IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`
`In the Inter Partes Review (IPR) of
`
`U.S. Patent No. 6,858,650
`
`DECLARATION OF DEFOREST MCDUFF, Ph.D.
`
`I, DeForest McDuff, Ph.D., declare as follows:
`
`I.
`
`Introduction
`A. Qualifications
`1.
`I am a Vice President of Intensity Corporation and an expert in
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`applied business economics, with more than ten years of experience in consulting,
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`finance, and economic research. I provide expert witness testimony and consulting
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`in a variety of areas, including lost profits, reasonable royalties, unjust enrichment,
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`commercial success, finance, statistics, valuation, and business optimization.
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`2. My expertise and experience span a variety of topics, including
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`intellectual property, competition, antitrust, finance, labor, employment, and class
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`action. My work in intellectual property spans the life sciences (including
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`pharmaceuticals, biotechnology, diagnostics, and medical devices), electronics
`
`(including
`
`consumer
`
`electronics,
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`semiconductors,
`
`computers,
`
`and
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`telecommunications), and has included projects on a diverse range of other
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650,
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 1
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`

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`industries (such as scuba diving equipment, golf clubs, and contact lenses). I
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`frequently provide expertise and analysis in evaluating commercial success in the
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`pharmaceutical industry.
`
`3.
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`I earned my Ph.D. in economics from Princeton University. At
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`Princeton, I received a National Science Foundation Graduate Research Fellowship
`
`for academic research studying economic and statistical properties of housing
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`markets and financial derivatives. I have published research in several peer-
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`reviewed academic journals. I graduated summa cum laude with undergraduate
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`degrees in economics and mathematics from the University of Maryland.
`
`4. My curriculum vitae, provided in Exhibit 1034, contains more details
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`on my background, experience, publications, and prior expert testimony.
`
`B.
`5.
`
`Scope of Work
`
`Intensity Corporation has been retained by Wiley Rein LLP on behalf
`
`of Torrent Pharmaceuticals Limited in connection with my work in this matter.
`
`Intensity Corporation is being compensated at a rate of $725 per hour for my work
`
`and at lower rates for time spent by others on my team. The compensation of
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`Intensity Corporation is not dependent on the substance of my testimony or the
`
`outcome of this matter.
`
`6.
`
`For this declaration, I was asked to evaluate aspects of commercial
`
`success, from an economic perspective, as it pertains to Toviaz (fesoterodine) and
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 2
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`

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`U.S. Patent No. 6,858,650 (collectively, “the patent-at-issue”). This declaration is
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`a statement of my opinions in this matter and the basis and reasons for those
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`opinions. In forming the opinions expressed in this declaration, I have relied upon
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`my education, experience, and knowledge of the subjects discussed. In connection
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`with my work in this matter, I interviewed Steven E. Patterson, Ph.D., Professor
`
`and Associate Director at the Center for Drug Design, University of Minnesota, on
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`January 22, 2016, including discussion of: (1) the patent-at-issue, and (2)
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`similarities and differences between Toviaz and Detrol/Detrol LA (tolterodine). I
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`have also reviewed and relied upon documents and other materials that are cited
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`herein. This declaration is identical in substance to the declaration that I filed in
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`the inter partes review captioned Mylan Pharmaceuticals Inc., et al. v. UCB
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`Pharma GmbH, IPR2016-00510 (“the Mylan IPR”), other than the fact that
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`Torrent is only seeking review of the ‘650 patent.
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`7.
`
`This declaration summarizes only my current opinions, which are
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`subject to change depending upon additional information and/or analysis. I and
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`others working under my direction prepared the exhibits as summaries of the
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`information I reviewed and relied upon. The entirety of my declaration, including
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`exhibits and referenced materials, supplies the basis for my analysis and
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`conclusions. The organizational structure of the declaration is for convenience.
