Biotech and Pharma

Allergan responds to mounting criticism of Mohawk patent deal

Key Points
  • Allergan is urging the Senate Judiciary Committee to review the patent challenge system it's been accused of thwarting.
  • Allergan struck a deal with the Saint Regis Mohawk Tribe aimed at protecting patents for its Restasis eye drug in September.
Allergan's Restasis medicine for dry eyes.
Source: Allergan | YouTube

As a fifth U.S. senator and four congressmen piled on criticisms of Allergan's patent deal with a Native American tribe, the drugmaker responded by urging the Senate Judiciary Committee to review the patent challenge system it's been accused of thwarting.

Allergan raised eyebrows last month when it said it had transferred the patents for its blockbuster eye drug Restasis to the Saint Regis Mohawk Tribe in a deal designed to dismiss a certain brand of patent challenge from generic drugmakers.

Analysts said the deal could be emulated by other pharmaceutical companies if it's successful. But Allergan's move, initially heralded as creative and buoying the $69 billion drugmaker's stock price, has since drawn intense scrutiny and shined a light on a dual system of patent challenges in the U.S. Allergan's stock is down 6 percent since the announcement.

Now it's responding to what it calls misperceptions by four senators in a letter they wrote to the Senate Judiciary Committee last week, requesting it open an investigation into the deal.

"The Senators' … letter is incorrect when it asserts that there has been an 'attempt to shield [the Restasis patents] from review,'" CEO Brent Saunders wrote in his own letter Tuesday to committee leaders Sens. Chuck Grassley, R-Iowa, and Dianne Feinstein, D-Calif., obtained by CNBC. "The opposite is true."

The four senators, led by Maggie Hassan, D-N.H., called Allergan's arrangement with the Saint Regis Mohawk Tribe a "blatantly anti-competitive attempt to shield its patents from review and keep drug prices high."

Monday night, Sen. Claire McCaskill, D-Mo., also weighed in, calling the arrangement a "brazen loophole" that should be illegal. And Tuesday afternoon, four congressmen from the House Oversight and Government Reform Committee, including Chairman Trey Gowdy, R-S.C., sent a letter to Saunders suggesting the patent transfer may "impair competition across the pharmaceutical industry and ultimately dissuade companies from pursuing less-costly generic alternatives to brand drugs."

Here's how the agreement came about: Allergan was facing patent challenges from generic drugmakers in both federal court and through a relatively new system called inter partes review, or IPR. Native American tribes, it turns out, like state universities, possess sovereign immunity from challenges under the IPR system.

So Allergan transferred the rights to Restasis to the Saint Regis Mohawk Tribe, which licensed them back to Allergan. The tribe then sought to dismiss the IPR challenges. In return, Allergan is paying the tribe $13.75 million, and $15 million in additional potential annual royalties.

"It appears that Allergan's deal with the Tribe exploits the law to thwart review of the Restasis patents, protecting Allergan's market monopoly — and its profits — at the expense of patients who need the drug," wrote the group of four senators, which also included Sherrod Brown, D-Ohio; Bob Casey, D-Pa.; and Richard Blumenthal, D-Conn.

But Saunders argues Allergan is still facing patent challenges for Restasis, pointing out it just completed a trial over the drug's patents in federal district court in Texas, with a ruling "anticipated in the near future."

If Allergan loses that case, and the Food and Drug Administration approves a generic version of Restasis, that product could enter the market "many years in advance of the listed patent expiry dates," Saunders explained in his letter.

"Allergan's recent agreement with the [Saint Regis Mohawk Tribe] has no impact on that case," Saunders wrote.

He used the bulk of his letter to urge the committee to review the IPR process, which he said "has created unintended and negative consequences," including undermining the traditional patent challenge process created in 1984 through the Drug Price Competition and Patent Term Restoration Act, also known as Hatch-Waxman.

Saunders also argued the IPR system, created through the America Invents Act in 2011, "creates an unnecessary and unfair burden on innovators of branded medicines by opening up patents to parallel and often inconsistently adjudicated challenges before both federal courts and the Patent Trial and Appeal Board" — a "double jeopardy" Saunders said last month that Allergan was seeking to avoid.

The Supreme Court is due to hear a case on the constitutionality of the IPR process this fall, Saunders pointed out. He said Allergan, drugmakers AbbVie and Celgene, and industry groups PhRMA and BIO are among parties filing supporting amicus briefs.

In its response to the letter from the House Oversight Committee, Allergan doubled down on its insistence that the IPR process, not its deal with the tribe, should be in the government's crosshairs.

"While we fully recognize their need for information, the Committee's focus should not be on Allergan, the Saint Regis Mohawk Tribe and our agreement which does not shield Restasis patents currently being litigated in federal district court," an Allergan spokesman said in a statement. "The focus should be on the IPR process and its negative impact on life science innovation."

The congressmen asked for a response to their request for information by Oct. 17. Allergan said it intends to comply.

Here is a copy of Allergan's letter: