`_____________________________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`_____________________________
`
`
`
`ARGENTUM PHARMACEUTICALS LLC, MYLAN PHARMACEUTICALS
`INC., BRECKENRIDGE PHARMACEUTICAL, INC., and ALEMBIC
`PHARMACEUTICALS, LTD.,
`
`Petitioners,
`
`v.
`
`RESEARCH CORPORATION TECHNOLOGIES, INC.,
`Patent Owner.
`
`_____________________________
`
`Case IPR2016-00204
`Patent RE38,551 E1
`_____________________________
`
`
`DECLARATION OF DEFOREST MCDUFF, Ph.D.
`
`
`
`
`
`
`1 Petitioners Mylan (IPR2016-01101), Breckenridge (IPR2016-01242), and
`
`Alembic (IPR2016-01245) have each been joined as Petitioner to this proceeding.
`
`1
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`ARGENTUM Exhibit 1086
`Argentum Pharmaceuticals LLC v. Research Corporation Technologies, inc.
`IPR2016-00204
`
`
`
`
`
`I, DeForest McDuff, Ph.D., declare as follows:
`
`I.
`
`Introduction
` Qualifications
`
`1.
`
`I am a Vice President of Intensity Corporation (“Intensity”) and an
`
`expert in applied business economics, with more than ten years of experience in
`
`consulting, finance, and economic research. I provide expert witness testimony
`
`and consulting in a variety of areas, including lost profits, reasonable royalties,
`
`unjust enrichment, commercial success, irreparable harm, finance, statistics,
`
`valuation, and business optimization.
`
`2. My expertise and experience span a variety of topics, including
`
`intellectual property, competition, business, antitrust, finance, labor, employment,
`
`and class action. I am an expert in the economics of technology and intellectual
`
`property. My work spans the life sciences (including pharmaceuticals,
`
`biotechnology, diagnostics, and medical devices), electronics (including consumer
`
`electronics, semiconductors, computers, and telecommunications), and has
`
`included projects on a diverse range of other industries.
`
`3.
`
`I have significant experience evaluating the economics of the
`
`pharmaceuticals industry. I have provided expert analysis and consulting in over
`
`50 cases involving pharmaceuticals and related products, including evaluations of
`
`economic damages, competition, commercial success, irreparable harm, and other
`
`2
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`issues. I have evaluated a number of pharmaceutical product launches, both in a
`
`litigation setting and an advisory role, and have published articles and taught
`
`continuing legal education on pharmaceutical products as well.
`
`4.
`
`I earned my Ph.D. in economics from Princeton University. At
`
`Princeton, I received a National Science Foundation Graduate Research Fellowship
`
`for academic research studying economic and statistical properties of housing
`
`markets and financial derivatives. I have published research in several peer-
`
`reviewed academic journals. I graduated summa cum laude with undergraduate
`
`degrees in economics and mathematics from the University of Maryland.
`
`5. My curriculum vitae, provided in Ex. 1088, Attachment A, contains
`
`more details on my background, experience, publications, and prior expert
`
`testimony.
`
`
`
`Scope of Work
`
`6.
`
`In connection with my work on this matter, Intensity has been retained
`
`by Dowd PLLC on behalf of Argentum Pharmaceutical, Inc., Wilson Sonsini
`
`Goodrich & Rosati on behalf of Mylan Pharmaceuticals, Inc.; by Merchant &
`
`Gould P.C. on behalf of Breckenridge Pharmaceutical, Inc.; and Carlson, Caspers,
`
`Vandenburgh, Lindquist & Schuman, P.A. on behalf of Alembic. Intensity is
`
`being compensated at a rate of $700 per hour for my work and at lower rates for
`
`3
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`time spent by others on my team. The compensation of Intensity is not dependent
`
`on the substance of my testimony or the outcome of this matter.
`
`7.
