IN THE UNITED STATES DISTRICT COURT
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`FOR THE DISTRICT OF NEW JERSEY
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`SENJU PHARMACEUTICAL CO. LTD.,
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`BAUSCH & LOMB INCORPORATED,
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`and BAUSCH & LOMB PHARMA
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`HOLDINGS CORR,
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`Plaintiffs,
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`V.
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`LUPIN, LTD. and LUPIN
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`PHARMACEUTICALS, TNC.,
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`Defendants.
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`INNOPHARMA LICENSING, INC.,
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`INNOPHARMA LICENSING, LLC,
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`INNOPHARMA, INC., and
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`INNOPHARMA, LLC,
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`Defendants.
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`0O39%€@f03@'>€0=0O3=@€0?6®C@C076®@J<0=O®<@00>@><0=P03f0#€0JC@
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`1:14-cv-0O667—JBS-KMW,
`1:14-CV-04149—JBS—KMW,
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`1:14-cv-05144—JBS-KMW,
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`1:15—cv-00335-JBS-KMW,
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`1:14-cv-06893-JBS—KMW, and
`1:15-cv-03240—JBS-KMW
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`(Consolidated Actions)
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`CONTAINS CONFIDENTIAL
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`MATERIAL PURSUANT TO
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`STIPULATED DISCOVERY
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`CONFIDENTIALITY ORDER
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`REPLY EXPERT REPORT OF
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`JOHN C. JAROSZ
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`ON OBJECTIVE INDICIA OF NON-OBVIOUSNESS
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`February 12, 2016
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`Page 1 0f 86
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`SENJU EXHIBIT 2323
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`Lupin v Senju.
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`lPR2015-01097, IPR2015-01099,
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`IPR2015-0l100& lPR20l5-01105
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`I.
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`1.
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`INTRODUCTION
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`A.
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`Assignment
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`I, John C. Jarosz, submit
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`this reply expert report on behalf of Bausch & Lomb
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`Incorporated, Bausch & Lomb Pharma Holdings Corp. (collectively, “Bausch & Lomb”)
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`and Senju Pharmaceutical Co. Ltd. (“Senju”) (collectively, with Bausch & Lomb, “Patent
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`Owners”) in connection with the above captioned cases. I have been retained to provide
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`expert analysis and testimony, if necessary, regarding the commercial success of the
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`inventions described in US. Patent Nos. 8,129,431 (“the ”431 patent”); 8,669,290 (“the
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`’290 patent”); 8,754,131 (“the ’131 patent”); 8,871,813 (“the ’813 patent”); and
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`8,927,606 (“the ’606 patent”) (collectively, the “Patents-in-Suit”). It is my understanding
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`the asserted claims of the Patents-in-Suit are embodied in Bausch & Lomb’s
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`Prolensa® product.
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`2.
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`On December 30, 2015, I submitted my opening expert report on objective indicia of
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`non—obviousness in these cases.1 Since then, I have received the responsive report of Ivan
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`T. Hofmann.2 I have been asked to provide my opinions regarding the analysis and
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`conclusions set forth in the Hofmann Report. This report summarizes those opinions.
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`3.
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`As with my initial report, I may modify or supplement my opinions, if necessary and
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`allowed, based on the review and analysis of information provided to me subsequent to
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`the filing of this report.
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`B.
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`Qualifications
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`A complete description of my background and qualifications is provided in the Jarosz
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`Opening Expert Report of John C. Jarosz on Objective Indicia of Non—Obviousness, December 30, 2015
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`(“Jarosz Report”). I submitted two versions of the Jarosz Report, one applicable to the Lupin Defendants and
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`one applicable to the InnoPharma defendants. Page and Tab references in this report refer to the Lupin version
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`Responsive Expert Report of Ivan T. Hofmann, CPA/CFF, CLP, February 1, 2016 (“Hofmann Report”).
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`Report. An updated copy of my curriculum vitae is provided as Reply Tab 1.
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`Evidence Considered
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`Since submitting the Jarosz Report, I have reviewed additional information from a variety
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`including the Hofmann Report,
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`the responsive report of Dr. Robert C.
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`Cykiertf the reply report of Dr. William B. Trattler,“ materials produced by Patent
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`Owners in this litigation, and information from publicly-available sources, such as
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`academic journals and analyst reports. A complete list of additional materials thatl have
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`received and reviewed since the date of the Jarosz Report is attached as Reply Tab 2.
