Chemistree Homecare Ltd v Abbvie Ltd

THE FACTS

For November 2012 the claimant ordered about 1,249 packs. That was over twice the quantity previously supplied. Moreover, that order required 660 bottles of the tablet formulation, as compared to the tablets in blister packs, whereas over the previous seven months the claimant had ordered only six such bottles. That order was delivered, but it resulted in the defendant having an acute shortage of Kaletra in this presentation in the United Kingdom, which was resolved only by diverting to England a delivery from its Dutch manufacturing affiliate that had been destined for Ireland and thus reduced supplies there. Every drug supplier, of course, seeks to plan its stock levels and ensure continuity of supply.

The order evidently raised concerns of the defendant as to what was going on since on 17^th December Mr. Kalra, the business development homecare manager at the claimant, sent a detailed email to Ms. Wharfe which I should quote:

“I understand you have been trying to get through to various members of staff for queries involving the quantity and allocation of the items we have ordered. Firstly, I apologise for no-one getting in touch with you. I have looked at all the orders placed and, yes, the quantities have increased. There are several reasons for this that I hope will shine some light on the matter. The department has had an increased number of prescriptions over the last two weeks due to the majority of hospital clinics closing for the holidays by the end of this week and nearly 80% of these deliveries will need to take place before Christmas, and hence this has caused an increased burden on the stock requirements. As a pharmacy provider, we are also required to keep a stock allocation for emergency prescriptions that we may have to dispense over the holiday season and hence a 10%-15% contingency is kept on the shelf for this reason. A pharmacy service will be running through the holiday season, and hence the orders are to cater for the allocation of deliveries up to the end of the first week of January.”

On 18^th December, Mr. Crispin Ellis, the commercial manager of the defendant’s commercial operations group, wrote to Mr. Vyas at the claimant as follows:

“As set out in my earlier email, we have taken the time to review the position in relation to our HIV medicine stock position and supply.”

Over the next few days there were increasingly heated exchanges between the parties, with the defendant expressing concern over the further orders that it received regarding not only Kaletra but also Norvir. The total quantity of Kaletra ordered for delivery in December was 1,368 packs, although that comprised several orders received in stages. In response to an email expressing concern that these orders were not being met and the urgent patient need, Mr. Ellis wrote on 19^th December:

“You have mentioned you require stock for urgent UK patient need but that you cannot evidence this because ‘In accordance with the Medicines Act and data protection, such patient information I will not be able to provide to you’. We are not suggesting that you send us patient information in breach of the Data Protection Act 1998. To the contrary, we are requesting copies of all anonymised prescriptions that you have. This is in order for us to verify and understand your stock requirements in order to meet UK patient need.

The alternative and more speedy resolution to help with supply would be for you to complete the spreadsheet that I have provided and I will attach again for you to complete.”

In the afternoon of 20^th December Mr. Vyas sent an email to Mr. Ellis, copied to the claimant’s solicitors:

“We have been ordering on a weekly basis for our stock requirements and that practice has been consistently followed by us. Due to holiday season and as most of the hospitals are pushing prescriptions pre-Christmas period, we are asked to fulfil increasing numbers of emergency orders apart from our weekly orders. I am attaching details of Kaletra supplied to us for 2012. We have ordered consistently based on requirements placed on us. [December] 12 orders are in line with those requirements. In [November] 12, our procurement team had spoken to your customer services team and had explained them back orders we had to clear before this year end and additional requirements that were placed on us. For [December] 12, as we are approaching holiday season, we have raised orders before 16^th [December] to ensure stocks that we get from Abbott would meet requirements of our normal orders, back orders, emergencies and stocks on shelf. This will take us through till 6^th January 13 and, hence, we are talking about three weeks worth of requirements. We have placed one additional order on 14^th as we were expecting higher demand for stocks due to patients going on holidays. We do not anticipate demand remaining at such levels in January 13. In relation to the forecast data for December, it is very difficult for CHL to accurately estimate the quantities and, hence, in accordance to the NHS supply guidelines it is essential that we provide an approx 10-15% contingency of stock kept on the shelf for emergencies, especially during the holiday season. This also accommodates bad weather and includes all items within the disaster recovery policy that all medical service providers need to have in place. With regard to the pending orders up to 16^th December, due to the delays in receiving stock, this has caused an ultimate backlog and, hence, further problems for our patients. This is a huge concern for us and equally it should be for Abbott …”

