[Ip-health] FT: Allergan deal with Mohawk tribe casts patent shadow
thiru at keionline.org
Wed Sep 27 11:36:35 PDT 2017
Allergan deal with Mohawk tribe casts patent shadow
Deal will have wider implications where intellectual property is hotly
Allergan has transferred patents for its drug Restasis to the Saint Regis
Mohawk Tribe for an upfront payment of $13.75m — and a potential $15m a
year in royalties
9 HOURS AGO by David Crow in New York
The headquarters of the Saint Regis Mohawk Tribe, a Native American
community in upstate New York, is an unlikely venue for one of the most
controversial patent disputes in years.
But this low-slung building, located on a barren strip of highway just a
few minutes drive from the Canadian border, has become the testing ground
for a brazen new strategy in intellectual property.
This month, Allergan, the US drugmaker, transferred patents protecting its
lucrative eye drug, Restasis, to the tribe, which received an upfront
payment of $13.75m and a potential $15m a year in royalties.
The tribe subsequently applied to have a challenge against the patents
thrown out, arguing it is protected from such claims by sovereign immunity.
If successful, the ploy would close down one route used by generic
drugmakers, such as Teva Pharmaceuticals, Mylan and Akorn, which are trying
to have Allergan’s intellectual property invalidated so they can launch
cheaper copycat versions of the medicine.
Restasis, a treatment for dry eye, is Allergan’s top-selling drug after its
wrinkle injection Botox, generating almost $1.5bn in sales last year and
accounting for about 10 per cent of overall revenues.
The arrival of an early copycat version of Restasis before its patents
expire in 2024 would hurt the company’s bottom line, given the drug
accounts for roughly 15 per cent of profits, according to Bernstein.
But the deal with the tribe is likely to have much broader implications,
not just for the pharmaceuticals sector — where successful patent
challenges can quickly erase billions of dollars of revenue — but also in
other industries where intellectual property is hotly contested.
Dale White, general counsel for the St Regis Mohawk, says the tribe has
already taken ownership of patents from SRC Labs, a high-performance
computer group, and is in discussions with another technology company,
which he declined to name.
Mr White says the additional revenues will allow the tribe to diversify
away from its main sources of funding — casinos, and government grants,
which he thinks could be cut by the Trump administration.
“If this is a successful business model, the revenues could rival our
casino revenues, and help boost an area that has been badly hit by economic
depression,” adds Mr White, who says between 5,000 and 7,500 tribal members
live on the reservation in upstate New York.
It is time [to] take a stand against Allergan’s outrageous legal manoeuvres
that serve to extend its monopoly over Restasis and keep prices high
The patent switch was not Mr White’s idea, but rather the brainchild of
Shore Chan DePumpo, a firm of lawyers based in Dallas, Texas.
Michael Shore, managing partner, says he devised the strategy after winning
an intellectual property case on behalf of the University of Florida
earlier this year. He argued that the state university was a sovereign and
therefore had immunity from patent challenges.
The attorney subsequently tried to find other sovereign entities and zeroed
in on Native American tribes, which have been protected from such
challenges since a 1940 Supreme Court decision.
“We immediately saw the value in sovereigns holding patents . . . so we
started planning strategies to reap the value of that arbitrage,” says Mr
Shore. “We approached several tribes with the concept. None understood it
until the St Regis Mohawk Tribe.”
Shore Chan subsequently introduced the tribe to Allergan.
In the Florida case, Mr Shore successfully argued that immunity protected
the university not just in the courts, but also from intellectual property
challenges brought through a quasi-judicial process managed by the US
Patent and Trademark Office, known as an inter partes review, or IPR.
The IPR process, created in 2012, has become a favoured avenue for generic
drugmakers and other patent challengers, but is much-loathed by branded
drugmakers, which say the odds are stacked against them.
Allergan says it only intends to use the arrangement with the tribe to
shield it from IPR proceedings rather than court challenges, where it is
fighting a parallel battle to protect Restasis. Defending the patents in
both arenas amounts to a form of “double jeopardy”, according to Brent
Saunders, Allergan’s chief executive.
Somewhat ironically, Allergan itself used the IPR process last year to
successfully invalidate a patent held by a Canadian group that covered the
use of Botox to treat spinal compression injuries.
