Sanofi-Aventis Australia Pty Limited v Minister for Health

[2012] FCA 1420

FEDERAL COURT OF AUSTRALIA

Sanofi-Aventis Australia Pty Limited v Minister for Health [2012] FCA 1420

Citation:	Sanofi-Aventis Australia Pty Limited v Minister for Health [2012] FCA 1420
Parties:	SANOFI-AVENTIS AUSTRALIA PTY LIMITED v MINISTER FOR HEALTH
File number:	NSD 1808 of 2012
Judge:	EMMETT J
Date of judgment:	6 December 2012
Legislation:	National Health Act 1953 (Cth) ss 84(1), 84AB, 84AF(1), 85, 85AD(1), 87, 99, 99ACB, 99ADB, 99ADC, 99ADD, 99ADF, 99ADH(1)(aa), National Health (Pharmaceutical Benefits Regulations) 1960 (Cth) reg 37
Date of hearing:	5 December 2012
Place:	Sydney
Division:	GENERAL DIVISION
Category:	No catchwords
Number of paragraphs:	55
Counsel for the applicant:	J Kirk SC with H El-Hage
Solicitor for the applicant:	Allens
Counsel for the respondent:	G Kennett SC with M Izzo
Solicitor for the respondent:	Corrs Chambers Westgarth

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1808 of 2012

BETWEEN:	SANOFI-AVENTIS AUSTRALIA PTY LIMITED Applicant
AND:	MINISTER FOR HEALTH Respondent

JUDGE:	EMMETT J
DATE OF ORDER:	6 DECEMBER 2012
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The National Health (Weighted average disclosed price – interim supplementary disclosure cycle) Determination 2012, in so far as it concerned brands with the drug risedronic acid with an oral manner of administration, be quashed.

2.The National Health (Weighted average disclosed price – interim supplementary disclosure cycle) Amendment Determination 2012 (No 2) be quashed.

3.The respondent pay the applicant’s costs of the proceeding.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1808 of 2012

BETWEEN:	SANOFI-AVENTIS AUSTRALIA PTY LIMITED Applicant
AND:	MINISTER FOR HEALTH Respondent

JUDGE:	EMMETT J
DATE:	6 DECEMBER 2012
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. This proceeding concerns the validity of two determinations made under s 99ADB(4) and s 99ADH(1)(aa) of the National Health Act 1953 (Cth) (the Act) by the respondent, the Minister for Health (the Minister). The question arises in the context of the pharmaceutical benefits scheme operated by the Commonwealth under the Act (the PBS).  The proceeding has been brought on with considerable urgency, since the effect of the determinations is that the price of certain drugs supplied by the applicant, Sanofi-Aventis Australia Pty Limited (Sanofi), was reduced with effect from 1 December 2012.  The proceeding was heard as a matter of urgency in order to consider whether the determinations were invalid, as Sanofi contends. 

2. It is desirable to say something about the circumstances in which the determinations were made. That will involve describing the PBS, which is provided for in Part VII of the Act. Under the PBS, the Commonwealth reimburses pharmacists for their purchase of brands of pharmaceutical items on what is described as the PBS List. The PBS List is made by the Minister under Part VII of the Act. Sanofi manufactures and distributes pharmaceutical medicines that are listed on the PBS List. It is also a responsible person within the meaning of s 84AF of the Act.

3. On 17 August 2012, the Minister, through her delegate, made the National Health (Weighted average disclosed price - interim supplementary disclosure cycle) Determination 2012 (PB 58 of 2012) (the August determination). The August Determination affects particular medicines on the PBS List including, relevantly, medicines that contain the drug risedronic acid and that are administered orally (risedronic acid oral); and medicines that contain the drug docetaxel and that are administered by injection (docetaxel injection).  Those medicines are pharmaceutical items for the purposes of the Act.

4. Sanofi supplies brands of pharmaceutical items using the trade name Actonel in relation to risedronic acid oral.  Actonel is used to treat bone disease.  Sanofi also supplies brands of pharmaceutical items consisting of docetaxel injection under the trade name Taxotere.  Taxotere is used to treat particular types of cancer. 