Mr. Ellis responded the same day as follows:

“I state at the outset that we are not refusing supply or failing to supply to you. We do share the concerns that you have for patients, and it is because of the critical stock position we have had recently that we are asking for the information attached again to ensure we meet our supply obligations for UK patients. I understand the issues that you may have with regards individualised forecasting given the urgency. Therefore, I have amended the spreadsheet to make the process quicker for you in this instance. Please provide the information required in the current stockholding worksheet for the products and then, please, provide the information in columns L and M on the worksheet ‘Sales by trust’. It should be very easy to then calculate the requirements you will have for UK patients based on your incremental 10-15% contingency stock assumption. The alternative is for you to supply all anonymised prescriptions that you have outstanding in order for us to verify and understand your stock requirements.”

The claimant did not fill in those sheets and, indeed, has still not done so but responded by threatening to apply for an injunction on Friday 21^st December. Mr. Ellis, for his part, reiterated that the request for what he described as basic information since the orders placed in November and December were “well above the orders placed for previous months and well above the orders for, say, last year”. In fact, no injunction application was made on 21^st December. On Sunday 23^rd December, another director of the claimant, Mr. Ambi Singh, sent a long email to Mr. Ellis which set out a summary of the claimant’s requirement for Kaletra for the period to 7^th January. That summary gave a breakdown as between three categories:

That caused the defendant considerable concern, set out in the response from Mr. Ellis the following morning:

“Having reviewed the attachments to your email, we note that this is the first time you have confirmed to us that you are acting as a wholesaler and you have received EU Prescriptions for Kaletra. Your account is opened on the basis that Chemistree Homecare Limited (previously known as Intecare Direct Limited) is a homecare provider who is supplying UK Trusts against tenders. We have consistently asked to see such information of your contracts with the NHS and you have provided us with details of your contract with NHS London. We have been supplying you with Kaletra based on this information and your obligations to London trusts.

“As this is the first time you have made us aware of your status as a wholesaler we need to clarify the position with respect to our supply chain. We do not supply any wholesalers with Kaletra in mainland UK as Kaletra is a hospital only product. This approach is applied consistently. We use the term ‘hospital only’ to describe a medicine for which the original prescription would have been initiated by a hospital rather than a GP or a pharmacist. We supply homecare providers who are under a contract of supply with an NHS trust. It is not part of our supply chain to provide wholesalers in mainland UK or EU patients as our supply chain already has excellent coverage. Our priority is always to ensure that supply for UK patients is maintained and to ensure that our products reach those UK patients who have been prescribed those medicines. With respect to the EU prescriptions, we already have an existing supply chain in place and are not currently planning on extending it. In the circumstances, we will review the redacted prescriptions relating to UK prescriptions. We note that the current attachment addressing UK patients does not include the date of prescription whereas the EU log does. We will require this information.”

I have set out extracts of the exchanges between the parties thus far in some detail but what follows can be taken shortly. The defendant reiterated its position, refusing to provide Kaletra other than for UK homecare provision, and the claimant insisted that this was unlawful. The total ordered for December was 1,368 packs, of which the defendant supplied only 540 packs. By 27^th December the defendant had received an order for 800 packs for January, to which it responded that this seemed to be above the level required for the claimant’s UK homecare contracts.

