Pharmaceutical giant Allergan struck a bold and unusual deal to protect its patents on a lucrative eye drug in September.
If successful, the maneuver could have far-reaching ramifications and disrupt the established pharmaceutical industry order.
On Sept. 8, the Dublin-based Allergan Plc. assigned the patent rights of its popular dry-eye medication Restasis to the Native American tribe Saint Regis Mohawk Tribe.
The deal transferred all intellectual property rights for Restasis to the Mohawk Tribe. Allergan will continue to manufacture and market the drug under an exclusive license from the tribe. The Mohawk Tribe will receive $13.75 million in a one-time payment, and up to $15 million annually in royalty payments from Allergan.
Restasis was approved by the Food and Drug Administration (FDA) in 2003, and Allergan’s patent protection would have remained until 2024. The drug generated $1.5 billion in net sales for Allergan, second only to Botox, making up about 10 percent of the company’s total net revenues during 2016.
Why would a major global pharmaceutical company pay millions of dollars to give away patents of a lucrative drug to a Native American tribe?
The answer lies in economics, and in Allergan’s desire to protect its patents and its income stream. To that end, the company’s deal is both controversial and brilliant. In one fell swoop, Allergan could upend established business models for the pharmaceutical industry, challenge the paradigm of U.S. patent laws, and create the next big Indian tribe revenue stream.
Native American tribes are granted sovereign immunity, which protects their patents from being challenged. This in effect makes it much more difficult for generic drugmakers to challenge the validity of Restasis patents and produce cheaper alternatives to the drug.
The Generic Drugmaker Model
In summary, the decades-old, established order of the pharmaceutical industry plays out as follows. Major drugmakers—such as Pfizer Inc., Bayer AG, GlaxoSmithKline Plc, and Allergan—spend millions and billions of dollars up front in research and development to invent, test, bring to trial, and market new drugs.
If successful, the companies are granted multiyear patents for these new drugs, guaranteeing a period of exclusivity and high revenues in exchange for their initial investments. Once a drug’s patents expire, generic drugmakers can produce the same drugs more cheaply, which drives down the cost of the prescription drug.
The process of creating generic versions of prescription medication was given a boost after the Competition and Patent Term Restoration Act of 1984, better known as the Hatch-Waxman Act. That law granted generic drugmakers a shorter runway leading up to FDA approval for generic versions of a previously exclusive drug.
Under both the Hatch-Waxman Act and a newer law called the America Invents Act of 2011, generic drugmakers and other competitors can challenge the validity of the initial drugmaker’s patents before their expiration, through the IPR process.
Fight Over Patents
By transferring its Restasis patents to the Mohawk Tribe, all legal IPR challenges could be dismissed because of the Native American tribe’s immunity status.If successfully upheld, Allergan has effectively guaranteed its revenue stream from Restasis through at least 2024. And similar deals between intellectual property holders and Native American tribes could proliferate going forward.
State universities generally also have sovereign immunity regarding patents, but Sachs points out that there is a precedence of universities waiving their immunities, whereas tribes have demonstrated greater immunity from counterclaims in court.
On Nov. 7, a group of Democratic senators consisting of Sherrod Brown, Amy Klobuchar, Al Franken, Maggie Hassan, and Patty Murray sent a letter to Allergan CEO Brent Saunders requesting more information. The senators criticized Allergan’s deal with the Mohawk Tribe, calling it a “blatant effort to further Allergan’s market monopoly on Restasis beyond the original patent term and exclusivity period.”
“[Allergan] believes that generic challenges in general are a good and natural part of the industry but the challenges should be limited to the court process, while IPRs represent a double jeopardy in which a lower burden of proof forces companies to abandon their IP (intellectual property) prematurely,” wrote Credit Suisse analysts in a September note to clients.
The company does face an uphill battle in upholding the Restasis patents. In a ruling in late October, federal judge William Bryson rejected the motion of Allergan and the Mohawk Tribe to dismiss ongoing challenges to Restasis brought upon by generic drugmakers Mylan Inc. and Teva Pharmaceuticals Ltd. Allergan plans to appeal, and the review could take months.
So for now, the IPR challenges continue. But one takeaway from Allergan’s controversial Restasis deal is that intellectual property fights could get far more creative and interesting going forward.