Considering the claims

I’ve put together some of the important company statements relating to the Mylan arbitration, followed by a consideration of the two major assertions made by Phosphagenics – that of misrepresentation by Mylan and that of breach of confidence/unjust enrichment in relation to IP and commercial licensing terms. Some of this post draws from previous posts on this matter. Please note that this post outlines what is simply my interpretation of Phosphagenics' assertions, based on the known facts.

The License Agreement

Under the terms of the exclusive global license agreement, Phosphagenics will license the TPM® technology to Agila for its use in an antibiotic injectable product. Agila will be responsible for the development and pay the costs required to register and commercialise the product including all necessary clinical studies. (Announcement of Agila TPM Platform Licensing Agreement, 30/10/12)


The Role of TPM in the Daptomycin Formulation

Agila Specialties is using TPM® to overcome deficiencies with injectable antibiotics. Many antibiotics are unstable in solution, and must therefore be dissolved for injection immediately prior to use. Poor solubility in injectable solutions can extend the time required for complete solubilization, or increases the risks that material is injected without complete dissolution. TPM® is able to help solubilize the antibiotics, enhancing the rate and efficiency of antibiotic dissolution to increase the safety profile of the molecules. (2012 Annual Report)


Mylan’s Acquisition of Agila

In late 2012 Phosphagenics announced a global license with Agila Specialties Private Limited granting it the right to develop, manufacture and sell an antibiotic product incorporating our TPM® technology. In February the US generic giant Mylan Inc announced that it had signed a definitive agreement to acquire Agila, a developer, manufacturer and marketer of high-quality generic injectable products, from Strides Arcolab Limited for $1.6 billion. In December Mylan completed the acquisition. We were informed by Mylan that it is committed to the project and will continue product development with a view of registering the product with the FDA as soon as the development program has been completed. (2013 Annual Report)


Phosphagenics' Assertions

The arbitration notices assert that Mylan is liable for breaches of several provisions under the two relevant agreements, fraudulent or negligent misrepresentations, breaches of confidence and/or unjust enrichment in relation to intellectual property and commercial licensing terms, amongst others.
(Announcement of Arbitration Claim, 06/01/16)


The Loss Suffered

….the Board continues to support the pursuit of damages in the Mylan arbitration, given the high potential value of the TPM®/daptomycin product and the contractual breaches that the company believes have resulted in significant loss of its intellectual property and other commercial opportunities.
(Chairman, Peter Lankau, 2016 Annual Report)


The Reason for Choice of Arbitration

In January 2016, Phosphagenics lodged a dispute notice in association with the Agila TPM®/Daptomycin agreements. In accordance with the relevant agreements, the dispute was referred to arbitration in Singapore. (2016 Annual Report)


Assessment of Quantum of Damages

Phosphagenics’ expert evidence has now been filed in the arbitration expressing an independent opinion in relation to the net present value of the income stream which Phosphagenics could have expected, had the matters referred to in its claims not occurred. Phosphagenics’ notice of arbitration contains multiple causes of action. If Phosphagenics was to succeed on all aspects of all its claims, the maximum total damages assessed by Phosphagenics’ independent experts is approximately US$300.4m.
(Announcement of Expert Assessment of Quantum of Damages, 29/05/17)


Counter-claims

Mylan have not made any financial counter-claims. (2016 Annual Report)



The arbitration notices assert that Mylan is liable for ….fraudulent or negligent misrepresentations

Under the terms of the October 2012 licensing agreement between Phosphagenics and Agila, Agila was to be responsible for the development and pay the costs required to register and commercialise the TPM daptomycin product, including all necessary clinical studies. Mylan completed acquisition of Agila in December 2013.

Five years later, TPM daptomycin still hasn’t had a marketing application filed at the FDA, yet alone been commercialised. Meanwhile, both Teva and Fresenius launched their Cubicin generics in September 2016.
Given that Agila managed to file an ANDA application for generic daptomycin in August 2013, I think it’s fair to assume that TPM daptomycin could and should have been ready for launch by September 2016.

