Allergan, author of the 'social contract,' stirs up hornet's nest with controversial IP deal

Brent Saunders
In an interview Monday, Allergan CEO Brent Saunders said the company's Restasis deal is a way to avoid a "double jeopardy" of patent reviews.

Seeking to shield its blockbuster eye drug against a second round of patent attacks, Allergan has transferred key Restasis intellectual property to the Saint Regis Mohawk Tribe. With the unusual move, the same company that touted pharma’s social contract with patients drew some quick and sharp responses, with some calling it innovative and others labeling it 'sleazy.' 

Under the maneuver, Allergan transferred several Restasis patents and will pay the New York tribe $13.75 million up front, plus up to $15 million in royalties per year. The company said it was an effort to safeguard its eye drug Restasis from inter partes review challenges at the U.S. patent office. Because it’s a sovereign nation, the tribe can claim immunity from such challenges.

If successful, the arrangement represents a new way for pharma to circumvent the inter partes review system. But some observers blasted the company on Twitter by calling the deal unscrupulous and sure to bring more criticism to the industry.

Allergan CEO Brent Saunders told FiercePharma that his company executed the patent deal so it can focus on defending its Restasis patents in federal district court. Bob Bailey, Allergan’s chief legal officer, said the tribe approached Allergan about such a deal in early August.

“I have spent time with the chiefs and their primary motivation for doing this, their sole motivation, is to diversify the stream of incomes that this tribe enjoys away from casinos and cigarettes, into longer term, more viable streams ... and in order to provide for self reliance for the people of their tribe, their community,” Bailey said.

The company is already fighting off several generic rivals in federal court in Marshall, Texas, and Saunders said that having to fight another battle this month at the U.S. Patent Trial and Appeal board is “double jeopardy” under a “flawed” system. Both executives said the legality of inter partes reviews is under scrutiny.

RELATED: Allergan heads to federal court to defend Restasis against early generic rivals

Critics say the patent move could create another pharma controversy after a relatively quiet period for the industry. For her part, health policy expert Rachel Sachs wrote in a post that the move, “if repeated and taken to its logical conclusion,” could “prevent most invalidity challenges to drug patents.”

Bloomberg View writer Joe Nocera called the deal “sleazy,” “sneaky, unscrupulous and just plain wrong.” David Mitchell, founder of Patients for Affordable Drugs, urged industry groups PhRMA and BIO to disavow the "legal dodge."

Adding another layer to this issue is the fact that Saunders touted pharma’s “social contract” with patients in a manifesto last year. The helmsman pledged that his company would limit price hikes to single digits at a time when the industry wanted to distance itself from pricing scandals at Valeant, Turing Pharmaceuticals and Mylan.

RELATED: Allergan CEO swears off big price hikes in manifesto on pharma's 'social contract'

On Monday, Saunders said Restasis patents that stretch into 2024 provide Allergan the financial ability to conduct future research and deliver on obligations to shareholders, employees, patients and doctors. He added that the company will continue to price responsibly and act within that social contract, even though many on social media blasted the patent deal.

Restasis was Allergan’s second-best selling drug last year with nearly $1.5 billion in global revenue. Facing competition from Shire’s Xiidra, the drug’s sales slipped 9.4% in the second quarter to $354 million.

Reacting to the patent announcement, Credit Suisse analyst Vamil Divan said that his team sees “why many investors are questioning the integrity of the deal, especially for a company that has been as visible as” Allergan in regards to price hikes. Divan predicts that generic companies will challenge the deal, but wrote that if the move is successful, Allergan “will have dramatically altered the landscape of pharma IP litigation."