COURT FILE NO.: 518/07

DATE: 2008-08-06

SUPERIOR COURT OF JUSTICE – ONTARIO

DIVISIONAL COURT

RE: Apotex Inc. v. Executive Officer for the Ontario Public Drugs Programs and Attorney General of Ontario

BEFORE: Ferrier, Pitt and Molloy JJ.

COUNSEL: Nando de Luca and Daniel G. Cohen, for the Applicant

Lise Favreau and Fateh Salim, for the Respondents

HEARD: May 21, 2008

MOLLOY J.:

E N D O R S E M E N T

Introduction

[1] The applicant ("Apotex") is a drug manufacturer. Apotex sought to have one of its generic drugs (Apo-perindopril) listed in the Ontario Drug Benefit Formulary at 85% of the drug benefit price of the original brand name product. The prices at which drugs are listed are set by the Executive Officer of the Ontario Public Drug Programs ("the EO"). The EO was prepared to list the drug on the Formulary, but only at 50% of the price at which the original brand name drug is listed. Apotex seeks judicial review of the EO's decision and an order compelling the EO to list the drug at the price it had proposed. That application is dismissed for the reasons that follow.

Statutory Framework

[2] The EO is authorized under the Ontario Drug Benefits Act, R.S.O. 1990, c. O.10 to administer the Ontario Drug Benefit Program ("the ODB Program"). The purpose of the ODB Program is to provide eligible persons, typically seniors and individuals receiving social assistance benefits, with prescription drugs at no cost. When an eligible person presents a prescription to a pharmacist, the drugs are provided to the person and the Ontario government pays the pharmacist. The price the government will pay for particular drugs is set by the Formulary, and it is to this list that Apotex seeks registration for Apo-perindopril.

[3] The price the government will pay for original brand name drugs is determined by agreement between the EO and the drug manufacturer and is then listed in the Formulary. The EO is specifically authorized by Regulation to negotiate volume discounts with drug manufacturers: Ontario Regulation 201/96, s. 12(7). Section 12(7) provides that if a manufacturer is required by the EO to enter into a volume discount agreement, the manufacturer "shall agree" that the only information the EO may make public about the agreement is the name of the manufacturer, the subject-matter of the agreement and the fact of entering into or terminating the agreement.

[4] The general rule is that generic drugs are listed in the Formulary at 50% or less of the price for the original brand drug: Ontario Regulation 201/96, s. 11(1). However, that general rule does not apply when the generic drug in question would be the only drug product of its type to be designated as interchangeable with the original drug product: Ontario Regulation 201/96, s. 11(2). In that situation, the Regulation provides that the EO "may, in the [EO's] sole discretion negotiate an agreement" with the generic manufacturer for a drug benefit price that is higher than 50%, provided that the interchangeable product cannot be priced higher than the original product: Ontario Regulation 201/96, s. 11(3). If the EO and the manufacturer cannot agree on a price, the regulation specifies that the EO "shall not list the drug product": Ontario Regulation 201/96, s. 11(4).

Background Facts

[5] On February 2, 2007, Apotex applied to have its generic drug listed at 85% of the brand name drug manufactured by Servier Canada Inc ("Servier"). Initially, Ministry staff advised Apotex that the general rule of 50% of the brand name drug price applied, but that if Apotex was of the view that an exemption to the rule applied, the Drug System Secretariat could be contacted.

[6] Apotex sent an email stating its belief that an exemption applied and asking for a meeting to discuss pricing. The Ministry replied by email asking for a rationale for the increase above 50%.

[7] Apotex replied by letter dated February 22, 2007 offering two reasons for the proposed 85% price. First, Apotex pointed out that even at 85%, there would be significant costs savings to the government. Second, Apotex stated that it had been sued by Servier for patent infringement and the proposed pricing model was necessary to cover the cost of its legal defence. Apotex argued that its potential liability if it lost the litigation made it impossible to reduce its prices further than proposed unless the Government of Ontario would agree to indemnify Apotex in the event it was ordered to pay damages to Servier.

[8] The EO refused to list the generic drug at higher than 50%, stating that this was because the EO had a listing agreement in place with Servier and stating that the government was "unable to accommodate" the request for an indemnification in connection with the litigation. The EO remained open to listing the drug at the 50% price.

[9] Apotex sought production of the agreement with Servier, which the EO has refused citing a confidentiality clause in the agreement in accordance with s. 12(7) of the Regulation.

Standard of Review

[10] The parties agree that the standard of review is reasonableness. I find that to be the applicable standard bearing in mind the principles recently clarified by the Supreme Court of Canada in Dunsmuir v. New Brunswick, [2008] S.C.C. 9.

Analysis

[11] The EO has a very broad discretion with respect to the prices to be set in the Formulary. The issue is one directly within her expertise in a very specialized field. Financial resources of the government and government social policy and the public interest are key components in the exercise of that discretion.

[12] I do not agree with the suggestion that the EO fettered her discretion by refusing to negotiate as mandated by the Regulations. The wording of the Regulation is permissive, not mandatory. It provides that the EO "may", in the EO's "sole discretion", negotiate a different price.

[13] The EO was open to negotiation. Apotex was asked to provide a rationale to support its proposed 85% pricing formula. The only rationale provided by Apotex was completely unhelpful in that regard.

[14] First, Apotex effectively said that 85% was better than nothing and still represented a saving to the government. That is not a rationale for 85%; it is simply stating the obvious.

[15] Second, Apotex argued that the cost of its litigation with Servier required this pricing. No back-up was provided for this assertion. While the litigation is ongoing, there can be no rational basis for the government to be backing one of the litigants by giving special consideration in pricing to offset litigation costs. The alternative suggestion that the government could indemnify Apotex if it is ordered to pay damages to Servier is even more irrational. There can be no justification for the government to commit public funds, in advance, to indemnify the losing party in a patent infringement case.

[16] In these circumstances, in my view, it is not surprising that the EO declined to exercise her discretion in favour of a higher price for Apotex's drug. She was provided with no good reason for doing so. Therefore, her refusal was neither arbitrary, nor a breach of natural justice.

[17] Further, there was no breach by the EO in refusing to provide Apotex with a copy of the agreement with Servier. The agreement contains a confidentiality clause, and it is contemplated by the regulation that this would be the case.

[18] I agree with the EO's interpretation of what constitutes the "subject-matter" of the agreement as set out in the Regulation. The EO's position is that "subject matter" refers to general topics such as "Conditional Listing Agreement for product 'x'" and does not extend to "confidential pricing information or confidential information relating to the terns and conditions of agreement". In my view, that interpretation is consistent with the legislative scheme.

[19] However, on this point, it is not necessary that the EO be correct. This is an interpretation of the constituent legislation and has a broad policy component. The EO has special expertise in the purpose of the legislation and the policy underlying the Act and Regulations and in general, as well as this particular section of the applicable Regulation. As long as the EO's interpretation is reasonable, this Court should not interfere: Dunsmuir at paras 54-56. In my view, the EO's interpretation is a reasonable one.

[20] Therefore, I find no breach in the refusal of the EO to provide either the agreement, or particulars of the pricing in the agreement, to Apotex.

[21] In my opinion, the decision of the EO with respect to the pricing was reasonable in light of the circumstances. There was no breach of natural justice, no procedural unfairness and no arbitrariness in the decision making. The reasons provided by the EO were adequate in the circumstances and within the reasonable expectation of parties in these situations.

ORDER

[22] The application is dismissed. If the parties are unable to agree on costs, brief written submissions may be directed to the Court within 30 days of the release of this endorsement.

MOLLOY J.

FERRIER J.

PITT J.

DATE: August 6, 2008