapeutic Goods Act 1989 (Cth) ("the TG Act") on behalf of Apotex Australia, by which Apotex Australia certified that "acting in good faith, it believes on reasonable grounds that it is not marketing, and does not propose to market, clopidogrel hydrogen sulphate in a manner or circumstance that would infringe a valid claim of a patent that has been granted in relation to the therapeutic good". That certificate was provided to the TGA on 15 August 2007.
257 On 15 August 2007, Apotex requested the TGA to provide a statement regarding bioequivalence in respect of its clopidogrel products which it would later need to provide to the PBAC in support of its application for a PBS listing of those products.
258 On 16 August 2007, Apotex Australia commenced the patent proceeding seeking an order revoking the Patent.
259 On 17 August 2007, Apotex Australia received letters from the TGA confirming approval and registration of Apotex Australia's clopidogrel products on the ARTG effective from 21 August 2007. On the same day Mr Millichamp wrote to Sanofi Australia notifying it that Apotex Australia had obtained an ARTG registration for its clopidogrel products, that it had applied to the Federal Court of Australia for an order revoking the Patent, and that it was preparing to launch its clopidogrel products into the Australian market in the near future.
260 On 17 August 2007, Mr Millichamp also provided a letter to the sales team at Apotex Australia suggesting that it could be circulated by them to customers which is in fact what subsequently occurred. The letter stated:
GenRx Pty Ltd obtained registration of clopidogrel 75mg (as hydrogen sulfate) tablets under the provisions of the TGA on 17th August 2007. We intend to launch this product into the Australian market in the near future, initially using the brands GenRx Clopidogrel, Chemmart Clopidogrel and Terry White Chemists Clopidogrel. However, before launching these products we need to take the actions outlined below:
° GenRx has applied to the Federal Court of Australia for an order to revoke Sanofi-Aventis's patent covering clopidogrel and its pharmaceutically acceptable salts (Australian Patent No. 597784) and notified Sanofi-Aventis of our intention to begin marketing and selling clopidogrel 75mg (as hydrogen sulfate) tablets in Australia.
° Sanofi-Aventis may respond to our application for revocation of its patent and signalled intention to launch by applying for an interim injunction to prevent us from launching our product into the Australian market. Of course, we would vigorously defend any such application. However, if they do this, we will not seek PBS listing for clopidogrel or take orders from pharmacists until the outcome of that application has been determined. This interim injunction application process would normally be decided in the next one or two months.
° Assuming Sanofi-Aventis do apply for an interim injunction, then the decision whether to launch these products will be delayed until the outcome of that application has been determined (one or two months). We will continue to keep you informed of the status of the proceedings.
Regardless of the outcome of Sanofi-Aventis application for an interim injunction (should they make one), we will continue with our challenge to the validity of the clopidogrel patent before the Federal Court of Australia. We anticipate that the revocation proceedings for Australian Patent No. 597784 would be likely to proceed to trial within approximately 12-18 months.
261 Apotex Australia submitted an application to list its clopidogrel products on the PBS with effect from 1 December 2007. The application was dated 1 September 2007 but was not received by PBAC until 4 September 2007.
262 Ms Keast said in the letter enclosing the application form and related documentation:
As discussed last week, at this time GenRx Pty Ltd provides an assurance that supplies of this product will be available as per listing in the Schedule of Pharmaceutical Benefits from the date of listing on 1 December 2007, dependent on possible litigation. We will confirm supply by or before 12th October 2007 as discussed.
We would like to confirm that if we wish to defer or withdraw this application that we can do so without triggering the 12.5% price decrease providing we notify you in writing by or before the 12th October 2007. This application is lodged on the basis that this understanding is correct. If our understanding is incorrect, please inform us at your earliest convenience as this may affect whether we proceed with the application at this time.
263 Ms Keast's letter indicates that the PBAC would permit an application for a PBS listing to be withdrawn after it had been submitted. In the case of Apotex Australia's application for the 1 December 2007 PBS listing, this would have had to be done by 12 October 2007 (ie. approximately six weeks prior to the PBS listing date).
264 The application was withdrawn by Apotex Australia on 4 September 2007 after it was advised by PBAC that it had been received after the 1 September 2007 deadline for lodgement of applications for PBS listings on 1 December 2007. Having missed that deadline, it was not possible for Apotex Australia to obtain a PBS listing of its clopidogrel products before 1 April 2008. The deadline for filing an application for a listing on that date was 1 December 2007. I infer that it would have been open to Apotex Australia to withdraw an application filed on that date by 14 February 2008 or thereabouts.
265 On 6 September 2007, Apotex Australia provided Sanofi with an undertaking not to have its clopidogrel product listed on the PBS until the outcome of Sanofi's application for interlocutory relief had been determined provided that any such application was commenced and determined by 11 October 2007.
266 The patent proceeding was listed for the first directions hearing before Gyles J on 13 September 2007. At that directions hearing, counsel for Apotex Australia proffered an undertaking to provide security in the sum of A$50 million for any damages and costs that might ultimately be awarded in favour of Sanofi. Gyles J raised the possibility of fixing the proceeding for a final hearing to take place within the next six months. A trial in six months was much sooner than Mr Millichamp had until this time anticipated. He had previously understood that the trial was likely to occur in somewhere between 12 and 18 months' time.
267 Later that day Mr Millichamp reported to Mr Kay that "as it stands today, we give undertakings (attached) turn up in court next Tuesday and we will know where we stand by the end of next week. Our plan is to launch to customers (take orders) immediately, assuming that we are free to sell, and then supply product in early 2008 for an April PBS listing". He also said "We are comfortable with the undertakings as we have essentially given them before. The key difference is of course the amount of the Bank guarantee. As you will know we have foreshadowed a sum of this magnitude in previous correspondence". Mr Kay replied that "The undertakings look routine so do not present a problem" and "I had presaged the likely bank guarantee with Barry and Craig, and from Gord's [ie. Mr Fahner's] response it does not look an issue".
268 Mr Kay questioned whether anyone else had a TGA approval or PBS listing and stated that the only concern was "a pre-emptive competitor launch … given we are 7 months from launch". Mr Millichamp replied that no-one else had a product on the ARTG and, "[a]s a result no company, apart from us, can get a PBS listing yet". He also stated that "[o]ur strategy will be to launch ASAP, assuming no injunction, and ensure we sell in stock and lock in customers to optimize our revenues and block any potential competition for as long as we can".
