PUBLIC VERSION
`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`
`ACRUX DDS PTY LTD. & ACRUX LIMITED
`Petitioners,
`
`V.
`
`KAKEN PHARMACEUTICAL CO., LTD. and VALEANT
`PHARMACEUTICALS INTERNATIONAL, INC.,
`Patent Owner and Licensee
`
`Case: IPR2017-00190
`U.S. Patent No. 7,214,506
`
`DECLARATION OF JOHN C. STAINES, JR IN SUPPORT OF
`PETITIONER'S REPLY TO PATENT O\VNER'S RESPONSE
`
`November 1, 2017
`
`ACRUX DDS PTY LTD. et al.
`EXHIBIT 1511
`IPR Petition for
`U.S. Patent No. 7,214,506
`
`Page 1 of 120
`
`
`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`
`ACRUX DDS PTY LTD. & ACRUX LIMITED
`Petitioners,
`
`V.
`
`KAKEN PHARMACEUTICAL CO., LTD. and VALEANT
`PHARMACEUTICALS INTERNATIONAL, INC.,
`Patent Owner and Licensee
`
`Case: IPR2017-00190
`U.S. Patent No. 7,214,506
`
`DECLARATION OF JOHN C. STAINES, JR IN SUPPORT OF
`PETITIONER'S REPLY TO PATENT O\VNER'S RESPONSE
`
`November 1, 2017
`
`ACRUX DDS PTY LTD. et al.
`EXHIBIT 1511
`IPR Petition for
`U.S. Patent No. 7,214,506
`
`Page 1 of 120
`
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` PROTECTIVE ORDER MATERIAL
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`I.
`
`QUALIFICATIONS
`
`1.
`
`I am a Director and Principal in the Washington, DC office of
`
`Navigant Economics LLC (“Navigant Economics”), a subsidiary of Navigant
`
`Consulting, Inc., an international consulting firm. Navigant Economics provides
`
`expertise primarily in economics, finance, public policy, and business strategy. I am
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`knowledgeable in the fields of microeconomics, industrial organization, financial
`
`economics, and statistics, and have particular expertise in applying the tools of these
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`disciplines to legal disputes arising in the pharmaceutical and related industries.
`
`2. My educational background includes a B.A. in Economics and
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`M.P.M. in Public Policy from the University of Maryland and an M.B.A. in Business
`
`Economics and Finance from the University of Chicago. Since 1984, I have worked
`
`as a consultant on economic, financial, statistical, and general business issues arising
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`in commercial litigation disputes. My work primarily has involved analyzing
`
`competitive issues and estimating commercial damages associated with various types
`
`of legal and regulatory disputes, most often relating to the pharmaceutical industry. I
`
`have been accepted in Federal Court as an expert witness to opine on economic
`
`issues arising in pharmaceutical-related patent and antitrust litigation. A copy of my
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`curriculum vitae is included as Attachment A to this report.
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`3. Navigant Economics is being compensated for the work I perform
`
`in connection with this case at my normal hourly rate of $535. Part of the work
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`underlying this report was performed by staff of Navigant Economics working under
`
`my direction. Payment of fees to Navigant Economics associated with work
`
`performed on this matter is not contingent upon or in any way affected by the nature
`
`of my opinions or the outcome of this litigation.
`
`II. OBJECTIVES AND CONCLUSIONS
`
`4.
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`I have been retained by the Petitioners in this matter, Acrux DDS
`
`Pty, Ltd. and Acrux, Ltd. (collectively, “Acrux”) to render independent expert opin-
`
`ions concerning the existence and sources of any commercial success that may be
`
`associated with the fungal nail infection treatment, Jublia®, as they may relate to the
`
`obviousness of U.S. Patent Number 7,214,506 (the “’506 patent”), entitled “Method
`
`for Treating Onychomychosis.”1 Jublia® is marketed in the United States as a treat-
`
`ment for onychomycosis by Valeant Pharmaceuticals International, Inc. (“Vale-
`
`ant”).2 The ’506 patent was issued to Kaken Pharmaceuticals Co., Ltd. (“Kaken”)
`
`
`1
`U.S. Patent No. 7,214,506, May 8, 2007 (Exhibit 1001).