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`To the extent that facts, economic analysis, and other considerations overlap, I
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 3
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`generally discuss such issues only once for the sake of brevity. Neither the specific
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`order in which each issue is addressed nor the organization of my declaration or
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`exhibits affects the ultimate outcome of my analysis.
`
`II. Background
`A. Overactive bladder
`8.
`Overactive bladder (“OAB”) is a condition primarily characterized by
`
`the sudden urge to urinate.1 Additional symptoms of OAB include a high
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`frequency of urination throughout the day, awakening multiple times to urinate at
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`night, and urge incontinence, the involuntary loss of urine following an urgent
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`need to urinate.2 According to the Urology Care Foundation, approximately 33
`
`million Americans are afflicted with OAB, including as many as 30% of men and
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`40% of women.3
`
`9.
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`There are various treatment options for OAB, including behavioral
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`interventions, medications, Botox bladder injections, nerve stimulation, and in
`
`severe cases, surgery.4 Behavioral interventions include exercises to strengthen the
`
`
`1 Mayo Clinic Website, Overactive Bladder, Definition, http://www.mayoclinic.org/diseases-
`conditions/overactivebladder/basics/definition/con-20027632 (accessed 1/15/2016). Urology Care Foundation
`Website, What Is Overactive Bladder (OAB)?, http://www.urologyhealth.org/urologic-conditions/overactive-
`bladder-%28oab%29 (accessed 1/15/2016).
`2 Mayo Clinic Website, Overactive Bladder, Symptoms, http://www.mayoclinic.org/diseases-
`conditions/overactivebladder/ basics/symptoms/con-20027632 (accessed 1/15/2016).
`3 Urology Care Foundation Website, What Is Overactive Bladder (OAB)?, http://www.urologyhealth.org/urologic-
`conditions/overactive-bladder-%28oab%29 (accessed 1/15/2016).
`4 Mayo Clinic Website, Overactive Bladder, Treatments and Drugs, http://www.mayoclinic.org/diseases-
`conditions/overactivebladder/basics/treatment/con-20027632 (accessed 1/15/2016).
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 4
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`pelvic floor muscle, maintaining a healthy weight, limiting fluid consumption, and
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`wearing absorbent pads, among others.5 As of January 2016, nine branded
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`prescription drugs are approved by the FDA to treat OAB, including: Botox
`
`(onabotulinumtoxina), Detrol (tolterodine tartrate), Detrol LA (tolterodine tartrate),
`
`Ditropan XL (oxybutynin chloride), Enablex (darifenacin), Gelnique (oxybutynin
`
`chloride), Myrbetriq (mirabegron), Oxytrol (oxybutynin), Toviaz (fesoterodine
`
`fumarate), and Vesicare (solifenacin succinate).6 At this time, available generic
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`drugs include: oxybutynin chloride, oxybutynin chloride extended release,
`
`tolterodine tartrate, tolterodine tartrate extended release, trospium chloride, and
`
`trospium chloride extended release.7
`
`B.
`Toviaz (fesoterodine)
`10. Toviaz
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`is an extended-release
`
`tablet containing
`
`fesoterodine
`
`fumarate.8 Fesoterodine transforms in the body to release the active metabolite 5-
`
`
`5 Mayo Clinic Website, Overactive Bladder, Treatments and Drugs, http://www.mayoclinic.org/diseases-
`conditions/overactivebladder/basics/treatment/con-20027632 (accessed 1/15/2016).
`6 NIH Website, DailyMed Label Search Results for Overactive Bladder,
`http://dailymed.nlm.nih.gov/dailymed/search.cfm?adv=1&query=34067-
`9%3A%28overactive+bladder%29&searchdb=all&labeltype=all&pagesize=200&audience=professional&page=1&
`sortby=alphabetically (accessed1/20/2016).
`7 NIH Website, DailyMed Label Search Results for Overactive Bladder,
`http://dailymed.nlm.nih.gov/dailymed/search.cfm?adv=1&query=34067-
`9%3A%28overactive+bladder%29&searchdb=all&labeltype=all&pagesize=200&audience=professional&page=1&
`sortby=alphabetically (accessed 1/20/2016).
