The inadequacy of damages as a remedy
170 At the hearing, Mr Cordiner QC, for Pfizer, submitted that if interlocutory injunctive relief were not granted, then Pfizer would suffer significant damage, which would be impossible to quantify accurately and irreversible, such that damages would not be an adequate remedy. Pfizer submitted that the entry of the Generic Products on to the market would cause it substantial financial loss because it would be under considerable pressure immediately to drop its pricing. If it did not respond in this way, it would lose market share to InterPharma.
171 Pfizer submitted that there were a number of factors that would make it difficult to calculate damages in the event that InterPharma were not restrained and Pfizer were ultimately successful, including that:
(a) Precedex® is a substitutable product, which primarily competes with propofol and midazolam, which are significantly cheaper sedation agents;
(b) the market for dexmedetomidine is not mature because the market volume has not been steady for a material period of time;
(c) the use of Precedex® varies across the market, with some hospitals using Precedex® widely, while others might only use Precedex® in certain situations, or not at all, reflecting, in part, differing clinical acceptance of the benefits of Precedex® over its competitors;
(d) once InterPharma enters the market, it will significantly disrupt the market and any assessment of damages would likely be complex and uncertain, requiring consideration of the impact on the market volume and prices resulting from InterPharma's entry into the market;
(e) with reduced market volume and reduced prices, Pfizer would no longer make the required investment to grow the market to its full potential, which investment includes clinical trials and market education; and, in consequence, Pfizer's increasing, but not mature, level of sales might never reach the level they would have done if the Generic Products had not entered the market prior to the expiry of the Patent; and
(f) the effect on pricing (and overall sales) of dexmedetomidine could extend well beyond the determination of the proceeding at trial, including beyond the expiry of the Patent in March 2019.
172 Regarding the damages question, Pfizer relied on the evidence particularly of Mr Goodwin and Mr Stone. Mr Stone, a chartered accountant, had 30 years' experience in forensic accounting and some familiarity with the issues likely to arise in any future assessment of damages in a case of this kind.
173 In support of its opposing submissions on damages, InterPharma relied particularly on the evidence of Mr Samuel and Mr Moore. The evidence of Mr Williams, the Business Unit Manager of InterPharma, was also relevant. Mr Samuel, a forensic accountant and valuer, had spent over eleven years in forensic services, and had some familiarity with the issues likely to arise in any future assessment of damages in cases of this kind. Mr Moore had twenty-five years' experience as a health economist, including eighteen years in management and governance of New Zealand's pharmaceutical funding body.
174 So far as the adequacy of Pfizer's damages was concerned, InterPharma focussed on the calculation of Pfizer's damages in the probable event that Pfizer did not elect for an account of profits if it were ultimately successful at trial and InterPharma were not restrained on an interlocutory basis. In substance, InterPharma's contention was that the calculation of any damages claim made by Pfizer was relatively straightforward. InterPharma submitted that a number of the elements in any assessment of Pfizer's damages would be calculated as "an accounting exercise", depending on data as to the sales made by InterPharma, and as to Pfizer's profitability. Whilst InterPharma accepted that some elements of this assessment would involve making estimates, it submitted that "the evidence does not establish that these estimates would be likely to cause particular difficulties for a Court". In this connection, InterPharma relied on the Sales Forecast for Precedex® (see [9] above) and submitted that the straightforward nature of the task was exemplified by the Court's approach in Bayer Pharma Aktiengesellschaft v Generic Health Pty Ltd [2017] FCA 250; 124 IPR 23 (Bayer) in which damages were awarded on the basis that each of the generic company's sales was a lost sale to the patentee. InterPharma accepted that its sales would not necessarily all be lost sales to Pfizer because a decreased market price may increase market demand, but submitted that the likely aggregate demand for dexmedetomidine in the absence of price competition could be estimated from historical trends. InterPharma contended that there was no real risk to Pfizer that it would not be compensated appropriately if InterPharma's case failed at trial since InterPharma proffered an undertaking that it will, until final determination of the proceedings, keep proper accounts of sales of the Generic Products, and its supplier has offered to provide an irrevocable bank guarantee from an Australian bank in a sum agreed to by the parties or ordered by the Court.
175 At the hearing, Ms Rofe QC, for InterPharma, submitted that the Sales Forecast for Precedex® did not indicate any forthcoming transformational change in the market. She further submitted that "Pfizer's main damages would be the lost profits during the rest of the Patent term, attributable to the early market entry" and, in this connection, she drew attention to the relatively short period remaining for the Patent.
