12. Litigation

Watson Laboratories, Inc.

In June 2015, we received a Paragraph IV certification notice letter from Watson Laboratories, Inc. (Watson) indicating that Watson has submitted an abbreviated new drug application (ANDA) to the FDA to market a generic version of Tyvaso. In its notice letter, Watson states that it intends to market a generic version of Tyvaso before the expiration of U.S. Patent Nos. 6,521,212 and 6,756,033, each of which expires in November 2018; and U.S. Patent No. 8,497,393, which expires in December 2028. Watson’s notice letter states 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 Watson’s ANDA submission. We responded to the Watson notice letter by filing a lawsuit in July 2015 against Watson in the U.S. District Court for the District of New Jersey alleging infringement of U.S. Patent Nos. 6,521,212, 6,756,033, and 8,497,393. Under the Hatch-Waxman Act, the FDA is automatically precluded from approving Watson’s ANDA for up to 30 months from receipt of Watson’s notice letter or until the issuance of a U.S. District Court decision that is adverse to us, whichever occurs first. In September 2015, Watson filed (1) a motion to dismiss some, but not all, counts of the complaint; (2) its answer to our complaint; and (3) certain counterclaims against us. The District Court granted Watson’s motion to dismiss certain counts of our complaint. In September 2015, we filed our answer to Watson’s counterclaims. In June 2016, Watson sent us a second Paragraph IV certification notice letter addressing two new patents, U.S. Patent Nos. 9,339,507 (the ’507 patent) and 9,358,240 (the ’240 patent), which expire in March and May 2028, respectively. In June 2016, we filed an amended complaint against Watson asserting these two additional patents. In June 2017, Watson filed petitions with the Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Office for inter partes review (IPR), seeking to invalidate the ’507 patent and ’240 patent. On October 13, 2017, we filed preliminary responses to the petitions, and the PTAB has three months to decide whether to institute IPR proceedings.

Trial in the District Court on all of the asserted patents was scheduled to take place in September 2017. The parties, however, asked the District Court to stay the case until 14 days after the PTAB resolves Watson’s IPR petitions either by declining to institute the IPRs or by issuing a final written decision on the merits. The District Court granted the request staying the case, and as such trial will not occur until sometime after the stay is lifted. The stay could be lifted as early as January 2018 if the IPRs are not instituted. If one or both IPRs are instituted, then the stay will not be lifted until there is a final written decision by the PTAB, which we would expect within a year of the IPR(s) being instituted.

We intend to vigorously enforce our intellectual property rights relating to Tyvaso.

Actavis Laboratories FL, Inc.

In February 2016, we received a Paragraph IV certification notice letter (the First Actavis Notice Letter) from Actavis Laboratories FL, Inc. (Actavis) indicating that Actavis has submitted an ANDA to the FDA to market a generic version of the 2.5 mg strength of Orenitram. The First Actavis Notice Letter states that Actavis intends to market a generic version of the 2.5 mg strength of Orenitram before the expiration of the following patents, all of which are listed in the Orange Book:

U.S. Patent No.		Expiration Date
8,252,839		May 2024
9,050,311		May 2024
7,544,713		July 2024
7,417,070		July 2026
8,497,393		December 2028
8,747,897		October 2029
8,410,169		February 2030
8,349,892		January 2031

The First Actavis Notice Letter states 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 Actavis’ ANDA submission. We responded to the First Actavis Notice Letter by filing a lawsuit (the First Actavis Action) against Actavis in March 2016 in the U.S. District Court for the District of New Jersey alleging infringement of each of the patents noted above and one additional patent, U.S. Patent No. 9,278,901 (the ’901 patent), which expires in May 2024 and is also now listed in the Orange Book. Under the Hatch-Waxman Act, the FDA is automatically precluded from approving Actavis’ ANDA with respect to the 2.5 mg strength of Orenitram for up to 30 months from receipt of Actavis’ notice letter or until the issuance of a U.S. District Court decision that is adverse to us with respect to all of the eight patents listed in the table above, whichever occurs first. In June 2016, we filed an amended complaint against Actavis, Actavis filed its answer and counterclaims to that amended complaint, and we filed our answer to those counterclaims.

