Bausch, GBTC, Merck, Meta & Other Catalysts

name's Elliott Stein. I'm a senior litigation analyst covering litigation in the financial sector, and I'll be your host for today, September twenty ninth, twenty twenty three. If you have any questions about any of the matters that we'll be discussing on this episode, please don't hesitate to reach out to us at your convenience with question. So we'll be discussing

a handful of sectors today. First, Holly Frome will discuss litigation by Merk and other drug makers challenging Medicare drug negotiation provisions of the Inflation Reduction Act the IRA, as it's known. She'll also preview a Bellweather trial against Buyer

concerning claims that its roundup weed killer causes cancer. After that, Tish Walker, who covers healthcare patent litigation for US, we'll preview a hearing where Bousch Health will try to stop Norwich's bid for approval of its si faxin copy, and she'll also discuss an upcoming trial in Exelixis's bid to keep Cabometics Generics off the market. After that, Matt Shettenhelm, our TMT litigation and policy analyst, will preview a hearing on a motion by Meta to stop the FTC from

blocking the company's use of teen data. After that, Nathan dean Or, a senior financials policy analyst, we'll talk about marijuana banking legislation. He'll also talk about regional bank long

term debt requirements and the impending government shutdown. And last but not least, I'll wrap up by talking about an upcoming Supreme Court argument in a case challenging the CFPB's constitutionality, and also talk about upcoming dates in the SEC's recent lawsuit against marketmaker Virtue, as well as Grayscales lawsuit against

the SEC concerning the spot bitcoin etf. Let me also just add that our colleague Jen Ree, who covers all things antitrust for US, couldn't be on today's episode, But if you're interested in the FTC's recent lawsuit against Amazon, or in October trial that's upcoming in the Justice Department's case against the Jet Blue Spirit tie up, or anything else anti trust related, I highly recommend that you can

see her research on the Bloomberg terminal. All of our research, of course, is available on the Bloomberg terminal at bi go. And just a quick word about Bloomberg Intelligence for those who are unfamiliar. We are the investment research platform on the Bloomberg Terminal, providing in depth research on industries, companies, and markets and delivering key data from BI analysts in their respective industries. All right, so with all that out of the way, let's get started with the content. Holly.

Let's start with you. This litigation by drug makers challenging the Medicare drug negotiation provisions of the Inflation Reduction Act is really interesting. I know there's a lot of litigation around it, and you're expecting an important court ruling by October first, and then separately you're also watching an upcoming trial over buyers Roundup. We'd killer why don't you come in and tell us more about these cases?

Drug makers don't who are selected for the program, don't agree to negotiate, and don't withdraw from Medicare, they are subject to attacks which could amount to ninety five percent of the selected drugs gross US revenue on the drug including non Medicare sales. So drug makers have filed several lawsuits in various districts nationwide arguing that the drug program

is unconstitutional. They've made several arguments, including that it's an unconstitutional taking, that it violates the First Amendment, that it imposes excessive fines, violates to process, and violates separation of powers. The cases are at various stages, but one case we are watching, but the possible ruling on the horizon, was brought by a trade group for drug makers in federal

court in Ohio. The trade group filed a motion for a preliminary injunction seeking to enjoying implementation of the program. We said we don't think the motion will be granted because we think the case fails on the merits. The trade group has argued that the negotiation program violates their due process rights because it deprives them of a property

interest without procedural protections. We think this argument fails because drug makers rely on a case where a utility was forced to provide services at a certain rate, allegedly without a fair process to determine the rate. The difference here is that drugmakers can withdraw from Medicare. The utility was required by Lawn to provide services, so that motion. The

preliminary injunction motion was argued September fifteenth. We think a ruling could come by the October first deadline for manufacturers to agree to negotiate. If they lose, we expect the Trade group to file or requests for a media to appeal, and if accept an appellate ruling could come in one age. Shifting gears. Beayor mon Santo faces a trial in Philadelphia State Court in October. The plaintiff claims in October fifth

the plaintiff claims its weed killer roundup causes cancer. Bear faced over one hundred thousand cases alleging injury from its weak killer. Most of the case is settled, but there's still an estimated between forty to fifty thousand cases left that remain pending and unsettled. Jury selection in the Philadelphia trial begins October fifth, and this is the first case that will be tried in that jurisdiction. It's a bell Weather case for Philadelphia. Several trials are scheduled into twenty

twenty four. Bear has won the last several trials in different jurisdictions, but Philadelphia is a historically plaintive friendly form, so it will be interesting to see what happens there. And with that, I'll turn it back to you.

