Staines, Jr., John C.
`
`Case IPR2017-00190
`
`November 30, 2017
`
`1
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` 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
`
` DEPOSITION OF
` JOHN C. STAINES, JR.
`
`Reported by: Donna A. Peterson, Notary Public
`
`202-220-4158
`
`Henderson Legal Services, Inc.
`www.hendersonlegalservices.com
`
`
`
`Case IPR2017-00190
`
`November 30, 2017
`
`1
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` 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
`
` DEPOSITION OF
` JOHN C. STAINES, JR.
`
`Reported by: Donna A. Peterson, Notary Public
`
`202-220-4158
`
`Henderson Legal Services, Inc.
`www.hendersonlegalservices.com
`
`
`
`Staines, Jr., John C.
`
`Case IPR2017-00190
`
`November 30, 2017
`
`2
` Expert Deposition of JOHN C. STAINES, JR.,
`taken at the law offices of:
` ROTHWELL, FIGG, ERNST & MANBECK, P.C.
` Suite 800
` 607 14th Street, N.W.
` Washington, D.C. 20005
` Telephone: (202) 783-6040
`
` Pursuant to agreement, before Donna Ann
`Peterson, Notary Public in and for the District of
`Columbia.
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`Henderson Legal Services, Inc.
`www.hendersonlegalservices.com
`
`
`
`Staines, Jr., John C.
`
`Case IPR2017-00190
`
`November 30, 2017
`
`3
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` A P P E A R A N C E S
`
` ON BEHALF OF PETITIONERS:
` LISA N. PHILLIPS, ATTORNEY at LAW
` ROTHWELL, FIGG, ERNST & MANBECK, P.C.
` Suite 800
` 607 14th Street, N.W.
` Washington, D.C. 20005
` Telephone: (202) 783-6040
` lphillips@rfem.com
`
` ON BEHALF OF PATENT OWNER AND LICENSEE:
` JEFFREY M. JACOBSTEIN, ATTORNEY at LAW
` ANTHONY A. HARTMANN, ATTORNEY at LAW
` FINNEGAN, HENDERSON, FARABOW,
` GARRETT & DUNNER, LLP
` Two Seaport Lane
` Boston, Massachusetts 02210-2001
` Telephone: (617) 646-1600
` jeffrey.jacobstein@finnegan.com
` anthony.hartmann@finnegan.com
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`Henderson Legal Services, Inc.
`www.hendersonlegalservices.com
`
`
`
`Staines, Jr., John C.
`
`Case IPR2017-00190
`
`November 30, 2017
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`4
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` A P P E A R A N C E S C O N T I N U E D
` ALSO PRESENT BY TELEPHONE:
` TYLER LIU, In-House Counsel for Argentum
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`www.hendersonlegalservices.com
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`Staines, Jr., John C.
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`Case IPR2017-00190
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`November 30, 2017
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` C O N T E N T S
`EXAMINATION OF JOHN C. STAINES, JR. PAGE
` By Mr. Jacobstein 6
` By Ms. Phillips 175
`
` PREVIOUSLY MARKED EXHIBITS
`ACRUX EXHIBIT NO. PAGE
` 1001 160
` 1526 16
` 1528 20
` 1554 84
` 1582 85
` 1596 112
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`KAKEN EXHIBIT NO. PAGE
` 2093 148
` 2094 55
` 2095 38
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`Henderson Legal Services, Inc.
`www.hendersonlegalservices.com
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`
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`Staines, Jr., John C.
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`Case IPR2017-00190
`
`November 30, 2017
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` P R O C E E D I N G S
`Thereupon,
` JOHN C. STAINES, JR.,
`was called as a witness by counsel for Patent Owner
`and Licensee, and having been duly sworn by the
`Notary Public, was examined and testified as follows:
` MR. JACOBSTEIN: Can I ask for appearances
`before we start?
` MS. PHILLIPS: Lisa Philips, with
`Rothwell, Figg, Ernst & Manbeck, representing
`Petitioners.
` MR. LIU: Tyler Liu, counsel for Argentum.