5. The August Determination purported to determine the weighted average disclosed price for a particular period for, amongst other things, pharmaceutical items containing risedronic acid oral or docetaxel injection.  On 5 November 2012, the Minister, through her delegate, made National Health (Weighted average disclosed price – interim supplementary disclosure cycle) Amendment Determination 2012 (No. 2) (the November Determination).  By the November Determination, the Minister purported to make new determinations of the weighted average disclosed price for pharmaceutical items containing risedronic acid oral or docetaxel injection.  She also purported to amend the August Determination to give effect to those determinations.

6. The combined effect of the August Determination and the November Determination is that, from 1 December 2012, the amount that the Commonwealth will reimburse pharmacists for their purchase of brands of risedronic acid oral on the PBS List will decrease by 23.09 per cent, and the amount that the Commonwealth will reimburse pharmacists for brands of docetaxel injection on the PBS List will decrease by 76.83 per cent. The effect will be that the maximum price at which Sanofi will be able to supply those products will also decrease by those amounts respectively. The August Determination came into effect on the day after it was registered on 22 August 2012. The price reduction consequent upon the August Determination came into effect on 1 December 2012.

7. The National Health (Listing of Pharmaceutical Benefits) Instrument 2012 (the 2012 PBS List) commenced on 1 October 2012. The 2012 PBS List replaced the 2010 PBS List. The 2012 PBS List includes pharmaceutical items containing risedronic acid oral. It also includes pharmaceutical items containing docetaxel injection. However, on 19 July 2012, before the 2012 PBS List was made, the Actonel-Once-a-Week brand was removed from the 2010 PBS List, with effect from 1 August 2012. On 9 August 2012, before the 2012 PBS List was made, the Taxotere brand was removed from the 2010 PBS List, with effect from 1 September 2012. The significance of the removal of those two brands will become apparent in relation to the effect of the two determinations.

8. In order to put the dispute between Sanofi and the Minister in context, it is necessary to explain in more detail the legislative scheme relating to the PBS. The operation of the PBS is governed by Part VII of the Act, together with Parts 2 to 6A of the National Health (Pharmaceutical Benefits Regulations) 1960 (the Regulations). By s 85(1) of the Act, the Commonwealth is obliged to provide benefits in respect of pharmaceutical benefits. The phrase pharmaceutical benefit means, in essence, a drug or medicinal preparation that is the subject of a declaration under s 85(2) or, so far as applicable, a drug or medicinal preparation that is the subject of a determination under ss 85(3), 85(5) or 85(6). By s 85(2), the Minister may declare that Part VII of the Act applies to particular drugs and medicinal preparations.

9. A drug that is the subject of such a declaration is a listed drug. Under s 85(3) and s 85(5), the Minister may distinguish between listed drugs by reference to the form in which a drug is supplied and the manner in which it is administered. A listed drug that is supplied in a particular form and that is administered in a particular manner is a pharmaceutical item under s 84AB.

10. Under s 84(1) the brand means, relevantly, the trade name under which the responsible person supplies the pharmaceutical item.  A responsible person is the person who supplies a brand of a pharmaceutical item and who has been the subject of a determination under s 84AF. Section 85(6) empowers the Minister to determine which products constitute a brand of a particular pharmaceutical item. A brand that is the subject of such a determination is under s 84(1) a listed brand.  The term listed brand has some significance for reasons that will become apparent. 

11. Under s 85AD(1), the Minister and the responsible person for a listed brand of a pharmaceutical item may agree an amount that is, for the purposes of Part VII, taken to be the appropriate maximum price for sales of the brand of the pharmaceutical item to approved pharmacists. Where a price agreement is not reached under s 85AD(1), the Minister may make a price determination, under s 85B(2), of the amount that is for the purpose of Part VII to be taken to be the appropriate maximum price for sales of the brand of the pharmaceutical item to approved pharmacists.  The maximum price for sales of the brand of the pharmaceutical item to approved pharmacists is the approved price to pharmacists.  The approved price to pharmacists consists of the wholesale mark-up added to the ex-manufacturer price, to which I shall refer later. 