269 On 13 September 2007, Mr Paddy Smith (Chief Financial Officer of Apotex Australia) sent an email to Mr Fahner, copying Mr Kay, Mr Adams and Mr Millichamp regarding the bank guarantee. He explained:
As the market for Clopidogrel is considerably larger than that for Carvedilol, and the introduction of the GenRx product will result in a 12.5% price reduction for the product sold by Sanofi, then the amount of damages is potentially much larger. The amount is AUD50 million. Senior Management of Apotex are aware of and have previously approved this amount (see emails below and attached).
…
Should the Court find in our favour, this will be BIG news in Australia! We would wish to start taking orders for the product quite rapidly, so we would be keen to finalise the bank guarantee in less than 28 days (we cannot take orders until we comply with all the requirements of the undertaking).
The process would be (I suggest) similar to last time: a L/C from Toronto Dominion to NAB (our bank in Australia); on the back of which the NAB would issue a bank guarantee to Sanofi. (We have to involve an Australian bank as the Court will not accept a guarantee from anything other than an Australian based bank).
The purpose of this email is to set this process in motion.
270 Mr Fahner responded that same day to Mr Smith's email stating, "we will start the ball rolling to ensure the availability for an L/C in case it happens". The same day, Dr Sherman sent an email to people in Apotex Canada including Dr Desai, Mr Caccamo and Mr Haas, stating "[w]e may be launching in Australia soon" and asking whether "the inventory of tablets that we have on hand for US [is] saleable in Australia. i.e. can we repackage for Australian launch?" Mr Haas informed Dr Sherman that he was looking into this and that Apotex Australia had been "unable to get listed in the PBS book for December". He also told Dr Sherman that "[t]he formulation submitted to Australia is identical to that of the USA", and that approved shelf life was two years. Dr Sherman responded, asking "When were the tablets made? What is expiry dating? I expect that the tablets are in fact good for years. What is required to extend expiry dating for Australia to 3 years?" Mr Haas provided a response that appears to suggest that the US product would have had an expiry date of 29 August 2008 which (I infer) would not be sufficient for retail sale in Australia after 1 April 2008. On 17 September 2007, Ms Keast advised Rekha Panchal, who was part of the regulatory affairs team of Apotex Canada, of the stability data that would be required to support a three year expiry date.
271 On 14 September 2007, Mr Smith sent an email to Mr Corkery of National Australia Bank ("NAB") referring to a meeting that Mr Smith had with NAB that afternoon to discuss the arrangements relating to the bank guarantee. Also on 14 September 2007, Ms Peterson emailed Mr Haas attaching the artwork for clopidogrel packaging.
272 On 17 September 2007, Sanofi filed its defence and cross-claim against Apotex Australia alleging infringement of the Patent. The cross-claim included the claim for interlocutory injunctive relief. On 18 September 2007, Gyles J heard the application for the interlocutory injunction. At the hearing, Apotex offered security of A$50 million, to be increased as appropriate "as the proceeding progresses". Apotex also offered to maintain comprehensive accounting records of all clopidogrel products sold. During the course of the hearing, Mr Catterns QC was explicit and direct in stating that Apotex would apply for listing as at 1 April 2008 if there was no interlocutory injunction.
273 Following the hearing, Mr Millichamp reported to Dr Desai that Apotex Australia would learn the outcome of the interlocutory hearing in a few days and that:
…
Even if we get an injunction imposed I am very confident that we will win at final trail [sic]. In that case we will obviously seek damages (a large amount).
We are of course hoping that we get some great news on Friday that we are free to sell. We certainly did everything we possibly could do to prove that damages would be an adequate remedy.
Fingers crossed!!!!
274 On 19 September 2007, Mr Smith sent Mr Fahner an email informing him that Apotex Australia would know within about 24 hours whether it would need to provide a bank guarantee in the amount of A$50 million. Mr Smith said:
We will have 28 days to put this into place (if required), but as previously advised, we would like to complete this asap, as we cannot begin to take orders until we have the guarantee in place. And as this would be a major event in the Australian generic market, to be able to get maximum positive impact of the ruling (if in our favour), it is important that we begin taking orders as soon as possible.
275 On 21 September 2007, Gyles J delivered oral reasons as to why an interlocutory injunction restraining infringement of the Patent should be granted. His Honour published his revised written reasons on 25 September 2007. I have previously set out the terms of the interlocutory injunction granted by his Honour, the undertaking as to damages given by Sanofi in relation to that interlocutory injunction, and the undertaking given to the Court by Apotex Australia that was not supported by an undertaking as to damages from Sanofi.
276 In cross-examination Mr Millichamp's evidence was that he had received from Dr Sherman by the email of 20 February 2007 instructions to get Apotex's clopidogrel products on the market as soon as practical and proceed to launch at risk. He also said that he understood that he needed to take whatever action was appropriate to launch the product at risk. In particular, Mr Millichamp said:
I had instructions to try and launch at risk at the interlocutory stage in 2007. So that's why we had the interlocutory fight [sic], because we were trying to get on the market as soon as we practically could and launch at risk. And at that period in time, I had instructions to do that, and I was implementing the plan of action to do that.
277 Mr Millichamp's evidence was that it was not necessary for him to seek any further instructions from Dr Sherman before launching at risk, and that the instructions contained in the 20 February 2007 email were all that he required by way of authority or approval from Dr Sherman for Apotex Australia to launch its clopidogrel products at risk in Australia.
278 There were two related developments in September 2007 which could have led Dr Sherman to conclude that it might be preferable not to launch at risk even if Gyles J was to have refused the interlocutory injunction.
279 The first of these occurred in early September when Apotex Australia became aware that its application to list its clopidogrel products on the PBS on 1 December 2007 had been filed too late for that to occur, and that the earliest possible date for a PBS listing was 1 April 2008. Mr Millichamp advised Mr Kay of this fact in an email sent on 4 September 2007. The email, which was not copied to Dr Sherman, states:
We have had a conversation with the Pricing and PBS listing Department of Health and Ageing.
The new guidelines on the 12.5% price drop and timings for PBS listing have resulted in us being unable to get listed in the PBS book for December.
In the event that we are successful in defending against an application for interlocutory relief from Sanofi the earliest time that we can get PBS reimbursement is now April 2008. In this case we will require stock in Australia towards the end of February / Start March 2008 assuming that we are able to launch.
We please request that the supply team remain on standby to supply us if we are successful in the initial stages of our litigation. The timing has just moved back three months later than originally communicated.
280 This information appears to have been conveyed to Dr Sherman by email from Mr Haas on 14 September 2007.
281 The second development occurred on 21 September 2007 when Gyles J published his reasons for refusing the interlocutory injunction. At the directions hearing on 13 September 2007 his Honour had said that he thought that there should be an early final hearing of the proceeding, but it was only after his Honour indicated he would grant the interlocutory injunction that he confirmed when the final hearing would take place. On 21 September 2007 his Honour informed the parties that the proceeding would be fixed for final hearing before himself commencing on 28 April 2008 (ie. in approximately six months' time).
