UNITED THERAPEUTICS CORP
`
`FORM 10-K
`
`(Annual Report)
`
`Filed 02/26/10 for the Period Ending 12/31/09
`
`
`Address
`
`
`1040 SPRING ST
`SILVER SPRING, MD 20910
`3016089292
`Telephone
`0001082554
`CIK
`Symbol UTHR
`SIC Code
`2834 - Pharmaceutical Preparations
`Industry
`Biotechnology & Drugs
`Sector Healthcare
`Fiscal Year
`12/31
`
`
`
`http://www.edgar-online.com
`© Copyright 2010, EDGAR Online, Inc. All Rights Reserved.
`Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
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`Use these links to rapidly review the document
`TABLE OF CONTENTS
`ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
`
`Table of Contents
`
`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`WASHINGTON, D.C. 20549
`
`
`
`FORM 10-K
`
`(Mark One)
`
`
`ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
`
`ACT OF 1934.
`
` (cid:1)
`
`
`
`
`For the fiscal year ended December 31, 2009
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`OR
`
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`TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
`EXCHANGE ACT OF 1934.
`
`
`For the transition period from to
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`Commission file number 0-26301
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`United Therapeutics Corporation
`(Exact Name of Registrant as Specified in Its Charter)
`
`Delaware
`(State or Other Jurisdiction of
`Incorporation or Organization)
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`1040 Spring Street, Silver Spring, MD
`(Address of Principal Executive Offices)
`
`
`
`
`
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`52-1984749
`(I.R.S. Employer
`Identification No.)
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`20910
`(Zip Code)
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`(301) 608-9292
`Registrant's Telephone Number, Including Area Code
`
`Securities registered pursuant to Section 12(b) of the Act:
`
`Title of each class
`Common Stock, par value $.01 per share
`and associated preferred stock purchase rights
`
`
`
`
`
`Name of each exchange on which registered
`NASDAQ Global Select Market
`
`Securities registered pursuant to Section 12(g) of the Act:
`
`None
`(Title of Class)
`
` Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1) No
`
` Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No (cid:1)
`
` Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
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`(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:1) No
`
` Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted
`pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
`files). Yes No
`
` Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best
`of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:1)
`
` Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated
`filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
`
`Large accelerated filer (cid:1) Accelerated filer
`
`Non-accelerated filer
`(Do not check if a smaller reporting company)
`
`
`
`Smaller reporting company
`
` Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No (cid:1)
`
` The aggregate market value of the Common Stock held by non-affiliates of the registrant, based on the closing price on June 30, 2009, as reported by the NASDAQ Global Select Market
`was approximately $1,923,449,000.
`
` The number of shares outstanding of the issuer's common stock, par value $0.01 per share, as of February 19, 2010, was 54,608,343.
`
`DOCUMENTS INCORPORATED BY REFERENCE
`
` Portions of the registrant's definitive proxy statement for the registrant's 2010 annual meeting of shareholders scheduled to be held on June 28, 2010, are incorporated by reference in
`Part III of this Form 10-K.
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`Table of Contents
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`PART I
` Item 1.
` Item 1A.
` Item 1B.
` Item 2.
` Item 3.
` Item 4.
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`PART II
` Item 5.
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` Item 6.
` Item 7.
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` Item 7A.
` Item 8.
` Item 9.
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` Item 9A.
` Item 9B.
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`PART III
` Item 10.
` Item 11.
` Item 12.
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` Item 13.
` Item 14.
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`PART IV
` Item 15.
