BALANCE OF CONVENIENCE
96 While very short term undertakings were given by GenRx to enable the hearing of the application for interlocutory relief to be completed, there are compelling reasons why the question of such relief should be determined as soon as possible. Those reasons relate to the inclusion of products to be supplied by GenRx under the Pharmaceutical Benefits Scheme. GenRx proposed to commence marketing of products containing carvedilol on 1 February 2007 on the basis that its products would attract a subsidy under the Pharmaceutical Benefits Scheme. That is a factor to be considered in the balance of convenience.
97 Before the conclusion of the hearing, GenRx proffered further undertakings to the Court in the terms set out in the Schedule to these reasons. The terms of the undertakings are of importance in considering the balance of convenience. In particular, the undertakings would ameliorate much of the possible prejudice that might be suffered by the Patentees if interlocutory relief is refused and they are ultimately successful in establishing infringement of the Patent by GenRx.
98 The first question that arises in balancing the interests of the parties is whether, if the Patentees ultimately succeed in establishing that the Patent will be infringed by the threatened actions of GenRx, they will suffer irreparable injury for which damages or an account will not be an adequate remedy. A significant matter relied upon by the Patentees as giving rise to irreparable injury is the possibility of a decrease in price of its carvedilol products under the Pharmaceutical Benefits Scheme.
99 Under the Guidelines, the circumstances that have arisen in the present case are not covered in express terms. That is to say, on the assumption that the Patent is valid, and the supply of the GenRx products would infringe the Patent, neither of the circumstances for the application of the price decrease described above is applicable: the Patent has not expired and the GenRx products, while "still on patent", are not marketed by the Patentees or by another sponsor under an arrangement with the Patentees.
100 Notwithstanding correspondence received from the Department, the Patentees are concerned that the listing of the GenRx products could yet result in a 12.5 per cent reduction. If that fear and concern is ultimately shown to be well-founded, and there is a reduction in the price of the Patentees' products of 12.5 per cent, that would cause irreparable injury running into millions of dollars on the basis of its current projected sales. The question depends upon administrative policy and the Guidelines simply do not address the circumstances of this case where, if the Patentees' contentions are ultimately upheld, the GenRx products are covered by the Patent and their listing is without the agreement of the Patentees. Nevertheless, it appears to me to be less than likely, in the light of the correspondence mentioned above, that there will be a 12.5 per cent price reduction.
101 The Patentees are concerned, if the GenRx products are allowed to be marketed, that carvedilol will be moved into the F2(T) group and thereby attract the 25 per cent price reduction rather than the 2 per cent per annum price reduction under the present regime. The manner in which the Government will apply such a reduction, if GenRx is permitted to market its products, must be a matter of some speculation. If that possibility eventuated, the loss to the Patentees could be many more millions of dollars. However, having regard to the approach adopted by the Department in relation to the 12.5 per cent reduction following the entry of the GenRx products, it appears highly likely that the same approach will be adopted in relation to the classification of carvedilol at F2A rather than F2(T).
102 The Patentees point to a number of other factors as indicating irreparable injury that they will suffer, other than the possible price reductions, if the GenRx products enter the market. Thus, the third applicant has expended in excess of $52 million on educational and promotional marketing activities in relation to the Patentees' carvedilol products in Australia, particularly to educate doctors about the efficacy and safety of carvedilol in the treatment of congestive heart failure. A loss of exclusivity in the supply of carvedilol could involve a loss of some part of that investment. The Patentees have also undertaken very substantial investment in research and development prior to the commencement of the commercial supply of their carvedilol products beyond the amount invested in education.
103 However, the only manner in which the Patentees could recover that investment is through the sales of its products. If GenRx is found to infringe on a final hearing, the Patentees would be entitled to damages for lost sales. There would then be no loss of the investment. So long as GenRx mains comprehensive and verifiable records, as it has undertaken to do, any direct loss of sales to GenRx can be accurately quantified.
