Allergan: Senators Seek Investigation Of Patent Sale To Mohawk Tribe

Wednesday four U.S. senators asked the Senate Judiciary Committee to launch an investigation into Allergan's (AGN) sales of Restasis patents to St. Regis Mohawk Tribe:

Four U.S. senators have asked the Senate Judiciary Committee to launch an investigation into a deal drugmaker Allergan Plc (AGN.N) struck with a Native American tribe to protect some of its patents from generic challenge, according to a letter seen by Reuters.

Democrats Maggie Hassan, Sherrod Brown, Bob Casey and Richard Blumenthal in the letter to Judiciary Committee Chairman Chuck Grassley and Ranking Member Dianne Feinstein on Wednesday called Allergan’s deal “a blatantly anti-competitive attempt to shield its patents from review and keep drug prices high.”

I always assumed the odd arrangement would eventually draw the attention of lawmakers. Below is my takeaway on a potential Senate probe.

Parsing The Patent Sale

The timing of the patent sale is curious given that Allergan’s growth is dead and Restasis makes up 9% of the company’s total revenue; according to Bernstein, the drug accounts for 15% of profits. I interpreted Allergan's odd attempt to protect Restasis as the equivalent to yelling, “We are desperate and our R&D capabilities are weak." Bringing attention to the company's shortcomings also appeared to be a dangerous move. It could draw investors' attention to the company's reliance on Restasis and the uncertainty over the quality of its near-term pipeline. It could also potentially prompt lawmakers to take a closer look at the $1.8 billion U.S. dry eye market where Allergan enjoys pricing power with limited competitors.

Restasis dominates the $1.8 billion dry eye market with over 70% market share. Shire's (SHPG) Xiidra controls about 20%, and the two treatments are priced at about $5,000 per year. The entrance of Xiidra last year might have offered customers another alternative, but there was no improvement in price. In fact, the price for Restasis has doubled since 2008. Allowing generics to enter the market could potentially help drive down prices and make it more affordable to the millions of consumers infected with dry eye, but lack a prescription. Why would Allergan want to draw attention to these dynamics?

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