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`D.
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`Summary of Opinions
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`In his report, Mr. Hofmann concluded that
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`Prolensa® is not a commercial success and the performance of Prolensa®
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`is attributable to various extrinsic factors unrelated to the Patents-in-Suit.
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`Specifically, the performance of Prolensa® is explained by the execution
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`of a coordinated life—cycle management strategy for the bromfenac
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`franchise which involved the following components: (1) the systematic
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`migration to new bromfenac products and the discontinuation of legacy
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`bromfenac products; (2) substantial marketing and promotional efforts;
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`and (3) tactical pricing of Prolensa®. As a result, the performance of
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`Prolensa® does not provide objective indicia of nonobviousness of the
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`I disagree with Mr. Hofmann’s conclusions for a number of reasons.
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`0 Mr. Hofmann’s conclusion that Prolensa® is not a commercial success is inconsistent
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`with the evidence of Pr0lensa®’s marketplace performance over time. Prolensa® has
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`achieved and maintained substantial acceptance, particularly in light of the array of
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`Responsive Expert Report of Robert C. Cykiert, M.D. on Objective indicia of Non-Obviousness, February 1,
`2016 (“Cykiert Report”).
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`Reply Expert Report of William B. Trattler, MD, on Objective lndicia of Non-Obviousness, February 12, 2016
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`(“Trattler Reply Report”).
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`Hofmann Report, at 15.
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`Mr. Hofmann’s conclusion that the success of Prolensa® is due to factors other than
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`the Patents-in-Suit is inconsistent with evidence showing that the patents have been
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`motivating (important) factors in Prolensa®’s success.
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`Mr. Hofmann’s characterization of any Prolensa® success as reflecting a “life-cycle
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`management” strategy fails to acknowledge that
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`requires that a new formulation must actually be deemed advantageous by the
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`physician community before it will be prescribed. Here, physicians had a compelling
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`reason to switch to Prolensa®, which is the improved side effect profile ‘offered by
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`Prolensa® relative to other available bromfenac formulations.
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`Mr. Hofmann’s analysis of Prolensa® marketing expenditures fails to recognize that
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`marketing is one of many factors that influence physician prescribing behavior, and
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`its impact is modest. Physicians are informed by marketing efforts, but weigh heavily
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`the quality and effectiveness of a drug, as well as patient requests, when deciding
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`what to prescribe. Marketing spending alone is not sufficient if the drug does not
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`offer clinical benefits to patients, as Prolensa® does.
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`Mr. Hofmann’s conclusion that Prolensa® may be cheaper than generic bromfenac is
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`inconsistent with the evidence and business realities. His analysis of Prolensa® net
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`pricing relative to competing ophthalmic NSAIDS is incomplete.
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`FRAMEWORK
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`According to Mr. Hofmann, “any alleged commercial success must be driven primarily
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`by and attributable to the purported merits of the claimed invention, and not by other
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`factors unrelated to the allegedly novel features of the claimed invention.
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`there must
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`be a causal correlation, or ‘nexus,’ between the unique merit of the claimed invention and
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`Mr. Hofmann criticized my reliance on IMS data reporting Prolensa® sales.‘2 He wrote,
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`IMS data does not reflect actual net sales dollars of Prolensa® from the
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`accounting records of Plaintiffs prepared in the normal course of business.
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`Rather, the IMS data is an estimate of gross sales from a third-party data
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`provider. Although IMS data is regularly used and relied upon in the
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`pharmaceutical industry for certain purposes, the IMS data cited in the
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`Jarosz Report does not reflect net sales of products. The gross sales from
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`IMS generally do not include reductions for the following: a) Rebates, b)
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`Discounts, c) Allowances, d) Coupons, 6) Chargebacks, or f) Returns.'3
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`As Mr. Hofmann acknowledged, however, IMS data are regularly used and analyzed in
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`the pharmaceutical industry.14 Those data span a wide range of drugs, drug categories,
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`and time, allowing analysts and pharmaceutical companies the ability to compare the
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`performance of different drugs across different manufacturers. The IMS data here
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`allowed me to make a comparison of Prolensa®’s sales and prescription volumes over
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`time versus other ophthalmic NSAIDs manufactured by companies who are not party to
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`this litigation and, thus, for which internal sales data (including net sales data) are not
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`14.
