Takeaways
- Celgene’s blockbuster drug Revlimid is currently facing a plethora of patent litigation lawsuits in various federal district courts and at the Patent Trial and Appeal Board, or PTAB.
- The timing around the outcome of the patent litigation cases concerning Revlimid’s dosing and polymorph patents provides important data points for investors tracking the merger.
- The termination date of the Celgene/Bristol Myers Squibb merger is Jan. 2, 2020. Generic companies have challenged the validity of Revlimid’s dosing and polymorph patents at the PTAB and in the district courts. The PTAB will decide sometime before March 2019 whether to institute IPR proceedings to review the validity of dosing patents set to expire in 2023. If instituted, the proceedings may have a slight negative impact on Celgene.
- In addition to PTAB cases concerning Revlimid’s dosing patents, there are currently eight open district court proceedings that concern Revlimid’s two polymorph patents. Of these cases, Dr. Reddy’s case against Celgene is much further along than other similar cases.
- However, Reorg M&A’s analysis of the Dr. Reddy’s v. Celgene case docket indicates that a final decision is likely to overshoot the Jan. 2, 2020 termination date to have any impact on the merger.
- Furthermore, unlike the merger agreement in the Akorn/Fresenius transaction, the present merger agreement between Celgene and Bristol-Myers does not have a stand-alone no-target-MAE condition to Bristol-Myers’ obligations to close the merger. In other words, a material change in the validity or enforceability of any of Celgene’s drug product patents would likely not be sufficient to permit Bristol-Myers to walk away from the transaction.
Reorg M&A has analyzed the definitive
merger agreement of Bristol-Myers Squibb and Celgene to address two important topics for a transaction of this size and magnitude: (1) the extent to which Celgene’s loss in patent disputes would give rise to a material adverse effect, or MAE; and (2) the net effect of such occurrence on the parties’ obligations under the merger agreement.
Potential Effects of Celgene’s Patent Disputes
As covered
previously by Reorg M&A, Celgene’s net product sales and revenues are highly dependent on three specific drugs, including blockbuster drug Revlimid. Revlimid alone generated $8.2 billion in net sales for Celgene in 2017, accounting for approximately 63% of Celgene’s total net product sales.
Revlimid is currently facing a plethora of patent disputes in various federal district courts lawsuits and at the Patent Trial and Appeal Board, or PTAB. Such actions could potentially lead to a generic player entering the market prior to the expiration of several patents covering Revlimid.
Over the past several years, a number of generics have filed Abbreviated New Drug Applications, or ANDAs, for generic versions of Revlimid. These generic players include Teva, Natco, Dr. Reddy’s, Zydus, Cipla, and Lotus Pharmaceutical.
As part of a settlement agreement, Natco and Actavis (now Teva) are permitted to enter with an unlimited quantity in January 2026, and with a limited quantity beginning in March 2022. The possibility of earlier generic entry will depend on the remaining generic companies’ ability to avoid or invalidate the patent portfolio covering Revlimid.
According to the FDA’s
Orange Book Database, Revlimid is currently protected by 18 unexpired patents. However, a large number of these patents are method-of-use patents. In addition to the method patents, Revlimid is also covered by two polymorph patents.
Theoretically, if these patents are avoided or invalidated, it would give the generic challenger - in this case Dr. Reddy’s - an opportunity to launch at-risk, before March 2022 when Natco and Teva are set to initiate a limited market launch of their generic variants. Such a possibility, while less likely, could have a significant impact on Celgene’s future earnings estimates from Revlimid sales that are currently locked-in until 2022.
The timing around the outcome of the patent litigation cases concerning Revlimid’s patents provides important data points for investors tracking the merger.
Celgene is currently facing patent challenges at the PTAB, where generics have challenged the validity of Revlimid’s dosing patents. The PTAB will decide sometime before March 2019 whether to institute IPR proceedings to review the validity of dosing patents set to expire in 2023. If instituted, the proceedings may have a slight negative impact on Celgene stock. A final decision on the patent validity, however, would likely not come for another 12 months.
In addition to the PTAB cases concerning Revlimid’s dosing patents, there are currently eight open district court proceedings that concern Revlimid’s two polymorph patents. Of the latter set of cases, Dr. Reddy’s case against Celgene in the District of New Jersey (case No. 2:16-cv-07704) was filed in October 2016 and is much further along than other similar cases.
According to the latest
scheduling order in the
Dr. Reddy’s v. Celgene case, expert discovery will be completed before Feb. 28, 2019. Follow-on briefing, trial, post-trial briefing and the district court decision could potentially take several months, thus likely to overshoot the Jan. 2, 2020 termination date to have any impact on the merger.
A
court order yesterday also indicates that the parties may be looking to adopt a dual-track approach to the litigation. Based on Reorg M&A’s analysis, both Celgene and Dr. Reddy may also be trying to work towards a full global settlement of all claims, even as expert discovery and other briefings move forward according to the original schedule. From Celgene’s perspective, a settlement will likely mitigate any negative impacts that could result from litigation.
Impact on Merger
Even if the dosing and polymorph patents are overcome in the PTAB and district court litigation, a generic launch by Dr. Reddy would be unlikely before 2022 - based on current settlement with Teva - as Dr. Reddy’s would be launching at-risk pending an appeal decision.
Hypothetically, if Dr. Reddy’s prevails in its fight against Celgene, the latter’s stock and future earnings could be impacted negatively. In that scenario, Celgene’s loss of its monopoly over the blockbuster drug Revlimid would likely amount to an MAE.
However, even under that worst-case scenario, what is less clear is the effect such loss would have on the parties’ obligations under the merger agreement. That is due to the fact that, unlike the
merger agreement in the Akorn/Fresenius transaction, the present merger agreement between Celgene and Bristol-Myers does not have a stand-alone, no-target-MAE condition to Bristol-Myers’ obligations to close the merger.
Instead, a severe impact on one of Celgene’s drug products could only give rise to a deal condition failure to the extent the change would also give rise to a breach by Celgene of its representations and warranties in the merger agreement.
In other words, a material change in or loss of one of Celgene’s current drug products, in and of itself, would likely not be sufficient to permit Bristol-Myers to walk away from the transaction.
Other Risks
Another legal uncertainty relates to the Risk Evaluation and Mitigation Strategies, or REMS, programs used by Celgene to protect many of its products. Although all previous REMS lawsuits have ended in settlement, the pending case of
Mylan v. Celgene in the District of New Jersey (case No. 14-2094) could reach a verdict.
"It will be interesting to see what happens with Celgene’s efforts to delay generic versions of Revlimid,” said Michael Carrier, a professor at Rutgers Law School who specializes in areas including antitrust and pharmaceuticals. Carrier said that Celgene is “infamous” for delaying the market entry of generic competitors by denying the drug samples they need for FDA approval. "Celgene has obtained by far the most (34 of 43) patents on REMS programs,” he noted.
As an additional note, the transaction has already attracted interest on Capitol Hill. On Jan. 11, U.S. Representatives Peter Welch, D-Vt., and Francis Rooney, R-Fla., sent a
letter to the DOJ and FTC asking the agencies to investigate both the effects of further industry consolidation and the potential for price increases that could be used to finance the merger.
Reorg M&A’s previous coverage of this transaction can be found
HERE.
--Shrey Verma, Patrick Flavin and Ryan Lynch