282 Since the application for the relevant PBS listing did not need to be filed before 1 December 2007 to obtain a listing on 1 April 2008, there was no reason why Apotex Australia had to make any final decision in relation to PBS listing before 1 December 2007. Even then, it still would have been possible for Apotex Australia to withdraw any such application at any time up to 14 February 2008 or thereabouts.
283 It was put to Mr Millichamp in cross-examination that there was no particular urgency about making a final decision to launch at risk. He gave the following evidence:
MR SHEAHAN: Having regard to that time gap, there was plenty of opportunity for a further decision to be made about whether or not to launch at risk? --- A decision had already been made to launch at risk. That's why we were having an interlocutory fight [sic].
…
To put it slightly differently, on the assumption that Dr Sherman had given you clear instructions, there was plenty of time for him to change his mind in that period, if he saw a reason to do so; correct? --- Well, I don't see why he would change his mind, bearing in mind he said if an injunction wasn't granted we would launch.
HIS HONOUR: That's not what you've been asked? --- But was the - I guess the question was, was there time for him to change his mind. Is that the question? After the - after an interlocutory hearing, whichever way it would be, was there time for Dr Sherman to make - to change his mind. Is that - is that the question?
MR SHEAHAN: Yes? --- He could change his mind.
Mr Millichamp, you're the businessman, not me, but I had - would you agree that it is common sense with decisions that are, potentially, critical to the future of a business, that you would make them at the latest possible point in time, so that you could make them with the benefit of the most up-to-date information? --- That's a very good question, by the way. I'm just thinking how to - how I would answer that properly, or appropriately. Key strategic decisions, as to whether or not to launch a product, whether to litigate, whether to invest huge amounts of capital expenditure, etcetera, etcetera, are made relatively earlier on, if I can characterise it in that way. And as litigation moves along, or as capital projects move along, or as other business decisions, IT implementations move along, etcetera, there are variations to the decision, or to - to - variations to the activities and the actions that take place after the key strategic decision is made. I think that's probably the best way I can characterise it. So make a key decision and then tactical changes will be made, as part of the process, as - as matters change.
HIS HONOUR: Could - I mean, one matter that would have borne on your thinking, perhaps - and I'm asking - is at what time there was going to be a final hearing of your case? --- Your Honour, absolutely. We - we were trying to get a - a final hearing as early as possible.
And what if the judge had said, "I can give you a final hearing in December", for example? --- After the interlocutory in September?
Yes? --- We would be delighted with that, because we wanted to have a hearing as practically possible [sic].
But would that - my question is, would that not bear on the question of whether or not you would launch? --- Sorry - - -
At risk. At risk? --- Is that - that's assuming, your Honour, that we - no - - -
There was no injunction? --- Well, we - we would - we would, almost certainly, still absolutely launch - launch at risk. It's actually, probably, better for us, because if there's going to be - if decisions were finally going to be against us, we would know earlier rather than later what the outcome was.
…
So another consideration might be the amount of security that the judge ordered that you provide in the event that there was no injunction granted? --- That - yes. The amount of - that would be a consideration. And, as your Honour will have seen, we - we proffered $50 million. That is a consideration.
The amount, though? --- Yes. The amount is a consideration. I mean, we - we - we thought 50 million would be sufficient as an initial sum. And I can't remember the terms, but with liberty to increase that as time goes by.
All right? --- But it is part of the decision-making process. Yes.
284 Mr Millichamp's evidence based on the hypothetical proposition that there could be a final hearing in December 2007 to the effect that "… we would almost certainly … launch at risk" seems to me to assume that this would be Dr Sherman's instruction to him in such circumstances. It does not explain why Dr Sherman would have wished to launch at risk before the final hearing in the event that it was scheduled to occur in the very near future, and in the same month as the next available PBS listing date. The risks of doing so were substantial if Apotex Australia were to launch at risk in such circumstances given the possibility that, in the event that it failed to persuade the trial judge that the Patent was invalid, it could find itself having to cease any further sales following the grant of a final injunction shortly after obtaining a PBS listing that triggered a price reduction that might not be reversed or, at least, might not be reversed for some significant period of time.
285 It is important to recall that it was the PBS listing that was likely to give rise to what would have been perceived by Apotex Australia at the time to be a substantial exposure for damages which Sanofi may later seek to recover from Apotex Australia if it was successful at the final hearing.
286 In the absence of evidence from Dr Sherman, I am not persuaded that he would have authorised a launch at risk in circumstances where an interlocutory injunction had been refused, but a final hearing was fixed to commence on 28 April 2008. The advice previously communicated by Mr Millichamp in his letter of 17 August 2007 was that a trial was to take place within approximately 12 to 18 months. In the absence of evidence to the contrary I infer that Apotex Canada was also acting on this understanding until no earlier than 13 September 2007.
287 The evidence is, in my view, consistent with Dr Sherman having deferred any final decision as to whether to launch at risk until after the outcome of the interlocutory application was known. The fact that he may not have expected Apotex Australia to be successful in its opposition to the interlocutory injunction suggests that he did not consider it necessary to make any final decision until such time as there was a decision in Apotex Australia's favour.
288 In its written communications with pharmacists, Apotex Australia had not committed itself to launching in the event no interlocutory injunction was granted. But by publicly resisting the interlocutory application Apotex Australia would be signalling to the market its intention to aggressively contest the validity of the Patent. There was therefore some advantage to be gained in resisting the interlocutory application even if Dr Sherman was later to decide, based on an up to date risk/reward analysis, that it would be undesirable for Apotex Australia to launch at risk.
289 It is not possible to know how Dr Sherman would have reacted to news that the proceeding had been fixed for hearing on 28 April 2008 in the hypothetical situation in which no interlocutory injunction had been granted. He may well have wanted to know how long the final hearing would take and how long it may take for Gyles J to deliver his judgment. Had Dr Sherman asked, he would most likely have been told that his Honour would cease to hold his judicial office from 22 August 2008 (unless he retired sooner) and that he would need to deliver judgment before then.
290 I do not think there is any doubt that Mr Millichamp was eager to launch at risk. He believed that if Apotex Australia could get its clopidogrel product on the market in early 2008 followed by a PBS listing on 1 April 2008 then it would lead to a substantial increase in sales. However, his evidence shows that he was heavily focused on the positive consequences of getting to market quickly, but much less focused on the negative consequences of doing so, and the potential financial consequences should the challenge to the validity of the Patent fail.
