Olanzapine patent dispute: Who is responsible for a price reduction made under the National Health Insurance System

Eli Lilly’s patent on olanzapine product (Zyprexa) invoked a number of disputes with generic companies across the world. The main challenge of the generic companies is lack of novelty or inventiveness of the patent. Some jurisdictions found the patent valid, and others first decided in favor of generics (for instance, Germany and Korea). In Canada, the patent held invalid as lacking utility and Eli Lilly brought the case to investor-state dispute settlement arbitration under NAFTA.

Most of the disputes ended except in Korea. Last year (8 February 2018), the Korean Patent Court (a 2nd instance higher court) held that the generic company is liable for all of the loss suffered by Lilly Korea resulting from a price reduction. The problem is that the price reduction did not occur by a market competition of generic products but by discretionary measures of a governmental agency (the Ministry of Health and Welfare) under drug pricing regulations of the National Health Insurance System (NHIS). Further, it is questionable if the generic entrance is a wrongdoing because two generic producers (Myung-In and Hanmi) changed their decision to enter the market from “upon expiry of the olanzapine patent” to “immediately” as the Patent Court, in another patent invalidation litigation, reversed the lower court’s decision and found the olanzapine patent invalid as lacking an inventive step. Liability of generic producers arose when the Supreme Court reversed the invalidation decision of the Patent Court.

For other’s analysis on the Supreme Court’s decision on the validity of the olanzapine patent, refer to report of Kim & Chang, and for the Patent Court’s decision on damages compensation for Lilly Korea, refer to Newsletter of YulChon.

Unlike the Patent Court, which decided on the dispute between Eli Lilly and Myung-in, the Seoul High Court decided in favor of generics in a dispute between Eli Lilly and Hanmi. Now both cases are pending in the Supreme Court, and PhRMA already filed a written submission to the Supreme Court arguing that the ruling of the Patent Court should be upheld.

Followings are details on some factual backgrounds of the disputes.

Olanzapine Patent

  • Korean patent No. 195,566.
  • Patent application: 24 April 1991 (Priority date: 25 April 1990, UK).
  • Patent registered on 12 February 1999 and expired on 24 April 2011.
  • Patentee: Eli Lilly and Company Limited (a UK company).
  • Registered Licensee: None.
  • Claimed invention: a single compound, 2-methyl-10-(4-methyl-1-piperazinyl)-4H-thieno[2,3-b][1,5]benzodiazepine

 

Eli Lilly and Patented Product (Zyprexa)

Lilly Korea was established on 15 December 1982 (changed to its current name on 6 November 2006) by Eli Lilly and Company (a US company), which is a parent company of the patentee and holds a 100% stake in the Lilly Korea.

Lilly Korea was an exclusive importer of Zyprexa from 1998 to the expiry date of the olanzapine patent (24 April 2011) (It’s controversial if Lilly Korea was a so-called “exclusive non-exclusive licensee” of the olanzapine patent).

Under the Master Supply and Distribution Agreement signed in 1995 by four entities (Lilly Korea, the patentee, Eli Lilly and Company (a US company), and Eli Lilly S.A. (ELSA, an Ireland company)), the patentee has manufactured and provided for Lilly Korea with Zyprexa through ELSA, and received from the Lilly Korea royalties amounting to 27% of net sales of Zyprexa depending on the volume of its import and sale in South Korea.

Lilly Korea obtained an import and marketing approval from the Ministry of Food and Drug Safety (MFDS) for Zyprexa tablet 5 mg and 10 mg on July 31, 1997, and Zyprexa tablet 2.5 mg on April 19, 2002. Lilly Korea was selling the product in Korea since 1998.

The reimbursement price upper limit under NHIS of Zyprexa 10 mg seems to be reduced from KRW 4,895 to KRW 3,916 on April 1, 2011 (when generics entered). 

According to Lilly Korea, the reduction of sales (of Zyprexa tablet 5mg and 10mg) during the period from January 1, 2011 (when the reimbursement price was cut by 20% by the government) to April 24, 2011 (when the subject patent expired) is KRW 1,508,136,758 (See 2014 GaHap 526972 Lilly v. Hanmi (1st instance)). Further, the sales loss of Zyprexa 2.5 mg during the period from February 1, 2011 (when the reimbursement price was cut by 20%) to April 24, 2011 (when the subject patent expired), Lilly Korea argued, is KRW 53,568,465 (See 2014 GaHap 556560, Lilly v. Myung-In).

Generic Products

(1) Myung-In: Neurozapine 2.5 mg

On September 10, 2008, Myung-In Pharm Co. Ltd. obtained a marketing approval from MFDS for Neurozapine 5 mg, a generic product of Zyprexa. For 2.5 mg and 10 mg products, Myung-In obtained the marketing approval on March 31, 2010.