`Flavoxate is also used to treat symptoms of OAB, though it is not indicated for the treatment of OAB. See: Hesch,
`Kristen (2007), “Agents for Treatment of Overactive Bladder: A Therapeutic Class Review,” Proceedings (Baylor
`University Medical Center) 20(3): 307–314, at 307.
`8 Toviaz Label, 10/31/2008, at 1.
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`Declaration of DeForest McDuff, Ph.D.
`
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 5
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`

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`hydroxymethyl tolterodine (“5-HMT”), which is a muscarinic receptor antagonist.9
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`Muscarinic receptors play a role in contractions of urinary bladder smooth
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`muscle.10 The effects of fesoterodine are the result of the inhibition of these
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`receptors in the bladder.11 Fesoterodine is chemically similar to tolterodine, the
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`active ingredient in Detrol and Detrol LA.12 Like fesoterodine, tolterodine
`
`transforms in the body to form the active metabolite 5-HMT and its therapeutic
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`effects are the result of antimuscarinic activity.13
`
`11. The Food and Drug Administration (“FDA”) approved Toviaz for
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`treatment of OAB in October 2008.14 Toviaz is available in 4 mg and 8 mg tablets,
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`taken once per day.15 Toviaz is manufactured by Pfizer Inc. (“Pfizer”) and became
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`available in the U.S. in March 2009.16
`
`
`9 Toviaz Label, 10/31/2008, at 1.
`10 Toviaz Label, 10/31/2008, at 1.
`11 Toviaz Label, 10/31/2008, at 1.
`12 Consumer Reports, “Evaluating Drugs Used to Treat: Overactive Bladder,” 10/2013, at 5.
`Toviaz Label, 10/31/2008, at 1.
`Detrol LA Prescribing Information, 8/2012, at 8–9.
`13 Detrol LA Prescribing Information, 8/2012, at 8–9.
`14 FDA Drug Details Website, Toviaz,
`https://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.DrugDetails (accessed
`1/15/2016).
`FDA Approval Letter, NDA 22-030, 10/31/2008.
`15 Consumer Reports, “Evaluating Drugs Used to Treat: Overactive Bladder,” 10/2013, at 12.
`FDA Drug Details Website, Toviaz,
`https://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.DrugDetails (accessed
`1/15/2016).
`Toviaz Label, 10/31/2008, at 14.
`16 IMS Health Presentation, “DTC Investment in the Pharmaceutical Industry - Current Trends,” 4/2011, at 12.
`
`Declaration of DeForest McDuff, Ph.D.
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`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 6
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`C.
`Patent-at-issue
`12. U.S. Patent No. 6,858,650 (“the ‘650 patent”), entitled “Stable Salts of
`
`Novel Derivatives of 3,3-Diphenylpropylamines,” was filed on November 15,
`
`2000 and issued on February 22, 2005.17 The ‘650 patent lists Claus Meese as the
`
`inventor and Schwarz Pharma AG (currently known as UCB Pharma GmbH18) as
`
`the assignee.19 The abstract reads as follows:20
`
`The present invention concerns highly pure, crystalline, stable
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`compounds of novel derivatives of 3,3-diphenylpropylamines in the
`
`form of their salts, a method for the manufacture and highly pure,
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`stable intermediate products.
`
`The method
`
`is
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`in particular characterized by
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`regio- and
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`chemoselectivity and high yield. Salts of phenolic monoesters of 3,3-
`
`diphenylpropylamines are provided, that are particularly well-suited
`
`for use in pharmaceutical formulations. Preferred compounds are R-
`
`(+)-2-(3-diisopropylamino-1-phenyl-propyl)-4-
`
`hydroxymethylphenylisobutyrate ester hydrogen fumarate and R-(+)-
`
`
`17 Stable Salts of Novel Derivatives of 3,3-Diphenylpropylamines, U.S. Patent No. 6,858,650 (filed 11/15/2000,
`issued 2/22/2005).