291 The evidence provides no information as to the legal advice that informed any assessment of the strength of the case for invalidity or the extent of Apotex Australia's exposure in the event that the challenge to the validity of the Patent failed. Statements in Mr Millichamp's oral evidence to the effect that "we always believed that all of the claims of the patent were invalid" are not persuasive in circumstances where any legal advice upon which such a belief was based is not in evidence particularly in circumstances where the validity of the US Patent had already been upheld by the US District Court in a decision that was later affirmed on appeal.
292 The risk/reward calculations that were later performed in July 2008 are revealing because they show what Apotex Australia perceived its financial exposure to Sanofi could be if it successfully resisted Sanofi's application for an interlocutory injunction and then proceeded to launch its clopidogrel products in Australia with the benefit of PBS listing from 1 April 2008.
293 In late July 2008, several weeks before the final judgment was handed down by Gyles J, Mr Millichamp sought instructions from Mr Kay as to how Apotex Australia should respond to a favourable decision from Gyles J holding the Patent invalid. Mr Millichamp sent an email to Mr Kay seeking instructions from "Apotex HQ" on how to proceed in that event:
If we are successful we need to make a decision on whether or not to launch at risk of the Full Court reversing the judgment on appeal. It is inevitable that Sanofi will try and appeal the judgment if they lose.
Our preferred position here is of course to launch, i.e. start to take orders immediately on the day judgment is handed down, if we win our case.
Our potential exposure to damages will be in the range of 166 M AUD if Sanofi were to prevail on the Full Court appeal. Please see the attached spreadsheet which indicates the summary calculations we have used to estimate the damage we may have to pay if we lost on appeal.
As we will only have a maximum of one to two days notice before we know the date of the judgment we need to be clear of Apotex HQ position now so that we can plan a potential launch strategy and secure a major commercial advantage if we win.
Could you please let us know if Apotex HQ is comfortable for us to launch at risk of Full Court reversal on Sanofi appeal knowing the potential risk of damages should Sanofi prevail.
294 The spreadsheet attached to Mr Millichamp's email contained the assumptions and calculations which produced the A$166 million damages exposure. The elements of the "downside" analysis included:
the effect of the 12.5% statutory price reduction that would result from the listing of a first generic clopidogrel product (calculated to the end of the patent term in February 2013);
a period of lost sales to Sanofi over 18 months (the time it was assumed the appeal process would take);
a market share assumption for Apotex Australia of 17.5%; and
a profit margin assumption for Sanofi of 90%.
295 The spreadsheet also included an "upside" analysis of the profits that Apotex Australia forecast it would make if it were in the market selling clopidogrel for a three year period.
296 The calculations showed that Apotex Australia's A$166 million exposure to Sanofi would be more than fivefold greater than the profits that Apotex Australia was expecting to make on the sale of its clopidogrel products if it were to have launched them immediately following a successful outcome before Gyles J.
297 Mr Millichamp's email indicates that it was Apotex Australia's preferred position to launch if it was to win the case. However, as the evidence makes clear, whether or not to launch in those circumstances was not his decision to make. Mr Smith sent an email to colleagues on 4 August 2008 which was copied to Mr Millichamp in which he said:
If the Court finds in our favour, then it is likely we will launch but it is not an automatic decision. In this situation, the innovator (Sanofi) would inevitably appeal - and that may require Apotex to give guarantees against possible damages should we lose the appeal. The numbers are very large and this will not be a decision made in Australia!
298 It is clear that the general understanding within Apotex Australia was that Sanofi would appeal against any judgment given in favour of Apotex Australia and that any decision to launch Apotex's clopidogrel products in Australia prior to the determination of the appeal would have to be made by Apotex Canada.
299 Mr Kay's initial reaction to Mr Millichamp's request for instructions appears in Mr Kay's 28 July 2008 email to Mr Baxter. Even on the assumption that Gyles J would find in Apotex Australia's favour, Mr Kay's view was that "we need to see the judgement first" and that "if we chose to launch the potential exposure if Sanofi win at appeal exceeds $150m".
300 Mr Baxter responded to Mr Kay's email later that day by asking:
How are damages assessed in Australia? Is it our profits, or their losses? Would there be any punitive damages?
Mr Baxter would have appreciated that Sanofi's losses would prove to be far greater than Apotex's profits if damages ever had to be assessed in Australia.
301 Mr Baxter's response was sent by Mr Kay to Mr Millichamp with a request for an answer to Mr Baxter's questions. Almost the whole of Mr Millichamp's response to Mr Kay's request is redacted for privilege. However, it can be inferred that Mr Millichamp obtained legal advice which he then conveyed to Mr Kay. While it is not appropriate to speculate about the content of the legal advice that was provided, it would have been readily apparent to any competent legal advisor at this time that Apotex Australia would have a substantial exposure to Sanofi for compensatory (but not punitive) damages for patent infringement calculated by reference to Sanofi's loss of profits. As I have explained, this is different from the position that existed in the US when the Apotex entities launched their clopidogrel products on the US market on 8 August 2006 and the terms of the amended settlement agreement applied.
302 On 6 August 2008 Mr Kay sent an email to Mr Millichamp in which he said:
I wonder if the best outcome would be that we win at first instance, [Sanofi] appeal and the injunction remains in place pending appeal. That way, we don't expose ourselves to potentially ruinous damages, but would collect damages off [Sanofi] for the further period of being off the market in the event the SA appeal fails.
303 That email was sent at a time when Mr Kay had received both Mr Millichamp's risk/reward calculations and Mr Millichamp's answers to Mr Baxter's questions. It is not clear to what extent he had by this point discussed the matter with Mr Baxter although it is clear that at that time Mr Baxter was yet to respond to Mr Millichamp's response to Mr Baxter's questions.
304 On 10 August 2008 Mr Millichamp sent an email to Mr Baxter and Mr Kay advising that the judgment was to be handed down on 12 August 2008. A part of the email has been redacted for privilege. However, Mr Millichamp clearly understood that there was a possibility that Apotex Australia may be successful. This gave rise to what he referred to as the "Million's [sic] of Dollar" question:
The "Million's of Dollar" question of course is how big is the risk of us losing on appeal? If we are successful tomorrow we will try and reach a view on this although it is likely to be very difficult indeed to predict an outcome with any degree of surety.
305 It is apparent that what Mr Millichamp proposed was that Apotex Australia would take time to consider any judgment given in its favour with a view to forming a view as to the likely outcome of any appeal by Sanofi. Mr Millichamp recognised that it would be difficult to come to any firm view as to the likely outcome of any such appeal.
