Allergan (AGN) has dominated the financial news cycle since it agreed to sell its Restasis patents to St. Regis Mohawks in order to protect them. The Mohawk tribe has sovereign immunity and can dismiss an inter partes review (“IPR”) by the patent and trade office pursuant to Restasis. The tribe is to receive a $13.75 million up front payment and $15 million in annual royalties beginning in 2018. The agreement does impact existing patent litigation in federal court in Marshall, TX; generic rivals like Mylan (MYL), Teva (TEVA) and Pfizer (PFE) are attempting to offer generic Restasis and Allergan is suing for an infringement on its patents.
Allergan has an enterprise value of nearly $100 billion and is one of the most-respected firms in the pharmaceutical space. According to AGN bulls Allergan’s pipeline is strong enough to sustain the company for years to come:
Commenter 1: Simply story here. Its the pipeline stupid. Don’t get me wrong – I have NO IDEA if it will deliver. But probably nobody else does either. This is basically a black box for all but most intense analyst with gobs of data I could not comprehend even if I had access.
Commenter 2: I’m expecting continued growth from Juvaderm, Byvalson, Vraylar, Viberzi, Namzaric, Kybella, Avycaz & Dalvance.Coolsculpting, Botox, implants, Alloderm & other regeneratives all compliment each other well & like that.A little worried about Restasis outcome but excited to hear some news from the pipeline later this year …
The question remains, “If Allergan’s pipeline is so strong then why would it go to such lengths to protects Restasis patents?” Restasis is the company’s second-largest product in terms of sales. The dry eye treatment generated $354 million in revenue in Q2, down 9% Y/Y. It accounts for 9% of Allergan’s revenue and likely a double-digit share of its total EBITDA. Restasis dominates the $1.8 billion dry eye market with about 70% share; Shire’s Xiidra commands just over 20%. It is an important market due to Allergan’s commanding share, and the fact that the company’s organic growth is nil. Q2 revenue was up 8%, yet organic growth was less than 1%.
Protecting Restasis is paramount. However, by bringing attention to it Allergan likely signaled its reliance on it and the weakness of its pipeline. This Restasis patent risk was cited by Morgan Stanley when it downgraded the stock earlier this week.
Senator Sherrod Brown Enters The Fray
Earlier this month Senator Sherrod Brown challenged Allergan’s novel concept of “renting” an Indian tribe’s immunity for a fee:
The company said last Friday that it would transfer patents on its dry-eye medication Restasis to the St. Regis Mohawk Tribe, which would claim sovereign immunity from patent challenges and work to dismiss inter partes review proceedings.
That can’t “become the new normal,” Brown says, and he intends to look at how to close loopholes that drug companies might use to avoid competition.
His staff has requested a meeting with the company, and Allergan says it’s reached out to Brown’s office to “provide the facts and context” around the tribal deal.
Brown has challenged the company before, having objected last year to Allergan’s proposed merger with Pfizer.
Brown threw down the gauntlet, indicating the battle to protect Restasis could become arduous as well as contentious. The longer this goes on the longer the patent battle could create an overhang for Allergan’s stock, which is down 10% since the Mohawk deal was announced. Lawmakers have been keen to tamp down the rising cost of drugs. One avenue to do it could be an acceleration in approving generics. Allergan’s patent fight could become a flashpoint for the entire Senate.
Did Allergan Attempt To Crush Imprimis’ Dry Eye Drug?
In April Imprimis (IMMY) announced it had entered into an agreement to market Klarity, an ophthalmic topical solution and gel technology for the treatment of dry eye disease. By September Allergan had sued Imprimis for selling unapproved drugs and for false advertising:
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.
Imprimis’s CEO Mark Baum called the lawsuit frivolous and a veiled attempt to squelch competition. One could infer that Baum believes Allergan wants to keep Imprimis out of the dry eye market. Baum claimed Imprimis does not need FDA approval, yet Allergan thinks it does. It could take months to sort this out – precious time for Allergan to maintain its dominance of the dry eye market.
This sounds like another issue that could be added to Senator Sherrod Brown’s bailiwick. Allergan has claimed it does not want to face “double-jeopardy” in the form of [i] patent litigation on Restasis and [ii] an inter partes review from Mylan. If that is the case, then why is it also attempting to stymie Imprimis? It appears as Brown stated earlier, Allergan wants to avoid competition and protect its dry eye prices at $5,000 per regimen, per year. Stay tuned.