space have X in them? But you don't have to answer that if you don't know. But why don't you come in and tell us what these cases are about? Nonetheless, thanks Elliott. I have no idea why they have X in it. Maybe it's just to keep it interesting, or perhaps now it's to be cool like the former Twitter.

to grant final approval to its generic sy faxin application. Now, this suit is separate from the patent litigation suit which is currently on appeal, So on October six, this court is going to hear arguments on Norwich's request for preliminary injunction to compel the FDA to grant final approval, and it's also going to hear the FDA and Bausch's arguments

for summary judgment or dismissal of this case. And then Teva, who so far remains eligible for the one hundred and eighty day generic first filer exclusivity for Zyfaxine, has also sought to intervene in this case, though at least as of yesterday, there's no indication from the record that this has been granted. So in terms of the outcome, we Bousch and the FDA to prevail this hearing, as we think the court will either dismiss the case or possibly remand it back to the FDA, at least on the

issue of Teva's first filer exclusivity. This is because, you know, the Delaware court order that the FDA is saying blocks it from giving Norwich. Norwich's generic final approval isn't the only thing that's blocking final approval. Teva's first filer exclusivity is also blocking it, and the FDA has yet to make any forfeiture decision as to it. And then moreover, the appeal is also ongoing at the federal circuit from the patent litigation, which also includes the issue of the

Delaware court order. So why is this hearing important to Bausch? This is really all about timing for generic sye faxine to come to market. Norwich was a late generic filer. Bausch had settled three patent litigations with other generic filers for January first, twenty twenty eight entry date. Yet Norwich took its case all the way through trial and actually had a verdict at the trial level that could allow

it to come to market earlier. But there's currently a court order from the District Court of Delaware that's blocking the FDA from granting final approval until certain hepatic and selfalopathy method of treatment patents expire in October twenty twenty nine. Now, at the time the court issued this ruling, Norwich was seeking approval for both the hepatic and selfalopathy indication and

for IBSD. Then there was this split ruling in the patent case where the court found that the polymorph and IBSD patents were invalid, but the h patents remained valid, so after the final judgment was issued, Norwich amended its generic application to remove that h and the hepatic and selfalopathy indication and is now only seeking approval of its five hundred and fifty milligrams I FAX and copy for IBSD.

Now that generic application was tentatively approved by the FDA, and then the tentative approval letter the FDA said that this district court order is barring approval or barring final approval. So Norwich then sued the FDA. But I think one of the key elements here, you know, which has been discussed frequently in this FDA case is Tev's eligibility for first filer status still stands in the way of an

FDA approval despite the court order. So you know, I don't think this case will help clear the barriers for Norwich and its effort to get its generic copy to market, especially because the appeal of the patent case is still pending and still being briefed, and given all these litigation complexities, you know, I'm still pointing to a time somewhere between twenty twenty six but before twenty twenty eight for Norwich entry.

But in the unlikely event that Norwich does prevail in this October sixth hearing, I do think that that would expose Bouch to generic competition as early as next year, in twenty twenty four. This is an extremely complicated litigation, so I encourage anyone who has any questions please feel free to reach out to me. I'm always happy to discuss.