`
`
`TABLE OF CONTENTS
`
` Business
` Risk Factors
` Unresolved Staff Comments
` Properties
` Legal Proceedings
` Submission of Matters to a Vote of Security Holders
`
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`3
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` 27
` 40
` 40
` 40
` 41
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` Market for Registrant's Common Equity, Related Stockholder Matters and
`Issuer Purchases of Equity Securities
` Selected Financial Data
` Management's Discussion and Analysis of Financial Condition and Results
`of Operations
` Quantitative and Qualitative Disclosure About Market Risk
` Financial Statements and Supplementary Data
` Changes In and Disagreements With Accountants on Accounting and
`Financial Disclosure
` Controls and Procedures
` Other Information
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` 42
` 43
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` 44
` 66
` F-1
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` 67
` 67
` 67
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` Directors, Executive Officers and Corporate Governance
` Executive Compensation
` Security Ownership of Certain Beneficial Owners and Management and
`Related Stockholder Matters
` 68
` Certain Relationships and Related Transactions, and Director Independence 69
` Principal Accounting Fees and Services
` 69
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` 68
` 68
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` Exhibits, Financial Statement Schedules
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` 70
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` 75
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`EXHIBITS
` EX-10.46** Form of Amendment to Employment Agreement between the Registrant and
`
`each of Roger Jeffs, Paul Mahon and John Ferrari, each dated as of
`February 22, 2010.
` Distribution Agreement, dated August 17, 2009, between the Registrant and
`Accredo Health Group, Inc.
` EX-10.48** Forms of terms and conditions for awards granted to Employees by
`Registrant on or after January 1, 2010, under the United Therapeutics
`Corporation Share Tracking Awards Plan.
` Computation of Earnings to Fixed Charges
` Subsidiaries of the Registrant
` Consent of Ernst & Young LLP, Independent Registered Public Accounting
`Firm
` Rule 13a-14(a) Certification of CEO
` Rule 13a-14(a) Certification of CFO
` Section 1350 Certification of CEO
` Section 1350 Certification of CFO
`
`SIGNATURES
`
`
` EX-10.47
`
` EX-12.1
` EX-21
` EX-23.1
`
` EX-31.1
` EX-31.2
` EX-32.1
` EX-32.2
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`**
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`Designates management contracts and compensation plans.
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`Table of Contents
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`ITEM 1. BUSINESS
`
`
`PART I
`
` We are a biotechnology company focused on the development and commercialization of unique products to address the unmet medical
`needs of patients with chronic and life-threatening conditions.
`
` Our key therapeutic platforms are:
`
`•
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`•
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`•
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`•
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`Prostacyclin Analogues , which are stable synthetic forms of prostacyclin, an important molecule produced by the body that has
`powerful effects on blood vessel health and function. Our lead product is Remodulin® (treprostinil) Injection (Remodulin) to be
`administered subcutaneously or intravenously for the treatment of pulmonary arterial hypertension (PAH). The United States
`Food and Drug Administration (FDA) initially approved Remodulin in 2002 for subcutaneous (under the skin) administration.
`Subsequently, the FDA broadened its approval of Remodulin for intravenous (in the vein) use and for the treatment of patients
`who require transition from Flolan®, the first drug approved by the FDA for the treatment of PAH. In addition to the United
`States, Remodulin is approved in many other countries, primarily for subcutaneous use. In July 2009, the FDA approved
`Tyvaso® (treprostinil) Inhalation Solution (Tyvaso), an inhaled prostacyclin therapy for the treatment of PAH. We commenced
`commercial sales of Tyvaso in the third quarter of 2009. Our oral tablet of treprostinil diethanolamine is in the later stages of
`development. We are also developing modified release beraprost (beraprost-MR), another oral prostacyclin analogue, for the
`treatment of PAH;
`
`Phosphodiesterase Type 5 (PDE-5) Inhibitors , which act to inhibit the degradation of cyclic guanosine monophosphate (cGMP)
`in cells. cGMP is activated by nitric oxide (NO) to signal relaxation of vascular smooth muscle. Our PDE-5 inhibitor product is
`Adcirca® (tadalafil) tablets (Adcirca), a once-daily oral therapy for the treatment of PAH. We acquired certain exclusive
`commercialization rights to Adcirca from Eli Lilly and Company (Lilly) in 2008. In May 2009, the FDA approved Adcirca for the
`treatment of PAH. We commenced commercial sales of Adcirca in the third quarter of 2009;
`
`Monoclonal Antibodies, which act by targeting tumor-associated antigens on cancer cells. We are developing the antibodies
`3F8 MAb and 8H9 MAb for the treatment of neuroblastoma and metastatic brain cancer, respectively. We began a Phase II
`clinical trial in the second quarter of 2009 with 3F8 in primary refractory neuroblastoma; and
`
`Glycobiology Antiviral Agents , which are a novel class of small, sugar-like molecules that have shown pre-clinical indications of
`efficacy against a broad range of viruses, such as hepatitis C, dengue fever and certain influenza viruses. We are currently
`conducting preclinical tests on potential compounds for further development.