On March 31, 2010, Myung-In applied for a registration of Neurozapine 2.5 mg for the reimbursement coverage under NHIS mg under the condition that Neurozapine would be on the market after the patent expiry (24 April 2011). However, when the Patent Court reversed the first instance court’s decision and found the olanzapine patent invalid on November 5, 2010, Myung-In revised its condition that it would introduce the generic product immediately upon registration (6 December 2010), and sold Neurozapine 2.5 mg product from around January 2011.

(2) Hanmi – Olanza Tab 5mg and 10mg

On 29 April 2008 and 27 November 2009, Hanmi Pharm. Co. Ltd. obtained marketing approval from MFDS for its generic products Olanza tab 10mg and 5 mg, respectively.

On 15 March 2009 and 1 February 2010, Hanmi completed processes for registration under NHIS. When the subject patent was found invalid by the Patent Court, Hanmi also revised the registration condition from “on expiry of patent” to “immediately”, and sold its products.

On 29 November 2010, upon the revised registration of Hanmi’s generic products, the Ministry of Health and Welfare (MoHW) issued a Notice (No. 2010-103) lowering the price upper limit of Zyprexa under NHIS to 80%. As a result, the maximum reimbursement price of Zyprexa was reduced by 20% from 1 January 2011.

Sales of Hanmi’s products from January to April 2011 amounts to KRW 87,979,178. According Lilly Korea, sales reduction from 1 January 2011 (when Zyprexa price was reduced by 20%) to 24 April 2011 (when patent expired) amounts to KRW 1,508,136,758.

Invalidation Trial

On October 1, 2008, Hanmi filed an invalidation trial (2008Dang2929)

On December 31, 2009, the first instance tribunal rejected the trial and held the patent valid. 

On January 26, 2010, Hanmi appealed to the Patent Court.

On November 5, 2010, the Patent Court found the patent invalid as lacking an inventive step ( 2010Hu371).

On December 6, 2010, Eli Lilly appealed to the Supreme Court.

On August 23, 2012, the Supreme Court found the patent meets the inventiveness requirement on the grounds that the claimed invention has a superior effect of no rise of cholesterol levels. For details, see the report of Kim & Chang, which has no relationship with Knowledge Commune. 

Relevant provisions of the Patent Act

Article 128 (Claim for Compensation for Loss) 

(1) A patentee or exclusive licensee may claim compensation for a loss inflicted by a person who has intentionally or negligently infringed the patent or exclusive license.  <Newly Inserted by Act No. 14112, Mar. 29, 2016>

(2) Where a compensation for a loss is claimed pursuant to paragraph (1), but the infringer has assigned the infringing products to third parties, the amount of loss that the patentee or exclusive licensee has sustained may be calculated by multiplying the quantity of products so assigned by the profit per unit of the products that the patentee or the exclusive licensee could have assigned, but for the infringement.  <Amended by Act No. 14112, Mar. 29, 2016>

(3) The amount of loss referred to in paragraph (2) shall not exceed the amount calculated by multiplying the quantity of products that the patentee or exclusive licensee could have manufactured, less the quantity of products actually assigned, by the profit per unit: Provided, That the quantity of products that the patentee or exclusive licensee could not assign due to any cause or event other than the infringement shall be subtracted therefrom, if such cause or event, in addition to the infringement, prevented the patentee or exclusive licensee from assigning the products.  <Amended by Act No. 14112, Mar. 29, 2016>

(4) Where a compensation for a loss is claimed pursuant to paragraph (1), the profits that a person who has intentionally or negligently infringed the patent or exclusive license has gained due to the infringement, if any, shall be deemed the loss that the patentee or exclusive licensee has sustained.  <Amended by Act No. 14112, Mar. 29, 2016>

(5) Where a compensation for a loss is claimed pursuant to paragraph (1), the patentee or exclusive licensee may claim the amount that he/she would usually be entitled to receive for practicing the patented invention as the loss that he/she has sustained.  <Amended by Act No. 14112, Mar. 29, 2016>

(6) Notwithstanding paragraph (5), the amount of loss exceeding the amount specified in the same paragraph may also be claimed as damages. In such cases, the court may consider the fact that there was no intentional conduct or gross negligence on the part of the person who infringed the patent or exclusive license in determining the damages.  <Amended by Act No. 14112, Mar. 29, 2016>

(7) If the court finds, in legal proceedings on infringement of a patent or exclusive license, that a loss has been incurred due to the infringement but it is extremely impracticable to verify the facts necessary for evidencing the loss in light of the nature of relevant facts, it may award reasonable damages based on the gist of entire arguments and the results of examination of evidence, notwithstanding paragraphs (2) through (6).  <Amended by Act No. 14112, Mar. 29, 2016>

[This Article Wholly Amended by Act No. 12753, Jun. 11, 2014]

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