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`There is no dispute that IMS collects gross sales data. It does not report manufacturer net
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`sales data because it does not collect (or report) the rebates, discounts, returns or other
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`bottom—line discounts from or to the manufacturer that go into calculating the amount that
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`a manufacturer or supplier ultimately receives. The data that IMS does collect measures
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`sales into retail and non-retail outlets, and represents the actual costs that were charged to
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`to acquire the
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`pharmaceutical products as seen on the purchase invoices.
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`Hofmann Report, at 17-18.
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`Hofmann Report, at 18.
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`Hofmann Report, at l7-l8.
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`time-to-peak-sales amounts to four years or longer?“ According to one text,
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`[n]egative cash flow outlays occur through [the R&D] period and for the
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`first few years after launch. Cash flows then become positive and escalate
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`rapidly to year 10. Most of the drugs in the sample had post-launch patent
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`lifetimes in the range of 9 to 14 years.“
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`Second, with the long run in mind, companies, particularly in the pharmaceutical area,
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`typically invest heavily in marketing immediately following the launch of a new product
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`in order to lay the groundwork for future success.“ According to Osinga, Leeflang, and
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`suggest
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`[o]ur empirical
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`physician-oriented marketing in the periods right after an introduction of a
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`brand because during these periods, both persistent and temporary
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`marketing effects are significant and largest
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`manufacturers should decrease the brand's marketing expenditures because
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`the effects become insignificant or only marginally effective. These
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`recommendations correspond to the spending patterns actually observed
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`for many brands.”
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`29.
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`As a result, during this early period, it is common for products to be unprofitable due to a
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`combination of high marketing costs and low initial sales. A product that is initially
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`unprofitable, however, would not be expected to remain so over the course of its life.
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`Fischer, Marc, Peter S. H. Leeflang, and Peter C. Verhoef, “Drivers of peak sales for pharmaceutical brands,”
`Quantitative Marketing and Economics, Vol. 8, No. 4 (December 2010), pp. 429-60, at 440.
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`37 Danzon, Patricia M. and Sean Nicholson (Eds), The Oxford Handbook, of The Economics‘ of the
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`Bioglzamiacegtigal lndtxstgx, Oxford University Press: New York (2012), at 36.
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`See, e.g., Narayanan, Sridhar, Puneet Manchanda, and Pradeep K. Chintagunta, “Temporal Differences in the
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`(August 2005), pp. 278-90, at 288 (“. ..it is beneficial for firms to allocate more resources to detailing in the
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`introductory phase, when both indirect and direct effects are present, than in subsequent periods, when only the
`direct effects are present. In other words, firms should spend more on detailing in the introductory period
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`because it leads to faster learning. However, they may still need to detail in subsequent periods because direct
`effects also affect prescriptions”); Osinga, Ernst C., Peter S. H. Leeflang, and Jaap E. Wieringa, “Early
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`Marketing Matters: A Time-Varying Parameter Approach to Persistence Modeling,” Journal of Marketing
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`Resarch, Vol. 47, No.
`1 (February 2010), pp. 173-85, at 177 (“Marketing efforts appear to be allocated in
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`distinctive patterns over time. The expenditures on meetings, journal advertising, and detailing follow the same
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`pattern: They are highest during the first year after introduction and then gradually decline. In contrast, DTC
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`advertising expenditures are virtually nonexistent immediately after the introduction but trend positively during
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`the subsequent five years.”)
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`Osinga, Ernst C., Peter S. H. Leeflang, and Jaap E. Wieringa, “Early Marketing Matters: A Time-Varying
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`Parameter Approach to Persistence Modeling,” Journal ofMarketing Resarch, Vol. 47, No. 1 (February 2010),
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`pp. 173-85, at 183.
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`(cid:9) (cid:9)
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`30,
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`Similarly, it is not surprising that, over time, those same companies tend to invest less
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`and less in marketing, while maintaining, or usually increasing, sales.
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`In fact, that is exactly the pattern seen in the sales and expenditures related to Prolensa®.
