Stifel held an expert call ahead of the hearing. Experts identified Reyna as likely pro-Amarin and Dyk pro-generics. Hughes was not mentioned.
Summary
We hosted a webcast with two IP attorneys to get their thoughts on the Vascepa appeal ahead of the oral hearing set for 9/2. While both believed there was a ~55% chance AMRN (Hold, $7.36, 8-28 close) could prevail in its appeal, they both highlighted the low odds of reversals in these type of cases and expect the make-up of the three judge panel to be the major factor on the outcome. Since we will not know the make-up of the panel until the day of the hearing, this makes it difficult to handicap but, 1-2 favorable judges could push the odds to 70% vs. 0-40% for less favorable judges. Ahead of getting more constructive on shares, we await to see the make-up of the panel, but setting aside the panel entirely, we acknowledge the favorable risk/reward heading into the hearing and future appeal decision. Based on our model, we believe the up/down for shares is +150%/-50% on AMRN prevailing/losing the appeal.
Key Points
Both of our IP specialists stressed the importance of the panel selection and its impact on the outcome of the appeal. As a reminder, this is a three judge panel of the federal circuit of appeals that take up cases regarding patent litigation. Given that the oral arguments will take place in early September -- the make-up of the rosters are not known yet -- so it will be very difficult to know who will be on the panel. On the morning of 9/2, the final roster of judges will be posted, which according to our specialists should set the tenor of the oral arguments as some judges in the federal circuit are not shy about tipping their hand as to which way they happen to be leaning on particular arguments. In terms of procedure, participants will be able to listen to each of the litigant's arguments -- usually 30 minutes -- with AMRN presenting first, followed by an opportunity for a rebuttal by generics. A dial-in for the proceedings will be provided at 9:15AM on 9/2/20. Of note, judges on these panels have been briefed on the subject and have been preparing their remarks/questions. On decision timing for the appeal, our specialists expect late 4Q20/1Q21 - in-line with AMRN's commentary.
The attorneys indicated there are three main arguments AMRN will present, two are procedural and one is substantive - they believe the procedural arguments slightly favor AMRN, while the substantive does not. First, a "four-pronged" test is supposed to be used to determine obviousness and AMRN argues the DC judge improperly made a determination of prima facie obviousness, based on only three of the factors, before considering any "objective considerations of non-obviousness" (i.e. secondary considerations), which shifted the burden to AMRN. The specialists believed this is an appealing argument because there is some jurisprudence (i.e. in re cyclobenzaprine) in which all four prongs are intended to be evaluated holistically, with the burden of proof on the defendant for each "prong." Further, some secondary considerations, including commercial success, could be viewed strongly in AMRN's favor. According to the specialists, the generics will likely argue the opposite and even if the judge did error, the correct determination was still made. The second procedural argument focuses on the fact the judge used an unusual approach to evaluating the secondary considerations — a "balance sheet" scoring each secondary consideration for either AMRN or the generics. The specialists believe this could resonate with the federal judges as there is no precedent for this approach, and the appeals court may want to define a standard procedure. The generics will argue that the key secondary consideration, commercial success, is not in AMRN's favor as Vascepa's commercial success is due to its cardiovascular outcomes labeling, a portion of the label which the generic companies are not infringing, so there is no "nexus" between the invention and the commercial success. Finally, the substantive argument will focus on when the court ruled it would be obvious to try using EPA alone to lower TGs, without raising LDL-C, it did not take into consideration that, at the invention, it was not known what the cause of the increased LDL-C was. The specialists did not think this was a strong argument as deference is given to the judge in evaluating factual issues, such as this.
According to our IP specialists, the rate of success for overturning obviousness judgments on appeal is ~10-20% but there are a lot of different ways the appellate court may ultimately approach this case which makes it very difficult to handicap. For example, the appeals court could address one argument, they could address multiple, or they could address any combination of the arguments highlighted above and the outcome may simply rest on which judges are empaneled. On the latter point, the specialists indicated judges Newman, O'Malley, Stoll and Reyna would be likely pro-AMRN whereas judges Dyk, Prost and Terranto would be pro-generics.
