Re Merrell Dow Pharmaceuticals Inc (Petition Under Part Ix of the Patents Act [1991] FCA 12; (1991) Aipc 90-779; 20 IPR 347 (5 February 1991)

FEDERAL COURT OF AUSTRALIA

Re: MERRELL DOW PHARMACEUTICALS INC. (PETITION UNDER PART IX OF THE PATENTS
ACT
No. V G210 of 1988
FED No. [1991] FCA 12; 6
(1991) AIPC 90-779
20 IPR 347

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIAN DISTRICT REGISTRY
GENERAL DIVISION
Jenkinson J.(1)

HEARING

MELBOURNE
5:2:1991

Counsel for the Applicant: Dr J. McL. Emmerson QC and Mr C.A. Spence

Counsel for the Commissioner Mr R.M. Downing of Patents
of Patents:

Solicitors for the Applicant : Minter Ellison

Solicitor for the Commissioner Australian Government Solicitor

of Patents:

DECISION

Petition for extension, by way of grant of a new patent, of a standard patent, pursuant to s.90(1) of the Patents Act 1952 as in force before the commencement of the Patents Amendment Act 1989.

2. Australian Patent No. 467,361, which was sealed on 16 March 1976, was dated as of the date on which the complete specification was lodged, 11 December 1972, and expired on 11 December 1988. The petitioner's intention to take action in accordance with s.90(1) as in force before the commencement of the Patents Amendment Act 1989 having been advertised in the Official Journal published on 12 May 1988, and the petition having been filed in this Court on 14 June 1988, Part IX of the Patents Act 1952 as in force before that commencement applies to the proceeding instituted by the petition : Patents Amendment Act 1989, ss. 8(1), 10(1); Patents Regulations reg. 37.

3. The grantee named in the patent was Richardson-Merrell Inc., a corporation by the law of the State of Delaware. On 10 March 1981 the name of the corporation was changed by the law of that State to that of the applicant, according to a certificate of the Secretary of State for that State, in effectuation of what is described by a deponent expert in the laws of the United States of America as "a transaction referred to as a reverse subsidiary merger", being one of what is described by the same deponent as "a complex series of transactions .... as a result of which" the applicant was sworn to have become a wholly owned subsidiary of another United States corporation, The Dow Chemical Company. A certified copy of the entries in the Register of Patents in respect of the patent discloses an entry of "Merrell Dow Pharmaceuticals Inc." as the proprietor of the patent by "Assignment of the whole interest in these Letters Patent" to that corporation "by virtue of Merger Agreement effective as at 10 March 1981". If there be an unresolved question, raised by the evidence to which I have referred, as to whether the grantee of the patent remained the proprietor thereof throughout the term of the patent, it seems unnecessary that I resolve the question, having regard to the reasoning of Fullagar J. in Re Sanofi's Patent Extension Petition (1983) VR 25 at 27-30. (Cf. Sanofi v. Parke Davis Pty. Ltd. [1983] HCA 32; (1983) 152 CLR 1)

4. The claims of the complete specification comprehend inter alia claims for a chemical compound, for a pharmaceutical composition comprising in unit dosage form from 1 to 50 milligrams of that compound and a significant amount of a pharmaceutically acceptable carrier, for a method of treating allergic reactions in a patient comprising administering to the patient from 0.01 to 20 milligrams per kilogram of body weight of the patient of the compound, for a method of inducing bronchial dilation in a patient suffering from bronchial constriction comprising administering to the patient from 0.01 to 20 milligrams per kilogram of body weight of the patient of the compound, and for a process for the preparation of the compound which is described in the order disposing of the petition. The compound is now known as terfenadine. The extension sought is limited to the claims I have stated.

5. The patent was granted on a Convention application based on a United States of America patent application by the petitioner (USNN221821) made on 28 January 1972, the priority date of the claims of the complete specification lodged in respect of the application for the Australian patent.