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`As shown in the Jarosz Report, Tab 14, and reflected below, Bausch & L0mb’s
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`marketing expenditures on Prolensa® declined significantly from Q4 2014 to Q1 2015,
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`and quarterly marketing expenditure in Q1 through Q3 2015 represent the three lowest
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`quarterly expenditures since Prolensa®’s launch in April 2013. Moreover, sales of
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`Prolensa® during these three quarters were the three highest quarterly totals since
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`Prolensa®’s launch. The combination of record low marketing spending and record high
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`sales in 2015 suggests that Prolensa® profitability in 2015 is very different than in prior
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`years, a fact not accounted for in Mr. Hofmann’s analysis.” Mr. Hofmann’s examination
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`of limited and early profit data, even adopting his assumptions, provides little, if any,
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`insight into Prolensa®’s likely product success.
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`4° Mr. Hofmann’s analysis examined profitability for the period Q2 2013 to Q3 2015 as a whole, and did not
`examine whether and to what extent Prolensa®’s profitability changed during that period.
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`1.1
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`Prolensa® Gross Sales and Marketing Expenditures
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`Q2 2013 to Q3 2015
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`USDMillions
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`§"
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`2013
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`2013
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`----Gross Sales
`-W-~Marketing Expenditures
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`Q4
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`Data from [MS. See Jarosz Report, Tab 14.
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`31.
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`Moreover, Mr. Hofmann’s “analysis” of Prolensa®’s profitability is at odds with Bausch
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`& Lomb’s actions. The fact
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`that Bausch & Lomb continues to invest
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`in and sell
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`Prolensa® nearly four years after its commercial
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`launch suggests that Prolensa® is
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`profitable, contrary to Mr. Hofmann’s contention. If it were not, from a business
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`perspective, Bausch & Lomb would be unlikely to continue investing in Prolensa® or
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`litigating this case. The fact that Bausch & Lomb continues to sell, invest in, and protect
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`Prolensa® suggests that it
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`is more profitable than the alternative, which is to cease
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`production and sales of the drug.
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`C.
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`32.
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`Mr. Hofmann wrote that “Prolensa® has not kept pace with overall growth in the volume
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`of cataract procedures” and that “the use of bromfenac products has not kept pace with
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`(cid:9) (cid:9)
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`33,
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`the overall percentage growth in ophthalmic NSAID prescriptions.
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`”“ Mr. Hofmann’s
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`conclusions appear to be driven by two considerations: (1) prescriptions of bromfenac
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`products, overall, have not shown the same growth as prescriptions of non—bromfenac
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`ophthalmic NSAIDS over the period 2005 to 2015, and (2) Prolensa®’s share has not
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`shown the same growth as that of Ilevro®, a competing ophthalmic NSAID launched
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`shortly before Prolensa®.42 I disagree with Mr. Hofmann’s characterization of
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`Prolensa®’s relative performance.
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`Mr. Hofmann’s comparison of all bromfenac products to other ophthalmic NSAIDs over
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`the period 2005 to 2015 does not provide an accurate picture of how prescriptions of
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`Prolensa® compare with other competing ophthalmic NSAIDS during the period in
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`which Prolensa® was commercially available. On this measure, Prolensa® has achieved
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`a stable share for the last several years, at approximately 16 to 17 percent each quarter in
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`2014 and 2015, which is reflected below.43 Prolensa® is growing along with the overall
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`ophthalmic NSAIDs marketplace. To the extent
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`that Prolensa® is not meeting
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`expectations of growth in the volume of cataract procedures, which Mr. Hofmann has not
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`established, neither is the entire ophthalmic NSAID business.
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`4' Hofmann Report, at 22.
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`42 Hofmann Report, at 23—24.
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`43 Calculation of shares includes the additional NSAIDs Ocufen®, generic flurbiprofen sodium, and Acular PF®.
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`See, Jarosz Report, at 11-12 and Tab 8. From an economic perspective, a product that achieves a 16 to 17
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`percent share in its first full year following launch, and sustains such sales, does not indicate a commercially
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`unsuccessful product; such performance indicates significant adoption and performance.
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`Page 15 of 86
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`....W
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`Prolensa® Share of Opthalmic NSAID Prescriptions
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` —m._.,... .,.uusrsr,.r.44mWW, »~.Mm » rv«..m.»..M~mn.mmW,We ,»...wm.,m»m»...
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`Data from MS. See Jarosz Report, Tab 8.
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`34.