12. The amount that an approved pharmacist can charge a person and the amount that the pharmacist receives from the Commonwealth for the sale of a pharmaceutical item are governed by s 87 and s 99 of the Act. By s 87, an approved pharmacist must charge a fixed amount for the sale of a pharmaceutical benefit, according to whether the buyer is entitled to a concession. The amount charged, referred to as the co-payment, is retained by the pharmacist.  The co-payment is charged where the Commonwealth price of a pharmaceutical benefit is greater than the applicable co-payment.  If the Commonwealth price is less than the applicable co-payment, an approved pharmacist may only charge an amount up to the Commonwealth price.  When an approved pharmacist supplies a pharmaceutical benefit, the pharmacist is entitled to be paid by the Commonwealth the difference between the Commonwealth price and the co-payment. 

13. Under s 84(1), the Commonwealth price is the price worked out under a determination made by the Pharmaceutical Benefits Remuneration Tribunal (the Tribunal).  The Tribunal is required to determine the Commonwealth price by reference to any applicable agreement between the Pharmacy Guild of Australia and the Commonwealth.  On 3 May 2010, the Minister, on behalf of the Commonwealth, entered into a relevant agreement with the Pharmacy Guild of Australia.  The Tribunal must give effect to the relevant parts of the agreement when determining the Commonwealth price. 

14. The agreed basis for setting the Commonwealth price is that the Commonwealth price comprises: 

    ·an amount for the costs of production, being the ex-manufacturer price; 

    ·an amount for the wholesale distribution of the product, being the wholesale mark-up;

    ·an amount for handling and storage by the pharmacy, being the pharmacy mark-up;  and,

    ·an amount for the pharmacist’s specialised skills in dispensing the product, being a dispensing fee.

    The combined amount of the ex-manufacturer price and the wholesale mark-up is the approved price to pharmacists. 

15. As a general rule, in a competitive market, an approved pharmacist would not be willing to pay a wholesaler more than the combined amount of the ex-manufacture price and the wholesale mark-up.  However, manufacturers and wholesalers offer pharmacists discounts on the purchase of particular brands.  Those discounts can result in the pharmacist deriving additional profits on the sale of a brand, given that the amount reimbursed by the Commonwealth, calculated by reference to the Commonwealth price, remains the same.  That is an important aspect of the current dispute between Sanofi and the Minister. 

16. A new brand of a pharmaceutical item may be listed on the PBS List, in addition to an existing brand, if certain prerequisites are satisfied. First, the new brand must be bio-equivalent or bio-similar to the existing brand of the existing pharmaceutical item. Secondly, it must have the same drug and manner of administration. The agreed price must be at least 16 per cent lower than the approved price to pharmacists. Where such a new brand is added in accordance with s 99ACB, the agreed price for each other brand already listed for the same pharmaceutical item is also reduced by 16 per cent. That is to say, the introduction of such generic competitors leads to an automatic price cut for all other brands.

17. It is necessary to describe the price disclosure requirements of the Act. Price disclosure is dealt with in Division 3B of Part VII. Section 99AD states that the division requires the responsible person for certain brands of pharmaceutical items to comply with the price disclosure requirements for each supply of those brands of pharmaceutical items. It is convenient to refer to the information that must be supplied in satisfaction of the price disclosure requirements as disclosed data. 

18. Under s 99ADC(1), the price disclosure requirements for a supply of a brand of a pharmaceutical item are as follows:

    ·First, to provide, to a person or entity prescribed by the Regulations, information prescribed by the Regulations in relation to the supply of the brand. 

    ·Secondly, to provide that information in the manner and form prescribed by the Regulations. 

    ·Thirdly, to provide that information at the times prescribed by the Regulations. 

    Section 99ADF provides that it is an offence for a person who is required to comply with the price disclosure requirements for a supply to fail to comply with those requirements for that supply.

