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Vivus Press Release: Company Lands a Partner!

On Tuesday, Vivus announced that it has partnered with Aetna to offer some of Aetna’s 22 million members access to its obesity drug Qsymia. It’s a nice press release, especially for a company seeking any kind of a “partnership” news during this week’s busy JP Morgan Healthcare Conference.

Here are some highlights from the Vivus press release:

  • Vivus announced that it has joined with Aetna (AET) to integrate Qsymia (phentermine and topiramate extended-release) capsules CIV into a pilot program designed to evaluate the benefits of prescription medication combined with lifestyle support for weight loss.
  • The program is the first of its kind involving Qsymia and a health care benefits provider.

Both true statements.

However, a quick read of the corresponding Aetna press release shows Aetna’s relationship with Vivus is not exclusive. Instead, Aetna is encouraging its 22 million members who are overweight to adopt weight loss programs that include, among other things, the use of prescription medications. That’s “medications” plural.

From the Aetna press release:

 Building from the clinical evidence, Aetna is collaborating with Eisai and VIVUS to offer a pilot program to self-insured plan sponsors…To support weight loss and positive lifestyle changes, members who qualify and begin treatment with BELVIQ or Qsymia receive free premium membership to the mobile app “Lose It!” by signing up through Aetna Navigator® and CarePass.

Vivus’ PR folks, The Trout Group, deserve some credit here. They were able to spin this into a “Vivus story”, while also getting the AP to convey a clear Vivus bias in its story.  Based on the news, Vivus shares rose 34 cents, or 3.8 percent, to $9.37 in premarket trading and closed up 4.8% at $9.46 with nearly 2.5x average volume.

I guess when a company is looking for any kind of third-party validation, it pays to be proactive – even though it’s important to note that Aetna generally doesn’t review patents as part of its partnership diligence.

Two New Issued Qsymia Patents: Where Does Vivus Stand Now?

Vivus’ Qsymia patent portfolio has been highly scrutinized since the drug was first approved in July 2012. The portfolio consists of two patent families: the first family, which names Dr. Thomas Najarian as the sole inventor, contains issued patents that are scheduled to expire in 2020; and the second family contains two newly issued U.S. patents (US Patent Nos. 8,580,298 and 8,580,299) that are not scheduled to expire until 2028 plus nearly a year of patent term adjustment. Being that the new patents were filed almost ten years after the original Qsymia patents, Vivus may face significant challenges enforcing valid claims from its new patents in light of its own earlier patents and a decade of new prior art. These challenges and Vivus’ potential strategies for mitigating these risks are the subject of the present report.

What is the “new” subject matter claimed in the ‘298 and ‘299 patents?

The newly issued patents stem from a patent application (12/135,953) filed in June 2008 to inventors Thomas Najarian, Peter Tam and Leland Wilson – none of which are still employed by the company. The ‘953 application was abandoned in favor of continuation-in-part applications (US Patent Application Nos. 12/481,540 and 12/481,548), which issued as US Patent Nos. 8,580,298 and 8,580,299, respectively, on November 12, 2013.

These patents do not claim priority to the earlier filed Najarian applications, so they are susceptible to prior art that published before their June 2008 filing date, including the original Najarian patents.  In simple terms, in order to be found patentable, the claims in the new application need to be patentably distinct from the earlier Najarian patents and any other prior art that predates June 2008. As the prosecution history from the new patents shows, this is a difficult strategy to execute without undermining the validity and enforceability of the earlier Najarian patents. But it seems this was a risk the company was willing to take.

Throughout the prosecution of the new patents, Vivus changed the content and scope of the pending claims a number of times – beginning with claims directed to compositions covering the specific features of controlled release topiramate (the ‘953 application), methods for effects weight loss using very low dose phentermine (2-8 mg) in combination with topiramate (the ‘298 patent), and methods for effecting weight loss by administering controlled release and non-controlled release topiramate according to an escalating dosing regimen (the ‘299 patent).

Ultimately, Vivus had to introduce narrow elements to the claims in an attempt to differentiate the claimed inventions from the prior art. Some of the narrow features found in the issued claims, include

  • the specific, approved low dosages of phentermine and controlled release (CR) topiramate found in Qsymia (e.g., phentermine between 2-8 mg and controlled release (CR) topiramate between 15-50 mg)
  • the dosage ratio of phentermine to CR topiramate (16%) found in Qsymia
  • the pharmacokinetic features (Cmax, Tmax and AUC) of Qsymia
  • the characteristics of patients receiving Qsymia (e.g., BMI greater than 30 kg/m2 and the presence of a condition associated with obesity)
  • the duration of treatment (e.g., at least two years)
  • the formulation mechanism (e.g., a matrix core has a delayed release coating comprising ethyl cellulose and polyvinyl pyrrolidone, and a polymeric filler comprising microcrystalline cellulose)

It is not a bad strategy for a patent holder to seek narrow claims to enforce its patent rights. However, the claims still need to be valid and enforceable, while still being regularly infringed, for the strategy to work. Below I discuss why I think Vivus’ strategy may fail.

Prior art referenced in the below discussion

  • (D1) US 2004/002462 (Najarian); Published: January 1, 2004; Issued as US Patent No. 7,056,890; cited in earlier IDS
  • (D2) WO 2006/063078 (Elan Corp; Jenkins et al) Published: June 15, 2006; cited in earlier IDS [corresponds to US 20060121112 A1, which published on 8 June 2006]
  • (D5) Vivus 8-K Disclosure (Exhibit 99.1): Conference Call Transcript; VVUS – Q3 2007 Earnings Conference Call; Event Date: November 9, 2007; cited in an IDS that was submitted on November 8, 2013; as of the publication of this report, the IDS has yet to be signed off on by the examiner
  • (D6) Vivus Advisory Committee Briefing Document (AdCom) submitted to the FDA on February 22, 2012; does not appear to be in any of the IDS’s
  • (D7) Vivus Quarterly SEC Filing 10-Q; May 8, 2007; does not appear to be in any of the IDS’s

(See the “Catalog of the Most Relevant Prior Art” section at the end of this report for a detailed listing of the prior art content.)

Potential problems with the new patent family (the “2028 Patents”)

* Likely anticipated (not novel) with no likely remedy outside the U.S. – when the claims of a patent are found to be anticipated they are no longer valid because none of the features of the claims are novel; in light of D1, D2 and D5 I would argue there are no novel features found in the claims with the possible exception of the very specific formulation details found in claims 7, 8 and 9 of the ‘298 patent (although the European examiner of the corresponding European applications rejects similar claims based on D1); many of the details of Qsymia’s formulation and specific dosages were first disclosed in a Vivus press release and during a company conference call (D5) before the second family of patents was first filed; while D1 and D2 describe phentermine and CR topiramate dosage ranges down to 5 mg, D5 discloses the specific dosages found in approved Qsymia and claimed in the ‘298 and ‘299 patents; D1 and D2 are strong obvious references for dosages (see below discussion), while D5 is spot on novelty art; however, it is likely the inventors of the ‘298 and ‘299 will try to swear behind D5 (i.e., declare they were in possession of the invention prior to the conference call); this may remedy the problem in the U.S. where the option of swearing behind is offered, but in most patent jurisdictions outside of the U.S. (e.g., Europe), inventors are not afforded this opportunity; a transcript of the conference call (D5) was submitted as part of a third-party observation filed with the European Patent Office (EPO) against European Patent Application Nos: 09763480.2 and 09763479.4; the challenges can be viewed here and here)

* Likely obvious in light of significant prior art – in order for a patent claim to be valid, the new features in the claim, when taken together, need to be non-obvious in view of the prior art; in my opinion, any claim elements from the ‘298 and ‘299 patents that may be considered novel or new are clearly obvious (an opinion shared by the European examiner in view of D1 and D2); below is a discussion of why the features found in the claims are, in my opinion, obvious (in addition to being anticipated):

i. regarding the claimed dosages, D5 is spot on novelty prior art since it lists the very dosages Vivus is trying to protect in its new family of patents; assuming the inventors swear behind D5 in the U.S., D1 and D2 are still available to demonstrate the claimed dosages and ratio are obvious since they both disclose phentermine and CR topiramate dosage ranges down to 5 mg (see Iron Grip Barbell v USA Sports) across a range of fixed dosage ratios, including 16% (see claim 27 from Najarian US Application No. 20060234952)

ii. regarding the claimed specific pharmacokinetic (PK) parameters, it seems the patents claim the PK features of controlled release topiramate (lower Cmax while maintaining the AUC); this is merely a description of any controlled release formulation, so unless Vivus is claiming it’s the first inventor of controlled release formulation technology (which it is not), there does not appear to be anything inventive here

iii. regarding the claimed patient characteristics and the duration of treatment, it is obvious those in need of weight loss medications are the obese and D1 discloses administering the CR topiramate with phentermine for up to 18 months (which falls within the claimed ranges of the new patents)

iv. regarding the claimed formulation mechanics, both D1 and D2 teach ways for mixing CR topiramate with phentermine; these mechanisms were all well known in the art at the time of the Vivus filing

 * Surprising and unexpected results –in order to overcome a finding of obviousness, Vivus needs to demonstrate the once-a-day formulation yields surprising or unexpected results (e.g., in the form of improved efficacy or side effects); in my opinion, the only thing that is arguably surprising about the once-a-day formulation is the lower bioavailability (e.g., Cmax and AUC) of phentermine in the presence of controlled release topiramate, however, this is finding is not convincing for the following reasons:

A. irrelevant – Vivus does not provide clinical evidence why this finding is important; the shapes of the phentermine PK curves – whether in the presence of controlled release and non-controlled release topiramate  – are the same; while the shapes of the curves are the same, the area under the curve (AUC) is lower in the presence of controlled release topiramate, so one needs to administer more drug to get the same effect when phentermine is combined with CR topiramate; while this is an odd result, it does not seem to have a beneficial therapeutic effect – in fact you could argue (as the European examiner does) that the effect is detrimental since more phentermine needs to be administered

B. inherently anticipated by Elan application – Elan already describes the once-a-day formulation in its patent application (which was abandoned after it was found obvious) so any properties phentermine has in the presence of controlled release topiramate seem to be inherently anticipated

Any other arguments about the dosages, dosage ratio, pharmacokinetic (PK) parameters, combination formulation or treatment duration lack the necessary evidence to demonstrate surprising or unexpected results over the extensive prior art. Which begs the questions:

What is surprising or unexpected about the once-a-day formulation versus the twice-a-day formulation (prior art)? Nothing (except for a detrimental effect on the bioavailability of phentermine). 

Consider this revelation from the conference call (D5): Peter Tam stated the once-a day-formulation “has the exact dosing, timing and exposure relative to the twice-a-day formulation used in the phase II study”; the phase II study was based on the twice-a-day formulation described in the Najarian patents (see page 36 of Vivus’ 10-Q dated May 8, 2007); in fact, Dr. Najarian came up with the dosages and administration scheme used in the phase II trials; therefore, it should not be surprising that the once-a-day formulation works as described in the Najarian patent (and the Elan application); if there is evidence to the contrary (e.g., efficacy or side effect data from the once-a-day formulation versus the twice-a-day formulation), the company has not produced it for the patent examiner to consider; instead, we have to rely on the company’s statements to the FDA that the side effect profile is consistent with the monotherapy or merely dose-dependent – again, offering nothing surprising or unexpected

From Vivus’ AdCom submitted to the FDA on February 22, 2012:

 “Top dose QNEXA (phentermine 15 mg and topiramate 92 mg) contains half of the maximum daily dose of phentermine and approximately one-fourth of the maximum daily dose of topiramate. As such, the side effects of QNEXA therapy are expected to be consistent with those described in the approved labeling for phentermine and topiramate, albeit at a severity consistent with lower doses.” (page 73)

* Extensive prior use – from the conference call we also learn that Dr. Najarian had already treated 10,000 patients with combinations of topiramate and phentermine as a practicing doctor at his Los Osos, California weight lost clinic – presumably in a manner similar to the phase II trials he designed (e.g., administering phentermine in the morning and topiramate in the evening); after learning the once-a-day formulation was designed to mirror the dosing, timing and exposure of the drug combination used in the phase II trials, this extensive prescribing history stands squarely as critical prior art – the details of which (dosages, formulations, safety and outcomes) have never been disclosed to the USPTO; also Dr. Najarian’s years of prescribing the drug combination at his weight loss clinic likely constitutes a public prior use of the invention (unless medical use is exempt under some hidden public use doctrine that I’m not aware of)

* May be found unenforceable – the company may find some or all of its patent claims unenforceable due to inequitable conduct (a scenario discussed in earlier reports for the first patent family); applicants and patent practitioners have a duty to disclose material information to the USPTO; the 2007 conference call was not disclosed to the patent office until I emailed it to Vivus’ patent counsel, Mintz Levin; see the email here; however, the examiner did not have time to consider the contents of the conference call (as indicated by the still unsigned 1449 form in the file history); the conference call is significant because, among other things, it contains statements made by Peter Tam that contradict later statements found in his September 27, 2013 declaration; for example, in the declaration, Mr. Tam states, “Importantly, the pharmacokinetics profile of the claimed unit dosage forms surprisingly permits 24 hour coverage of phentermine and topiramate (thereby suppressing appetite and enhancing satiety throughout the day).” (See page 4, section 7); on the conference call, he described the PK-PD profile as, “Pharmacokinetics and pharmacodynamic studies have confirmed that the final formulation of Qnexa is comparable with the twice-a-day formulation that was used in the Phase II study conducted at Duke University.” (Seep page 3, Tam comments, paragraph 3).

Is it surprising that the formulation did what the inventors expected?

The formulation was designed to perform exactly how the combination is described in the prior art; for further evidence, see the company’s February 2012 AdCom (which was never included in an IDS):

 “The Phase 3 clinical trial program was designed to assess the safety and efficacy of a single-capsule, extended-release formulation containing immediate-release phentermine and extended-release topiramate, and was designed to mimic the time-sequenced daily dosing of the individual components studied in study OB-201.” (page 5)

Another area of potential inequitable conduct that I’ve already identified from the first family that also likely affects the second family is the idea of prosecuting the two families in parallel while making statements about the lack of enabling disclosure in the first family.

First, in its December 2012 Response to the Final Rejection, Vivus argues Dr. Najarian does not teach or suggest a controlled release topiramate formulation that provides a comparable AUC but lower Cmax (see page 6 of the Response from the 12/481,540 application). This is the PK effect of any controlled release formulation, and controlled release topiramate formulations are the subject of the pending claims submitted on March 22, 2012 in US Application No. 12/683,353 from the first family. Judges do not like when patent practitioners say an application does not teach or suggest something (in order to get claims allowed in their client’s other application), while still trying to get claims to the same subject matter they just said is not enabled in the original application.

A more glaring example of this occurs when Vivus argues the Najarian patents teach away from topiramate dosages below 50 mg and arguably below 200 mg, while still pursuing claims to topiramate at dosages as low as 5 mg (see claim 85 of the pending claims submitted on March 22, 2012 in US Application No. 12/683,353). For the “teaches away” statement, see page 7 of the February 2012 Response After Non-Final Action for US Patent Application No. 12/481,540:

 “Because Najarian teaches an optimized daily maintenance dosage of topiramate that is so significantly greater than the daily maintenance dosages of the instant claims, the ordinarily skilled artisan would not modify, and particularly, would not decrease the daily maintenance dosage of topiramate below the 200 mg taught by Najarian with any reasonable expectation of predictable results or success…In fact, Najarian teaches away from the daily maintenance dosage of topiramate of less than 50 mg…”

You cannot do this and expect to maintain enforceable patents – or at the very least maintain credibility with a judge.

* Inventorship – it’s a bit unusual for a CEO and VP of corporate development to be named an inventors of a complicated drug formulation patent – as is the case on the second patent family with Leland Wilson and Peter Tam; from the conference call, we learn that the once-a-day formulation was “developed with outside consulting experts as well as a company that has broad expertise in controlled-release formulation development” (see page 11); yet no one outside of the company is named as an inventor; what specific features from the claims did Mr. Tam and Mr. Wilson contribute? If the only difference between the claims and the prior art is a very technical specific aspect of the formulation, then it is hard to believe a CEO and an MBA came up with it (in other words, did they come up with a specific formulation that is not already described or obvious in light of D2, which is devoted largely to specific CR formulations of topiramate in combination with phentermine?); if it was a general idea, like merely combining CR topiramate with IR phentermine by any means known in the art, then it is not an invention (since this is described in D1 and D2); if and when the inventors swear behind conference call as a reference in the U.S., the details of their inventive contributions may become clearer (or less clear); in the meantime, it appears either there’s nothing inventive about actually developing the formulation (otherwise the outside consulting experts need to be named as inventors – for at least some of the dependent claims), or Vivus may be obscuring the inventorship picture perhaps to avoid a royalty payment; while I have no specific insights here relating to inventorship, it is an area litigators are likely to focus

* Narrow claims – in light of the extensive prior art, any claims that survive may be very narrow in scope; for example, the claims may be limited to the specific formulation details (e.g., topiramate in a controlled release polymeric core coated in immediate release phentermine); it is not a bad strategy for patent holders to seek the narrowest claims possible that are still likely to be regularly infringed; however, if too narrow, a drug claim can be designed around such that generic drug still achieves the required bioequivalency necessary for approval; also, although many of the limitations found in the claims are also on Qsymia’s label, there are some discrepancies (e.g., relating to duration of treatment and BMI requirements) that generics may take advantage of by either introducing a skinny label (e.g., seek approval for a generic version of Qsymia with a narrower label that does not infringe the claims) or arguing there are instances when patients and doctors do not infringe using their generic product (see Commil v Cisco (Fed. Circ. 2013)); an example of a skinny label might include slightly modified versions of the higher dosages of Qsymia (e.g., greater than 8 mg phentermine and 50 mg topiramate)

Potential problems with the old patent family (the “2020 Patents”)

As a reminder, the problems plaguing the 2020 patents still exist, and I believe the company will have a difficult time enforcing these patents because they are likely to be found invalid, unenforceable or not infringed by the courts. I have supported this position through exhaustive research, which I’ve published in this blog, in press releases and a third party observation filed in Europe. In my opinion, the problems with the 2020 patents minimally include the following:

* Likely obvious – both of the components of Qsymia, phentermine and topiramate, were previously known to cause weight loss, therefore, it was obvious to combine the two drugs as an anti-obesity combination, especially in light of an earlier patent filed by Susan McElroy that describes the same combination for weight loss; further, it is my opinion that the 2020 patents lack the surprising and unexpected results (e.g., clinical evidence) necessary to overcome an obviousness challenge.

* Likely not enabled – the 2020 patents lack the necessary enabling disclosure relating to Qsymia’s dosages, formulation and titration that the company admits are required to differentiate Qsymia from its generic components; Vivus’ own patent counsel provides written admissions during the prosecution of the 2028 patents that the 2020 patents fail to teach topiramate dosages below 50 mg and arguably below 200 mg

* May be unenforceable due to inequitable conduct – there are multiple instances of potential inequitable conduct throughout the prosecution of the 2020 patents, including statements by the Applicant to the USPTO regarding Qsymia’s side effect profile that are not consistent with later statements to the FDA, misstatements to the USPTO by Vivus’ former patent counsel about the lack of prior art (McElroy), and more recently statements made by Vivus’ current patent counsel during prosecution of the 2028 patents that are at odds with issued claims from the 2020 family

* Ownership uncertainty – without evidence to the contrary, it seems both Harvard Medical School and Endo Health Solutions should likely have rights to the 2020 patents since Dr. Najarian was employed by both institutions when he allegedly made all or part of the Qsymia “invention”; either demonstrating Vivus is not the proper owner of the patent or seeking a license from Harvard or Endo might offer a quick way around the 2020 patents

A final note on the 2020 patents: In a letter published by Vivus shareholder Clinton Group, the shareholder defends the strength of the earlier patents and cites an unnamed law firm that specializes in intellectual property as the basis for its opinion. While I publish this blog anonymously, I also support all of my conclusions with explicit reasoned arguments and exhaustive research that is cited throughout my reports. I also don’t charge $800 per hour for my services. The Clinton Group letter only includes the naked conclusions and the law firm remains anonymous. I for one would like to know which law firm stands behind the strength of the 2020 patents so others can factor in this information when seeking legal advice from patent firms.

Where does Vivus stand now in terms of its Qsymia’s patent portfolio?

I believe Vivus and its patent counsel, Mintz Levin, recognized the difficulty the company is likely to have enforcing the 2020 patents and adopted an aggressive patent prosecution strategy to get new patents outside of the earlier Najarian patent family – plus the new patents offer the obvious benefit of extending Qsymia’s patent coverage an additional nine years until 2029.

I commend the company and Mintz Levin for getting the new patents issued, but it was done so without critical prior art (e.g., the 2007 conference call and Dr. Najarian’s 10,000 patient prescribing history) being properly considered by the examiner. When this prior art is considered side-by-side with the declaration from Peter Tam, the contradictions and inconsistencies in Vivus’ arguments become quite apparent and the materiality of the conference call is hard to question.

It wasn’t until I sent an email that explained the contents of the conference call to the company’s patent counsel, Mintz Levin, that the company felt compelled to submit an information disclosure statement (IDS) disclosing the conference call and the above linked email to the USPTO. The inclusion of these documents in an IDS indicates that Vivus and its patent counsel believe both documents are material to patentability.  However, since the IDS was submitted days before the scheduled issuance of the new patents, it does not appear the examiner had the opportunity to consider these references. Thus, the company is left in a strange situation: it has issued patents that are not presumed valid over references it deems material.

There are some ways Vivus can try  to remedy the situation. It can file a request for Supplemental Examination, a fairly new procedure that offers the Applicant another round of prosecution so the US Patent & Trademark Office (USPTO) can consider, reconsider, or correct information believed to be relevant to the patent. In this case, if the USPTO determines the reference is material and unresolved (it has 3 months to make this determination), the patent gets kicked into an ex-parte reexamination process. In a best case scenario for Vivus, during ex-parte reexamination the Office determines the contents of the conference call do not change the patentability of the invention and the claims remain issued as is, or the PTO determines the reference does not raise a substantial new question of patentability and the patent is immunized from allegations of inequitable conduct without going through reexamination.

As is often the case with patent matters, the only real resolution regarding validity will not come until the patents are litigated. Vivus could opt not to file a request for Supplemental Examination and delay any determination until litigation, however, in my opinion, this makes a determination of inequitable conduct more likely for the patents. Patent holders are eligible to file a request for Supplemental Examination anytime during the period of enforceability of the patent in question, so Vivus may opt to wait (pending its business objectives) before trying to remedy any uncertainty.

Antitrust note: Should Vivus or its affiliates attempt to enforce Qsymia patents in cases where the courts find that inequitable conduct has occurred during patent prosecution and Vivus’ patents were thereby fraudulently listed in the FDA’s Orange Book, there could be potential antitrust risk. If this is indeed the case, let it be noted that the allegations of inequitable conduct relating to the second family of patents were first raised by the originator Robert Diggs in this report and the earlier email to Mintz Levin.

Third Party Challenges in the U.S.

There are a number of post grant strategies for prosecuting Orange Book listable patents, and patent challengers (e.g., generics) are increasingly taking advantage of these strategies. While these can cost more than $15K to file, it is certainly cheaper than ANDA litigation and resolution can come much faster.

  •  Ex Parte Reexamination (anytime after grant); can be triggered by the applicant by submitting a request for supplemental examination as described above; can also be filed by anonymous third parties; no discovery allowed
  • Inter Partes Reexamination (after 9 months of grant); discovery is allowed
  • Post Grant Review (within 9 months of grant); broad grounds for challenging available (101, 102, 103 and 112); discovery is allowed

Regardless if any of the above strategies are used, the patents will likely end up in ANDA litigation if generics deem the market attractive enough (which they always seem to do…)

* ANDA litigation – at the time of publication of this report, an ANDA had still not been approved by the FDA (for reasons that are unclear to me); clearly generics have invested some resources determining ways to manufacture Qsymia (see Ranbaxy’s US Patent Application No. 13/848476, which was filed before Qsymia was approved and appears to disclose ten different ways for making Qsymia); assuming ANDA applicants file a paragraph IV certification, they now must also explain why they do not infringe the new patents, or why the new patents are invalid or unenforceable; Vivus is still entitled to a 30-month stay once it files its infringement suit; Delaware typically begins trials in 22-24 months; trials only last 5-10 days and a decision is usually reached within 3 months

Foreign Rights for the Second Family

The ramifications of the D5 reference (the conference call) for Vivus’ foreign patent rights are more clear cut (versus its U.S. rights).  For second family applications filed outside of the U.S., the conference call can likely be cited as an anticipation and inventive step reference since it describes the specific dosages and formulation for the once-a-day formulation of Qsymia, which is largely the subject matter of the pending applications. Unlike the U.S., inventors cannot swear behind a reference in most foreign jurisdictions therefore it stands as a strong prior art reference without an apparent remedy.