306 Mr Kay sent another email to Mr Millichamp on 12 August 2008 which he copied to Mr Baxter. As previously mentioned, Gyles J published his reasons for decision on 12 August 2008. Mr Kay's email to Mr Millichamp and Mr Baxter was sent on the day (but before) judgment was delivered. Mr Kay said:
As discussed last week my view is that in the event of our success and should [Sanofi] decide to appeal we should in some way allow the injunction to continue, and seek damages should any appeal fail to go [Sanofi's] way.
307 There are two short points to make about Mr Kay's email.
308 First, it is apparent that what may have been a quite tentative view held by Mr Kay on 6 August 2008 had developed into a firm view by 12 August 2008 that Apotex Australia should not launch until Sanofi's appeal had been decided.
309 Secondly, Mr Kay's remarks suggest that he saw a benefit in obtaining an undertaking as to damages against which a claim might later be made despite his view that the risk that Apotex Australia may have to pay very substantial damages weighed against launching clopidogrel in Australia while any appeal by Sanofi remained unresolved. This appears to me to reveal an intention to use the undertaking as to damages as a means of having Sanofi underwrite the decision not to launch.
310 A similar risk/reward analysis to that undertaken in July 2008 was undertaken by Apotex Australia following the Full Court's decision at the end of September 2009 finding in favour of Apotex Australia.
311 Adopting some different assumptions (a 40% Apotex Australia market share, a period of lost sales to Sanofi exceeding four years, and updated market size and pricing information), the figures showed a potential exposure to Sanofi of more than $650 million. In that analysis the Sanofi damages figure was more than sevenfold greater than the Apotex Australia profit figure.
312 The Commonwealth submitted that Apotex Australia had in June 2007 estimated that one year worth of potential damages to Sanofi would be in the range of A$50 million to A$70 million. These figures appear in Mr Millichamp's email to Mr Kay of 25 June 2007 in which Mr Millichamp provided an estimate of the amount of the bank guarantee that may need to be established.
313 The bank guarantee estimate was expressed to relate to damages in respect of a period of one year and not Apotex Australia's total exposure in respect of any loss that Sanofi may have suffered beyond that period. The risk/reward analysis prepared in July 2008 specified a figure of just over $52 million as a loss that would be suffered in the first year following launch of Apotex Australia's clopidogrel products based on an initial 12.5% price reduction and a 17.5% loss of market share. That figure, which is at the lower end of the June 2007 estimate, did not take into account price reductions triggered in subsequent years by the PBS listing of the Apotex Australia clopidogrel products or any profits that would be lost by Sanofi in the second or subsequent years.
314 Sanofi's loss was likely to have exceeded the $52 million estimate by a substantial margin if Apotex Australia was to have obtained PBS listing on 1 April 2008 and it was not finally established until 2009 or 2010 (following any appeals) that the Patent was valid. Much of that loss would have been referable to the 12.5% statutory price reduction. Needless to say, whether or not Apotex would be legally liable for that loss was at that time (and is perhaps still) open to debate, but it is apparent that Apotex Australia was proceeding on the basis that it could be liable for the financial impact on Sanofi of the 12.5% price reduction should it be held that the Patent was valid and infringed.
315 In cross-examination Mr Millichamp was questioned as to what he had told Apotex Canada about Apotex Australia's potential exposure to Sanofi for damages in the event that it launched at risk and was ultimately unsuccessful in the patent proceeding. In particular, when asked whether he had informed Apotex Canada that the potential exposure could be between $100 million to $200 million, he said he could not recall whether he mentioned those figures but said that "… certainly they were aware there was a huge exposure, or a very substantial exposure".
316 During the course of his cross-examination Mr Millichamp said that "… the Apotex position is that we always try and push the boundaries, we always try and get on the market at the earliest time possible for our commercial advantage and we always believed that all of the claims of the patent were invalid …". The views he expressed in July 2008 predicated on the assumption that Apotex Australia would succeed before Gyles J at trial appear to be inconsistent with that claim. This point was taken up with Mr Millichamp in cross-examination as follows:
MR SHEAHAN: Mr Millichamp, you said to his Honour that Apotex always tries to get on the market as soon as possible - correct - that's what you just said? --- Yes.
Right. You didn't do that after the decision of the Full Court, did you?--- ..... the Full Court being?
The Full Court of the Federal Court in the proceedings - - -? --- The year - - -
- - - concerning - - -? --- Sorry. The year - - -
- - - 2009 - the end of 2009? --- No, we didn't do it on then - then, but - so, I should rephrase that. Can I rephrase the point to - - -
HIS HONOUR: Yes. Go on? --- Your Honour, can I rephrase the point? Your Honour, when we look at the patent - and I apologise for, perhaps, misleading you and not being clear in my response to you. When we look at the patent landscape and the opportunity to launch a product at risk and challenge a patent in Australia, clearly we've done the work up-front and looked at our probabilities of success, based on either non-infringement or invalidity and our negotiating position with the other party. And on that basis, we will make the decision to challenge, to try and get on the market as soon as we practically can. And your Honour may be aware that in 2006, we got in the market with perindopril erbumine at risk pending initial trial. We also got on the market with Carvedilol pending a trial. And our intention was to get on the market as early as possible with clopidogrel. Now, we ended up having an interlocutory injunction, as was just covered, and being kept off the market, but for the injunction, we would have tried to launch, just like we did with Carvedilol, just like we did with perindopril, and, in the past, we also tried with alendronate, but was the subject of an injunction as well. So when I mentioned to your Honour we always try and launch on the market as soon as practically possible, I was referring to the early stages of the litigation. Now, over a period of time, depending on the interlocutory injunction, the decision that's handed down then, the first instance judgment and the reasons that are handed down then and any appeal and any subsequent - or special leave application to the High Court, the scenario and the risk profile will change over time, but at the outset, when we decide to launch at risk or challenge a patent the idea is to get on the market as early as practicably possible.
317 I did not find this evidence persuasive. The evidence does not suggest that the business case for Apotex Australia launching its clopidogrel products in August or September 2008 followed by PBS listing from 1 December 2008 would have been significantly less attractive to Apotex Australia than a launch at risk in February or March 2008 followed by a PBS listing from 1 April 2008. In his email to Mr Kay, Mr Millichamp had referred to the opportunity to get the Apotex clopidogrel product to market following a successful outcome before Gyles J as "a major commercial advantage if we win" and indicated that a product launch immediately after judgment in Apotex's favour was Apotex Australia's preferred position.
318 One matter of concern is Mr Millichamp's statement that "… in 2006, we got in the market with perindopril erbumine at risk pending initial trial". It is clear that Mr Millichamp was seeking to compare Apotex's launch of that compound, at risk, and the proposed launch of clopidogrel at risk. However, there are two basic differences between perindopril erbumine and clopidogrel in this context; first, the compound patent for perindopril erbumine had already expired by the time Apotex launched its own product in November 2006; second, the relevant pharmaceutical item had already been the subject of a 12.5% administrative price reduction on 1 August 2006, three months prior to the listing of Apotex's perindopril erbumine product on 1 December 2006.