`
` We devote most of our resources to developing products within our key therapeutic platforms. We also devote our resources to developing
`products in other therapeutic platforms and to the commercialization and further development of telemedicine products and services, principally
`for the detection of cardiac arrhythmias (abnormal heart rhythms).
`
` We generate revenues from the sale of Remodulin, Tyvaso and Adcirca (which we refer to as our Commercial Products) and telemedicine
`products and services. Our sales and marketing staff for our Commercial Products, which is supplemented by our specialty pharmaceutical
`distributors, supports the commercial availability of our Commercial Products in the countries in which they are approved.
`
` United Therapeutics was incorporated in Delaware in June 1996. Our principal executive offices are located at 1040 Spring Street, Silver
`Spring, Maryland 20910. We also maintain executive offices at 55 T.W. Alexander Drive, Research Triangle Park, North Carolina 27709.
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` Unless the context requires otherwise or unless otherwise noted, all references in this Annual Report on Form 10-K to "United
`Therapeutics" and to the "company", "we", "us" or "our" are to United Therapeutics Corporation and its subsidiaries.
`
`Our Products
`
` Our product portfolio includes the following as of February 15, 2010:
`
`Product
`Remodulin
`
`Remodulin
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`Mode of
`Delivery
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` Continuous
`subcutaneous
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`
`
`Tyvaso
`Adcirca (tadalafil) Tablets
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`CardioPAL® SAVI and Decipher
`Cardiac Monitors
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`Continuous
`intravenous
`Inhaled
`Oral
`Telemedicine
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`Telemedicine
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`Indication/Market
` Pulmonary arterial hypertension
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`Pulmonary arterial hypertension
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`Pulmonary arterial hypertension
`Pulmonary hypertension
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`Cardiac arrhythmias and ischemic heart
`disease
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`Current Status
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` Commercial in the U.S., most of Europe*, Canada,
`Israel, Australia, Mexico, Argentina and Peru
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`
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`Commercial in the U.S., Canada, Israel, Mexico,
`Argentina and Peru
`Commercial in the U.S.
`Commercial in the U.S. and Puerto Rico
`Commercial in the U.S.
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`Commercial in the U.S.
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`Our Territory
`Worldwide
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`Worldwide
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`Worldwide
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`United States/Puerto Rico
`Worldwide
`
`Worldwide
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`CardioPAL SAVI Wireless
`Cardiac Event Monitors
`Oral Treprostinil
`Beraprost-MR
`3F8 MAb
`Oral Treprostinil
`Aviptadil
`
`8H9 MAb
`IW001
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`Glycobiology Antiviral Agents
`
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`
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`Oral
`Oral
`Intravenous
`Oral
`Inhaled
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`Intravenous
`Oral
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`Oral
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`Cardiac arrhythmias and ischemic heart
`disease
`Pulmonary arterial hypertension
`Pulmonary arterial hypertension
`Neuroblastoma
`Peripheral vascular disease
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`Pulmonary hypertension and other
`pulmonary diseases
`Metastatic brain cancer
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`Idiopathic Pulmonary Fibrosis and
`Primary Graft Dysfunction
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`Hepatitis C and other infectious diseases
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`Phase III
`Phase II
`Phase II
`Phase II
`Phase II
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`Phase I
`Phase I
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`Pre-Clinical
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`Worldwide
`North America/Europe
`Worldwide
`Worldwide
`Worldwide
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`Worldwide
`Worldwide
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`Worldwide
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`*
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`We have obtained approval in 23 member countries of the European Union (EU), as well as in certain European countries that are not members of the EU. We have received formal
`approval letters and pricing approval in most of these countries.