So moving on to Exolexis and it's cabametics litigation, a trial is set to start on October twenty third and Xolexis's suit against generic maker MSN to block copies of

MSN's generic cabametics before the expiration of certain key patents. Now, this is going to be the second trial between the parties, and we favor Xlexis here to prevail on at least one of the patents that expire in twenty thirty but to lose on the patent expiring in twenty thirty two, and this ultimately would then block Emson's entry until at least January twenty thirty. Now, besides MSN, there are two other generics that we know of looking to bring a

cabamatics generic to market, Teva and Sipla. Exlicis settled its litigation with Teva in July for a January twenty thirty one generic entry date, and its litigation against Sipla has been stayed pending resolution of this suit against MSN. Back in January, there was a decision from the first trial that was held in May twenty twenty two, where the court found that Exolexis's twenty twenty six expiring patent was valid, but that EMSN did not infringe to twenty thirty expiring

polymorph patent. So that decision in the first trial blocks any at risk launch by MSN while this second trial plays out, and in this October trial, we think Exlexis again has the advantage to prevail on the twenty thirty expiring patent but not the twenty thirty two expiring one. A pre trial conference is set for October sixth, and the pre trial order is due next week, which will likely give a closer look at the specific arguments that each of the parties are going to be set forth

we're going to be setting for at that trial. And with that, back to you, Elliott.

can the FTC do that? Can it take aim at Meta's business model by changing this settlement? So some background here, there's no US federal law banning the use of kids data. Congress has worked to do that, to impose strict limits on that, it hasn't been able to pass anything. The Federal Trade Commission has tried to make rules on this. It started a process to make rules about data use, but it hasn't finished that rule making, And so this case is really coming in the absence of a binding

law or rule. The FTC is effectively trying to impose that limit in another way by reopening a settlement agreement. That settlement was in twenty eighteen. Twenty nineteen, FTC investigated then Facebook about the Cambridge Analytics matter, whether engaged in unfair or deceptive practices. META and the FTC settled that for five billion dollars, and a court approved that in

twenty twenty. It had some terms attached to it. Now, the FDC says META hasn't adequately complied with the terms of that twenty twenty settlement, and the FTC claims the statutory authority to modify that settlement and now add this term beginning the use of advertising of data to advertise the kids. META has run to federal court, the same federal court that approved the twenty twenty settlement, to try to stop the FDC's modification process before it can start.

That's where we are now. That's what happens. In two or three weeks October seventeenth. This judge will say, can the FDC even start the process to modify the order in this way? So META has two chances to stop this now before the process starts, or after the FDC modifies the order, Medican challenge it again. Either way, I think this is going to be good news for the company.

I think this judge at the October seventeenth tiering is going to have a lot of sympathy with Meta to the idea that the FTC you really shouldn't be unilaterally changing the terms of the settlement deal. The FDC has a hyper technical argument that it can do this that might let it eke by past this first hurtle. I give Meta about a forty percent chance to succeed.

may be in the middle of the shutdown already. But Nathan, you've also written about a marijuana banking bill that made some progress this past week, and also regional bank long term debt requirements. So a lot to discuss. But why don't you come in and lay the knowledge on us.

is a long term debt. Now Silicon Valley Bank and Signature Bank happen, and the regulators are like, well, now we actually have to really look at this proposal, and we're going to push that threshold from two hundred and fifty billion down to one hundred billion. So this proposal impacts all nineteen banks that are one hundred billion in assets in up and what it does is it requires in the issue this long term debt. Now, the regulators

decided not to go with tea lacked debt. Tea lack debt is something that the big banks, the Bank of Americas and the GP Morgans have to adhere to. They decided to go with the less onerous version of long term debt. And based upon our calculations, you're looking around for these nineteen banks or so around found sixty to seventy billion dollars in new debt. That's based off of the twenty twenty two bounds sheet data. Maybe a little bit less today once you take to twenty twenty three

data into account. But essentially, these large regionals have to equate six percent of risquated assets, three point five percent of average total consolidation assets, and for banks that are subject to the supplementary leverage ratio, two point five percent of the total leverage ratio. Now, this proposal is likely going to be finalized about one year from now, and then it will start going into effect over a three year transition period. Starting on July first, twenty twenty five.