176 Further, InterPharma submitted that the calculation of its damages on Pfizer's undertaking if it was enjoined and Pfizer's case ultimately dismissed would be considerably more difficult than any calculation of Pfizer's damages in the event InterPharma were not enjoined and Pfizer were ultimately successful. In support of this proposition, InterPharma particularly relied on the evidence of Mr Samuel that econometric modelling would be required to estimate the hypothetical market shares that would have been achieved by the parties and any other generic parties that claimed they would have entered the market; the speed of marketing penetration; and the hypothetical prices that would have been achieved.
177 Mr Williams, for InterPharma, stated in his affidavit evidence that he would have expected the market for dexmedetomidine to be predictable given that the drug had been on the market in Australia since around 2003 and that the sales records held by Pfizer could be used to predict future sales over a period of three to five years. Mr Williams' opinion, as stated in his third affidavit, was that government and hospital restrictions on the purchase of dexmedetomidine would be relaxed if InterPharma were able to supply the drug in the concentrate form at a lower price than Pfizer currently did and that a reduction in the price of the drug would consequently result in an increase in the unit sales of dexmedetomidine.
178 As to the issue of market maturity and the potential for transformational change in Precedex® sales, InterPharma relied particularly on Mr Moore's report, in which it was said that:
Sales may be variable in nature because of the small number of parties involved but the markets are likely mature. I make this assessment for a number of reasons. First, the product has been marketed since 2003. Both intensivists and anaesthetists are the primary prescribers and both are relatively small and coherent groups with strong colleges and a high level of collegiality. There is a strong connection between Pfizer and the prescribing community through continuing education events, promotion of training and sponsorship of trials. Thus, there will be a good familiarity with the pharmaceutical and that familiarity will be evenly shared across prescribers.
I note there is still some applied research in, for instance, paediatric use which is current 'off label" (meaning it is used but not formally indicated as such by the [TGA], and some research aimed at showing outcome benefit (in terms of reduced hours in ICU). Likely, any small incremental benefit in improving the evidence base will shore up sales of dexmedetomidine and will keep Precedex® front of mind with prescribers. These are, however, minor additions to existing knowledge rather than transformational.
Likely, variation in use will arise because of clinical decision making, because of differing funding constraints in hospitals or because of different priorities for different population groups.
The market could expand, but likely only if budget gatekeepers lessen any restrictions or other barriers to use. This is the reality of rationing use in a budget constrained health sector rather than a sign of market immaturity.
179 InterPharma also relied on Mr Samuel's report in support of its contention that assessing its damages on Pfizer's undertaking in the event that it was enjoined and ultimately succeeded at trial would be a difficult exercise. Mr Samuel stated in his report that, compared to patent infringement damages, there would be a "wider range of potential outcomes, which in turn would require a higher number of contentious assumptions and a lower degree of certainty as to the ultimate outcome". Mr Samuel's opinion was that estimating InterPharma's hypothetical sales (which would include its lost "first mover advantage") absent an interlocutory injunction would be "very significantly more difficult to estimate with precision than the hypothetical sales Pfizer would have made absent the infringement".
180 Mr Goodwin, who led Pfizer's team responsible for the marketing and supply of Precedex® as a sole supplier product, stated that, under the current arrangements, Pfizer's customers would be able "to respond quickly to the entry of a generic dexmedetomidine product on the market, in terms of negotiating pricing and/or moving to the generic supplier", to seek a lower price for Precedex® and/or switch to InterPharma's Generic Products.
181 Mr Goodwin's evidence was that he anticipated Pfizer would be forced to significantly reduce the price of Precedex® to compete with the lower priced generic product, and as a result Precedex® would become a significantly less profitable product for Pfizer. Even if InterPharma subsequently left the market, once the contractual price was negotiated under a tender agreement or a contractual agreement, Pfizer would be unable to raise the price for a fixed period, typically between one and three years.
182 Contrary to Mr Williams, Mr Goodwin did not consider that "the length of time that a drug has been on the market [was] alone sufficient to determine whether the market for that drug has reached maturity". This was mostly because "the Precedex® market [was] not mature and clinical opinion about the benefits of dexmedetomidine [was] still evolving". Mr Goodwin did not consider that Pfizer's future sales could be reliably assessed, simply by having regard to Pfizer's sales records and forecasts. Mr Goodwin's evidence was that, bearing in mind that the market for Precedex® was not mature, there were a "host of unpredictable factors that may or may not influence its development".
183 Mr Goodwin disagreed with Mr Williams' statement that a reduction in the price of dexmedetomidine would result in a proportionate increase in the unit sales of the drug. Mr Goodwin stated that:
Based on my knowledge of the current varying prices paid by customers for Precedex®, and the corresponding usage of Precedex® in hospitals, I am not aware of any evidence of a linear relationship in the Precedex® market between price and usage. ... I believe that reducing the price of Precedex® may result in some increased unit sales of Precedex® but, particularly given the evolving state of clinical opinion about the benefits of dexmedetomidine, I consider that any increase will be modest and not of the level required to "offset any price reduction resulting in no loss of profits or an insignificant loss of profits".