6. Terfenadine, the evidence established, tends within the human body to prevent undesirable biochemical activity of a naturally occurring human hormone called histamine. Like a number of other chemical compounds which have been found during the last five decades to have a similar tendency, terfenadine is called an antihistamine. Histamine influences the functioning of certain cells receptive to that hormone : relaxation of the smooth muscle of blood vessels and consequent dilation of the vessels, increase of permeability of the vessels' walls, sensitizing of nerve endings, and constriction of smooth muscle cells in the lungs and bronchi are notable examples. Relatively high concentrations of histamine occur in the skin and lungs. Those persons in whom antibodies known as Immunoglobulin E (IgE) are produced in response to one or more particular antigens often experience, upon the occurrence of that response, an enhanced release of histamine from the cells in which that hormone is held, notably from mast cells, which are concentrated in the skin, the lining of the nose and of the lungs and around the eyes, and which are peculiarly susceptible to the influence of IgE antibodies. When those antibodies bind to mast cell receptors specific to them the cells release histamine and other substances. The histamine in turn binds to the receptors of the cells which are subject to the influence of that hormone, and provokes in those cells the responses of which I have stated examples. Except in lungs and bronchi, the responses of relaxation, increased permeability and nerve sensitization make a substantial and prompt contribution to what is called an allergic reaction to the antigen which has initiated the physiological process outlined. Examples of such reactions germane to this petition are allergic rhinitis, seasonal (as in hay fever) or perennial (caused by an allergen such as the house dust mite), and urticaria. In lungs and bronchi asthmatic vesicular construction may be caused directly by smooth muscle response to histamine, or an asthmatic episode may be precipitated by an allergic rhinitis reaction in which histamine has played the role I have outlined.

7. Cells susceptible to the influence of histamine yield to that influence upon contact between receptors on the cells and the hormone. One of the two types of receptor, designated an H2 receptor, is found in the lining of the stomach. Contact between an H2 receptor and the hormone initiates secretion of digestive acid by the cell. That process need not for present purposes be considered because terfenadine seems not to bind to H2 receptors. It is contact between an H1 receptor and histamine which initiates the responses that have the physiological consequences contributing to allergic reaction and to bronchoconstriction. The chemical compounds called antihistamines, including terfenadine, bind to the H1 receptor of the cell upon contact, but do not initiate any of those responses in the cell, and prevent binding of histamine to that receptor. By those means the antihistamine tends to inhibit the symptoms of allergic reactions.

8. Until terfenadine was found to be an antihistamine, all known antihistamines had a depressant effect on central nervous system activity. They tended to induce sedation, some more than others. Symptoms of lassitude, incoordination and fatigue were associated with their effect on the central nervous system. They tended in therapeutic doses to impair efficiency in the performance of functions requiring mental alertness or motor coordination. Public health legislation commonly required that packaging in which antihistamines were sold bear warnings of those effects on central nervous system function. To limit those effects dosages of antihistamines had to be restricted. Another, sometimes undesirable, effect of some of the antihistamines in clinical use when terfenadine was found to be antihistaminic was inhibition of parasympathetic nerve activity, by reason of the influence of some antihistamines on the process of secretion of the transmitter substance called acetylcholine. The effect is described as anticholinergic. The most troublesome symptom is a dryness of the mouth.

9. Terfenadine is an effective antihistamine and is neither anticholinergic nor a depressant of central nervous system activity. The evidence compels the finding, against which counsel for the Commissioner of Patents had nothing to say, that the disclosure of the invention of terfenadine has conferred on the public a benefit of quite exceptional value. The allergic reactions of which the distressing symptoms are minimised by antihistamines are experienced by a substantial proportion of the population, and the symptoms cause many who suffer such reactions much discomfort and disablement from normal activities. Harm is sustained by the Australian community, as well as by patients, in consequence of patients' disablement and impairment of working efficiency. Quite serious impairment of mental efficiency and motor coordination is also caused by the antihistamines in clinical use before the invention of terfenadine, to the disadvantage of the patient and of the community. Another kind of medicinal treatment of allergic reaction, by corticosteroids, may cause serious harm to the patient and is avoided except in a case of severe allergic reaction which is not controlled by antihistamines. Terfenadine is an effective antihistamine, even after prolonged use, and has no tendency to inhibit central nervous system activity or to act as an anticholinergic. It is the absence of any sedative effect in an otherwise typically effective antihistamine which, in the opinion of each of a number of doctors very well qualified to judge the question, justifies the conclusion that the invention of terfenadine constituted a major advance in the treatment of allergic reaction and a very substantial public benefit.

10. Since the priority date other antihistamines claimed to be without sedative effect have been proposed and one of them, astemizole, which followed terfenadine on to the market, has been found to lack sedative effect. (The therapeutic usefulness of astemizole is limited by the relatively long interval between first administration and antihistaminic effect and by the relatively long interval between administration and elimination of the substance. The latter characteristic precludes diagnostic skin testing for three weeks or more after administration of astemizole.) But terfenadine is still of very great utility in the treatment of a great proportion of patients suffering allergic reactions, including those associated with urticaria, eczema, insect bites and asthma. Further, very great public benefit has derived from abrogation of the belief, endemic in the medical profession and not unknown among pharmacologists in the decades before terfenadine's characteristics became known, that a depressant effect on central nervous system activity was an inevitable concomitant of antihistaminic activity in a therapeutic substance. By breaking that nexus, the inventors of terfenadine have greatly stimulated medical and pharmacological thought about antihistamines and about the physiological process in which antihistamines intervene.