I took the opportunity to introduce the contents of the conference call to the European Patent Office as part of a pair of prior art challenges filed against two pending Vivus applications from the second patent family (European Application Nos: 09763480.2 and 09763479.4). The challenges (which can be downloaded here and here) allege the applications are not patentable in view of the Qsymia details disclosed during conference call. A press release with more background around the challenges can be viewed here. With Vivus’ 2020 patent family only filed in the U.S., Europe, Canada and Australia, and the pending European application from this family (European Patent Application No: 07011472.3) also the subject of an earlier-filed third party challenge, it’s not clear how the company can come up with a convincing ex-U.S. patent strategy for potential partners.

Supplemental Materials

A closer look at Mr. Tam’s declaration from the ‘298 and ‘299 patent prosecution?

* In the declaration submitted by Peter Tam to the USPTO on Sep 16, 2013 explaining why Vivus’ new patent applications are allegedly patentable over the earlier Najarian patent, Mr. Tam states:

 “Additionally, the cited reference [the Najarian 7,056,890 patent] does not teach or suggest a combination of phentermine and topiramate at this fixed claimed ratio [16%] to mitigate dose-related side effects.” [page 5, section 8]

First, Example 1 of the ‘890 patent describes administering 15mg of phentermine in combination with 100mg of topiramate for a 15% ratio of phentermine to topiramate. Does the 1% difference between the Najarian ratio and the later claimed 16% ratio mitigate dose-related side effects? Also, while the amount of topiramate is periodically increased throughout the course of the treatment described in Example 1 of the ‘890 patent, is there evidence that fixing the ratio at 16% produces a therapeutic difference (e.g., improved side effect profile) versus the dosing regimen described by Dr. Najarian? If so, Vivus has not, to my knowledge, produced this data.

Also in the declaration, Mr. Tam stresses the importance of dosage ranges and dosage forms:

“The specific formulation and specific dosage ranges and dosage ratio of the combination of phentermine and topiramate (as required by the claims provided in the accompanying Amendment and Reply) are not taught or suggested by the cited reference [the Najarian ‘890 patent]. More importantly, the dosage forms providing phentermine as immediate release and topiramate as controlled release…provides superior and unexpected properties by dramatically improving tolerability by reducing the adverse side effects of both phentermine and topiramate…” [page 3, section 7]

Again, is there evidence that extended release topiramate offers surprising and unexpected results versus non-extended release topiramate? Does extended release topiramate produce a therapeutically significant difference versus the preferred topiramate dosing embodiments provided in the ‘890 patent? From the ‘890 patent:

“In a preferred embodiment, topiramate is taken later in the day than the phentermine. Preferably, the patient takes the topiramate just before supper or later in the evening. Topiramate is best given later in the day because the drug can be sedating. In other embodiments, the topiramate is given BID (e.g., twice daily), TID (three times daily) or QID (four time daily).” [Col 13, lines 38-44]

Also, given that the half-life of topiramate is 21 hours after a single dose and steady state is reached in about four days, does extended release topiramate offer any clinical utility after about a week?

Catalog of the Most Relevant Prior Art

(D1) The Najarian patent (which published as US 2004/002462 on January 1, 2004) discloses the following:

* (paragraph 10) a drug combination for effecting weight loss which involves treating a subject with a sympathomimetic agent (phentermine) in combination with an anticonvulsant sulfamate derivative (topiramate)

* (paragraphs 11, 52 and 55) methods for treating at least one side effect associated with obesity, including hypertension, diabetes or glucose intolerance and insulin resistance, hyperlipidemia, and sleep apnea

* (paragraph 12) kits including the pharmaceutical compositions of the present invention are also featured (e.g., kits including the compositions packaged in a daily dosing regimen)

* (paragraph 13) a combination therapy that enables a reduction in the effective dosage of each drug administered and minimizing the potential side effects of each individual drug (a statement that is removed in later filed continuation-in-part applications from the same family)

* (paragraph 32) phentermine or topiramate may be prescribed at a dose as low as 5 mg daily; phentermine daily dosage include 8, 10, 15, 20, 25, 30, 35, 40, 45, 50, and 55 mg, with the preferred dose range of about 5-15 mg daily (paragraph 41)

* (paragraph 32) administering an ongoing daily dose given to a patient, typically after gradually increasing (titrating) the daily dose from an initial, low dosage, over an extended time period, e.g., on the order of several weeks; the dosage of topiramate is increased gradually at the outset of the therapy in order to reduce the chance of undesirable side effects associated with higher doses of the drug, for example, topiramate is administered at a dose of 25 mg daily for about the first 5-7 days (e.g., 6 days) of treatment, at a dose of about 50 mg daily for the next 5-7 days (e.g., 6 days), at a dose of 100 mg daily for about the next 6-8 days (e.g., 7 days) and about 100-150 mg daily for the next 20-26 days (paragraph 43)

* (paragraph 33) a single physically discrete dosage form having each of the active ingredients of the combination treatment (e.g., a single dosage form having anticonvulsant and sympathomimetic agent)

* (paragraphs 34, 42 and 44) administering phentermine in the morning and  topiramate later in the day

*  (paragraph 45) pharmaceutical compositions (e.g., for oral administration) comprising phentermine and topiramate in a single pharmaceutical formulation to increase patient compliance

* (paragraph 46) pharmaceutical composition including phentermine in an immediate release form and further includes topiramate in a controlled release formulation

* (paragraph 46) preferred controlled release formulations include delayed release granules, matrix-based formulations (e.g., formulations comprising a polymeric material having at least one active ingredient dispersed therethrough), and granules within a matrix

* (originally filed claim 31) a dosage form comprising a core containing the topiramate and a coating containing the phentermine

* (paragraph 47) a sustained release form can be formulated in such a way as to provide an effective dose of topiramate (e.g., provide a physiologically effective blood level) over a 4, 8, 12, 16 or 24 hour period

* (paragraph 52) the combination therapies can be administered until the patient has achieved a weight loss of 5-10%, 10-15%, 15-20%, or 20-25% of their initial body mass

* (paragraph 58) specific combination dosages of 15 mg phentermine and 100 mg topiramate are described, which equal a 15% ratio; other dose ranges include 8 mg phentermine and 50 mg topiramate, which equal a 16% ratio (paragraph 32)

* (paragraph 59) the weight reduction effect of topiramate will continue for as long as 18 months on the medication

(D2) Elan Patent Application (WO 2006/063078) which published on June 15, 2006  discloses the following:

* (page 4, lines 4-8 and lines 10-16; page 12, lines 2-7) once-a-day, controlled release oral dosage forms of topiramate at dosages as low as 5 mg; phentermine in dosages of 5-15 mg

* (page 8, lines 14-17) a delayed-release component comprising from about 5 mg to about 250 mg of topiramate which is released in the body at about 6 hours, about 9 hours, about 12 hours or about 18 hours (Tmax) after the release of the immediate-release component

* (page 10 line 10 – page 11 line 3) a multiparticulate modified-release composition comprising a therapeutically effective amount of the controlled-release form of topiramate in combination with a sympathomimetic agent, namely phentermine

* (page 11, lines 5-10) the sympathomimetic agent has anorexient properties or is anorectic without loss of efficacy or without adverse or undesirable side effects to a subject or patient at therapeutically effective doses when prescribed in combination with topiramate

* (page 11 line 21 – page 12 line 7) combination therapy comprising immediate release phentermine and controlled release topiramate for bringing about weight loss while simultaneously enabling a reduction in the effective dosage of each drug administered and minimizing the potential side effects of each individual drug

* (page 14, lines 16-22) methods for treating at least one additional effect associated with obesity

* (page 18, lines 14-16) the use of a modified-release matrix material

(D5) Excerpts from the November 9, 2007 Vivus Conference Call:

* Qsymia patient characterization description: Page 2, Leland Wilson comments, paragraphs 2-4:

Mr. Wilson describes the EQUIP study which will include “morbidly obese patients; that is, patients with a BMI equal to or greater than 35” (paragraph 2) and the CONQUER study which “will study obese patients with a BMI of 27 or greater with serious co-morbidities, including hypertension, dyslipidemia and Type II diabetes” (paragraph 3). He adds, “Together, these pivotal studies will encompass the population of obese patients who are at greatest risk and in the greatest need of effective therapy.”

* Patient description: Page 2-3, Leland Wilson comments:

“We have also developed and fully scaled up production for a unique, once-a-day formulation of Qnexa. The Phase II studies were conducted with a twice-a-day formulation. This new once-a-day formulation will improve compliance and potentially reduce side effects by reducing peak plasma levels while maintaining the same drug exposure as the twice-a-day dose regimens used in the Duke University Phase II trial. All necessary PK/PD studies to bridge the results to the Phase II study have been completed.”

* Dosage and formulation discussion: Page 3, Peter Tam comments, paragraphs 1-2:

“As Lee mentioned, we have developed a proprietary, once-a-day formulation of Qnexa. Formulation consists of immediate-release phentermine and controlled-release topiramate.

In the Phase III program, three different dosage strengths will be tested. Full-strength Qnexa contains 15 milligrams immediate-release phentermine and 92 milligrams of controlled-release topiramate. Mid-dose Qnexa contains 7.5 milligrams of immediate-release phentermine and 46 milligrams controlled-release topiramate. Low-dose Qnexa contains 3.75 milligrams of phentermine and 23 milligrams of controlled-release topiramate.”

* PK-PD profile discussion: Page 3, Peter Tam comments, paragraph 3:

“Pharmacokinetics and pharmacodynamic studies have confirmed that the final formulation of Qnexa is comparable with the twice-a-day formulation that was used in the Phase II study conducted at Duke University. The once-a-day formulation reduces peak plasma concentration [Cmax] and delays the time to maximum plasma concentration [Tmax] while maintaining equivalent total exposure [AUC]. We believe the once-a-day proprietary formulation administered in the morning will make it easier for patients to comply with dosing regimen.”

* Dr. Najarian prescription history: Page 4, 2nd full paragraph:

“Dr. Najarian, the inventor of this combination treatment, has always maintained based on his 10,000 patient experience that phentermine reduces the cognitive and neuropsychiatric side effects of topiramate. We for the first time provided evidence documenting this effect in our double-blind, randomized trial at Duke University.”

* Titration: Tam Q&A, page 7, paragraph 3 of Mr. Tam’s response to Mike King:

“Now, with regard to the titration, the program is designed in such a way to allow patients dosing flexibility. So for example, if somebody is randomized at a high dose and found the dose to be difficult to tolerate, they certainly have the flexibility to dose titrate downward. That is how topiramate is currently being used in the real world. And that is the program that we believe will be — will represent how the product will be used, and certainly, the dosing flexibility will improve tolerability going forward.”

Equivalence to twice-a-day formulation Tam Q&A, page 10:

Peter Tam — Vivus – SVP, Product & Corporate Development

“The Qnexa, the final formulation that we are testing in Phase III is what we believe is the commercial formulation. It has the exact dosing, timing and exposure relative to what was done in the Phase II study.”

* Inventorship uncertainty – Page 11:

Jeff Goater — Cowen & Company – Analyst

Just a quick question on the once-daily formulation. Was that something that was developed in-house, or was there a third party involved and might there be a small royalty owed?

Peter Tam — Vivus – SVP, Product & Corporate Development

It’s yes and no. It is developed with outside consulting experts as well as a company that has broad expertise in controlled-release formulation development. And no, there are no royalties tied to this formulation because everything is owned by Vivus based on the agreement that we’ve set forth with this formulation company.

* Co-morbidities: pages 14-15

Mike King — Rodman & Renshaw – Analyst

Can, okay. And then just in terms of the other benefits in CONQUER, Peter, they — things like dyslipidemia, weight, circumference, etc., do you think you have enough time on therapy or at 56 weeks to show a meaningful benefit? Or maybe asked the question differently, when should we start to see its clinical benefit in terms of resolution of hypertension, dyslipidemia, (technical difficulty) replicate themselves?

Peter Tam — Vivus – SVP, Product & Corporate Development

That is a very interesting question, Mike. And we have some really strikingly positive data which we believe the uniqueness of this combination will provide almost immediate effects on many of these co-morbidities. So that is one.

Certainly, in a 56-week study, we are confident that we will be able to show statistically and clinically meaningful benefit for these co- morbidities. We saw improvements in these co-morbidities in a fairly healthy population in the Phase II study that was conducted at Duke University. And certainly, with a sicker population that is a group of patients with more room for improvement, if you will, we will be able to see a good differentiation between active drug and placebo for these co-morbidities. Does that answer your question?

(D6) Vivus AdCom submitted February 22, 2012 to the FDA; once-a-day formulation is the same as the twice-a-day formulation; page 5:

“The Phase 3 clinical trial program was designed to assess the safety and efficacy of a single-capsule, extended-release formulation containing immediate-release phentermine and extended-release topiramate, and was designed to mimic the time-sequenced daily dosing of the individual components studied in study OB-201. The QNEXA formulation was designed so that peak exposure of each drug was separated by 7 to 8 hours with peak phentermine exposure in the morning and peak topiramate exposure near late afternoon/evening. The delivery of the topiramate component later in the day was expected to provide peak drug exposure for afternoon/evening hunger.”

*  Vivus AdCom submitted Feb 2012 to the FDA; obvious dose-dependent side effect profile; page 73:

“Top dose QNEXA (phentermine 15 mg and topiramate 92 mg) contains half of the maximum daily dose of phentermine and approximately one-fourth of the maximum daily dose of topiramate. As such, the side effects of QNEXA therapy are expected to be consistent with those described in the approved labeling for phentermine and topiramate, albeit at a severity consistent with lower doses.”

(D7) Vivus Quarterly SEC 10-Q; May 8, 2007; twice-a-day dosing regimen used in the Qsymia phase II study was determined by Dr. Najarian; page 36:

“Our Phase 2 study was a single center trial conducted at Duke University in only 200 patients. The twice-a-day dose and timing of the administration of the active ingredients was determined by the inventor through the treatment of patients in his private practice.”

Email to Mintz Levin re: 2007 Vivus Conference Call

The below email was sent to Mintz Levin on November 7th. It discusses the discovery of a 2007 Vivus conference call that may affect the patentability of two recently allowed Qsymia patent applications (US Application Nos. 12/481,540 and 12/481,548).

Dear Mintz Levin Attorneys,

I would like to call your attention to a Vivus 8-K from November 9, 2007 that contains information that may be material to the prosecution of Vivus’ Qsymia patents, especially US Application Nos. 12/481,540 and 12/481,548.  In specific, Exhibit 99.1 from the 8-K is a transcript of the company’s Q3 2007 Earnings Conference Call, during which two of the inventors from the ‘540 and ‘548 applications (Mr. Wilson and Mr. Tam) discuss, among other things, the details of Qsymia’s once-a-day formulation and dosages. Your firm may feel a need to disclose Exhibit 99.1 to the USPTO for any one or more of the following reasons:

  1. The disclosure predates the earliest filing of the ‘540 and ‘548 priority application (12/135,953).
  2. It does not appear Exhibit 99.1 has been previously disclosed to the USPTO, for example, in an information disclosure statement (IDS).
  3. The specific dosages of Qsymia are disclosed.
  4. The motivation for the once-a-day formulation, namely improved compliance and an allegedly reduced side effect profile, is disclosed.
  5. Mr. Tam’s statement that, “Pharmacokinetics and pharmacodynamic studies have confirmed that the final formulation of Qnexa is comparable with the twice-a-day formulation that was used in the Phase II study conducted at Duke University,” is disclosed. On the conference call, Mr. Tam later states the once-a-day formulation “has the exact dosing, timing and exposure relative to what was done in the Phase II study.”
  6. Reference is made to Dr. Najarian’s extensive prescribing history with the drug combination, which includes the treatment of 10,000 patients.

While the inventors of the ‘540 and ‘548 applications may be able to swear behind the 8-K, it is likely the patent examiner of the application would find the disclosure, especially points 4, 5 and 6, material to patentability — whether the reference is sworn behind or not.

More specifically, from the conference call we learn that the once-a-day formulation, which is largely the subject of the ‘540 and ‘548 applications, has the exact same dosing, timing and exposure as the twice-a-day formulation used in the phase 2 trial. This simple twice-a-day formulation seems to be based on Dr. Najarian’s earlier patents (see the Examples section), the earliest of which is cited throughout the prosecution of the ‘540 and ‘548 applications.

In light of this, how can the once-a-day formulation offer anything that is surprising or unexpected? Was it formulated primarily for convenience and compliance?

Presumably the ‘540 and ‘548 applications were allowed based on the September 16, 2013 declaration signed by Peter Tam and the subsequent examiner interview (on September 27, 2013) that convinced the examiner that the dosages and formulation of once-a-day Qsymia provide for surprising and unexpected properties. In my view, these arguments directly contradict the earlier statements made by Mr. Tam on the conference call. Specifically, the declaration states, “The specific formulation and specific dosage ranges and dosage ratio of the combination of phentermine and topiramate…are not taught or suggested by the cited reference.” (See page 3, section 7). Later, Mr. Tam declares, “Importantly, the pharmacokinetics profile of the claimed unit dosage forms surprisingly permits 24 hour coverage of phentermine and topiramate (thereby suppressing appetite and enhancing satiety throughout the day).” (See page 4, section 7). Both of these statements seem to be at odds with point 5 above.

And when you add Dr. Najarian’s 10,000 patient experience with the drug combination (with dosages, formulations, safety and outcomes that have never been disclosed to the USPTO), the hurdle for demonstrating surprising and unexpected results may become even higher in light of the missing data from this extensive public use. The examiner cannot make the necessary comparison between the prior art (Exhibit 99.1 and Dr. Najarian’s extensive prior use) and the features (e.g., dosing, timing and exposure) of the once-a-day formulation because the critical data has not been disclosed.

Would Dr. Najarian, also an inventor on the ‘540 and ‘548 applications, be able to sign Mr. Tam’s declaration under penalty of perjury? Which of Mr. Tam’s statements would the examiner believe if given all of the prior art? How is a federal judge going to view this, particularly if it is not disclosed to the examiner?

Given all of these facts, it seems to me that you, the inventors and your client are ethically obligated to pull these applications from issuance and provide the examiner with the whole story, including the transcript from the November 9, 2007 conference call and a summary of the results from Dr. Najarian’s experience treating 10,000 patients at his weight loss clinic.

Respectfully,

Robert F. Diggs

VIVUS Qsymia Patents: Two Vivus Patent Applications Covering Qsymia Allowed by the USPTO

* Two Qsymia applications, from a new Vivus patent family first filed in 2008, appear to be in a condition for allowance

* Assuming the allowed applications issue as patents, Qsymia’s patent term may now extend into 2028

* The new allowances likely eliminate the company’s dependence on the earlier Najarian patents and the focus turns to the strength of the new patents

As of market close on October 1st, the prosecution status of two pending Qsymia patent applications (US Application Nos. 12/481,540 and 12/481,548) was updated on the USPTO’s Patent Application Information Retrieval (PAIR) site indicating the applications were now in a condition for allowance. More specifically, the transaction history for both applications was updated with a “Reasons for Allowance” event notice (one dated September 27th and the other September 30th), and the image file wrapper for the ‘540 application showed a terminal disclaimer had been filed.

Both of these events strongly suggest the applications are now in a condition for allowance (although a formal Notice of Allowance has not yet been issued by the USPTO). After allowance, Vivus will have three months to pay the issue fee and applications typically issue as patents about 6-8 weeks thereafter. There are instances when either the patent examiner or the patent applicant may pull an application from issuance (e.g., if new prior art is introduced), however, this is generally not the case.

The newly allowed Vivus applications claim priority to an application (US Application No. 12/135,953, now abandoned) filed on June 9, 2008, and name Najarian, Tam and Leland as inventors. The allowed claims are narrow and appear to be limited to specific compositions and methods that cover the Qsymia dosages, formulations and treatment regimens approved by the FDA.

 Why is the allowance of these claims from a new patent family significant?

  • If the applications issue, they will be presumed to be valid, and will thereby extend the patent term for Qsymia from 2020 to 2028 (plus patent term adjustment, which could add about another year).
  • Assuming the issued patents are added to the Orange Book, they will represent two more patents (in addition to the earlier issued Najarian patents) that generics will have to show are invalid, unenforceable or not infringed in order to gain approval for generic Qsyima under the Hatch-Waxman ANDA rules.

 Certain caveats around this event worth noting:

  • The information from the US Patent and Trademark Office is not always complete. For example, sometimes prosecution information is not offered in chronological order or the corresponding documents are not immediately available for download. However, based on the information available as of market close on October 1st, it seems reasonable to conclude the applications have been allowed.
  • It is unclear when the company will publicly disclose these patent developments. Most companies wait until the patents actually issue, however, the USPTO PAIR site is available to the public so the company can direct investors and potential investors to the site for patent-related updates.

 Validity and enforceability analysis of the new claims:

Admittedly, the allowance of these applications comes as a surprise to RFD IP Business Services (“RFD”). In an earlier report, RFD stated it did not believe the applications would ever issue, especially in light of Dr. Najarian’s extensive prior use of the alleged invention, or a close variant thereof, while practicing medicine at his Los Osos, California weight loss clinic.

For now, RFD is withholding judgment as to the validity and enforceability of these likely soon-to-be issued patents until it has a chance to carefully analyze the entire patent family.

 What does the allowance mean for Vivus?

To be clear, the strength of the new Qsymia patents will be highly material to the value of Vivus. In many ways this development further illustrates the binary nature of Vivus’ future. It is still the opinion of RFD that the earlier Najarian patents (listed here in the Orange Book) are not likely to survive a validity or enforceability challenge from a generic that files a paragraph IV challenge – not to mention the unresolved assignment issues associated with the Najarian patents. For these reasons, RFD predicted the entry of generic competition during the second half of 2015 or some time in 2016 (see the report here) – far before the scheduled expiration of the Najarian patents in 2020. However, with the presumed issuance of new Qsymia claims, the Qsymia patent term now extends into 2028 (plus any patent term adjustment).

It is unusual for new, unrelated applications to be allowed when the original alleged invention was the subject of a patent application filed ten years earlier. For now,  however, this appears to be the case, and credit to Vivus and Mintz Levin is in order. While reserving the right to change this position based on a complete analysis of the new applications, it appears the majority of the problems discussed in the earlier RFD reports (e.g., potential assignment issues, lack of novelty and inequitable conduct) are isolated to the Najarian patent family. Therefore, a partnership or buyout now seems more likely than before the allowance of the new applications – based solely on the patent landscape. However, potential partners still may wait to see how Vivus fares during ANDA litigation since Qsymia’s status as a new combination allows challenges to be filed anytime after the drug’s approval and only affords Qsymia non-patent exclusivity until July 2015.

 Additional thoughts:

I still believe all of the Vivus patents will ultimately be challenged by generics; however, assuming the allowed applications ultimately issue as patents, the path to generic approval just got more difficult and Vivus may have bought itself more time to increase sales while searching for a partner or buyer.

Also, a strange scenario to consider: a prolonged government shutdown could further slow down things at the FDA/OGD, including the review of ANDA submissions, which is more good news for Vivus as it and others await the presumed FDA acceptance of a Qsymia-related ANDA filing.

Finally, can someone can explain the protocol for instances when new patents are added to an Orange Book listing after an ANDA has already been submitted (but not yet approved)? Also, any thoughts on REMS requirements for a Qsymia-related ANDA filing? What level of detail would be required? What if REMS is a moving target, i.e., it changes pending post approval studies?

VIVUS Qsymia Patents: Vivus and Its Lawyers Acknowledge the Materiality of Weaknesses in the Qsymia Patent Position

* Vivus considers the contents of the vivuspatent blog sufficiently material to disclose to the United State Patent and Trademark Office (USPTO)

* Vivus also discloses the McElroy provisional patent application, which describes the combination of phentermine with topiramate for the treatment of obesity and predates the earliest Qsymia patents

* Vivus fails to disclose the details of Dr. Najarian’s medical practice where he “treated thousands of patients” with combinations of phentermine and topiramate from 2001-2010.

View the press release.

First of all, I would like to welcome Examiner Ahmed from the USPTO to the vivuspatent blog.  I also look forward to Examiner Maier’s anticipated visit in the future.

There has been an interesting development in the prosecution of two Vivus patent applications with pending claims directed to Vivus’ anti-obesity drug Qsymia (phentermine and topiramate XR). On September 16th, Vivus’ patent counsel Mintz Levin filed a set of patent prosecution documents1 for US Application Nos. 12/481,540 (the ‘540 application) and 12/481,548 (the ‘548 application) that included, among other things, two identical information disclosure statements (IDS) that list each of the posts found in this blog. The IDS’s2 also list the McElroy provisional patent application (60/121,339) – the materiality of which is discussed throughout this blog and in a recently filed third party observation in Europe.

