$LQDA Update: A Sigh of Relief at the PTAB
Despite the fact that it’s now February, I find myself writing my first post of the year. I’d wish you all a happy 2023, but I’m afraid I missed my chance.
Today Liquidia received big news out of the PTAB. United Therapeutics’ request for a rehearing on the invalidation of the ’793 patent was denied. Please take note that this does NOT mean Liquidia can commercialize Yutrepia tomorrow, and it does not guarantee Yutrepia’s commercial success in any way once it enters the market. However, this post is going to be filled with plenty of “if you remember what I said previously,” because—I’m not going to lie—I’m still taking a bit of a victory lap here.
*Ahem*
If you recall from my prior post, Liquidia’s argument that the ’793 patent was invalid rested on two key abstracts: “Voswinckel JESC” and “Voswinckel JAHA.” These abstracts are important because Voswinckel is the inventor of the ’793 patent, meaning if the abstracts are determined to be “prior art references” then the inventor disclosed his invention too early. We don’t really have to go through the hoops of figuring out whether or not these abstracts are relevant, as we normally would, because we know they disclose the invention.
You may also recall that there were 3 arguments as to why JESC and JAHA qualified as prior art:
The abstracts were available in reputable libraries, with certified library records, and a professional librarian opined that they were catalogued correctly,
The abstracts were presented at big, important conferences, with many educated and learned doctors, and
The abstracts were referred to by other articles that pre-dated the ’793 patent filing.
My prior post also mentioned that the PTAB, when issuing its written decision in favor of Liquidia, didn’t show its work by stating which argument, if any, was sufficient. I was also pretty skeptical of argument #3. The other articles (called “research aids” in the Final Written Decision) did in fact pre-date the patent filing, but not by more than 1 year. I.e., yes, we should theoretically be able to assume that JESC and JAHA were available more than 1 year before the patent filing because it makes intuitive sense to rely on the JESC and JAHA publication dates, but legally speaking the fact that articles which were published less than one year prior to the patent filing reference JESC and JAHA doesn’t prove that JESC and JAHA were, in fact, available more than 1 year before the filing. It’s a bit tedious and seems like annoying technicality, but Liquidia didn’t need that argument to win—it only needed one of the other arguments to be valid. My hope, as I discussed with YAVP’s Andrew Walker, was that the PTAB would simply dismiss argument #3 and move on, simplifying the issues on appeal.
The decision today had a bit of a “mea culpa” from the PTAB ALJs acknowledging both of those issues:
So what about the other arguments? Were those good enough? Turns out yes, yes they were. The ALJs focused on the size, scope, and attendees of the respective professional conferences at which the JESC and JAHA references were disclosed:
What does it all mean for the ’793 patent? I’ll let the decision speak for itself:
What does it mean for the commercialization odds and timeline? This is where I have to humble myself a bit. I was wrong on my initial timeline estimates. I thoroughly expected a rehearing decision before the holidays, and we’ve blown right through that expectation. We will see a Fed. Cir. filing from United Therapeutics in the next 63 days, after which we’ll have a round of appellate briefing. United, as appellant, goes first, followed by Liquidia, as appellee, goes next, followed by a reply from United. This process will take a few months, and then the Fed. Cir. will schedule oral arguments. I think this is likely to be a fairly short appellate decision because we don’t have to think much about the normal arguments around whether or not the references actually show the inventive material. These were Voswinckel’s own disclosures, so we’re pretty confident what he disclosed was what was in the patent. I think earliest decision is end of Q3, and possibly into Q4 (I’m forgetting it’s already February again). In other words, Liquidia appears to be on track or even a bit ahead of schedule for the mid-2024 launch.
A few people have raised the possibility of a quick Rule 36 affirmance, where the Federal Circuit just says “affirmed” and moves on—I’m hesitant to speculate on that. United has every reason to draw this process out as long as possible. Remember, they are generating millions per day in revenue from Tyvaso sales. Also, Rule 36 affirmances are a bit controversial, and have declined a bit in recent years as shown in the Figure below. Further still, where they are used, they’re typically used following oral argument, meaning we won’t see much impact on overall timeline. There are a few other things United could try to slow things down or delay the lift of the stay following the appeal, but those are unlikely to work out in United’s favor if the Federal Circuit agrees with the PTAB.
I added to my position today on the news. Given the general market squeeze in the last month, I will likely wait to add substantially more, but am considering doubling my position. This stock is a generally under-appreciated microcap, and the legal nuance here doesn’t have direct financial impact (I know I said it above, but it's worth repeating: this decision does not mean Liquidia can immediately commercialize Yutrepia) so the big guys will probably wait for the full appeal. I expect there may be continued opportunity to add at levels below $7, although the stock climbed over $8 in AH, so who really knows—I’m just a dude pretending to be a Simpsons character with a substack.