`18 Bloomberg Website, Company Overview of UCB Pharma GmbH,
`http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapid=882300 (accessed 1/19/2016).
`19 Stable Salts of Novel Derivatives of 3,3-Diphenylpropylamines, U.S. Patent No. 6,858,650 (filed 11/15/2000,
`issued 2/22/2005).
`20 Stable Salts of Novel Derivatives of 3,3-Diphenylpropylamines, U.S. Patent No. 6,858,650 (filed 11/15/2000,
`issued 2/22/2005).
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 7
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`

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`2-(3-diisopropylamino-1-phenylpropyl)-4-
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`hydroxymethylphenylisobutyrate ester hydrochloride hydrate.
`
`Furthermore, stable, crystalline
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`intermediate products
`
`that are
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`essential for obtaining the abovementioned salts are provided. A
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`preferred intermediate product is R-(−)-3-(3-diisopropylaminophenyl-
`
`propyl)-4-hydroxy-benzoic acid methyl ester.
`
`13. UCB Pharma GmbH granted Pfizer an exclusive, worldwide license to
`
`the above patent-at-issue.21 I understand that the patent-at-issue, among others, is
`
`represented to cover Pfizer’s Toviaz drug.22
`
`III. Analysis of Commercial Success
`A. Economic relevance of commercial success
`14. Commercial success is a secondary consideration that a patent owner
`
`may use to argue that its patent is not obvious based on the alleged commercial
`
`success of an invention embodying that patent. I understand that commercial
`
`success may be 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
`
`21 Pfizer Inc., Form 10-K, 2015, at Exhibit 13, p. 107.
`22 FDA Website, Orange Book, Toviaz 4MG (NDA 022030),
`https://www.accessdata.fda.gov/scripts/cder/ob/docs/patexclnew.cfm?Appl_No=022030&Product_No=001&table1=
`OB_Rx (accessed 1/13/2016).
`FDA Website, Orange Book, Toviaz 8MG (NDA 022030),
`https://www.accessdata.fda.gov/scripts/cder/ob/docs/patexclnew.cfm?Appl_No=022030&Product_No=002&table1=
`OB_Rx (accessed 1/13/2016).
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 8
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`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.
`
`15. From an economic perspective, commercial success presumes that if
`
`an idea were obvious to market participants, then others would have brought that
`
`idea to market sooner had there been economic incentives to do so. A finding of
`
`commercial success can, in some circumstances, support the notion that a patent
`
`was not obvious to those skilled in the art if those incentives for development
`
`existed. Accordingly, analysis of commercial success frequently includes
`
`evaluation of sales, profits, market shares, prices, and other metrics to draw
`
`inferences on potential economic incentives for development.
`
`B.
`Toviaz’s market share, pricing, and sales have been relatively low
`16. Toviaz’s commercial performance in the OAB market does not
`
`demonstrate commercial success. To the contrary, several factors indicate that
`
`Toviaz’s commercial performance has been relatively low: (1) Toviaz’s market
`
`share has been low, despite substantial marketing and promotion efforts, (2) Toviaz
`
`has not commanded a price premium, and instead has been heavily discounted, (3)
`
`Toviaz sales have been low compared to other OAB drugs, despite Pfizer’s express
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 9
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`efforts to switch Detrol patients to Toviaz, and (4) Toviaz sales have been low
`
`compared to average drugs.
`
`17. First, Toviaz’s market share has been relatively low. Toviaz’s share
`
`of total U.S. prescriptions in the OAB market was 0.6% in 2009, 2.6% in 2010,
`
`3.9% in 2011, 4.5% in 2012, 5.4% at its peak in 2013, and 5.3% in 2014. See
`
`Exhibit 1037. Toviaz’s share of total U.S. revenue in the OAB market was 0.7% in
`
`2009, 3.9% in 2010, 7.7% in 2011, 9.1% in 2012, 7.2% in 2013, and 7.4% in 2014.