Mylan informed Phosphagenics, prior to April 2014, that it was committed to the development and prompt regulatory filing of TPM daptomycin

We were informed by Mylan that it is committed to the project and will continue product development with a view of registering the product with the FDA as soon as the development program has been completed. (2013 Annual Report)

A timeline provided in an April 2014 Phosphagenics Investor Presentation suggested that pre-clinical development of TPM daptomycin had already been completed by then and that it was expected that Mylan would launch the product in 2015/2016.

TPM daptomycin should have been registered using the 505(b)(2) pathway. I’ve previously explained why I think this but also note that Phosphagenics specifically stated that TPM daptomycin was being progressed toward a 505(b)(2) regulatory filing in the USA.

While a 505(b)(2) pathway takes longer than an ANDA pathway, as there are more studies/data required, I doubt that these additional requirements would extend the process by much more than 12 months. Camargo states that

A 505(b)(2) application may be approved on the basis of any combination of studies or even no studies. However, more typically, a Phase 1 study will be required….Having said this, an in-depth knowledge of, and experience with the 505(b)(2) pathway can allow a sponsor to eliminate costly and time-consuming studies, including Phase 1 studies. Camargo has accomplished this is the past via innovative animal or in vitro studies…

Mylan’s commencement on November 1, 2015 of USA-based “late stage clinical development” of TPM daptomycin IV in Bacteraemia and Skin and soft tissue infections was reported by AdisInsight drug development database. This clinical development might have taken the form of small bioequivalence studies in humans, as appears may have been required for a reformulated product of this nature. However, I have been unable to find any evidence of any trials having taken place and AdsInisight was also unable to provide any solid evidence that these trials took place.

In summary, I’m of the view that not only was Agila/Mylan responsible under contract for the timely development, filing via the 505(b)(2) regulatory pathway and commercialization of TPM daptomycin, I believe it also had ample time (3-4 years) to achieve this. In addition, it appears to me that Mylan (fraudulently or negligently) represented to Phosphagenics that it was committed to achieving timely commercialization of TPM daptomycin. But it didn’t, and as a consequence, Phosphagenics was denied (possibly) milestones, and (definitely) royalties arising from Mylan’s failure to register and commercialize the product. Furthermore, Phosphagenics would appear to have been denied contractual entitlement if Mylan has failed to pay the considerable costs involved in registration and commercialisation of the product, as agreed to under the terms of the 2012 contract.

Cubicin (daptomycin) generics were launched by both Teva and Fresenius in September 2016, meaning that Q4 2016 is the first quarter for which generic sales figures for a full quarter are available.   Teva and Fresenius each recorded ~US$70m in sales, while Merck sold US$107m of Cubicin branded daptomycin.(2016 Annual Report). According to Drugs.com, the generics are priced at 20-25% below the brand Cubicin (US$360-$380 v. US$473). Total sales of daptomycin IV in Q4, 2016 (branded + generic) were US$245m.

I am not aware of the launch of further generics in the period since.

I think it’s fair to assume that, had Mylan launched simply an equivalent daptomycin generic at the same time as Teva and Fresenius launched theirs, at least US$45m- $50m in quarterly sales could have been expected, or US$180m -$200 m in the year to date. However, this figure doesn’t take into account that TPM daptomycin isn’t an equivalent generic; it’s a superior formulation, as claimed in Agila’s filed patent, and as claimed by Phosphagenics

Unlike simple generic versions, Phosphagenics’ TPM®/Daptomycin product (developed in collaboration with Agila Specialties and Mylan) has multiple technical advantages to commercially differentiate it from Cubicin® and other generic daptomycin competitors. We believe this differentiation supports the potential for significantly improved market share and revenue. (Phosphagenics Newsletter  February 2016)

Even if the arbitration decision early next year were to allow TPM development to be completed, a regulatory application filed and product launched, in my opinion, TPM daptomycin wouldn’t be on the market until more than 2 years after the first generics were launched, by which time it would have lost any early-mover advantage.


