On 19 June 2020, LJJ Floyd, Males and Arnold dismissed the appeal brought by Neurim Pharmaceuticals (1991) Limited (Neurim) and Flynn Pharma Limited (Flynn) that sought to overturn the High Court’s decision refusing an interim injunction against Generics UK Ltd (t/a Mylan) and Mylan UK Healthcare Limited (Mylan), concerning their generic prolonged release melatonin product.

While the Court of Appeal (CoA) heavily criticised the approach taken by Marcus Smith J in his High Court decision, the CoA ultimately agreed with his conclusion and core finding – that damages would be an adequate remedy for Neurim and Flynn and an interim injunction was not warranted when applying the American Cyanamid criteria.

In reaching this conclusion, Lord Justice Floyd (who delivered CoA’s unanimous decision) noted that the court did not reach its conclusion on the inadequacy of damages by deciding “any principle of general application” that should be applied when considering future applications for interim injunctions in pharmaceutical patent cases. The decision not to exercise judicial discretion had turned on the “extremely unusual” facts of the case, central to which was the relatively limited period of time until the expedited trial (in ~ 4 months’ time). The short duration of any potential interim injunction also rendered a lot of Neurim and Flynn’s evidence on the inadequacy of damages unpersuasive in the eyes of Floyd LJ, as it had been prepared prior to expedition of the trial, and did not dress what harm would be caused to Neurim and Flynn in the 4 months before trial.

Background

Neurim is the registered proprietor of EP 1 441 702 (the Patent), which expires on 12 August 2022, and which covers a prolonged release formulation comprising melatonin for improving the restorative quality of sleep in a patient suffering from primary insomnia characterised by non-restorative sleep.

Flynn, under an exclusive licence of the Patent, markets in the UK a melatonin product called Circadin® that was developed by Neurim and which is indicated for the treatment of primary insomnia characterised by poor quality of sleep in patients who are aged 55 or over. The UK market for Circadin® represents 45% of the European market and Circadin® is Flynn’s flagship product that accounts for a major portion of its profits.

Having obtained a UK marketing authorisation in December 2019 for a generic product with the same label as Circadin®, Mylan had proposed to launch its a generic product imminently. As a consequence, in February 2020, Neurim and Flynn commenced proceedings against Mylan for infringement of the Patent, seeking a declaration of infringement and injunctive and other relief, and Mylan counterclaimed for revocation of the Patent. Neurim and Flynn also filed an application for an interim injunction in March 2020. After Neurim and Flynn filed their evidence in support of an interim injunction, the substantive trial was expedited such that this trial will commence in late October 2020.

Marcus Smith J rejected Neurim and Flynn’s application for an interim injunction by his decision of 3 June 2020, on the basis that the criteria in American Cyanamid were not satisfied as damages were an adequate remedy. Our previous analysis of this decision of Marcus Smith J is available here. Neurim and Flynn appealed this rejection, and the appeal was heard by the CoA on an expedited basis on 18 June 2020. Pending the decision in this appeal Mylan continued its undertakings that it would not launch its generic product.

Analysis of CoA decision

When considering Neurim and Flynn’s application for an interim injunction, Floyd LJ approached the exercise of judicial discretion using the settled 4-stage criteria set out on American Cyanamid v Ethicon [1975] AC 396:

  • 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?

Floyd LJ heavily criticised the approach of Marcus Smith J to Stages 2 to 4 in which he had directed himself that he should not attempt to resolve disputed issues of fact and should determine these questions on the basis of whether there was a serious issue to be tried, this being the approach for Stage 1. When considering Marcus Smith J’s approach Floyd LJ observed that “[i]t is difficult to see how the judge’s approach could work satisfactorily in practice, where both sides contend they have raised a serious question to be tried on a given factual issue”. The correct approach to Stages 2 to 4 requiring that the court tackle these questions “the best it can on the available written evidence”. Although it may ultimately prove impossible to form a view on certain issues, Floyd LJ emphasised that “the court should not abandon the task at the outset”. These comments appear to be directed to Marcus Smith J’s finding that the parties’ written evidence was “substantially valueless” as it was prepared by the parties’ internal experts and therefore not independent evidence, and his refusal to engage with that evidence with a critical eye.

Despite Marcus Smith J’s error in approach, Floyd LJ held that it was ultimately immaterial as the CoA were as well placed as Marcus Smith J to determine the issues of factual dispute that he had declined to decide, as they arose as a matter of written evidence alone.