` MR. JACOBSTEIN: Jeffrey Jacobstein,
`Finnegan, Henderson, Farabow, Garrett & Dunner,
`representing Patent Owner, Kaken Pharmaceuticals, and
`with me is my colleague, Anthony Harston -- Hartmann.
` EXAMINATION BY COUNSEL FOR
` PATENT OWNER AND LICENSEE
`BY MR. JACOBSTEIN:
` Q. Good morning, Mr. Staines.
` A. Good morning.
` Q. Can you state your full name and address
`
`202-220-4158
`
`Henderson Legal Services, Inc.
`www.hendersonlegalservices.com
`
`
`
`Staines, Jr., John C.
`
`Case IPR2017-00190
`
`November 30, 2017
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`for the record, please?
` A. John Christopher Staines, Jr. Address --
`home address?
` Q. Please.
` A. 14720 Pettit Way, Rockville, Maryland
`20854.
` Q. Have you been deposed before?
` A. One time.
` Q. So you're somewhat familiar with the
`rules.
` A. Yes, yes.
` Q. Let me go over a few things before I get
`started, just to make sure we're all on the same
`page.
` A. Sure.
` Q. I'm going to ask you a series of
`questions. If you don't understand any question I
`ask, or if you need any clarification, please let me
`know. Is that okay?
` A. Yes, that's fine.
` Q. And if you answer a question, I'm going to
`assume that you heard the question and you understood
`
`202-220-4158
`
`Henderson Legal Services, Inc.
`www.hendersonlegalservices.com
`
`
`
`Staines, Jr., John C.
`
`Case IPR2017-00190
`
`November 30, 2017
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`it. Is that okay?
` A. Yes, I understand.
` Q. We have a court reporter taking down our
`conversation, so it's important that we not talk over
`each other. So please wait for me to finish my
`question before providing your answer, and I will try
`to do the same in return.
` Does that make sense?
` A. It does. I'll do my best.
` Q. During the deposition, counsel for
`Petitioner may object, probably will object at some
`point. When that happens, please wait for the
`objection to finish, and then answer the question,
`unless your counsel instructs you not to do so. Is
`that clear?
` A. Yes.
` Q. If you need a break at any time, just let
`me know. As long as we're not in the middle of back
`and forth between a question and answer, we can
`accommodate you. Does that sounds fair?
` A. Yes.
` Q. Great. You understand you're under oath?
`
`202-220-4158
`
`Henderson Legal Services, Inc.
`www.hendersonlegalservices.com
`
`
`
`Staines, Jr., John C.
`
`Case IPR2017-00190
`
`November 30, 2017
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` A. Yes, I do.
` Q. Are there any medications you are taking
`that would prevent you from answering my questions
`accurately and truthfully?
` A. No.
` Q. Are there any other issues that would
`prevent you from answering my questions accurately
`and truthfully?
` A. No.
` Q. You said you've been deposed once before,
`correct?
` A. That's right.
` Q. And was that in a patent case?
` A. No.
` Q. Have you ever served as an expert or
`consultant for Acrux in any previous litigation?
` A. No.
` Q. What about in any context outside of a
`litigation?
` A. No.
` Q. Have you ever served as an expert or
`consultant for Argentum Pharmaceuticals in any
`
`202-220-4158
`
`Henderson Legal Services, Inc.
`www.hendersonlegalservices.com
`
`
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`Staines, Jr., John C.
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`Case IPR2017-00190
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`November 30, 2017
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`previous litigation?
` A. No.
` Q. What about in any other context outside of
`litigation?
` A. No.
` Q. What did you do to prepare for this
`deposition?
` A. Let's see. I read my report again.
`That's a good place to start. And then I reviewed,
`you know, some of the documents that I cited. And
`then I met with counsel.
` Q. And when you say counsel, do you --
` A. Lisa Phillips.
` Q. Did you meet with any other counsel?
` A. No.
` Q. Did you meet with anyone else in
`preparation for your deposition?
` A. No.
` Q. When you met with Ms. Phillips, when was
`that?