`
`For this declaration, I was asked to review and discuss the declaration
`
`of Dr. Christopher A. Vellturo relating to the alleged commercial success of
`
`Vimpat (lacosamide; the “product-at-issue”) and U.S. Patent No. RE38,551 E (“the
`
`’551 patent” or “patent-at-issue,” Ex. 1001) submitted on August 15, 2016
`
`(“Vellturo Declaration”).2 This declaration is a statement of my opinions in this
`
`matter and the basis and reasons for those opinions. In forming the opinions
`
`expressed in this declaration, I have relied upon my education, experience, and
`
`knowledge of the subjects discussed.
`
`8.
`
`This declaration summarizes only my current opinions, which are
`
`subject to change depending upon additional information and/or analysis. The
`
`entirety of my declaration, including exhibits Ex. 1088 (CV) & Ex. 1158
`
`(attachments) and referenced materials, supplies the basis for my analysis and
`
`conclusions. The organizational structure of the declaration is for convenience.
`
`To the extent that facts, economic analysis, and other considerations overlap, I
`
`generally discuss such issues only once for the sake of brevity. Neither the specific
`
`4
`
` Case IPR2016-00204
`
`
`2
`Ex. 2132: Vellturo Declaration.
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`order in which each issue is addressed nor the organization of my declaration or
`
`attachments affects the ultimate outcome of my analysis.
`
`II. Background
` Epilepsy
`
`9.
`
`Epilepsy is a central nervous system disorder in which nerve cells in
`
`the brain become disrupted, causing seizures or unusual behavior.3 Seizures seen
`
`in epilepsy are temporary changes in behavior caused by problems with the
`
`electrical and chemical activity of the brain.4 Approximately 1 in 26 people in the
`
`United States will develop a seizure disorder in their lifetimes.5
`
`
`3
`Ex. 1159: Mayo Clinic, Epilepsy: Overview,
`
`http://www.mayoclinic.org/diseases-conditions/epilepsy/home/ovc-
`
`20117206.
`
`4
`
`Ex. 1160: Epilepsy Foundation, About Epilepsy: The Basics,
`
`http://www.epilepsy.com/start-here/about-epilepsy-basics.
`
`5
`
`Ex. 1159 : Mayo Clinic, Epilepsy: Overview,
`
`http://www.mayoclinic.org/diseases-conditions/epilepsy/home/ovc-
`
`5
`
` Case IPR2016-00204
`
`20117206.
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
` AEDs
`
`10. Antiepileptic drugs (AEDs) are used to control and prevent seizures.6
`
`While AEDs do not correct the cause of seizures, they can prevent seizures from
`
`occurring.7 AEDs generally include first-generation products introduced several
`
`decades ago and second-generation products introduced in the last two decades.8
`
`See Attachment B-1 (Ex. 1158).
`
`
`6
`Ex. 1161: Epilepsy Foundation, Seizure and Epilepsy Medicines,
`
`http://www.epilepsy.com/learn/treating-seizures-and-epilepsy/seizure-and-
`
`epilepsy-medicines.
`
`7
`
`Ex. 1161: Epilepsy Foundation, Seizure and Epilepsy Medicines,
`
`http://www.epilepsy.com/learn/treating-seizures-and-epilepsy/seizure-and-
`
`epilepsy-medicines.
`
`8
`
`Ex. 1162: American Association for Clinical Chemistry Website,
`
`“Antiepileptic Drugs: Therapeutic Drug Monitoring of the Newer
`
`Generation Drugs,” 6/1/2013,
`
`https://www.aacc.org/publications/cln/articles/2013/june/antiepileptic-drugs.
`
`6
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
` Vimpat (lacosamide)
`
`11. Vimpat is a brand-name antiepileptic drug sold by UCB with the
`
`active ingredient lacosamide.9 UCB first launched Vimpat for sale in the United
`
`States in 2009.10 Vimpat has been approved by the FDA as monotherapy or
`
`adjunctive therapy in patients aged 17 years and older with partial onset seizures.11
`
`Vimpat first received FDA approval for adjunctive therapy in partial onset seizures
`
`in oral tablet and intravenous solution form in October 200812 and then in oral
`
`
`9
`Ex. 1165: UCB, Annual Report, 2014, at 12.
