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Senators question Allergan CEO on tribe patent deal

  • A group of five senators sent a letter to Allergan requesting information about its deal with the Saint Regis Mohawk Tribe.
  • The senators want the information by Dec. 1.
  • In September, Allergan transferred all patents for its billion-dollar drug Restasis to the tribe in a bid to shield the drug from legal challenges to the patents.
  • The tribe then granted Allergan back an exclusive license for the drug.
  • A federal judge invalidated those patents last month.
Brent Saunders, CEO, Allergan
Scott Mlyn | CNBC
Brent Saunders, CEO, Allergan

Allergan's unusual deal with the Saint Regis Mohawk Tribe to gain protection from certain patent challenges drew intense scrutiny when the drug giant announced it in September. Then, last month, a federal judge invalidated those patents, appearing to render the whole controversy moot.

Now, a group of five senators doesn't want to let Allergan forget about it.

In a letter to Allergan CEO Brent Saunders Tuesday, Sens. Sherrod Brown, D-Ohio; Maggie Hassan, D-N.H.; Amy Klobuchar, D-Minn.; Al Franken, D-Minn., and Patty Murray, D-Wash., requested documents and information about the deal, calling it a "blatant attempt to further Allergan's market monopoly" on its $1.5 billion eye drug, Restasis.

"It is difficult to conceive of Allergan's transaction as anything other than a sham to subvert the existing intellectual property system," the senators wrote. "Put simply, Allergan paid another entity to take possession of its property, and then guaranteed annual payments for doing no more than holding the property and asserting a special legal standing to quash all disputes related to said property."

The letter was released ahead of a House subcommittee hearing Tuesday afternoon titled "Sovereign Immunity and the Intellectual Property System." Saunders wasn't among those testifying.

In its agreement with the Saint Regis Mohawks, Allergan transferred the patents for Restasis to the tribe, which used its sovereign immunity to move to dismiss challenges from generic-drug makers seeking to invalidate those patents through a system called Inter Partes Review, or IPR. It's a newer system of challenging patents that goes through the U.S. Patent and Trademark Office.

Allergan paid the tribe $13.75 million, with the potential for an additional $15 million a year in royalties on Restasis. Saunders argued the arrangement allowed Allergan to avoid the "double jeopardy" of defending the same patents in two systems simultaneously: IPR, and the traditional patent-challenge system through the federal courts.

But about five weeks after the deal was announced, the judge in the federal case invalidated those patents.

The senators are requesting information from Allergan about the terms of the agreement and the benefits to Allergan; whether Allergan has plans to transfer patents for any other medicines to the tribe or other sovereign entities, such as state universities; and whether tribal sovereign immunity could be used not just in IPR challenges but also through the federal court system.

As for the tribe, the Allergan deal wasn't the only one it struck; last month, along with tech company SRC Labs, the tribe sued Microsoft and Amazon for patent infringement. The tribe's leaders say these partnerships give it a much-needed source of new revenue.

In their letter to Allergan Tuesday, the senators challenged the company's assertions that the arrangement is consistent with its "Social Contract," a multi-part pledge to keep drug price increases to less than 10 percent a year and keep its medicines accessible.

Saunders told CNBC's Jim Cramer last week that the deal was misunderstood.

"It wasn't desperation, it was tenacity," he said on CNBC's "Mad Money," noting the pharmaceutical industry is grounded in intellectual property protection.

Tuesday, the company confirmed it had received the letter, and said the senators' focus shouldn't be on the agreement with the tribe, but instead "on the IPR process and its negative impact on life science innovation for patients."

Allergan also defended its commitment to its "social contract."

"Allergan is not attempting to artificially extend patents, we're trying to protect our investment in intellectual property against a system that exposes our products to the double jeopardy created by the unfair IPR process," the company said in an emailed statement. It also pointed out the constitutionality of the IPR process is due to be heard by the U.S. Supreme Court.

The senators called the move hypocritical, saying the promise "to increase access and to not substantially raise drug prices while creating and exploiting loopholes to thwart competition renders meaningless the entire 'social contract.'"

They asked for Allergan's response by Dec. 1.