` A. Yesterday.
` Q. And how many hours, approximately, would
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`202-220-4158
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`Henderson Legal Services, Inc.
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`
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`Staines, Jr., John C.
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`Case IPR2017-00190
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`November 30, 2017
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`you say you met?
` A. All day, so eight hours, I guess.
` Q. Did you speak with anyone on the phone
`during that meeting?
` A. No.
` Q. You said you reviewed some documents. Are
`they documents that are identified in your
`declaration?
` A. Yes.
` Q. Did you review any other documents?
` A. No.
` (Acrux Exhibit No. 1511 was
` previously marked for
` identification.)
`BY MR. JACOBSTEIN:
` Q. I'm handing you -- I'm handing you what's
`been previously marked as Acrux Exhibit 1511. It's
`entitled, Declaration of John C. Staines, Jr., in
`Support of Petitioner's Reply to Patent Owner's
`Response.
` Do you see that?
` A. I do.
`
`202-220-4158
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`Henderson Legal Services, Inc.
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`
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`Staines, Jr., John C.
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`Case IPR2017-00190
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`November 30, 2017
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` Q. Do you recognize this document?
` A. Yes.
` MS. PHILLIPS: Just before you ask another
`question, I just wanted to note on the record that
`this is the protective -- I'm sorry, the confidential
`version.
`BY MR. JACOBSTEIN:
` Q. Is this the declaration you put together
`for this IPR proceeding?
` A. Yes, it appears to be.
` Q. If you could look at page 100 of 120,
`you'll see a signature there and the date of November
`1st, 2017.
` Is that your signature?
` A. Yes, it is.
` Q. And do you have any corrections or updates
`that you'd like to provide before we go any further
`discussing the declaration?
` A. No.
` Q. Did you prepare the initial draft of your
`declaration, or did you review a draft that was
`already prepared for you by counsel?
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`202-220-4158
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`Henderson Legal Services, Inc.
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`Staines, Jr., John C.
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`Case IPR2017-00190
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`November 30, 2017
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` MS. PHILLIPS: Objection, compound.
` THE WITNESS: I'll answer anyway.
` I prepared the draft. I did the draft of
`the report from the beginning.
`BY MR. JACOBSTEIN:
` Q. How were edits made?
` A. Edits were made -- you mean, mechanically,
`how were they made or --
` Q. Let me make that a little more clear.
` So once the initial draft was prepared --
` A. Uh-huh.
` Q. Did you receive any edits from counsel or
`did you make the only changes to the document?
` A. I received suggestions for edits that I
`either accepted or didn't or changed or whatever, so
`there was -- there were edits suggested, yes, from
`counsel.
` Q. And did you consider any documents, other
`than those listed in the declaration, when you
`prepared the declaration?
` A. By -- I've seen other documents that I
`didn't rely upon in searching for documents, and so
`
`202-220-4158
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`Henderson Legal Services, Inc.
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`
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`Staines, Jr., John C.
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`Case IPR2017-00190
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`November 30, 2017
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`in that sense, I may have. But documents that I
`relied on are listed -- all listed here.
` Q. And did you find all of those documents
`yourself?
` MS. PHILLIPS: Objection, vague.
` THE WITNESS: No, I have an assistant that
`assisted me.
`BY MR. JACOBSTEIN:
` Q. And did your -- did counsel provide you
`with any of the documents you cited in the
`declaration?
` A. Provided in the sense -- well, there were
`some documents, yes, that -- that counsel did provide
`me, yes.
` Q. So when you said your assistant helped you
`find documents, how did you generally search for
`them?
` A. So I did a lot of the searching myself.
`There were certain things that I delegated to my
`assistant to look for, because she's better at
`finding certain things than I am. And so, you know,
`there was no particular rhyme or reason, but things
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`Staines, Jr., John C.
`
`Case IPR2017-00190
`
`November 30, 2017
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`like, you know, 10-K's, things like that that she
`could go find and get things, she would get those
`kind of things.
` Q. Would you take a look at page 10 of your
`declaration, please. Paragraph 10 says, "Jublia is
`an azole anti-fungal agent," do you see that?