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`Pulmonary Arterial Hypertension
`
` PAH is a life-threatening disease that affects the blood vessels in the lungs and is characterized by increased blood pressure from the heart
`to the lungs. The elevated pressure in the pulmonary arteries strains the right side of the heart as it pumps blood to the lungs, which eventually
`leads to right heart failure and, ultimately, death. PAH is characterized by structural changes in blood vessel walls, the aggregation of platelets
`and an alteration of smooth muscle cell function. It is estimated that PAH affects between 100,000 and 200,000 individuals worldwide. In recent
`years, as awareness of PAH has
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`grown, we have seen an increase in the number of people diagnosed with the disease. However, only a small fraction of patients with PAH are
`being treated due to the rarity of the disease and the complexity of diagnosing it. There is scientific interest in identifying easier, less invasive
`methods of diagnosing PAH. If this research is successful, more patients could be diagnosed at an earlier stage of the disease.
`
` The complexity of diagnosing PAH reflects in part the current uncertainties surrounding the etiology and pathophysiology of the condition.
`Currently, treatment of PAH focuses on three distinct molecular pathways that have been implicated in the disease process: the endothelin (ET)
`pathway, the nitric oxide (NO) pathway, and the prostacyclin pathway.
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`•
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`•
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`•
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`Endothelin Receptor Antagonists. PAH patients have been shown to have elevated levels of ET-1, a naturally occurring
`substance in the body that causes constriction and structural changes of the pulmonary blood vessels. Therefore, one established
`therapeutic approach has been to block the action of endothelin with drugs that are known as endothelin receptor antagonists
`(ETRAs).
`
`PDE-5 Inhibitors. Patients with PAH have also been shown to have reduced levels of the enzyme responsible for producing NO,
`a naturally occurring substance in the body that causes relaxation of the pulmonary blood vessels. NO produces this effect by
`increasing intracellular levels of an intermediary known as cyclic guanosine monophosphate (cGMP). Therefore, another
`established therapeutic approach has been to inhibit the degradation of cGMP, using drugs that are known as PDE-5 inhibitors.
`
`Prostacyclin Analogues. Finally, patients with PAH have been shown to have reduced levels of prostacyclin, a naturally
`occurring substance that has the effect of relaxing the pulmonary blood vessels, preventing platelet aggregation, and inhibiting the
`proliferation of smooth muscle cells in the pulmonary vessels. Therefore, drugs that mimic the action of prostacyclin, known as
`prostacyclin analogues, are also established PAH treatments.
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`Because any or all of these three pathways may be therapeutic targets in a patient, the described three classes of drugs are used alone or
`sometimes in combination to treat patients with PAH. We currently market Remodulin and Tyvaso, prostacyclin analogues, and Adcirca, a PDE-
`5 inhibitor, for the treatment of PAH.
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`Remodulin
`
` Our lead product for treating PAH is Remodulin (treprostinil) Injection, the main ingredient of which is treprostinil, a prostacyclin
`analogue. We sell Remodulin to our specialty pharmaceutical distributors in the United States at a discount from an average wholesale price
`recommended by us, and to our international distributors at a transfer price set by us. We recognized approximately $331.6 million,
`$269.7 million and $200.9 million in Remodulin revenues, representing 90%, 96% and 95% of our net revenues in 2009, 2008 and 2007,
`respectively. In May 2002, Remodulin was approved by the FDA as a continuous subcutaneous infusion for the treatment of PAH in patients
`with New York Heart Association (NYHA) Class II-IV (moderate to severe) symptoms. In November 2004, the FDA expanded its approval to
`permit continuous intravenous infusion of Remodulin for patients who cannot tolerate subcutaneous infusion. In March 2006, the FDA expanded
`its approval to include transition of patients to Remodulin from Flolan® (epoprostenol), the first FDA-approved prostacyclin therapy for PAH, to
`reduce the rate of clinical deterioration. Remodulin is also approved as a continuous subcutaneous infusion treatment for various forms of PAH
`in 33 countries throughout the world, and as a continuous intravenous infusion treatment for various forms of PAH in Canada, Israel, Mexico,
`Peru and Argentina. Applications for approval for both subcutaneous and intravenous Remodulin are under review in other countries. We
`continue to work on expanding Remodulin commercialization to other new territories, including Japan.
