Allergan Falls as Supreme Court Dismisses Restasis Litigation

Allergan plc’s AGN shares declined almost 1% presumably due to the U.S. Supreme Court’s unfavorable ruling in a litigation related to patents covering its blockbuster eye drug, Restasis  per an article posted on Reuters.

In October last year, a Texas federal district court invalidated four of the six patents covering Restasis, potentially opening doors for early generic competition, though the patents for the drug are scheduled to expire in August 2024. A generic version of the drug is expected to be launched soon.

Allergan thus resorted to different ways of protecting Restasis from generic competition.

In September 2017, the company had transferred legal ownership of six patents related to Restasis to the Saint Regis Mohawk Tribe. It gained exclusive license from the tribe to shield Restasis from generic competition using sovereign status enjoyed by Native American tribes. The transfer of patents to the tribe was expected to keep them out of a federal administrative court’s purview.

Lawmakers questioned the unconventional move adopted by the company to protect Restasis from generic competition. The deal with the tribe has raised concerns that it will curb generic competition in the pharmaceutical industry and discourage generic drugmakers from making cheaper versions of expensive drugs.

In 2016, Mylan MYL, in a bid to launch generic version of Restasis, had appealed to the Patent Trial and Appeal Board to invalidate patents covering the drug. Moreover, Teva Pharmaceutical TEVA is also seeking approval for its own Restasis generic.

The Supreme Court refused to hear Allergan’s appeal and upheld the ruling of a lower court. This may lead to generic competition for Restasis sooner than expected.

Shares of the company are up 7.4% so far this year compared with the industry’s increase of 6%.

Sales of Restasis were $1.2 billion in 2018. Sales declined in the past two years mainly due to lower selling price and demand. The launch of the generic version will hurt sales further.

Allergan is facing declining sales of major drugs due to loss of exclusivity. The first generic versions of Alzheimer’s treatment, Namenda XR and Estrace cream were launched in the first quarter of 2018. Other products including Bystolic, Delzicol, Gelnique, Saphris and Viibryd are all slated to lose exclusivity over the next few years. Loss of exclusivities hurt sales by $1.2 billion in 2018 and is expected to have an adverse impact of another $1.4 billion in 2019.

Competition for Allergan’s drugs from other branded drugs is also on the rise. Restasis faces competition from Teva Pharmaceutical’s Xiidra. Allergan’s popular drug and the largest revenue generator Botox is facing rising competition with the entry of CGRP antibodies for migraine in 2018. These include Amgen/Novartis NVS, Eli Lilly and Teva Pharma’s CGRP migraine treatments Aimovig, Emgality and Ajovy, respectively. Linzess faces competition from Synergy Pharma’s Trulance.

In a separate press release, Allergan announced that two leading independent proxy advisory firms, Institutional Shareholder Services and Glass Lewis, have advised shareholders to vote for all proposals brought forward by Allergan. Both firms have also recommended against the splitting of chief executive officer and chairman roles, both currently held by Brent Saunders. We remind investors that activist investor Tepper from Appaloosa has been insisting on the separation of CEO and chairman roles since early 2018.

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Allergan currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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