` A. I do.
` Q. Can you describe the structure of an azole
`to me?
` MS. PHILLIPS: Objection, outside the
`scope. Answer if you know.
` THE WITNESS: Describe it chemically?
`BY MR. JACOBSTEIN:
` Q. Uh-huh.
` A. No.
` Q. How about the structure of efinaconazole?
` MS. PHILLIPS: Same objection.
` THE WITNESS: And I assume chemically or
`any other way, for that matter, no.
`BY MR. JACOBSTEIN:
` Q. If you take a look at page 12 -- excuse
`me, page 12 and paragraph 12 of your declaration.
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`Case IPR2017-00190
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`November 30, 2017
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` A. Okay.
` Q. It's in a section that's headed
`Alternative Fulfillment Through Philidor, do you see
`that?
` A. Yes.
` Q. And that paragraph 12 says, "Valeant
`secretly controlled Philidor."
` Do you see that?
` A. Yes.
` Q. Then there's a footnote 17 after that
`sentence, do you see that?
` A. I do.
` Q. And footnote 17 cites pages 20 to 23 of
`Exhibit 1526, correct?
` A. Yes.
` Q. We're handing you what's been previously
`marked as Acrux Exhibit 1526.
` (Acrux Exhibit No. 1526 was
` previously marked for
` identification.)
` MS. PHILLIPS: Can we hang on one second?
`This one has tabs. I don't want to be using one that
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`November 30, 2017
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`you have markups on.
` THE WITNESS: But I will.
` MS. PHILLIPS: Here you go. Sorry to have
`interrupted you.
` MR. JACOBSTEIN: Thank you.
`BY MR. JACOBSTEIN:
` Q. Could you turn to page 22 of Exhibit 1526?
` MS. PHILLIPS: Are you referring to the
`added numbers?
` MR. JACOBSTEIN: Yeah.
` MS. PHILLIPS: Okay.
` MR. JACOBSTEIN: So let's set some ground
`rules. We will use the numbers that are added for
`each of these exhibits. They'll be in bold at the
`bottom of each page.
` THE WITNESS: All right, that's good.
`BY MR. JACOBSTEIN:
` Q. So if you could turn to page 22. Do see
`about midway down the page, where it says,
`"Philidor"?
` A. I do.
` Q. Underneath that, it says, "we do not own
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`or control Philidor."
` Do you see that?
` A. I do.
` Q. So the exhibit you cited in your
`declaration does not actually say that Valeant
`secretly controls Philidor, correct?
` MS. PHILLIPS: Objection, misstates the
`document.
` THE WITNESS: And could you repeat the
`question?
`BY MR. JACOBSTEIN:
` Q. Sure. So your declaration, the paragraph
`12 we were just talking about, said Valeant secretly
`owns Philidor and you cited to Exhibit 1526.
` Does page 22 of Exhibit 1526 say that
`Valeant secretly controlled Philidor?
` MS. PHILLIPS: Objection, mischaracterizes
`the declaration.
` THE WITNESS: It doesn't say that. I
`cited this because, based on what's in this, these
`pages of the document, 22 and 23, I think, I conclude
`from that that they did control and effectively own
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`November 30, 2017
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`Philidor.
`BY MR. JACOBSTEIN:
` Q. But the bullet point we're looking at
`right there says we do not own or control Philidor,
`correct?
` A. It says that, that's their -- Valeant's
`interpretation, and what they're trying to
`communicate to investors at the time. At the time.
` Q. Have you reviewed any contracts or other
`formal documents indicating that Valeant controlled
`Philidor?
` A. No, I don't believe any of that's been
`produced that I know -- to my knowledge, and I
`haven't reviewed any.
` Q. So you haven't seen any formal
`confirmation of whether or not Valeant owns or
`controls Philidor, correct?
` MS. PHILLIPS: Objection, vague.
` THE WITNESS: By "formal," do you mean
`contractual, contracts?
`BY MR. JACOBSTEIN:
` Q. Sure. Have you seen any contracts?
