Apotex challenges U.S. import ban under NAFTA

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Canadian generic drug giant Apotex Inc. says a U.S. "import alert" that blocked shipments from two of its Toronto plants in 2009 "decimated" its U.S. business and cost it at least $520-million (U.S.). Now, it wants its money back.

A filing posted on the U.S. State Department's website last week reveals that the privately held Toronto-based company has launched a challenge against the U.S. government under the controversial Chapter 11 provisions of the North American free-trade agreement.

Apotex accuses the United States of discriminating against it when the Food and Drug Administration banned imports from two Toronto Apotex facilities in August, 2009. The ban came after U.S. inspectors found violations with the company's manufacturing and quality controls that the FDA said raised "serious questions."

The violations included issues around the discovery of "yellow powder," "charred material" and other contaminants in certain drugs, according to a "warning letter" sent to Apotex in 2010 and posted on the FDA website.

In its request for arbitration under NAFTA, Apotex says it voluntarily recalled drugs from shelves in the U.S. and Canada and addressed the FDA's concerns at its plants promptly. But the FDA did not fully lift the import ban until July, 2011. The delay, Apotex says, came even though the FDA never ordered that Apotex drugs already on U.S. shelves be withdrawn for safety, and drug regulators in other countries did not follow the FDA's lead on the ban.

Apotex acknowledges in its filing that its own testing found products that "did not fully meet specifications" and were rejected after an internal investigation. But it accuses the FDA of issuing its "devastating" import ban without giving Apotex "the barest trappings of due process" and of treating its rivals less harshly for similar violations.

"Because of the import alert, Apotex US's business was decimated. It lost hundreds of millions of dollars of sales and was prevented from bringing any new drug to the U.S. market," the company's document reads.

News of the NAFTA challenge, which is dated Feb. 29, first surfaced on the website of Investment Arbitration Reporter (iareporter.com), which tracks arbitrations between companies and countries. It is the latest NAFTA challenge launched by Apotex, which is already involved in two other cases against Washington over the drug-approval process.

Anti-free-trade critics have long targeted the trade deal's Chapter 11 provisions for allowing foreign corporations to sue host governments over new domestic laws, such as environmental or health and safety rules, that affect business. Relatively few cases have been filed since NAFTA's inception, but the U.S. government is undefeated.

The two Toronto Apotex plants affected by the 2009 import alert produced 80 per cent of the company's U.S. sales, Apotex says in its NAFTA filing. The company's document says that despite the U.S. action, a 2009 Health Canada inspection cleared the company's plants, although did require some changes.

In addition to the import ban, approvals of "around 56" of Apotex's pending new drug applications in the U.S., frozen during the alert, did not fully resume until Oct. 31, the company says.

Apotex's complaint accuses the U.S. of treating it more harshly than its competitors, citing a September 2010 FDA inspection of a Teva Pharmaceutical Industries Ltd. plant in Jerusalem that Apotex says found similar violations. Inspectors found unidentified "black particles" in sample powder, as well as other problems, the Apotex document reads. But despite this, the FDA did not issue an import alert as it did for Apotex.

Precisely which drugs were affected in the episode is not detailed in the company's complaint, though a variety of drugs are listed in the FDA's warning letter to the company. At the time of the Health Canada inspections in 2009, Apotex issued a "precautionary" recall of three drugs from the Canadian market manufactured at the Toronto plants: apo-meloxicam, an arthritis drug; apo-ranitidine, for stomach acid; and apo-amilzide, for liver cirrhosis.

A spokesman for the U.S. State Department could not be reached for comment. A spokesman for Apotex could not be reached for comment.