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Friday Allergan (AGN) Forest Laboratories ( and Ironwood Pharmaceuticals (IRWD) accused Teva (TEV) of infringing upon a patent for Linzess, which treats irritable bowel syndrome with constipation (“IBS-C”) and chronic idiopathic constipation (“CIC”):

The complaint, filed by Forest Laboratories, Allergan USA Inc. and Ironwood Pharmaceuticals Inc. in U.S. District Court for the District of Delaware, accuses Teva of infringing a 10 patent for Linzess, which is used to treat irritable bowel syndrome with constipation and chronic idiopathic constipation. Last year, the companies sued Teva and a contingent of other pharmaceutical firms for trying to bring their generics to the market.

In Friday’s complaint, the plaintiffs said the 2016 abbreviated new drug application Teva filed with the U.S. Food and Drug Administration identified nine patents as invalid and unenforceable, but made no mention of the so-called ’371 patent at the heart of the new lawsuit.

According to the plaintiffs Teva only recently amended its abbreviated new drug application (“ANDA”) to include allegations that claims of the ‘371 patent are invalid, unenforceable and/or will not be infringed upon by Teva’s generic Linzess. If Teva manufactures or sells generic Linzess in the U.S. it would allegedly infringe on the ‘371 patent.

The Situation

Linzess speeds up the movement of food through the stomach by increasing fluid in a person’s intestines. Gastrointestinal disorders (GI) include irritable bowel syndrome (IBS) – disorder of the intestine that affects 20 to 60 million people in the U.S. IBS is the most common disorder diagnosed by gastroenterologists and accounts for over 10% of visits to primary care physicians.

Linzess is co-promoted in the U.S. by Ironwood and Forest Labs, and sold by Allergan. It received FDA approval in 2012 for the treatment of IBS-C and CIC. In Q4 2016 Allergan sued Mylan (MYL) and Teva for attempting to offer generics before Linzess’s patents had expired:

Allergan USA Inc. hit four generic-drug makers with a suit Wednesday in Delaware federal court accusing them of jumping the gun on producing a generic version of its irritable bowel syndrome treatment Linzess.

In the suit filed on Wednesday, Allergan said Teva Pharmaceuticals USA Inc., Mylan Pharmaceuticals Inc., Sandoz Inc. and Aurobindo Pharma Ltd. rushed to apply to make generic Linzess capsules, which are prescribed to relieve symptoms of irritable bowel syndrome and chronic constipation, before the drug’s patents expire.

In 2016 the nine patents-in-suit were United States Patent Nos. 7,304,036, 7,371,727, 7,704,947, 7,745,409, 8,080,526, 8,110,553, 8,748,573, 8,802,628 and 8,933,030.

In July of this year the ‘371 patent titled, “Treatment for Gastrointestinal Disorders,” was issued. Ironwood owns the patent and Forest Labs has an exclusive license to commercialize pharmaceutical products containing glinaclotide. Below is an abstract of the ‘371 patent:

The present invention features peptides compositions, and related methods for treating gastrointestinal disorders and conditions, including but not limited to, irritable bowel syndrome (IBS), gastrointestinal motility disorders, functional gastrointestinal disorders, gastroesophageal reflux disease (GERD), duodenogastric reflux, Crohn’s disease, ulcerative colitis, inflammatory bowel disease, functional heartburn, dyspepsia, visceral pain, gastroparesis, chronic intestinal pseudo-obstruction (or colonic pseudo-obstruction), disorders and conditions associated with constipation, and other conditions and disorders are described herein, using peptides and other agents that activate the guanylate cyclase C (GC-C) receptor.

By extending the patents for Linzess, Ironwood and Forest Labs might have successfully thwarted Teva’s patent challenge.

Restasis 2.0?

Allergan has been in the spotlight over the past six weeks for its unusual defense of Restasis against threats from Mylan and Teva. Restasis is used to treat dry eye, amongst other things. Restasis received FDA approval in 2003. One of the patents on the drug’s active ingredients was set to expire in 2014. Allergan obtained additional patents extending its protections to 2024. When rivals attempted to launch a generic version of the drug Allergan sued for patent infringement. However, rivals saw the suit as an attempt to extend Restasis’s exclusivity.

In 2016 Allergan complained that generics rivals were breaching nine patents pursuant to Linzess. While Linzess was only approved in the U.S. five year ago, some of the its underlying patents have been around much longer. For instance, patent 7,304,036 was filed in 2004 and published in 2007; patent 7,371,727 was filed in 2004 and published in 2008.

At issue in the current suit is Teva’s breach of patent ‘371 which was only approved in July. In my opinion, the timing of its approval appears prescient. Just as Teva was potentially able to identify Linzess’s other nine patents as invalid and unenforceable, the plaintiffs got another patent approved, potentially extending Linzess’s exclusivity. The scenario sounds similar to Allergan’s defense of its Restasis patents against generic rivals.

Importance To Allergan

Linzess is of heightened importance to Allergan. The drug is marketed internationally as “Constella.” Combined, Linzess / Constella generated Q2 revenue of $173 million, or 4% of the company’s total $4.0 billion in revenue.

It is Allergan’s third best-selling drug behind Botox (20% of revenue) and Restasis (9% of revenue). Revenue from Linzess / Constella was up 12% Y/Y. This is important as Allergan’s growth is dead, having generated Q2 organic growth of about 1%.

The drug is sizeable and it represents a key growth engine for Allergan. Judge William Bryson recently invalidated the Restasis patents in a federal court case. If Allergan loses an upcoming inter partes review could pave the way for generic Restasis. A hit to another large revenue-producing drug could be devastating for Allergan, particularly given the company’s $30 billion debt load.

Conclusion

Patent ‘371 could help Ironwood, Forest Labs and Allergan extend exclusivity for Linzess. It could put the spotlight back on Allergan, whose unconventional defense of its Restasis patents has turned into a public relations nightmare. However, it could help keep Allergan’s revenue and cash flow from Linzess intact for a few more years. I currently rate AGN a sell due to risks of generic Restasis entering the market in 2018 or 2019. I rate Teva a sell due to the arrival of a generic version its top-selling drug, Copaxone.

 

On Shock Exchange

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On Trump And the Global Economy

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