`
`2
`
`Kaken Exhibit 2092.
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`(Valeant and Kaken, collectively, “Patent Owners”) in 2007 and is exclusively li-
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`censed to Valeant.3 On November 6, 2016, Acrux petitioned the Patent Trial and
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`Appeal Board (“PTAB”) to institute an inter partes review of the validity of claims 1
`
`and 2 of the ’506 patent,4 which the PTAB did institute on May 1, 2017.5
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`5.
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`I understand that the commercial success of a product allegedly
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`containing technology claimed by an asserted patent may in some cases represent a
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`secondary indicium that the patented technology was nonobvious. In this context,
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`counsel for Acrux has asked me to evaluate the opinions and supporting evidence
`
`
`3
`Id.; Exhibit 1001.
`
`4
`
`Acrux DDS PTY, Ltd. & Acrux Limited v. Kaken Pharmaceutical Co., Ltd.
`
`and Valeant Pharmaceuticals International, Inc., U.S. Patent and Trademark
`
`Office, Patent Trial and Appeals Board, IPR2017-00190, Paper No. 1, Peti-
`
`tion, filed on November 2, 2016, pp. 3-4.
`
`5
`
`Acrux DDS PTY, Ltd. & Acrux Limited v. Kaken Pharmaceutical Co., Ltd.
`
`and Valeant Pharmaceuticals International, Inc., U.S. Patent and Trademark
`
`Office, Patent Trial and Appeals Board, IPR2017-00190, Paper No. 12, Deci-
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`sion, Institution of Inter Parties Review, entered on May 1, 2017, p. 25.
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`expressed in the Declaration of Vincent A. Thomas, CPA, CVA, CFF, ABV,6 which
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`concluded that Jublia® is a commercial success due to its alleged embodiment of the
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`method claimed in the ’506 patent.7 My evaluation involves assessing whether there
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`is sufficient evidence to conclude that Jublia® has achieved commercial success and
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`assessing whether any such commercial success that may exist has a causal nexus to
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`the alleged invention claimed by the ’506 patent.
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`6. This evaluation, and specifically my review of Mr. Thomas’ report,
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`leads me to the opinion that there is insufficient evidence to conclude that Jublia®
`
`has achieved commercial success for the following reasons.
`
`
`
`The $1 billion-plus cumulative gross sales revenue Mr. Thomas
`attributes to Jublia® by itself does not demonstrate commercial success
`in the context of gross sales revenues typically generated by
`prescription brand pharmaceutical drugs prior to the introduction of a
`generic equivalent, including, for example, the orally administered
`onychomycosis treatment Lamisil®.
`
`
`6
`Declaration of Vincent A. Thomas, CPA, CVA, CFF, ABV, filed on August 1,
`
`2017 as Kaken Exhibit 2028 (“Thomas Report”) at ¶¶12, 79–83.
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`7
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`Id., at ¶30.
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`Mr. Thomas’ analysis of Jublia®’s gross sales revenue appropriately
`excludes the sales impact of inappropriate business practices employed
`by Valeant’s mail order pharmacy partner, Philidor Rx Services, LLC
`(“Philidor”), but inappropriately fails to exclude unprofitable sales
`made
`through
`its fulfillment arrangement with Walgreens Co.
`(“Walgreens”).
`
`Mr. Thomas’ finding that Jublia®’s gross revenues represent 60% to
`70% of gross revenues generated by all onychomycosis treatments is
`not meaningful for evaluating the significance of Jublia®’s sales and
`commercial success because, first, the onychomycosis market is
`dominated by low-price generic competition and, second, these gross
`revenue shares do not reflect the atypically large price discounts
`provided on Jublia® sales.
