Are Celgene and Dr. Reddy’s about to settle the Revlimid® patent case?
Yesterday, we blogged about why the Markman hearing was cancelled in Celgene’s Revlimid® patent case against Dr. Reddy’s. On March 23, both Celgene ($CELG) and Dr. Reddy’s ($RDY) jointly informed the Court that they had resolved their claim construction dispute relating to the term, “crystalline.” Accordingly, the parties informed the Court there was no need for a Markman hearing. Some analysts suggested that this is a positive indication of a settlement approaching with Dr. Reddy’s and possibly with all generics.
We do not necessarily view the parties’ decision to cancel the Markan hearing as an indication that a settlement is approaching. That does not mean a settlement is not approaching. Just that the parties’ decision to resolve the claim construction dispute over the single disputed term, “crystalline,” is not necessarily an indication, one way or another, of an approaching settlement.
When parties to a patent litigation are discussing settlement, the lawyers are typically full-speed ahead until at least agreement in principle is reached. Even then, unless the settlement happens on the eve of a trial, and the parties wish to call off the trial, the lawyers typically keep working until the agreement is signed. Otherwise, the risks are too large, for both parties. Even if the parties are close to a settlement, absent an agreement in principle, it is unlikely that either Celgene or Dr. Reddy’s would capitulate to an argument on the merits on the prospect that there might be a settlement. Settlement discussions during litigation remain inherently adversarial, and the fact is that until they are signed, they fall apart all the time.
The docket in the litigation against Dr. Reddy’s indicates that the parties had previously informed the Court that they might resolve their claim construction dispute. On February 26, the parties jointly asked the Court for an extension of time to file responsive claim construction briefs. They told the Court, “[o]ver the last several weeks, the parties were focusing their efforts on negotiating a potential compromise that would have resolved their claim construction disputes and obviated the need for responsive briefing.” (Case No. 16-7704, D.N.J., Dkt. 70). On March 6, the Court held a conference, wherein the claim construction dispute was discussed. The Court appears to have directed the parties to continue to confer on a potential resolution of the claim construction dispute. That direction from the Court was memorialized in a letter filed with the Court. (See Dkt. 75). Because of that direction from the Court, the parties asked for another extension to file responsive claim construction briefs. (Id.).
Together, this suggests that the Court appreciated that the claim construction dispute could be resolved, and leaned on the parties to find that resolution. Knowing this, and knowing that the Court already questioned whether a Markman hearing was really necessary, the parties may have each wisely reconsidered the strengths and weaknesses of their respective positions and negotiated a compromise.
Does this mean that the parties are not negotiating settlement? No necessarily. Any settlement discussions are non-public, but it is reasonable to assume that the parties have and will continue to discuss settlement. The parties could theoretically announce a settlement tomorrow. But we do not view resolution of the claim construction dispute as a strong indicator, either way, about a potential settlement.
Indeed, there is the possibility that the parties have already reached an agreement in principle, and they may have notified the Court. Celgene’s earlier case against Natco is presided over by the same Judge presiding over the Dr. Reddy’s case, the Honorable Susan D. Wigenton. In the Natco case, the parties transmitted a proposed Consent Judgment to the Court on December 22, 2015, which was not subsequently signed by the Court and publicly docketed until January 4, 2016. Yet, even if the parties have already settled, they would still likely file their responsive claim construction briefs, which were due on March 23, and proceed to litigate full speed, until the case was officially dismissed. The costs for doing so are negligible, and the risks for not doing so are high. Those briefs were already drafted, and it would be much less risky to simply file them, and preserve the arguments, rather then capitulate to a substantive dispute.
What are the obstacles to settlement?
The obstacle to any settlement with Dr. Reddy’s, as we see it, is most likely Celgene’s prior settlement with Natco. Under that settlement, Natco can enter with unlimited quantity beginning 2026, and it can enter with low-percentage limited quantity in 2022, which gradually increases to one-third of dispensed lenolidimide by 2025.
Dr. Reddy’s most likely wants to beat Natco to the market, and it will do so if it can enter with unlimited quantity by 2022. To do that, Dr. Reddy’s has to get around Celgene’s two polymorph patents, which expire in 2027/2024. Dr. Reddy’s appears to have attempted to do that by designing around those patents. It claims that its proposed generic is amorphous lenalidomide, whereas the patents are limited to crystalline lenalidomide. Given this, Dr. Reddy’s likely believes it has a good shot of circumventing those polymorph patents. If all that is true, it’s unlikely to settle for an entry date that is after Natco.
On the other side, Celgene is possibly hamstrung by its earlier agreement with Natco, which limits what it can offer Dr. Reddy’s. While all the terms of Celgene’s prior settlement with Natco are not public, when the first generic settles a Hatch-Waxman case, the agreement often provides that the brand cannot offer a subsequent generic an earlier entry date without moving up the date for the first generic. Assuming Natco negotiated this provision, that would make it harder for Celgene to offer Dr. Reddy’s a better deal than the one it struck with Natco. Yet, that’s probably precisely what Dr. Reddy’s wants.