19. The Regulations may prescribe information relating to the price of the brand of the pharmaceutical items supplied, the volume of the supply, the person to whom the supply was made, when the supply was made, the type and value of any benefit provided to the persons by the responsible person in relation to the supply and, if any such benefit also relates to a supply of the related product, information relating to the supply of a related product. Under s 99ADD, the responsible person for a listed brand of a pharmaceutical item is required to comply with the price disclosure requirements for each supply of the brand of the pharmaceutical item.

20. Thus, whenever a brand is supplied, the responsible person must report the supply.  The obligation arises at the time of supply, irrespective of whether the brand is listed when the obligation to report falls due.  That will have some significance in the resolution of the dispute in a way that will become apparent. 

21. Aside from disclosed data provided by responsible persons, the Minister’s department also collects other information concerning the volume of pharmaceutical items dispensed by pharmacists.  That data is often referred to as PBS volume data. The disclosed data, together with the PBS volume data, is used by the Minister to determine the weighted average disclosed price of a brand of a pharmaceutical item under s 99ADB of the Act. Section 99ADB(4) provides that the Minister may, by legislative instrument, determine the weighted average disclosed price of a brand of a pharmaceutical item, in accordance with the Regulations. Section 99ADB(6) provides that, without limiting the operation of s 99ADB(4), the Regulations may prescribe a method or formula for determining the weighted average disclosed price of a brand of a pharmaceutical item.  The method or formula prescribed may take into account certain specified information. 

22. The method for calculating the weighted average disclosed price of a brand of a pharmaceutical item is provided for in Part 6A of the Regulations.  Division 2 of Part 6A is concerned specifically with weighted average disclosed price.  The significance of the weighted average disclosed price flows from s 99ADH.  Section 99ADH applies if:

    ·the Minister determines the weighted average disclosed price of a brand of a pharmaceutical item under s 99ADB;

    ·the Minister determines a day for the purposes of s 99ADH in relation to the brand of the pharmaceutical item (the reduction day);

    ·a price agreement or price determination is in force in relation to the brand; and

    ·the unadjusted price reduction for the brand is at least 10 per cent. 

    Under s 99ADH(2), the reduction day must be a prescribed day. 

23. Under s 99ADH(3), if, on the reduction day, the approved ex-manufacturer price of the brand of the pharmaceutical item would, apart from s 99ADH, be higher than the adjusted approved ex-manufacturer price of the brand, then, on the reduction day, the amount of the approved ex-manufacturer price is taken to be reduced to the amount of the adjusted approved ex-manufacturer price for the purposes of the price agreement or the price determination. 

24. Under s 84(1), the approved ex-manufacturer price of a listed brand of a pharmaceutical item is, if a price agreement is in force in relation to the brand of the pharmaceutical item, the amount in force under the agreement as the amount that is taken to be the appropriate maximum price and, if a price determination is in force in relation to the brand, the amount in force under the determination.  Sections 85AD and 85B provide for the amount that is to be taken to be the appropriate maximum price.  The applicable approved ex-manufacturer price of a brand of a pharmaceutical item is, under 99ADB(3A), the approved ex-manufacturer price of the brand on, relevantly, the last day of the period in respect of which the weighted average disclosed price of the brand of the pharmaceutical item is determined. 

25. The calculation of weighted average disclosed price is provided for in reg 37G. The calculation essentially involves using disclosed data provided by responsible persons for the relevant data collection period, together with the relevant PBS volume data, to calculate the average market price charged by responsible persons for all brands of all pharmaceutical items on the market having the same drug and manner of administration. The calculation is carried out by the Minister to take account of discounts and other incentives provided to pharmacists for, for example, bulk purchase or competitive discounts given by a responsible person during the relevant data collection period.

26. Regulation 37G sets out a series of steps that must be undertaken to arrive at the weighted average disclosed price.  The calculation may indicate that, on average, relevant brands have been supplied at a discount during the data collection period.  In general, where that discount exceeds 10 per cent, there is a reduction in the overall Commonwealth price.  The effect of such a reduction is that the amount that the Commonwealth reimburses pharmacists for the purchase of the relevant brands is reduced.  In turn, the price that the pharmacists are willing to pay to purchase such brands from responsible persons would be reduced.  That forces a reduction in the maximum price at which those brands can be supplied in the market. 