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`November 30, 2017
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` A. Right. No.
` (Acrux Exhibit No. 1528 was
` previously marked for
` identification.)
`BY MR. JACOBSTEIN:
` Q. Put that aside for a second.
` In footnote 17 of your declaration, you
`also cite to Exhibit 1528. I'm handing you a copy of
`what's been previously marked as Acrux's Exhibit
`1528.
` You would agree, wouldn't you, that this
`is a printout from what appears to be a web site
`reporting on an investigation into Valeant?
` A. Yes, I recognize this.
` Q. And it's just a news story, correct?
` A. What do you mean by just a news story?
`It's a news -- it's a -- it's a news article just --
`yes, it's a -- right, a Wall Street Journal article.
` Q. A Wall Street Journal article, okay.
` And does it report any conclusion on the
`investigation into Valeant?
` A. I don't -- I did read it. I don't know
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`Case IPR2017-00190
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`November 30, 2017
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`that it does or doesn't, but looking at the
`accusations under the investigation, the fact that is
`under investigation is what I used it for and what
`actions were being investigated.
` Q. So as you sit here today, you're not aware
`of any conclusion, though, from that investigation?
` MS. PHILLIPS: Objection, vague.
` THE WITNESS: Let me just remember what
`the investigation was to make sure I don't -- no, I'm
`not aware of conclusions, if they've come to any or
`where they are in it.
`BY MR. JACOBSTEIN:
` Q. If you could turn to page 13 of your
`declaration. You say that "Valeant's relationship
`with Philidor allowed Valeant to increase sales by
`circumventing or otherwise mitigating the
`effectiveness of pharmacy-level reimbursement
`controls." Do you see that?
` A. That's in paragraph 13?
` Q. It's on page 13.
` A. Oh, sorry.
` MS. PHILLIPS: Don't worry, I did the same
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`thing.
`BY MR. JACOBSTEIN:
` Q. Sort of midway down on page 13.
` A. Yeah, circumventing -- yes, I see that.
` Q. So you'd agree, wouldn't you, that the
`Philidor sales you're talking about there reflected
`actual prescriptions given to patients, correct?
` MS. PHILLIPS: Objection, vague.
` THE WITNESS: Can you repeat that
`question?
`BY MR. JACOBSTEIN:
` Q. Sure. Are the sales done through
`Philidor --
` A. Uh-huh.
` Q. Sorry, strike that.
` When sales were done through Philidor, was
`a prescription actually given to patients?
` A. I presume they were.
` Q. So when you say that Philidor allowed
`Valeant to increase sales, are you saying that the
`Jublia prescriptions made through Philidor would not
`have occurred without the Philidor relationship?
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`Case IPR2017-00190
`
`November 30, 2017
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` A. I'm saying the prescriptions would have
`been fewer.
` Q. How many fewer?
` A. The quantity of prescriptions fewer, I
`don't know. What I do know is the dollar sales
`impact of the fewer number of prescriptions. There
`is some indication of that in, I think it was Kaken
`Exhibit 2094, which did have kind of the -- I refer
`to later in the report a little hump in the
`prescriptions. And so the -- the extent of that hump
`might be reflective of how much the prescriptions
`were -- were inflated by the Philidor business
`practices.
`BY MR. JACOBSTEIN:
` Q. But you're saying that you don't view a
`hundred percent of those sales as ones that should be
`disregarded, correct?
` A. I don't -- I don't have a view on that. I
`haven't opined on whether it should be 100 percent or
`not.
` Q. Do you have an opinion on what specific --
`what specific percentage of Jublia sales would not
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`have occurred without the Philidor relationship?
` A. The -- I guess ultimately net revenues,
`profits, too, but net revenues are what's important.
`And I think I've indicated in Exhibit 7A, and really
`7B is a better one, what the net sales would have
`been, net sales revenues would have been without the
`Philidor business practices.
` Q. But in terms of a specific percentage,
`you're not sure, correct?