`
`10
`
`11
`
`Ex. 1164: UCB, Annual Report, 2009, at 2.
`
`Ex. 1167 : Vimpat (lacosamide) Label, 8/29/2014, at 2. (“VIMPAT
`
`(lacosamide) is indicated in patients 17 years and older with partial-onset
`
`seizures as monotherapy or adjunctive therapy. VIMPAT (lacosamide)
`
`injection for intravenous use is an alternative when oral administration is
`
`temporarily not feasible.”).
`
`12
`
`Ex. 1163: UCB, Annual Report, 2008, at 19.
`
`
`
`Ex. 1166: Vimpat (lacosamide) Label, 10/28/2008, at 2.
`
`7
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`solution form in April 2010.13 In August 2014, the FDA expanded Vimpat’s
`
`approval to include monotherapy treatment of partial-onset seizures.14
`
` The ’551 patent
`
`12. U.S. Patent No. RE 38,551, entitled “Anticonvulsant Enantiomeric
`
`Amino Acid Derivatives,” was filed on January 28, 2002 and reissued on July 6,
`
`2004. 15 The ’551 patent is a reissue of U.S. Patent No. 5,773,475, which was filed
`
`on March 17, 1997 and issued on June 30, 1998.16 The patent lists Harold Kohn as
`
`the inventor and Research Corporation Technologies, Inc. (“RCT”) as the
`
`
`13
`Ex. 1168: FDA, Drug Details, Vimpat (NDA 022255),
`
`http://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction
`
`=Search.DrugDetails.
`
`
`
`Ex. 1183: Letter from FDA to UCB, Re: “NDA Approval”, 4/20/2010.
`
`14
`
`Ex. 1167: Vimpat (lacosamide) Label, 8/29/2014, at 2.
`
`
`
`Ex. 1169: Letter from FDA to UCB, Re: “Supplement Approval,”
`
`8/29/2014.
`
`15
`
`Ex. 1001: Anticonvulsant Enantiomeric Amino Acid Derivatives, U.S.
`
`Patent No. RE 38,551 E (filed 1/28/2002, reissued 7/6/2004).
`
`16
`
`Ex. 1001: Anticonvulsant Enantiomeric Amino Acid Derivatives, U.S.
`
`Patent No. RE 38,551 E (filed 1/28/2002, reissued 7/6/2004).
`
`8
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`assignee.17 I understand that the ’551 patent is alleged to cover the compound
`
`lacosamide.18
`
`III. Analysis of the Vellturo Declaration
` Overview
`
`13. Commercial success is a secondary consideration that a patent owner
`
`may use to argue that a patent is not obvious based on the alleged commercial
`
`success of a product embodying the invention of the patent. I understand that
`
`commercial success is relevant to the determination of a patent’s obviousness since
`
`the law presumes that an idea would have been brought to market sooner, in
`
`response to market forces, had it been obvious to persons skilled in the art. I
`
`further understand that evidence of commercial success is only relevant if there is a
`
`nexus between the alleged commercial success and the patentable features of the
`
`asserted claims. In other words, the patent owner must show that the commercial
`
`success is attributable to the novel parts of a patent claim, and not on factors that
`
`are unrelated or were already known.
`
`
`17
`Ex. 1001: Anticonvulsant Enantiomeric Amino Acid Derivatives, U.S.
`
`Patent No. RE 38,551 E (filed 1/28/2002, reissued 7/6/2004).
`
`18
`
`Ex. 2132: Vellturo Declaration, ¶¶ 29–30.
`
`9
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`14. Upon review, I find that the Vellturo Declaration does not establish
`
`the commercial success of Vimpat or a nexus to the ’551 patent. By contrast,
`
`based on all of the information and analysis described herein, I provide the
`
`following primary conclusions: (1) Vimpat sales do not demonstrate commercial
`
`success (see Section III.B); (2) there is a reduced relevance of any alleged
`
`commercial success to obviousness of the ’551 patent (see Section III.C); and
`
`(3) there is a limited nexus (if any) to the ’551 patent (see Section III.D). These
`
`opinions are discussed in more detail below.
