Neurim v. Mylan: UK Court of Appeal denies interim injunction in face of a launch-at-risk, but are damages really adequate?

As this Kat was strolling home Wednesday afternoon, he received a call from his old pal Joost Duijm. On the ball as always, Joost told me that the appeal in Neurim Pharmaceuticals v. Mylan had been handed down [first instance decision here, appeal decision here]. The Court of Appeal has upheld the decision by Marcus Smith J. to deny an interim injunction against a generic company that launched at risk.

Big news indeed. The UK patent courts are known across Europe, among many other things, for having developed a clear-the-way doctrine: if a generic entrant does not institute invalidity proceedings against the patent well in advance of a product launch, that is a strong argument in favour of granting an interim injunction awaiting trial and the status quo is maintained.

Thus, in pharmaceutical patent cases, UK courts have come to readily grant interim injunctions if the generic entrant does not first seek to invalidate the patent [e.g. here], especially where they are coy as to their launch plans [e.g. here]. The argument that is often cited to justify it is that generic entry will inevitably lead to price erosion, which may permanently lower the price level of the originator's product. This damage is hard to quantify, but for blockbuster products can be assumed to be significant.

In yesterday's decision, the Court of Appeal rejected the price erosion argument and declined to enjoin Mylan pending trial. Although the Court of Appeal calls the facts of this case "extremely unusual", the decision shows that damages may, in principle, be adequate compensation for price erosion caused by generic entry. That is an important development.

The case and first instance decision

Neurim and its exclusive licensee Flynn bring to market Circadin, a melatonin-based sleeping pill. The patent that covers Circadin is set to expire on 12 August 2022. Mylan has obtained a marketing authorisation for a generic variant of Circadin and intends to launch as soon as possible. The trial, which was expedited, is scheduled for October 2020.

In the meantime, Neurim and Flynn sought to restrain Mylan from launching its product by requesting an interim injunction. The High Court recalled that such claims are to be assessed under the four stages laid down in American Cyanamid [here]:

• Stage 1: Is there a serious question to be tried?
• Stage 2: Are damages an adequate remedy for the claimant?
• Stage 3: If not, are damages (on the cross-undertaking in damages) an adequate remedy for the defendant?
• Stage 4: If damages are not an adequate remedy for either side, where does the balance of convenience lie?

The significance in the first instance decision is in the assessment of the second stage: the adequacy of damages for the claimant. On the hypothesis that after trial a permanent injunction would be granted [see para 44 of the first instance decision], the question was whether the harm suffered by Neurim and Flynn by the delay in the grant of an injunction could be adequately compensated by damages.

The High Court distinguished between two periods: the period leading up to the trial (i.e. the period until October 2020, "Period 1") and the period that would start to run after an injunction is handed down after trial (i.e. the period from October 2020 until expiry of the patent, "Period 2").

Neurim's case was that generic entry in Period 1 would cause direct competition, resulting in a lower volume of their sales at lower prices. That damage would carry over into Period 2, because Neurim and Flynn would not be able to raise prices again to the pre-Period 1 level (as a result of permanent price erosion).

Accepting that these damages could potentially be suffered by the claimants, the High Court held that these damages are capable of being properly calculated [para 71]:

• For Period 1, Neurim and Flynn will have sales figures, and their loss will be calculated by reference to the difference between volume of sales and sales prices at the beginning of Period 1 and the lower volumes of sales, at lower prices, during the course of Period 1.
• For Period 2, it may be that price erosion will lead to a permanent loss of market. But the monetary value of this loss can also be calculated: the damages suffered in Period 1 can be extrapolated and compared against current projections on how the market will develop.

In addition, Neurim and Flynn argued that denying an injunction in Period 1 would attract further competition from generic entrants, and that they would suffer consequential damages such as losses to R&D funds by missed income.

The High Court was not persuaded by these "special case" circumstances, either: he considered it unclear that damages caused by generic entry in Period 1 can be causally attributed to Mylan [para 79]. As for the consequential damages, the High Court found that Neurim "is obviously a company of some substance", which should be able to survive the relatively short period of generic competition by Mylan. 

No amount of damages can compensate Lucrezia if a new entrant takes her kibble

The decision on appeal

The Court of Appeal (CoA) (comprised of Lord Justices Floyd, Males and Arnold) upheld the decision and largely concurred with it [but for the correct methodology of applying American Cyanamid: para 19].

A key element in the CoA's reasoning was that "whether a price spiral will occur in the period until trial in any given case is extremely fact sensitive" [para 13]. This is certainly true, but is still a useful reminder to practitioners who may have come to rely on an assumption that price erosion is more or less a given in generic entry cases, which was arguably supported by previous case law.

Turning to whether a price spiral was likely to occur in this case, the CoA considered the four months that were left before trial a "very short timescale for the dramatic price effects foreseen by Flynn to take place" [para 43]. Elsewhere, the CoA considered this short timeline a "very significant" aspect of the case [para 11]. Put differently, a four-month period of undue competition by Mylan was not likely to dramatically affect the price of Circadin.

The CoA accepted that the entry of other generic entrants may cause further price erosion and that this was certainly a possibility. But the evidence before the court fell far short of making further generic launches before the trial date likely [para 46].

Thus, the CoA agreed that it would be possible to calculate the potential damages that the refusal of an interim injunction would cause to Neurim [para 51-52]. Floyd LJ stated:

First, and most importantly, Neurim and Flynn have, and have provided to the court, reasonably detailed forecasts of their expected sales revenues in Periods 1 and 2. These can form the basis of the court’s calculation of the position which Neurim and Flynn ought to have been in, but for Mylan’s infringement, for both Periods. The object of the inquiry as to damages will be to restore their revenues to those levels. Secondly, in respect of Period 1, the court will have Flynn’s and Mylan’s actual sales figures and the prices at which they have sold. This can form the basis for the lost sales and price depression claim for Period 1, and I see no reason to suppose that this will be inadequate.

At the start of Period 2 the price for Circadin may have been depressed by the period of generic competition in Period 1. The court will, however, know what this price is. During this period Circadin will not be exposed to generic competition, and to that extent the monopoly will be restored, albeit that it will no longer be possible to charge the monopoly price, because the court is likely to accept the evidence that it will not be possible to raise the Circadin price to its former levels without loss of customer goodwill. I agree with the judge that the calculation for Period 2 will require an extrapolation to determine Flynn’s likely sales and prices in Period 2, and to that extent it will be marginally less robust. […] I therefore agree with the judge that damages will provide an adequate remedy for the loss in Period 2 as well.

In the penultimate paragraph of his opinion, Lord Justice Floyd (who gave the opinion of the court) dismissed Neurim's contention that the decision "would have grave consequences for the pharmaceutical industry". He called the case one with "extremely unusual" facts, not one deciding "any principle of general application". But to this Kat, the facts of this case do not seem that far out of the ordinary: it will always be possible to calculate lost sales and price drops within a limited period of time. True, an increased likelihood of market entry by other generics, coupled with a longer time to trial, may make damages (much) more difficult to calculate in future cases. However, the recognition that price erosion will not automatically take place in case of generic entry, and is not by definition incapable of being redressed with damages, is an important one and this Kat expects it will invoked often in cases to come.

Another issue of particular interest is that of causation in the case of further generic entries to the market. If Marcus Smith J. is right to suggest that, in some cases, that damage may not be attributable to the first generic entrant, patentees would need to seek relief from each additional third party generic entrant. Even if Smith J. emphasized that he said nothing of the merits of such an argument, Merpel thinks it is a brave lawyer who advises their client that the patentee can simply rely on the first generic writing a cheque for the loss other generics cause…