`
`Jublia®’s commercial performance is more appropriately assessed based
`on its net revenues, i.e., gross revenues less discounts and other sales
`allowances provided to distributors, patients and insurers. I estimate
`that Jublia®’s cumulative net revenues to 2Q 2017, excluding the
`impact of Philidor’s inappropriate business practices, sum to $343
`million rather than the $1.07 billion Mr. Thomas calculates, with peak-
`year net revenues of $133 million. Cumulative net revenues excluding
`the unprofitable Walgreens sales sum to $244 million, with peak-year
`net revenues of $84 million.
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`
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`
`
`Jublia®’s net revenues, either with or without the sales generated by the
`Philidor inappropriate business practices, are insufficient to recover its
`supply costs, marketing expenses, R&D and other investments that
`were required to market the product. Thus, it has been an unprofitable
`investment.
`
`Mr. Thomas’ estimates of the significance of Jublia® prescription
`volumes relative to the total market volume for onychomycosis drug
`treatments are substantially overstated primarily because
`they
`inappropriately double-count the larger 8ML Jublia® prescriptions, fail
`to adjust for the shorter treatment protocol of the only oral
`onychomycosis treatment he considered, and fail to remove the impact
`of
`inappropriate Philidor business practices and unprofitable
`prescriptions dispensed through the Walgreens fulfillment arrangement.
`
`7.
`
` Those commercial sales Jublia® has generated do not have a
`
`causal nexus to the ’506 patent claims, as these sales are primarily attributable to
`
`Philidor’s inappropriate business practices, the extraordinary marketing support
`
`Valeant committed to the product, and Valeant’s unusually aggressive price
`
`discounting, rather than to any unique features claimed in the ‘506 patent. The
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`following specific findings support this opinion.
`
`
`
`To the extent any unique attributes of Jublia® in the treatment of
`onychomycosis are already covered by the previously-issued patents,
`
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`
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`
`
`
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`
`
`
`
`there is no causal nexus between Jublia®’s commercial performance
`and the ’506 patent.
`Jublia®’s sales have in large part been driven by inappropriate Philidor
`business practices.
`Valeant committed a major “direct-to-consumer advertising” campaign
`combined with significant salesforce support to market Jublia® to
`physicians to generate sales.
`Jublia®’s consumer advertising materials that I have reviewed do not
`emphasize any product attributes that are unique to efinaconazole or the
`’506 patent.
`Valeant implemented a policy of subsidizing patient copayments that
`eliminated or otherwise substantially reduced patients’ out-of-pocket
`cost of using Jublia®, even when insurers rejected reimbursement
`claims.
`Valeant provided unusually large rebates to insurers to dissuade them
`from adopting reimbursement policies that would severely limit Jublia®
`sales.
`8. The opinions I express herein are based upon my personal
`
`knowledge, experience, and expertise, as well as upon evidence filed in this
`
`proceeding and my independent research in this case. This evidence consists of
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`publicly-available information and documents collected by me and my staff, as well
`
`as information I have requested and has been provided to me by Petitioner’s
`
`attorneys, which includes case filings, deposition transcripts and exhibits, and
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`documents and data filed by the parties in this proceeding. Specifically, I have
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`considered the exhibits identified throughout this declaration, the Thomas Report
`
`(Exhibit 2028) and documents referenced therein, and Mr. Thomas’ deposition
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`transcript (Exhibit 1507).
`
`9.
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`I reserve the right to amend or supplement my opinions based on
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`further information I may receive after the date of this report, including, without
`
`limitation, documents and data filed by the parties, deposition transcripts and
`
`exhibits, legal submissions, affidavits/declarations, and expert declarations. Further,
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`it is my understanding that, after the Thomas Report was filed, Petitioners requested
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`the underlying data relied upon by Mr. Thomas as well as certain promotional
`
`expense information relating to the sale of Jublia®. Petitioners’ counsel has informed
`
`me that Patent Owners have failed to provide certain of the underlying data and have
`
`refused to provide the requested promotional expense information. If any of the
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`requested information not yet provided is provided at any time after this report is
`
`submitted, I reserve the right to supplement or amend my opinions as appropriate.
