Ab v. Apotex Corp.

• Decision Date: 03 December 2013
• Docket Number: No. 01 Civ. 9351(DLC).,01 Civ. 9351(DLC).
• Citation: 985 F.Supp.2d 452
• Parties: ASTRAZENECA AB, et al., Plaintiffs, v. APOTEX CORPORATION, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

985 F.Supp.2d 452

ASTRAZENECA AB, et al., Plaintiffs,
v.
APOTEX CORPORATION, et al., Defendants.

No. 01 Civ. 9351(DLC).

United States District Court,
S.D. New York.

Dec. 3, 2013.

[985 F.Supp.2d 458]

John W. Treece, David C. Giardina, Courtney A. Rosen, Angelo J. Suozzi, Zachary A. Madonia, Sidley Austin LLP, Chicago, IL, Joshua E. Anderson, Sidley Austin LLP, Los Angeles, CA, Paul J. Zegger, Sidley Austin LLP, Washington, DC, for plaintiffs.

Robert B. Breisblatt, Brian J. Sodikoff, Stephen P. Benson, Dennis C. Lee, Katten Muchin Rosenman LLP, Chicago, IL, David A. Crichlow, Rebecca Kinburn, Katten Muchin Rosenman LLP, New York, NY, for defendants.

OPINION & ORDER
DENISE COTE, District Judge:

TABLE OF CONTENTS

PROCEDURAL HISTORY	459
BACKGROUND	461

I.	Omeprazole	461
II.	The First Wave Litigation	462
III.	The PPI market in 2003	463

A.	Generic launches	463
B.	Astra's Nexium® strategy	465
C.	Third Party Payers	467
D.	194333	469
E.	Status of Market in November 2003	473

IV. Atra's Licensing Practices as of November 2003
474

A.	Licenses for other PPIs	475
B.	Prilosec OTC®	476

V. Apotex's Alternative Formulations
478

A.	Changes to Apotex's formulation	480
B.	Copying other formulations	481
C.	Microtablet formulation	481

VI. The Book of Wisdom: Post-entry Information
482

A.	Nexium®	482
B.	Prilosec OTC®	485
C.	Apotex's Sales	485
D.	Settlements	486

1.	Andrx offer	486
2.	Teva settlement	487

E.
Infringement Litigation
488

DISCUSSION
488

I.	The Isolated Value of the Subcoating	489
II.	The Pediatric Exclusivity Period	490
III.	Standing	492
IV.	The Reasonable Royalty	496

A.
Apotex's position
497

1.	Apotex's profits	497
2.	Apotex's ability to avoid infringement	498

B.	Astra's position	502
C.	Two remaining factors: Factors 2 and 14	505

CONCLUSION
506

[985 F.Supp.2d 459]

This is the last of several patent infringement actions consolidated before this Court concerning generic production of omeprazole, commonly known by its brand name, Prilosec®. Plaintiffs' Astrazeneca AB, Aktiebolaget Hassle, KBI–E Inc., KBI Inc., and Astrazeneca LP (collectively, “Astra”) patent on the omeprazole molecule expired in 2001, but several patents covering the formulation of the drug, including the patents at issue in this case, did not expire until 2007. Beginning in 1997, anticipating the expiration of the molecule patent, eight generic drug manufacturers, including defendants Apotex Corp., Apotex, Inc., and TorPharm, Inc. (collectively, “Apotex”), filed Abbreviated New Drug Applications (“ANDAs”) with the FDA, seeking permission to manufacture and sell omeprazole. Infringement litigation ensued.

Apotex, Canada's largest generic pharmaceutical company, began selling its generic omeprazole in November 2003, during the pendency of the litigation, and continued selling until 2007, when it was found to infringe Astra's patents. The only remaining issue is the measure of damages to which Astra is entitled for over three years of infringing sales. The parties have agreed that these damages are to be based on a reasonable royalty for the use made of the patents, which this Court must set by imagining a successful hypothetical licensing negotiation between Astra and Apotex in November 2003, on the eve of Apotex's launch.

PROCEDURAL HISTORY

Fact and expert discovery in this action concluded on August 16, 2013. The parties' Joint Pretrial Order, proposed findings of fact and conclusions of law, and pretrial memoranda were submitted on September 13. At the time the trial was scheduled, the parties agreed that a bench trial would resolve Astra's outstanding damages claim. With the parties' consent, the trial was conducted in accordance with the Court's customary practices for non-jury proceedings, which includes taking direct testimony from witnesses under a party's control through affidavits submitted with the pretrial order. The parties also served with the Joint Pretrial Order copies of all exhibits and deposition testimony

[985 F.Supp.2d 460]

that they intended to offer as evidence in chief at trial.