`
` Vimpat sales do not demonstrate commercial success
`
`15. Several factors indicate that Vimpat sales do not demonstrate
`
`commercial success: (i) Vimpat prescription shares have been low; (ii) Vimpat
`
`sales do not show an economic profit; and (ii) Vimpat has underperformed
`
`expectations.
`
`i. Vimpat prescriptions shares have been low
`
`16. The Vellturo Declaration sets forth a variety of sales shares within
`
`epilepsy use that purport to demonstrate commercial success of Vimpat, including
`
`(1) Vimpat’s share of branded dollar sales, (Ex. 2132: Vellturo Declaration, ¶¶ 19–
`
`20) (2) Vimpat’s share of AED dollar sales (Id., ¶ 21), (3) Vimpat’s share of
`
`branded prescriptions (Id., ¶ 24), and (4) Vimpat’s share of AED prescriptions (Id.,
`
`10
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`¶ 25). However, the variety of shares set forth in the Vellturo Declaration are
`
`highly misleading; by contrast, prescription shares are the best measure of relative
`
`share for the AED market, and Vimpat’s share using that measure has been low.
`
`17. First, sales and prescription shares based exclusively on branded
`
`drugs, as set forth in the Vellturo Declaration, are misleading and uninformative in
`
`light of the large number of generics representing most of the use in the AED
`
`marketplace. For example, 13 out of 25 compounds in the marketplace have a
`
`generic counterpart. See Attachment E-2 (Ex. 1158). As of 2014, more than 85%
`
`of epilepsy prescriptions were written for generic products. See Attachment E-3
`
`(Ex. 1158). The AED marketplace is not defined by branded drugs only, since all
`
`of these drugs—both branded and generic—compete for sales in the marketplace.
`
`Accordingly, analyzing Vimpat within an artificially narrow set of branded-only
`
`products does not provide indication of commercial success, but rather reflects the
`
`longevity of many AEDs and the prevalence of generic products throughout the
`
`marketplace. Furthermore, since the market is becoming more generic over time
`
`(from 69% in 2009 to 88% in 2015 – see Ex. 2171), Vimpat’s rising share among
`
`branded drugs represents to a large extent a shrinking pie rather than a growing
`
`share, per se.
`
`18. Second, sales share based on revenues, as also set forth in the Vellturo
`
`Declaration, are also misleading and uninformative in light of higher branded
`
`11
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`prices and the large number of generics in the AED marketplace. Because branded
`
`drug prices are typically multiples of generic drug products, sales shares based on
`
`revenues are highly skewed towards branded drugs. That is, Vimpat has a
`
`relatively higher sales share based on revenues simply because of its higher price
`
`rather than earning a greater share of the marketplace. Because the AED
`
`marketplace has a high fraction of generic products, Vimpat’s sales share measured
`
`in dollars is particularly inflated and thus uninformative here.
`
`19. Third, Dr. Vellturo’s shares for Vimpat are overstated because he
`
`improperly assumes that all Vimpat prescriptions are for epilepsy only. The
`
`Vellturo Declaration utilizes a 100% factoring rate for Vimpat, even though
`
`Vimpat (like other AEDs) has material off-label use. Accordingly, even his
`
`calculations themselves overstate Vimpat’s share of the market.
`
`20. By contrast, a number of AEDs are prescribed significantly more
`
`often than Vimpat. Even setting aside off-label use, Vimpat’s prescription share of
`
`epilepsy use is only 3.7% as of 2015. See Attachment C-3 (Ex. 1158). Utilizing
`
`an off-label use share of 46% for anticonvulsant drug prescriptions asserted in
`
`Radley et al. (2006), Vimpat’s prescription share is reduced to no more than
`
`2.0%.19 See Attachment C-3 (Ex. 1158). The fact that Vimpat has a narrower set
`
`12
`
` Case IPR2016-00204
`
`
`19
`3.7% x 54% = 2.0%.