So that's the regional bank t. Like Ish debt when it comes to marijuana banking. We have this big hearing over in the Senate Banking Committee today, I'm sorry, this week on what's known as the Safer Banking Act. If you're in this space, you know it used to be called the Safe Banking Act. The only difference between Safer and Safe is language regarding what's known as Section ten over the power of law enforcement agencies. Actually has nothing to do with if actual marijuana being used in the

banking sector. But you know, there was a lot of disagreement a both parties. Now this went through committee fourteen to nine. You would think it's bipartisan. It is, But there were two main takeaways that I took from that hearing. One is is that this Section ten language is nowhere near close to final in order to get this to

become law. There's a lot of Republicans out there that are concerned with this language, and if they were to try and pass this as is, I don't think you're going to get the Republicans support, at least in the House to put this into law.

twenty twenty two. To have a specific vote on this bill without the criminal justice reform, he could probably pass. And I think as eventually that's going to be the scenario here. But I think the Washington's gonna have to play its games and so forth like that. They're gonna have to try first with criminal justice reform that will fail. I think this passes the Senate sometime in the first four or five months of next year, then it goes

to the House. I don't think the House has any desire whatsoever to take this up at the moment, but I do think that if you know, the regulatory gaps that exist for marijuana banking is a bipartisan issue, there is bipartisan support. I think towards the end of twenty twenty four, maybe even after the elections during the lame

duck period. This has a decent chance of passage. So not the story that the marijuana companies want to sing at the moment, but at least it was some good momentum for the least to get it out of committee. And then finally when it comes to the government shutdown, obviously when you're listening to this, we could be in a government shutdown. The status is is that, you know, the Senate is trying to pass a CRT the moment, they're not going to get it done before the Saturday

at midday deadline. You'll probably see them on Sunday try and vote on this. The House is pursuing its own packages at the moment, none of which actually have any chance of passing into the in the Senate. So yes, we are most likely going to have a shutdown. Now, what are the impacts, Well, minimal impact when it comes to equity stocks. I mean we've looked at the thirty five days shutdown that happened at the end of the

Trump administration. You know, stocks were a little bit if he you know, there was some uncertainty once people realized, oh my god, this could actually last for a while. But ultimately stocks started acting normally once people realized that the economic impact wasn't all that big. We've seen certain statements from like Delta Airlines who said they lost twenty five million dollars and in the last shutdown. You know, I certainly don't want to say twenty five million dollars isn't

a lot. I would love to have twenty five million dollars, but for a company like Delta Airlines, it's something that can work around. When it comes to contractors, you would think contractors don't get paid well. Most large publicly traded contractors are pre funded. These contracts are long term in nature, so you know, yes, their workers may may be furlough themselves, but at least when it comes to the revenue perspective

of the large contractors, they are somewhat protected there. When it comes to reporting, however, we are telling our traders to keep an eye on this because a lot of key reports that traders use, for example, like the Commodity Futures Training Commission Commandity reports that come out on Fridays, those are going to stop the Bureau of labor to statistics reports, those are going to stop. And so as long as it shut down continues, those reports that traders

like to use aren't going to be there. And then finally, you know, I would just say that in terms of the other like you know, just general economic impacts, just note that government workers will get their first paycheck around October eighteenth. It's the second paycheck that they don't, So you know, when it comes to if you're trying to like figure out like economic spending, consumer spending and so forth, the first two weeks government workers, all eight hundred thousand

of them should get paid. It's when you start getting into October and November and so forth, things get a little bit more scary. So with that, Elliott, Oh, the last thing I would just say is that we're anticipating the shutdown to be probably around one to two weeks. We don't see this last thing as much as the thirty five day one at the end of the Trump arrows.