319 It is true that there was litigation in 2006 brought against Apotex Australia that related to perindopril erbumine. However, this litigation was based on an allegation that Apotex Australia had engaged in misleading and deceptive conduct (not patent infringement) and was dismissed by Heerey J with no order as to costs on 30 November 2006: see Servier Laboratories (Australia) Pty Ltd v GenRx Pty Ltd [2006] FCA 1763. There was a further proceeding commenced in February 2007 in which it was alleged by Les Laboratories Servier ("Servier") that Apotex Australia had infringed Australian Patent No 606992 by manufacturing and supplying Apotex's perindopril erbumine products. What became of that proceeding is not apparent from the evidence. There was another proceeding brought by Apotex Australia against Servier related to two different patents. What connection they had with perindopril erbumine is also not apparent from the evidence. In any event, what is clear is that by the time Apotex Australia's perindopril erbumine products were listed on the PBS, the price of the innovator's products had already been reduced by 12.5%.
320 So far as Mr Millichamp's reference to carvedilol is concerned, the listing of Apotex's generic products on the PBS did not result in a 12.5% price reduction of the innovator's products. An application for an interlocutory injunction brought by the innovator against Apotex Australia was refused. The Judge hearing the application (Emmett J) was satisfied that the launch of the Apotex product was "less than likely" to result in a 12.5% price reduction: see Roche Therapeutics Inc v GenRx Pty Ltd (2007) 71 IPR 546 at [100]. There is no evidence to suggest that the listing of the Apotex products resulted in any such price reduction.
321 The Commonwealth submitted that it was not appropriate to use the July 2008 and September 2009 analyses for the purposes of drawing inferences as to whether or not Apotex Australia would have listed on the PBS from 1 April 2008 but for the interlocutory injunction. In essence, it submitted that the circumstances existing at those later dates were different from those that it faced in August 2007.
322 I accept that the July 2008 and September 2009 risk/reward analyses addressed different circumstances from those that existed in August 2007. Nevertheless, those analyses and Apotex Canada's ultimate response to them tends to contradict the assertion made in Mr Millichamp's oral evidence that Apotex tries to get on the market as soon as possible.
323 An important matter when assessing the veracity of Mr Millichamp's evidence on this topic is that the discussion that occurred in July 2008 concerning risk/reward were predicated on the assumption that Apotex Australia would be successful at the trial. Mr Kay's view that it might be better if the injunction remained in place (presumably through the operation of a stay of the trial judge's final orders) reflects a decidedly timid approach and one that is not consistent with the bullish corporate philosophy espoused by Mr Millichamp in his evidence.
324 Another important matter when assessing the veracity of Mr Millichamp's evidence on this topic is that the profit forecasts forwarded to Mr Kay by Mr Millichamp in his email of 22 June 2007 incorporated two scenarios that essentially mirrored the first two of the three scenarios included in the July 2008 analysis. The first of these scenarios assumed that there would be no authorised generic, that there would be a 12.5% price drop on PBS listing, and that Apotex Australia would take a 35% market share. The second assumed that there would be one authorised generic, a 12.5% price drop on PBS listing and that Apotex would take a 17% market share. The additional (third) scenario included in the July 2008 analysis assumed two authorised generics, a 12.5% price drop and an 8.5% market share to Apotex Australia. The forecast profit in the additional scenario was slightly over half of that for the second scenario, but was still substantial. However, in all three scenarios the potential exposure arising out of a claim for damages by Sanofi greatly exceeded the forecast profit.
325 According to his affidavit evidence, Mr Millichamp considered that it was highly unlikely that either Sanofi or BMS would have sought to launch an autogeneric clopidogrel product until after the patent proceeding had been finally determined and any rights of appeal by Sanofi against an unsuccessful outcome had been exhausted. Admittedly, that was merely Mr Millichamp's perception of how Sanofi and BMS would have responded to the launch by Apotex Australia of a generic clopidogrel product prior to the final determination of the proceeding before Gyles J and any appeal against findings of invalidity. In any event, that appears to have been his view at all the relevant times and was later put forward in his affidavit evidence as his expert view based on his experience in the industry. As he said in his affidavit with reference to the period 2008 and 2009:
In my experience, it is very unlikely that [S]anofi and BMS Australia would have taken any steps during that time, that is, while the litigation remained on foot, to jeopardise the Australian market for PLAVIX and ISCOVER, for example, by discounting prices to any significant degree, which would have resulted in a larger reduction in the AP2P as a result of price disclosure (assuming sanofi voluntarily chose to disclose its prices) or by launching other competing generic products which would have triggered the 12.5% price drop in the AP2P for clopidogrel (if they had been PBS listed before Apotex's products) and also been subject to mandatory price disclosure. These actions would have had long term impacts on the market, in the sense that they would have either triggered the 12.5% drop in the AP2P, or at least potentially affected it via the price disclosure calculations, and these price changes could not have been reversed even if [S]anofi had ultimately been successful in removing the Listed Apotex Clopidogrel Products from the market and withdrawn its own generic product from the market. In addition, launching a competing generic product is something that in my opinion, based on my experience, an originator will only do after careful consideration because their new generic brand will devalue the market for the originator brand, not just through its potential impact on the AP2P, as I have described above, but because the originator needs to discount their own generic product to differentiate it from the originator brand. This causes a shift in sales away from the originator brand and therefore a loss of value and market share to the originator brand.
326 It is not necessary for present purposes to determine whether Sanofi and BMS would have responded to the launch of generic clopidogrel products by Apotex Australia in the way that Mr Millichamp expected. What is significant is that the second and third scenarios described in the 2007 and 2008 analyses were considered to be unlikely because it was expected that Apotex Australia would not face any competition from autogeneric clopidogrel products for so long as the patent proceeding (including any appeal) remained on foot. I do not think that there is any doubt that Mr Millichamp would have understood this to allow Apotex Australia a significant period of time during which to capture market share in the absence of any competition from an autogeneric product.
327 Mr Millichamp made an affidavit on 14 August 2008 by which time he would have read Mr Kay's email of 12 August 2008 and Gyles J's reasons for judgment of 12 August 2008. This affidavit, at least on its face, was prepared for the purpose of providing evidence in support of an application by Apotex Australia for a stay of the final injunction restraining Apotex Australia from infringing claim 3 of the Patent which Gyles J had by this time already held to be valid. I say on its face because I do not consider this was the outcome that Apotex Australia was actually seeking or working towards at the time Mr Millichamp made the affidavit. The affidavit was most likely prepared for the purpose of extracting additional undertakings from Sanofi that would provide Apotex Australia with the opportunity to make a claim for compensation in relation to losses that it could later claim it had suffered by reason of the final injunction that Gyles J subsequently granted in the event that it was set aside on appeal.