104 The Patentees' marketing strategy and investment have been based on the assumption that the third applicant is the only supplier of carvedilol in Australia. They are concerned that, if, even for a relatively short time, competition is introduced into the market, the value to the Patentees of the marketing investment would be substantially reduced. Doctors who have not yet been persuaded of the clinical benefits of carvedilol will become aware of the existence of a generic version. They contend that, in those circumstances, such doctors may be likely to assume that the lost exclusivity conferred by the Patent reflects poorly on the clinical claims made by the Patentees. However, there is no evidence to support the assertion as such. Damages for lost sales would appear to me to be adequate compensation.
105 The Patentees also express concern that, if GenRx products enter the market, the Patentees' market share would be eroded by the fact that they will not be able to spend the money they had previously spent on product promotion and other products may be more heavily promoted and therefore gain market share. However, it appears to me that the extent of expenditure on promotion is a matter for the Patentees if it wishes to maintain market share.
106 The Patentees also refer to the possibility that they may elect to increase the price of their products in response to generic listing in the expectation that lost sales will be made up by reason of the price differential, since customers may elect to pay the higher price out of brand loyalty. Current competitors might also elect to do so. The Patentees say that it is impossible to say what effect that might have on market shares. However, while that is a matter that may be difficult to quantify, it is by no means certain that it would be detrimental. In any event, the market share consequences of such elections are measurable at any point by reference to lost sales, prices charged and margins earned.
107 The Patentees assert that it would be difficult to predict the dynamics of the market for the drugs in the price reference group should there be additional competition. They say that the additional competition to be provided by the GenRx products changes the face of the market and exposes the Patentees to an additional risk that is both unpredictable and unquantifiable. Having regard to the speculative nature of the concerns, the more appropriate course would be, if an injunction is refused, to reserve liberty to the Patentees to apply if any of the postulated circumstances arose.
108 At present, the Patentees are the only suppliers of carvedilol in the Australian market. The effect of the GenRx products entering the market will be to introduce a single competitor. The competitor might be in the name of GenRx or brand names of pharmacy groups where GenRx supplies under those brand names. Possible adverse effects can be monitored and the Patentees can apply pursuant to liberty reserved where they think specific detriment can be demonstrated.
109 The Patentees also express concern that any quantification of damage suffered by them might depend upon the way in which GenRx promotes its new range of products. For example, a common marketing technique employed by generic pharmaceutical companies is to offer a "bakers dozen" of generic products, providing volume discounts or other indirect incentives to pharmacies to induce them to order more product from the generic supplier. However, so long as adequate records are maintained by GenRx in respect of its sales and margins, the consequences of such conduct can be quantified. Further, GenRx has proffered an undertaking that it will not "bundle" in that way. That would eliminate the risk for practical purposes.
110 The Patentees presently have licence arrangements with Alphapharm and Sandoz for those organisations to market the Patentees' products. The Patentees fear that, if GenRx is allowed to enter the market, the licensees may terminate their licences and enter as competitors. Once again, that possibility is speculative. If the possibility eventuates, it will be open to the Patentees to apply on the basis of changed circumstances for further consideration of the possibility of interlocutory relief.
111 The Patentees also point to the possibility that GenRx could, at any stage, make an application to reduce the price of its carvedilol products. That would trigger a price reduction in the Patentees' products and other drugs within this price reference group. GenRx claims that it has no intention to request such a price decrease and such a possible concern can be dealt with by undertakings not to do so. It has proffered an undertaking not to do so.
112 If GenRx were to be restrained from entering the market, the quantification of its loss of market share during the operation of an interlocutory injunction would be very difficult to evaluate. It may be possible to wait for the period during which the interlocutory injunction operated and assess the position of the market at the end of that time. It might then be possible to demonstrate that that result would have been achieved in the preceding period but for the interlocutory injunction. That, however, would be a much less certain assessment than would be involved in quantifying sales of its products by GenRx during that period on the assumption that no interlocutory injunction is granted.