than through the normal congressional appropriations process. The CFPB, of course wants the Supreme Court to reverse that ruling, but I don't think the agency is going to succeed. I think at least five, if not all, six, of the conservative justices on the High Court will largely agree with the Fifth Circuit because the CFPB's current funding structure basically

eliminates congressional oversight and that raises separation of power concerns. So, assuming that the Supreme Court rules the way I think, they will. Congress will then need to revisit how the CFPB gets funded, and I think the CFPB, which is currently led by one director, could become a multi member commission in that process, much like many other agencies, and

that'll sort of dilute the power of the agency. I also think that pending rules and pending enforcement actions before the CFPB, or that the CFPB has brought could be at jeopardy since anything that hasn't been finalized will likely need to be ratified by the agency if and when

it becomes properly funded down the road. And so for companies like Naviant, the student loan servicer, which has raised this issue early in its defense when it was sued by the CFPB in twenty seventeen, I think it could result in the case against Naviant being dismissed because any ratification by the CFPB would likely be past the statute of limitations. So there's a whole lot of, you know, ripple effects from this potential ruling in the Supreme Court.

But we'll be watching on October third at the oral argument to see where the court go in and then we expect a ruling in the first half of twenty twenty four. A couple other cases that I'm watching in October. Both of these concern the SEC. The first is a lawsuit by the SEC filed on September twelfth against marketmaker Virtue against the broker dealer units, accusing the company of

failing to protect information barriers around sensitive customer information. I expect Virtue to respond, likely with emotion to dismiss in early October, and I think the company is a good chance to win dismissal of the fraud type claims that were alleged against it, because the alleged false statements that Virtue is alleged to have made don't really pertain to the sale of any specific securities, as I think the relevant statute contemplates, so regardless, you know, I think Virtue's

monetary risk in this case is relatively small, probably less than twenty five million dollars. But if it can win dismissal of these fraud type claims early in the litigation, I think it reduces that exposure even more, perhaps to the single digit millions. And then, finally, the last case I want to talk about this is a crypto company, Gray Scales case against the SEC over Grayscale's bid for a spot bitcoin ETF. You know, if you follow crypto on Twitter, you know this gets a lot of a

lot of activity on Twitter. I've spoken about this case a few times, but as a refresher, Grayscale has been trying to convert its Grayscale Bitcoin Trust known as GBTC to an ETF, which would you know, make it a lot easier for investors, both retail and institutional, to gain exposure to bitcoin. Just by way of background, the SEC rejected Grayscale's application last year. Grayscale thensued just as past August.

August twenty ninth, we finally got a court ruling from the DC Circuit, at least the panel of three judges there, and they vacated the SEC's rejection order. And they said that the agency had essentially acted arbitrarily because it rejected gray scales bid for a spot bitcoin ETF after having previously approved bitcoin futures ETFs. And you know, the court said that you can't really distinguish between these products, and so you shouldn't be allowed to reject one while approving

the other. We're waiting to see what the SEC does next. It has in October thirteenth deadline to ask for n bank review by the DC Circuit. That would mean that all the non senior judges on the court review the case. But keep in mind that in bank review is not automatic. The Court has discretion to either you know, allow it or not allow it. And I think it's unlikely that the Court would grant an SEC petition for in bank review in part because you sort of had You had

judges on that panel from different ideologies. You had one who's very libertarian, you had two who were appointed by Democrats, and you also had the chief judge of the Court on the panel. So I think it's unlikely that the rest of the judges on that court would want to revisit their ruling. And then, assuming no end bank review, the SEC could alternatively ask the Supreme Court for review,

but I think that's also unlikely. You just don't see the type of you know, circuit split or federal question issues that the Supreme Court usually takes up. And then, assuming that there's no further court review of the August twenty nine DC Circuit Panel ruling, the ball then goes back to the SEC and they'll have to revisit Gray Skills application. Again and based on you know, the August twenty ninth ruin, I don't think the SEC has a lot of wiggle room to try to reject Gray Skille's

application again. But again, the key date there is the October thirteenth date for the SEC to file for in bank review. All right, so you know, lots of interesting things to watch in October that we've all been talking about, but I think we'll probably wrap up here and so

this will conclude this episode of Votes and Verdicts. As always, thank you for listening, and as a reminder, you can find all of our research on the Bloomberg terminal at big and we encourage you to reach out to us with any questions you may have, and we also encourage you to listen to other episodes of Votes and Verdicts on whatever platform you'd like to get your favorite podcasts. So thanks again for listening and have a great day. M