`
`See Exhibit 1038. Prescription shares are more representative of share of use and
`
`are thus more informative here, since revenue shares are impacted by low-priced
`
`generic alternatives and reflect higher branded prices rather than share of use.
`
`Nevertheless, neither of these market shares demonstrate Toviaz filling a
`
`substantial market gap or indicate commercial success of Toviaz.
`
`18. Second, Pfizer has not charged premium prices for Toviaz, despite it
`
`being a branded drug, and in fact, Toviaz is among the least expensive branded
`
`OABs available. For example, Consumer Reports reported that, as of June 2010,
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`Toviaz was the third least expensive branded OAB drug out of eleven branded
`
`drugs.23 In October 2013, Consumer Reports reported that Toviaz was the second
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`least expensive branded OAB drug out of ten branded drugs.24
`
`
`23 Consumer Reports, “Evaluating Drugs Used to Treat: Overactive Bladder,” 6/2010, at 11.
`24 Consumer Reports, “Evaluating Drugs Used to Treat: Overactive Bladder,” 10/2013, at 12–13.
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 10
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`19. Evidence indicates that Pfizer provides substantial price discounts on
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`Toviaz. For example, U.S. patients without prescription medication insurance
`
`coverage are eligible to receive Toviaz at a discount of 36% to 75%.25 As another
`
`example, Pfizer offers a discount of $45 per Toviaz prescription, plus one month of
`
`Toviaz free.26 From an economic perspective, if Toviaz was differentiated
`
`compared to other OAB drugs as a result of its patented features, Pfizer should
`
`have been able to charge a premium price compared to competing products. The
`
`fact that Toviaz was competing on price is not indicative of commercial success.
`
`20. Third, Toviaz sales have been low compared to other OAB drugs.
`
`From an economic perspective, sales by themselves do not demonstrate
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`commercial success; rather, sales must be put into proper context, such as
`
`comparisons with other OAB drugs.27 Indeed, a number of other OAB drugs have
`
`outperformed Toviaz. For example, in 2012, Toviaz had approximately 800,000
`
`total prescriptions, far below market leaders including generic Ditropan at 4.1
`
`million prescriptions, Vesicare at 3.9 million prescriptions, generic Ditropan XL at
`
`25 Pfizer Pathways Website, Search for Services, Toviaz, http://www.pfizerrxpathways.com/en/?step=1 (accessed
`1/20/2016).
`Pfizer Pathways Website, Services for Uninsured and Insured Patients, http://www.pfizerrxpathways.com/en/see-
`how-wehelp? program_id=program-18#tabs-0-middle-1 (accessed 1/20/2016).
`26 Rx Pharmacy Coupons Website, Toviaz Prescription Discounts, http://www.rxpharmacycoupons.com/toviaz-
`manufacturer-coupon-2.html (accessed 1/20/2016).
`27 See, for example: U.S. Patent and Trademark Office, Manual of Patent Examining Procedure, Eighth Edition,
`Revision: 7/2010, 716.03(b) IV., at 700-300 (“Gross sales figures do not show commercial success absent evidence
`as to market share, Cable Electric Products, Inc. v. Genmark, Inc., 770 F.2d 1015, 226 USPQ 881 (Fed. Cir. 1985),
`or as to the time period during which the product was sold, or as to what sales would normally be expected in the
`market, Ex parte Standish, 10 USPQ2d 1454 (Bd. Pat. App. & Inter. 1988).”).
`
`Declaration of DeForest McDuff, Ph.D.
