HomeInsightsCourt of Appeal grants permission to appeal and stay of injunction pending outcome of appeal hearing in pharmaceutical generics case

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Facts

In 2020, Neurim Pharmaceuticals (1991) Ltd sued Generics (UK) Ltd t/a Viatris, which at the time was trading as Mylan, for infringement of its second medical use European Patent designating the UK for “Circadin”, which is a prolonged release melatonin product indicated for the short-term treatment of primary insomnia characterised by poor-quality sleep in patients aged 55 or over. Circadin was commercialised in the UK by Flynn Pharma Ltd, the second claimant. Mylan had obtained a Marketing Authorisation (MA) for Melatonin Mylan, in reliance on Neurim’s MA, in order to sell a generic competitor.

At first instance, Mr Justice Marcus Smith found that the Patent was valid and infringed, but that Flynn was not an exclusive licensee under the Patent (the Main Judgment). Smith J ordered an injunction and delivery up. He also refused permission to appeal for Mylan on validity but granted Neurim permission to appeal the exclusive licensee issue.

At the time of trial in the UK, the European Patent Office Opposition Division had also been considering the validity of the Patent and had found that it should be revoked for lacking novelty over a piece of prior art referred to as “Haimov”. Neurim had appealed to the EPO Technical Board of Appeal (TBA), which had begun considering it.

At the TBA hearing, Mylan attacked the Patent on various grounds, including lack of plausibility insufficiency, referred to as the “lay-patient argument”. Mylan said that the Claims of the Patent were second medical use Claims directed to the use of melatonin for the treatment of insomnia characterised by non-restorative sleep. Non-restorative sleep refers to the situation where a patient spends time asleep but does not feel refreshed. It is therefore distinct from not being able to get to sleep, having trouble maintaining sleep, or getting to sleep but waking up too early. Mylan argued that:

  1. because the invention was a second medical use, the clinical result had to be made plausible by the specification;
  2. since the Claims specifically addressed non-restorative sleep, they had to render that plausible, not merely some more general improvement in sleep quality;
  3. there was no objective test or measurement of sleep quality in the Claims; it was assessed by asking patients about their subjective experience; and
  4. the relevant materials in the Patent related to asking patients about their sleep, but there was no description showing that what they were asked was about restorative sleep, or that that was what they reported on; they might have interpreted the questions as being about improvement in sleep generally and if they reported an improvement, it might only have been an improvement in, for example, getting to sleep.

The TBA indicated that it favoured Mylan’s argument, which led Neurim to withdraw its appeal. This meant that the Opposition Division’s decision still stood and, two days after Smith J had made his orders in the UK proceedings, the Patent was revoked.

As a result of the revocation by the EPO, Smith J subsequently revoked his orders on the ground that the EPO’s order “trumped” his orders.

At the same time, Neurim had also begun prosecuting a Divisional European Patent (UK) (the Divisional). Grant was obtained on 30 June 2021. The Divisional will expire in August 2022. Neurim then issued these proceedings for infringement by Mylan of the Divisional. Neurim also applied to amend the Claims of the Divisional into a form identical to the Claims of the Patent as they had stood at the time of the trial before Smith J, which had resulted in the Main Judgment.

In a series of judgments, Smith J found that the Divisional was valid and had been infringed. Smith J also refused Mylan permission to appeal and granted Neurim an injunction to restrain Mylan from infringing the Divisional. He refused Mylan a stay of the injunction pending determination of Mylan’s application to the Court of Appeal for permission to appeal. Mylan therefore applied to the Court of Appeal on an urgent basis for permission to appeal and for a stay of the injunction.

Decision

Permission to appeal

Lord Justice Arnold, giving the main judgment, noted that Smith J’s reasoning to reject permission to appeal was that the lay-patient argument had failed due to the findings of fact that he had made in the Main Judgment. Arnold LJ disagreed, finding that Mylan’s grounds of appeal concerning the lay-patient argument had a real, as opposed to fanciful, prospect of success. Given that the Divisional is due to expire on 12 August 2022, Arnold LJ also said that it was appropriate to expedite the appeal hearing.

Stay pending appeal

The first question was whether, if a stay were granted, Neurim would be adequately compensated by damages if Mylan’s appeal were dismissed. In Arnold LJ’s view, given that Mylan had been marketing its generic Circadin since September 2020 and, according to evidence filed in an earlier hearing, there had been a steady increase in sales over that period, lost profits due to the assumed infringement would be readily quantifiable.

Neurim argued that damages would not be adequate because granting a stay would be a green light to other generic companies to enter the market, which would cause a downward price spiral and unquantifiable damage to Neurim. However, Arnold LJ said, this was not supported by the evidence. The main third party Neurim referred to was Teva, which had obtained UK marketing authorisations for a generic equivalent to Circadin in September 2018. Neurim had also initiated proceedings against Teva and had applied for an interim injunction against it. Neurim argued that granting a stay in relation to Mylan would adversely affect Neurim’s prospects against Teva. Arnold LJ disagreed, finding that, in fact, having two generic suppliers in the market place, which would lead to a price war between suppliers and a downward spiral in the price, would result in damage to Neurim that would be difficult to quantify, thereby making an injunction being granted against Teva more likely. That said, there might also be good reasons for concluding that an interim injunction should be refused. In short, the outcome would not be dictated by the grant of a stay in this case.

Even if Neurim would suffer damage that would not be adequately compensated by damages if the appeal were to be dismissed, it was also necessary to consider whether Mylan could be adequately compensated by damages pursuant to the cross-undertaking offered by Neurim if the appeal were successful. In Arnold LJ’s view, Mylan’s damage would be difficult to quantify because, following expiry of the Divisional, it would have lost its current first market entrant advantage when other generic suppliers joined the market. As the sole incumbent generic supplier, Mylan would have an advantage upon expiry of the Divisional because it would have a right of first refusal of future contracts to supply pharmacies. Not only would it lose that advantage if a stay were refused, but it would also then have to re-establish its foothold in the market after having been forcibly removed from it. It would be very difficult to quantify the extent of the resulting loss of sales compared to the counterfactual in which no injunction had been granted.

Further, even if both sides were equally likely to suffer damage that could not be adequately compensated, in Arnold LJ’s view, it would be prudent to preserve the status quo pending the appeal.

Lord Justice Birss and Lord Justice Newey agreed with Arnold LJ, but both put the emphasis slightly differently, saying that damages would not be a fully adequate remedy for Neurim should it succeed on the appeal, but that the risk of unquantifiable loss to Mylan in the absence of a stay was greater. (Neurim Pharmaceuticals (1991) Ltd v Generics (UK) Ltd [2022] EWCA Civ 770 (29 March 2022) — to read the judgment in full, click here).

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