27. Regulation 37G(1) sets out the method for determining the weighted average disclosed price, for the data collection period for the brands in a disclosure cycle, of:

    ·a listed brand of a pharmaceutical item; and

    ·every listed brand of every pharmaceutical item having the same drug and manner of administration. 

    There are eleven steps set out in reg 37G.  They are concerned with listed brands. 

28. Step one requires that the sales revenue for the brand be added up.  Under step two, the incentives for the data collection period for the brand in the disclosure cycle are to be taken away from the sales revenue worked out under step one.  That produces the net revenue for the data collection period in the disclosure cycle.  Under step three, the adjusted volume of the brands sold for the data collection period for the brand in the disclosure cycle is to be added up.  The adjusted volume is the volume worked out as if the pack sizes in which the brand was sold are equivalent to a maximum quantity specified in the Regulations. 

1. Under step four, the net revenue for the brand, as determined in accordance with step two, is divided by the adjusted volume of the brand, as determined in accordance with step three.  That produces the disclosed price, which is essentially the average price per pack of the brand sold during the data collection period. Step five then requires that the price percentage difference for the brand be worked out, expressed as a percentage to two decimal places.  That is done by subtracting the disclosed price of the brand, worked out in accordance with step four, from the applicable approved ex-manufacturer price of the brand, and dividing that difference by the applicable approved ex-manufacturer price of the brand.  As I have said, the approved ex-manufacturer price is determined in accordance with s 85AD or s 85B, either by agreement between the Minister and the responsible person, or, if the Minister and the responsible person have been unable to make a price agreement, by determination made by the Minister. 

2. Under step six, the adjusted price percentage difference for the brand, also expressed as a percentage to two decimal places, is to be worked out.  If the price percentage difference worked out under step five is less than zero, the adjusted price percentage difference is zero.  If the price percentage difference for the brand is equal to or greater than zero, the adjusted price percentage difference is equal to the price percentage difference. 

3. Step seven requires that steps one to six be repeated for every brand of the pharmaceutical item.  Step eight requires the weighted average percentage differences to be worked out by reference to, first, the adjusted value of each brand of the pharmaceutical item, and secondly, the adjusted price percentage difference of each brand of the pharmaceutical item.  That involves the results of steps one to six being repeated for every brand of the pharmaceutical item.  Step nine requires steps one to eight to be repeated for every pharmaceutical item having the same drug and manner of administration. 

4. Under step 10, the weighted average percentage difference is to be worked out for every brand of every pharmaceutical item having the same drug and manner of administration in the following way:

   (a)for each pharmaceutical item, the percentage worked out in step 8 is to be multiplied by the previous volume of the pharmaceutical item and the applicable approved ex-manufacturer price for the brands of the pharmaceutical item;

   (b)for each pharmaceutical item, the PBS volume of the pharmaceutical item is to be multiplied by the applicable approved ex-manufacturer price for the brands of the pharmaceutical item;

   (c)the amounts worked out for each pharmaceutical item under (a) above are added up;

   (d)the amount worked out under (c) above is to be divided by the sum of the amounts worked out under (b) above.

5. The weighted average disclosed price for every brand of every pharmaceutical item having the same drug and manner of administration is the applicable approved ex-manufacturer price for the brands, reduced by the percentage worked out under step 10.

6. It is clear enough that the method set out in reg 37G requires calculation of various amounts in relation to listed brands. Under s 84(1), brand of a pharmaceutical item means, relevantly, the trade name under which the person who is, or will be, the responsible person supplies the pharmaceutical item. Section 84AF(1) provides that the Minister may determine that a person is the responsible person for a brand of the pharmaceutical item, if the person notified the Minister that the person is or will be the supplier of the brand of the pharmaceutical item, the brand of the pharmaceutical item is a listed brand, and there is no other determination in force. Under s 84(1), listed brand of a pharmaceutical item means a brand of the pharmaceutical item in relation to which a determination under s 85(6) is in force. Section 85(6) provides that the Minister may determine a brand of a pharmaceutical item. There is some significance in the fact that a listed brand is a brand in relation to which such a determination is in force. 