184 Mr Goodwin also disagreed with Mr Moore's statement that the market would expand if the government and hospital budget gatekeepers lessened their restrictions. Emphasising that in his opinion, the most significant factor was "the evolving clinical opinion about the benefits of sedation with dexmedetomidine in the ICU", Mr Goodwin stated that:
Whether or not a critical mass of ICU professionals accepts the benefits of sedation with, and therefore adopt the use of, dexmedetomidine, depends on, among other things:
(a) the outcome of major studies, such as the SPICE observational study ...;
(b) the extent to which relevant articles are published by influential researchers in high impact journals;
(c) hospitals preparing ICU sedation guidelines that include the use of dexmedetomidine;
(d) the nature of the flu season in a given year. For example, a particularly bad flu season often gives rise to more individuals being admitted to the ICU and therefore more use of Precedex®;
(e) articles and opinions regarding off label practices. For example, a highly regarded individual publishing on an off label use of Precedex® may result in other clinicians adopting that off label use; and
(f) the unavailability of other sedatives.
185 Regarding the assertion made by Mr Williams that "[i]f the sales volume increases this can offset any price reduction resulting in no loss of profits or an insignificant loss of profits" Mr Goodwin stated that this "does not take into consideration Pfizer's loss of market share once a generic product or products enter the market. Pfizer's loss of market share would compound Pfizer's inability to recover lost profits through increased unit sales".
186 Pfizer also relied on Mr Stone's report to support its contentions about the difficulties of assessing the impact of InterPharma's entry onto the market on its market volume and prices, and the difficulties with modelling the hypothetical "springboard" effect of InterPharma's early entry to the market prior to the expiry of the Patent. As to the springboard period, to which Mr Samuel referred, Mr Stone said:
... Mr Samuel hypothesises that InterPharma "may never achieve the level of sales it would have achieved as the first generic in the market". Whilst this is a possibility ... [t]he possibility exists that Pfizer's level of sales may never reach the level it would have done if Pfizer had not had competition from a generic in the market through to 31 March 2019.
187 There was also some evidence, to which reference was made in InterPharma Pty Ltd v Hospira, Inc [2017] FCA 1075, that Pfizer might suffer reputational harm for which damages would not be an adequate remedy, in the event that Pfizer sought to raise the price of Precedex® to the price at which it sold before InterPharma entered the market (assuming InterPharma entered the market now and Pfizer was ultimately successful at trial).
188 In relation to InterPharma's contention that an assessment of its damages under Pfizer's undertaking would be more difficult than an assessment of Pfizer's infringement damages, Pfizer relied on Mr Stone's report. In this report, Mr Stone stated that, in his opinion, it was "overly simplistic" to say that damages on an undertaking are "necessarily" more complex or difficult than for infringement, and observed that damages estimates for both scenarios will have "many of the same elements of complexity". Mr Stone noted, for example, that:
[A] reduction of price may increase the demand for the product. Therefore, it would be necessary to estimate the volumes that Pfizer would have experienced if InterPharma had not entered the market and prices had not dropped. The effect of a reduction in price is likely to have increased demand at that stage, all else being equal.
However, conversely, the reduction of the price of a drug may make it less attractive for the patent holder to actively market that particular drug, which may adversely impact on the growth in the market for that drug.
189 It may be accepted that Pfizer will suffer significant damage if InterPharma enters the market for dexmedetomidine before the trial in May next year. This was the effect of the affidavit evidence of Mr Goodwin, who had first-hand knowledge and experience of that market, and his evidence was supported by evidence of the speedy responses of some of Pfizer's customers after InterPharma attempted to launch the Generic Products before the grant of interim injunctive relief. Further, it may be provisionally accepted that the damage to Pfizer would extend beyond the life of the Patent, although the precise nature and the quantum of that damage would appear to be unascertainable at this stage.
190 The critical issue is whether damages would be an adequate remedy in the circumstances of this case. For the following reasons, I accept that they would not. I accept that, as Mr Goodwin stated, the use of Precedex® has changed since around 2003. I also accept that the use of Precedex® varies across the market, being used by some hospitals and not others and not always being used in the same range of situations. I accept that this change and variation is, in part, a reflection of changing clinical opinion about the use of the drug and that relevant clinical opinion continues to evolve. Mr Goodwin's evidence in this regard was supported by the evidence of Professors Bellomo and Shehabi concerning the evolution of the opinion and practice of intensive care specialists from the early 2000s until today. It may be accepted that changing clinical opinion about the benefits of dexmedetomidine has affected and continues to affect the market for the drug, particularly bearing in mind that the drug has been and remains significantly more expensive that the alternative sedation agents, propofol and midazolam.