On 4^th January 2013, the claimant issued a claim form and an application for interim relief. The application seeks an injunction requiring deliveries of 570 packs of Kaletra per month until trial. The matter came before Hilliard J. in the applications list on 14^th January when the parties sensibly agreed a short-term order for the supply of 120 packs, or boxes, per week until the application could be fully heard.

The evidence on this application comprises the witness statement of Mr. Hundal, to which I have referred, and a witness statement in reply from Mr. Ellis dated 9^th January, supplemented by two very short witness statements from him correcting small points in his main witness statement. No further evidence was filed by the claimant. The claimant did, however, serve its particulars of claim on 24^th January. That is a short pleading that makes clear that this case is brought solely on the grounds of alleged abuse of a dominant position under UK and EU competition law.

Since this is an application for interim relief, the test the claimant has to fulfil is, first, to show that there is a serious question to be tried on those two issues or, in the alternative formulation articulated by Lord Diplock in his speech in American Cyanamid, that the claimant has a “real prospect of success”; and, secondly, that the grant, as opposed to the refusal, of an interim injunction carries the least risk of injustice as between the parties. I take the latter formulation from the judgment of the Privy Council, delivered by Lord Hoffmann, in National Commercial Bank Jamaica v Olint Corporation [2009] UKPC 16. As Lord Hoffmann there explained, the test is no different in principle when the claimant, as here, is seeking a mandatory injunction, and I do not think that, having regard to the potential harm to the defendant from the grant of an injunction, the fact that it would be a mandatory rather than prohibitory injunction is of any significance in the present case.

It is trite to observe that the first step in consideration of dominance is to define the relevant market. As set out in the particulars of claim, the claimant alleges that the defendant is in a dominant position in the market for Kaletra in the United Kingdom. As regards the geographical market, it is generally the case that the market for prescription medicines is national. Mr. Peretz, for the defendant, very properly does not suggest that the claimant cannot show a real prospect of success in that regard, but he strongly challenges the proposition that Kaletra alone constitutes the relevant product market. Mr. Colton, for the claimant, very properly accepts that if the product market is wider than Kaletra alone the claimant cannot show a serious question to be tried or real prospect of success on the issue of dominance.

The principles to be applied in defining the relevant market are uncontroversial and are conveniently set out in the European Commission’s Notice on the definition of the relevant market for the purposes of community competition law, O.J. 1997 C372/5. In the present case, the primary question is that of demand substitution, that is, the range of products that are viewed as substitutes by the customer of the product at issue. It is not suggested that supply substitution is relevant in the present case.

As to demand substitution, the Commission Notice says this at paras. 17-18:

“17.

The question to be answered is whether the parties’ customers would switch to readily available substitutes or to suppliers located elsewhere in response to a hypothetical small (in the range 5% to 10%) but permanent relative price increase in the products and areas being considered. If substitution were enough to make the price increase unprofitable because of the resulting loss of sales, additional substitutes and areas are included in the relevant market. This would be done until the set of products and geographical areas is such that small, permanent increases in relative prices would be profitable …

“18.

A practical example of this test can be provided by its application to a merger or, for instance, soft-drink bottlers. An issue to examine in such a case would be to decide whether different flavours of soft drinks belong to the same market. In practice, the question to address would be whether consumers of flavour A would switch to other flavours when confronted with a permanent price increase of 5% to 10% for flavour A. If a sufficient number of consumers would switch to, say, flavour B, to such an extent that the price increase for flavour A would not be profitable owing to the resulting loss of sales, then the market would comprise at least flavours A and B. The process would have to be extended in addition to other available flavours until a set of products is identified for which a price rise would not induce a sufficient substitution in demand.”

It is, of course, very possible for a single patented drug to be dominant in a market and it is conceptually possible for such a drug to constitute a distinct market of its own, although that is rare (see, for example, the discussion by the Competition Appeal Tribunal, chaired by Sir Christopher Bellamy QC, in Genzyme Limited v The Office of Fair Trading [2004] CAT 4 at paras.197-221). Everything depends on the facts.