7. However, under reg 37A, definitions are provided for Part 6A.  Regulation 37A provides that, in Part 6A, listed, for a brand of a pharmaceutical item, means, simply, determined under s 85(6) of the Act.  It is significant that the definition of listed for the purposes of Part 6A is not identical with the concept of listed brand, as defined in s 84(1). Thus, when reg 37G refers to a listed brand, and to every listed brand, listed means determined under s 85(6). It does not require that such a determination be in force at a relevant time, as would be required if the definition in s 84(1) were applicable.

8. It is against the background of that somewhat complex scheme that the current dispute has arisen between Sanofi and the Minister.  Sanofi supplied disclosed data to the Commonwealth with respect to its Actonel brands of risedronic acid oral and its Taxotere brands of docetaxel injection, for the relevant data collection periods.  Sanofi contends that, in calculating the weighted average disclosed price under reg 37G, the disclosed data for the Actonel brand for the relevant data collection period should have been brought into account in making the August Determination.  Similarly, it says, the disclosed data for the Taxotere brand should have been brought into account when calculating the weighted average disclosed price for the purposes of the November Determination.  It is common ground that that is not the way in which the August Determination or the November Determination was made. 

9. The Minister contends that she did not err in excluding, from the calculation, the disclosed data for brands that were no longer on the 2012 PBS List at the time when the determinations were made. She places emphasis on the fact that reg 37G applies to listed brands of a pharmaceutical item.  Thus, reg 37DB prescribes the method for determining the weighted average disclosed price of a listed brand of a pharmaceutical item.  It is clear enough that reg 37G is concerned with listed brands.  The question, however, is whether or not listed means listed at the time of the calculation, or whether it refers to brands that were listed at a time during the period to which the relevant data relates.

10. The Minister contends that the various references in steps one to eleven to a brand must be taken to be a reference to a brand that is a listed brand at the time when the determination is made. She says that the time at which a determination must be enforced is when the relevant determination of a weighted average disclosed price under s 99ADB(4) is made, and that that must be so because, if the relevant brand is not listed at that time, there will be no need to determine a weighted average disclosed price at all, and no point in doing so. She says that there is no responsible person if the brand is not listed, and a brand that is not listed is therefore not a concept that is recognised by the scheme of the Act.

11. However, I do not consider that the references to listed brand of themselves establish that reg 37G requires the exclusion of brands that are not listed on the day that the calculation is made, notwithstanding that they were listed during the data collection period.  I have already referred to the differences in the definitions, such that in reg 37G listed refers simply to the fact of a determination having been made.  It says nothing about the determination being in force at a relevant time.

12. The Minister’s contention that there is no need to determine the weighted average disclosed price for a brand that is not listed, and that there is no point in doing so, appears to confuse the means with the ends.  There is only utility in determining the weighted average disclosed price to apply to brands that continue to be listed.  However, that does not mean that the method adopted to ascertain the weighted average disclosed price is directed only to calculating a figure by reference to brands still listed.  To do so would be contrary to the purpose of the calculation, and would introduce a significant and possibly capricious distortion.

13. The question is how the Minister is to determine the weighted average disclosed price for listed brands.  Of the various possible options available to address overpayment by the Commonwealth arising from marketing discounts provided to pharmacists, the author of the scheme has chosen a methodology that requires consideration of what actually occurs in the market over a period of time, namely the data collection period and the behaviour of market participants during that period. 

