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IN THE UNITED STATES DISTRICT COURT
`IN AND FOR THE DISTRICT OF DELAWARE
`- - -
`)
`)
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`1
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`Civil Action
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`))
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`))
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`))
`
`VANDA PHARMACEUTICALS INC.,
`Plaintiff,
`
`v.
`ROXANE LABORATORIES, INC.,
`Defendant.
`
`No. 14-757-GMS
`
`)
`- - -
`Wilmington, Delaware
`Monday, February 29, 2016
`9:00 a.m.
`Trial Day 1
`- - -
`BEFORE: HONORABLE GREGORY M. SLEET, U.S.D.C.J.
`APPEARANCES:
`KAREN JACOBS, ESQ., and
`ETHAN H. TOWNSEND, ESQ.
`Morris Nichols Arsht & Tunnell LLP
`-and-
`NICHOLAS GROOMBRIDGE, ESQ.,
`ERIC ALAN STONE, ESQ.,
`KIRA A. DAVIS, ESQ.,
`JASON L. MEIZLISH, ESQ.,
`JOSEPHINE YOUNG, ESQ., and
`DANIEL KLEIN, ESQ.
`Paul, Weiss, Rifkind, Wharton & Garrison LLP
`(New York, NY)
`
`Counsel for Plaintiff
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`Vanda Exhibit 2019 - Page 1
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`

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`2
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`APPEARANCES CONTINUED:
`DAVID E. MOORE, ESQ.
`Potter Anderson & Corroon LLP
`-and-
`KENNETH G. SCHULER, ESQ.,
`EMILY C. MELVIN, ESQ.,
`DANIEL BROWN, ESQ.,
`MELISSA BRAND, ESQ.,
`MICHAEL R. SERINGHAUS, ESQ., and
`DAMION JURRENS, ESQ.
`Latham & Watkins LLP
`(Chicago, IL)
`
`Counsel for Defendant
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`Vanda Exhibit 2019 - Page 2
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`

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`83
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`Polymeropoulos - direct
`molecule, which actually failed. They gave the license to
`Titan Pharmaceuticals, a San Francisco-based company, which
`in turn sought to find a partner to develop iloperidone
`product. That partner was Novartis, who sublicensed the
`product from Titan.
`And did Novartis own the rights to iloperidone in the
`Q.
`period that's shown here from '97 to 2004?
`That is correct.
`A.
`And was that during the period of time -- it was
`Q.
`during that period of time that you worked at Novartis?
`I overlapped the period of time at Novartis from '98
`A.
`to 2003.
`All right. And during that period of time were you
`Q.
`personally involved in some of the work on developing
`iloperidone?
`Yes, I was.
`A.
`Please describe for us what Novartis was doing during
`Q.
`that period of time.
`Novartis undertook an extensive clinical development
`A.
`program for the purpose of eventually obtaining the U.S. FDA
`approval in commercializing the product for the treatment of
`schizophrenia, so in that course, it is likely that they
`expended great resources of hundreds of millions of dollars,
`and numerous studies, both pre-clinical and clinical.
`And what happened next in terms of the ownership of
`Q.
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`Vanda Exhibit 2019 - Page 3
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`

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`Polymeropoulos - direct
`
`84
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`Fanapt?
`Novartis decided around 2003 to stop the program and
`A.
`seek to identify a party that would outline the
`productivity. I had founded Vanda in 2003, and we obtained
`the license to iloperidone in 2004.
`And describe briefly, there's no need to get into
`Q.
`anything confidential, the terms of that transaction by
`which Vanda acquired the rights to Fanapt or iloperidone
`from Novartis in 2004.
`Yes. It was a small, up-front payment of about a
`A.
`half-a-million dollars, and Vanda would be responsible for
`all further development and commercialization, and Novartis
`would receive on the back end a royalty are payment of about
`ten percent and some milestones.
`And so then what happened in 2004 once Vanda had
`Q.
`obtained the rights to iloperidone?
`Well, using all the information available, and
`A.
`concluding the pharmacokinetics that were started, in
`discussions with the FDA, we began the next phase of the
`clinical development program with a large Phase 3 efficacy
`study which resulted in an NDA filing, and finally, NDA
`approval in May of 2009.
`And after FDA approval, was there a further
`Q.
`transaction in terms of the ownership of the product?
`That is correct.
`A.
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`Vanda Exhibit 2019 - Page 4
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`

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`85
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`Polymeropoulos - direct
`How did that come about?
`Q.
`At the time of approval, Vanda did not have any
`A.
`commercial capacity, and we sought to identify a commercial
`partner for the product to commercialize in the U.S.
`Novartis at that time showed interest in
`reacquiring the rights, and at this time, the publicly
`announced deal was with a 200 million up-front payment, and
`so royalties and milestones based on net revenue.
`And why the difference in those up front payments of
`Q.
`500,000 in 2004 and 200 million five years later?
`Well, at the beginning there was a compound that
`A.
`was going nowhere, and in 2009 it was an FDA-approved
`compound.
`Why is it that in 2004 it was going nowhere?
`Q.
`Novartis had decided to abandon the program in part,
`A.
`maybe in large part due to their identification of the QT
`prolonging effects of the molecule that they felt they may
`not be able to overcome for regulatory approval.
`And did Novartis follow in the transaction in 2009
`Q.
`actually commercialize the molecule?
`Yes, they did. They commercialized Fanapt in the U.S.
`A.
`in the beginning of 2010.
`And has it been on the market ever since?
`Q.
`That is correct.
`A.
`And please explain for us this last transaction that
`Q.
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`Vanda Exhibit 2019 - Page 5
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`

