The tete-a-tete between Allergan (AGN) and lawmakers over its patent sale to St. Regis Mohawks continues. Thursday Senator Claire McCaskill drafted a bill disallowing tribal sovereign immunity to be used to block U.S. Patent and Trademark Office review of patents:
“Any thinking person would look at what this company did and say, ‘That should be illegal.’ Well, I agree,” McCaskill said in a statement. “Congress never imagined tribes would allow themselves to be used by pharmaceutical companies to avoid challenges to patents, and this bill will shut the practice down before others follow suit.”
Last month Allergan transferred patents for Restasis, its top-selling drug indicated to help increase tear production, to St. Regis; the transfer was designed to protect them against an inter partes review (“IPR”). Allergan is paying St. Regis an up front fee and $15 million in annual royalties. It also keeps the economics from Restasis which generates over $1 billion in annual revenue. The Restasis patents are also being challenged in federal court by Mylan (MYL), Teva (TEVA) and Pfizer (PFE). Allergan claims the patent transfer is merely to avoid the “double jeopardy” of a federal court hearing and an IPR.
St. Regis Mohawks Express Outrage
Last week the Mohawks asked the patent board to have Mylan’s challenge to the patents dismissed. It also made it clear that [i] the patent review board had no jurisdiction over the Mohawk Tribe and [ii] as a sovereign government it “cannot face litigation in an administrative court unless it expressly waives its immunity or the U.S. Congress abrogates immunity.”
The Mohawk Tribe also expressed outrage over Senator McCaskill’s attempt to thwart the patent transfer:
“The Saint Regis Mohawk Tribe is outraged that U.S. Senator Claire McCaskill (D-MO), has introduced legislation that specifically targets Indian tribes, yet exempts state universities and other sovereign governments engaged in the very same IPR process. The double standard that is being introduced by the Senator as a solution for a perceived abuse of the IPR proceedings does nothing to solve the underlying problem. The Tribes authority is inherent and has been reaffirmed through treaties and legislation from the earliest days of the country …
The Tribe asserted its commitment to work with lawmakers to discuss how it could benefit from the patent transfer without artificially inflating drug prices. In my opinion, the patent transfer appears to be a ruse to help insulate Restasis from competition and keep prices high.
Restasis costs about $5,000 annually. According to the Financial Times the price of Restasis has more than doubled since 2008; Allergan has gone through pains to protect it. Exclusivity for Restasis was set to expire in 2014, yet Allergan filed additional patents extending the protections. It sued generic drug makers when they tried to offer generic Restasis. After Imprimis (IMMY) was set to launch a drug to treat dry eye disease and potentially threaten Restasis, Allergan accused Imprimis of manufacturing and selling unapproved new drugs.
Allergan May Have Triggered The Wrong Senator
The patent transfer has brought attention to the IPR process and so-called “double-jeopardy.” Allergan has also attracted attention to itself, its pricing for Restasis and the $1.8 billion dry eye market. The duopoly – Allergan controls 70% share and Shire (SHPG) controls over 20% – could be conducive to keeping prices high. However, drawing the ire of Senator McCaskill might not have been a smart play.
Outrage over drug makers’ price-gouging prompted the Senate Special Committee on Aging to release a 130 page report titled Sudden Price Spikes In Off-Patent Prescription. The report was spearheaded by launched by Chairman Susan Collins (R-Maine) and Ms. McCaskill, and focused on the business practices of price gougers like Valeant (VRX) and Turing Pharmaceuticals. To thwart price gougers the report recommended the FDA prioritize reviews of generic drug applications for certain off-patent prescription drugs.
The committee is racking up results too. In December 2016 a generic version of Valeant’s heart drug Nitropress was approved by the FDA; Valeant had previously been accused of raising the price of Nitropress by over 200% after acquiring the drug. Earlier this week the FDA approved Mylan’s (MYL) generic version of Copaxone, a multiple sclerosis treatment offered by Teva (TEVA). From 2002 to 2015 the average annual cost for multiple sclerosis treatments had risen over 270%. Analysts had not expected generic Copaxone until next year. It might have been approved quicker due to the work spearheaded by Ms. Collins and Ms. McCaskill.
Next Step For Senator McCaskill?
The next step for Senator McCaskill could be to help bring competition to the dry eye market. The following are two examples:
Parse Through Shire’s Claims Of Medicare Exclusion For Xiidra
Xiidra is the the first prescription medicine in the U.S. approved to treat both the signs and symptoms of dry eye disease. Its market share has grown to over 20%, despite having only been launched a year ago. Shire recently accused Allergan of blocking Xiidra from certain Medicare Part D drug plans:
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.
Only 13% of Part D patients have access to Xiidra on their drug formularies; the figure is about 88% among commercially insured patients. Greater access to Xiidra could potentially offer Medicare patients another alternative at a cheaper price. It could behoove Senator McCaskill (or other lawmakers) to parse through Shire’s claims. Assuming Shire’s claims are true, it could remove another bottleneck from bringing prices down for dry eye treatments.
Prioritize Reviews Of Clinical-Stage Dry Eye Treatments
Having the FDA prioritize or fast track new drug applications for dry eye could also bring competition to the market. Given the success of the Senate’s report on price-gouging and the early results from the report’s recommendations, Senator McCaskill could have the political capital to get lawmakers on board with the idea. Two companies of interest could be RegeneRx (RGRX) and Aldeyra (ADLX). Both are still in the clinical-trial stage and have yet to turn a profit.
RegeneRx focuses on the development of a therapeutic peptide, Thymosin beta 4 (TB4) for tissue and organ protection, repair, and regeneration. TB4 is patented for use in the treatment of dry eye syndrome. RegenerX completed Phase 3 clinical trial testing for dry eye in July. According RegeneRx its dry eye treatment, RGN-259, compared favorably than Restasis and Xiidra in some areas.
RegeneRX is currently hemorrhaging cash; cash flow from operations in the first half of 2017 was -0.5 million, and it only has cash on hand of $0.2 million. RegneRx will likely have to raise additional cash or partner with a larger firm to fund itself. If Phase 3 clinical trials are not successful then its future could be in question. There is a possibility shareholders could lose their entire investment in RGRX. However, if RGN-259 ever becomes commercially viable there could be tremendous upside for another drug in the $1.8 billion dry eye market.
Aldeyra’s ADX-102 dry eye treatment showed significant improvements in a midstage trial last month. The results caused ALDX to surge 50% and the company used the higher share price to raise nearly $27 million in equity. The extra funding could buttress the Aldeyra who suffered a $5.3 million operating loss in Q2 2017. Its Phase 2b clinical trial is set to begin in the first half of 2018.
Conclusion
A patent fight with lawmakers could get more contentious. The longer this goes on the worse it could get for Allergan. AGN remains a sell.