`
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`of approved indications and fewer prescriptions across non-epilepsy uses bears on
`
`its commercial success, since Vimpat has a reduced ability to earn sales compared
`
`to other AEDs in the marketplace. Total prescriptions from 2012 to 2015 indicates
`
`that lacosamide had fewer epilepsy prescriptions than nine other AEDs. See
`
`Attachment C-3 (Ex. 1158). As a share of overall use (epilepsy and off-label use),
`
`Vimpat’s share is even lower (since it has less off-label use compared to other
`
`AEDs). As part of the public district court trial in which both Dr. Vellturo and I
`
`testified, I explained that Vimpat’s share of AED prescriptions overall is less than
`
`one percent, and I publicly showed a demonstrative with this information: DDX-
`
`415. Ex. 1170 at 1073:7-18; Ex. 1171 (DDX-415). See Attachment C-6 (Ex.
`
`1158). I understand that UCB chose not to produce in this proceeding documents
`
`underlying this comparison.
`
`21. Ultimately, the majority of the shares of sales and prescriptions set
`
`forth in the Vellturo Declaration are flawed, and examination of corrected
`
`prescription shares within epilepsy and all AED use do not demonstrate
`
`commercial success. The presence of significantly more successful AEDs
`
`
`Ex. 1172: Radley, David C., Stan N. Finkelstein, Randall S. Stafford (2006),
`
`"Off-label Prescribing Among Office-Based Physicians," Archives of
`
`Internal Medicine," 166(9): 1021-1026, at 1024.
`
`13
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`compared to Vimpat indicates that other products have achieved significantly more
`
`use and are preferred by doctors and patients in the marketplace.
`
`ii. Vimpat sales do not show an economic profit
`
`22. The Vellturo Declaration identifies Vimpat sales from $126 million in
`
`2010 to $568 million in 2015 and prescriptions from 300,000 in 2010 to 900,000 in
`
`2014 as evidence of Vimpat’s commercial success.20 In other words, Dr. Vellturo
`
`tabulates sales and prescriptions and declares them to be a “success” in some
`
`abstract, unexplained sense. However, the Vellturo Declaration fails to provide
`
`appropriate context to determine whether those sales are, in fact, successful or
`
`large enough to demonstrate a commercial profit opportunity.
`
`23. Sales of Vimpat have not come close to approaching levels associated
`
`with many other AEDs receiving FDA approval since 1990, such as Neurontin
`
`
`20
`For example, see:
`
`Ex. 1173: UCB Epilepsy Meetings, UCB: The Epilepsy Company,
`
`http://www.ucbepilepsymeetings.com/.
`
`Ex. 1175: UCB, Annual Report, 2009, at 24 (“The cornerstone of our
`
`epilepsy franchise, Keppa (levetiracetam) continued to generate double-digit
`
`14
`
` Case IPR2016-00204
`
`net sales growth…”)
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`(gabapentin) at $2.7 billion in 2004;21 Lamictal (lamotrigine) at $2.0 billion in
`
`2007;22 Topamax (topiramate) at $2.7 billion in 2008;23 UCB’s own Keppra
`
`(levetiracetam) at $1.9 billion in 2008;24 and Lyrica (pregabalin) at $5.2 billion in
`
`2014.25 Dr. Vellturo provides no such comparisons nor any comparison that
`
`adequately puts Vimpat into context for evaluating its commercial success.
`
`24. Similarly, a fundamental consideration of commercial success is
`
`whether the sales and profits are large enough to have generated a commercial
`
`opportunity and economic profit. Consistent with this, a fundamental economic
`
`evaluation in the pharmaceutical industry (and more generally for commercial
`
`success) involves a comparison of the expected costs of commercialization and
`
`FDA approval against potential sales and profits, occurring with uncertainty and
`
`
`21
`Ex. 1176: Pfizer, Financial Report, 2005, at 13.
`
`22
`
`Ex. 1178: GlaxoSmithKline, Annual Report, 2007, at 37, 78 (£1.097 billion
`
`× 1.8162 $/£ = $2.0 billion).