The IDS’s as filed can be viewed here.

As defined in 37 CFR 1.56, “Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability.” This material information is most often disclosed in the form of an information disclosure statement (IDS) that is reviewed by the corresponding patent examiner and becomes a part of the official patent record (i.e., the file wrapper).  For a more thorough discussion about who has a duty of disclosure, candor and good faith to the USPTO and what kinds of information need to be disclosed, please see the August 12th vivuspatent blog post, “VIVUS Qsymia Patents: Appearance of Ongoing and Systematic Inequitable Conduct before the USPTO by Vivus and its Attorneys”.

What Does the New IDS Mean for Vivus?

The decision to file an IDS including the entirety of the vivuspatent blog leads to some interesting conclusions while also leaving some unanswered questions:

* Most importantly, Vivus and its patent counsel deem the contents of the blog to be material to the patentability of the pending Qsymia patents. Further, the patent examiner for the ‘540 and ‘548 applications (Hasan Syed Ahmed) will now consider the contents of the blog when determining the patentability of the pending Vivus applications.

* When did Mintz Levin know about the information put forward in the blog, and when did it decide to include the blog in an IDS? Did it require the August 12, 2013 blog post that included a linked email to spur action? Here is an excerpt from that post:

In the meantime, a link to the vivuspatent.wordpress.com blog has been emailed to the three Mintz Levin attorneys listed in the prosecution documents of Vivus’ Qsymia patents as well as three members of firm management. The email explains that the linked blog contains information that may be material to the prosecution of Vivus’ Qsymia patents and they may feel a need to disclose some or all of it to the USPTO.

* The above question also applies to the other parties that share the same duty of candor and good faith when dealing with the USPTO, namely Vivus employees substantially involved in the preparation or prosecution of the Qsymia applications, Vivus’ former outside patent counsel as well as the named inventors (Thomas Najarian, Peter Tam and Leland Wilson).  Did any of these individuals fail to meet their duty of candor and good faith? Did it finally take a member of Mintz Levin’s management to recognize that its own firm’s reputation and liability could potentially be at stake should they fail to act?

* Does disclosing the blog in an IDS satisfy Vivus and Mintz Levin’s duty of candor obligation under 37 CFR 1.56? For example, does the USPTO now have enough information about the below alleged instances of misconduct, misstatements and omissions to properly determine if or how they are material to the patentability of the Qsymia patents?

a. Failure to notify the USPTO of its position that earlier issued Najarian patents are not enabled throughout the scope of the currently issued claims;

b. Conflicting characterization of Qsymia’s side effect profile before the USPTO versus the FDA;

c. Failure to correct the record regarding the earlier mischaracterization of the lack of prior art from 1996-1999 when the parties were almost certainly aware of the McElroy patent; and

d. Failure to disclose the details of Dr. Najarian’s 2001-2008 prescribing history of combination treatments of phentermine and topiramate at his Los Osos, California weight loss clinic as potential prior public use.

It should be noted that for all patents filed after 2001, the failure to disclose the details of Dr. Najarian’s 2001-2008 prescribing history may well be the most important prior art because a named inventor, Dr. Najarian, was practicing the alleged invention for years, which according to a colleague’s statement in the New York Times included treating “thousands of patients” and presumably the outcomes from said treatments. Neither Dr. Najarian, Vivus nor its patent counsel have ever provided a summary, let alone a detailed account, of this extensive prior use. How is this consistent with the duty of candor?

Next Steps

With the USPTO now notified of the weaknesses inherent in the Qsymia patent portfolio, there are two jurisdictions where the public can follow as Vivus tries to explain how Qsymia is a patentable drug:

* The United States Patent and Trademark (USPTO) as it considers the content of vivuspatent.wordpress.com; and

* The European Patent Office (EPO) where a third party observation was filed on August 6, 2013 that challenges Qsymia pharmaceutical composition and kit claims in light of the McElroy patent.

These are proxy battles likely to play out over near term that may foreshadow the larger battles that await Vivus if formal paragraph IV patent challenges are filed by one or more generics.

In the meantime, I expect another IDS to be filed for US Application No. 12/683,353 (the ‘353 application) when Mintz Levin responds to the Non-Final Rejection that was mailed in August 2013. This pending application is from the earlier-filed family of patents that names Dr. Thomas Najarian as the sole inventor, and it includes the issued Qsymia patents listed in the Orange Book. Since a majority of the vivuspatent blog is devoted to a discussion of the patentability and enforceability of this patent family, it seems highly likely a similar IDS will be filed for the ‘353 application (which is being examined by Leigh Maier). However, I expect the ‘353 IDS will also include the Mintz Levin Office Action Responses from the ‘540 and ‘548 applications that substantially undermine the enablement of the earlier Najarian patents, which is discussed in more detail here.

Footnotes

1 – A set of nearly identical prosecution documents was re-submitted on September 19th in the 12/481,540 case to correct for a minor, non-compliant claim amendment identified by the Examiner in the September 16th documents.

2 – A copy of the IDS, which appears to be identical for each application, can be found here, and the entire prosecution history for both applications can be viewed by visiting the USPTO’s Patent Application Information Retrieval (PAIR) site and entering the above application number.

An Open Letter (Email) to Lazard

Dear Mr. Schimmer and Mr. Kuo,

I enjoyed reading your September 4th equity research report that reviews Vivus’ Qsymia patent estate. I agree that the investment community has been under the false impression that Qsymia will safely enjoy patent exclusivity until 2020. The Qsymia patents face a wide range of potentially fatal challenges (see vivuspatent.wordpress.com for my analysis of the Qsymia portfolio) some of which you address in your report. Your report also contains some interesting points I had not considered. I wanted to take this opportunity to comment on some of the items in your report while also asking a few questions (that I hope you or others can weigh in on):

* Timing of the Paragraph IV filing

I agree it’s very likely only a matter of time. Nearly every new combination approved by the FDA under 505(b)2 has been challenged (or, alternatively, there were never patents granted to challenge). However, I disagree that it’s a matter of Qsymia achieving some measure of commercial success before a generic files – not for a market potentially as big as obesity. There are numerous examples of drugs being challenged immediately upon approval that were never forecast to make more than $50 million (see Avanir’s Nuedexta). I think there could be a number of other reasons why we have not yet seen acceptance of an ANDA:

  1.  Filers have already filed but the FDA has not yet reviewed or accepted the application (e.g., backlog at the FDA or the filer cannot get the formulation correct);
  2. Generics or pharma companies are pursuing a route (e.g., license from Harvard or Endo) that does not require formal ANDA challenge;
  3. Filers are waiting for Qsymia’s safety to be better established; or
  4. Filers are waiting for a better understanding of the post-approval study requirements.

If I had to guess, I would say the first reason is the most likely. The barriers for filing are too low ($100-$200k?) for generics not to throw their hats into the game.

* Obviousness arguments

I never fully vetted the Physician’s Desk Reference (PDR) as a reference that allegedly teaches away because I was so focused on what I view as the absurd statements made by the inventor, Dr. Najarian, and the company’s patent counsel in declarations and later responses that seemed to sway the examiner and ultimately lead to the allowance of the ‘890 patent. Like you say, the PDR does not specifically teach away from combining phentermine with topiramate or any other drug for that matter. In fact, phentermine was being combined with a wide range of other drugs (e.g., antidepressants, other stimulants, metformin) for weight loss at this time, thus further weakening Vivus’ argument. However, I think any discussion of obviousness takes you to the absolute statements made by Dr. Najarian saying the side effects of topiramate and phentermine disappear when the drugs are combined (hence “surprising and unexpected results”), and the later statements made by Vivus’ patent counsel claiming there are no references that teach combining the two drugs – when in fact she was almost surely aware of the earlier McElroy patent that discloses the combination for the treatment of obesity.

Did you or your patent lawyer ever look at McElroy (US Patent No. 6,323,236) as an anticipation reference?

Vivus may or may not be able to swear behind McElroy in the U.S., but in Europe that option does not exist. I have filed a third party observation in Europe that cites McElroy as an anticipatory reference. It will be interesting to see how Vivus handles this challenge.

* The Pharmakon deal

I agree the Pharmakon deal provides valuable insight in to the weakness of the Qsymia patents. Essentially Pharmakon gets paid back (at nearly a 40% interest rate) regardless, and could potentially end up with the patents (albeit bloodied and battered) if any of a number of triggering events occur. Pharmakon is sophisticated when it comes to patents, and I too view this as further evidence of Qsymia’s patent vulnerabilities (and the desperation of the former management regime).

* Vivus’ new patent applications are weak

I agree with your assessment that these applications are likely never to issue, and if they do, Vivus will have a very hard time ever enforcing them. In addition to the reasons you list, the patents will also likely face an absolute bar under 35 USC 102(b) because of prior public use or a related obviousness challenge since the invention is only a minor variation of such a public use.  As described in this New York Times article, Dr. Najarian operated a weight loss clinic in Los Osos, California from 2001 to 2010, where he “treated thousands of patients” with topiramate and phentermine. Did this use include the specific combinations of dose, formulation and titration regimens claimed in the new applications, or was the invention a mere trivial variation from these?  His nine years of practicing medicine at his weight loss clinic could, among other things, constitute a public use of the invention prohibited under pre-AIA 35 USC 102(b) thereby barring the company’s ability to secure patents filed after 2001, including the June 2003 continuation-in-part application (No. 10/454,368) that issued as the first of the Najarian patents (No. 7,056,890) and the new applications filed in 2008. In addition to the prescribing history of Dr. Najarian, there is evidence other weight loss doctors were also combining phentermine with topiramate and still other researchers were experimenting with extended release topiramate (see US Patent Application No. 11/297,737).

* Partnership and buyout discussion

I agree it is extremely unlikely that there is going to be a partner or buyer for Qsymia given all of the uncertainty around the drug’s exclusivity. It’s not just the looming Paragraph IV, it’s the weakness of the Qsymia patent estate. It’s very unlikely Vivus could prevail in such a suit, and it may lose quickly given the preponderance of evidence (including inequitable conduct arguments) a judge is likely to find.

* Valuation

Does your valuation assume Vivus gets a partner? Without a partner, how does the company pay for the DTC marketing and sales network that most people agree is necessary for Qsymia to reach its full potential? The post-approval studies? Major dilution? We’ve seen what the company does on its own in terms of sales and marketing, and it seems DTC is not an immediate priority. Further, the obesity space is proving challenging. It will likely take the experience and deep pockets of a major pharmaceutical partner to fully penetrate this market, so I have a hard time seeing sales reaching $589 million in 2016 (as you estimate) if it has to go it alone or enters into a co-promotion arrangement. Your co-promotion partnership analysis is new to me and quite convincingly shows challenges with such an arrangement.

All together, I am pleased to see someone with the experience and credibility of Lazard take on this patent issue. I think this truly is a unique situation where the value of a single asset ballooned to nearly $3 billion (July 2012) based on a lot of assumptions, speculation and over-exuberance, while the patent experts in the room were either ignored or did not speak loudly enough.

VIVUS Qsymia Patents: Appearance of Ongoing and Systematic Inequitable Conduct before the USPTO by Vivus and its Attorneys

Robert Diggs Deeper: What is the Role of Current Vivus Patent Counsel Mintz Levin?

This report focuses on three areas where Vivus and its attorneys have apparently made misleading or untrue statements, and/or failed to disclose information that is material to the patentability of the Qsymia patents:

First and most recently, Mintz Levin has submitted a series of arguments in a second, later filed family of patents on Qsymia, which substantially undermine the enablement of Vivus’ first set of Qsymia patents.  Enablement is required for patentability in the US and is the extent to which a patent application teaches how to make and use the claimed invention.  I am unable to find where these harmful arguments have been disclosed to the patent examiner for the first set of Qsymia patents.

Second, previous patent counsel, Dianne Reed, and the inventor on the first set of Qsymia patents, Dr. Najarian, made statements  to the USPTO about the side effect profile of the combination of phentermine and topiramate being significantly reduced in comparison to the side effects from the individual components.  Vivus later made statements to the FDA that were at odds with this supposed finding of reduced side effects.  It appears that neither Vivus nor any of its outside counsel, including Mintz Levin has corrected the record on this point.

Third, previous patent counsel, Dianne Reed, appears to have mischaracterized the state of the art in 1996-1999 stating “the only reference in the 1996-1999 time frame describing the combination of phentermine with a second weight loss drug actually teaches away from the present invention”, when in fact the McElroy patent from 1999 taught the same combination of phentermine and topiramate as Qsymia, the invention being referenced.  While the McElroy patent was disclosed to the USPTO, this mischaracterization of the art probably left the examiner with the wrong impression of the prior art.  It appears that neither Vivus nor any of its outside counsel, including Mintz Levin has corrected the record on this point.

* Why is a Duty of Disclosure, Candor and Good Faith to the USPTO Necessary?

Many aspects of the American legal system are based on adversarial proceedings.  Two parties who disagree about something present competing arguments to a judge who decides the matter.  Each party is there to explain its position, but also as a knowledgeable interest participant that can keep that other side honest.  In determining whether a US patent gets issued there is no adversarial system, the patent applicant is merely corresponding with the Patent Office and its examiners.  If the patent applicant fails to be honest and forthcoming then it is unlikely that the patent examiner will have enough information and resources to discover the truth and weaker, less reliable patents would be the result.

* What is the Duty of Disclosure, Candor and Good Faith to the USPTO?

According to US Federal Regulation 37 C.F.R. 1.56  (a) “A patent by its very nature is affected with a public interest. The public interest is best served, and the most effective patent examination occurs when, at the time an application is being examined, the Office is aware of and evaluates the teachings of all information material to patentability. Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability as defined in this section. The duty to disclose information exists with respect to each pending claim until the claim is cancelled or withdrawn from consideration, or the application becomes abandoned….”

* What Needs to be Disclosed to the USPTO?

According to US Federal Regulation 37 C.F.R. 1.56 (b)

“…information is material to patentability when it is not cumulative to information already of record or being made of record in the application, and

(1) It establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or

(2) It refutes, or is inconsistent with, a position the applicant takes in:

(i) Opposing an argument of unpatentability relied on by the Office, or

(ii) Asserting an argument of patentability.

A prima facie case of unpatentability is established when the information compels a conclusion that a claim is unpatentable under the preponderance of evidence, burden-of-proof standard, giving each term in the claim its broadest reasonable construction consistent with the specification, and before any consideration is given to evidence which may be submitted in an attempt to establish a contrary conclusion of patentability.”

* Who has a Duty of Disclosure, Candor and Good Faith to the USPTO?

According to US Federal Regulation 37 C.F.R. 1.56 (c)

“Individuals associated with the filing or prosecution of a patent application within the meaning of this section are:

(1) Each inventor named in the application;

(2) Each attorney or agent who prepares or prosecutes the application; and

(3) Every other person who is substantively involved in the preparation or prosecution of the application and who is associated with the inventor, with the assignee or with anyone to whom there is an obligation to assign the application.”

Inequitable Conduct Evidence and Arguments

Below are three examples where I believe Vivus and its patent counsel have failed to meet their Duty of Disclosure, Candor and/or Good Faith to the USPTO.

1. Vivus Admissions: Low Dose Topiramate Is Not Taught

In attempts to secure a new second round of patents on Qsymia, outside of the original Najarian patent family, attorneys representing Vivus at Mintz Levin have submitted written admissions to the USPTO during the prosecution of the pending second round cases (US Patent Application Nos. No. 12/481,540 and 12/481,548) that the original family of Najarian patents fail to teach topiramate dosages below 50 mg and arguably below 200 mg, leaving vulnerable at least two and perhaps all four of Vivus’ marketed formulations of Qsymia. Yet the pending and issued claims in this Najarian patent family clearly embrace doses of topiramate lower than 200 mg or even 50 mg, and the claim from the first family of patents are the only issued claims the company has to Qsymia.

All of this creates a tension that is evident when the company’s patent counsel tries to obtain narrow claims to Qsymia issued in a later filed, second round patent that focuses more specifically on the doses, formulations and titration regimes of the commercial product while the company’s own first round patent (“the Najarian patent”) is being cited against them as prior art. In an effort to overcome the Najarian patent as prior art, Vivus’ counsel argues the Najarian patent does not teach low doses of topiramate.  However when simultaneously pursuing broad claims that include low doses of topiramate in a pending Najarian patent application, Vivus’ counsel does not see a problem presenting these broad claims to the USPTO or failing to tell the patent examiner that this first round patent fails to teach the low doses.

This contradiction lies at the heart of potential inequitable conduct challenges that Vivus and Mintz Levin seem likely to face when the Qsymia patents are litigated.

Below are some of the damaging lack of enablement statements made by Vivus’ patent counsel:

As stated supra, provided the disclosure of Najarian, the ordinarily skilled artisan would readily recognize that the statement cited by the Examiner is so broad as to be uninformative regarding the derivation of the specific daily maintenance dosages for topiramate, as recited by the pending claims [15-50 mg topiramate]. Najarian defines a “maintenance dose” as “an ongoing daily dose given to a patient” that typically follows a ramp-up or drug titration period. Furthermore, as noted by the Examiner, Najarian teaches that a maintenance dose for topiramate is “at least 50 mg daily”. The ordinarily skilled artisan reading Najarian, as a whole as is required, would readily recognize that an effective daily maintenance dose of topiramate cannot be less than 50 mg. In fact, the ordinarily skilled artisan would regard a daily maintenance dose of 50 mg of topiramate as the minimum possible effective dosage, and then turn to the working examples provided by Najarian to optimize the treatment regime. [emphasis added] (See pages 6-7 from the February 2012 Response After Non-Final Action for US Patent Application No. 12/481,540).

Later in the same response to the USPTO, Vivus’ patent counsel tells the Examiner that one should not expect 15-50 mg of topiramate to be efficacious for inducing weight loss. It is stated very clearly here:

Provided the disclosure of Najarian, considered in its totality, the ordinarily skilled artisan would have no reasonable expectation of predictable results or success by using the claimed low dosages of topiramate [15-50 mg] because the skilled artisan would expect such low dosages to be ineffective…

As described supra, the ordinarily skilled artisan would not expect the claimed low dosages of topiramate to be efficacious for inducing weight loss. This low dose of topiramate recited by the instant claims provides unexpected and superior properties by further decreasing the likelihood of adverse side effects observed with higher dosages of topiramate. [emphasis added] (See pages 7-8 from the February 2012 Response After Non-Final Action for US Patent Application No. 12/481,540.)

Vivus’ patent counsel goes even further when, on page 7 of the same response, they explain that Example 2 of the Najarian patent teaches administering up to 400 mg of topiramate (median dose 200 mg); therefore, the topiramate doses of the currently pending claims fall well below the teachings of the Najarian patent.

Because Najarian teaches an optimized daily maintenance dosage of topiramate that is so significantly greater than the daily maintenance dosages of the instant claims, the ordinarily skilled artisan would not modify, and particularly, would not decrease the daily maintenance dosage of topiramate below the 200 mg taught by Najarian with any reasonable expectation of predictable results or success…In fact, Najarian teaches away from the daily maintenance dosage of topiramate of less than 50 mg… [emphasis added]

One could argue that these statements constitute patent suicide undermining the only patent claims that have been issued to a commercial product. So, perhaps it is not surprising that, based on my review of the available prosecution history, the attorneys at Mintz Levin are not in a rush to notify the USPTO in the first round Najarian patent family of their feelings on the teaching of doses of topiramate below 200 mg or 50 mg.  Also note that the same Mintz attorneys are prosecuting the still pending Najarian patent applications, so it is hard to imagine that there is a disconnect or honest oversight among the team at Mintz in its failure to update the USPTO. Yet this inconsistency remains today: in the still pending Najarian patent application, the Mintz attorneys are arguing for claims to doses of topiramate between 5-1000 mg and to doses of phentermine between 5-60 mg for the treatment of sleep apnea in an obese patient (see the most recently submitted pending claim 85 in U.S. Patent Application No. 12/683,353 filed in March 2012). Meanwhile at the USPTO, the two patent families have different Examiners so it is understandable why the USPTO has failed to identify the contradictions, and why there is a need for the Duty of Disclosure, Candor and Good Faith.

2. Statements made by Dr. Najarian and his patent counsel (Diane Reed) during prosecution that overstate, in absolute terms, the improved side-effects from combining topiramate with phentermine.

Next lets look at statements made by Dr. Najarian and his patent counsel, Diane Reed, to USPTO during the prosecution of U.S. Application No. 09/593,555 (from the Najarian patent family). First is the introductory statement that accompanied the  Applicant’s declaration:

Applicant submits herewith a Declaration under 37 C.F.R. §1.132 (the “Declaration”) that shows that the combination of a sympathomimetic agent such as phentermine with an anticonvulsant sulfamate derivative such as topiramate, provides for the desired weight loss.  Further, the Declaration also shows that unpleasant side effects are observed when phentermine and topiramate are administered alone, but not when administered in combination. [emphasis added] (See page 4 of the response dated July 16, 2002 for U.S. Application No. 09/593,555.)

…and here is the declaration from Dr. Najarian:

In these same patients, over and over, I surprisingly found that the addition of a sympathomimetic agent such as phentermine greatly diminished the side effects of topiramate.  Further, this allowed patients who, previously, could not tolerate topiramate, to be able to take topiramate in combination with phentermine.  I have also had patients who previously had difficulty tolerating phentermine when administered alone as a weight loss treatment because it was too stimulating and caused insomnia, even when taken in the morning as a single dose.  These same patients could tolerate phentermine when combined with topiramate, since both drugs nicely cancel out each other’s side effects. [emphasis added] Declaration from Inventor Najarian (Section 10. A.), filed July 2002 during prosecution of U.S. Application No. 09/593,555).

These statements leave the reader believing that combining topiramate with phentermine doesn’t just diminish the side effects, but they actually disappear. Yet, when the company later submitted its Advisory Committee Briefing Document (AdCom) to the FDA in February 2012 seeking approval for Qsymia, suddenly the side effect profile is consistent with topiramate and phentermine when administered alone. Below are two statements made by Vivus in its AdCom document:

As such, the side effects of QNEXA therapy are expected to be consistent with those described in the approved labeling for phentermine and topiramate, albeit at a severity consistent with lower doses. (See AdCom document (filed February 22, 2012), page 73, first paragraph.)

The safety and tolerability profile of QNEXA demonstrated in the clinical development program is consistent with the known adverse effects of the approved component agents when used as monotherapy for various indications. Adverse effects observed with phentermine and topiramate monotherapy, which inform current labeling, were generally observed in subjects treated with doses higher than those studied in the QNEXA clinical development program. (See AdCom document (filed February 22, 2012), page 156, “9.2 Risks of Treatment” section.)

Based on my review of the Qsymia prosecution history, I have not found where the company or its patent counsel have updated the USPTO as to the true and accurate side effect profile. This seems to be a classic example of talking out of both sides of your mouth to accomplish two different goals, which would clearly not be allowed under USPTO rules.

3. Characterizing the Prior Art: Failure to Mention the McElroy Patent

The Applicant’s former patent counsel also misinformed the patent examiner about the lack of prior art (McElroy) disclosing the combination of topiramate with phentermine to treat obesity – despite almost certainly being aware of McElroy’s existence and its materiality (see the Najarian Assignment).

Even if, hypothetically, there were no warnings regarding phentermine combination therapy, one of ordinary skill in the art would still have been led away from combining phentermine with a second weight loss drug, insofar as the only reference in the 1996-1999 time frame describing the combination of phentermine with a second weight loss drug actually teaches away from the present invention as well.  See the attached publication by Bradley et al. (Appendix B), which summarizes a study on using phentermine in combination with bupropion hydrochloride for weight loss.  Not only did the second drug fail to increase weight loss relative to phentermine alone, it actually reduced phentermine’s efficacy! Page 18 of 22 of the May 18, 2005 response to an office action in the case of Application No. 10/454,368 that issued as US Patent No. 7,056,890

The most important piece of prior art is conveniently forgotten when Vivus’ patent counsel is making critical arguments to overcome an obviousness rejection. Yet, I do not believe for a second that the materiality of the McElroy patent was “forgotten” since it is featured prominently in the earlier executed assignment agreement between Dr. Najarian and Vivus. It is not the responsibility of USPTO Examiners to find and remember every piece of prior art in a case. Instead, it is the duty of the Applicant and his or her counsel to put the relevant facts in front of the Examiner and to characterize those facts honestly.

Conclusions: What Does All of This Mean?