11. The two inventors of terfenadine, Albert Carr and Richard Kinsolving, were following different research goals when the critical steps in the inventive process occurred. During the seventh decade of this century Dr. Carr was engaged, in the course of his employment by Richardson-Merrell Inc., in research directed to the discovery of a chemical compound efficacious in the control of psychosis but not so potently sedative as to incapacitate the patient. To that end he synthesised many organic compounds and also removed radicals and other groups from compounds in order to identify the part or parts of the molecular complex which had the desired effect and the part or parts which had the undesirably strong sedative effect. Dr. Carr was aware that some anti-psychotic compounds had antihistaminic effect and asked his employer to have some of the compounds he had synthesised tested for antihistaminic properties, but Richardson-Merrell Inc. did not at that time have appropriate facilities for that procedure. Dr. Kinsolving took employment with Richardson-Merrell Inc. in December 1970. Both before and after that time his several employers had been directing their research for compounds having anti-allergic properties outside the field of antihistaminic substances. Dr. Kinsolving, however, suspected that a compound might be found which exhibited antihistaminic properties but which had no substantial effect on central nervous system activity. Having learned that Dr. Carr had synthesised compounds which had failed to exhibit the influence on central nervous system activity which their molecular structures suggested they might have, and for which Dr. Carr had been searching, Dr. Kinsolving selected for testing a number of those compounds to determine whether they had anti-allergic properties. Richardson-Merrell Inc. had by that time established facilities for that kind of research. In May 1971 one of the compounds selected for testing, now known as terfenadine, manifested anti-allergic activity and was selected for further investigation. Although the claims of the complete specification comprehend many compounds within the same class as terfenadine, that particular chemical compound was soon recognised as the most useful. Indeed, the evidence in support of the petition was not directed to showing merit in relation to the public of any other compound comprehended by the claims, and the compound now known as terfenadine is given in the complete specification first place among representative compounds of the invention, which is entitled "alpha-aryl-4-substituted piperidinoalkanol derivatives".

12. Concerning the question whether exceptional inventive ingenuity was exercised in invention of terfenadine, I hesitate to make a finding. Conscious, as was Windeyer J. in Re N.V. Philips Gloeilampenfabriken's Patent (No. 1) [1966] HCA 43; (1966) 121 CLR 70 at 88, of a lack of appropriate scientific and technical knowledge,and persuaded, as was that learned judge, that "the concept of exceptional inventive ingenuity is not susceptible of evaluation by objective criteria", I prefer to rest my conclusion that this is an exceptional case, in which an extension not exceeding 10 years is authorised, on my finding that the invention is of exceptional benefit to the public, and on the finding, to be discussed hereafter, that the invention is inherently of such a character that it must take longer than usual to get it on the market. Certainly I am persuaded that the inventive ingenuity involved was substantial, and much greater than would be required to support the grant of a patent. A problem which had been regarded by many skilled pharmacologists as probably not susceptible of solution was resolved by sophisticated reasoning about the probable relationships between the molecular structures of several classes of chemical compounds and the known physiological effects of some members of each of those classes, and by painstaking and extensive testing of many compounds in an attempt to verify that reasoning. During the eighth and ninth decades of this century public health regulatory authorities in developed countries tended, the evidence established, to increase the range and stringency of the testing procedures required to attract permission for use in medical treatment of newly developed therapeutic substances. The tendency was strong in the Food and Drug Administration of the United States and in the Department of Health in this country. In August 1972, after extensive testing of the effects of the substance on animals and animal tissue, permission to administer terfenadine to humans in trial of the substance was sought in the United States and was promptly granted. Before and for years after 1972 testing of the substance on animals was continuing. Permission to market terfenadine in the United States was granted by the Food and Drug Administration in May 1985. Application was made to the Australian Department of Health in January 1984 for permission to import and market terfenadine and permission was granted in March 1986. A decision was taken by the petitioner to rely upon the anticipated approval of the United States authority and upon clinical and other evidence presented to that authority as the principal basis of the application for approval in this country. The reasonableness of that course will be later considered. That decision of the petitioner brings into question the time taken to obtain United States approval - more than three quarters of the term of the patent - and the reasonableness of the steps taken to obtain that approval as soon as possible.