At trial, Astra called two fact witnesses and five experts. Astra's fact witnesses were Kenneth E. Graham, Sr. (“Graham”), an Astra employee for 21 years who held the title of Brand Leader for Nexium®, among others; and Mark Uhle (“Uhle”), CFO for AstraZeneca Pharmaceuticals LP. Astra's expert witnesses were Dr. Martyn Davies (“Davies”), Professor of Biomedical Surface Chemistry at the University of Nottingham in the United Kingdom; Dr. David T. Lin (“Lin”), formerly a Team Leader in the FDA's Division of Reproductive and Urologic Drug Products; Robert Navarro (“Navarro”), Clinical Professor in the Department of Pharmaceutical Outcomes & Policy at the University of Florida College of Pharmacy; Dr. Gordon Rausser (“Rausser”), Robert Gordon Sproul Distinguished Professor at the University of California, Berkeley; and Dr. Christine S. Meyer (“Meyer”), Vice President at National Economic Research Associates, Inc. Affidavits submitted by Astra constituted the direct testimony of its fact and expert witnesses. Each of these witnesses appeared at trial and was cross-examined.

Astra also offered excerpts from the depositions of Dr. Bernard Sherman (“Sherman”), Chairman and CEO of Apotex, Inc.; Beth Hamilton (“Hamilton”), National Sales Director for Apotex Corp.; Gordon Fahner (“Fahner”), Vice President of Business Operations and Finance at Apotex, Inc.; and Tammy McIntire (“McIntire”), president of Apotex Corp. Apotex offered counter-designations as to Sherman, Hamilton, Fahner, and McIntire.

During the presentation of its defense, Apotex presented affidavits constituting the direct testimony of two fact witnesses and five experts. Apotex's fact witnesses were Dr. David Beach (“Beach”), formerly president of TorPharm, a division of Apotex Pharmaceuticals and Bernice Tao (“Tao”), formerly Director of Global Regulatory Operations at Apotex, Inc. Apotex's expert witnesses were Dr. Stephen W. Schondelmeyer (“Schondelmeyer”), Professor of Pharmaceutical Management and Economics at the University of Minnesota; Roy Weinstein (“Weinstein”), Managing Director at Micronomics; Dr. Jeffrey Leitzinger (“Leitzinger”), Managing Director at Econ One Research, Inc.; Gordon R. Johnston (“Johnston”), formerly Deputy Director of the FDA's Office of Generic Drugs; and Dr. Cory Berkland (“Berkland”), Professor of Pharmaceutical Chemistry and of Petroleum Engineering at the University of Kansas. Affidavits submitted by Apotex constituted the direct testimony of its fact and expert witnesses. Each of these witnesses appeared at trial and was cross-examined.

Apotex also offered excerpts from the depositions of Lisa Schoenberg (“Schoenberg”), Vice President of Sales and Marketing for AstraZeneca Pharmaceuticals LP; and Jeanette Tremayne (“Tremayne”), Director of Alliance Management Finance for Merck Sharpe & Dohme, the parent of defendant KBI Inc. Astra offered counter designations as to both Schoenberg and Tremayne.

The nonjury trial was held in this action from November 4 to 19, 2013. This Opinion presents the Court's findings of fact and conclusions of law. The findings of fact appear principally in the following Background section, but also appear in the remaining sections of the Opinion. This Opinion concludes that Astra is entitled to a reasonable royalty for Apotex's infringement of the Patents in the amount of 50% of Apotex's profits on its infringing sales or $76,021,994.50, plus pre-judgment interest.

[985 F.Supp.2d 461]

BACKGROUND

The evidence at trial has emphasized several key areas of dispute between the parties that would have been crucial in a November 2003 licensing negotiation. First, Apotex's evaluation of the value of a license to sell omeprazole would have been largely shaped by the condition of the market in November 2003 for the class of drugs in which omeprazole belonged. This class was called proton pump inhibitors or PPIs. PPIs address problems associated with gastric distress related to the production of gastric acid. Entry into the PPI market, the evidence has shown, remained an extremely valuable opportunity in November 2003, despite the presence of several branded PPIs, three other generic manufacturers of omeprazole, an over-the-counter PPI branded as Prilosec OTC®, and the increasing importance of Astra's next generation branded PPI, Nexium®. Second, Apotex would have been acutely aware, as it approached the negotiating table in November 2003, of the difficulties it faced if it attempted to develop a new, non-infringing alternative formulation. While one other generic manufacturer had already shown that it was indeed possible to commercialize omeprazole without infringing Astra's formulation patents, Apotex did not have a non-infringing formulation ready in November 2003 and would have had little confidence that it could develop one without substantial delay. Since earlier generic products have a significant advantage over later entrants, Apotex would have been keenly motivated to avoid that delay of entry.

Astra too would have had a core set of concerns as it approached a hypothetical negotiation. While its patent on the omeprazole molecule had expired and it was in the midst of executing a strategy to promote Nexium®, Astra still earned substantial profits on sales of Prilosec®. Moreover, the price of generic omeprazole had not been substantially eroded by the entry of three generic omeprazole products in the months leading up to November 2003, and Astra would have been concerned that Apotex, with a license in hand, would have cut prices to gain market share, further eating into Astra's profits on Prilosec®. Of perhaps even more concern to Astra was the impact the Apotex sales might have had on the growth of Nexium®. Astra offered aggressive rebates on Nexium® to ensure that its cost to Third Party Payers (“TPPs”), such as pharmacy benefit managers (“PBMs”), did not rise relative to its principal competitors, which included not only the other branded PPIs but also generic omeprazole. It believed that without a...