Here, the evidence relied on is set out in para.48 of Mr. Hundal’s witness statement. He gives three reasons why he says Kaletra is not interchangeable or substitutable with other medication, but on clarification of the third point in the course of argument it is not really relied on. Mr. Hundal’s first point is that there is no generic equivalent. However, that is true of all patented medicines while they are under patent and does not mean that each such medicine constitutes a distinct product market. It is the second ground which, therefore, became the focus of argument:

“Once patients have been prescribed and stabilised on Kaletra, prescribing consultants are generally reluctant to change their treatment regime. Prescribing consultants are routinely monitoring the bloods of HIV affected patients. Blood levels are always monitored before a further prescription is issued to ensure viral load and CD4 counts, which need to be within the recommended ranges. Deviation could trigger changes in drug, dosage or both. Once patients are thought mainly stabilised, there is often very little change in treatment regime. By their very nature, the service the claimant provides is most suited to patients on stable regimes who the hospital trust reasonably expects to stay on such a regime for a long period of time, and hence they will supply four to six months worth of medication as a single instalment.”

In response, the defendant exhibited to Mr. Ellis’s witness statement two material documents. The first is the British HIV Association Guidelines for the treatment of HIV-1 positive adults with antiretroviral therapy 2012. In the recommendations contained in those Guidelines, section 5 is entitled “What to start” and Section 6 is entitled “Supporting patients on therapy”. Paragraph 5.1 concerns therapy naïve patients and recommends that they start AR therapy on a combination of two drugs of a particular type, referred to as the “backbone”, plus a third agent. That third agent is described as one of the following: a ritonavir-boosted protease inhibitor (PI/r), a non-nucleoside reverse-transcriptase inhibitor (NNRTI) or an integrase inhibitor (INI).

There follows a tabulated list of preferred and alternative third agents. The list contains four preferred third agents, two of which are ritonavir boosted PIs, or PI/rs, and four alternatives, of which, again, two are PI/rs. One of those two PI/rs is Kaletra. There follows para.5.4 which states, by way of explanation of the table:

“We recommend therapy-naïve patients start combination ART containing one of the following as the third agent: atazanavir/ritonavir, darunavir/ritonavir, efavirenz, or raltegravir.

“We suggest in therapy-naïve patients lopinavir/ritonavir [which I interpose is Kaletra] and fosamprenavir/ritonavir are acceptable alternative PIs, and nevirapine and rilpivirine are acceptable alternative NNRTIs.”

In Section 6, at para. 6.3.2, the recommendation states, under the heading “Switching antiretrovirals in combination antiretroviral therapy”:

“We recommend in patients on suppressive ART regimens, consideration is given to differences in side effect profile, drug-drug interactions and drug resistance patterns before switching any ARV component.

“We recommend in patients with previous NRTI resistance mutations, against switching PI/r to either a NNRTI or an INI as the third agent.”

The second document exhibited by Mr. Ellis is a series of slides produced in April 2011 by the London HIV Consortium, which is described as a grouping that brings together commissioners, doctors from all HIV clinics in London, HIV pharmacists and patient representatives. The title of that slide presentation is “Improving the cost of antiretrovirals (ARVs) in London, Summary of ARV prescribing messages for London”. The slide headed “Agreed prescribing messages for London (continued)” says the following:

Faced with that evidence, to which no evidence in response was served by the claimant, Mr. Colton realistically accepted that it cannot be said that Kaletra faces no substitutability as regards those patients starting therapy or, as they have been referred to, therapy naïve patients. On the unchallenged evidence it is one of eight alternative third agents that are substitutable. Mr. Colton, however, submitted that the position is very different for stable patients, that is, those already on therapy.

