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UCB's lack of candour

Monday, December 12, 2016 0:44

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This is a follow up to last Friday’s post about UCB – the large Belgian pharmaceuticals company. It probably helps if you read that post first.

In Friday’s post I outlined the state of play regarding UCB’s important Vimpat patent. Disputes about that patent have been background for the stock for some time. When I went to visit UCB in Belgium (1 December 2015) the IR officers were straightforward about this. Third party patent challenges were the bear story on the stock.

But UCB has since then touted victories in their patent disputes and regularly touted extensions of the Vimpat franchise.

On 14 August 2016 UCB released a press release titled U.S. District Court confirms validity of patent for UCB’s Vimpat®. That press release detailed a key victory against one of two third-party challengers of the patent. The stock went up sharply.

UCB has made many press releases detailing just how important the Vimpat franchise is to them.

When the CEO (Jean-Christophe Tellier) was appointed the press release stated: “Jean-Christophe Tellier joined the company in 2011 and was instrumental in establishing the company’s current strategy; he has played a key role in driving the growth of UCB’s three core medicines, Cimzia®, Vimpat® and Neupro®.”

UCB has been active in touting Vimpat both in the EU and the US as a monotherapy for epilepsy. (See here and here.)

UCB has been extremely active extending labels for Vimpat in Japan. (See here for an example.)

Indeed extensions of the Vimpat franchise have been important in UCB’s growth strategy.

So it was deeply surprising to us when UCB neglected to tell the market that US Patent Office had reviewed the patent (an ex-parte review) and had decided to withdraw the patent entirely. [You can find the letter that the Patent Office sent here.]

This is an unusual move. Since the ex parte examination system was introduced (35 years ago) about 13,500 ex parte requests for examination has been made just over a thousand of them have had all claims rejected. You can find statistics here. Rejected here is a term of art. A claim is “objected” for all sorts of formal reasons like the claims not being properly grouped. A “rejection” is a determination that the claim is not patentable – and is appellable to the Patent Trial and Appeal Board (a court) and then to the court system.

This is altogether a different type of threat to UCB. Past patent disputes have been with other companies wanting to release a generic – and thus far UCB has either had the case thrown out or got a significant delay. These are standard commercial disputes with commercial parties. And in every one of these disputes the court has worked on the assumption that UCB has a valid patent and the question is whether the other party is infringing on this patent.

This dispute is with the US Government. The US Government has reviewed past decisions and decided that Vimpat is simply non-patentable. That is the US Government has determined that UCB does not own a valid patent. Sure UCB has two months to try and convince a (well informed) patent examiner otherwise – but their chances of this are low. The patent examiner will be experienced in this area and it is not as if the bureaucrat was uninformed that this was a controversial and important case.

After the two months has elapsed UCB could appeal to the Patent Trial and Appeal Board. However the standard here is the de-novo patent standard. The situation is as if Vimpat had its original patent comprehensively rejected and it has to appeal to a court against the scientist/reviewers at the Patent Office. The courts are usually pretty deferential to the examiners at the Patent Office on the basis that they have the disinterested expertise to assess patents.

In this case Johnny Railey was the examiner and he is amongst the most experienced biotech patent examiners in the US. You can find his linked in CV here. You can find a very extensive list of patents in which he was the examiner here.

Appeals of this kind almost always fail. As Johnny Railey is amongst the most experienced patent examiners the chance of an appeal succeeding is even lower.

For practical purposes the Vimpat patent is almost certainly dead – and UCB’s much ballyhooed growth strategy will die with it.

I am surprised at the lack of a management press release.

Disputes with the US Government

UCB has press released interim victories in District Court against commercial claimants on the Vimpat patent.

Their IR officers have been willing to give up-to-date reports of the (mostly) favourable commercial disputes they have.

But there is not a word here that their (new) dispute is with the US Government and the default position from here (statistically likely to be upheld) is that they will lose their patent in its entirety.

Not disclosing a business-critical dispute with the US Government is strange.

Whatever: shareholders should ask themselves how other European companies have prevailed in dispute with the US Government.

John

Source: http://brontecapital.blogspot.com/2016/12/ucbs-lack-of-candour.html

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