`
`
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`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 11
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`3.9 million prescriptions, Detrol LA at 2.7 million prescriptions, and Enablex at 1.3
`
`million prescriptions. See Exhibit 1037. In 2014, Toviaz’s 973,800 total
`
`prescriptions were well below the total prescriptions earned by generic Ditropan
`
`XL with 4.8 million, generic Ditropan with 4.4 million, Vesicare with 3.7 million,
`
`generic Detrol LA with 1.6 million, and Myrbetiq with 1.1 million. See Exhibit
`
`1037. In 2014, Toviaz U.S. revenue ranked only fourth among OAB drugs, with
`
`approximately $133.0 million in revenues, well below the $822.9 million earned
`
`by Vesicare, $237.2 million earned by Myrbetriq, as well as the $262.7 million
`
`earned by the generic version of Detrol LA, despite few competing branded drugs
`
`on the market. See Exhibit 1038.
`
`21. Similarly, Toviaz prescriptions and revenue in the first six years after
`
`launch were significantly less than other OAB branded drugs normalized for the
`
`same timeframe. In the first year after launch, Toviaz had approximately 111,000
`
`total prescriptions, compared to 2.4 million prescriptions for Detrol LA, 459,000
`
`for Vesicare, 385,000 prescriptions for Enablex, and 331,000 prescriptions for
`
`Oxytrol. See Exhibit 1040. Over the first six years of sales, Toviaz prescriptions
`
`totaled approximately 4.0 million, well below 33.7 million for Detrol LA, 12.8
`
`million for Vesicare, and 8.0 million for Enablex. See Exhibit 1040. Similarly,
`
`Toviaz’s total revenue of $527.7 million for the first six years of sales falls below
`
`Declaration of DeForest McDuff, Ph.D.
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`
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`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 12
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`$3.2 billion for Detrol LA, $902.4 million for Vesicare, and $884.6 million for
`
`Enablex over the same timeframe. See Exhibit 1041.
`
`22. Toviaz has also had lower sales and use than Myrbetriq (mirabegron),
`
`a drug that entered the OAB market three years after Toviaz.28 Just two years after
`
`its launch, Myrbetriq surpassed Toviaz’s market share, both in terms of total U.S.
`
`prescriptions and total U.S. revenue. See Exhibits 1037 and 1038. In its first three
`
`years of sales, Myrbetriq earned 1.6 million prescriptions and $342.1 million in
`
`revenue, exceeding the 1.3 million prescriptions and $159.5 million in revenue
`
`earned by Toviaz during its first three years of sales. See Exhibits 1040 and 1041.
`
`23. Fourth, Toviaz sales have fallen short compared to average drug
`
`sales, which tend to be close to break-even in terms of economic profitability,
`
`taking into account all costs and profits associated with development and
`
`commercialization.29 For example, published research breaks down drugs into
`
`deciles according to the magnitude of sales for products approved in the early
`
`
`28 Astellas Pharma US Press Release, “MYRBETRIQ™ (Mirabegron), Overactive Bladder Treatment from Astellas,
`Now Available Through U.S. Pharmacies,” 10/22/2012,
`https://www.astellas.us/docs/us/Myrbetriq_Product_Availability_Press_Rele ase_FINAL.pdf?v=1.
`29 Research indicates that, in the pharmaceutical industry, the majority of drugs are not economically profitable and
`average drug sales are close to breakeven, from an economic perspective. See: Saadi, Emily and Greg White
`(2014), Perspective, “Rewarding Innovation in Drug Development,” American Health and Drug Benefits 7(7): 373–
`374, at 373 (“[I]t is estimated that only 3 in 10 approved drugs recover their R&D costs.”).
`PhRMA, 2013 Industry Profile, 7/2013, at 36 (“Only 2 of every 10 brand name medicines earn sufficient revenues to
`recoup average R&D costs.”). Grabowski, Henry, John Vernon, and Joseph A. DiMasi (2002), “Returns on
`Research and Development for 1990s New Drug Introductions,” Pharmacoeconomics 20(3): 11–29, at 17.