`
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`III. FACTUAL BACKGROUND
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`A. Product Description
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`10. The U.S. Food and Drug Administration (“FDA”) granted Jublia®
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`marketing approval in June 2014,8 as an azole antifungal indicated for the topical
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`treatment of onychomycosis of the toenails due to Trichophyton rubrum and
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`Trichophyton mentagrophytes.”9 Jublia® is a topical solution containing 10% of the
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`active ingredient efinaconazole.10 Valeant acquired rights to market Jublia® in the
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`United States and Canada from its December 2008 purchase of Dow Pharmaceutical
`
`Sciences, Inc. (“Dow”), Kaken’s original licensee for the product.11
`
`
`8
`Thomas Report at ¶20 (citing Exhibit 1003); Kaken Exhibit 2092.
`
`9
`
`10
`
`11
`
`Kaken Exhibit 2054.
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`Id.
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`Thomas Report, at ¶ 21 (citing Exhibit 2092); Exhibit 1523, at 2.
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`11. As reported in Staines Exhibit 1,12 other pharmaceutical products
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`indicated for the topical treatment of onychomycosis include Penlac® (ciclopirox),
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`which the FDA approved in 1999, and Kerydin® (tavaborole), which the FDA
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`approved in July 2014, approximately one month after Jublia®.13 Several generics
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`for Penlac® were approved for marketing in 2007. Staines Exhibit 1 also identifies
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`oral (tablet/capsule) drugs approved in the early to mid-1990s that have therapeutic
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`indications for treating onychomycosis systemically, including Lamisil® tablet
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`(terbinafine), Sporanox® (itraconazole) and Onmel® (itraconazole). It is my
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`understanding that Diflucan® (fluconazole) is used off-label for the systemic
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`treatment of onychomycosis.14 The FDA approved several generics for Diflucan® in
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`
`12
`I have prepared various exhibits to assist my analysis which are attached here-
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`to and are referenced as “Staines Exhibit ___.” The underlying information I
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`used to prepare my exhibits is specifically cited on each exhibit.
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`13 Although Kerydin® was approved in July 2014, it did not enter the market un-
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`til September 2014. Kaken Exhibit 1663, at 4. See also, Deposition of Vin-
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`cent A. Thomas, CPA, CVA, CFF, ABV, taken on October 13, 2017 (Exhibit
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`1507) (“Thomas Deposition”), at 59:16-21.
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`14 Kaken Exhibit 2010, at 11-12.
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`2004 and for orally-administered Lamisil® in 2007. Most generics for Sporanox®
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`were approved in 2016 and 2017.
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`B. Alternative Fulfillment Through Philidor
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`12. Beginning no later than Jublia®’s June 2014 market launch, and
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`extending to late October 2015, Valeant implemented a “Philidor Strategy”,15 under
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`which it channeled a substantial portion of its dermatology product shipments,
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`including Jublia®, to a single mail order pharmacy network, Philidor Rx Services,
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`LLC (“Philidor”),16 which Valeant secretly controlled and, beginning December
`
`2014, effectively owned.17 Based on this unusual relationship, Valeant did not book
`
`
`15
`Exhibit 1524, at 1; Exhibit 1525, at 2-3. Valeant also referred to sales made
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`through the Philidor network as “Specialty Pharmacy” sales. See e.g., Exhibit
`
`1526, at 7-17.
`
`16
`
`17
`
`The Philidor network included other pharmacies that operated in California,
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`Florida, New Jersey, South Carolina, and Texas. Exhibit 1526, at 33.
`
`Exhibit 1526, at 20-23; Exhibit 1527, at 2. Valeant had secretly paid $100
`
`million for an option to purchase Philidor in December 2014. Exhibit 1528, at
`
`2; Exhibit 1526, at 23 (listing Philidor option terms).