113 Carvedilol is a key part of GenRx's strategy in tendering for State hospital supply contracts. The tender cycles in various States mean that, if GenRx is restrained from entering the market, it will have to wait several years before it can tender in some States. It says that hospital tenders are not only of financial importance but they also represent an important strategic aspect of its business in boosting its reputation and business momentum. Such matters are not readily calculable by reference to any monetary sum. Further, the inherent uncertainty of the tender process may mean that GenRx will have lost forever the opportunity of entering into arrangements in one or other of the States whose tender cycles fall due during the period of any interlocutory injunction.
114 The vast majority of GenRx's supply to pharmacists is by way of pharmaceutical wholesalers. GenRx supplies pharmaceuticals under its own brand, but it also packages and supplies private label pharmaceutical products to Symbion Health Limited under contractual arrangements. Those private labels are "Terry White Chemists" and "Chemart" pharmacy brands owned by Symbion Health Limited. If GenRx is unable to supply Symbion with carvedilol, its reputation with Symbion and its pharmacists could be irreparably harmed at an early and critical stage in the development of a new, long-term commercial relationship.
115 If GenRx is unable to launch carvedilol as planned, its reputation generally will suffer a serious blow. There is a very significant advantage to generic pharmaceutical companies in being the first to market with a generic pharmaceutical product. The first generic product to be marketed obtains, and to a large extent retains, the greatest market share amongst generic competitors. If GenRx were restrained from entering the market, other generic companies could come in and obtain that commercial advantage. The damage to GenRx in those circumstances would be very difficult to measure.
116 Alphapharm and Sandoz have entered into arrangements with the Patentees to distribute the Patentees' carvedilol products. If GenRx is restrained from entering the market, it may be open to Alphapharm and Sandoz to terminate their arrangements with the Patentees and launch their own generic versions of carvedilol, thereby depriving GenRx of the opportunity of obtaining the benefit of being first to launch.
117 GenRx has a paid up capital of $2 and its holding company has a paid up capital of $2. Its ultimate holding company, however, is a Canadian corporation with substantial assets. While the financial position of GenRx by itself would have been a very significant factor in the balance of convenience, one of the undertakings proffered is to provide a bank guarantee in the sum of $3 million. I am satisfied that that guarantee would cover prospective losses on the part of Patentees in the short-term, so long as they are able to monitor sales by GenRx. It would be open to the Patentees to make a further application if it appeared that the level of sales would justify damages in excess of the amount of the proposed guarantee.
118 The primary answer proffered by GenRx to the allegation of infringement, assuming that the Patent is valid, is the additional element in the claims of the Patent relating to the decreasing of mortality. GenRx eschews any intention to supply its products for purposes other than ameliorating the symptoms of congestive heart failure. The Patentees, on the other hand, rely on the absence of decrease in mortality in the prior art publications as justifying the novelty of the claimed invention of the Patent.
119 On the other hand, in the product information sheet for GenRx products that has been approved by the Therapeutic Goods Administration, there are references to reduction in death in the studies that are described in it. GenRx proposes to seek approval by the Therapeutic Goods Administration of an amended product information sheet that omits the detailed description of the studies and the reference to the reduction of the risk of death under the heading "CLINICAL TRIALS". GenRx has proffered an undertaking to prosecute its application for the approval of its product information sheet in the amended form expeditiously and to inform the Patentees of its progress with that application. However, GenRx does not propose to delete the reference to death in the general description of the studies in the product information sheet. Nor does it propose to delete the table to which I have referred.
120 GenRx has undertaken not to advertise, or otherwise promote, carvedilol for decreasing mortality except that it will not be a breach of that undertaking to supply copies of the product information sheet in the unamended form. I consider that that undertaking affords a sufficient degree of protection to the Patentees, when coupled with the undertaking to keep proper records of sales of the GenRx products, to justify refusal of interlocutory injunctions.