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 13
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`1990s.30 Compared to these drugs, Toviaz sales in the U.S. in its first six years
`
`have been just 6.7% of sales for top decile drugs (14.1% based on Toviaz
`
`worldwide sales), 14.7% of sales for second decile drugs (31.1% based on Toviaz
`
`worldwide sales), and 27.9% of sales for average drugs (59.0% based on Toviaz
`
`worldwide sales). See Exhibits 1042 to 1044. Given the rapid growth of drug
`
`sales and R&D over the decades, Toviaz sales would be even lower compared to
`
`more contemporaneously launched drugs. Sales of Toviaz are nowhere close to the
`
`industry term “blockbuster drug,” which refers to drugs that earn more than $1
`
`billion in sales per year. In other words, Toviaz sales are low compared to industry
`
`benchmarks and indicate, as further confirmed in the following section, lack of
`
`economic profitability.
`
`C. Toviaz sales do not indicate economic profitability
`24. When compared to measures of pharmaceutical commercialization
`
`costs, Toviaz’s sales and profits do not demonstrate commercial success.
`
`Specifically, when revenues earned over time, even before deducting for cost of
`
`sales and marketing expenses, are discounted to present value to account for
`
`uncertainty, risk, and the time value of money, and then compared to expected
`
`drug commercialization costs, the present value of sales are less than costs of
`
`commercialization and indicate that Toviaz is not economically profitable.
`
`30 Grabowski, Henry, John Vernon, and Joseph A. DiMasi (2002), “Returns on Research and Development for
`1990s New Drug Introductions,” Pharmacoeconomics 20(3): 11–29, at 17.
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 14
`
`

`

`25. The first step in evaluating economic profitability is to determine the
`
`present value of Toviaz’s revenues. Present value analysis discounts revenues
`
`earned over time to account for uncertainty, risk, and the time value of money.
`
`The present value of Toviaz’s U.S. revenues equals $85.6 million ($184.2 million
`
`worldwide) back to patent priority of Toviaz’s first filed patent in 1998,31 and
`
`$321.5 million ($691.7 million worldwide) as of product approval in October
`
`2008. These calculations use a discount rate of 10.5%, based on the average cost
`
`of capital for pharmaceutical development over this period.32 See Exhibits 1045
`
`and 1046.
`
`26. The
`
`second
`
`step
`
`is
`
`to determine an expected cost of
`
`commercialization, based on typical costs of bringing branded drugs to market.
`
`Based on leading published research on this topic and consideration of facts
`
`specific
`
`to Toviaz,
`
`including economic adjustments
`
`for genitourinary
`
`
`31 A starting point of 1998 is based on the priority of European Patent No. 0,957,073 (European Patent Application
`No. 98108608.5), which covers Toviaz, dating back to its provisional patent application in May 1998. Evaluating
`development back to the filing of European Patent No. 0,957,073 is appropriate for evaluating the commercial
`success of Toviaz based on being the initial patent coverage for Toviaz per the patents listed in the FDA Orange
`Book. Three of the Orange Book-listed patents—the ‘980 patent, the ‘772 patent, and the ‘478 patent—claim
`priority from European Patent No. 0,957,073.
`Derivatives of 3,3-Diphenylpropylamines, U.S. Patent No. 7,384,980 (filed 8/10/2005, issued 6/10/2008).
`Derivatives of 3,3-Diphenylpropylamines, U.S. Patent No. 7,985,772 (filed 6/14/2010, issued 7/26/2011).
`Derivatives of 3,3-Diphenylpropylamines, U.S. Patent No. 8,338,478 (filed 6/15/2011, issued 12/25/2012).
`Novel Derivatives of 3,3-Diphenylpropylamines, European Patent No. 0,957,073 (filed 5/12/1998, issued
`11/17/1999).
`32 Grabowski, Henry and Ronald Hansen, “Briefing Cost of Developing a New Drug,” Tufts Center for the Study of
`Drug Development, 11/18/2014, at 20. Because of factors like potential generic entry over time, the effective
`discount rate could reasonably be even higher.
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 15
`
`

`

`commercialization costs, drug development time profile, and time period,
`
`economically reasonable estimates of commercialization costs for Toviaz are
`
`$176.6 million to $431.6 million from the perspective of 1998, or $663.5 million to
`
`$1.6 billion from the perspective of 2008.33 See Exhibit 1047.