`
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`November 1, 2017
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`… (Continued)
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`shipments of Jublia® to Philidor as sales, but rather continued treating shipped
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`product held by Philidor as Valeant’s own inventory, recognizing it as revenue only
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`when the pharmacy sold it to patients.18 Nearly all the drugs Philidor dispensed were
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`Valeant drugs.19 This covert integration into downstream pharmacy operations
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`allowed Valeant to increase sales by circumventing or otherwise mitigating the
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`effectiveness of pharmacy-level reimbursement controls that insurers impose to limit
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`overutilization of expensive and minimally differentiated brand drugs.20 Under
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`conventional distribution
`
`through
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`independent drug wholesalers and retail
`
`pharmacies, drug manufacturers like Valeant do not retain ownership and control of
`
`
`… (Continued)
`Valeant employees actually worked onsite at Philidor using pseudonym email
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`addresses with Philidor extensions. Exhibit 1527, at 2-3.
`
`18
`
`The financial performance of Philidor’s operations were consolidated in Vale-
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`ant’s aggregate corporate financial statements. (See, e.g., Exhibit 1530, at 2;
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`Exhibit 1529, at 8; Exhibit 1526, at 48.)
`
`Exhibit 1530, at 2; Exhibit 1527, at 3.
`
`See, e.g., Exhibit 1531, at 4; Exhibit 1525, at 2-3; Exhibit 1532, at 3-4; Exhibit
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`19
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`20
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`1533, at 2.
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`the product that pharmacies dispense to patients.21 Consequently, insurers’
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`reimbursement controls are designed under the presumption that pharmacies are
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`neutral with regard to which drugs they dispense and how they are reimbursed.22
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`13. The primary tools insurers employ to prevent overutilization of
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`expensive, minimally differentiated drugs include higher patient copayment
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`requirements and, in some cases, restrictive protocols required for reimbursement
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`approval, such as: requiring the physician to justify the need for the prescription to
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`the insurer (“prior authorization”); requiring that the patient first try and fail on a less
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`expensive alternative treatment (“step edits” or “step therapy”); and limiting the
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`amount of product that can be prescribed for a given period of time (“quantity
`
`
`21
`See, e.g., Exhibit 1530, at 2. Drug manufacturers typically sell product to
`
`drug wholesalers (which resell them to retail-level pharmacies) or directly to
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`the pharmacies themselves. In either case, the wholesaler/pharmacy becomes
`
`the owner of the product and the manufacturer immediately accrues the prod-
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`uct sales as revenue, regardless of when or whether the wholesaler/pharmacy
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`resells the product to pharmacies or patients.
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`22
`
`See, e.g., Exhibit 1528, at 1; Exhibit 1534, at 2.
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`limits”).23 In addition to the direct restrictions these controls place on prescribing a
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`targeted drug, these protocols also are effective in limiting use of the drug because
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`the complexity, time, and expense for physicians and their staffs to document and
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`attempt to justify prior authorizations and exceptions to reimbursement restrictions is
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`considerable.24
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`14. Reflecting Valeant’s economic interests, Philidor assumed what
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`normally is the physician’s responsibility for securing reimbursement approval for
`
`those drugs flagged by insurers for restrictive approval protocols.25 By relieving
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`prescribing physicians of the burden of securing these approvals, the Philidor
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`Strategy encouraged physicians to direct their patients to Philidor and to transmit
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`prescriptions requiring special reimbursement approval directly to Philidor.26 This
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`incentive was reinforced by Valeant salesforce calls directing physicians to Philidor
`
`
`23
`Exhibit 1535, at 3; Exhibit 1536, 1-3 (explaining prior authorization, step
`
`therapy and quantity management).
`
`See, e.g., Exhibit 1531, at 1-2; Exhibit 1537, at 1-2; Exhibit 1538, at 1-2.