The arbitration notices assert that Mylan is liable for ….breaches of confidence and/or unjust enrichment in relation to intellectual property and commercial licensing terms

The second major assertion of this case relates to Intellectual Property.

Agila filed a patent in its own name for “An Improved Daptomycin Injectable Formulation”, utilizing TPM, in August 2013. The patent claimed invention of a lyophilized daptomycin +TPM formulation with improved stability (at room temperature after reconstitution) and improved reconstitution time (5 minutes), as well as the process of preparation thereof. (Lyophilized injectables undergo a freeze-drying and powdering process. They are sold in powdered form and require reconstitution at time of use).

It hasn't been disclosed what provisions were made in the Agila Strides/POH contracts for IP arising during the course of R & D. As the matter of who owns the IP is considered a crucial aspect of such agreements, it’s inconceivable for me that this question wouldn’t have been addressed in the contract. I think it’s highly unlikely that joint ownership of IP would have been agreed to – typically, this is advised against as there is too much potential for complications. Therefore, I believe that the contract would have provided for resultant IP to be in either POH’s name (most probable, in my opinion), or in Agila’s name. If it happened to be the case that agreement was for the IP to be owned by Agila, it’s also inconceivable for me that there wouldn’t have been a provision that Agila must consult with/seek approval from POH prior to filing of any patent.

So, it seems highly likely to me that Agila either filed a patent for which it was not entitled to claim ownership or it filed a patent without first consulting POH. In either case, Phosphagenics would not have had control over the drafting/scope/disclosures made within the patent. And this, I believe, could be a key issue addressed by this arbitration. If this supposition is correct, I think it’s highly likely that disclosures made by Agila in its filed patent have compromised Phosphagenics’s IP, thereby costing the company commercial opportunities beyond that of TPM daptomycin.

This explanation makes sense of Phospagenics’s claim of breaches of confidence in relation to intellectual property and Peter Lankau’s reference to significant loss of intellectual property and other commercial opportunities. Obviously, if this theory is correct, the breach hasn’t stopped POH from developing and commercialising any TPM injectable formulation, as the company is currently working on several such products. But it is possible, in my opinion, that Agila’s published patent disclosed proprietary “Know-how”.

The following explains how licensors typically impose confidentiality restrictions on “Know-How” and explains what “Know-how” encompasses

Licensors commonly impose confidentiality restrictions on the Licensee's use and disclosure of any "Know-How" disclosed or otherwise made accessible to Licensee.

"Know-How" shall mean any and all factual knowledge, expertise and proprietary information relating to Licensed Product.

Know-How shall mean and include all present and future non-patentable inventions, trade secrets, technical data, testing results, regulatory submissions, methods of manufacture, specifications, techniques, procedures, or other proprietary or non-proprietary information relating to or useful in the development, the manufacture, use or sale of the Licensed Product.

In my opinion, it’s possible that the public disclosure of confidential “Know-how” may have denied POH the opportunity for full commercial exploitation of TPM technology in injectables.

For example, it might have denied Phosphagenics the opportunity to patent/commercially exploit TPM in other kinds of antibiotic formulations or perhaps it denied Phosphagenics the opportunity to patent/commercially exploit TPM in other kinds of lyophilized injectable formulations, as the process of preparation of such formulations was disclosed and claimed in Agila’s patent. Approximately half of the injectables market is comprised of lyophilized injectables.

If this thinking is correct, it would seem justified to me for Phosphagenics to claim a significant loss of commercial opportunities through this breach of confidence, in addition to the loss of any milestones and licensing fees that the company should, by now, have been receiving if TPM daptomycin had been developed and commercialised as contractually agreed. I also consider that any claim for such loss of commercial opportunity, particularly if it related to a sizeable proportion of the injectables market, could well exceed in size the claim for loss of any milestones and royalties from TPM daptomycin.