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`86
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`Polymeropoulos - direct
`is shown here in 2014.
`Yes. Sometime in 2014, and after many discussions
`A.
`with Novartis, Vanda expressed that they were not pleased
`with the commercial effort, and that in a dispute
`modification as prescribed by the contract, that dispute
`ended with a settlement that included return of the asset to
`Vanda, a $25 million investment to Vanda, and the transfer
`from Novartis to Vanda an additional compound for,
`potentially for targeting disorders.
`And just to be clear, when you say a $25 million
`Q.
`investment, do you mean a payment from Novartis to Vanda?
`Correct.
`A.
`Now, I'd like to focus on some of the things that
`Q.
`happened during the period of time in the early 2000s,
`when Novartis was working on the development of this
`product.
`
`Could you turn, please, in the binder to what
`should be the next tab where it should say JX-28. And are
`you familiar with this document?
`Yes, I am.
`A.
`What is it?
`Q.
`This is the study for it of Study 2328, or otherwise
`A.
`the cardiac safety study that Novartis conducted.
`And what was the focus or objective of this study,
`Q.
`2328?
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`Vanda Exhibit 2019 - Page 6
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`

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`90
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`Polymeropoulos - direct
`Well, that certainly would cause a very significant
`A.
`regulatory question, as it should. Iloperidone had raised
`those questions. And eventually it was approved with
`specific cautions on the QT prolongation.
`But that would suggest that the magnitude of QT
`prolongation that iloperidone is able to produce may create
`a regulatory approval hurdle.
`Now, did you do anything to follow up on the project
`Q.
`when these results came out?
`Yes, I did.
`A.
`Please describe for us what you did?
`Q.
`As we described before, in the course of the study, at
`A.
`screening, patients were invited in an optional manner to
`contribute blood samples for the explicit purpose of later
`doing genetic analysis to identify genetic variations that
`may explain differential effects.
`What was interesting in that study is that not
`only we knew that iloperidone causes a significant
`prolongation of the QT, but the thinking was, well, all
`patients were treating with the same conditions. Some
`patients were developing QT prolongation, and others not.
`And that would be actually the optimal scenario to look for
`genetic variations. Why is it that some people develop it
`and others don't?
`So we set out to acquire the human genome for
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`Vanda Exhibit 2019 - Page 7
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`91
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`Polymeropoulos - direct
`genetic variations that may explain just that fact.
`How did you go about doing that?
`Q.
`Well, at the time, the technology was not such that we
`A.
`could look at the entire genome. There are about 20,000
`human genes. And that would not be possible, to look at all
`of them. So we did is what is called a candidate gene
`analysis, made a list of genes that could be involved, and
`then looked for variations within these genes.
`These genes came in three main categories. One
`were genes that may be involved in the elimination,
`metabolism, of iloperidone and its metabolites. The second
`category would be genes that are involved in the mechanism
`of action of iloperidone. And that is the receptors for
`dopamine, serotonin an others. And the third bucket would
`be genes that are involved in inherited conditions that
`prolong the QT. These would involved certain potassium
`channel genes.
`About how many genes did you end up with on your
`Q.
`candidate list?
`I recall it would be about ten genes and about 90
`A.
`variations within these ten genes.
`Having done that, having come up with that candidate
`Q.
`list, how did you then move forward with the research to try
`to see if you could find a genetic association?
`The next step was to perform analysis, comparing, now,
`A.
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`Vanda Exhibit 2019 - Page 8
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`Polymeropoulos - direct
`the effects seen on QT and the effects seen on concentration
`of a person's metabolites versus those genetic variations,
`and ask the question: Could it be that some individuals
`that carry certain genetic variations are more prone to QT
`prolongation?
`Now, let me ask you to turn in binder to the next
`Q.
`document, which should be JX-29. Is this a document that
`you wrote?
`Yes, I did.
`A.
`What is it?
`Q.
`This is a draft pharmacogenetic report analysis
`A.
`discussing the work on one of these genes, the cytogram
`P14T216, polymorphisms of that, and with analysis of the
`clinical data in Study 328.
`It says Study PTR-39. What does that mean?
`Q.
`That means in sequence that was the 39th such study,
`A.
`pharmacogenetics study at Novartis.
`Just to be clear, that wasn't necessarily connected
`Q.
`with iloperidone. It was 39 altogether?
`Yes. The other studies would have covered many, many
`A.
`compounds and different indications.
`Now, I don't see a date on the front of this document.
`Q.
`Do you know approximately when you wrote it?
`Approximately it would be in late 2002.
`A.
`Did you -- let me ask you this: Let's turn first of
`Q.
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`Vanda Exhibit 2019 - Page 9

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