Saturday, September 9, 2017

What is a Reasonable Royalty for Restasis?

Dean Baker is on the case with respect to the abuse of the patent systems by Allergan:
If you thought the pharmaceutical industry couldn't possibly sink any lower in its pursuit of profits Allergan just proved you wrong. The geniuses at Allergan came up with the brilliant idea of turning over one of its patents on the dry-eye drug Restasis to the Mohawk tribe. The tribe will then lease the patent back to the Allergan. The reason for this silly trick is that the Mohawk tribe, based on its sovereign status, is disputing the right of generic competitors to pursue a case before the Patent Trial and Appeal Board.
Dean says sales are $1.3 billion but last year they almost reached $1.5 billion. This story provides some background:
Allergan could face a new patent risk for its key eye drug Restasis, facing off against generics and specialty pharma Mylan Pharmaceuticals, a subsidiary of the global Mylan N.V. The U.S. Patent Office's Patent Trial and Appeal Board (PTAB) granted Mylan's petition to launch an inter partes review of six Restasis patents, which are due to expire on August 27, 2024. A decision on the reviews, which will assess the patentability of Allergan's claims, is expected in late 2017.
So this gimmick extends the patent life for another 7 years. My understanding of this deal is that the Tribe will receive $15 million in license revenues per year, which represents a royalty rate equal to only 1 percent. I checked the 10-K filing of Allergan and it suggests that the segment operating margin is 75 percent as cost of production is only 5.5 percent of sales and operating expenses are 19.5 percent of sales. Given these financials, one could argue that a reasonable royalty rate is closer to 70 percent rather than only 1 percent. Two thoughts here with the first being that the Tribe should sue arguing for a much higher royalty rate. Of course Allergan could protest that the Tribe never paid Allergan for these patent rights. But of course that would expose just how much of a sham this deal really is.


Jerry Brown said...

This comment has been heavily self-edited from the original- What a freaking scam and abuse of our laws this garbage of transferring ownership off a patent for some medicine that might help sick people in some way so that the (former) patent 'owner?' gets to collect 99% of the royalties this particular deal is. Thank you PGL for clarifying the situation.

ProGrowthLiberal said...

Thanks Jerry. I had one more thought. Mylan should start manufacturing competing products by just ignoring this patent. Since it is the Mohawks that now own it - the patent infringement suit would come from them and not Allergan. I estimate that the value to the tribe itself from this deal is less than $100 million. So even if the lawyers for Mylan cannot stop the patent infringement, they can argue for damages less than $100 million which is pennies on the dollar. Hey - I'd be glad to be their expert witness.