As it was not disputed at the appeal that Stage 1 of the American Cynamid criteria was satisfied, Floyd LJ turned to Stage 2 and the adequacy of damages to Neurim and Flynn should the court not award an interim injunction at this stage and then a final injunction be obtained following trial (the Relevant Period). Here, the determination of whether damages are “adequate” does not require damages to be a “perfect remedy”. When approaching this assessment, Floyd LJ highlighted that the boundary between damages being adequate or inadequate was not a precise one and that it was a matter of judicial evaluation of the evidence. If such an evaluation did not result in the crossing of the boundary from adequacy into inadequacy, then, normally, an interim injunction will not be granted.

Floyd LJ considered the two distinct heads of loss argued by Neurim and Flynn: (i) their lost sales and price erosion of Circadin® (pecuniary losses); and (ii) the consequential damage to their businesses caused in a variety of ways by the lost revenue from Circadin® (consequential losses). It was argued by Neurim and Flynn that such consequential losses would arise as a result of this lost revenue as it would: create a need to close down research and development (including clinical trials) and educational programmes; cause them to make redundancies; have an impact on the market for Neurim and Flynn’s other products; and harm their distribution networks.

When considering the evidence of Neurim and Flynn’s pecuniary losses and consequential losses with a critical eye, the expedition of the substantive trial significantly influenced Floyd LJ’s view. This was because Neurim and Flynn’s evidence had been prepared on a different footing – that the trial would take place in one to two years – rather than in just over 4 months’ time, such that it “cannot be assumed that a short period of generic competition followed by a final injunction would have the same effect”. Floyd LJ observed that this shortened period represented a lesser part of the remaining life of the Patent and resulted in a “different perspective” as to whether multiple generic companies would launch competing products and cause a downward spiral in the price of Circadin® in that period.

The presence of a downward “price spiral” was observed by Floyd LJ to be a “familiar point” taken by patentees seeking interim injunctions in pharmaceutical patent cases to help them overcome the hurdle of Stage 2. In many such cases, the courts have held that such a price spiral gives rise to unquantifiable losses for the patentee, with this resulting in the inadequacy of damages for them. However, Floyd LJ cautioned against comparisons with other cases as the presence of a price spiral is “intensely fact sensitive”. Floyd LJ having examined the evidence in this case held that it was not one where there would be a downward price spiral. He formed this view on the basis that the reduced length of the Relevant Period was a very short time period for the dramatic price effects suggested in the evidence of Neurim and Flynn. This was particularly the case given: the relatively high levels of prescription by brand name (53%), with this prescribing practice giving some protection against generic competition; the slow speed by which changes would occur in the relevant reimbursement regime (the NHS Drug Tariff Categories); and the reduced prospect of the launch of a further generic product in the Relevant Period (with the evidence showing that this was possible, but falling a “long way short of establishing that it was likely”).

Floyd LJ was also “wholly unpersuaded” by the submissions that Neurim and Flynn’s evidence established consequential losses in this shortened Relevant Period as it would be “flogging a dead horse” as the market had “become generic”. Floyd LJ disagreed that a shortened period of competition with just one generic company amount to a market that had “become generic”. Further, he could not accept that even if the market had “become generic” why this would result in the discontinuance of research funding or why, if investment in Circadin® was worthwhile for the two remaining years of patent exclusivity, investment would no longer be worthwhile due to a four month period of competition by one generic company. He concluded on the basis of his view of the facts that it was “not realistic to suppose that the lost revenues would be on such a scale as to necessitate the drastic steps referred to by Neurim and Flynn revenues using their existing reserves until the shortfall is recovered from Mylan”.

Given his rejection of any consequential losses to Neurim and Flynn, Floyd LJ then considered the “core question” of whether the calculation of damages caused by the remaining pecuniary losses in the absence of a downward price spiral were of such complexity as to render their remedy in damages inadequate. He held that this had not been established and that the facts of this case “make the court’s task in assessing the loss to Neurim and Flynn relatively straightforward”. Neurim and Flynn had provided the court with detailed sales forecasts, and the court would have additional resources (like actual sales figures) at the time of the damages enquiry. Even if the assessment of damages for a period of the infringement required some extrapolation, the CoA noted that damages are to be “assessed liberally”, and would therefore provide an adequate remedy for the losses that Neurim and Flynn might face.

Given that Neurim and Flynn fell at Stage 2 of the American Cyanamid criteria, the CoA did not consider Stages 3 and 4, and dismissed the appeal.

Conclusion

While Floyd LJ may not have “decided any principle of general application” in this decision, it demonstrates the critical eye that the courts will cast on the evidence supporting the inadequacy of damages for those seeking an interim injunction in pharmaceutical patent cases.

Jonathan Turnbull
Jonathan Turnbull
Partner
+44 20 7466 2174
Priyanka Madan
Priyanka Madan
Associate
+39 02 0068 1365