In May 2016, we received a second Paragraph IV certification notice letter from Actavis (the Second Actavis Notice Letter) indicating that Actavis has amended its ANDA to include its generic version of the 0.25 mg and 1.0 mg strengths of Orenitram, in addition to the 2.5 mg strength identified in the First Actavis Notice Letter. We responded to the Second Actavis Notice Letter by filing an additional lawsuit against Actavis (the Second Actavis Action) in June 2016 in the U.S. District Court for the District of New Jersey alleging infringement of the same patents asserted in the First Actavis Action. The Second Actavis Action triggered an additional 30-month stay with respect to the 0.25 mg and 1.0 mg strengths. Specifically, the FDA is automatically precluded from approving Actavis’ ANDA with respect to the 0.25 mg and 1.0 mg strengths of Orenitram for up to 30 months from receipt of the Second Actavis Notice Letter or until the issuance of a U.S. District Court decision that is adverse to us with respect to all of the nine patents noted above, whichever occurs first.

We filed a second amended complaint against Actavis in September 2016, to allege infringement of two patents that were not issued and listed in the Orange Book at the time of the First and Second Actavis Notice Letters, but are now listed: U.S. Patent Nos. 9,393,203, which expires in April 2026, and 9,422,223, which expires in May 2024.

The Court has consolidated the First Actavis Action and the Second Actavis Action. The parties are currently engaged in discovery, and trial on all patents is scheduled for February 2018.

We intend to vigorously enforce our intellectual property rights relating to Orenitram.

SteadyMed Ltd.

In October 2015, SteadyMed Ltd. (SteadyMed) filed an IPR petition with the PTAB seeking to invalidate U.S. Patent No. 8,497,393 (the ’393 Patent), which expires in December 2028 and covers a method of making treprostinil, the active pharmaceutical ingredient in Remodulin, Tyvaso and Orenitram. The ’393 Patent was also the subject of now-settled litigation with generic companies relating to ANDAs to market generic versions of Remodulin, and remains the subject of our pending litigation with Watson and Actavis, described above. In June 2017, SteadyMed submitted a new drug application (NDA) to FDA seeking approval of a product called Trevyent®, which is a single-use, pre-filled pump intended to deliver a two-day supply of treprostinil subcutaneously using its PatchPump® technology. In August 2017, SteadyMed announced receipt of a refuse-to-file letter from the FDA relating to SteadyMed’s NDA, requesting further information on certain device specifications and requiring performance testing as well as additional design verification and validation testing on the final, to-be-marketed Trevyent product.

In March 2017, the PTAB issued a Final Written Decision regarding SteadyMed’s IPR, finding that all claims of the ’393 patent are not patentable. In May 2017, we appealed the PTAB’s decision to the U.S. Court of Appeals for the Federal Circuit. The parties have completed briefing the appeal, and oral argument is scheduled for November 7, 2017.

The ’393 patent remains valid and enforceable until appeals have been exhausted. We intend to continue vigorously defending the ’393 patent.

Department of Justice Subpoena

In May 2016, we received a subpoena from the U.S. Department of Justice (DOJ) requesting documents regarding our support of 501(c)(3) organizations that provide financial assistance to patients. Other companies have received similar inquiries. The DOJ is investigating whether that support may violate the Federal Anti-Kickback Statute and the Federal False Claims Act. Although we believe that we would successfully defend any action the DOJ might bring, we are engaged in settlement negotiations with the DOJ as part of our efforts to resolve the matter. However, we cannot provide assurances that our efforts to reach a settlement with the DOJ will be successful or, if they are, what the timing or terms of any such settlement would be. We expect any such settlement would include a settlement payment to the government, and it may also include non-monetary obligations, such as our entering into a corporate integrity agreement (CIA). We may be required to incur significant future costs to comply with the CIA. If we do not reach a settlement with the DOJ, we may incur material losses in connection with the defense or resolution of any subsequent litigation with the government. During the second quarter of 2017, we recorded a $210.0 million accrual relating to this matter. The accrual was recorded in other current liabilities on our consolidated balance sheets and as an operating expense on our consolidated statements of operations. We are unable to estimate the amount of reasonably possible losses in excess of the amount accrued because resolution of this matter through settlement is subject to a range of complex factors. Any actions taken by the DOJ, including settlement, could result in negative publicity or otherwise harm our reputation, reduce demand for our products and/or reduce coverage of our products, including by federal health care programs such as Medicare and Medicaid and state health care programs. If any or all of these events occur, our business, prospects and stock price could be materially and adversely affected. Because matters such as this are inherently unpredictable, the ultimate outcome of this matter, including the amount of any loss, may differ materially from our estimate.