`
`23
`
`24
`
`Ex. 1179: Johnson & Johnson, Annual Report, 2008, at 23.
`
`Ex. 1174: UCB, Annual Report, 2008, at 8, 49 (€1.266 billion × 1.462 $/€ =
`
`$1.9 billion).
`
`25
`
`Ex. 1177: Pfizer, Form 10-K - Financial Report, 2014, at 20.
`
`15
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`many years into the future.26 Published research shows that the costs of
`
`commercialization and FDA approval are substantial, with fully capitalized and
`
`
`26
`For a variety of sources and discussion, see:
`
`Ex. 1180: Mestre-Ferrandiz, Jorge, Jon Sussex, and Adrian Towse (2012),
`
`“The R&D Cost of a New Medicine,” Office of Health Economics, London
`
`UK, 1–86.
`
`Ex. 1181: DiMasi, Joseph, Henry Grabowski, and Ronald Hansen (2016),
`
`"Innovation in the pharmaceutical industry: New estimates of R&D costs,"
`
`Journal of Health Economics 47: 20–33.
`
`Ex. 1184: David, Jesse and Marion B. Stewart (2005), “Commercial
`
`Success: Economic Principles Applied to Patent Litigation,” in Gregory K.
`
`Leonard and Lauren J. Stiroh, ed., Economic Approaches to Intellectual
`
`Property Policy, Litigation, and Management, White Plains, NY: National
`
`Economic Research Associates, Inc., at 196 (“From an economic
`
`perspective, commercial success could in principle be defined by a single
`
`criterion: Does the patented invention earn a positive net return (risk-
`
`adjusted) on invested capital after accounting for all relevant costs
`
`associated with developing and commercializing the patent as well as any
`
`alternatives available to the patent holder?”).
`
`16
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`risk-adjusted expenses associated with development and commercialization now
`
`exceeding $2.5 billion, on average.27 The total economic cost of bringing a drug to
`
`market should account for the out-of-pocket costs, opportunity cost, and
`
`uncertainty of failed research and development, which are common and expected
`
`in the pharmaceutical industry.28
`
`25. Facts and information in this case indicate that commercialization
`
`costs for Vimpat are likely to have been comparable to the $2.6 billion in risk-
`
`
`27
`Ex. 1181: DiMasi, Joseph, Henry Grabowski, and Ronald Hansen (2016),
`
`"Innovation in the pharmaceutical industry: New estimates of R&D costs,"
`
`Journal of Health Economics 47: 20–33, at 20.
`
`28
`
`Ex. 1180: Mestre-Ferrandiz, Jorge, Jon Sussex, and Adrian Towse (2012),
`
`“The R&D Cost of a New Medicine,” Office of Health Economics, London
`
`UK, 1–86, at 5.
`
`Ex. 1181: DiMasi, Joseph, Henry Grabowski, and Ronald Hansen (2016),
`
`"Innovation in the pharmaceutical industry: New estimates of R&D costs,"
`
`Journal of Health Economics 47: 20–33, at 28.
`
`17
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`adjusted, capitalized expenses discussed in DiMasi, et al. (2016):29 (1) like the
`
`drugs studied in the published research, Vimpat was a new molecular entity;
`
`(2) FDA marketing approval for drugs in the DiMasi, et al. (2016) cohort ranged
`
`from 2005 to 2013, compared to FDA approval and product launch in 2009 for
`
`Vimpat; (3) drugs in the DiMasi, et al. (2016) cohort began clinical trials between
`
`1995 and 2007, compared to before 2006 for Vimpat;30 (4) commercialization costs
`
`can vary by type of drug, but central nervous system drugs tend to be, all else
`
`being equal, relatively more expensive to develop.31
`
`26. By comparison, the net present value of Vimpat sales discounted back
`
`to product launch in 2009 (consistent with how the academic literature evaluates it,
`
`
`29
`Ex. 1181: DiMasi, Joseph, Henry Grabowski, and Ronald Hansen (2016),
`
`"Innovation in the pharmaceutical industry: New estimates of R&D costs,"
`
`Journal of Health Economics 47: 20–33, at 20.