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`Exhibit 1526, at 7.
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`Exhibit 1528, at 2; Exhibit 1527, at 3.
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`24
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`25
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`26
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`for the purpose of providing their patients access to Philidor’s liberal copayment
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`assistance.27 Philidor promptly dispensed these unapproved prescriptions to patients
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`and then afterward employed more sustained and aggressive tactics to cajole insurers
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`into granting approval than physicians would typically exert.28 In addition to the
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`mere application of
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`inordinately aggressive effort, Philidor also devised
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`inappropriate means to increase insurer approvals, such as repeatedly resubmitting a
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`claim at different prices and different quantities to identify the insurer’s
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`reimbursement acceptance
`
`thresholds, and submitting claims under other
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`pharmacies’ identification numbers to insurers with which Philidor was not
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`contracted or in states that Philidor was not licensed to sell.29
`
`15. Despite these enhanced efforts and “back door” tactics,30 there
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`remained numerous dispensed prescriptions for which Philidor could not coax out
`
`
`27
`Exhibit 1527, at 3.
`
`28
`
`29
`
`30
`
`Exhibit 1530, at 2-3; Exhibit 1527, at 3; Exhibit 1525, at 2-3; Exhibit 1539, at
`
`2.
`
`See, e.g., Exhibit 1539, at 2; Exhibit 1525, at 2-3; Exhibit 1540, at 2.
`
`Exhibit 1525, at 2.
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`reimbursement approval from insurers.31 Valeant reported that such unreimbursed
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`prescriptions requiring “alternative fulfillment” was “quite large” for Jublia®,
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`probably 15%.32 Alternative fulfillment amounted to Valeant subsidizing all or a
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`substantial portion of the patient’s non-reimbursed cost.33 The frequency of such
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`non-reimbursed prescriptions was enhanced by Philidor’s policy of liberally
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`extending zero-copayment coupons/waivers on patients’ original prescriptions to
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`their refill prescriptions, and reportedly by continuing to send refills that patients did
`
`not request.34 Consequently, sales made through Philidor were less profitable than
`
`those made through conventional channels,35 and a substantial portion may have
`
`been unprofitable even on a marginal cost basis after considering the fees Valeant
`
`
`31
`See, e.g., Exhibit 1531, at 3; Exhibit 1540, at 2; Exhibit 1524, at 3.
`
`32
`
`33
`
`34
`
`Exhibit 1529, at 17. See also, Exhibit 1524, at 3-4.
`
`Ibid.
`
`Exhibit 1526, at 40 (explaining Philidor’s use of auto-refills for patients eligi-
`
`ble for $0 co-pay); Exhibit 1541, at 3; Exhibit 1542, at 1; Exhibit 1543, at 1-2.
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`Given Jublia®’s long (11-month) treatment protocol, these tactics to extend
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`monthly refills likely had a significant impact on Jublia® sales volumes.
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`35
`
`See, e.g., Exhibit 1526, at 11.
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`paid to Philidor for its fulfillment services.36 This Philidor Strategy reportedly
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`supported a larger Valeant business strategy of growing sales volume at any cost to
`
`drive Valeant’s share price.37
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`16. On October 19, 2015,38 Valeant’s relationship with Philidor was
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`publicly exposed and immediately denounced as fraudulent.39 Large Pharmacy
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`Benefit Mangers (“PBMs”),40 which manage most of insurers’ drug reimbursements,
`
`
`36
`See, e.g., Id., at 14, 37.
`
`37
`
`38
`
`39
`
`40
`
`Exhibit 1524, at 2.
`
`Exhibit 1544, at 1; Exhibit 1591, at 35-36. The week prior to this disclosure,
`
`Valeant had received subpoenas from Federal prosecutors regarding its drug
`
`pricing, distribution, and patient assistance programs. Exhibit 1545, at 2; Ex-
`
`hibit 1546, at 1.