If it is found that Vivus (the Assignee), Dr. Najarian (the Applicant) or patent counsel representing the Assignee or Applicant intentionally mislead the USPTO on an issue, or in this case multiple issues, material to the patentability of the alleged invention, the entire patent family may be found unenforceable due to inequitable conduct under 35 USC 282(1). In the present case, the missteps, omissions and contradictions described above when taken together become a compelling body of evidence. I believe most judges would view this evidence as a pattern of misconduct justifying a decision that all of the currently issued US patent claims to Qsymia are unenforceable.

In the meantime, a link to the vivuspatent.wordpress.com blog has been emailed to the three Mintz Levin attorneys listed in the prosecution documents of Vivus’ Qsymia patents as well as three members of firm management. The email explains that the linked blog contains information that may be material to the prosecution of Vivus’ Qsymia patents and they may feel a need to disclose some or all of it to the USPTO.

VIVUS Qsymia Patents: Intellectual Property House of Cards

Robert Diggs Deeper: Is Vivus Worth more than $0.24 Per Share?

What is new in the report?

  • A prior art challenge I filed against a pending Qsymia patent in Europe (European Patent Application No: 07011472.3) on August 6, 2013.
  • Public call to arms for Harvard Medical School and Endo Health Solutions, two parties each of which may be holding a potentially superior ownership claim to Vivus’ on the only issued US patents covering Qsymia.
  • Written admissions by Vivus’ outside counsel – the only issued US patents to Qsymia fail to teach topiramate dosages below 50 mg and arguably below 200 mg, leaving vulnerable at least 2 and perhaps all 4 of Vivus’ marketed formulations of Qsymia.
  • Context for the Qsymia business case – an analysis of the relatively meager commercial success usually experienced by pharmaceutical products that merely recombine or reformulate old drugs; these FDA approvals under section 505(b)2 don’t usually result in block busters nor do they tend to launch successful companies or lucrative partnership arrangements.
  • Potential Antitrust Risk – Exposes the possibility of Vivus liability should the company attempt to enforce Qsymia patents in cases where the courts find that inequitable conduct has occurred during patent prosecution and Vivus’ patents were thereby fraudulently listed in the FDA’s Orange Book.
  • Generic Competition – Detailed analysis of potential strategies and timelines; the case for Vivus’ exclusivity on Qsymia ending in 2 to 3 years.
  • Valuation of Vivus Stock – Detailed financial analysis of the value of Vivus shares assuming a 2 to 3 year window of exclusivity on Qsymia.
  • Recommendation – Sell with a target share price of $0.24.

Executive Summary

The following report examines the patent-related challenges and uncertainties facing Qsymia, and what these mean for the near-term and long-term prospects for Vivus. These challenges present real and imminent risks to the commercial viability of Qsymia. Other “innovative” drugs, especially those considered to be potential blockbusters, simply do not face these challenges.

 What does this mean to Vivus in the near to mid-term?

  • Generic Qsymia could be available as early as 30-months from time of paragraph IV filing (if not sooner through other strategies discussed in this report).
  • Nearly impossible to secure a buyout or a partnership that justifies the current market cap.
  • Without a partner, I do not believe Vivus ever reaches profitability; even if sales increase dramatically, the company will have a short runway (2-3 years) for overcoming high costs and debt, hence my $0.24 price target.

Below is a snapshot for each of the risk factors listed above with a more detailed discussion of each in the body of the report.

 Non-Patent Exclusivity

Qsymia was approved as part of the FDA’s regulatory review under Section 505(b)2 because it is a new combination of two known drugs – topiramate and phentermine, which served as reference drugs during the regulatory process. New chemical entities (NCEs), on the other hand, are novel compounds that face greater regulatory scrutiny but in turn receive five years of non-patent exclusivity. New combinations, such as Qsymia, are only granted three years of non-patent exclusivity, and may face formal challenges from generics in the form of abbreviated new drug application (ANDA) submissions that include paragraph IV certifications immediately upon NDA approval. In other words, generics are eligible to file a paragraph IV ANDA now alleging patent invalidity, unenforceability or non-infringement. Assuming Vivus counters with an infringement suit against the ANDA filer(s), Vivus is eligible for a 30-month stay on final ANDA approval of new combinations, but in the meantime, ANDA litigation may proceed and an at-risk launch becomes an option upon the expiration of the three year non-patent exclusivity and the 30-month-stay – unless the patents are found to be invalid, unenforceable or not infringed before the expiration of the 30-month stay. New chemical entities (NCEs), on the other hand, are granted a four year grace period from ANDA filings and five years of non-patent exclusivity. Nuedexta, a new drug combination from Avanir Pharmaceuticals that was approved in October 2010, is an interesting case study because it came under ANDA attack shortly after its approval in October 2010.  See the Thomson-Reuters analysis of the case here.

Essentially, new combinations can come under immediate attack from generics and are only guaranteed 3 years of exclusivity from the time of approval. Since new combinations are by definition a combination of known active pharmaceutical ingredients (API’s), generic development is simplified. More importantly for the purposes of this report, the lack of a novel compound or compounds generally makes it more difficult for the innovator to secure strong patents to new combinations as compared to NCE’s. The ability to file paragraph IV certifications upon launch, the shorter non-patent exclusivity period and the challenges associated with securing strong IP all make 505(b)2 new combination drugs more susceptible to ANDA attack.  As seen in this table, “New Combination Approvals Since 2008”, new combinations nearly always face generic challenges (or are not the subject of new patent coverage) and are not generally part of lucrative partnerships or buyouts. There is not a blockbuster in the group. In the case of Qsymia, the first of three years of non-patent exclusivity expires in July 2013 and, as will be shown throughout this report, the patents face a myriad of risks that will likely make them invalid and unenforceable. This leaves Qsymia, and any potential partners, with two more years of non-patent exclusivity – an exclusivity that is far from exclusive since the generic components of Qsymia are available for a fraction of the price and have long been prescribed, alone and in combination, by obesity specialists.

 Generic Phentermine and Topiramate Available for a Fraction of the Price

It is well documented that generic phentermine and topiramate are available for doctors to prescribe to their patients – albeit off-label in the case of topiramate. Vivus argues that generic substitutes are not available in the same doses as Qsymia, therefore its drug offers an added convenience to its users.  However, based on National Average Retail Prices data and a price check at a leading US retailer (Costco), one quickly learns a 2-month supply of generic topiramate (60 pills @ 100 mg) and phentermine (30 pills @ 30 mg) can be bought for $20.67 and $13.16, respectively, at Costco. That works out to $16.92 per month (or about $0.56 per pill for a phentermine/topiramate combo of 15mg/100mg) versus $219.99 per month for Qsymia (or about $7.33 per pill for a phentermine/topiramate combo of 15mg/92mg Qsymia). That’s a 13x markup. And those dose differences between Qsymia and its generic components are not as great as Vivus would like you to think – suggesting the Qsymia doses were selected more for commercial purposes than any medical benefit.

Based on the reimbursement challenges seen thus far, it seems payers are not convinced Qsymia’s convenience warrants such a steep markup.  As for doctor and patient preference, one only has to look at prescription data from IMS Health to get the answers. The data show prescription trends for phentermine and topiramate, alone and together, for the past 30 years (or more precisely since 1996 when topiramate was first approved). The more recent data is often cited by the company and shows quarterly numbers for Qsymia prescriptions. I was told access to the data costs $3500, which is too rich for me, but it offers a wealth of information to better understand the present threat from generics while also showing the early prescribing practices of obesity doctors who first experimented with anorexiant combinations, including combinations with topiramate before June 1999 (when the Najarian patents were originally filed). Such data may provide additional grounds for attacking the Qsymia patents – and I suspect may be part of a litigation strategy that shows public use of topiramate in combination with stimulants prior to the Najarian filing date. In the meantime, Vivus likely has the IMS data for the number of patients who are being simultaneously prescribed generic phentermine and generic topiramate. A comparison of the trends of this data versus trends in Qsymia prescriptions would provide some color on the generic situation. This might provide an interesting question for the next conference call, especially since one could argue this information is material and the company has an obligation to share it with investors.

 Najarian Patents – Serious Validity and Enforceability Risks

The Qsymia patents are likely to be found invalid and unenforceable during ANDA litigation. Qsymia is the combination of two drugs – both with well-documented weight loss properties. Merely combining the two drugs for weight loss seems obvious, especially in light of an earlier-filed patent from Susan McElroy that discloses the same combination for weight loss. It is likely to be found that the Qsymia patents, filed by Dr. Thomas Najarian, lack the necessary written description and enabling disclosure to overcome this prima facie case of obviousness.

The early Qsymia experiments described in the Najarian patents (see US Provisional Application No. 60/139,022) lack any clinical credibility because of poor experimental design (e.g., there are no controls or inclusion criteria, and the experiments are not powered or analyzed to be statistically significant). In order to overcome an obviousness challenge of combining two known weight loss drugs, Dr. Najarian must show surprising and unexpected results from the combination of the two drugs. A colleague of Dr. Najarian’s at the time of the alleged invention would not have considered the results from his experiments to be meaningful because of the poor experimental design. Even if we assume that the combination of phentermine and topiramate results in surprising and unexpected levels of efficacy or improved side effects, how could Dr. Najarian be considered to be in possession of an invention that requires surprising and unexpected results if these results did not exist until years after the invention was allegedly made?

Similarly for the patent to be enabled throughout the scope of its claims, a colleague of Dr. Najarian would not have been enabled to arrive at the specific titration, dosing and formulation requirements that the company later uses to differentiate Qsymia from its “generic substitutes.” (See Vivus 10-K, pages 39-40, filed February 26, 2013).] And Vivus’ current patent counsel agrees. It routinely discredits the original Najarian patents while pursuing later-filed patent applications to low dose Qsymia. Even more damaging for Vivus are the statements made by Dr. Najarian and his patent counsel during prosecution that overstate, in absolute terms, the improved side-effects from the combination. The Applicant’s former patent counsel also misinformed the patent examiner about the lack of prior art (McElroy) disclosing the combination of topiramate with phentermine to treat obesity – despite almost certainly being aware of McElroy’s existence and its materiality (see the Najarian Assignment). If it is found the Applicant or his patent counsel intentionally mislead the patent examiner on an issue material to the patentability of the invention, the entire patent family may be found unenforceable due to inequitable conduct.

In an effort to organize the most relevant documents that demonstrate the Najarian patents are invalid and unenforceable, I have listed the documents in a table that can be downloaded here. The table includes relevant passages and annotations that relate back to this report. The table also forms the basis for a third party-submission that was filed with the European Patent Office on August 6, 2013 and challenges the validity of European Application No. 07011472.3. The European submission contains arguments admissible under the third-party observation rules. Although these arguments by no means represent the totality of arguments likely to be used when the Najarian patents are challenged during ANDA litigation, it offers an early forum for challenging the validity of a pending Qsymia patent application in Europe.

 No Clear Chain of Title to the Patents – Licenses Available?

Although the Qsymia patents are likely to be found invalid and unenforceable, they could prove valuable to alleged infringers or those entering “business discussions” with Vivus because ownership of said patents would effectively neutralize Vivus’ only likely patent-related barrier to entry. It is an interesting story because the rights to the patents were originally assigned to Vivus by a lone inventor, Dr. Thomas Najarian, who “discovered” the topiramate/phentermine combination while serving as the Vice President of Medical Affairs and Medical Director at Interneuron Pharmaceuticals (now part Endo Health Solutions) – a company that was focused on the discovery of weight loss drugs.  At the same time, according to his resume, Dr. Najarian was also serving as a Staff Physician at Mount Auburn Hospital (which has a weight management center) and as a Clinical Instructor in Medicine at Harvard Medical School. As described in his originally filed patent applications and a subsequently filed declaration, Dr. Najarian administered topiramate (off-label) and phentermine to his patients for weight loss as part of his medical practice – presumably while teaching at Harvard and practicing medicine at Mount Auburn.  If any of the work that led to the “discovery” of Qsymia was performed at any one of these institutions or otherwise used their equipment or resources, one or all of them may be entitled to rights to the invention. These could be valuable rights – a fact that is pointed out in pair of emails sent earlier this week to both Endo Health Solutions and Harvard Medical School (who handles intellectual property and licensing matters for Mount Auburn). Both emails can be viewed here (Endo) and here (Harvard).

 Vivus’ Freedom-to-Operate Problem

Not to be forgotten is Vivus’ precarious freedom-to-operate (FTO) situation. There are issued patents for using topiramate to treat obesity (Shank patent assigned to Johnson & Johnson – expires 2017) and the combination of topiramate with psychostimulants, including phentermine, for the treatment of impulse control disorders (McElroy patent licensed to Johnson & Johnson – expires 2020). While it will be difficult for J&J to argue Vivus infringes the McElroy patent, the Shank patent presents a serious problem. Whether Johnson & Johnson asserts the patents against Vivus, or licenses them to someone else, it is hard to imagine a scenario going forward where the patents are not a part of Vivus’ commercial journey.

 Generics Can File Paragraph IV Challenges Now – ANDA Litigation Coming

Armed with the knowledge that Qsymia only has two years of non-patent exclusivity remaining and is protected by weak, vulnerable patents – the rights to which may be available to license from Harvard or Endo – generic competitors are likely lined up for a crack at the first commercially available obesity drug in more than ten years.  Litigators will have a war chest of ammunition to attack the Qsymia franchise. And since Qsymia is a 505(b)2 drug, ANDA submissions can be filed now with time to trial less than two years in many jurisdictions and judges increasingly resolving trials with the expiration of the 30-month stay in mind.  If the outcome of ANDA litigation or assignment litigation is not yet resolved after the 30-month stay, competitors can launch generic versions of Qsymia at-risk – a proposition that, given the facts around Qsymia, does not seem to carry much risk.

Alternatively, those wanting to have a product in the obesity space may opt to get a license to the Najarian patents from Harvard or Endo and possibly couple it with a license to the Shank patent as part of their “partnership discussions” with Vivus. In this scenario, it seems quite plausible that a paragraph IV filing stating the filer does not fringe any of the Qsymia patents since it rightfully shares ownership of the Najarian patents could result in a quick ruling and the filer only waiting for the expiration of the 505(b)2 expiration in July 2015 to launch its generic version of Qsymia.

 Antitrust

Vivus may also be susceptible to antitrust actions alleging that the patents were procured by fraud or that the underlying patent litigation was a sham, particularly since there is a strong possibility the Qsymia patents will be found unenforceable for inequitable conduct. In other words, one could argue that the Qsymia patents listed in the Orange Book were done so improperly; therefore the company should not be entitled to any patent-related exclusivity, including the 30-month stay awarded under Hatch-Waxman. In an interesting twist, these types of allegations could be raised as part of a qui tam lawsuit (see Amphastar v. Aventis), in which case, let it be noted that the allegations of inequitable conduct were first raised by the originator Robert Diggs in July 2012 in the earliest post on this site.

 Vivus Valuation

All of this leaves Vivus with a single commercial product in the US, Qsymia, that is riddled with fatal flaws – and another drug, Stendra, that sat on the shelf for over a year before landing a commercial partner in Europe where it enters a crowded market that includes generic Viagra. The success of Qsymia has always been dependent on its exclusivity. Given the regulatory scrutiny and marketing requirements, Qsymia was never the typical “new combination” life cycle management play that sometimes yields $100-400 million in sales for a handful of years. Typically new combinations are employed by large pharmaceutical companies to complement well established drug portfolios, or by generic companies looking to benefit from three years of exclusivity, but seldom is an entire company built around (and solely dependent on) a combination of old drugs. Somehow Vivus has convinced its investors it is the exception to the rule. Its former management misrepresented or misinterpreted Qsymia’s true potential, while watching the company’s market capitalization soar to $3 billion, and cashed in. This proxy letter from First Manhattan lays it all out pretty well.

Now the company stands with mounting debt (on horrible terms), dismal sales and a future where the only guarantee seems to be litigation. Perhaps by the time sales do begin to get somewhat interesting in a year or two and the company approaches some measure of profitability (analyst do not predict positive EBIDTA until sometime in late 2015 or 2016), the generics are likely to come in and commoditize the market – leaving patients with cheaper options for mixing a stimulant with an anticonvulsant in an attempt to lose weight and a company that, according to my calculations, should be trading at about $0.24. It is a story as old as snake oil salesmen: build a house of cards around the promise of easy weight loss, cash-in and flee the scene – in this case leaving investors in the wake, a new management team trying to overcome past mistakes and an easy path for generics to enter the market.

Introduction

It has been said that investing is about defining risk – not best case scenarios. When it comes to Qsymia – the first new obesity drug available in thirteen years – it’s easy to focus solely on the best case scenarios. After all obesity is an epidemic, and safe therapeutic options for treating the disease are in short supply. For the overweight, or even those just looking to lose a few extra pounds, the idea of taking a pill once or twice a day rather than implementing significant lifestyle changes related to diet and exercise is very appealing. And the medical community finally agrees obesity is a serious health threat that requires pharmaceutical intervention as evidenced by the American Medical Association’s (AMA) recently declaring obesity as a disease. For drugmakers and their investors this is a billion dollar plus opportunity. However, in the case Vivus, I believe it will be the risks, or more correctly the outcome from these risks, that ultimately define the company and the commercial failure of Qsymia.

The pharmaceutical business is not easy.  The realization of a single risk can wipe out all of the “best case scenarios”. Examples are plentiful: the wrong compound selected in the research phase, a poorly designed clinical trial, a change in regulatory policy, an unexpected adverse event. Near perfect execution during the entire development process and later during commercialization is required for a drug to be considered a success. In the case of Qsymia, it’s a collection of missteps, miscalculations, uncoordinated actions and fateful circumstances that I believe will ultimately prevent the drug from achieving any measure of long-term commercial success. And for Vivus, a company relying almost entirely on the success of Qsymia to drive revenues, this means past mistakes and aggressive competition from generics could prevent the company from ever generating a profit.

The risks facing Vivus, first discussed in detail here, are all related to Qsymia’s intellectual property (IP). In the pharmaceutical industry, intellectual property is a requirement to take each breath – particularly for a company like Vivus that considers itself an “innovator” but lacks the scale and expertise to execute a sales and marketing strategy without the help of a partner. Any other discussion related to the commercial viability of Qsymia (e.g., partnerships, marketing strategies, reimbursement) is moot in light of the IP risks facing the company.

  • Reimbursement – generics substitutes are available for 7.6% of the cost; doctors can continue to prescribe Qsymia’s generic components with little recourse for Vivus;
  • Buyout and Partnership – FTO threats, no clear chain of title to patents, likely invalid and unenforceable patents, and near-term generic competition (2015 or 2016) all make a buyout from a major pharmaceutical company unlikely; and a partnership that justifies Vivus’ current market cap also seems equally unlikely;
  • Marketing and Sales – Without a true partnership, Vivus must go it alone; and the company is ill-equipped to execute on and finance the direct-to-consumer and primary-care-physician marketing initiative required to successfully drive sales of Qsymia (based on the August 6th conference call, it appears new CEO Zook is relying solely on a partner to incur the costs of the DTC campaign required to drive meaningful sales – a risky move given all of Qsymia’s patent problems);
  • Financial Health – Add in the post approval studies (the completion of which is increasingly being enforced by the FDA), and the operating expenses are likely to exceed the slower than expected sales growth leaving the company in the red until sometime in 2015 or 2016 – right about the time generic Qsymia is likely to enter the market; in the meantime, additional financing will likely only be available on unfavorable terms because of IP risk (no real collateral).

 So when and how are these risks going to be manifested?

It is the aim of this report to show how each of these risk factors is likely to play out in the near-term and long-term, and what the likely ramifications are for the commercial viability of Qsymia. Thus far these risk factors have largely been a silent drag on the company – with the company’s management trying to hide or otherwise duck their effects on the company’s financing, sales and partnership discussions. In other words, they have not directly affected the commercialization of Qsymia, for example, in the form of a patent infringement suit from J&J or an ANDA filing by a generic.  But I believe the uncertainty around the company’s IP is having a major impact on the company’s alleged discussions with potential pharmaceutical partners. For example, it would be interesting to know how many of these discussions have reached the term sheet stage? How many of these discussions have even passed the first stage of due diligence that requires someone on the other side to check the IP box? I’m guessing no IP boxes checked and no term sheets. This would make a great question for a conference call or other corporate presentation.

Simply put, with weak IP, potential freedom-to-operate challenges and the immediate threat from generic competition, Vivus is unlikely to be bought or to secure the commercial partner it is so badly needs (at least not at terms that justify anything near its present value). And if the last six months are any indication, this spells trouble for future Qsymia sales, which have thus far been dismal. Also, it seems extremely likely that generics are going to challenge Qsymia’s exclusivity. The patents are too shaky and the market potential for obesity treatments is too large for generic competition to sit on the sidelines.  Blood is in the water, and, as I will discuss in greater detail throughout, there are multiple strategies for generics to aggressively attack Vivus that include options that limit the risk to the ANDA filers.

And if the readership of my earlier blog posts is any indication, there seems to be particular interest in the Qsymia patent situation among readers in India, Israel and Taiwan – all countries with a significant generic presence.  Their viewing patterns generally include a detailed read of every blog post and the download of key documents – making it hard to dismiss their interest as merely casual or benign.

Even a favorable outcome for Vivus leaves the company bloodied and battered if it somehow survives the onslaught of litigation. In the worst case scenario, and in my opinion the most likely outcome, low cost generic phentermine and topiramate continue to be prescribed during the remaining two years of Vivus’ non-patent exclusivity, after which generic Qsymia could enter the market as early as July 2015 and the company fails to ever make a profit.

As mentioned above, regardless of the ANDA litigation outcome, generic topiramate and phentermine will continue to be prescribed off-label for a fraction of the price in an increasingly cost-sensitive healthcare environment. While Vivus charges up to $220-$230 for a month’s supply of the drug’s highest dose (see CVS pricing information here and below), the most recent data (May 2013) from the Centers for Medicare & Medicaid Services shows the National Drug Acquisition Cost (NADAC) for generic 50 mg topiramate and 15 mg phentermine is $.07 and $.25 per pill, respectively; while the National Average Retail Prices (NARP) for a 60 pill supply of 100 mg generic topiramate is as low as $17.73. Qsymia’s other component, phentermine, does not have NARP data available; however, a 30 pill supply of 30 mg generic phentermine can be bought for $13.16 at Costco. If you also take the Costco price for generic topiramate ($20.67 for a 60 pill supply of 100 mg topiramate), a patient can get a two month supply of the two generic components found in the highest dose of Qsymia for a total of $33.83 (or about $0.56 per pill). Now compare that to these Qsymia  prices from CVS:

Filling Your Qsymia™ (phentermine and topiramate extended-release) capsules CIV Prescription (May 2013 – CVS Pharmacy)

Please be advised that most insurance plans currently do not cover Qsymia. If you provide your insurance information when you order your prescription, we’ll be sure to check with your insurance plan.

If you don’t have insurance or Qsymia is not covered, the pricing is as follows (plus applicable shipping fees):

3.75mg/23mg
      #30      30-day supply             $139.99*          $4.67 per pill

7.5mg/46mg
        #30      30-day supply             $159.99*          $5.33 per pill

11.25mg/69mg
    #30      30-day supply             $194.99*          $6.50 per pill

15mg/92mg         #30      30-day supply             $219.99*          $7.33 per pill

* These prices have since gone up to $145.59, $166.39, $202.79 and $228.79, respectively for the corresponding doses. For the sake of the below analysis, I will use the May prices.

On a per pill basis for the highest dose Qsymia, there is a 13x difference from the equivalent generic components ($0.56 versus $7.33 daily dosage). The economics do not line up for patients or payers – and despite weak arguments from Vivus supporters to the contrary, doctors can legally prescribe medicine off-label at their discretion and in the interest of their patients.  BiDil™, a combination of Isosorbide dinitrate and hydralazine approved in 2005 specifically indicated for African Americans with congestive heart failure, is an example of a new combination that failed on the market partially because its generic components were available for a quarter of the price. Compared to Qsymia’s 13x markup, BiDil was a bargain yet it fell to generic competition – much like I believe Qsymia will.

More definitive data from IMS Health is available that could help clarify the present threat from generic topiramate and phentermine. This 2009 paper from Hendricks et al. offers insights into the prescribing habits of physicians specializing in the treatment of obesity. A physician survey cited throughout the paper shows obesity specialists have a long history of prescribing drugs off-label. For example, 97% of the physicians surveyed reported prescribing phentermine, and 50% reported prescribing topiramate.  More current data is available from IMS Health which provides phentermine and topiramate prescription data for both drugs alone and in combination (i.e., when the drugs are prescribed together). Unfortunately I cannot afford access to the data, but it still seems quite likely that the company has this data, knows that it is significant, and, in my opinion, should share it with its investors.  This would make another interesting conference call question.