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`Mr. Hofmann wrote that Bausch & Lomb expected the volume of cataract procedures to
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`increase by a total of 12 percent over the period 2013 to 2017.“ Much of this growth (as
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`measured by the number of ophthalmic NSAIDS prescribed) occurred in the early part of
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`this period, with total prescriptions growing from 883,000 in Q4 2012 to 983,000 in Q2
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`2014, an increase of over 11 percent. Prolensa® was commercially launched in April
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`2013 and, thus, was in its first few quarters of existence during this period. During these
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`first few quarters of commercial availability, Prolensa® experienced significant growth, 0
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`as would be expected of a newly introduced successful drug. As rcflected below, total
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`Prolensa® prescriptions grew from approximately 20,000 in Q2 2013 (the first quarter in
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`which Prolensa® was commercially available), to approximately 96,000 in Q3 2013
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`(Prolensa®’s first full quarter of commercial availability), to approximately 164,000 in
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`44 Hofmann Report, at 22.
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`Q2 2014.45 This is a growth rate of over 71 percent during Prolensa®’s first four full
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`quarters of commercial availability (i.e., Q3 2013 to Q2 2014).46
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`Prolensa® Prescriptions
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`02 2013 to Q3 2015
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`, WW, ”we...“ WW .,..W-w.__..-.,_iww . M. a.
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`120,000 a .................................
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`100,000 WM -.............
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`180,000
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`160,000
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`80,000
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`50,000
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`............................................
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`,,
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`..........
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`.m M .
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`40,000 aw“ we...“ _tttttt
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`...,W,
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`.m
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`.
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`,,,,,,,
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`. M
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`,,,,,,
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`Q2
`2013
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`Q3
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`2013
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`Q4
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`2013
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`Q1
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`2014
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`Q2
`2014
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`Q3
`2014
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`Q4
`2014
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`Q1
`2015
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`Q2
`2015
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`2015
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`Data from IMS. See Jarosz Report, Tab 14.
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`35.
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`Since Q2 2014, the number of ophthalmic NSAID prescriptions has remained relatively
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`flat, falling in the narrow range of 983,000 to 1,002,000 for five of the six most recent
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`quarters.47 In those same five quarters, Prolensa®’s prescriptions fell
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`in the range of
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`163,000 to 169,000 each quarter, as reflected below.48 In Q1 2015, the only quarter since
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`Q2 2014 in which Prolensa® prescriptions fell outside this range (totaling 157,000),
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`prescriptions for ophthalmic NSAIDs in general were down (totaling 919,000).49 As
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`discussed above, Prolensa®’s share since Q2 2014 (i.e., Q2 2014 to Q3 2015) has ranged
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`47
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`49
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`Jarosz Report, at Tab 6.
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`Calculated as 163,653 prescriptions / 95,546 prescriptions
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`Report, at Tab 6.
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`Total includes the additional NSAIDS Ocufen®, generic flurbiprofen sodium, and Acular PF®. See, Jarosz
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`Report, at 11-12 and Tab 6.
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`Jarosz Report, at Tab 6.
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`Jarosz Report, at Tab 6.
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`1 = 71.3 percent. Total prescriptions from Jarosz
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`from 16.6 percent
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`to 17.1 percent.50 Thus, based on the number of prescriptions,
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`Prolensa® has achieved a consistent level of sales and a consistent share,
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`in spite of
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`entering relatively late into a relatively crowded field. Compared with other, and older,
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`ophthalmic NSAIDs, it has done very well, as reflected below.
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`Ophthalmic NSAID Prescriptions
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`Q2 2005 to Q3 2015
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`450,000
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`,.............................
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`36.
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`Mr. Hofmann’s assertion that my analysis “fails to recognize the trends in the quarterly
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`market share of Prolensa® compared to Ilevro®” is similarly misplaced. The fact that
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`llevro® has gained share in recent quarters does diminish from the fact that Prolensa® is
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`a commercial success as well. Ilevro®’s gains do not appear to be at the expense of
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`Prolensa®, and Mr. Hofmann has not asserted otherwise. And neither the law nor
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` (cid:9)
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`5° Calculation of shares includes the additional NSAIDs Ocufen®, generic flurbiprofen sodium, and Acular PF®.
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`See, Jarosz Report, at 1 1-12 and Tab 8.
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`16
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`Page 18 of 86
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` (cid:9)
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