` A. Actually, I can calculate the percent
`decline from the hundred and -- I guess the 106
`million per quarter, the peak, and that declined to
`maybe 33, or what was it, 21 million, that that --
`that might be reflective of it.
` Q. It's reflective, but as you sit here, you
`don't know specifically which Philidor sales would
`not have occurred without Philidor, correct?
` MS. PHILLIPS: Objection, mischaracterizes
`the witness's testimony.
` THE WITNESS: When you say, "which
`Philidor sales," if you mean the particular
`prescriptions that went through particular doctors,
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`particular channels, that kind of thing, no.
`BY MR. JACOBSTEIN:
` Q. So it's possible that some of the sales
`through Philidor, or even all of them would have
`happened even without Philidor, right?
` MS. PHILLIPS: Objection, compound.
` THE WITNESS: No. Some prescriptions --
`the fact that I can't identify which particular
`prescriptions doesn't mean that I believe that all
`those prescriptions still would have been made. I'm
`saying there would have been far fewer, but I don't
`know which particular ones would be. I can only talk
`about it in aggregate. Let me revise that. I can
`only estimate it in aggregate.
`BY MR. JACOBSTEIN:
` Q. So when you say estimate, you're just
`assuming that a certain percentage of the sales
`through Philidor would not have occurred, correct?
` MS. PHILLIPS: Objection, form.
` THE WITNESS: No, I'm looking at the --
`the evidence that when Philidor was removed, the net
`revenues plummeted, I think is the word I use. And
`
`202-220-4158
`
`Henderson Legal Services, Inc.
`www.hendersonlegalservices.com
`
`
`
`Staines, Jr., John C.
`
`Case IPR2017-00190
`
`November 30, 2017
`
`26
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`it's, I think, a fair description of what happened
`after Philidor was removed that there was a
`significant decline in sales. And that is, I
`consider, evidence of the impact Philidor had, the
`Philidor business practices had.
`BY MR. JACOBSTEIN:
` Q. If you could turn to page 17 of your
`declaration. Toward the end of paragraph 15 on that
`page, so page 17. You say that sales made through
`Philidor may have been unprofitable.
` Do you see that? It's right at the end of
`that page.
` A. Sorry, this is page 17?
` MS. PHILLIPS: Page 17 or paragraph?
`BY MR. JACOBSTEIN:
` Q. Page 17, you say a substantial portion may
`have been unprofitable. That's referring to sales
`made through Philidor.
` MS. PHILLIPS: He's referring to the --
`oh.
` THE WITNESS: This 17?
`BY MR. JACOBSTEIN:
`
`202-220-4158
`
`Henderson Legal Services, Inc.
`www.hendersonlegalservices.com
`
`
`
`Staines, Jr., John C.
`
`Case IPR2017-00190
`
`November 30, 2017
`
`09:26:27
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` Q. Yeah. So, again, we're going to refer to
`the pages that have been stamped --
` A. Okay, I'm sorry.
` Q. -- at the bottom, not the declaration
`pages.
` A. Okay. And the substantial question --
` Q. It's a little confusing, there's two
`numbers on each page.
` A. Yeah, I see that. And a substantial
`portion may have been unprofitable even on a marginal
`cost basis.
` Q. When you say may have been unprofitable,
`are you speculating there?
` A. No. But I can't say for certain, so I
`would have to consider that speculation. I think
`there's strong suspicion that there would be, because
`they had low profits, not considering the dispensing
`fees. And then also considering that the Walgreens
`later on clearly were negative even for considering
`costs, that there's a -- there's a probability that
`some of these sales may also have been unprofitable,
`but I can't say for certain how many or, you know,
`
`202-220-4158
`
`Henderson Legal Services, Inc.
`www.hendersonlegalservices.com
`
`
`
`Staines, Jr., John C.
`
`Case IPR2017-00190
`
`November 30, 2017
`
`28
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`put a number on it.
` Q. You say probability, but you can't say for
`certain, you haven't seen any information showing
`that Philidor's sales were unprofitable?
` MS. PHILLIPS: Objection, compound,
`mischaracterizes.
` THE WITNESS: No, I've seen no document --
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