 Barriers to Entry and a 13x Markup

As I discussed in more detail in my earlier blog posts, the half-life of topiramate is 21 hours after a single dose and steady state is reached in about four days, so the notion that extended-release topiramate offers some kind of therapeutic advantage is hard to imagine (or at least quantify in terms of improved efficacy or side effects). As a reminder, Dr. Najarian first described administering phentermine in the morning and topiramate at night to achieve his “surprising and unexpected” results, so it seems patients should be able to do the same with generic components – just as he did. This leaves Vivus with the availability of pill-splitters as the company’s sole barrier to entry to its coveted Qsymia franchise. In the meantime, the company is left trying to convince patients, doctors and payers that Qsymia offers a convenience factor that justifies a 1,300% markup ($16.92 per month versus $219.99 per month) over the available generics.

The Najarian Patents – Likely Invalid and Unenforceable

The next section is an overview of the patentability and enforceability issues that will make it difficult for Vivus to block others (e.g., generics) from making, using or selling Qsymia after its 3-years of non-patent exclusivity expires in July 2015.

First, a quick review of the Qsymia patent estate: Vivus has four issued US patents that all fall under the Najarian patent family. (See Schedule I on B-6 of the Pharmakon purchase and sale agreement for a complete list of all Qsymia-related patents and pending applications in the US and abroad). There are four issued US patents in the Najarian patent portfolio that stem from three provisional patent applications the first of which was filed in June 1999. Dr. Najarian is named the sole inventor on these issued patents – the rights to which were assigned by the doctor to Vivus in October 2001.  The patents are scheduled to expire in 2020.

Vivus faces the very real possibility that the Najarian patents will be found invalid and/or unenforceable when they are challenged in court during ANDA litigation.

* The Qsymia patents are likely anticipated – On Feb 24, 1999, The University of Cincinnati filed a provisional patent application, naming Dr. Susan McElroy as inventor, that discloses the use of topiramate in combination with a short list of other pharmaceutical agents that includes phentermine for the treatment of overweight/obesity condition. This reference appears to anticipate the alleged Najarian invention under pre-AIA 35 USC 102(e) because it was filed 3 months and 20 days earlier than the earliest Najarian provisional filing date of June 14, 1999 and was the subject of a priority claim by a later application that subsequently issued as US Patent No. 6,323,236. While Vivus and Dr. Najarian could overcome this reference (for the US only) by demonstrating Dr. Najarian’s invention occurred prior to the first filing of the McElroy patent application, they have never done so.

* The Qsymia patents are likely to be found obvious – The Qsymia patents will face (minimally) an obviousness challenge based on earlier publications that describe the use of topiramate and phentermine, alone and in combination, for the treatment of obesity.

* The Qsymia patents are likely not enabled and lack written description – There is no evidence that Dr. Najarian was in possession of the alleged invention as it is claimed.  According to Vivus’ own patent counsel, the company’s only issued patents covering Qsymia do not teach the dosages in three of the four formulations that are on the market. The alleged invention simply is not enabled through the scope of the claims. The patent’s specification does not provide the required detail (e.g., the specific titration, dosing and formulation required to yield surprising and unexpected results) so one of ordinary skill in the art would know how to practice the broadest issued claims (e.g., administering topiramate and phentermine together for the treatment of weight loss); while the elements of the narrowest claims (e.g., relating to specific dosing, titration and formulation) are not adequately described in the specification. Again, Vivus’ own patent counsel admits to these shortcomings during its recent patent prosecution arguments.

* Vivus’ defense is weak – The ability to overcome earlier obviousness challenges during patent prosecution relied on a precarious declaration from the Applicant that mischaracterizes the patent application’s disclosure and contradicts later disclosures made by the company in its FDA Advisory Committee (AdCom) document and other corporate disclosures. The company fails to update the USPTO with these contradictory results and conclusions despite their ongoing duty of candor under 35 USC 1.56.

* There is evidence inequitable conduct likely occurred during patent prosecution – Statements made by the patent practitioner during prosecution of the Najarian applications opens Vivus up to enforceability challenges by third parties. It is also possible that the company failed to meet its duty of candor with the USPTO in light of Qsymia’s clinical trial results and later statements to the FDA, which appear to conflict with the arguments and declarations filed during patent prosecution.

* The inventions may not have been Dr. Najarian’s to assign – The alleged Qsymia inventions were conceived and reduced to practice while Dr. Najarian was employed by third-parties presumably using their resources; therefore, these third parties may be the rightful owner of the invention. Also, Vivus may have to rely on lab notebooks and patient records from said former employers in hopes of supporting its patent positions.  Trying to swear back even a day could require the cooperation of former employers that may be in the midst of determining their own rights to the alleged invention.

Each of the above arguments will be discussed in more detail below.

Europe – An Early Venue to Challenge the Qsymia Patents

* Basic Qsymia claims challenged in Europe – lets see how Vivus reacts.

The US Patent and Trademark Office (USPTO) recently created a new forum for challenging pending patent application that is similar to the third-party observation practice seen in Europe.  These “Preissuance Submissions”, which are described in more detail here, allow for any member of the public, including private persons and corporate entities, to file third-party submissions such as patents, published patent applications, or other printed publications of potential relevance to the examination of a patent application. Unfortunately the option of filing a preissuance submission with the USPTO was not available when the currently pending Najarian patent application (US App. No. 12/683,353) published in April 2010; however, if another application from the Najarian patent family is filed in the US, I strongly suspect a preissuance submission will follow shortly thereafter.

In Europe, on the other hand, one can file (anonymously) a third-party observation that formally challenges the validity of a European application anytime during the pendency of said application. This being the case, I took the opportunity to file a third-party observation directed to Vivus’ European Patent Application No: 07011472.3, which published as EP1825851.

One of the most important things to understand about this pending European application is that the claimed indication, Syndrome X, is a nearly irrelevant side show. Most of the pending claims in Vivus’ EP1825851 application are directed to methods of treating Syndrome X – a rather poorly defined collection of metabolic conditions sometimes characterized by hypertension, diabetes (hypoglycemia and hyperinsulinemia) and obesity. Based on a search of all patent use codes in the FDA’s Orange Book, there are no drugs currently approved in the US for Syndrome X, and even if Qsymia is approved in Europe, it will likely be solely indicated for obesity, as it is in the US, and not Syndrome X. Therefore, the Syndrome X claims are of limited commercial interest.

The heart of the alleged Najarian invention and Vivus’ current $1.5 billion market cap is encompassed by the two pending European claims not limited to treating Syndrome X: one directed to a pharmaceutical composition comprising a sympathomimetic agent (e.g., phentermine) and an anticonvulsant sulfamate derivative (e.g., topiramate); and the other claim directed to a kit with said composition. The issued patent claims that are currently protecting Qsymia are like these claims in that any combination of these two drugs, regardless of the purposes for which they are used, is covered, or the combination at times limited to the purpose of causing weight loss. If I can sink these claims, then, by extension, I should be able to sink the entire Qsymia franchise.

There are a number of ways I could attack these two claims, but for now I will rely on the simplest argument: the claims are not novel in light of the prior art (i.e., they are anticipated by the earlier filed McElroy patent).  While the patent rules and terminology are different in Europe as compared to the US, and Qsymia may never be approved there, the third-party observation, which can be viewed here, may offer an early preview into how Vivus intends to address some of the validity challenges discussed in this report, including the impact of McElroy. If Vivus has a strong position and believes in it, the company and its patent counsel can fend off my attack. If they abandon the claims immediately, it is because they know my attack would prevail. And their failure to overcome or not face my challenge will strongly suggest their previously issued claims to the combination per se or to claims to using the combination for weight loss (which is also described by McElroy) are similarly vulnerable.

And now I offer a more detailed discussion of some of the validity arguments the company is likely to face in the US when the Najarian patents are challenged during ANDA litigation.

Prior Art – Known Drugs and Known Doses in a Known Combination

Next I provide a summary of the prior art, including the McElroy patent, that existed before Dr. Najarian filed his first patent application in June 1999. Considered in its totality, the prior art shows what was known in the field of obesity-related therapeutics at the time of Dr. Najarian’s alleged invention.

In the mid and late 1990’s researchers were combining known anorexiants such as phentermine with a wide range of drugs in hopes of finding the next weight loss combination. The best known combination was phentermine and fenfluramine (of notorious phen-fen fame), while other combinations included phentermine with metformin, and antidepressants such as Prozac, Zoloft, and Wellbutrin.  As Dr. Michael Anchors describes in his June 1997 US Patent No. 5,795,895 directed to weight loss combinations comprising phentermine and selective serotonin reuptake inhibitors (SSRIs), these combinations presumably offer an improved side effect profile.

The combination of phentermine with a selected SSRI significantly reduces all side-effects of the therapy because an appropriate SSRI can be selected to offset the side-effects of phentermine. If a patient suffers constipation from phentermine, Zoloft, a diarrhea-producing drug, can be used to offset the constipation. If phentermine causes insomnia, Desyrel can improve sleep. If phentermine causes loss of sex drive, Luvox can restore it.

A similar situation is described by Lee and Morley (Obes Res. 1998 Jan;6(1):47-53), who investigated metformin as a potential weight loss drug among overweight diabetics, in the below passage:

In research trials using single-drug therapy for obesity, there appears to be a maximum weight loss of about 10 kg, even with prolonged medication treatment, raising the question of whether more effective treatment may require combination drug therapy. The rationale for the use of combined drug therapy for weight control is that using medications with different pharmacological properties may allow greater weight loss than single-drug treatment, and with minimal side effects.

Among the other drugs being investigated for weight loss at the time was topiramate – a newly approved anticonvulsant discovered and marketed by Johnson & Johnson known to have weight loss properties. The use of topiramate for weight loss is the subject of a J&J patent to inventor Shank that was originally filed in 1996 – three years prior to the first Najarian patent filing. It expires in 2017 and is revisited in the freedom-to-operate section of this report.

* Phentermine, a well known appetite suppressant, was on the market, and had been since 1959, in dosages ranging from 8 mg to 37.5 mg.  A wider range of phentermine dosages, from 3 mg to 150 mg per day, were described in the literature including published patents. (See, for example, American Medical Association. AMA Drug Evaluations Annual 1991. Chicago, IL: American Medical Association, 1991., p. 2000; and US Patent No. 5,019,594 “Method for decreasing appetite“ May 28, 1991, Interneuron Pharmaceuticals, Inc.)

* Topiramate, an anticonvulsant with known weight loss properties, was the subject of ongoing clinical weight loss research. (See, for example, US Patent No. 6,071,537 – Shank patent; Potter et al. “Sustained weight loss associated with 12-month topiramate therapy” AES Proceedings Annual Meeting of the American Epilepsy Society December 7-10, 1997, page 97, Neurological Research Center, Southwestern Vermont Medical Center, Bennington, VT, U.S.A.; Rosenfeld et al. “Topiramate and concomitant weight loss” AES Proceedings Annual Meeting of the American Epilepsy Society December 7-10, 1997, page 98, PADS Investigator Group, The Comprehensive Epilepsy Care Center for Children and Adults, St. Louis, MO; Rush Presbyterian Medical School, Chicago, IL; and Allegheny University, Philadelphia, PA, U.S.A.

* Topiramate was available in 25 mg, 50 mg, 100 mg, and 200 mg dosages with the preferred dosing regimen, according the Physicians Desk Reference, calling for a dosing titration starting at 25 mg and increasing in 25 mg increments to up to 400 mg depending on the indication. (Source: Topomax label – highlights of prescribing information). The original topiramate patent from McNeil Lab claimed dosage values of about 10 to 500 mg (Source: claim 7 of US Patent No. 4,513,006)

* Methods for treating obesity with a range of topiramate dosages were claimed in issued US patents filed before, or shortly after in the case of Kozachuk, the Najarian patent was filed:

  • 25 to 200 mg (claim 4 of US Patent No. 6,071,537 – Shank)
  • 15 to about 2000 mg per day (claim 5 of US Patent No. 6,323,236 – McElroy)
  • 1 to 5000 mg per day (claim 2 of US Patent No. 6,191,117 – Kozachuk)

* Phentermine was being combined with a wide range of drugs for weight loss in an attempt to improve efficacy and/or reduce side effects. (Source: US Patent No. 5,795,895; Lee and Morley, “Metformin Decreases Food Consumption and Induces Weight Loss in Subjects with Obesity with Type II Non-Insulin-Dependent Diabetes” Obesity Research, Vol 6, No 1, Jan 1998, pgs 47-53)

* The combination of topiramate with phentermine to treat obesity and overeating was disclosed in a patent filed by Susan McElroy in February 1999. Topiramate ranges of 15 mg to 2000 mg are described in the patent. Pharmaceutical compositions comprising topiramate in combination with other medications are also described in dosage units from about 5 to about 1000 mg of active ingredient, and in “time-release, delayed release or sustained release delivery systems.” Dosages are also described in terms of function and results, with a preferred dose described as “the lowest safe dosage that provides appropriate relief of symptoms”. (Source: US Patent No. 6,323,236, and its corresponding provisional application.)

* Finally, there is at least one medical doctor claiming that in his practice he used topiramate and stimulants, including phentermine, which were administered for the treatment of obesity at least one year prior to Dr. Najarian’s filing date, in which case this public use/sale might constitute an absolute bar to the Najarian patents under pre-AIA 35 U.S.C. 102(a) or (b).  Dr. Mark Holland of the Holland Clinic in Albuquerque makes precisely this claim.

Litigation Tip: Contact doctors like Dr. Holland who were active in weight loss clinics during the mid to late 90’s to determine if they were prescribing phentermine and topiramate in the public. One patient record from 1998 or earlier, and the whole patent family could come down. Litigators may also have questions for Dr. Najarian about where and when he first prescribed topiramate alone and in combination with phentermine. Did his early use constitute a sale? Was it part of a clinical trial under the guidance of the FDA?

The relevant passages from the references cited above can be found in this table, “Vivus Prior Art Table”. The table will be emailed to Vivus’  patent counsel, Mintz Levin, explaining the references may need to be submitted to the US Patent and Trademark Office. While some of the references (e.g., McElroy) were previously submitted to the USPTO as part of information disclosure statements (IDS’s), it seems to me their proper context and relationship together has not been properly considered, for example, because of what I consider to be misleading statements made by Vivus’ previous patent counsel.

Validity – Anticipation

* Unless Vivus can somehow establish an earlier filing date, the McElroy patent will likely stand as a 102(e) anticipation reference.

The use of topiramate for indications outside of epilepsy received the attention of Susan McElroy, a researcher at the University of Cincinnati, who in February 1999 filed a patent to the combination of topiramate with other medications, including phentermine, to treat impulse control disorders such as overeating and obesity. More specifically, Dr. McElroy disclosed a combination of topiramate with a psychostimulant, which is defined to include phentermine, for the treatment of “overweight/obesity condition”. This application became US Patent No. 6,323,236, and is featured prominently in the later executed assignment agreement between Vivus and Dr. Najarian. In the assignment, sections 3.2 (i) and (ii) account for the possibility that McElroy might “interfere, overlap or otherwise conflict with” the Najarian patent.

As it turns out, the McElroy patent does present a number of problems for the later-filed Najarian patent. In a time when doctors were liberally prescribing combinations of drugs for weight loss, Dr. Najarian chose two drugs, phentermine and topiramate, already known to have weight loss properties. Likely unknown to Dr. Najarian at the time, this same combination had already been described for the treatment of weight loss in the not-yet-published McElroy patent.

Under 35 USC 102(e) (pre-AIA), one cannot be granted a patent to an invention if that invention was first described in an earlier patent application filed by someone else. The McElroy patent clearly falls in this category as prior art under 35 USC 102(e). See the below disclosures from McElroy’s US Provisional Application No: 60/121,339 filed February 24, 1999, which later issued as US Patent No. 6,323,236:

The combination of topiramate with phentermine for the treatment of obesity:

Specifically, topiramate may be administered in combination with other medications to treat certain symptoms and disorders including:

I. Treatment of Binge Eating (Binge Eating Disorder, Bulimia Nervosa, Anorexia Nervosa with Binge eating) with serotonin re-uptake inhibitors (e.g., citalopram (CELEXA), clomipramine (ANAFRANIL)), fluoxetine (PROZAC), fluvoxamine (LUVOX), venlafaxine (EFFEXOR), other antidepressants (e.g., bupropion (WELLBUTRIN) nefazodone (SERZONE), tricyclics (e.g., NORPRAMIN and PAMELOR), trazodone (DESYREL), Substance P antagonists), psychostimulants, (e.g., d-amphetamine, phentermine; and sibutramine (MERIDIA)) and orlistat.

II. Treatment of overweight/obesity condition with sibutramine (MERIDIA); psychostimulants, (e.g., d-amphetamine, phentermine) and orlistat.” [emphasis added] (See page 24, lines 6-17).

The combination of topiramate with phentermine for the treatment of obesity in a range of doses. For example, pharmaceutical compositions in varying amounts from 5 to about 1000 mg of active ingredient are disclosed:

The pharmaceutical compositions herein will contain, per dosage unit, e.g., tablet, capsule, powder injection, teaspoonful, suppository and the like from about 5 to about 1000 mg of the active ingredient. (See page 6, lines 9-11).

Dosage may be adjusted appropriately to achieve desired drug levels, locally or systemically. Generally, daily oral doses of active compounds will be from about 0.01 mg/kg per day to 2000 mg/kg per day. (See page 26, lines 18-20).

In addition, dosages of the pharmaceutical compositions are also described in terms of function and outcome known to those skilled in the art:

It is preferred generally that a minimum dose be used, that is, the lowest safe dosage that provides appropriate relief of symptoms.  (See page 26, lines 16-17).

Additional pharmaceutical compositions comprising topiramate in combination with other medications (e.g., phentermine) in pharmaceutically acceptable amounts are disclosed:

When administered, the formulations of the invention are applied in pharmaceutically acceptable amounts and in pharmaceutically acceptable compositions. (See page 25, lines 12-13).

The compositions may conveniently be presented in unit dosage form and may be prepared by any of the methods well known in the art of pharmacy. In general, the compositions are prepared by uniformly and intimately bringing the compounds into association with a liquid carrier, a finely divided solid carrier, or both, and then, if necessary, shaping the product. Compositions suitable for oral administration may be presented as discrete units such as capsules, cachets, tablets, or lozenges, each containing a predetermined amount of the active compound. [emphasis added] (See page 27, lines 12-19).

Additional pharmaceutical compositions of the invention include various controlled release systems including time-release, delayed release or sustained release delivery systems:

Other delivery systems can include time-release, delayed release or sustained release delivery systems. Such systems can avoid repeated administrations of the active compounds of the invention, increasing convenience to the subject and the physician. Many types of release delivery systems are available and known to those of ordinary skill in the art. They include polymer based systems such as polylactic and polyglycolic acid, polyanhydrides and polycaprolactone… (See page 27-28, lines 21-23 and 1-3).

McElroy is a big problem for Vivus – a problem the company has known about since it first bought the rights to the Najarian patents and referenced the McElroy patents in the corresponding Assignment Agreement. However, at least in the US, McElroy alone may not be sufficient to destroy the entire Najarian patent estate if Dr. Najarian can establish that he invented Qsymia prior to Dr. McElroy’s earliest filing date (February 17, 1999), in which case the McElroy patent can be eliminated as prior art in the US.

Vivus Conference Call Question: Hads the company determined the earliest invention date that may be awarded to Dr. Najarian for his alleged topiramate/phentermine invention?

Establishing an earlier invention date may prove difficult, though, as evidence will need to be provided, likely in the form of lab notebooks and medical records from Endo Health Solutions (Interneuron) and Harvard, to demonstrate any earlier invention date. This could prove difficult since such an inquiry may alert each institution to its respective rights to the invention.

Validity – Obviousness

* The company likely lacks the evidence to demonstrate surprising and unexpected results required to overcome the strong obviousness arguments facing the Najarian patents.

If Vivus somehow gets around the anticipation arguments described above, an obviousness challenge likely awaits as the next challenge.

In order to better understand the likely obviousness arguments facing the Najarian patents, it is important to first provide a quick overview of the evidence (or results) found in the Najarian patents. The Applicant needs to provide evidence that the invention is surprising and unexpected in order to overcome an obviousness rejection.  In the case of drug combinations, the claimed combination must produce effects that are not merely additive, but instead produce a synergistic or other unexpected positive effect. It is analogous to filing a patent application directed to a method for staying warm that comprises wearing a sweater and a jacket. In order to be patentable, the Applicant must first show that a sweater and jacket worn together is actually warmer than a sweater or jacket worn alone, and, secondly, that the sweater and jacket combination is warmer than one would expect if two warm articles of clothing are worn together. The combination may in fact be warmer, but is it surprisingly or unexpectedly warmer as required by patent law? Does the combination offer other benefits aside from warmth? For example, is there any quantifiable evidence that the sweater and jacket together are more comfortable or offer any other advantages?

As described earlier in this report, Dr. Najarian first filed patent applications directed to phentermine and topiramate combinations for the treatment of weight loss on June 14, 1999 as US Provisional Patent Application 60/139,022. Additional provisional applications were filed in January and February of 2000, and a US utility application was filed on June 14, 2000. Example 1 of the first provisional application begins with what appears to be a prophetic human trial in which patients would be prescribed increasing doses of topiramate together with a fixed dose of 15 mg phentermine.  This is followed by a table (not titled) that includes data (patient weight and blood pressure) from seven individuals.  The reader learns this is not a prophetic example, but rather a description of actual, early experiments designed to show the efficacy of the phentermine/topiramate combination in human patients at a dose of 15 mg for phentermine and 25-200 mg of topiramate.  The example states, “patients not previously being treated with an anorexiant at the outset of the study experienced an average of about 3.5% weight loss when [sic] after only 2-6 weeks”.

Additional examples are added in subsequent provisional filings, and the final provisional application (60/181,265) filed February 2000, includes data from more patients (N=13) over a longer period of time (5-9 months), and the patient’s BMI is also included.

None of the Examples described above include controls, inclusion criteria or statistics. These are poorly powered, unblinded experiments that contain conclusions like “patients also report experiencing less side effects than any previous weight loss treatment tried” (page 16, lines 10-11 of US Provisional Application No. 60/139,022). There is no data to support these statements. Patients were not given phentermine or topiramate alone as a comparison. The experiment lacks clinical credibility and the results are often anecdotal. Here is a deeper look at the flaws in Dr. Najarian’s experimental design:

1. No controls – An uncontrolled experiment is not an experiment – rather it is a mere observation; i.e., if you cannot compare the results from individuals treated with individuals not treated, no meaningful conclusions can be drawn.

2. Inclusion criteria – Physiological parameters in humans and animals are notoriously variable from subject to subject; if one does not focus on a particular population of subjects (or individuals) with known characteristics that might be expected to react in a relatively similar manner, obtaining meaningful scientific results is often impossible.

3. Lack of statistics and power – Because of the above mentioned variability in physiological parameters, even in a tightly defined population, it is often necessary to measure results in tens or even hundreds of subjects who are treated in precisely the same manner against a similar number of subjects who are treated in a separate precise manner before meaningful results can be obtained. To determine if the number of subjects is sufficient (i.e., the experiment is sufficiently powered in such as way to yield meaningful results), there are universally recognized statistical methods that can be employed. In the present case, the sample size is clearly far too small and no statistical analysis is performed.

4. Blinded vs. unblinded –If human patients know they are receiving an active drug or believe they are receiving an active drug, they tend to have heightened physiological responses that are consistent with their expectation of how the drug should effect them. This is known as the placebo effect. Hence, experiments are often blinded so human subjects do not know whether they are taking an active drug or a placebo. This effect has also been demonstrated in situations where the researcher knows whether the drug or the placebo is being administered to the subjects, but the subjects remain blinded. Therefore, any serious clinical study that is going to be referenced for regulatory purposes is almost always double blinded such that neither the subject nor the researcher know if the subject is receiving placebo or drug.

The brief descriptions above are the foundations of experimental design taught in high schools around the world. Failure to adhere to any one of the basic principles described above is absolutely fatal to experimental design. The fact that all four were largely ignored in Dr. Najarian’s examples means that you can only draw one conclusion: he gave a handful of human subjects a combination of two known weight loss drugs and they lost weight.  Under these circumstance, any other finding would have been surprising. For an example of a simple, properly designed clinical study, see this ongoing Mayo Clinic clinical trial (NCT01834404) that is investigating the peripheral pharmacodynamics of phentermine and topiramate in obese patients. It is interesting to note the investigators at the Mayo Clinic have chosen to use the generic components of Qsymia, phentermine and topiramate, in their blinded, randomized and controlled study – not the formulation offered by Vivus.

In regards to the alleged improved tolerability (i.e., fewer side effects), Dr. Najarian relies on anecdotal evidence from an unspecified number of subjects.  These types of conclusions are usually avoided by real scientists until they can be substantiated by properly designed experiments with quantifiable, objective results.

