Allergan's unusual deal with a Native American tribe could be backfiring

  • Allergan struck an unusual deal with the Saint Regis Mohawk Tribe to transfer patents of the eye drug Restasis, a move that gives the drug sovereign immunity from certain patent challenges.
  • But on Monday, a district court judge invalidated some of Restasis ‘s patents through another channel.
  • The loss in district court means that Allergan won’t get much of the upside from the St. Regis deal, and analysts highlight the “public relations backlash the company has suffered from going through with the agreement in the first place.”

Allergan, the drugmaker behind Botox, on Monday, had patents on one of its key drugs invalidated by a district court judge.

The case was regarding Restasis, a blockbuster eye drug whose patents Allergan had in September given to the Saint Regis Mohawk Tribe. The unusual move gave Restasis sovereign immunity from certain patent challenges, and led to a lot of backlash from lawmakers and the public.

“The Court has serious concerns about the legitimacy of the tactic that Allergan and the Tribe have employed,” Judge William Bryson said in a memorandum opinion accompanying his decision. Allergan’s stock dropped as much as 6% Monday on the news.

Because of the outcome of the case, however, the benefits of having sovereign immunity from certain patent challenges might be moot. Allergan was trying to avoid a procedure that lets parties challenge the validity of patents called inter partes review, a process that could have also invalidated the Restasis patents in addition to the route the district court case took.

Analysts at Credit Suisse adjusted their model following the news, citing in part, the response to the St. Regis deal.

“Even before today, AGN’s stock had lost 12% of its value since the company announced the controversial Restasis patent agreement with the Saint Regis Mohawk Tribe. The loss in the District Court takes away the potential upside AGN could have obtained by removing the Inter Partes Review (IPR) challenge through the patent agreement,” Credit Suisse wrote in a note. “However, it does not erase the public relations backlash the company has suffered from going through with the agreement in the first place.”

Credit Suisse had concerns about whether the St. Regis deal had any impact on the judge’s decision to invalidate the patents and the lasting implications of the deal on the company’s reputation.

We have generally been fans of the AGN management team, but find it challenging to defend the steps that were taken with the patent agreement, especially given that the patents have now been invalidated by the Court,” the analysts wrote. “We believe it will take some time for the management team to regain the credibility it has lost through this process.”

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