I consider that there are two difficulties about this submission. First, although the evidence shows that it is inappropriate to switch a patient on PI/r to another kind of third agent and that care has to be taken before switching any drug, the recommendations of the London Consortium indicate that within the category of PI/r consideration is, and indeed should, be given to switching, with atazanavir/ritonavir the preferred alternative on the ground of cost. Although that may be said to be inconsistent with what Mr. Hundal says at para.48(b) of his witness statement that I have quoted, the court, of course, must be careful not to make any conclusive findings on an interim application. Since Mr. Hundal does not provide any source of the information and is not himself an HIV specialist clinician, if there were any serious challenge to the material exhibited by Mr. Ellis, I would have expected further evidence from the claimant in the period of some four weeks since the defendant’s evidence was served. Mr. Colton, in those circumstances, very properly does not seek to question what is set out in the London HIV Consortium presentation, but he points to their statement that switching should only take place when it is clinically appropriate and argues that there will be some patients for whom Kaletra remains the appropriate third agent.

I have no doubt that this submission is correct. There will be some patients for whom Kaletra is a ‘must-have’ medicine and for whom, therefore, a 10%, or perhaps even significantly higher, increase in price will not lead to any switch to another medicine. But there is not even the beginnings of an indication as to what share of total purchases of Kaletra in the United Kingdom come into this category nor is there any evidence as to what share of total purchases of Kaletra in the United Kingdom are accounted for by new patients, or therapy naïve patients, as compared to stable patients. Without at least some information along those lines, it seems to me that it is impossible to argue that a small but significant increase in the price of Kaletra will not cause a sufficient degree of switching to one of the other PI/rs such that this increase will not be profitable for the defendant. Mr. Colton submitted that the defendant is better placed to provide such information than the claimant. That may be so, but the burden is on the claimant to establish some evidential foundation for its case on dominance. It cannot, in my judgment, be entitled to interim relief on a merely speculative basis in the hope that some evidence giving it a serious question to be tried or real prospect of success will emerge on eventual disclosure.

Moreover, the claimant does know how much of its own purchases of Kaletra are used for UK homecare services as compared to its wholesale business or in meeting foreign prescriptions. Depending on what that information showed, it might provide some basis for saying that homecare treatment, and thus, on Mr. Hundal’s evidence, acquisition for stable patients accounts for a very large share of the claimant’s own acquisitions. But the claimant has not provided even that information.

Mr. Colton also pointed out that for those patients who were dependent upon Kaletra and for whom no suitable alternative exists this was truly life saving therapy. However, there is no question of those patients in the United Kingdom being denied supplies of their medicine. The defendant has emphasised throughout that it would supply the claimant with its requirements for its UK homecare business on submission of some evidence showing that this is what the orders were intended to meet. It is not suggested for the purpose of the present application that the defendant could not supply such appropriate documentation, suitably anonymised and, if necessary, with assurances as to confidentiality (cp Intecare Direct v Pfizer [2010] EWHC 600 (Ch)). Accordingly, while I consider that there is a real prospect that ritonavir based PIs used in ART may constitute a distinct product market, I find that on the evidence before the court there is no real prospect of the particular ritonavir based PI that is Kaletra constituting a relevant product market by itself.

Therefore, since the claimant has failed to show a serious question to be tried on the issue of dominance, this application falls to be dismissed. However, since I heard extensive argument on the question of abuse I shall proceed to address that second stage.

It is well established that refusal to supply by a dominant undertaking may, but will not necessarily, constitute an abuse of that dominant position. Here, it is not a case of an absolute refusal to supply but of a refusal to supply for wholesale or without evidence that demand is for the purpose of homecare provision in the United Kingdom. But such qualified or conditional refusal may also be abusive. The general principle is summarised in the judgment of the Court of Justice of the European Union (the ECJ), on which Mr. Colton relied, Joined Cases C468/06 to C478/06, Sot. Lelos v GlaxoSmithKline [2008] 5 CMLR 20, at para.34 of the judgment:

“34

The established case-law of the Court shows that the refusal by an undertaking occupying a dominant position on the market of a given product to meet the orders of an existing customer constitutes abuse of that dominant position under [Article 102] where, without any objective justification, that conduct is liable to eliminate a trading party as a competitor.”

