Allergan: Is Imprimis Spat Another Ruse To Crush Restasis Competitor?

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Mark Braum Imprimis CEO. Source: marklbaum.com

Earlier this month Allergan (AGN) had Wall Street abuzz after it sold its Restasis patents to St. Regis Mohawk Tribe to protect them from an inter partes review (“IPR”) by the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB). The company wanted to avoid the double jeopardy of an IPR and existing patent litigation with Mylan (MYL), Teva (TEVA), and Pfizer (PFE). Then last week Imprimis (IMMY) accused the company of another frivolous lawsuit:

“Imprimis will aggressively defend itself against Allergan’s frivolous lawsuit and will take action against Allergan to protect its good name, never yielding to Allergan’s tactics to limit patient choice and drive up the cost of ophthalmic therapies to Americans.

“Allergan, one of the most powerful Big Pharma companies in the world, has filed this lawsuit against one of the smallest pharmaceutical companies in the world, to snuff out any competition to its high drug price strategies. Allergan, a true Goliath, is bent on ensuring that Americans continue to pay the highest possible prices for its drugs.”

Imprimis’s CEO Mark Baum, went onto accuse Allergan of abusive and anti-competitive actions with the aim of protecting its high drug prices. Despite those efforts, Baum claimed to be winning over ophthalmologists and patients with its innovative ophthalmology offerings.

Allergan’s Issue With Imprimis

Imprimis’s press release gave scant details on exactly why it was being sued. After researching Allergan’s official statement the legal action appeared to make more sense:

“Biopharmaceutical companies like Allergan have a duty to put the safety of their patients first. This commitment is the cornerstone of our manufacturing, marketing and advertising of our FDA-approved products. Today, we have brought suit against companies that we believe stand in stark contrast to that commitment. Imprimis Pharmaceuticals, Inc., Prescriber’s Choice, Inc., and Sincerus Florida, LLC do not follow the established compounding regulations, engage in false and misleading advertising, and ultimately, put patients and physicians at risk by selling unapproved new drugs.”

In effect, Allergan is accusing Imprimis and two other firms of manufacturing and selling unapproved new drugs, which is against the law. The Lanham Act is a federal trademark statue that prohibits acts such as trademark infringements and false advertising. Either Imprimis and others are [i] selling unapproved drugs, [ii] engaging in false advertising, [iii] not following the established compounding regulations or they are not. Imprimis’s CEO does not appear to dis-prove these claims; he seems to take issue with the fact that Allergan is making the claims in order to squelch competition.

It will be interesting to see how Imprimis defends itself. Will it disprove the allegations laid out by Allergan or admit to false advertising, running afoul of compounding laws and then agree to clean up its act? Simply pointing out Allergan’s wrongdoing might not be enough.

All Roads Lead To Restasis

Allergan’s lawsuit against Imprimis appears to be about an an exemption for drug regulations pursuant to compounding drug firms. According to the LA Times the rub could be that Imprimis is abusing the privilege:

These typically are small distributors and manufacturers that are permitted to market drugs under two circumstances. One is when a formulation including a generic drug requires a minor tweak to serve a tiny number of patients—those who can’t swallow a pill but can take a liquid, for example, or those who are allergic to a certain inactive ingredient. In those cases, physicians have to write personalized prescriptions for individual patients, covering the change. Compounding firms are permitted to make and distribute drugs in bulk, rather than individually, only when they’re declared by the FDA to be in a shortage or serving a particular clinical need …

Allergan contends that Imprimis is squeezing these exemptions until they burst at the seams. “Imprimis is simply creating, patenting, trademarking, marketing and selling standardized, mass-manufactured unapproved new drugs,” Allergan charges, “under the false guise of ‘compounding.’”

Whether Imprimis does or does not have to achieve FDA approval for certain of its compounds is still up in the air. However, the stakes are extremely high for both parties. Imprimis is expected to come to market with a drug to treat dry eye disease, putting it in competition with Allergan’s Restasis. The $1.8 billion dry eye market is a duopoly; Restasis conrols over 70% of the market and Shire’s (SHGP) Xiidra controls another 20%. Of the 30 million people affected by dry eye only 1 million have prescriptions. The millions not being served represents an opportunity for Imprimis. The risk to Allergan is that 9% of is quarterly revenue comes from Restasis. It is already losing share to Xiidra and any more hits could dry up Allergan’s sales growth and sink the stock.

 

Allergan’s dry eye treatment Restasis

Allergan has gone to great lengths to protect Restasis. When its patents were set to expire in Q2 2014 it got them extended for another 10 years. When generic competitors challenged the patent Allergan sued them in federal court; it then sold the patents to St. Regis to avoid IPR “double-jeopardy.” In isolation Allergan’s arguments make sense. Taken in totality (including the Imprimis spat) it appears the company wants to insulate Restasis from competition and protect its $5,000 annual pricing for the drug.

Conclusion

Senator Sherrod Brown recently vowed to “look at how to close loopholes that drug companies might use to avoid competition.” Allergan’s recent spat with Imprimis could buttress the Senator’s argument. Allergan’s growth is dead even with the Restasis patents. A patent fight with Imprimis, Mylan and others could create negative sentiment and an overhang for the stock. AGN remains a sell.

 

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