 So what can we conclude from the results disclosed Dr. Najarian’s patents?

Well, to begin, a lot was known about phentermine and topiramate as weight loss agents before Dr. Najarian filed his patent application in June 1999:

  • Phentermine was (and still is) the most widely prescribed weight loss drug on the market. Since its approval in 1959, phentermine had been available or described in the full range of doses and formulations contemplated by Dr. Najarian.
  • Topiramate was a recently (1996) approved anticonvulsant that had also been investigated (and patented) for its well-documented weight loss properties in ranges, formulations and with dosing regimens that overlap with those described and claimed by Dr. Najarian.
  • Phentermine together with topiramate was described for the treatment of overweight and obesity in the earlier-filed McElroy patent (US Patent No. 6,323,236).

Not unexpectedly, the USPTO rejected the original claims in Dr. Najarian’s US Application No. 09/593,555 as prima facie obvious. The examiner argued that it is obvious that the combination of phentermine with topiramate – both with well documented weight loss properties – will cause weight loss and affect other physiological parameters (e.g., blood pressure, glucose levels) that follow weight loss. See pre-AIA 35 USC 103.

In order to overcome an obviousness rejection, the burden is on the Applicant to show surprising and unexpected results. In a response and corresponding declaration, Dr. Najarian and his counsel tried to argue that the efficacy and side effect profile from the topiramate/phentermine combination was indeed surprising and unexpected. However, they were unable to base such a showing on proper evidence. Instead, they relied on the results from the poorly designed experiments described above while making absolute conclusions based on anecdotal observations. For example, in a July 16, 2002 Applicant Response for the above identified application, Vivus’ patent counsel grossly overstates the allegedly improved side effect profile by saying the “side effects are canceled out by each drug”.  This conclusion is later refuted by the company’s own clinical trial results. See the company’s Advisory Committee Briefing Document (AdCom) submitted to the FDA in February 2012:

the side effects of QNEXA [QSYMIA] therapy are expected to be consistent with those described in the approved labeling for phentermine and topiramate, albeit at a severity consistent with lower doses. (See page 73 of the AdCom).

Later in the AdCom, the company offers another description of Qsymia’s side effect profile (see page 156, “9.2 Risks of Treatment” section):

The safety and tolerability profile of QNEXA [QSYMIA] demonstrated in the clinical development program is consistent with the known adverse effects of the approved component agents when used as monotherapy for various indications. Adverse effects observed with phentermine and topiramate monotherapy, which inform current labeling, were generally observed in subjects treated with doses higher than those studied in the QNEXA clinical development program.

It is important to note, the clinical trial results are the only results that come from properly designed experiments that follow the basic experimental principles set out above. Thus it is not entirely surprising that the results from the FDA trials contradict the results from the earlier Najarian experiments in regards to allegedly improved side effects – a critical discrepancy that Vivus fails to share with the USPTO despite having a duty to do so under 35 USC 1.56 (Duty of Candor).

When it is in front of the patent office or payers the side effect profile is surprising and unexpected, but when it is in front of the FDA, it is consistent with expectations.  Which is it?  Or is the Qsymia combination’s side effect profile surprisingly and unexpectedly consistent with expectations?  How do you think that will play out in patent litigation? Could these inconsistencies be viewed as anything other than intentionally misleading?

Validity – Enablement and Written Description

* The Najarian patents lack the required enabling disclosure and written description that is commensurate with the scope of the issued the claims – and Vivus’ own patent counsel agrees; minimally disavows the lowest two doses of Qsymia, arguably all four doses, in current ongoing prosecution.

Adding to Vivus’ patent problems is the company’s attempts to secure new patents outside of the original Najarian patent portfolio. As a reminder, these new later-filed Vivus patent applications must overcome Najarian as prior art. In an effort to do so, Vivus’ current patent lawyers have admitted that the Najarian patents do not teach how to make or use the two lowest doses of Qsymia –  an enablement requirement stipulated under 35 USC 112.

Below is a sampling of the statements made by Vivus’ own lawyers about the Najarian patents – the only issued US patents covering Qsymia:

As stated supra, provided the disclosure of Najarian, the ordinarily skilled artisan would readily recognize that the statement cited by the Examiner is so broad as to be uninformative regarding the derivation of the specific daily maintenance dosages for topiramate, as recited by the pending claims [15-50 mg topiramate]. Najarian defines a “maintenance dose” as “an ongoing daily dose given to a patient” that typically follows a ramp-up or drug titration period. Furthermore, as noted by the Examiner, Najarian teaches that a maintenance dose for topiramate is “at least 50 mg daily”. The ordinarily skilled artisan reading Najarian, as a whole as is required, would readily recognize that an effective daily maintenance dose of topiramate cannot be less than 50 mg. In fact, the ordinarily skilled artisan would regard a daily maintenance dose of 50 mg of topiramate as the minimum possible effective dosage, and then turn to the working examples provided by Najarian to optimize the treatment regime. [Emphasis added. Hyperlink added for clarity]. (See pages 6-7 from the February 2012 Response After Non-Final Action for US Patent Application No. 12/481,540).

Later in the same response, Vivus’ patent counsel provides this characterization of the Najarian patents:

Provided the disclosure of Najarian, considered in its totality, the ordinarily skilled artisan would have no reasonable expectation of predictable results or success by using the claimed low dosages of topiramate because the skilled artisan would expect such low dosages to be ineffective…

 As described supra, the ordinarily skilled artisan would not expect the claimed low dosages of topiramate to be efficacious for inducing weight loss. This low dose of topiramate recited by the instant claims [15-50 mg] provides unexpected and superior properties by further decreasing the likelihood of adverse side effects observed with higher dosages of topiramate. (Pages 7-8 of the same February 2012 Response).

Based on the above statement, at least two of the four doses of approved Qsymia containing less than 50 mg of topiramate are not covered by the company’s own issued patents.

  • 3.75 mg/23 mg (phentermine/topiramate)
  • 7.5 mg/46 mg (phentermine/topiramate)
  • 11.25 mg/69 mg (phentermine/topiramate)
  • 15 mg/92 mg (phentermine/topiramate)

Vivus’ patent counsel goes even further when, on page 7 of the same response, they explain that Example 2 of the Najarian patent teaches administering up to 400 mg of topiramate (median dose 200 mg), which is eight times higher than the dosage of topiramate claimed in the later-filed pending claims.

Because Najarian teaches an optimized daily maintenance dosage of topiramate that is so significantly greater than the daily maintenance dosages of the instant claims, the ordinarily skilled artisan would not modify, and particularly, would not decrease the daily maintenance dosage of topiramate below the 200 mg taught by Najarian with any reasonable expectation of predictable results or success…In fact, Najarian teaches away from the daily maintenance dosage of topiramate of less than 50 mg… [emphasis added]

Vivus’ patent counsel is telling me I should not expect topiramate doses of less than 200 mg to work “with any reasonable expectation of predictable results or success.” Now it seems they are suggesting that none of the approved doses of Qsymia are covered by the issued patents.

These statements will have major implications when Vivus tries to assert the Najarian patents against generic competition. In a sense, Vivus has committed patent suicide. The company has effectively disavowed the only claims covering Qsymia.

It is as if Vivus’ patent attorneys find themselves stranded in the middle of a vast, inhospitable desert with no water and no means of transport except a broken down old car that barely runs.  Instead of maintaining the car as best they can and trying to drive their way out, they have determined that disassembling the car and reassembling its parts into a jet pack offers their best chance for survival. Yes, in an all-or-nothing plan, they will fly their way to safety or die trying.  Very aggressive. Very risky.Image

To be clear, pursuing later claims in new patent applications is a normal tactic; however, it is nearly unheard of to do so at the expense of your only issued patents. Why would Vivus adopt such an aggressive strategy?  It seems the company believes the earlier issued Najarian patents are likely to be found invalid and/or unenforceable, and is now faced with a highly risky strategy that requires getting the new patent applications issued at any cost.  If this does in fact become the company’s stated strategy, I will address in detail the nearly impossible situation the company faces trying to get its new patent applications issued which I preliminarily introduce in the below section, “Forget Najarian – We Have a New Strategy.” In the meantime, based on the above statements made by Vivus’ own counsel, the generics are left with, minimally, a clear path to Qsymia’s two lowest doses, and patients and doctors need merely to combine the lower doses of Qsymia to circumvent the entire Qsymia franchise.

The company’s enablement problems do not end with its own admissions that topiramate in doses lower than 200 mg do not work. The Najarian patents also lack other necessary details relating to Qsymia’s dosages, formulation and titration that the company admits are required to differentiate Qsymia from its generic components. For example, the Najarian patents lack the following:

  • Complete dosage support – The Examples only describe experiments in which 15 mg of phentermine are administered to patients;
  • Titration data – Phentermine is never administered in escalating doses;
  • Description and data for extended-release topiramate formulation – There is no evidence that extended release topiramate offers any therapeutic advantage because extended release topiramate was never administered to any patients; and
  • Description and data for a single dose formulation – topiramate and phentermine were never administered together in a single formulation.

As discussed in a recent Federal Circuit decision, Wyeth v. Abbott Laboratories (June 2013), valid patent claims need to be enabled according to 35 USC 112 across their full scope. The court offered this summary of the enablement requirements (see page 5):

A patent’s specification must describe the invention and “the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains . . . to make and use the same.” 35 U.S.C. § 112(a) (2012). Claims are not enabled when, at the effective filing date of the patent, one of ordinary skill in the art could not practice their full scope without undue experimentation. …. Enablement is a question of law based on underlying facts.

The company’s management and its current patent counsel both make statements that contradict and otherwise compromise the company’s patent position.  Let’s start with the company’s most recent 10-K filed on February 26, 2013 (see pages 39-40), where the company stresses the importance of Qsymia’s titration, dosing and formulation to differentiate it from its generic substitutes:

Both of the active pharmaceutical ingredients in Qsymia, phentermine and topiramate, are available as generics and do not have a REMS requirement. The exact doses of the active ingredients in Qsymia are different than those currently available for the generic components…The safety and efficacy of Qsymia is dependent on the titration, dosing and formulation, which we believe could not be easily duplicated, if at all, with the use of generic substitutes. [emphasis added]

That’s interesting because combining generic substitutes is exactly what Dr. Najarian did to come up with his alleged invention. However, he fails to provide the necessary enabling disclosure relating to titration, dosing and formulation that the company now claims makes Qsymia distinctive.

I will allow Vivus’ own patent counsel to point out the shortcomings in the Najarian patents. In a December 2012 Response to Final Rejection for currently pending US Application No. 12/481,548, Vivus’ counsel makes clear that Najarian does not contemplate phentermine titration:

Najarian does not teach or suggest the method of pending claim 46, from which all other claims properly depend. Claim 46 requires, inter alia, a second dosage form comprising an increased amount of both phentermine and topiramate, wherein the second dosage form maintains the ratio of phentermine to topiramate…These features are neither taught nor suggested by the combination of Najarian and Lian. As stated on the record by the Examiner, Najarian does not teach incremental increases of phentermine by week. [emphasis added] (Page 6 of the December 2012 Response).

It seems Najarian only has experimental support (albeit flawed because of the experimental design failures described herein) for 15 mg of phentermine, which is the maximum phentermine dose found in Qsymia’s approved formulations:

  • 3.75 mg/23 mg (phentermine/topiramate)
  • 7.5 mg/46 mg (phentermine/topiramate)
  • 11.25 mg/69 mg (phentermine/topiramate)
  • 15 mg/92 mg (phentermine/topiramate)

As for formulation, statements made during Vivus’ current patent prosecution offer this admission that Najarian lacks an adequate description of Qsymia’s present day formulation:

Najarian fails to teach or suggest the combination of the formulation and escalating dosage regime recite by claim 19 (i.e., controlled release beads in the form of….). Rather, Najarian teaches general methods of formulation, that fail to teach or suggest the material recited in claim 19, as amended herein. (Page 5 of April 2012 Response for US Application No. 12/481,548)

How does Vivus, in light of the numerous admissions made by the company and its patent counsel during subsequent patent prosecution – specifically pointing out how the Najarian patents fail to teach or suggest, and in some cases actually teach away from, key features of Qsymia related to titration, dosing and formulation – try to assert these same patents against alleged infringers?

Litigation Tip: Ask the judge to agree to the patentee’s position as to the lack of enablement and thus invalidity of the alleged invention.

Unenforceable – Inequitable Conduct

* The Najarian patents are likely to be found unenforceable due to inequitable conduct – most notably because of statements made, and not made, during patent prosecution.

Given the above patentability issues, especially those resulting from the McElroy patent, how is it the USPTO has granted over 160 Qsymia-related claims to Vivus?

This is a legitimate question. The company and its trusting analysts often cite the 160 issued claims as evidence of a strong patent portfolio around Qsymia. First, there is a long history of the USPTO granting patents that are later found to be invalid or unenforceable during patent litigation. A patent may be found to be invalid for any one or more of the reasons provided in the above section.  Second, in the case of the Najarian patents, in addition to being unpatentable, the patents may be found to be unenforceable in light of inequitable conduct committed during patent prosecution. This inequitable conduct stems from two key events that occurred during the Najarian patent prosecution:

#1. Statements made in a precarious declaration from the drug’s inventor, Dr. Najarian, in which he provides the key arguments used to overcome an obviousness rejection introduced by the patent examiner, contradict with statements later made by the company to the FDA.  In the declaration, Dr. Najarian counters the obviousness rejection by arguing that the combined drugs, when administered together, have surprisingly fewer side effects than the individual drugs alone.

Under 35 USC 1.56, Applicants and their patent counsel have a duty to notify the patent office of any information material to patentability – failure to do so may be grounds for a finding of inequitable conduct. For example, possible inequitable conduct may have arisen if data from the later conducted clinical trials contradict any of the absolute statements made by Dr. Najarian in his declaration. Below are the statements made Dr. Najarian in his declaration, and the statements from Dr. Najarian’s patent counsel that accompanied his declaration:

“Applicant submits herewith a Declaration under 37 C.F.R. §1.132 (the “Declaration”) that shows that the combination of a sympathomimetic agent such as phentermine with an anticonvulsant sulfamate derivative such as topiramate, provides for the desired weight loss.  Further, the Declaration also shows that unpleasant side effects are observed when phentermine and topiramate are administered alone, but not when administered in combination.” (See page 4 of the response dated July 16, 2002 for U.S. Application No. 09/593,555).

“In these same patients, over and over, I surprisingly found that the addition of a sympathomimetic agent such as phentermine greatly diminished the side effects of topiramate.  Further, this allowed patients who, previously, could not tolerate topiramate, to be able to take topiramate in combination with phentermine.  I have also had patients who previously had difficulty tolerating phentermine when administered alone as a weight loss treatment because it was too stimulating and caused insomnia, even when taken in the morning as a single dose.  These same patients could tolerate phentermine when combined with topiramate, since both drugs nicely cancel out each other’s side effects.” (See Declaration from Inventor Najarian (Section 10. A.), filed July 2002 during prosecution of U.S. Application No. 09/593,555).

Again, if Dr. Najarian, Vivus or its patent counsel came into possession of any information (e.g., clinical trial data) that contradicts the above statements, they have a duty to disclose this information to the USPTO during the pendency of the any patent application in the patent family.  Based on comments made in the company’s AdCom document, it seems the side effects observed when phentermine and topiramate are administered alone do not disappear when administered in combination.  See below.

“As such, the side effects of QNEXA therapy are expected to be consistent with those described in the approved labeling for phentermine and topiramate, albeit at a severity consistent with lower doses.” AdCom document (filed February 22, 2012), page 73, first paragraph.

“The safety and tolerability profile of QNEXA demonstrated in the clinical development program is consistent with the known adverse effects of the approved component agents when used as monotherapy for various indications. Adverse effects observed with phentermine and topiramate monotherapy, which inform current labeling, were generally observed in subjects treated with doses higher than those studied in the QNEXA clinical development program.” AdCom document (filed February 22, 2012), page 156, “9.2 Risks of Treatment” section.

The absolute statements made during patent prosecution were misleading, now shown to be untrue, and were critical in overcoming earlier obviousness rejections.

#2. Statements made by the patent practitioner during prosecution of the Najarian applications opens Vivus up to enforceability challenges by third parties. Specifically, Vivus’ patent practitioner, Diane Reed, prosecuting the Najarian applications on behalf of Dr. Najarian and Vivus makes the following statement on page 18 of 22 of the May 18, 2005 response to an office action in the case of Application No. 10/454,368 that issued as US Patent No. 7,056,890:

Even if, hypothetically, there were no warnings regarding phentermine combination therapy, one of ordinary skill in the art would still have been led away from combining phentermine with a second weight loss drug, insofar as the only reference in the 1996-1999 time frame describing the combination of phentermine with a second weight loss drug actually teaches away from the present invention as well.  See the attached publication by Bradley et al. (Appendix B), which summarizes a study on using phentermine in combination with bupropion hydrochloride for weight loss.  Not only did the second drug fail to increase weight loss relative to phentermine alone, it actually reduced phentermine’s efficacy! [emphasis added]

Ms. Reed’s statement cuts right to the heart of the issues surrounding the patentability of the Najarian patents.  And it is blatantly false. As described above and featured in detail in the European Third Party Observation, the McElroy patent clearly describes the combination of phentermine with, not just a second weight loss agent, but with topiramate itself, to treat eating disorders, including obesity and overeating.

Making matters worse for Ms. Reed is the fact that she had earlier submitted an information disclosure statement (IDS), on December 13, 2001, that lists the McElroy patent as a reference.  Here is a timeline of the events:

  • October 16, 2001 – Assignment Agreement between Dr. Najarian and Vivus executed whereby the rights to the alleged phentermine/topiramate invention were assigned to Vivus contingent on the effects of the McElroy patent.
  • December 13, 2001 – IDS filed in the case of Application No. 09/593,555 disclosing the McElroy patent; the McElroy patent is the only document disclosed in the IDS.
  • May 18, 2005 – Response filed by Ms. Reed in the case of Application No. 10/454,368 (a continuation-in-part application claiming priority to Application No. 09/593,555), in which she makes false statement.

Is it possible Ms. Reed forgot the contents of the McElroy patent? That seems very unlikely since it was the only reference included in the December 13th IDS, and was submitted immediately after the Najarian Assignment was executed and filed with the USPTO.  As a reminder, the Najarian Assignment has multiple contingencies surrounding the impact of the McElroy patent on the Najarian patent estate, making it clear that the parties negotiating and drafting the assignment agreement were extremely concerned by the contents of the McElroy patent and its impact on the Najarian patents. Thus it is hard to believe the relevance of the McElroy patent was lost on Ms. Reed.  Clearly her remarks are material (i.e., without her absolute statement, I think it is very unlikely the Najarian patents overcome the obviousness rejection), and since the content of the McElroy patent was so well known to all of the parties, it leaves one wondering whether the omission was intentional or an act of malpractice.

Question for your patent counsel: Given the above fact pattern, what is the likelihood of the Najarian patents becoming unenforceable due to inequitable conduct?

Whether this was malpractice or an impermissible intentional misstatement, its effects could be devastating. If these actions are found to be inequitable conduct, they may make the entire patent family unenforceable.

Misleading investors or incompetence? A short story about Wax and Hatch

* Vivus has a long history of either not understanding patent and regulatory issues, or misleading investors on these issues. The story of Qsymia patent term extension, although not likely material to the company’s ultimate success or failure, offers another reason not to trust statements made by the company.

A petition for patent term extension was preliminarily denied on May 30, 2013.  Although largely a moot point since the patents are unlikely to survive until 2020, this episode illustrates the company not understanding or intentionally misinterpreting for the investing public key issues related to its patents. To begin, the company repeatedly told investors and analysts that it expects some form of patent term extension. Here is an exchange from a February 22, 2012 Vivus conference call:

Thomas Wei 

Jefferies & Company, Inc., Research Division

That’s helpful. And then maybe an update on the IP situation for Qnexa. When -based on the current patent landscape and your expectations for Hatch-Waxman extension of whatever their critical patent is, what – when should we expect U.S. exclusivity to last through if Qnexa is approved soon?

Timothy E. Morris

Chief Financial Officer and Senior Vice President of Finance & Global Corporate Development

It’s Tim Morris here. Yes, the IP situation remains the same. We have patents that go through 2020 that doesn’t include any Wax and Hatch [sic] extension. So if approved, we’ll apply to that immediately and believe that we’ll apply and extend the date.

Thomas Wei 

Jefferies & Company, Inc., Research Division

And what degree of — or how many years of the Hatch-Waxman extension would you expect based on the time that you’ve been in trials and in regulatory review?

Timothy E. Morris 

Chief Financial Officer and Senior Vice President of Finance & Global Corporate Development

There will be additional, but until we have applied and approved — and got it approved, it’s difficult to give you an exact number.

Qsymia has never been, and never will be, eligible for a patent term extension under the current rules because it is a combination of two previously approved drugs – see in re Alcon Laboratories 13 USPQ2 1115). Further, under a plan reading of the statutes (35 USC 156) and the clear precedent of case law, it is almost impossible to arrive at this conclusion; yet the company’s CFO is telling analysts “there will be additional” patent term extension, it is just a matter of how many months or years are added. This anecdote is just one more example of the company’s lack of candor (or poor understanding of patent and regulatory law), and should be one of many red flags for investors. Unfortunately for current management, even if they are far more competent and ethical than the former team, it is left with an IP estate and strategy that was built under the old management with all its flaws.

Ownership – Not Najarian’s to License

It is not clear that the phentermine/topiramate invention was Dr. Najarian’s to assign to Vivus. Instead, his former employers, Interneuron Pharmaceuticals (now Endo Health Solutions) and Harvard Medical School (where he taught and practiced medicine at Harvard’s affiliate Mount Auburn Hospital) may be entitled to rights to the invention if he used their resources or facilities to make any part of the invention.

With regards to Endo Health Solutions, the following letter was sent to the heads of the legal and HR departments in August 2013. It lays out some of the facts surrounding Dr. Najarian’s employment at Interneuron and also inquires whether Endo has looked into the matter of Qsymia patent rights.

First, it seems reasonable to conclude that Dr. Najarian was investigating weight loss drugs while at Interneuron Pharmaceuticals – both as a consultant and later as Vice President of Medical Affairs and Medical Director.  It seems not only was Dr. Najarian focused on developing obesity-related therapeutics – but these new therapeutics likely contained phentermine (or dexfenfluramine) or combinations thereof.  In fact, in the declaration he submitted during prosecution of his patent application, Dr. Najarian states, “As Medical Director at Interneuron Pharmaceuticals, I designed and conducted one of the critical studies that analyzed the relationship of the weight loss drug Redux to heart valve problems.” (See section 3.)

While the patents covering Qsymia have validity and enforceability issues, a license to these patents, which Endo and/or Harvard may be able to provide according to US patent law, could be a valuable part of a litigation strategy pursued by Endo or another pharmaceutical/generic player (for example, with a license from Harvard).

This opportunity may be of particular interest to Endo since it was announced on June 6th that the company is undergoing a restructuring initiative to refocus on its core drug business. Specifically the company said it aims to enhance organic growth drivers across business lines through improved execution with a priority on near-term revenue generating assets. The fact that Qsymia was invented by one of its former employees, Thomas Najarian, while he worked at Interneuron Pharmaceuticals, which changed its name to Indevus Pharmaceuticals in 2002 and was later bought by Endo Health Solutions (NASDAQ: ENDP), may mean the company can launch its phentermine/topiramate combination drug as early as July 2015 – a development that seems to fit nicely with the company’s new corporate goals.

Here is a copy of the email sent to Endo Health Solutions (EHS):

Dear EHS Executives,

Re: Potential Misappropriation of Extremely Valuable Endo Rights

 In the course of doing research for a blog I’ve authored that examines the patent landscape for Vivus’ obesity drug Qsymia, I’ve discovered that Endo Health Solutions may have rights to the patents that cover Qsymia – an asset responsible for the vast majority of Vivus’ current $1.5 billion market cap. I wanted to reach out to your company to see if you’ve previously looked into this somewhat unusual set of circumstances (which are described below), and see if you would be receptive to licensing inquiries.

 Qsymia, which was approved by the FDA in July 2012, is the combination of phentermine and topiramate indicated for the treatment of obesity.  This combination is the subject of issued patents filed solely by Dr. Thomas Najarian (with no assignee at the time of filing) – who, according to his CV (attached), was serving as the Vice President of Medical Affairs and Medical Director at Interneuron Pharmaceuticals when the invention was made.  Dr. Najarian later entered into an extremely lucrative arrangement with Vivus Pharmaceuticals whereby he assigned the company rights to the invention.  Vivus launched Qsymia in September 2012.  See the Orange Book listing here for a list of the patents covering Qsymia.