328 While Mr Millichamp's affidavit includes a statement suggesting that the commercial advantage available to Apotex Australia may have already been eroded significantly, it clearly conveys the impression (without stating in so many words) that Apotex Australia desired to launch its clopidogrel as soon as possible and that it wanted the final injunction stayed pending the determination of an appeal to enable it to do so. And yet, evidence to which I have previously referred shows that Mr Millichamp's immediate superior, Mr Kay, would have strongly preferred to see the permanent injunction continue until such time as any appeal from Gyles J's judgment had been determined. Mr Kay's view no doubt reflected his assessment of Apotex Australia's financial exposure in the event that there was a launch of the Apotex clopidogrel products before any appeal from Gyles J's judgment had been determined.
329 There is nothing in Mr Kay's communications with Mr Millichamp to suggest that Mr Kay believed that the value of the commercial opportunity available to Apotex had diminished significantly since September 2007 or that there had been some fundamental shift in any risk/reward calculus which would have justified Apotex Australia launching at risk in early 2008 (with a PBS listing on 1 April) but not late 2008 (with a PBS listing on 1 December).
330 In his affidavit of 14 August 2008 Mr Millichamp explains what the consequences for Apotex Australia would be in the event that a final injunction was not stayed. He referred to the possibility of other generic clopidogrel products entering the market with different salts of clopidogrel not covered by claim 3 with the result that Apotex Australia would lose what Mr Millichamp referred to as its first mover market advantage. However, as at that date, no other generic supplier (including Spirit) had obtained ARTG registration for any clopidogrel product. The deadline for applying for a PBS listing on 1 December 2008 was 1 September 2008. In the circumstances, it is difficult to see how Apotex Australia's opportunity to secure the first mover advantage was significantly diminished and I do not think it was. It should also be recalled that according to Mr Millichamp's July 2008 email to Mr Kay, Apotex Australia's preferred position was to launch.
331 Mr Sheahan QC submitted that Mr Millichamp was an unreliable witness who had deliberately sought to mislead the Court. Central to this submission were various affidavits made by Mr Millichamp which were said by Mr Sheahan QC to have conveyed the impression that the decision to launch at risk in Australia was one for Mr Millichamp to make. As Mr Sheahan QC correctly observed, it was only in Mr Millichamp's affidavit of 7 July 2017 (which was the seventh affidavit made by him in the proceeding) that he made any reference to Dr Sherman. It was submitted that the failure to make any mention of Dr Sherman in any of the earlier affidavits made by Mr Millichamp was part of a deliberate attempt by him to conceal the identity of the principal decision-maker who would ultimately decide whether Apotex Australia would launch its clopidogrel products at risk.
332 In considering this submission it is important to examine some of Mr Millichamp's early affidavits in context. The first two were made prior to the interlocutory hearing before Gyles J at a time when Sanofi and its witnesses were positively asserting that Apotex Australia would launch its clopidogrel products at risk in the event that no interlocutory injunction was granted. I would not read anything into Mr Millichamp's failure to make any mention of Dr Sherman in his first two affidavits in those circumstances.
333 Mr Millichamp's third affidavit was originally made in support of Apotex Australia's opposition to Spirit's application to have its proceeding heard with Apotex Australia's proceeding. It did not provide an occasion for Mr Millichamp to make any reference to Dr Sherman's role as the principal decision-maker within the Apotex group of companies.
334 The fourth affidavit was that made on 14 August 2008 explaining why there should be a stay of any permanent injunction granted by Gyles J. Once again, I do not see that affidavit as one in which Mr Millichamp should reasonably have been expected to say anything about Dr Sherman's decision-making role within the Apotex group. Although there are criticisms that might be made in relation to that affidavit, not mentioning Dr Sherman's role in the Apotex group is not one of them.
335 However, the position in relation to Mr Millichamp's fifth affidavit is somewhat different. It was an affidavit made on 9 April 2011 that was specifically prepared in support of the claims made on the various undertakings as to damages, not only by Apotex Australia, but also Apotex Canada and ARPL. Nothing is said in that affidavit about Dr Sherman's decision-making role in the Apotex group. In this affidavit, Mr Millichamp stated that it was his intention in August, and the early part of September 2007, that Apotex would obtain PBS listing of Apotex's clopidogrel products with effect from the earliest possible date and that he would have begun marketing and selling those products as soon as Apotex Australia was sure that PBS listing would be obtained. He also stated that if the interlocutory injunction had not been granted, and Apotex Australia had been able to launch its products in preparation for PBS listing on 1 April 2008, he would have instructed his sales team to begin marketing and pre-selling those products from on or around 1 January 2008.
336 Mr Millichamp's sixth affidavit was an affidavit made on 30 April 2013 which, for the most part, replied to affidavits filed by Sanofi's witnesses. This affidavit did not refer to Dr Sherman's decision-making role in the Apotex group although, given its general subject matter, I do not think there was any reason why it should have done so.
337 The seventh affidavit filed by Mr Millichamp was made on 7 July 2017. It is the first affidavit in which Mr Millichamp provides any information as to Dr Sherman and his decision-making role and the fact that there could be no launch at risk in Australia without his approval.
338 The submission that Mr Millichamp deliberately sought to mislead the Court in relation to Dr Sherman's decision-maker role is not a submission I would accept unless it was clearly supported by the evidence. I do not think it is. However, there were aspects of Mr Millichamp's oral evidence (to which I have previously referred) that I regard as unsatisfactory. He also seemed inclined to volunteer evidence (which I give little weight) as to Dr Sherman's state of mind in what appeared to me to be a conscious effort to make up for the lack of any direct evidence from Dr Sherman himself. That said, although I did not regard Mr Millichamp as an entirely satisfactory witness, I do not accept the submission that he deliberately sought to mislead the Court.
339 Mr Millichamp's cross-examination confirmed, as he had acknowledged in his affidavit of 7 July 2017, that Dr Sherman was the key decision-maker who would have had to give his approval before there could be any launch at risk of Apotex's clopidogrel products in Australia. In cross-examination Mr Millichamp asserted that Dr Sherman had given such approval in the email of 20 February 2007 and that it contained an instruction from Dr Sherman to try to launch at risk in 2007. Mr Millichamp went on to suggest that the same email provided him with all the authority he needed to cause Apotex Australia to launch at risk and that this constituted the authority he would have relied upon had Gyles J refused to grant the interlocutory injunction.