13. In addition to the progression in the rigour of the Food and Drug Administration's requirements the petitioner experienced particular difficulties which derived from the novelty of terfenadine. The substance was chemically and pharmacologically distinct from the other antihistamines known at the time of its discovery. If the petitioner had been willing to seek permission for marketing of the drug as a member of the established class of antihistamines, proof of its antihistaminic efficacy would have been sufficient, without proof of efficacy as a therapeutic agent in the treatment of each of the allergic conditions for which treatment by an antihistamine is common. But as a member of that class terfenadine would have had to bear on its packaging the warning label prescribed for the class, which declares the substance to be likely to have a sedative effect. It was precisely in its lack of sedative effect that the terfenadine was to be preferred to other antihistamines. The petitioner therefore undertook the onerous task of gaining permission to market the substance outside that class. It was required to prove the therapeutic efficacy of terfenadine in the treatment of any condition for use in respect of which the substance would be advertised, as well as to prove that the substance had no sedative for other adverse effect in the dosage in which it would be prescribed. The petitioner's advisers had to devise the detailed and elaborate protocols of the many kinds of clinical and other trials by which those proofs might be essayed.

14. The other major difficulty, by reason of which the time required for obtaining permission to market terfenadine in the United States was lengthened, derived from the circumstances that perception of the relative severity of symptoms of rhinitis and other allergic reactions controlled by antihistamines is largely subjective, as is perception of the sedative effect of a substance on a patient, that in clinical trials the extent of a patient's exposure to many allergens from day to day can be neither controlled nor accurately known, and that patients' reactions to allergens and to antihistamines vary widely and vary from time to time. A number of the clinical trials conducted in the United States, in which the effects on patients subject to allergic reactions of terfenadine, a placebo and an established antihistaminic medicament were compared, gave confusing and unsatisfactory results. The petitioner refined and elaborated the protocols of clinical trials and also developed a more exact method of measuring the antihistaminic effect of a substance by skin wheal testing. Eventually the therapeutic advantages of terfenadine were convincingly demonstrated and the appropriate dosages were ascertained. But a very long time was required. A long time was spent also in developing an economical means of producing the substance in commercial quantity. Mr. Downing of counsel for the Commissioner of Patents, by whose careful, critical examination of the voluminous evidentiary material the Court was much assisted, pointed to the lack of clear evidence that marketing of terfenadine was not delayed by a less than reasonably diligent prosecution of that aspect of the commercial development of the substance. I defer consideration of that circumstance. Mr. Downing also questioned the sufficiency of the evidence to support a conclusion that the petitioner's decision to let its application for marketing approval in this country wait upon approval in the United States was reasonably calculated to achieve as expeditious an approval here as could without uneconomic expense be achieved. He pointed out that marketing approval in the United Kingdom and in France had been obtained in 1981 and 1979 respectively and that the evidence did not afford a satisfactory explanation as to why reliance had not been placed on one or both of the European approvals in an application for Australian approval initiated in 1981 or 1982.

15. These, and other, ancillary deficiencies in proof of the reasonableness of the petitioner's efforts to obtain as soon as possible permission to exploit the patent in the Australian therapeutic substances market were supplied by tender of a number of supplementary affidavits by several of the deponents on whose evidence the petitioner relied. Evidence was adduced, by well qualified witnesses, that the European approvals would not have been likely to advance an application in this country, because neither France nor the United Kingdom was the country in which the invention originated, and because, particularly in the case of France, the regulatory authorities' requirements were not of a stringency comparable with those of the Australian Department of Health. The difficulty which would have been experienced in Australia in obtaining permission to market an antihistamine such as terfenadine without a label warning of sedative effects was at least as great as the difficulty in obtaining such an approval in the United States. The petitioner took the advice of persons expert in the prosecution of applications for marketing approval of therapeutic substances in this country, and that advice confirmed the decision to seek approval first in the United States. The United States approval to market terfenadine without a label warning of sedative effects was followed without much delay by a similar approval here.

16. There remained the submission by Mr. Downing that the evidence did not establish that reasonable diligence had been shown in developing an economical means of manufacturing terfenadine in commercial quantity. But acceptance of that submission would not be material if the conclusion were reached that permission to market the substance in this country, and in the United States, had been obtained as soon as could be achieved by the exercise of reasonable skill and diligence on the part of the petitioner, for a satisfactory means of commercial production had been achieved before those approvals were granted.