It will not become clear whether the St Regis Mohawk deal has worked until
a hearing at the Patent Trial Appeal Board next month, but most lawyers
believe Allergan is on solid ground. The Florida decision earlier this year
set a precedent that will be hard to reverse without Congress passing
legislation, they say.
The court of public opinion is another matter, especially as the
pharmaceuticals industry is already trying to repair its tarnished
reputation following an outcry over the high cost of drugs such as
Daraprim, the Aids drug made famous by convicted fraudster Martin Shkreli,
and Mylan’s Epipen.
Sherrod Brown, the Democrat Senator, has slammed the deal with the tribe,
arguing it “rips off consumers” while Patients for Affordable Drugs, a
campaign group, has written to PhRMA, the main industry lobby, calling on
it to publicly disavow Allergan’s tactics.
“It is time [to] take a stand against Allergan’s outrageous legal
manoeuvres that serve to extend its monopoly over Restasis and keep prices
high,” the letter said.
PhRMA declined to comment on the Allergan case but said drugmakers “rely on
the assurance of their patents to justify long-term investments” and that
the “threat of IPRs . . . creates significant business uncertainty”.
The average wholesale price of a 30-dose pack of Restasis has more than
doubled from $117 in 2008 to almost $280 today, according to figures seen
by the Financial Times. The active ingredient, an immunosuppressant known
as cyclosporine, was first approved by the US Food and Drug Administration
in 1983, while the eye-drop version was given the green light 14 years ago.
“The optics of it are terrible,” says one large Allergan investor, arguing
the move runs counter to the “social contract” the group unveiled last
year, in which it pledged to refrain from egregious price rises.
“Allergan’s ‘social contract’ looks like it was lip service to consumers,
insurers and politicians,” says Michael Rea, chief executive of Rx Savings
Solutions, which makes software to help employers and patients cut their
He adds: “Their actions to protect their patents using a loophole appears
to put profits over patients.”
Shares in Allergan have fallen more than 10 per cent since it announced the
deal with the tribe, a slide that some analysts attribute in part to fears
over the agreement with the tribe backfiring.
Despite the reputational risk, analysts and lawyers predict drugmakers and
other companies will follow suit if Allergan’s deal with St Regis Mohawk
helps it fend off patent challenges.
“My expectation is everyone will wait to see what the patent office does in
the Allergan case. If it works, we’ll see other people jumping in,” says
Ronny Gal, Bernstein analyst, citing AbbVie and Amgen as drugmakers that
are facing damaging patent challenges.
Jacob Sherkow, an associate professor at New York Law School, predicts that
companies will eventually use similar arrangements to try to protect their
medicines not just from the IPR process but also in the courts, which would
put generic drugmakers at a major disadvantage.
“There’s not really much generic makers can do other than roll up in the
corner in the foetal position or petition Congress to eliminate tribal
immunity for patent claims,” he says.
Mr Sherkow says that generic companies will have to launch more products
“at risk”, meaning they bring their copycat drugs to market without legal
certainty and in the knowledge they might be successfully sued.
While larger generic companies could weather such an environment, Mr
Sherkow says it would be harder for smaller groups to manage.
“There is an extreme version of these events where it is only large generic
companies that go to market,” he says. “And where you restrict supply,
prices are going to go up.”
The patent cliff era still strikes fear into pharma executives.
Between 2010-13, more than $90bn of sales were lost to patent expiry,
according to EvaluatePharma, as some of the world’s top-selling medicines —
such as Pfizer’s Lipitor — lost exclusivity and faced competition from
cheaper copycat rivals.
A new patent shock awaits the industry, with $194bn of sales at risk of
generic competition between now and 2022.
However, analysts say that the cliff could be more of a “hill” this time
round because many of the products at risk are biologic medicines that are
made from living cells.
Unlike chemical pills, it is not possible to produce carbon copies of these
medicines, meaning companies that wish to challenge them must produce
near-identical or biosimilar medicines.
Executives and analysts predict these will not erode sales as quickly as
traditional generics because they will cost a lot more to produce, and so
offer less dramatic savings.
Meanwhile, some doctors and patients are wary of using something that is
similar rather than exactly the same.
“The composition of the cliff this time around is different in one
important respect — biosimilars,” says Tim Anderson, a Bernstein analyst.
“Erosion rates will be slower, but still as of yet unpredictable,” he adds,
pointing out that Roche, the Swiss pharma group, has the highest level of
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