14. The methodology provided for in reg 37G carries both a temporal element, being the data collection period, and a market dimension, being all brands sold or dispensed. It is therefore not to the point to assert that there is no obvious utility for taking into account discounting for brands that were offered at a discount during the relevant period, but which are no longer listed.  In so far as the intention is to determine what actually happened in the marketplace, it would be rational to ensure that the whole of the period is reflected in the calculation.  I do not consider that the fact that listed brand is the term used, in specifying the criteria for attracting the operation of reg 37G, is determinative, as the Minister contends. 

15. Secondly, the Minister advances an argument that if listed brand comprehended all brands listed during the relevant data collection period, reg 37G would be unworkable.  She points to two potential practical impediments in calculating the weighted average disclosed price for a brand that is not listed at the time the determination is made. 

16. The first practical impediment is that step one, step two and step three require data relating to the sales of the brand, incentives for the brand and adjusted volume of the brand sold for the data collection period. That data would be derived from information disclosed under the price disclosure requirements. The data is to be provided within six weeks of the end of each reporting period for the brand of the pharmaceutical item. The Minister says that the price disclosure requirements only apply to the responsible person of a listed brand. She says that, if a brand is delisted before the end of the six-week period, there is no apparent basis upon which the Minister could compel the former responsible person to provide the relevant data. Without that data, step one, step two and step three could not be taken. However, that contention ignores the language of s 99ADC in specifying the price disclosure requirements.

17. The obligations imposed attach to each supplier. That obligation is to be fulfilled in the manner, form and time set out in the Regulations. The fact that a brand is subsequently delisted in the reporting period, and before the reporting date, does not extinguish the obligation to report, which will have accrued upon the making of the supply. A responsible person is not excused from the obligation to report simply because of a delisting that occurred after the supply has occurred and before the time for reporting has arisen. The reporting obligation is a condition of selling into the market place. If a responsible person sells listed brands, it incurs the obligation to report about those sales. There is no qualification in s 99ADB to the effect that the obligation to report ceases upon the brand being delisted. The mere fact that a responsible person may have some time to comply with the requirement does not mean that, if the person is no longer selling the brand at the time of reporting, the person no longer has an obligation to report on supplies that have already occurred. The so-called impediment is not an impediment.

18. The second practical impediment adverted to by the Minister is that step five and step 10 prescribe a calculation involving the applicable approved ex-manufacturer price for a brand.  The applicable approved ex-manufacturer price is the approved ex-manufacturer price of the brand on the last date of the period in respect of which the weighted average disclosed price of the brand of the pharmaceutical item is to be determined.

19. The approved ex-manufacturer price is determined by reference to the approved price to pharmacists, which is a price that relates only to a listed brand. Accordingly, the Minister says, it is not possible to determine the applicable approved ex-manufacturer price for a brand that is not listed on the last day of the data collection period. That contention involves a misconception. The determination of the applicable approved ex-manufacturer price for a brand is not contingent upon that brand being listed at the time of the determination. All that is required is that there be in place an approved ex-manufacturer price at the relevant date. All brands of a particular pharmaceutical item have the same approved ex-manufacturer price. So long as one brand is listed, the price will be fixed. The definitions of applicable approved ex-manufacturer price and approved ex-manufacturer price in s 99ADB(1) and s 99ADB(3), together with the methodology set out in reg 37D, are concerned with a brand of a pharmaceutical item, rather than only a listed brand. The methodology in reg 37D picks up the concept of approved price to pharmacists.

20. The definitions of that expression refer back to the amount fixed under the relevant price agreement or price determination for a listed brand of the relevant pharmaceutical item that remains in force.  That is the same price for the delisted brand of that pharmaceutical item.  Regulation 37D provides that the approved ex-manufacturer price of a brand of a pharmaceutical item, other than a listed brand of a pharmaceutical item to which reg 37DA applies, is worked out in the way set out, the precise calculation of which is not presently relevant.  Thus, the delisting of one of the brands of a particular pharmaceutical item has no effect on the relevant approved ex-manufacturer price.  It remains in place for the other brands.  Where, albeit unusually, all brands for a particular pharmaceutical item had been delisted prior to the end of the period, there would be no need for there to be any calculation.  I do not consider that the second so-called impediment stands in the way of the contentions advanced on behalf of Sanofi. 

