Will Celgene and Dr. Reddy’s settle the Revlimid dispute now that Bristol Myers is at the table?

Zachary Silbersher

Celgene ($CELG) has announced plans to be acquired by Bristol Myers Squibb ($BMY).  The resulting company will have nine $1B-plus products, including Celgene’s Revlimid.  Yet, Bristol investors pushed the stock down, in part, because the street’s view is that Celgene’s blockbuster Revlimid® is poised to face generic competition in 2022. 

A settlement conference is scheduled in the Hatch-Waxman patent case between Celgene and Dr. Reddy’s on January 10, 2019.  Now that Bristol Myers is at the table, will the parties be able to reach a settlement that couldn’t be reached before?

            Status of Celgene’s Revlimid dispute with Dr. Reddy’s

In 2014, Celgene faced down a generic threat from Natco.  That ended in a settlement where Natco can enter in 2022, but only with limited quantity initially in a mid-single-digit percentage of total lenalidomide dispensed within the U.S., growing to approximately one-third of dispensed lenalidomide by March 2025.  Thus, the generic cliff for Revlimid® is not a terminal drop-off in 2022, but rather a gradual ramp-up to 2026. 

In the near term, the more important focus is on Celgene’s pending Hatch-Waxman patent cases against a number of ANDA filers, previously discussed here.  The most mature case is against Dr. Reddy’s, which was filed before the other generics.  During the later half of 2018, the parties have been engaged in discovery.   

In July, the parties proposed a schedule that would have expert discovery conclude in late February 2019.  Though it does not appear that a trial has yet been scheduled, if the current schedule is not extended, a trial is likely to be scheduled around the second or third quarter of 2019.   

A decision following that trial may not issue for several months.  We anticipate that the focus of that trial is most likely to be Dr. Reddy’s argument that it does not infringe the polymorph patents because its proposed generic is amorphous rather than crystalline, as previously discussed here and here. 

Dr. Reddy’s has also filed three petitions for inter partes review (IPR) that seek to invalidate three of the patents asserted against Dr. Reddy’s and some of the other generics.  Yet, as we previously discussed, we do not view those IPRs as extraordinarily material in the near term. 

For one thing, they challenge three of Celgene’s REMS patents, which will expire in October 2020.  A decision on the IPRs themselves is not expected before March 2020, which does not account for any expected appeals.  And even if successful, Dr. Reddy’s would still have to work its way around the indication (MM and MDS) and polymorph patents to have a launch that was not at-risk.

            Will Celgene and Dr. Reddy’s settle?

This is the big question.  We presume that, to date, the parties have been engaged in settlement discussions, to some extent, but have not been able to reach agreement.  A settlement conference before the court is currently scheduled for January 10, 2019.  That may create an opening for the parties to settle.

A settlement may not have been reached because Celgene has been hamstrung by its prior settlement with Natco.  Pursuant to the terms of that settlement, we presume—though we cannot confirm, because the terms are not public—that any entry date offered by Celgene  to Dr. Reddy’s that is earlier than Natco’s deal would have to be correspondingly offered to Natco.  These types of acceleration or most-favored-nation provisions are not uncommon for the first generic who settles.

Yet, Dr. Reddy’s is likely angling for a better deal than what Natco received.  If it really has a strong infringement case against the polymorph patents, then Dr. Reddy’s may believe fighting out the litigation may yield a better result than settlement.  Even if Dr. Reddy’s can knock out only the polymorph patents, but must wait for expiration of the MM, MDS and REMS patents, that will still yield a full entry somewhere in 2022/2023, which could be much better than the deal that Natco has.

 To date, Celgene and Dr. Reddy’s have presumably not been capable of bridging this divide.  Settlement conferences have a tendency to sometimes pull recalcitrant parties to move out of their entrenched positions and coming to the table.  But not always.

Here, however, there is presumably a new party at the table, namely Bristol Myers.  Although the merger is far from complete, the company contemplated to be settling with Dr. Reddy’s is not the old Celgene entity, but the new Celgene entity merged with BMS.  That new company has a different pipeline, different revenue projections and a different business model. 

Thus, whereas Celgene’s old economics could not find a way to justify a settlement with Dr. Reddy’s, the new Bristol Myers/Celgene entity may have the economics to pull it off.  Indeed, Bristol Myers presumably already thought through the economics of a settlement for the new entity as part of its diligence for the biotech acquisition.  Thus, though nothing within the litigation has changed—at least, externally, based upon public information—the emergence of Bristol at the table may open the way to an agreement.

That remains to be seen.  But watching for signs of a settlement on January 10 is warranted.