17. On the whole of the evidence I am persuaded that reasonable skill and diligence were at all relevant times exercised by the petitioner to obtain permission to market terfenadine in the United States as soon as possible, that in grounding its application for permission to market the substance in this country on the approval it would gain from the United States Food and Drug Administration the petitioner took a course which at all relevant times could reasonably be judged, and was judged by the petitioner, to be likely to enable the petitioner to begin marketing terfenadine in this country as soon as possible, and that therefore any inadequacy of remuneration by the patent is not due to any default on the part of the petitioner.

18. If terfenadine be compared only with other members of the class of new organic compounds proposed for use in medical treatment, all members of which class must demonstrate by prolonged trial both therapeutic efficacy and innocuity in order to win approval for marketing in this country, inherent characteristics of this invention necessarily occasion a delay in getting it on to the market which is unusual even for that class. Those characteristics, as has been stated, are novelty as an antihistamine both in molecular structure and in the absence of the principal undesired physiological effect of the known antihistamines, and subjectivity in apperception of the symptoms of allergic reaction and of that undesired effect.

19. Little more than two and one half years of the term of the patent remained when permission was granted to market terfenadine here. The petitioner sells the substance to a wholly owned subsidiary company incorporated in New South Wales, Merrell Dow Pharmaceuticals Australia Pty. Ltd., and charges the subsidiary a royalty in respect of its use of the name under which terfenadine is sold here, Taldane. The petitioner's remuneration in respect of terfenadine sold in this country is the aggregate of the subsidiary's profit on its sales of the substance, the royalty receipts of the petitioner, and the petitioner's profit on its sales to the subsidiary. I refer hereafter to that aggregate as the petitioner's Australian profit, or loss, as the case may be.

20. Even if the cost of research and development incurred by the petitioner outside Australia in relation to terfenadine is disregarded, no Australian profit was derived by the petitioner until 1987, and it did not recoup the earlier Australian losses until 1989. If so much of that cost as bears to the whole of that cost the same proportion as the expected volume of terfenadine sales in Australia bears to the whole of that sales volume throughout the world is treated as an expense in the computation of the petitioner's Australian profit, that recoupment will be deferred, at best until sometime later this year. There was persuasive evidence that, if an extension of the patent until 11 December 1998 were granted, the aggregate Australian profit from the time when that recoupment is achieved until the end of that period of extension would be substantial. But that estimated profit would not in my judgment be more than adequate remuneration to the petitioner by his patent. The petitioner manufactures and vends terfenadine throughout the world either itself or by its own subsidiaries, except in countries in which no subsidiary trades. In those countries terfenadine which has been manufactured elsewhere by the petitioner or by a subsidiary is sold by an agent. The evidence relating to remuneration of the petitioner by his patent, both in Australia and elsewhere, was extensive, and was presented to disclose accounts both in Australian and American currency, and in nominal money sums as well as in the equivalent money sums of 1988. No attempt was made to formulate accounts on the basis of notional royalties in respect of the patent. Having regard to the actual mode of exploitation of the patent adopted by the petitioner, I do not think that the petitioner should be criticised for that omission. I must bear in mind that the profits disclosed, as well as future profits forecast, by the evidence include a component referable to the manufacturing enterprise of the petitioner. But, having regard to the small fraction which the terfenadine sold here constitutes of the total production of the substance, that component would not substantially affect the petitioner's Australian profit. The evidence disclosed that the petitioner has gained very substantial remuneration by the marketing of terfenadine outside Australia. As one of the circumstances of the case, that remuneration must be considered in the light of the quite exceptional usefulness of the substance, particularly in affluent communities whose members are both able and very willing to pay for an effective relief from the symptoms of allergic reaction which is devoid of sedative effect. There was also persuasive evidence to justify the observation of Fullagar J. in Re Sanofi's Patent Extension Petition (1983) VR 25 at 34 that "the pharmaceutical industry is one which contends with very high development costs, high risks, and the expenditure of very large amounts of money on eventually unproductive research. Just as an oil exploration company often has to sink vast sums of money in dry wells, so a pharmaceutical company sinks vast sums in the equivalent of dry wells."

21. Upon a consideration of the whole of the evidence I am satisfied that the petitioner has been inadequately remunerated by its patent, that the circumstances by reason of which the remuneration has been inadequate do not include any default on the petitioner's part, and that this is one of those exceptional cases for which s.94(1) allows an extension for a term not exceeding 10 years. The appropriate term, for which I think the circumstances of the case call, is 10 years.

22. I shall hear counsel concerning the terms of the order for extension.