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New Arbitration Ruling Favors U.S. In Apotex Investor-State Claim

Thursday, August 28, 2014

By Peter Menyasz

Aug. 27 — An international arbitration panel has rejected Canadian generic pharmaceutical manufacturer Apotex Inc.’s $1.5 billion claim that the U.S. Food and Drug Administration (FDA) violated the North American Free Trade Agreement (NAFTA) by prohibiting imports of its products.

The three-member International Center for Settlement of Investment Disputes panel found no basis for the allegations by Apotex Inc. and Apotex Holdings Inc. that the FDA's 2009 “Import Alert” against products made in two Apotex plants in Ontario violated the investor-state protection provisions in NAFTA Chapter 11, the U.S. State Department said Aug. 27.

“On the merits, the tribunal unanimously concluded that the Import Alert was a lawful and appropriate exercise of FDA's regulatory authority,” the State Department said in a statement. “The tribunal's award is an important recognition of the NAFTA parties' authority to take non-discriminatory enforcement action to protect public health.”

The panel's ruling, delivered to the parties Aug. 25, is to be made public after a review to remove confidential commercial information. The ruling awarded the U.S. government its full legal costs and 75 percent of the cost of the arbitration process.

Apotex confirmed Aug. 27 the tribunal's ruling rejecting its claims against the U.S. government, noting that the FDA's action against its Etobicoke and Signet plants in the Toronto area effectively eliminated the company's access to the U.S. solid dose drug market for a nearly two-year period.

“While we are disappointed in the tribunal's decision, we remain strongly committed to the U.S. market and we continue to work closely with the FDA to resolve all outstanding issues,” Jeremy B. Desai, Apotex's newly appointed president and chief executive officer, said in a statement.

The State Department noted that the arbitration panel found that it lacked jurisdiction for Apotex's claims that it was unfairly denied access to filing abbreviated new drug submissions in the U.S. for products produced at the Ontario facilities during the period the Import Alert applied. The majority of the tribunal found that Apotex was barred from relitigating that issue because it had been addressed by a previous tribunal.

Apotex U.S. Subsidiary ‘Decimated.'

Apotex filed in February 2012 a claim under NAFTA Chapter 11 alleging that the FDA's action cost it hundreds of millions of dollars in lost sales to its U.S. subsidiary Apotex Corp. Application of the Import Alert between August 2009 and July 2011 effectively “decimated” the U.S. subsidiary and prevented the entry of new drugs into the U.S. market, it said.

Apotex's statement of claim alleged that the FDA provided more favorable treatment to competing U.S. investors and U.S.-owned investments, none of which it said were subjected to measures as severe as those imposed on Apotex. It argued that this violated the guarantees of national treatment in NAFTA Article 1102, most-favored nation treatment under Article 1103 and the minimum standard of treatment under Article 1105.

FDA inspections of Apotex's Ontario production facilities in 2008 and 2009, which responded to complaints about the company's products, revealed significant deviations from current good manufacturing practices (cGMP), the State Department said in the Aug. 27 statement. The U.S. agency subsequently issued the Import Alert indicating that drugs offered for import from those facilities were adulterated and could be detained at the border without physical examination, it said.

Apotex confirmed in its statement of claim that the FDA found a total of 11 deviations at the Etobicoke facility but argued that the FDA failed to take into account improvements it made to its quality and manufacturing process and equipment. Likewise, the FDA added the Signet facility to the Import Alert after finding 17 deviations from cGMP standards, despite Apotex's efforts to address its concerns, including an offer to voluntarily recall some products from the U.S. market as a precautionary measure, the company said.

Apotex also argued that Health Canada inspections of its facilities in late 2009 concluded that while some manufacturing processes could be improved further, Apotex was addressing the issues and the facilities were cGMP-compliant. Those assurances were accepted by other jurisdictions, including the European Union, Australia and New Zealand, it said.

To contact the reporter on this story: Peter Menyasz in Ottawa at correspondents@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com

Information on the case is available at http://www.state.gov/s/l/c50826.htm, and the ruling will be posted there when available.

 

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