`
`30
`
`Ex. 1185: Vimpat Clinical Trials,
`
`https://www.clinicaltrials.gov/ct2/show/NCT00220415?term=Vimpat&rcv_s
`
`=01%2F01%2F2000&rcv_e=01%2F01%2F2007&rank=11
`
`31
`
`Ex. 1182: DiMasi, Joseph, Henry Grabowski, and John Vernon (2004),
`
`“R&D Costs and Returns by Therapeutic Category,” Drug Information
`
`18
`
` Case IPR2016-00204
`
`Journal 38: 211–223, at 218.
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`and based on a mid-level operating profit margin in the pharmaceutical industry of
`
`75% for illustrative purposes, as I am not aware of Vimpat’s costs or profit
`
`margins being available or analyzed by Dr. Vellturo) is less than $1.2 million. See
`
`Attachment B-3 (Ex. 1158). In other words, a comparison of likely costs of
`
`commercialization costs to Vimpat sales and profits to date indicate that has not
`
`come close to generating an economic profit and thus indicates a lack of
`
`commercial success.
`
`27. By comparison, the Vellturo Declaration fails to consider profits of
`
`any sort, not only economic profits more generally but even ongoing costs or
`
`profits associated with actively selling Vimpat and earned over time by UCB. This
`
`is a significant shortcoming of his analysis and calls into question any conclusion
`
`of commercial success.
`
`iii. Vimpat has underperformed expectations
`
`28. Evidence that sales of Vimpat underperformed relative to expectations
`
`provides further indication of lack of commercial success. As I noted in my
`
`district court testimony, UCB predictions of what they expected for Vimpat sales
`
`“were optimistic" and what “they expected for sales weren't actually what the sales
`
`realized.” Ex. 1170 at 1072:4-8. As discussed, the AED marketplace is well
`
`developed and offered limited expectation of opportunity for lacosamide. Yet even
`
`19
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`with expectations that were constrained in light of these limited opportunities,
`
`Vimpat has underperformed relative to those constrained expectations.
`
`29. Moreover, UCB has not received FDA approval for Vimpat for any
`
`additional indications besides epilepsy, despite completed and/or ongoing clinical
`
`trials related to neuropathic pain, postherpetic neuralgia, fibromyalgia,
`
`osteoarthritis, and migraine disorders.32 The fact that Vimpat has not earned FDA
`
`approval in these areas provides further explanation for its lack of ability to meet
`
`expectations within a marketplace where AEDs are frequently used for non-
`
`epilepsy uses.
`
`30. Evidence also indicates that Vimpat is not a preferred first-line
`
`epilepsy treatment. For example, I understand that Dr. Bazil, a physician testifying
`
`on behalf of UCB, confirmed that it would be “unusual” for him to prescribe
`
`lacosamide as a first-line epilepsy treatment. Ex. 1048 at 244:11-23. Moreover,
`
`despite the regulatory approval of Vimpat, the percentage of epilepsy patients who
`
`remain refractory to AED treatment remains essentially unchanged. Id. at 221:7-
`
`222:2.
`
`
`32
`Ex. 1186: UCB, Clinical Study Information for Vimpat (lacosamide),
`
`http://www.ucb.com/rd/clinical-study-information/vimpat-lacosamide.
`
`20
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
` Reduced relevance of any alleged success
`
`31. Several factors indicate that any alleged commercial success, even if it
`
`exists, is less relevant for obviousness of the ’551 patent, since they indicate a lack
`
`of economic incentives for the market to bring lacosamide to market sooner, thus
`
`weighing against any economic inference of non-obviousness based on commercial
`
`success. These factors are: (i) blocking rights reduced incentives to develop
`
`lacosamide; (ii) lacosamide offered limited opportunity for success; and (iii) UCB
`
`had unique interests in developing lacosamide.
`
`i. Blocking rights reduced incentives to develop lacosamide
`
`32. A blocking patent is one that effectively blocks others from making,
`
`selling, or using a product without use of the invention purportedly claimed in that
`
`patent. Courts have found that, in the presence of a blocking patent, the existence
`
`of commercial success provides little probative value on whether a claimed
`
`technology is obvious.33
`
`33.
