Shire Sues Allergan In Dry-Eye Donnybrook

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Earlier this week Shire (SHPG) sued Allergan (AGN) for allegedly blocking access to its dry-eye drug from certain Medicare Part D drug plans:

Shire SHPG -1.53% PLC filed an antitrust suit against Allergan AGN -0.51% PLC, alleging Allergan’s contracts with Medicare Part D drug plans for its Restasis eye drops effectively blocked access to Shire’s rival drug.

The complaint, filed Monday in federal court in Newark, N.J., says Shire offered steep discounts in bids to secure insurance coverage of the company’s dry-eye drug Xiidra but the Part D plans refused, due to Allergan’s “bundled discounts, exclusive dealing” and other tactics.

“There was not a level playing field for us to compete” in Part D, John Neeley, Shire’s head of U.S. pricing and market access, said in an interview. Some 13% of Part D patients have access to Xiidra on their drug formularies, compared with about 88% of commercially insured patients, a Shire spokeswoman says. Shire SHPG -1.53% PLC filed an antitrust suit against Allergan AGN -0.51% PLC, alleging Allergan’s contracts with Medicare Part D drug plans for its Restasis eye drops effectively blocked access to Shire’s rival drug.

The lawsuit comes as Allergan is under siege from generic drug makers – Teva (TEVA), Mylan (MYL),  and Pfizer (PFE) – who want to offer generic Restasis. It is suing them in federal court to block a copycat version of the drug. Allergan also sold its Restasis patents to the Mohawk Indian Tribe in order to avoid an inter partes review (“IPR”) brought on by Mylan. The Shire lawsuit adds another player to the current dry-eye donnybrook.

Restasis represents 9% of its total revenue; according to Bernstein the drug accounts for 15% of its income. In Q2 2017 Restasis and Xiidra had sales of $354 million and $57 million, respectively. Restasis’ revenue was up 10% sequentially; however, it fell 9% Y/Y as Xiidra made its presence felt. Xiidra’s revenue was up 46% sequentially as the product continues its ascent.

Xiidra could have a competitive advantage in that it is a prescription eye drop indicated to treat both the signs and symptons of dry-eye. Meanwhile, Restasis is only indicated to help increase tear production. Xiidra’s efficacy in dry-eye could allow it to take rapid share from Restasis.

How The Lawsuit Could Impact Allergan

Shire’s lawsuit implies that Allergan has used “‘bundled discounts, exclusive dealing’ and other tactics” to keep Xiidra off of certain Part D plans. The lawsuit could impact Allergan in the following ways:

It Could Create Another Blow To Allergan’s Reputation

Allergan’s growth is dead and it is defending top-selling Restasis at all costs. It recently accused Imprimis (IMMY) and two other firms of manufacturing and selling unapproved new drugs, which is against the law. Imprimis called Allergan’s lawsuit “frivolous” and implied it was an attempt to keep Imprimis’ new dry-eye drug off the market.

Now the company is under congressional scrutiny for transferring the patents to the Mohawk Tribe:

Congress is inquiring about the nature of Allergan’s relationship with the Mohawk Tribe and about competition in the dry-eye market. The inquiry could lead to full blown investigation. With the congressional inquiry and Allergan’s constant defense of its Restasis patents, when does management find time to do its day job? The Shire lawsuit could cause another blow to Allergan’s reputation as extremely litigious. It could also create another distraction for management.

Allergan says it does not want the “double-jeopardy” of facing a patent challenge in federal court and via an IPR. However, the sale of the Restasis patents, the lawsuit against Imprimis, and the lawsuit to block generic manufacturers all give the impression Allergan simply does not want competition for Restasis. Shire’s claims of Allergan using tactics to block Xiidra’s access to certain Part D plans lends credence to that assertion.

It Could Give Xiidra Access To More Part D Plans

Allergan and the dry-eye industry are already on lawmakers’ radar. Pricing for a dry-eye regimen is around $5,000 per year. More competition could potentially cause prices to fall and more dry-eye infecteds to afford the medication. The fact that Shire claims it offered steep discounts to get onto Part D plans and still could not get access, could potentially draw attention from lawmakers.

Ultimately, the lawsuit and potentially political pressure could prompt Medicare to give a higher percentage of Part D patients access to Xiidra. In that scenario, Allergan’s dry-eye market share and revenue could fall even faster.

Conclusion

Greater access for Xiidra to Part D plans could hurt Allergan. AGN remains a sell.

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