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` Flolan is delivered continuously through a surgically implanted intravenous catheter connected to an external pump. Flolan is approved for
`the treatment of patients with certain subsets of late-stage PAH. Generic formulations of Flolan are also available. We believe Remodulin
`provides patients with a less invasive alternative to Flolan and its equivalents. In contrast to Flolan, Remodulin is stable at room temperature and
`lasts significantly longer inside the human body. These attributes allow for safer and more convenient drug delivery to patients. Unlike Flolan,
`Remodulin can be delivered by subcutaneous infusion with a pager-sized miniature pump. Subcutaneous delivery of Remodulin also eliminates
`the risk of central venous catheter infection and the hospitalization required to begin intravenous infusion. Remodulin's extended presence in the
`body may also reduce the risk of rebound PAH, and possibly death, if treatment is abruptly interrupted. The stability of Remodulin also allows it
`to be packaged as an aqueous solution, so patients do not have to mix the drug, as they do with Flolan. Remodulin can be continuously infused
`for up to 48 hours before refilling the infusion pump, unlike Flolan, which must be mixed and refilled every 24 hours. Treprostinil, the active
`ingredient in Remodulin, is highly soluble in an aqueous solution, which enables us to manufacture Remodulin in highly concentrated solutions.
`This allows therapeutic concentrations of Remodulin to be delivered at low flow rates via miniaturized infusion pumps for both subcutaneous
`and intravenous infusion. Lastly, Remodulin does not require the patient to keep the drug cool during infusion. This eliminates the need for
`cooling packs or refrigeration to keep it stable, as is required with Flolan due to Flolan's chemical instability at room temperature.
`
` In June 2008, the FDA approved a generic version of Flolan, developed by GeneraMedix, Inc. (GeneraMedix), that is stable at room
`temperature, but still shares all of Flolan's other attributes including, but not limited to, risk of central venous catheter infection, required
`hospitalization at the start of treatment, shorter half-life increasing risk of rebound PAH, mixing, greater frequency of pump refills and larger
`pump size. In February 2009, GeneraMedix licensed the commercial rights for its generic Flolan to Actelion Pharmaceuticals Ltd (Actelion).
`Actelion also markets Tracleer® and Ventavis® for the treatment of PAH.
`
` There are noteworthy adverse events associated with Remodulin. When infused subcutaneously, Remodulin causes varying degrees of
`infusion site pain and reaction (redness and swelling) in most patients. Patients who cannot tolerate the site pain related to use of subcutaneous
`Remodulin may instead use intravenous Remodulin. Intravenous Remodulin is delivered continuously by an external pump through a surgically
`implanted central venous catheter, similar to Flolan. When delivered intravenously, Remodulin bears the risk of a serious bloodstream infection
`known as sepsis, as does Flolan.
`
` In January 2007, the results of a prospective, open-label study demonstrated that stable patients with PAH can be safely transitioned from
`Flolan to intravenous Remodulin using a rapid switch protocol.
`
`FDA Approval of Subcutaneous and Intravenous Remodulin
`
` We filed a New Drug Application with the FDA for Remodulin in late 2000. In May 2002, the FDA approved Remodulin as a continuous
`subcutaneous infusion for the treatment of PAH in patients with NYHA class II-IV symptoms to diminish symptoms associated with exercise.
`Remodulin is approved for all types of PAH and is the only PAH prostacyclin analogue therapy approved for patients with NYHA class II-IV
`symptoms.
`
` In July 2003, we opened an Investigational New Drug Application (IND) for the development of Remodulin by intravenous delivery for the
`treatment of PAH. A late 2003 study performed in healthy volunteers established that intravenous and subcutaneous Remodulin were
`bioequivalent (meaning that the two routes of infusion result in comparable levels of treprostinil in the blood).