 As I’m sure you know, typically an employee of a pharmaceutical company has a duty to assign all of his or her work-related inventions to their employer, in this case Interneuron Pharmaceuticals. Given Endo’s corporate history, it seems to me that Endo should be the successor in interest to Interneuron’s rights. However, it is Dr. Najarian that is listed as the sole applicant on the earliest phentermine/topiramate patent applications (see PCT Patent Application WO/2000/076493) – not Interneuron, nor Vivus (which had not yet entered the picture). This seems particularly odd given the fact that, according to Dr. Najarian’s CV, he was working on phentermine-based weight loss drug combinations while working at Interneuron and Vivus’ Qsymia is also a weight loss drug combination comprising phentermine. I would also like to point out that I am sending a similar email to Harvard’s technology transfer office because Dr. Najarian was also serving as a Clinical Instructor in Medicine at Harvard Medical School and practicing medicine as a Staff Physician at Mount Auburn Hospital, which is Harvard Medical School Affiliate, during this time.

 It wasn’t until October 2001, when the above mentioned Vivus assignment agreement (attached) was executed, that Vivus was named as the Applicant or Assignee on this patent.  In the assignment agreement, which is made between Thomas Najarian, MD, an individual, and Vivus, Inc., a company, the Assignor (Najarian) warrants and represents, among other things, that he has not entered into and will not enter into any assignment, contract or understanding in conflict therewith (See Section 2.3).  This appears to be the end of the story.  The assignment agreement is signed by both parties.  However, no additional evidence is provided, for example in the form of a consultant or employee agreement demonstrating that Dr. Najarian did not have a duty to assign the invention to Interneuron or another third-party.  Thus the question remains:

 Did Dr. Najarian have a duty to assign the Qsymia invention to a third-party (e.g., Interneuron Pharmaceuticals) when the invention was made in 1999 – or perhaps earlier?

 As far as you know, has Endo Health Solutions looked into this issue?

 Has your generic subsidiary, Qualitest, who already offers generic phentermine, considered manufacturing and marketing a generic version of Qsymia?

 In light of your recently announced restructuring, it seems this may be an asset that could be commercialized with relatively minimal development costs and minimal risk. It’s an unusual story, but perhaps it can play some part in your company’s restructuring.

 Best regards,

 Robert F. Diggs

A similar email was sent to the Harvard Medical School technology transfer office and to Mount Auburn Hospital in August 2013. The email can be read here. In my experience Harvard’s technology transfer professionals are generally well versed in matters of intellectual property and often take an aggressive position when it is pursuing or enforcing the University’s rights. After all, you don’t arrive at a $30 billion endowment by sitting on your hands when financial opportunities arrive in the inbox.

If I’ve misunderstood the situation, there is an easy way for Vivus to clear up the misunderstanding. On rare occasions, both universities and commercial entities allow their employees to pursue their own inventions without assigning those rights to their employer. However, when this occurs, it is pursuant to a formal letter or agreement, and it usually involves technology completely unrelated to the commercial interests of the business, university or hospital. Vivus needs to simply provide evidence in the form of agreements or letters from Harvard and Endo whereby each institution rescinds all interest in the alleged invention thereby granting Dr. Najarian sole ownership. It seems this should have been a critical part of the company’s preliminary diligence when it first considered licensing the alleged invention – not to mention the diligence process of any underwriter’s counsel that has been in any way involved with a Vivus financing since 2001. Maybe these agreements exist, but they are not a part of the Najarian Assignment, and until the company can provide evidence to the contrary, this will remain a significant risk factor for the company.

Vivus Conference Call Question: Can the company produce any evidence that Dr. Najarian was granted sole ownership of the Qsymia patents by his former employers, Interneuron (now Endo Health Solutions) and Harvard Medical School?

Reminder: Vivus Has a Freedom-to-Operate (FTO) Problem

Based on my earlier analysis, most analysts and investors were focused on what they perceived to be the most imminent threat – a possible infringement lawsuit from J&J. As a reminder, J&J holds two issued patents that are likely to factor into the Qsymia story – one as a major FTO problem.  This patent, herein referred to as the Shank patent, is directed to topiramate for the treatment of weight loss; and the second patent, herein referred to as the McElroy patent, is directed to methods for using topiramate alone or in combination for the treatment of eating disorders.  The Shank patent is scheduled to expire in 2017 and the McElroy patent in 2020. Although I now believe J&J will have a difficult time showing Vivus infringes the claims of the McElroy patent and the Shank patent may face a prior art challenge, at the very least the Shank patent is still in play and several options remain available to J&J:

  • J&J could sit on the patents because it does not deem the Qsymia market worthy of a patent fight.
  • J&J could file a patent infringement suit. J&J is likely to maintain this right for years to come without invoking a laches defense since Qsymia has only been on the market for about a year. A favorable decision or settlement for J&J could result in an injunction blocking the sale of Qsymia, or more likely a royalty. A favorable decision or settlement for Vivus will likely come at the expense of time and money – both of which are in short supply for the company.
  • J&J could enter partnership or buyout discussions with Vivus while using the threat of a patent infringement suit to reach more favorable terms. This strategy could be coupled with acquiring a license to the Najarian patents from Harvard or Endo to make the discussions even more one-sided.
  • J&J could license the patents to a third party (e.g., a generic) to be used as part of an ANDA litigation strategy. This will be discussed in greater detail later.

Regardless of whichever strategy J&J adopts, the Shank patent stands as a serious impediment to any potential partnership and it needs to be  accounted for in Vivus’ valuation – just as it was by Pharmakon in their purchase and sale agreement with Vivus, when it made the company represent and warrant the following:

[Section] m (vii) To the Knowledge of Seller, the discovery, development, manufacture, importation, sale, offer for sale or use of the Product, has not and will not, infringe, violate or misuse any patent or other intellectual property rights owned by any Third Person that is not licensed to the Seller under an Existing In-License Agreement.  ***

But what’s behind the triple asterisk? The only explanation we have for now is at the bottom of every page in the agreement, “Certain confidential information contained in this document, marked with three asterisks, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.” We’ll have to wait on the Freedom of Information Act for that answer.

Litigation Scenarios

Weak patents are exposed during litigation. And even a “cogent” patent strategy cannot hide weak patents. So it was not surprising that I received a thoughtful question from Andy Baron in the comments section of an earlier blog post, “McElroy FTO – My Bad”, where he asked:

It would be interesting to hear your thoughts on whether Vivus could defeat a paragraph IV ANDA filing. Cowen assumes that a generics company would be subject to and discouraged by the CVOT requirement. Even if they were required to duplicate the VIVUS trial, it might still be lucrative for them to do so and to sell the combo drug in competition with VIVUS, if they could win an infringement suit.

At the time, I was still floored that Vivus had gotten away with convincing everyone it was a $3 billion company (market capitalization on July 2012), and I had not fully vetted the generic situation.  In my reply I explained that Vivus faced two forms of generic competition: the traditional generic threat from generic companies that gain ANDA approval and offer the same product as the innovator, and a non-traditional route – somewhat unique to Qsymia – when drug makers offer the generic components of Qsymia (phentermine and topiramate) without specifying the indication.

First, I will discuss the “non-traditional”, generic substitute route in which doctors and patients opt for the generic components of Qsymia.  Generic topiramate and phentermine have been available before Qsymia was ever approved and they are likely taking market share from Qsymia – or at the very least making reimbursement more difficult. (It seems this could be easily verified by viewing prescription data for topiramate and phentermine, prescribed alone and together, from IMS Health, which, I was told by a very helpful and patient account manager at IMS Health, is available for purchase in two year increments from the past 30+ years for about $3500 each). Also, it is interesting to note that Supernus now offers an extended-release, once-daily formulation of topiramate, Trokendi XR™, and there is no shortage of  generic phentermine available, including a recent inquiry from KVK Tech into the filing requirements for an 8 mg  dose of generic phentermine. Taken all together, this non-traditional generic threat eats into Vivus’ non-patent exclusivity period (which expires in July 2015). As a result, instead of enjoying a guaranteed three years of exclusivity, I consider Vivus’ non-patent exclusivity as only a “partial” or “shared” exclusivity period before the problems for Vivus really begin with the introduction of generic Qsymia through the traditional ANDA route.

As I stated in the response to Mr. Baron, ANDA litigation is complicated and above my pay grade. Well, my pay grade is still quite low, but I’ve had some time to read up on ANDA litigation, discuss the situation with a couple of attorneys I know who practice in this area, and consider the potential strategies generic competitors are likely to employ in their bid to introduce phentermine and topiramate combination therapies. These are merely strategies I’ve come up with based on my understanding of Vivus’ current patent situation and my understanding of ANDA rules.  Like Mr. Baron before, I encourage any and all questions, challenges, clarifications and other strategies that others have to offer from the ANDA realm. It is complicated, and there are a lot of moving parts, but what makes the Vivus situation so interesting is the vast array of weapons (and shields) available to generic (and non-generic) challengers to Vivus.

First of all, as described throughout this report, the Vivus patents are vulnerable for the following reasons:

  • No clear chain of title – Harvard and Endo may be able to assign rights
  • Patents are highly susceptible to validity and enforceability challenges – Vivus’ own patent counsel says so
  • Non-NCE status – limited non-patent exclusivity and immediate paragraph IV challenges

As for the non-NCE implications, Thomson-Reuters offers an informative, concise overview of an analogous new combination drug, Avanir’s Nuedexta™, which is a combination of dextromethorphan and quinidine approved under 505(b)2 for the treatment of pseudobulbar affect (PBA). Here is a timeline of the ANDA-related events for Nuedexta, which includes paragraph IV filings from Actavis, Impax, Par and Wockhardt:

  • October 2010 – FDA approved Avanir’s Nuedexta NDA
  • February 2011 – Avanir began promoting (selling) Nuedexta
  • March 2011 – first paragraph IV ANDA filed with FDA
  • June 2011 – Avanir received notice of ANDA filing
  • August 2011 – Avanir files infringement suit (triggers 30-month stay)
  • October 2013 – 3 year new combination (non-patent) exclusivity expires
  • December 2014 – 30-month stay expires; ANDA can be approved

From the Thomson-Reuters overview, I take away the following rules and assumptions surrounding the ANDA process for Qsymia:

  • A paragraph IV ANDA – alleging patent invalidity, unenforceability or non-infringement – for a generic version of Qsymia could have been filed soon after approval of Qsymia in July 2012. New paragraph IV filings are announced by the FDA about every two weeks here. ANDA filings also require a simple bioequivalency study to demonstrate that filer’s formulation has a similar pharmacokinetic profile to the approved drug in a small number of human patients over a relatively short period of time.
  • Once the originator (Vivus) receives notice of an ANDA submission(s), it has 45 days to file an infringement lawsuit, which triggers a 30-month stay on final ANDA approval (which expires 30-months from when Vivus received notice of the ANDA filing).
  • If the first ANDA filing is greater than 6 months after drug approval, the stay will exceed the 3-year non-patent exclusivity.
  • The stay is only effective until the patent(s) is found to be invalid and/or unenforceable or not covering the product. However, the 3-year non-patent exclusivity will still bar sale of generics until its expiration in July 2015.
  • * Upon expiration of the 3-year non-patent exclusivity, generics can launch the drug “at-risk” after gaining FDA approval. (This represents infringement liability, which given the weakness in Vivus patents may not be viewed as much of a risk.)
  • In the past, patent litigation to determine invalidity or unenforceability has usually lasted longer than 30 months; however, judges are increasingly resolving trials with the stay expiration date in mind. Also, the length of the trial is dependent on the facts of the case. For example, a case wherein the paragraph IV filer holds a license to the allegedly infringed patents could theoretically be resolved quickly – even when considering it may take 1-2 years just to begin the trial.

The corresponding Vivus ANDA timeline looks like this:

  • July 2012 – FDA approved Vivus’ Qsymia NDA
  • September 2012 – Vivus began promoting (selling) Qsymia
  • Anytime after FDA approval – first paragraph IV ANDA filed with and accepted by FDA
  • 20 days later – Vivus receives notice of ANDA filing from ANDA applicant
  • 45 day later – Vivus files infringement suit (triggers 30-month stay)
  • July 2015 – 3 year new combination (non-patent) exclusivity expires
  • 30 months after Vivus receives notice – 30-month stay expires; ANDA can be approved – unless patents found invalid, unenforceable or not infringed sooner

 Caveat: “When events in a Hatch-Waxman case do not follow the usual timeline, something interesting may be going on,” observes Thomson Reuters in this 2011 article.

Given the above timeline, the fact paragraph IV filers prevail about 50 percent of the time, and the specifics of the Qsymia case (e.g., there is a war chest of ammunition at the disposal of litigators to attack the Vivus patents), here are some potential scenarios for Qsymia ANDA litigation:

Case 1 – Generic Company A wants to launch generic Qsymia (same dose/formulation)

  1. Generic Company A files a paragraph IV ANDA.
  2. Vivus files infringement lawsuit within 45 days.
  3. Litigation begins. Possible settlement discussions.
  4. Upon expiration of the 3-year non-patent exclusivity period and the 30-month ANDA approval stay, Generic Company A can launch at-risk even if the outcome of the trial has not been determined.  Generic Company A assesses the likely outcome of the trial to make the at-risk determination.
  5. If Generic Company A prevails in the trial before the expiration of the 30-month ANDA approval stay, Generic Company A can launch upon expiration of the 3-year non-patent exclusivity period.
  6. Under no circumstances can Generic Company A launch in less than 3 years from approval.
  7. With a license to the IP from Harvard or Endo, Generic Company A would arguably not have to litigate the validity or enforceability of the Vivus patents since it would be a license holder. Instead, Generic Company A could just wait until the expiration of the 3-year non-patent exclusivity period (unless they could force an interim licensing deal from Vivus). There would likely be parallel litigation surrounding the assignment issues.

Case 2 – Generic Company B wants to launch a Qsymia variant – ANDA route (twin pack)

  1. Generic Company B files a paragraph IV ANDA and a 505(b)2 application referencing Qsymia.
  2. Vivus files infringement lawsuit within 45 days.
  3. Generic Company B begins trials showing its twin pack is similar to Qsymia.  This would require more than a simple bioequivalency study but substantially less than the clinical development originally performed by Vivus to get Qsymia approved.
  4. Litigation begins. Possible settlement discussions.
  5. Upon expiration of the 3-year non-patent exclusivity period and the 30-month ANDA approval stay, Generic Company B can launch its twin pack – assuming it has been approved by the FDA. If the infringement case is still ongoing, the launch will be at-risk.
  6. Generic Company B could gain its own 3-year non-patent exclusivity for its twin pack, but it will have incurred the additional costs of a clinical trial and the higher regulatory burden of a  505(b)2 application process. It will also face significant competition from generics making this scenario seem relatively impractical and unlikely.
  7. With a license from Harvard or Endo, Generic Company B would not have to litigate the patent infringement case.

Case 3 – Generic Company C wants to launch a Qsymia variant without filing a paragraph IV

  1. Get a license from Harvard or Endo.
  2. Generic Company C files an ANDA with a section viii statement certifying that the ANDA does not seek approval for any indications claimed by relevant patents listed in the Orange Book – in this case because the ANDA applicant has a license to the patents.
  3. Generic Company C begins trials showing its variant is similar to Qsymia. Generic Company C can reference Vivus’ data.
  4. Upon expiration of the 3-year non-patent exclusivity period, Generic Company C can launch its twin pack – assuming it has been approved by the FDA.
  5. Generic Company C could gain its own 3-year non-patent exclusivity for its variant, but it will have incurred the costs of the 505(b)2 application process, and it will face significant competition from generics making this scenario impractical and unlikely.

Case 4A – Endo Health Solutions – may own rights to the Najarian invention

  1. Endo files ANDA with a paragraph IV statement certifying that the ANDA does not infringe the patents because the ANDA applicant owns rights to the patents, or
  2. Endo files ANDA with a section viii statement certifying that the ANDA does not seek approval for any indications claimed by relevant patents listed in the Orange Book – in this case because the ANDA applicant owns rights to the patents so it does not infringe.
  3. Litigate ownership of the patents.
  4. At the same time, file suit against Vivus for infringement.
  5. Endo demands a royalty or shared marketing authorization prior to the expiration of the 3 year non-patent exclusivity period.  Meanwhile, the FDA will maintain its requirement that Vivus to continue conduct and fund CVOT studies.
  6. Assuming Endo’s rights to the patents are established by the courts, it can launch upon the expiration of the 3 year non-patent exclusivity period (July 2015).

Case 4B – Endo Health Solutions – may own rights to the Najarian invention

Goal: maintain validity of the patents (non-ANDA route)

  1. Litigate ownership of the patents.
  2. At the same time, file suit against Vivus for infringement.
  3. Endo demands a royalty or shared marketing authorization prior to the expiration of the 3 year non-patent exclusivity.  Meanwhile, force Vivus to continue CVOT studies.

Case 5 – J&J  – Already owns blocking patent(s)

  1. Get a license from Harvard.
  2. File suit against Vivus for infringement of the Najarian and Shank patents.
  3. Demand a royalty or shared marketing authorization prior to the expiration of the 3 year non-patent exclusivity, or buy the company for a small fraction of the company’s current share price and fend off others using Shank and Najarian (while Najarian lasts)

Case 6 – Launch in markets without patent coverage

Some things to consider for an ex-US and Europe strategy:

  • The Najarian patents were only filed in the US, Europe, Australia and Canada; thereby leaving all of Asia, Latin America and MENA available to generics.
  • Some of the markets (e.g., Brazil) do not allow for prescription phentermine.
  • Will local jurisdictions require Vivus’ dossier for approval of generics?
  • May have to wait for the completion of the CVOT in certain jurisdictions.
  • Large generics better equipped to commercialize generic Qsymia than Vivus – may be able to launch outside of US while US ANDA litigation is ongoing. The generics will have already demonstrated bioequivalency when the paragraph IV was filed with the FDA, and without broad geographic patent coverage, generics can make the drug anywhere outside of the US, Europe, Australia, and Canada….say, for instance, in India, Taiwan, China or Israel.

Conference Call Question: Does the company have a plan for commercializing Qsymia outside of the US, Europe, Australia and Canada? How does the company plan on blocking generics in any of these countries?

As an alternative strategy, I considered whether a company may launch a Qsymia-like twin pack (e.g., separate doses of phentermine and topiramate offered in the same package) or a Qsymia-like new formulation (e.g., a fixed dose combination without any sustained release aspect to the formulation).

Although these strategies offer some advantages, I don’t think either scenario is viable because of increased regulatory risk and cost as compared to a straight ANDA challenge or straight ownership challenge. First the advantages: a twin pack may get around the 3-year non-patent exclusivity bar (which is tied to the new combination administered in a single formulation).  While I believe Vivus’ currently issued kit claims could be easily knocked out, offering the components of Qsymia in a twin pack would require doing your own 505(b)2 – perhaps as a new formulation – especially since topiramate alone is not approved for weight loss. While 505(b)2 filings and the clinical development work needed to support them are not as expensive as the NCE path, they are not nearly as easy as ANDA approvals.

 Will anyone be surprised when the paragraph IV filing comes?

Perhaps, but not Vivus. The company is preparing its investors for the inevitable onslaught of ANDA litigation. In its Feb 2012 Annual Report, the company added this disclosure:

Other entities may also challenge the validity or enforceability of our patents and patent applications in litigation or administrative proceedings. The sponsor of a generic application seeking to rely on one of our approved drug products as the reference listed drug must make one of several certifications regarding each listed patent. A “Paragraph III” certification is the sponsor’s statement that it will wait for the patent to expire before obtaining approval for its product. A “Paragraph IV” certification is a challenge to the patent; it is an assertion that the patent does not block approval of the later product, either because the patent is invalid or unenforceable or because the patent, even if valid, is not infringed by the new product. Once the FDA accepts for filing a generic application containing a Paragraph IV certification, the applicant must within 20 days provide notice to the reference listed drug, or RLD, NDA holder and patent owner that the application with patent challenge has been submitted, and provide the factual and legal basis for the applicant’s assertion that the patent is invalid or not infringed. If the NDA holder or patent owner file suit against the generic applicant for patent infringement within 45 days of receiving the Paragraph IV notice, the FDA is prohibited from approving the generic application for a period of 30 months from the date of receipt of the notice. If the RLD has new chemical entity exclusivity and the notice is given and suit filed during the fifth year of exclusivity, the 30-month stay does not begin until five years after the RLD approval. The FDA may approve the proposed product before the expiration of the 30-month stay if a court finds the patent invalid or not infringed or if the court shortens the period because the parties have failed to cooperate in expediting the litigation. If a competitor or a generic pharmaceutical provider successfully challenges our patents, the protection provided by these patents could be reduced or eliminated and our ability to commercialize any approved drugs would be at risk. In addition, if a competitor or generic manufacturer were to receive approval to sell a generic or follow-on version of one of our products, our approved product would become subject to increased competition and our revenues for that product would be adversely affected.

Why even talk about NCE exclusivity? Stendra? Why not discuss the generic threat as it relates to its sole commercial product in the US (Qsymia), which is a 505(b)2 new combination?  What the 10-K conveniently leaves out is Qsymia will not get the benefit of a five year quiet period. Instead generics can file now and begin litigating now with a generic launch a very real possibility as early as July 2015.

 As to Mr. Baron’s question, how do the CVOT studies factor into a generic strategy?

As explained in the below excerpt from Vivus’ most recent 10-K, the company is expected to conduct at least four post approval studies to assess the long-term safety of Qsymia, including studies in pediatrics and adolescents, utilization among women with pregnancy exposure, and other studies to assess renal function and cardiovascular outcome.  Vivus estimates the cardiovascular outcome trial (CVOT) alone could cost $150-$250M and take as long as five years. And the FDA is increasingly making market authorization holders complete these studies – whereas in the past these studies were often delayed or only partially completed. Some have suggested (see Cowen remarks) the generics might wait to file ANDA submissions if they too are responsible for completing CVOTs or must wait until Vivus completes its trial. As far as I know, the FDA has not weighed in on this matter and there is no precedent – aside from a 2012 case tried in Canada where sibutramine was voluntarily withdrawn from the market after an Abbott CVOT showed an increased risk of non-fatal heart attacks and strokes. The plaintiff sued both Abbott and Apotex, who offered a generic version of sibutramine, but the case against Apotex was dismissed since the plaintiff only took the Abbott drug. For Qsymia, it seems filing a paragraph IV challenge is low risk to the filer and may compel the FDA to weigh in on any post-approval regulatory obligations, so I do not believe the need for costly CVOT studies is a hindrance to ANDA submission filing.

Here is Vivus’ description of its post approval study requirements:

As part of the approval of Qsymia, we are required to conduct several post-marketing studies, including a study to assess the long-term treatment effect of Qsymia on the incidence of major adverse cardiovascular events in overweight and obese subjects with confirmed cardiovascular disease, studies to assess the safety and efficacy of Qsymia for weight management in obese pediatric and adolescent subjects, studies to assess drug utilization and pregnancy exposure and a study to assess renal function. The details of the cardiovascular outcomes study, known as ACQLAIM, have not yet been agreed upon with the FDA. This study could cost between $150.0 and $250.0 million and take as long as five years to complete. Enrollment is expected to begin in the fourth quarter of 2013. There can be no assurance that the FDA will not request or require us to provide additional information or undertake additional prospective studies or retrospective observational studies or that we will be able to agree with the FDA on the details of ACQLAIM. (See page 27 of Vivus’ Feb 2013 10-K]

In summary, Vivus’ Qsymia is currently facing competition from doctor’s prescribing generic phentermine and topiramate (off-label) for the treatment of obesity.  The next two years of non-patent exclusivity are more like partial exclusivity in light of this generic competition. Upon the expiration of the 505(b)2 non-patent exclusivity period in July 2015 and the expiration of the 30-month stay on final FDA approval, generic versions of Qsymia can be launched at-risk while patent and assignment litigation matters are handled by the courts. In my opinion, an at-risk launch does not seem to carry much risk given the numerous problems surrounding the Qsymia patent portfolio described herein. Alternatively, licenses from Harvard, Endo or J&J offer a seldom-seen, powerful tool for generics to quickly neutralize Vivus’ efforts to block competitors. Such a license would likely lead to a quick decision from the courts (before the expiration of the 30-month stay) and may also usher in a cross-licensing settlement – all of which point to an early generic launch in July 2015 when the non-patent exclusivity expires.

Play at home: Check to see when Qsymia faces its first ANDA challenge by visiting the FDA’s “Paragraph IV Patent Certifications” page which is updated about every two weeks.