`
`27. Comparing discounted revenues from
`
`the perspective of
`
`the
`
`development of the alleged inventions indicates that revenues earned from Toviaz
`
`have been significantly less than expected costs of commercialization. In other
`
`words, even before deducting the cost of sales and marketing expenses, which
`
`
`33 Estimates of commercialization costs are based on drugs first tested in humans between 1995 and 2007. See:
`Grabowski, Henry and Ronald Hansen, “Briefing Cost of Developing a New Drug,” Tufts Center for the Study of
`Drug Development, 11/18/2014, at 8. Toviaz was authorized to test in humans 6.7 years before product approval in
`October 2008 (around February 2002), and started clinical trials in June 2003. As such, Toviaz’s testing timeframe
`falls within the testing timeframe for the products in the study. See: Moore, Thomas and Curt Furberg (2014),
`“Development Times, Clinical Testing, Postmarket Follow-up, and Safety Risks for the New Drugs Approved by
`the US Food and Drug Administration: The Class of 2008,” JAMA Intern Med. 174(1): 90–95, at Table 1.
`ClinicalTrials.gov, Two Phase Extension Trial of SP668 to Investigate the Safety and Tolerability of Sustained
`Release Fesoterodine in Subjects with Overactive Bladder: A Double-Blind Phase Followed by an Open-Label
`Extension Phase, https://www.clinicaltrials.gov/ct2/show/NCT00220389?term=fesoterodine&rank=50 (accessed
`1/21/2016).
`The representative development time for products in the study was 128 months, or about 10.7 years, from synthesis
`to approval. See: Grabowski, Henry and Ronald Hansen, “Briefing Cost of Developing a New Drug,” Tufts Center
`for the Study of Drug Development, 11/18/2014, at 18. The mean development time (time from discovery to
`approval) for the products in a similar study was approximately 12 years. See: DiMasi, Joseph A. and Henry G.
`Grabowski (2010), “R&D Costs and Returns to New Drug Development: A Review of the Evidence,” in Patricia
`Danzen and Sean Nicholson, ed. The Oxford Handbook of the Biopharmaceuticals Industry, New York: Oxford
`University Press, 21– 46, at 25.
`Development time for Toviaz was similar, given that the first patent application covering Toviaz was filed in 1998.
`See: Derivatives of 3,3-Diphenylpropylamines, U.S. Patent No. 7,384,980 (filed 8/10/2005, issued 6/10/2008)
`(claiming priority from European Patent No. 0,957,073).
`Derivatives of 3,3-Diphenylpropylamines, U.S. Patent No. 7,985,772 (filed 6/14/2010, issued 7/26/2011) (claiming
`priority from European Patent No. 0,957,073).
`Derivatives of 3,3-Diphenylpropylamines, U.S. Patent No. 8,338,478 (filed 6/15/2011, issued 12/25/2012) (claiming
`priority from European Patent No. 0,957,073).
`Novel Derivatives of 3,3-Diphenylpropylamines, European Patent No. 0,957,073 (filed 5/12/1998, issued
`11/17/1999).
`
`Declaration of DeForest McDuff, Ph.D.
`
`
`
`In the Inter Partes Review of U.S.
`Patent No. 6,858,650
`Petitioner Torrent Pharmaceuticals Limited - Exhibit 1033 - Page 16
`
`

`

`provides an absolute upper bound on value, sales do not appear to be economically
`
`profitable.
`
`28. Furthermore, Pfizer’s marketing expenses have been so high
`
`compared to Toviaz revenues that earned profits on the drug following launch have
`
`actually been negative – i.e., less than zero, on an accounting basis. For example,
`
`in 2009, Pfizer’s media advertising spending for Toviaz was $56.5 million,34 while
`
`its revenues for Toviaz were $10.8 million.35 In 2010, Pfizer spent $109 m