`
`Exhibit 1541, at 2; Exhibit 1539, at 1-2; Exhibit 1547, at 2-7; Exhibit 1548, at
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`3-4.
`
`Exhibit 1568, at 10. My references to “insurers” throughout this report is
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`meant to include PBMs, unless otherwise stated.
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`suspended Philidor from their networks.41 The staggering economic impact to
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`Valeant of the Philidor revelation is illustrated in Staines Exhibit 2, which shows that
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`Valeant’s stock price fell 38% over the 4 days following the disclosure, and was
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`60% lower one month after the disclosure.42 By the end of October, Valeant
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`announced it was terminating its relationship with Philidor, which would be shutting
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`down operations as soon as possible,43 and that Valeant was creating an Ad Hoc
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`Committee of the Board of Directors to “review allegations related to [Valeant’s]
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`relationship with Philidor and other matters.”44 Valeant further admitted that:
`
`
`41
`Exhibit 1549, at 1, 3; Exhibit 1532, at 3; Exhibit 1534, at 1.
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`42 Valeant’s closing stock price fell from $177.56 on October 16, 2015, to
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`$109.87 on October 22, 2015 (with trading halted on multiple occasions), and
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`to $70.32 on November 17, 2015. Exhibit 1551. The initial stock price de-
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`cline would likely have been more severe had it not been for the offsetting ef-
`
`fect of a 2 million share purchase on October 21, 2015 by a major Valeant in-
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`vestor in an effort to mitigate the decline. See Exhibit 1545, at 2-3.
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`43
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`44
`
`Exhibit 1552, at 1.
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`Exhibit 1553, at 88.
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`The newest allegations about activities at Philidor raise additional
`questions about the company’s business practices. . . . We have lost
`confidence in Philidor’s ability to continue to operate in a manner that
`is acceptable to Valeant and the patients and doctors we serve. . . . We
`understand that patients, doctors and business partners have been
`disturbed by the reports of improper behavior at Philidor, just as we
`have been.45
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`17. The Philidor misconduct generated a number of lawsuits and
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`investigations,46 including a Federal investigation into possible criminal fraud
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`charges related to Philidor’s business practices and that it misled insurers into
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`thinking Philidor was a neutral distributor.47 In March 2016, Valeant’s CEO and the
`
`head of its dermatology drug business resigned.48 At the same time, Valeant’s CFO
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`was also asked to resign by the Board and the company’s Corporate Controller was
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`placed on administrative leave after the Ad Hoc Committee of the Board of Directors
`
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`45
`Exhibit 1552, at 1.
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`46
`
`47
`
`48
`
`Exhibit 1554, at 307, 309, 313-317, 328; Exhibit 1553, at 179, 181-182, 185-
`
`186; Exhibit 1542, at 1-2; Exhibit 1541, at 2; Exhibit 1555, at 1.
`
`Exhibit 1528, at 2; Exhibit 1534, at 1; Exhibit 1560, at 1.
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`Exhibit 1556, at 1-2, 4; Exhibit 1557, at 1.
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`investigating Valeant’s relationship with Philidor found that they had engaged in
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`“improper conduct” relating, at least in part, to double-counting $58 million in 2014-
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`2015 revenues associated with sales made through Philidor.49 The Valeant CEO and
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`CFO as well as other Valeant and Philidor executives became targets of Federal
`
`investigation for criminal misconduct relating to Philidor.50 Thus far, the former
`
`CEO of Philidor and a Valeant executive who managed the Philidor relationship
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`have been arrested and are awaiting trial on Federal fraud charges.51
`
`
`49
`Ibid.; Exhibit 1553, at 88-90, 112-113 (noting that “certain revenue on sales
`
`transactions to Philidor during the second half of 2014, prior to [Valeant] en-
`
`tering into a purchase option to acquire Philidor… should have been recog-
`
`nized when product was dispensed to patients rather than on delivery to Phi-
`
`lidor” and that the amount of the correction, “net of managed care rebates,”
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`was $58 million); Exhibit 1558, at 3-6.