Value Discussion

* Making ~$5 million per quarter while spending $50 million per quarter

* Financing on horrible terms – mortgaging the future

* Earnings disappear when generics enter the market

* Financial model – Assuming generic competition enters in the first half of 2016, a unlevered DCF model values Vivus at -$3.24, while a model based on a future revenue multiple values the company at $3.13

 Given the questions surrounding Qsymia exclusivity, what is a fair value for Vivus?

Answer: If you accept my hypothesis that generics will enter in early 2016, Vivus should be trading around $0.24 per share (and lower if generics enter immediately after the expiration of Qsymia’s non-patent exclusivity in July 2015). See the valuation models here.

Vivus’ value is based largely on the success or failure of a single product – Qsymia.  The company’s erectile dysfunction (ED) drug, Stendra, has some value as evidenced by its recent deal in Europe with Menarini – a strong partner with an impressive sales force in Europe.  However, as John LaMattina explains in this Forbes article, the drug faces stiff competition in the crowded ED space that now includes generic Viagra. And the deal terms with Menarini appear to confirm the widely held belief that Stendra (Spedra in Europe) has minimal upside. For example, under the terms of the agreement, in the first year, Vivus expects to receive $51 million including an upfront payment of $21 million.  The deal is worth up to an additional $121 million, plus royalties, if all targets are met over the 10 year term. (Oddly, the royalty schedule was not disclosed). The terms of the deal are not overly impressive and they show the company’s continued willingness to mortgage its future to get cash now.  Without knowing the royalty (let’s assume about 12% pegged against low sales due to generic competition), I estimate Spedra might kick out $15-20 million per year in Europe after the initial $51 million. A similar deal in the US might see $20-25 million per year. These are not the types of numbers that can overcome the significant operating expenses the company is scheduled to incur in the next five years.

That leaves the company with Qsymia, which everyone agrees is the company’s crown jewel.  Yet a closer look at Vivus’ recent financing with Pharmakon – in which it raised $110M – shows how the financial community values the company’s “jewel”.

 Recent Financings – A Measure of Ethics and Company Value

This summer’s proxy fight seemed to be driven by ego and emotion, so it is not surprising that both sides seemed to overpromise and under deliver. Among the tactics used by the former regime to build shareholder support were numerous reports (here) of ongoing partnership discussions. The above-mentioned “leak” of “discussions” led to a weeklong rally in the middle of May that saw the stock gain 10-13%, which was predictably (at least for Vivus’ former management) followed by a $220 million convertible offering on May 16th.

Still more alarming was the March 25 financing – the terms of which seem to illustrate the new understanding within the financial community of Vivus’ desperate and highly uncertain situation. The 8-K can be found here and the purchase and sale agreement is here – the latter of which is a fascinating document for its detailed insights into how a sophisticated royalty-based financier views Vivus’ value. Here are some highlights and comments from the Pharmakon deal:

  • Vivus receives a $110 million loan from creditor Pharmakon Advisors (Form ADV Part 2A Brochure provides more information on Pharmakon here)
  • This is not Pharmakon’s first rodeo. The principals, including Royalty Pharma’s Mr. Legorreta, have done a lot of deals including those with complex, drug-related IP issues (see pages 7-8 of the above-linked brochure)
  • Vivus borrowed $50 million immediately and can elect to borrow another $60 million before the end of the year.
  • In return, Vivus is required to pay back the loan in quarterly installments tied to net sales of Qsymia (a 25% royalty on sales) starting in the second quarter of 2014, with the final amount of the scheduled payments due in the second quarter of 2018.
  • The implied interest rate on the loan is said to be more than 13% – very steep by corporate debt standards; and guarantees a minimum five year return for Pharmakon of more than 40%.
  • If Vivus’ scheduled quarterly payment, which is pegged to the 25% royalty, is lower than any scheduled repayment, the difference is added to a final payment when the loan matures in 2018 (plus 3%). Basically, Pharmakon is hoping Vivus cannot meet their repayment schedule.
  • To secure the debt, Vivus granted Pharmakon “patents, trademarks, copyrights and regulatory filings” related to Qsymia – basically granting Pharmakon its sole asset, although I would argue that Qsymia IP as collateral is worthless or, in a best case scenario, gets you in a long and expensive ANDA fight you’re likely to lose while also conducting post-approval safety studies to stay on the market. And it gets better…
  • Upon the second anniversary of the agreement (March 2015), Pharmakon has the ability to sell all or part of its interest in Qsymia based on host of conditions, including “a promotion and marketing failure” or the accumulation of too much additional debt. This date conveniently falls 4 months prior to the expiration of Qsymia’s non-patent exclusivity – at which time Pharmakon will likely be able to better assess the threat from generics.
  • Pharmakon also gained the right to approve (or not approve) any licensing deals, and should the company be bought, the buyer must immediately repay Pharmakon.

Those terms are outrageous for a company with the first new obesity drug launched in more than ten years. Pharmakon basically bought a quarter of Vivus for $110 million, which needs to be paid back at a very high interest rate. That’s a serious discount negotiated by a group, Pharmakon, that routinely defines and values IP risk. Clearly, these risks, which have been discussed throughout this report, are substantial – and the realization of any one of them alone will dramatically change the value of the Qsymia franchise. For example,

 Would a patent opposition trigger a default? Would patent assignment-related litigation trigger a default?

In the big picture Pharmakon is the least of Vivus’ worries, but rest assured Mr. Legorreta will be waiting with his hand out should things go sideways in the near future and I think they will. (Side note: A copy of this report was sent to Pharmakon and Royalty Pharma.)

Valuation Model with Patent Assumptions

Let’s start with some comments from Vivus’ new leaders:

From June 4th FMC letter:

“In the absence of the required human and capital resources provided by a large pharma partner, Vivus shareholders are footing a massive bill for operating expenses—over $2.20 per share annualized—while generating insignificant revenue.”

From July 2nd FMC letter:

“It is clear that it will be many years before the revenue and expense lines in the graph cross. Vivus has an unsustainable expense structure with spiraling SG&A costs and, in our view, very little financial discipline. The current Vivus board lacks a single director with public company CFO experience. Consequently shareholder capital is burning at an accelerating pace. Our shareholder slate includes two director nominees with public company CFO experience, who have turned around troubled companies. Their skills will benefit all shareholders.

If you make the following assumptions, Vivus will never be a profitable company:

  • Already high costs are going to stay high or increase because of multiple large post-approval studies mandated by the FDA and the need for launching an expensive direct to consumer marketing campaign and building a sales force to target primary care physicians;
  • If the company chooses to delay a direct-to-consumer campaign, sales are likely to remain well below analyst expectations;
  • The entry of generic competition in the second half of 2015 or sometime in 2016; and
  • No partnership or a partnership that protects the partner from sinking costs into an asset that would lose all of its value when generics enter the market.

Despite the new management’s calls to reduce costs, it seems to me the company faces increasing expenses in the form of costly post-approval studies (e.g., CVOT) – ten to be exact – and a major marketing campaign necessary to reach primary care physicians and to ultimately drive sales. I believe the company’s estimated cost ($150-$250 million) for the upcoming CVOT study (enrollment begins Q4 2013) is perhaps too conservative and the 16,000 patient trial will minimally fall on the high side of the company’s estimated cost if one assumes the cost per patient may exceed $15k or more.

If the company really does cut costs, it will have to be largely at the expense of its sales and marketing efforts. This will leave the company under water with anemic sales and a still high relative burn rate. For example, Vivus announced fourth quarter earnings of $2 million and a net loss of $57 million; and the first quarter numbers were not much better with revenue of $4 million and net losses of $54 million. The trend of low sales and high costs continued in the most recent quarter with the company reporting sales of $5.5 million and a net loss of $55.5 million. While Vivus’ revenues are likely to increase, perhaps dramatically, in the coming quarters, time starts to become a factor as the company approaches July 2015 when Qsymia’s guaranteed “partial” exclusivity ends.

Again, I feel Vivus’ new leadership best summarizes the financial health of Vivus in its July 2nd shareholder letter:

The finances may get worse very soon. Vivus is now preparing to launch an expensive direct-to-consumer campaign for Qsymia that almost surely reflects the same amateurism of its previous commercial activities. Sales have been negligible while expenses have been growing at a rate that will lead to even more debt and shareholder dilution. Since Vivus has perhaps less than two years of cash on hand, our nominees’ plan includes reducing wasteful spending on commercial activities that do not generate revenue.

Partnership Near Vivus’ Current Value – Extremely Unlikely

 What pharmaceutical company is going to invest its precious sales bandwidth into a product that is likely to be slammed by generics in late 2015 or early 2016?

Diverting resources to a new product with the potential for such a short runway does not fit the conservative pharmaceutical mindset. And this doesn’t even account for the financial costs Qsymia requires to stay on the market. I believe Vivus’ CVOT trial costs are likely to be near or above the high end of their estimated costs of $250 million (and that is just one of the ten post-approval studies required – albeit the most costly one).  I just don’t see a pharmaceutical company signing up for this deal, especially with its patent lawyers offering no guarantee of exclusivity after July 2015. I’ll leave the product liability discussion to someone more qualified than me, but it does seem to me that selling a weight loss drug in the US that is known to cause birth defects also represents a significant risk outside of the patent risks discussed here.

 DCF and Future Revenue Multiple Models

I enlisted the help of a friend with an MBA from The University of Chicago who has a career in the financial services industry to help compile consensus analyst estimates, along with our own estimates, and use basic DCF and future revenue valuation models to put some numbers behind my assumptions. The numbers are scary if you’re a Vivus investor or potential partner/buyer.

Without estimates beyond 2016 or 2017, these are not perfect valuations, however, you can see the analysts favor the future revenue multiple model for issuing target prices and the current share price is near the target price for the “Middle” analyst. The details for each scenario can be viewed by clicking on the model name (e.g., Bull, Middle or Consensus).

Unlevered DCF Levered DCF Future Revenue Multiple Mid-point
Bull $5.54 $5.36 $17.75 $11.60
Middle $1.39 $1.59 $14.63 $8.05
Consensus $3.59 $3.58 $22.35 $12.96

My estimates account for a royalty stack that includes the following:

  • Tiered 1-3% royalty to Dr. Najarian (See the Najarian Assignment)
  • Estimated 7% royalty to J&J for Shank patent beginning in 2015
  • Pharmakon payment schedule (assumes Vivus pays the predetermined amounts)

My estimates also assume Vivus is unable to secure a partnership or gets a partner unwilling to solely shoulder the costs of the ten post-approval studies and the increased sales and marketing efforts. Most importantly, my estimates assume generic competition enters the market during the first half of 2016. My numbers (RFD) are not as bad as one analyst (Bear) that also never forecasts the company reaching profitability.

Unlevered DCF Levered DCF Future Revenue Multiple Mid-point
Bear ($11.52) ($9.09) $6.54 ($1.88)
RFD ($3.24) ($2.07) $3.13 $0.24

Here are the different scenarios shown graphically. Dollar amounts are in millions.ImageImage

The take home message – everyone forecasts negative EBIDTA until sometime in 2015 or 2016 (except for an outlier bull forecast). Nothing after 2020. This represents a small window of profitability that I strongly believe will be occupied by generics – perhaps starting as early as July 2015.

 Management’s Options – The Damage is Already Done

It is not clear to me why First Manhattan and Sarissa Capital Management fought so hard to gain control of a company where the only guarantees seem to be lawsuits and lots of red on the balance sheet. Perhaps ego and emotion got the upper hand when objectivity and sound diligence should have prevailed. It seems to me the dog was chasing the car, and – oh sh!t- it caught the car. Now what? In my opinion, Vivus is a company riddled with fatal patent flaws that will make it impossible to ever reach profitability. Unfortunately for Vivus’ new leadership team, the company’s past sins are of biblical proportions and cannot be undone, instead they are likely to haunt the company “to the third and the fourth generation” (See Numbers 14:18). And former CEO Lee Wilson seems to have forecast this demise when he compared Qsymia to Alza’s Ditropan during a 2006 conference call:

You know, our pedigree at VIVUS comes out of ALZA Corporation, which made its life taking drugs which were generic and bringing them to the market in very successful fashion. And so Ditropan is a very good example of that…

However, as I first described in my earlier blog post, Mr. Wilson’s choice of Alza’s Ditropan is an unfortunate one.  One month after making these comments, The Court of Appeals for the Federal Circuit affirmed a lower court’s determination that ALZA’s patent on Ditropan XL, a controlled-release formulation of oxybutinin, was invalid due to obviousness. In terms of a financial impact, Ditropan XL, used for the treatment of incontinence, saw its annual sales of $380 million in 2005 fall to $15 million and $13 million in 2009 and 2010, respectively. When generic competition enters, the party is over. And Ditropan XL serves as another example of a new combination or reformulation drug (albeit with annual revenues peaking at $380 million) that failed to enjoy exclusivity over the entire duration of patent term. (See New Combinations Approval table for a list of all 505(b)2 new combinations approved since 2008.)

Whether it’s the early entry of generic competition, failure to secure a partner to drive sales, or a combination of the two, both drugs (Alza’s Ditropan XL and Vivus’ Qsymia) failed to deliver for investors. In Vivus’ case, the company is a one trick pony and the consequences will be severe, unless you were a former member of the Vivus executive team, which conveniently cashed out at the right time.  See the former management’s 2012 total compensation for the evidence:

  • Leland Wilson            $ 3,898,394
  • Peter Tam                  $ 1,846,388
  • Tim Morris                 $ 1,467,427

(Source: 2012 Summary Compensation Table, Vivus’ Amended Annual Report)

 New Management – Same Fatal Flaws

The recent proxy vote may have ushered in a long overdue management overhaul, but unless the new board can re-write the patent and regulatory laws in the US, the problems stemming from Qsymia’s incredibly messy patent situation are not going away.

FMC’s June 4 letter to Vivus’ stockholders lays out the shortcomings of the former management team. To me, it is somewhat refreshing to hear others call out the former management’s blatant lack of candor. It has been ongoing since the company first licensed the Najarian IP in 2002 – often at the expense of Vivus shareholders. What the letter does not address is the permanent, fatal flaws that plague the company that no new team of board members can overcome: generics substitutes are already available but more importantly the Qsymia patents are going to be challenged by the generics. The invalidity and unenforceability arguments provided throughout this report will be at the disposal of skilled litigators. And to be crystal clear here: this report is based the research of a former patent agent. I arrived at these patent conclusions based on publicly available information – albeit many of the critical details are buried in obscure patent databases and in the fine print of lengthy agreements. I asked myself a basic question, “how does a company secure patents to a weight loss drug combination made up of two drugs already known to cause weight loss?” Some research to answer the above question led to a series of discoveries that quickly made it clear to me that Qsymia lacks the necessary patents to ever lead Vivus to profitability. My investigation thus far has been analogous to a boy scout equipped with nothing more than a flashlight. So what happens when the real litigation begins? Well, the boy scout is replaced by well funded, experienced litigators that are more like Seal Team Six armed with much more than flashlights during the exhaustive discovery phase that US litigation affords. Add in the Shank patent held by J&J, plus the possibility of licenses to the Najarian patents from Harvard and Endo Health Solutions, and you have very few ANDA litigation outcomes that see Vivus ever reaching meaningful profitability.

Question for your patent counsel: How do you see this Vivus patent situation playing out? Why didn’t I know about this earlier? How much time do I have to get out of my position before the Vivus’ intellectual property house of cards falls?

 A closer look at FMC’s proposed strategy to save Vivus

1. Ensure the right management is in place

While FMC’s new directors and officers have an impressive commercial track record, it is all for not if generics flood the market well before the expiration of Vivus’ patents. Maybe if the new board included a top ANDA litigator the company could buy itself a little extra time, but the end result will very likely be the same: a short lived Qsymia franchise that is overrun by generics.

2. Engage the right pharmaceutical partner on the right partnership terms

Whether discussions with potential partners started two years ago or begin in the next six months, it does not matter. Simply there is too much risk. Without some level of certainty around the Qsymia patents, pharmaceutical companies are extremely unlikely to strike the type of deal Vivus needs. Major pharmaceutical companies are notoriously conservative when it comes to patent risk.

3. Fix the unsustainable expense structure that is failing to generate revenue

“ Vivus has an unsustainable expense structure with spiraling SG&A costs and, in our view, very little financial discipline. “ True.  See the valuation section above.

“The finances may get worse very soon. Vivus is now preparing to launch an expensive direct-to-consumer campaign for Qsymia that almost surely reflects the same amateurism of its previous commercial activities.” True. But any marketing plan aimed at PCPs will require significant capital. Add in the expensive post-approval studies, ANDA/assignment litigation and a short runway of exclusivity, and it is not clear how Vivus gets out from under its expenses. If the company holds out for a partnership before investing in sales and marketing, revenues will continue to lag as July 2015 comes closer and closer.

4. Fix the U.S. commercial strategy

Easier said than done. A 13x markup in this payer environment is hard to justify when Qsymia, from what I can see, really only offers a convenience factor over its generic substitutes. However, it is hard to imagine Qsymia not getting some traction in the market – after all, it does help patients lose weight  and there are an estimated 70 million obese adults. But can the company make enough money before the entry of generics to justify the current $1.5 billion market cap?

5. Optimize Medicare and commercial reimbursement strategy

See #4 above.

6. Execute a Euro-centric approach to obtaining E.U. approval through the centralized procedure

“We believe that Vivus’ seriously flawed approach to E.U. approval for Qsymia has impaired the company’s credibility with European regulators and jeopardizes its substantial value in Europe.” The new team can bring in the best European regulatory experts, but I think it will be hard to get Qsymia approved there. Phentermine is not approved in Europe and European regulators have shown to take a harsh view of obesity drugs. The payer environment is brutal. The non-patent exclusivity incentives (10 to 11 years) are much more favorable, so if Vivus could get the drug approved it will not likely face the same level of generic scrutiny.

Where does the company stand now?

  • No partnership at present levels – no one is signing up for the uncertainty and risk
  • Continued slow sales – essentially starting from scratch without a partner
  • Continued high spend – no partner to pick up the tab
  • Generic competition – weak patents means generics are likely to enter before the company ever makes a profit

The need to “check the ‘intellectual property’ box” during diligence is critical – whether you’re an investor, analyst or a potential acquirer/partner.  While there will always be investors who gladly account for best case scenarios without properly defining risks and sell-side analysts who refuse to think outside the comforts afforded by a spreadsheet, I believe potential acquirers and partners understand the issues that will never make Qsymia commercially viable – and that’s why we haven’t seen a deal and we’re not likely to see a deal until the share price accounts for these risks. I’ll go a step further and say legal counsel working for a potential partner or acquirer risks career suicide if he or she approves a deal with Vivus, and outside counsel would likely need to consider malpractice liability. The risks are alarming and Vivus is likely to face the hangover from a decade of overpromises, misinformation and sloppy execution alone – without the deep pockets and experience of a commercial partner.

Wisdom From the Vivus Message Board

A poster on the Vivus Yahoo message board, bengtpress, recently raised a potential challenge to the Shank patent.  I was impressed by his post and the issues he raised.  Citron Research and I have posed multiple concerns about Vivus’ Qsymia patent position in the last few weeks, and the issue that has received by far the most attention is J&J’s Shank ‘537 patent. Yet bengtpress is the only one, in my mind, to have put forward a serious, thoughtful answer to this question that has the potential to mount a real challenge to the Shank patent and its potential dominance over Vivus’ Qsymia program.

I have not performed a thorough analysis of the Shank patent’s validity, and while I am aware of Penovich, I have not come to a final conclusion of how I think it will impact the validity of Shank.

However, here are some initial thoughts:

In support of Vivus’ position you have the fact that Penovich describes administration of topiramate causing weight loss in humans.  This is only one point, but it is a very powerful point.

J&J could argue in rebuttal that the weight loss in Penovich is only being disclosed in the context of a side effect – and not a medically beneficial pharmacological outcome.  After recognizing the capacity for topiramate to cause weight loss, Penovich states: “There were no other medical illnesses involved”.  Weight loss is a common toxicological effect.  A sub-lethal dose of most poisons would cause the effects that Penovich observed and she seems to have considered this weight loss as a toxic side effect, as did the Examiner in the Shank patent.  In the January 29, 1998 Office Action, page 3, first full sentence Examiner James M. Spear summarizes Penovich as “teaching that topiramate given to treat epilepsy adversely causes weight loss.”  If nausea and weight loss were enough to make something an obesity medication, Drano would pretty much do the trick.

J&J can also argue that Penovich was made of record in the Shank prosecution which means that Shank is presumed valid over Penovich.  However, J&J should not get too comfortable with that position because while the presumption is there it is not irrebuttable.  However, J&J also has the advantage that Penovich was not just made of record in the Shank prosecution, but Examiner Spear used it to make both novelty rejections under 35 USC 102 and obviousness rejections under 35 USC 103, both of which J&J was able to overcome during prosecution.

To me, I think this will come down to whether an observation of weight loss that is perceived and reported as a toxicological effect is inherent anticipation for the use of a compound as a weight loss medication.  I don’t know the answer, but in my opinion Penovich is not the silver bullet that is going to kill Shank at the start of litigation, which a small company like Vivus really wants here as it faces a formidable, better-funded opponent in Johnson & Johnson.

Daniel B. Ravicher’s Response to Qsymia Patent Report: Why Reasonable People Hate Ethically-Challenged Lawyers

On July 31, 2012, Mr. Ravicher was published in a Seeking Alpha piece entitled, “Report Raising Vivus Qsymia Patent Infringement Concerns Was Not Competent.

As a general matter, I am more impressed with the intellectual content of messages that I find scribbled on bathroom walls than I am with what is posted on Seeking Alpha, but then again I expect the editorial policies and the selection process for the writers to be more stringent for those taking a pen to bathroom walls.  Even against this underwhelming background, Mr. Ravicher’s work is a disappointment.

The central thesis of the piece, and indeed its headline is that the Citron Research report on Vivus’ patent position is not “competent”.  That sounds bad, doesn’t it? A casual reader might conclude that Mr. Ravicher was saying that Citron research is wrong, but that is not the case at all.  In fact, Mr. Ravicher specifically states:

 I’m not even saying the conclusions reached by that portion of the report [the only portion he focuses on] are necessarily incorrect. Nor could I, as I have not myself yet performed an analysis of the potentially infringed patent.

Then later in his piece Mr. Ravicher states:

 Again, I’m not saying the report is necessarily wrong, and that Qsymia has nothing to fear in terms of the Shank ‘537 patent. It’s entirely possible that the Shank ‘537 patent is valid and infringed by Qsymia.

Ok, if he is not saying the Citron report is wrong or that he has even analyzed the questions raised by the portion of the report he is focused on, what the hell is he saying?

Mr. Ravicher is apparently reviewing the legal basis for a finding of legal competence for a patent opinion by a federal court.  In patent litigation, if an accused infringer is found to have known that a patent exists and is valid, and the infringer is found to have decided to engage in the infringing activity irrespective of the patent, then the accused infringer may be found to have engaged in willful infringement and can be liable for treble the normal damages consistent with 35 USC 284.

One way of avoiding a finding of willful infringement is for an accused infringer to have obtained a competent legal opinion from a patent attorney prior to engaging in the suspect activity.  Such an opinion would need to conclude that the suspect activity either will not infringe the patent concerned or that the patent would otherwise be found by the courts to be invalid or somehow unenforceable.

What does this arcane legal standard have to do with whether Vivus’ drug Qsymia infringes the Shank patent owned by J&J and therefore creates a significant business problem for Vivus?  

Absolutely nothing!

Mr. Ravicher’s piece would be slightly relevant if anyone on the planet were stupid enough to believe that all of the following were true:

  1. that Andrew Left is a practicing patent attorney;
  2. that Vivus was Mr. Left’s client;
  3. that Mr. Left’s Citron research piece provided Vivus with an opinion that Qsymia did NOT infringe the Shank patent or that the Shank patent was invalid or otherwise unenforceable against Vivus’ Qsymia product; and
  4. that a Citron Research blog is a formal legal opinion.

None of those things is true, nor is anyone who follows the Vivus patent story seriously in danger of believing one, let alone all four of them.

Mr. Ravicher’s piece of “analysis” is about as useful to the average Vivus investor as a thorough discourse on how many angels can dance on the head of a pin.  I believe Mr. Ravicher’s attempt to sell his report to people prior to the publication of the Seeking Alpha piece was cynically designed to make prospective buyers believe he had something useful to add to the Vivus patent story, when he himself knew he didn’t.  In his own words:

 I’ve put that question [the relevance of the Shank patent] on my to-do list and hopefully will be able to spend time looking into it shortly. For now, all I’m saying is that the report’s opinion that there is substantial risk Qsymia infringes the Shank ‘537 patent is not competent or reliable under the law.

I am not an expert on legal ethics or legal competence, but if you are going to use the plain meaning of the words, I believe Daniel B. Ravicher is a pedantic weasel and a shyster lawyer.

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