340 I do not accept that the 20 February 2007 email was an instruction on which Mr Millichamp would have considered himself entitled to act in late 2007 without reverting, either directly or indirectly, to Dr Sherman for the purpose of obtaining confirmation of that instruction and the necessary final approval from him authorising a launch at risk. The suggestion that Mr Millichamp did not need to obtain any further approval from Dr Sherman before launching at risk is, in my view, inconsistent with the email correspondence between Mr Kay and Dr Sherman and Mr Millichamp and Mr Haas.
341 Nor do I consider that the email sent by Dr Sherman on 20 February 2007 is persuasive evidence as to what Dr Sherman's thinking may have been eight or nine months later. The 20 February 2007 email was sent prior to any decision by the US District Court in relation to the US Patent. Some of the developments that subsequently occurred in 2007 were expected; the ARTG registration of Apotex's clopidogrel products was one of these. However, the coincidence of events that would have led to both a PBS listing on 1 April 2008 (in the counterfactual scenario in which no interlocutory injunction was granted) followed by the commencement of the trial of the patent proceeding (as actually occurred) later that month was a result of developments that could not have been anticipated until about the time the interlocutory application was determined.
342 As previously mentioned, the Commonwealth called evidence from a number of employees, or former employees, of Apotex Canada and ARPL. Mr Fahner, the Senior Vice-President of Business Operations and Finance at Apotex Canada, is a senior employee of Apotex Canada, but not someone who would have had any direct involvement in deciding whether or not to launch the Apotex clopidogrel products at risk in Australia. What is significant for present purposes is that he made a number of detailed affidavits that were read by the Commonwealth (including one affidavit made some months after the Apotex companies discontinued their own claims for compensation) and also travelled from Canada to Australia to make himself available for cross-examination. Mr Goel and, of course, Mr Millichamp, were witnesses who worked for one of the Apotex companies, who made affidavits in support of the Commonwealth's case. Mr Goel travelled from India to Australia for cross-examination.
343 Sanofi BMS submitted that the Commonwealth's failure to call Dr Sherman should lead the Court to infer that his evidence would not have assisted the Commonwealth's case. This brings me to the question whether, in respect of Dr Sherman, the three conditions referred to by Glass JA in Payne v Parker are satisfied.
344 In this case I would have expected Dr Sherman to have been available to the Commonwealth rather than to Sanofi BMS. Contrary to a submission made by the Commonwealth, I think it would be quite unrealistic to have expected Sanofi BMS to have called Dr Sherman in its defence of the Commonwealth's claim. Apotex Canada and Sanofi BMS were at relevant times trade rivals engaged in significant litigation in at least three jurisdictions. The US litigation culminated in a judgment in favour of Sanofi BMS against members of the Apotex group (including Apotex Canada) for in excess of US$442 million. In Australia, the Apotex companies made claims against Sanofi BMS in excess of A$138 million under the same undertakings as to damages upon which the Commonwealth's case is based. And in Canada, Apotex Canada was found to have engaged in infringement of Sanofi's Canadian Patent on what was likely to have been a significant scale by manufacturing and exporting clopidogrel products for the US market. In my view it would be unreasonable and contrary to common sense to have expected Sanofi BMS to call Dr Sherman.
345 The fact that Apotex Canada made Mr Fahner available to make an affidavit for the Commonwealth and to travel to Australia for cross-examination raises the obvious question of why the Commonwealth did not seek to call evidence from Dr Sherman on an issue of critical importance to its case. In circumstances where Mr Fahner, a senior executive at Apotex Canada, was called by the Commonwealth, it seems to me it would be reasonable to expect it to have also called Dr Sherman to give direct evidence of his state of mind at relevant times by affidavit and, if required, orally either in person or perhaps, by video link if he was unwilling or unable to travel to Australia.
346 There was no evidence called by the Commonwealth that would provide any explanation as to why it did not call Dr Sherman or what attempts, if any, it made to call him. I am mindful that Dr Sherman was, at the time of the trial, based in Canada. However, as I have mentioned, this did not prevent the Commonwealth calling Mr Fahner or other Apotex group executives resident overseas to give evidence in support of its case.
347 I conclude that Dr Sherman was a witness who I would have expected to have been available to the Commonwealth and who would have had a close knowledge of relevant facts. In circumstances where the Commonwealth's decision not to call Dr Sherman was wholly unexplained, I infer that the Commonwealth chose not to call him because it considered that his evidence would not have assisted its case.
348 I am not prepared to infer, based on the 20 February 2007 email, or any of the subsequent correspondence in evidence which was said to justify the drawing of such an inference, that Dr Sherman was likely to have instructed Mr Millichamp to procure the listing of Apotex's clopidogrel products with effect from 1 April 2008.
349 In my opinion, the Commonwealth's case suffers from an evidentiary deficiency which cannot be made good by drawing inferences from correspondence written by Dr Sherman in the lead up to the hearing of the interlocutory application. In particular, I do not think it can be inferred that if Dr Sherman had known that the trial of the patent proceeding would commence in the same month that Apotex Australia obtained a PBS listing of its clopidogrel products (triggering a 12.5% statutory price reduction), that he would have, in those circumstances, authorised Apotex Australia to obtain such a listing before judgment was delivered or, at least, until the trial had concluded (by which time he and his colleagues and his legal advisers may have had a clearer view of the strength of Sanofi's case).
350 I should add that I do not regard Mr Fahner's evidence as to the capacity of Apotex Australia to provide security as a condition of avoiding an interlocutory injunction as relevant to any issue in the case. The critical question for present purposes is whether Apotex Australia would have applied for PBS listing in the absence of the interlocutory injunction. The question whether it would have been required to provide security as the price of avoiding an interlocutory injunction does not arise in the counterfactual analysis which presupposes that there was no entitlement to the interlocutory injunction that was granted. It would be incorrect, as a matter of principle, to instead presuppose that there was no interlocutory injunction if, and only if, Apotex Australia was able to provide security.
351 In the result, I am not persuaded that Apotex Australia would have sought and obtained a PBS listing of its clopidogrel products from 1 April 2008 even if the interlocutory injunction had not been granted. It follows that the Commonwealth's claim for compensation must be dismissed.
352 Given that conclusion, it is unnecessary for me to decide any of the other issues that were the subject of evidence and submissions in the case. However, given the extent of the evidence and submissions, and the possibility that the case will go further, I have also made findings in relation to other key issues. The first of these is whether, if Apotex had applied for a PBS listing of its clopidogrel products from 1 April 2008, the Minister or Delegate would have decided to list those products on the PBS from that date.