Neurim and Flynn v Mylan: The price spiral argument under scrutiny

It has long been argued before the English courts (and generally accepted albeit that evidence is required) that if an allegedly infringing generic product is allowed to launch prior to trial, this will lead to an irreversible price spiral for the patentee’s product which cannot be compensated for in damages.


First published in our Biotech Review of the year – issue 8.

So, when the Patents Court[1], and then the Court of Appeal[2], did not accept the price spiral argument in Neurim and Flynn v Mylan in refusing to grant Neurim an interim injunction, notwithstanding Mylan’s failure to clear the way, practitioners took note. But what do these two interim judgments contain, and what might they mean for pharmaceutical cases more generally?

The first refusal

The case concerned Neurim’s patent to a prolonged release pharmaceutical formulation of melatonin, to improve restorative quality of sleep in patients suffering from primary insomnia. Neurim licensed Flynn, under which Flynn sells a product falling within the patent, Circadin®, in the UK.

Mylan sought to launch its generic product as soon as possible, but agreed not to launch until the application for interim relief was decided. Meanwhile, the main action trial was expedited and scheduled for October 2020.

On 3 June 2020, Marcus Smith J in the Patents Court refused Neurim’s application for an interim injunction against Mylan. Applying the two-step American Cyanamid test, he first decided that there was a serious issue to be tried (as Mylan admitted). However, he then held that damages would be an adequate remedy for Neurim in the absence of an interim injunction. He made that decision by reference to two periods: (i) the period until the decision on the merits would be handed down; and (ii) the period from the end of the first period until patent expiry.

The appeal

The appeal was expedited and heard via remote video-conferencing on 18 June 2020. Neurim argued that damages would not be an adequate remedy in the absence of an interim injunction. It said it would suffer pecuniary loss (from lost sales and a downward price spiral that would be caused by Mylan’s launch), plus consequential losses (like the inability to fund R&D or the education programmes needed to make Neurim’s pipeline products profitable).

Mylan denied that a price spiral would follow or that there would be consequential losses, because it said the Claimants had enough cash reserves that could be used instead of the lost revenue. (In other words, they could afford it.)

Neurim also argued that the judge at first instance failed to take account of: (i) the consequential loss, (ii) the consequence of giving a green light to other competitors, and (iii) the significance of the consequences of generic entry two years and three months prior to patent expiry.

On 24 June 2020, the Court of Appeal dismissed the appeal. Floyd LJ, giving the judgment, disagreed with Neurim’s submission that the first instance judge should have accepted the Claimants’ evidence on consequential loss. Floyd LJ held that the judge was bound to examine the claims made in the evidence with a critical eye given the very short period of generic competition which the Claimants would have faced in light of an expedited trial date, which was just over four months. He also noted that the Claimants’ evidence on consequential loss was served before the trial date was expedited and, therefore, was based on a much longer period than eventually anticipated.

As for the price spiral point, Floyd LJ held that that the evidence did not establish that the launch of a second generic product (in addition to that of Mylan) in the four months to trial was possible. He also noted that 53% of the Claimants’ market was branded prescriptions which are protected from generic competition and that the Claimants could be expected to retain a portion of the remaining market. He decided that if Neurim and Flynn won at trial, it would be relatively straightforward to calculate the damages for the interim period in which Mylan would have been on the market. This would be assisted by: the Appellants’ forecasts of expected sales revenues for the period up to the interim hearing and up to trial; both parties’ actual sales figures and prices at which they sold; and the fact that the depressed price for the period between the interim hearing and trial would be known.

Implications for interim injunctions in future cases

Floyd LJ went out of his way to say that he disagreed with Neurim’s submission that the decision would have grave consequences for the pharmaceutical industry generally. He denied that he had decided a generally applicable principle, highlighting the ‘extremely unusual facts of this case’. He also noted that, while in many pharmaceutical patent cases courts have decided that lost sales and price depression losses amounted to unquantifiable loss, it was unhelpful to compare cases as the outcomes are heavily fact-specific.

So, is the decision such a marked change of course in the pharmaceutical landscape? Possibly not. It is fair to say that Floyd LJ made a point of emphasising the significance of the particular factual matrix to his decision. That being said, it will be interesting to see to what extent the decision is self-contained or whether future courts will place weight on whether patentees with significant cash buffers can ‘afford’ their losses.

Furthermore, the emphasis on the need to prove quick succession of competitor entry may have more impact in the context of biosimilar litigation, as it may be less likely for there to be multiple biosimilars ready to launch in quick succession, thus leading to the noted price spiral prior to trial (given the increased difficulty with obtaining regulatory approval for biosimilar products, and indeed in their manufacture).

What’s next?

As a subscript to the interim injunction application, Neurim applied to the Supreme Court for permission to appeal the decision to refuse the relief. The Supreme Court declined to give permission to appeal, but in giving its (brief) reasons, the Court indicated that it may be time to revisit the American Cyanamid principles to be applied when determining whether to grant an interim injunction. However, in light of the short remaining period to trial, the Court refrained from taking up that challenge in this particular case.

Following the hearing of the expedited trial in October 2020, on 4 December 2020, the Patents Court provided its judgment in the main action. Marcus Smith J found Neurim’s patent to be valid and infringed. However, the same patent was subsequently invalidated for insufficiency at the EPO following the TBA hearing on 17 and 18 December 2020. As such, as per the Supreme Court’s decision in Virgin Atlantic v Zodiac[3], Neurim will not be able to claim damages in the UK for infringement of the UK designation notwithstanding its success on the merits in the UK.

[1] [2020] EWHC 1362 (Pat)
[2] [2020] EWCA Civ 793
[3] Virgin Atlantic Airways v Zodiac Seats UK (f.k.a. Counter Aerospace) [2013] UKSC 46