A recent federal district court ruling—a federal judge invalidated exclusive protections for dry-eye drug Restasis—isn’t sitting well with Allergan PLC. Shares of the pharmaceutical company hit a near-term low last week, trading at below $180 per share for an approximately $60 billion market cap.
Shares are down more than 20% since Allergan announced the patent deal with the Saint Regis Mohawk Tribe in New York a month ago, and by more than 50% from the all-time high set in July 2015. It last traded that low in January 2014.
Rough patches are ahead as Allergan fights the Restasis patent dispute on two fronts: the federal court and through the inter partes review (IPR) at the U.S. Patent and Trademark Office. It faces challenges from generic drugmakers, such as Mylan N.V. and Teva Pharmaceutical Industries Ltd., which are trying to force the drug off patent before the appointed time in 2024.
To Fight or Not to Fight
Restasis rang up 2016 revenue of over $1.4 billion, second to perennial top Allergan grosser Botox, which generated nearly $2 billion. The potential loss of exclusive rights to Restasis patents, plus generic brand competition, would impact the company’s top-line earnings.
Allergan took the unusual step of transferring the rights to Restasis to the Mohawks, paying the tribe $13.75 million upfront and $15 million annually to license back the patents for as long as they’re valid. The tribe had no previous pharmaceutical investments but can protect the patents on grounds of sovereign immunity.
Patent holders that are sovereign entities, such as an American Indian tribe or state university, can claim sovereign immunity under the IPR system but not in federal courts.
The move raised eyebrows and drew negative publicity to the company, but the question is why did Allergan do it?
The Business Journal reported last week that a drug typically carries fewer than 10 patents, and therefore patent invalidity has a greater impact. Allergan particularly wants to avoid defending patents via an IPR process because challengers have less burden of proof.
Joseph Mallon, a partner at law firm Knobbe Martens Olsen & Bear LLP, told the Business Journal that “IPRs have made it easier for challengers to invalidate a patent.” In a district court, challengers must prove each patent claim invalid by “clear and convincing” evidence. IPRs, however, require challengers to prove only unpatentability by a “preponderance” of the evidence.
Mallon specializes in chemical and pharmaceutical patents. Knobbe is ranked among the top 10 patent litigation firms by Corporate Counsel, a monthly print and digital industry journal.
Allergan Strategy
Allergan has taken a different view of in-house research and development following its $70 billion cash-and-stock sale to Actavis PLC. Chief Executive Brent Saunders said in an interview with Business Insider that Allergan remains committed to research and development but will source late-stage innovations from outside sources, including academia and startups. “We acquire intellectual property or R&D assets and then develop them in-house … what we don’t have are discovery labs.”
The company laid off 109 employees in Irvine this month, according to a filing with the state. The layoffs are “around R&D positions,” according to a company spokesman.
Allergan’s purchases, including what Saunders called “stepping stones”—small, bolt-on acquisitions—haven’t yet paid off.
The company started last year strong. It sold its generic drug business to Israeli generic drug maker Teva Pharmaceutical Industries Ltd. for about $40 billion, including $33.4 billion in cash and 100.3 million shares of Teva stock valued at $5.4 billion.
It’s since spent about $7 billion on acquisitions, including paying $95 million for Menlo Park-based ForSight Vision 5. ForSight develops an ocular ring designed for extended drug delivery to reduce intraocular pressure in glaucoma patients. The technology is part of Allergan’s Irvine campus, which houses its U.S. Specialized Therapeutics that includes eye care, aesthetics and therapeutic Botox.
Another Restasis?
Allergan said it plans to appeal the court decision and will take a “conservative approach as we plan 2018,” given uncertainties around its blockbuster eye drug. The outlook isn’t good for Allergan because the unfavorable federal court ruling will likely affect the IPR decision.
Allergan could still find another blockbuster drug in its late-stage 6-stars program. It’s submitted a Food and Drug Administration filing for its uterine fibroids prospect Esmya. Uterine fibroids are benign tumors that appear in the womb, often during child-bearing years.
The cashing out, however, may take some time. While there are currently no FDA-approved treatments for the condition, Allergan said there’s going to be “a lot of education required” to make Esmya successful.
Other indications in the program are slated to launch between 2020 and 2022.