21. The Minister also adverts to the circumstances that obtain where a new brand becomes listed before the reduction day for a previous disclosure cycle.  The Regulations make specific provision for calculating a weighted average disclosed price for the new brand in the prior disclosure cycle, even though data is not required to be provided for that disclosure cycle under reg 37F.  Specific provision is also made for determining the applicable approved ex-manufacturer price for the prior disclosure cycle in reg 37DA.  The Minister points to the fact that no corresponding provision is made where a brand is delisted before the last day of the data collection period.  She suggests that an inference is to be drawn that the drafter of the provisions did not consider such a provision was necessary because such a brand would not be included in the calculation for which reg 37G provides.  However, those contentions do not bear on the question of construction that presently arises between the parties.  On Sanofi’s contention, there would be no need for any specific regulation to deal with delisted brands, because the scheme of reg 37G, on Sanofi’s construction, provides the answer to which I have referred.

22. Next, the Minister suggests that undertaking the calculation by reference only to disclosed data of brands listed at the date of the determination serves a sensible purpose, in that the determination is used to provide the basis for a price reduction.  Both the determination and the price reduction occur at brand level.  The Minister contends that there is no obvious utility in arriving at such a reduction by reference to disclosed data showing discounting in respect of brands that are no longer in the market at the time of determination.  She says that a more sensible approach would be to arrive at a weighted average disclosed price for brands that are listed as at the date of the determination, based on the discounting undertaken in respect of those brands during the relevant data collection period.

23. That contention, however, tends to conflate the purpose of reg 37G with the consequences of the calculation, where the extent of the discounting is greater than the 10 per cent threshold.  I have already referred to the fact that the author of the provisions has selected a methodology that requires a consideration of what actually occurs in the market over a period of time, together with the behaviour of market participants.  That is the scheme that has been adopted and it is that scheme that must be applied.  I am not persuaded that the Commissioner’s approach to the calculation is correct.  I am satisfied that the Minister erred in making determinations without bringing into account the disclosed data in relation to the delisted brands.

24. The question then arises as to the consequences of the error into which the Minister fell in making the August Determination and the November Determination.  Sanofi contends that the Minister did not calculate the weighted average disclosed price in accordance with reg 37G.  As I have said, I accept that contention.  Sanofi says that it follows that the August Determination, so far as it concerns the brands of pharmaceutical items with risedronic acid oral, and the November Determination are both invalid. 

25. The Minister responds that, even if there were error, it was not jurisdictional error but was rather the simple exercise of a discretion. She says that the scheme of s 99ADB and reg 37G does not impose any obligation on the Minister to comply with the method prescribed. The Minister says that the relevant provisions confer a measure of discretion as to whether and how the weighted average disclosed price is to be determined. Thus, s 99ADB(4) provides that the Minister may determine the weighted average disclosed price and s 99ADB(6) provides that, without limiting s 99ADB(4), the Regulations may prescribe a method or formula for determining the weighted average disclosed price.

26. However, in my view, that approach ignores the clear intention of the provisions.  While a discretion is conferred on the Minister as to whether or not a weighted average disclosed price is to be determined, and as to the method that is prescribed, assuming that discretion is exercised, the clear intention of the provisions is that, if the discretion is exercised, and a method is then prescribed, any determination of the weighted average disclosed price must be made in accordance with the Regulations.  While there is a discretion in prescribing the formula or method by which the weighted average disclosed price is to be determined, once that discretion is exercised and a method or formula is prescribed, then the determination must be made in accordance with that method or formula.

27. This is not a case where the failure to comply with the requirements of reg 37G has an insignificant consequence.  The evidence before me suggests that there is a very significant reduction in price, of the quantum that I have already mentioned.  I consider that the failure to make the determination in accordance with reg 37G, for the reasons I have given, is such that the determinations purportedly made in August and November are invalid exercises of power.  Sanofi is therefore entitled to an appropriate order either quashing or setting aside the determinations in question.

I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated: 17 December 2012