Litigation

9 Months Ended

Sep. 30, 2012

Litigation

Litigation

13. Litigation

Sandoz Inc.

In February 2012, we announced receipt of a Paragraph IV Certification Notice Letter (Notice Letter) from Sandoz Inc. (Sandoz) advising that Sandoz has submitted an abbreviated new drug application (ANDA) to the FDA requesting approval to market a generic version of the 10 mg/mL strength of Remodulin.

In the Notice Letter, Sandoz stated that it intends to market a generic version of Remodulin before the expiration of the following patents relating to Remodulin: U.S. Patent No. 5,153,222, which expires in October 2014; U.S. Patent No. 6,765,117, which expires in October 2017; and U.S. Patent No. 7,999,007, which expires in March 2029. Sandoz’s Notice Letter stated that the ANDA contains a Paragraph IV Certification alleging that these patents are not valid, not enforceable and/or will not be infringed by the commercial manufacture, use or sale of the proposed product described in Sandoz’s ANDA submission.

In response to the Notice Letter, we filed a lawsuit for patent infringement on March 14, 2012 against Sandoz in the U.S. District Court for the District of New Jersey. We filed our patent-infringement lawsuit within forty-five days from the receipt of the Notice Letter. Therefore, under the Hatch-Waxman Act, the FDA is automatically precluded from approving Sandoz’s ANDA for up to 30 months or until the issuance of a district court decision that is adverse to us, whichever occurs first.

On May 4, 2012, Sandoz filed its answer to our complaint, and also filed counterclaims alleging that the patents at issue in the litigation are invalid or will not be infringed by the commercial manufacture, use or sale of the proposed product described in Sandoz’s ANDA submission.  On May 25, 2012, we filed our answer to Sandoz’s counterclaims.

We intend to vigorously enforce our intellectual property rights relating to Remodulin, including the three patents mentioned in the Notice Letter which are listed in the FDA’s Approved Drug Products List (the Orange Book).

Lexington Insurance Company

During the third quarter of 2011, we reported a claim to our insurance provider regarding damage to certain Remodulin inventory that occurred as the result of a warehouse accident. The estimated net commercial value of the damaged inventory was approximately $65.0 million. Because we did not reach a satisfactory agreement on the amount to settle the claim, we filed a lawsuit against Lexington Insurance Company (Lexington) in April 2012 in the North Carolina Business Court, a specialized division of North Carolina’s Superior Court, seeking to recover the full net commercial value of the damaged inventory.

On September 24, 2012, we entered into a final and binding settlement agreement and release with Lexington, under which Lexington agreed to pay us $31.0 million within thirty days.  We received payment in early October 2012. Terms of the settlement agreement provide that the parties will release and forever discharge each other from any future claims, demands, or causes of action of any kind in connection with the matter.  Since all contingencies have been resolved, we recognized a receivable for the settlement proceeds, which has been included within the caption “other current assets” on our consolidated balance sheet as of September 30, 2012. We recognized the corresponding gain under the caption “other, net” on our consolidated statements of operations for the three and nine months ended September 30, 2012.