`
`In this case, blocking rights in the form of previously issued patents,
`
`U.S. Patent No. 5,378,729 (“the ’729 patent”) and U.S. Patent 5,654,301 (“the ’301
`
`
`Ex. 1187: Merck & Co., Inc. v. Teva Pharmaceuticals USA, Inc., 395 F.3d
`33
`
`21
`
` Case IPR2016-00204
`
`1364, 1376–77 (Fed. Cir. 2005).
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`patent”),34 would have prevented others from freely commercializing a lacosamide
`
`product and would have reduced economic incentives to develop such a product.
`
`Any lack of development observed in the marketplace that was deterred by
`
`blocking rights from other patents does not demonstrate that the technology
`
`claimed in the ’551 patent was not obvious.
`
`34. Dr. Vellturo claims that other intellectual property relating to
`
`lacosamide did not represent a “blocking patent” issue that would have deterred
`
`investment in further development efforts by others to discover the technology
`
`claimed by the ’551 patent, since license rights to (1) prior IP were “available and
`
`actively marketed,” (2) license rights were available even after lacosamide was
`
`discovered, and (3) the ’729 patent and the ’301 patent did not issue until 15
`
`months before the priority date of the ’551 patent.35
`
`35. However, incentives to innovate and pursue a lacosamide product
`
`would have been significantly reduced by the presence of the ’729 patent and the
`
`
`34
`Ex. 1019: Amino Acid Derivative Anticonvulsant, U.S. Patent No.
`
`5,654,301 (filed 1/12/1993, issued 8/5/1997).
`
`
`
`Ex. 1009: Amino Acid Derivative Anticonvulsant, U.S. Patent No.
`
`5,378,729 (filed 6/4/1991, issued 1/3/1995).
`
`35
`
`Ex. 2132: Vellturo Declaration, ¶¶ 8, 36–40.
`
`22
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`’301 patent, since entities considering further innovation relative to those
`
`technologies would not have certainty in being able to achieve access to those
`
`patents in the form of a license. For example, I understand that from the mid-
`
`1980s to 1991, RCT and Eli Lily cooperated in connection with a license
`
`agreement that would not have made the blocking patents “available” to the
`
`broader market. Ex. 2068 (1987 Short List of Potential New Drug Candidates for
`
`Synthesis and Evaluation for Lilly); Ex. 2067 (Nov. 1991 letter terminating
`
`license).
`
`36. During my public testimony in the related district court trial, I
`
`presented the demonstratives DDX-404 (Ex. 1170 at 1060:9-23), which identifies
`
`the RCT/Eli Lilly License running from 1986 through 1991 based on a citation to
`
`DTX-2310. Ex. 1171. I also presented the demonstrative DDX-408 (Ex. 1170 at
`
`1065:23-1068:24), which indicates that RCT and Eli Lilly entered into an
`
`exclusive license agreement in June 1989 based on a July 1986 option agreement.
`
`I testified that it was “the exclusive nature of the licensing which indicates they’re
`
`not widely available, they’re available to one entity at a time in a licensing, you
`
`know, specific license offer.” Ex. 1170 at 1068:8-12. When asked whether Lilly
`
`23
`
` Case IPR2016-00204
`
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`
`
`
`
`
`was disincentivized from taking a license, I confirmed that “the point is that there
`
`can only be one licensee at a time.” Id. at 1091:4-16.36
`
`37.
`
` My opinion is the same today. Economically, not only would entities
`
`have been directly prevented from development during an exclusivity period
`
`through 1991, entities would have been further deterred from pursuing a program
`
`in this area even during the non-exclusivity periods, since companies considering
`
`development programs in this area would not necessarily know in advance that
`
`they would be able to obtain a future license before RCT licensed the patent to
`
`another entity. At a minimum, there would be reduced incentives associated with
`
`developing lacosamide in terms of paying royalties if and when a commercialized
`
`product were developed