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` In January 2004, we filed a Supplemental New Drug Application with the FDA to request approval for intravenous Remodulin for the
`treatment of PAH. In November 2004, based on data establishing intravenous Remodulin's bioequivalence with the previously approved
`subcutaneous Remodulin, the FDA approved intravenous Remodulin for those not able to tolerate subcutaneous infusion.
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`International Regulatory Review of Subcutaneous and Intravenous Remodulin
`
` Remodulin for subcutaneous use is approved in countries throughout the world. We used the mutual recognition process, described more
`fully in Governmental Regulation , to obtain approval of subcutaneous Remodulin in most countries in the EU. The mutual recognition process
`for subcutaneous Remodulin was completed in August 2005, with positive decisions received from most EU member countries. We withdrew
`our applications in the Republic of Ireland (Ireland), Spain and the United Kingdom (UK) following a request for additional documentation from
`these countries. A license variation for intravenous Remodulin will be resubmitted once our compulsory five-year renewal application for
`subcutaneous Remodulin is approved, which we believe will occur in the first half of 2010. At that time, we will submit the intravenous
`Remodulin license variation to our host nation, France.
`
` Under the named-patient system, we are permitted to import Remodulin into EU member countries for sale to hospitals for use in treating
`specifically identified patients. We will continue to sell (but not market) Remodulin under the named-patient system in certain EU member
`countries where Remodulin is not approved. In December 2009, we notified the hospitals and physicians in the UK and Ireland that we will not
`be providing Remodulin therapy for new PAH patients after March 31, 2010. We will continue to support and provide Remodulin to
`PAH patients who start Remodulin therapy prior to March 31, 2010, for as long as it is required for each patient. Antigen International Ltd. (part
`of Goldshield Group Ltd.), our Remodulin distributor in the UK and Ireland, is disputing our decision and has filed an arbitration request. We are
`currently in the preliminary stages of the arbitration process.
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`Tyvaso
`
` We commenced commercial sales of Tyvaso in September 2009. We sell Tyvaso at a discount from an average wholesale price
`recommended by us to the same specialty pharmaceutical distributors in the United States that distribute Remodulin. In 2009, we recognized
`approximately $20.3 million in Tyvaso revenues, representing 5% of our net revenues. We did not recognize any revenues from Tyvaso in 2008
`and 2007.
`
` Currently, the only other FDA approved inhaled prostacyclin analogue is Ventavis. Ventavis is marketed by Actelion in the United States
`and by Bayer Schering Pharma AG in Europe. The active ingredient in Ventavis, iloprost, has a half-life of approximately 20 to 30 minutes and
`can cause a decrease in systemic blood pressure if the drug is administered at too high a dose. As a result, Ventavis is inhaled via a nebulizer six
`to nine times per day at a low dose. Per its label, each Ventavis inhalation consists of 4 to 10 minutes of continuous inhalation via the nebulizer.
`Tyvaso has a longer half-life and greater selectivity to the lungs than Ventavis. Thus, patients only need to take Tyvaso four times a day, inhaling
`nine breaths during each two-to-three-minute treatment session. We are conducting an open-label study in the United States to investigate the
`clinical effects of switching patients from Ventavis to Tyvaso. Data is being prepared and has been accepted for presentation at the American
`Thoracic Society scientific symposia in May 2010.
`
` Tyvaso has been generally well tolerated in our trials, and adverse events appeared to be similar to those previously reported for treprostinil
`or due to administration by inhalation. The most common adverse events seen in the trial were transient cough, headache, nausea, dizziness and
`flushing.