RISK OF INJUSTICE

CONCLUSION

Yes, Mr. Peretz?

The second ground concerns the claimant’s conduct, in particular, before the issue of proceedings around the Christmas period. I have quoted from some of the emails of the claimant itself the extent in the run-up to Christmas and there was the further fact that on 24^th December the claimant’s solicitors in fact served on the defendant’s solicitors a copy application notice and witness statement and said that they were in the process of issuing that notice that day with the intent of obtaining a hearing on 27^th December. It was not in fact issued that day because, of course, on Christmas Eve in the afternoon the court office is closed, but then they pursued that matter further on 27^th December. The witness statement then served is not now before the court, but Mr. Peretz told me that it raised a whole range of allegations going beyond that of abuse of a dominant position, which is the sole basis on which the claim was advanced in the application that was, in the end, issued on 4^th January. In that regard he has taken me to the letter from the defendant’s solicitors to the claimant’s solicitors dated 28^th December criticising the witness statement in some detail. Although Mr. Colton, because he did not have a copy of the witness statement to hand and could not now recall it, was not in a position to accept this, it is clear from the bullet points there set out that the witness statement alleged contravention of a regulatory directive, Directive 2001/83, contravention of the Data Protection Act and relied also on the National Health Service Act 2006. In other words, it raised a whole range of allegations which have not only not been pursued but do not feature at all in the evidently rather different witness statement of Mr. Hundal that was served on 4^th January. Given that this basis of the case was being sent on Christmas Eve, raising not just issues of competition law but regulatory health law, it has clearly caused significant work at short notice at a very difficult period of time to the defendant’s solicitors. It was then not pursued because Mr. Colton said there was some rethinking in the period just after Christmas in the way that the case was framed.

I have to say that, considering that matter and making some allowance for the pressure the claimant may have been under at a busy time of year, I do regard the advancing of allegations of that nature, not simply in the correspondence but by way of solicitors’ communication stating in terms that proceedings would be issued on that basis for a return date straight after Christmas, when those allegations were evidently, on reflection, considered to be so hopeless that they have not even been raised in the eventual application, as conduct that is far outside the norm and so unreasonable that it does justify the sanction of an indemnity costs order. However, in my view, when the application was issued on 4^th January, those concerns ceased and it proceeded in what one may describe as the usual way. Although some complaint was made about the fact that it was listed and brought on in the applications court, it was not pursued as an effective hearing in the applications court, and by 10^th January at the latest the claimant very properly recognised that that could not be an effective hearing and that it required a special appointment. The fact that then the parties had to turn up before the applications judge, a brief, no doubt, hearing that resulted in a consent order ensuring continuity of supplies to the claimant, is not, to my mind, something for which the claimant should be criticised. Accordingly, I think the appropriate order is that the claimant should pay costs on the indemnity basis up to 4^th January and thereafter on the standard basis.

I have been asked to conduct a summary assessment of costs and I have been provided with a schedule of costs by the defendant’s solicitors, although that does not include the costs of today. I have not heard Mr. Colton on the figures in that statement, but I do not need to do so because, in my view, even allowing for the fact that there was work over the Christmas period and that part of the costs will be payable on an indemnity basis as a result of the ruling I have just made, I regard the total, having regard to the fact that much of it will be attributed to work following 4^th January when the defendant had the actual witness statement being proceeded with, as wholly disproportionate for an application that took one day for a substantive hearing and for which the defendant served one witness statement that, apart from the inter partes correspondence, exhibited just a few publically available documents. Accordingly, I will not make a summary assessment in this case. I will direct that the matter goes for detailed assessment, but I will order a payment on account of the amount that may be reasonable.

Mr. Colton, this is your chance. What amount do you think would be fair in this case?