`
`50
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`51
`
`Exhibit 1559, at 1-3.
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`Exhibit 1560, at 1, 4.
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`IV. JUBLIA®’S COMMERCIAL PERFORMANCE
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`18. I understand that the commercial success of a product embodying a
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`patented invention can represent a secondary indicium of that invention’s
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`nonobviousness in the context of determining the patent’s legal validity.52 The
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`underlying rationale is that if the patented invention had been obvious, other
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`entrepreneurs would already have developed and marketed a product utilizing the
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`invention, which would have precluded the Patent Owners’ product from achieving
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`commercial success.53 I further understand that a Patent Owners’ claim of the
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`subject product’s “commercial success [is] usually shown by significant sales in a
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`relevant market.”54 Below I evaluate whether the evidence presented by Patent
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`Owners’ expert in this case, Mr. Thomas, is sufficient to support his opinion that
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`Jublia®’s sales have been significant and show Jublia® has been a commercial
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`success.
`
`
`52 Graham v. John Deere, Co., 383 U.S. 1, 17–18 (1966).
`
`53
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`54
`
`See, e.g., Exhibit 1561, at 997–98.
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`J.T. Eaton & Co. Inc. v. Alt. Paste & Glue Co., 106 F.3d at 1563, 1571 (Fed.
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`Cir. 1997).
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`19. Specifically, the evidence presented by Mr. Thomas includes his
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`assertion that Jublia® has generated over $1 billion in cumulative sales revenue from
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`its June 2014 launch through March 2017,55 and achieved a 60% revenue share in its
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`first full year on the market,56 which now has reached 70%.57 Mr. Thomas also
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`claims that over 2 million prescriptions have been written for Jublia® in the United
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`States through March 2017,58 and that Jublia® has expanded U.S. prescriptions in
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`what had been a stagnant onychomycosis market by 64%.59 He alleges that Jublia®
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`specifically increased topical onychomycosis treatments four-fold,60 and the topical
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`treatment share of total topical and oral prescriptions from 19% to over 50%.61 In
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`my opinion, these findings do not demonstrate that Jublia® has achieved commercial
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`success for the reasons elaborated below.
`
`
`55
`Thomas Report at ¶¶9, 22, 24.
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`56
`
`57
`
`58
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`59
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`60
`
`61
`
`Id.
`
`Thomas Report at ¶21.
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`Thomas Report at ¶¶9, 22.
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`Thomas Report at ¶¶11, 22.
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`Thomas Report at ¶22.
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`Thomas Report at ¶9.
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`A. Mr. Thomas Has Not Demonstrated Jublia®’s Sales Revenues are Sig-
`nificant
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`20. Mr. Thomas’ entire analysis of Jublia®’s sales revenue as an
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`indicator of its commercial success consists of calculating its cumulative gross sales
`
`from market launch to 1Q 2017 as amounting to over $1 billion (
`
`
`
`and that its dollar share of all onychomycosis treatments was 60% in
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`2015 and over 70% in 2016 and 2017. These calculations are inadequate for
`
`concluding Jublia® is a commercial success for multiple reasons.
`
`21. First, Mr. Thomas has not properly assessed the significance of
`
`these gross sales in the context of the pharmaceutical industry. In particular, his
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`analysis ignores the distinguishing feature of ethical pharmaceutical economics,
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`which is that brand drugs (i.e., not facing competition from generic bioequivalents)
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`typically command high prices and, as a result, generate large sales revenues
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`compared to products in most other markets.63 A major reason for these typically
`
`higher prices and revenues is that brand pharmaceutical markets are generally
`
`protected by significant barriers to entry that restrict competition. These barriers
`
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`62 Kaken Exhibit 2098.
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`63
`
`See, e.g., Exhibit 1562, at 2-3; Exhibit 1563, at 18-19.
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`RE
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` PR
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