IPR against Shire: A Storm in a Tea Cup?
* Hayman Capital targets Shire Lialda and Gattex with Inter Partes Review
Hayman Capital via the Coalition for Affordable Drugs II LLC filed a petition for Inter
Partes Review (IPR) (http://reorg-research.com/pdf/551c91162afa09f3118b456a.pdf)
against Shire claiming that Lialda patent '720, which expires on June 8th 2020, was
obvious and should not have been granted in the first place. We also understand that
Hayman Capital could have filed a second petition for IPR against patent Gattex patent
US 7056886 B2 which expires in 2019 (source: http://traderszone.net/).
* A storm in a tea cup? Update expected in 6 months & decision in 2.5 years
Although we cannot rule out that the Patent Office could accept the Inter Partes
Petitions and start an Inter Partes Review (please get in touch if you want to get an
update as to how IPR works) in 6 months; even if they do, we would not expect a final
decision before Q3'17 at the earliest (when taking into account the potential decision
appeals). Should Shire lose the IPR on Lialda that would mean potential generic
competition in late 2017 instead of mid 2020. For Gattex, since the drug is protected
by an Exclusivity Period until 2019 and by a formulation patent until 2022, even if Shire
were to lose a potential IPR, this would have only a small impact on Gattex we believe.
* 4-5% impact on valuation for Lialda and 5-6% for Gattex
Should Lialda generic come in 2017 rather than 2020, and Gattex sales start declining
25% each year from 2019, this would impact our valuation by 11% in total, all else
remaining equal. We consequently believe that, even in a worst-case scenario, the
downside risk on valuation is not significant. We are surprised, however, that Hayman
Capital is challenging Shire as the expected return appears limited to us. Indeed, we
argue that challenging companies using IPR only makes sense if one expects a
potentially significant impact on valuation, as was the case when Hayman challenged
Acorda's Ampyra. However, we believe Hayman targeting Shire might suggest a lack of
more important alternatives.
* Valuation: DCF-based model and NPV models
We value Shire using a DCF-based model for the current business and value each of the
pipeline opportunities using probability weighted NPV models.