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`Table of Contents
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`Tyvaso Inhalation System
`
` The Tyvaso Inhalation System, an ultra-sonic nebulizer and related accessories, was exclusively used for administration of Tyvaso in the
`TRIUMPH-1 trial. The Tyvaso Inhalation System is manufactured by NEBU-TEC International Med Products Eike Kern GmbH (NEBU-TEC),
`a German company. The Tyvaso Inhalation System is CE-marked in Europe, which means that the device conforms to EU health and safety
`requirements. In December 2008, we entered into an Agreement of Sale and Transfer with NEBU-TEC under which NEBU-TEC would sell to
`us its Tyvaso Inhalation System business and all associated assets and rights upon FDA approval of Tyvaso and the use of the Tyvaso Inhalation
`System with Tyvaso. As specified in the agreement, the closing and the transfer of all the associated assets and rights occurred in
`September 2009. Our agreement with NEBU-TEC also gives us the right to purchase their next generation nebulizer, the SIM-Neb. For
`additional details on the terms of our agreement with NEBU-TEC, see NEBU-TEC Agreement of Sale and Transfer below.
`
`FDA Approval of Tyvaso
`
` In June 2008, we submitted a New Drug Application (NDA) to obtain FDA approval to market Tyvaso for the treatment of PAH in the
`United States. On July 30, 2009, the FDA approved Tyvaso for the treatment of PAH using the Tyvaso Inhalation System. Tyvaso is indicated to
`increase walk distance in patients with NYHA Class III symptoms of PAH, which includes multiple etiologies such as idiopathic and familial
`PAH, as well as PAH associated with scleroderma and congenital heart disease.
`
` In connection with the Tyvaso approval, we have agreed to a post-marketing requirement (PMR) and certain post-marketing commitments
`(PMCs). PMRs and PMCs are studies that sponsors conduct after FDA approval to gather additional information about a product's safety,
`efficacy, or optimal use. PMRs are required studies; whereas, a sponsor voluntarily commits to conduct PMCs. We are required to provide the
`FDA annual updates on our PMR and PMCs. Failure to complete the studies or adhere to the timelines set by the FDA for the PMR could result
`in penalties, including fines or withdrawal of Tyvaso from the market, unless we are able to demonstrate good cause for not completing the
`studies or adhering to our timelines.
`
` In accordance with the PMR, we will conduct a long-term observational study in the U.S. that will include 1,000 patient-years of follow-up
`in Tyvaso-treated patients, and 1,000 patient-years of follow-up in matched control patients receiving other PAH treatments to evaluate the
`potential association between Tyvaso and oropharyngeal and pulmonary toxicity. We have submitted a draft protocol of the PMR to the FDA for
`review, and have committed to submitting the results by December 15, 2013.
`
` The PMC requires us to modify the Tyvaso Inhalation System and perform a usability analysis followed by a human factors study, and we
`will conduct a study in healthy volunteers to collect data to verify expected dosing with the modified device. We have submitted draft protocols
`for these PMCs to the FDA for review, and we have committed to submitting a supplement to our Tyvaso NDA describing the results no later
`than October 31, 2010. The human factors study will commence in March 2010; therefore, we believe we are on track to meet the timeline for
`final report submission.
`
`International Regulatory Review of Tyvaso
`
` In April 2004, the EMA designated Tyvaso an orphan medicinal product for the treatment of both PAH and chronic thromboembolic
`pulmonary hypertension. We filed an MAA in December 2008 for Tyvaso and the Tyvaso Inhalation System with the EMA using the centralized
`filing process. See Governmental Regulation below for further discussion on the centralized filing process for the EU. In February 2010, we
`withdrew our MAA from consideration by the EMA due to the EMA's major objection related to findings of non-compliance with good clinical
`practice (GCP) at two clinical sites. The EMA stated that these findings would preclude a recommendation for approval of Tyvaso in the
`
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`EU. The EMA had no major objections at the time of withdrawal related to the safety or efficacy of Tyvaso.
`
`UT-15C Sustained Release (Oral Treprostinil)
`
`Pulmonary Arterial Hypertension
`
` We are developing a novel salt form of treprostinil, treprostinil diethanolamine for oral administration. We use technology licensed from
`Supernus Pharmaceuticals, Inc. (Supernus), to provide for sustained release of treprostinil in tablets. The tablet coating technology allows for
`treprostinil to be released into the body through an extremely small hole that is laser-drilled into the coating of each tablet. This technology
`releases treprostinil at a relatively even rate in the gastrointestinal tract. In 2005, a Phase I study of heal