191 As the evidence stands, therefore, there is a credible basis for Mr Goodwin's repeated statements that the market for dexmedetomidine cannot be considered a mature market in the sense that the market volume has not been steady for a material period of time. It seems to me that Mr Williams' perhaps not unreasonable expectation that the market for dexmedetomidine was predictable is thereby undermined. I would therefore provisionally prefer the evidence of Mr Goodwin to that of Mr Williams concerning the utility of sales records and forecasts in any assessment of Pfizer's damages. It also seems to me that Mr Moore's plausible opinion concerning the issues of market maturity and transformational change should not at this stage be preferred to the evidence of Mr Goodwin since, in contrast to Mr Goodwin, Mr Moore did not have first-hand knowledge of the Australian market for dexmedetomidine.
192 Accepting, provisionally, Mr Goodwin's evidence concerning the immaturity of the market, I would also accept, provisionally, his further evidence that the development of "a critical mass" of clinical opinion was a significant factor in increasing the sales of the drug, since without that critical mass the drug would not be regularly prescribed. In this context, I would also accept that, as Mr Goodwin stated, the emergence of this critical mass depends on a range of factors, including the publication of the results of clinical studies, the publication of research in influential journals, hospital guidelines, and other extrinsic factors. I accept, provisionally, that the effect of these factors on Pfizer's sales of Precedex® between now and the expiry of the Patent may be difficult to determine with any degree of reliability. InterPharma's reference to the notion of an absence of transformational change directs attention to a different, though related, inquiry.
193 It may be accepted that the entry of InterPharma into the market will lead to a reduction in the price of dexmedetomidine and that this will lead to an increase in the demand for the drug, all other things being equal. The effect of the budget constraints under which government and hospitals operate would appear to be relevant in this context, as the evidence of Mr Williams, supported by Mr Moore, indicates, but Mr Goodwin has disputed the existence of "a linear relationship … between price and usage". A significant factor in the non-linear nature of the relationship would be, it may provisionally be accepted, the prevalence of clinical opinion about the benefits of the drug as compared with its competitors. It is also possible that Pfizer may, as postulated by Mr Goodwin and Mr Stone, determine to withdraw its investment in the market if the price of Precedex® fell as a result of InterPharma's market entry. It is impossible as things stand to form a view on the extent to which the demand for dexmedetomidine would in fact increase if InterPharma entered the market now, and it is unnecessary to do so. It suffices to say that, in assessing Pfizer's damages on infringement, if InterPharma entered the market now (and InterPharma lost its invalidity case at trial) difficult issues would arise as to the extent and effect of Pfizer's loss of market share and the extent to which Pfizer could recover lost profits through increased sales. It may therefore be accepted that InterPharma's entry into the market would disrupt that market, and that any assessment of Pfizer's damages will be difficult and uncertain.
194 As to InterPharma's contention about the relative difficulty in assessing Pfizer's damages on infringement compared with its damages on Pfizer's undertaking, it may be accepted that the calculation of InterPharma's damages on Pfizer's undertaking if it were enjoined now and Pfizer's case ultimately dismissed, would be difficult, and InterPharma may choose to rely on econometric modelling as the best way to estimate its hypothetical market share, speed of market penetration and prices. It may also be accepted that, as Mr Samuel states in his report, estimating InterPharma's hypothetical sales with precision in this way would not be straightforward, particularly regarding its lost "first mover advantage", and that any estimate will be affected by assumptions as to market share and speed of market penetration.
195 InterPharma accepted, however, that its damages on Pfizer's undertaking would be "reasonably capable of quantification". As the previous discussion has indicated, the calculation of damages suffered by Pfizer if InterPharma is permitted to sell the Generic Products prior to trial and Pfizer is ultimately successful will also be uncertain and difficult. I interpolate at this point that Bayer did not concern a substitutable product or an immature market of the kind described by Mr Goodwin. It seems to me, therefore, that it may be "overly simplistic", to adopt Mr Stone's description, to say that the assessment of InterPharma's damages under Pfizer's undertaking will necessarily be significantly more difficult than the assessment of Pfizer's damages on infringement. Both the potential assessments of damages, whether suffered by Pfizer or InterPharma, would require the construction of hypothetical counter-factual scenarios that present complexities. It is not possible at this stage to estimate the difference in the level of difficulty between the two potential exercises, because both depend on substantial speculation. It follows, it seems to me, that it cannot be positively affirmed that the difference in the level of difficulty on InterPharma's side is so much greater than on Pfizer's side as to justify a radical shift in the balance of convenience and justice of the case.