'That should be illegal': Lawmakers are taking aim at pharma giant Allergan over an unusual deal with a Native American tribe

  • In September, 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. 
  • The goal is to protect the blockbuster drug from generic competition before its patents run out in 2024. 
  • Lawmakers aren't too happy about the deal, and Senator Claire McCaskill has introduced a bill to close the sovereign immunity "loophole." 

Allergan, the drugmaker behind Botox, is using a tricky workaround to protect patents on one of its drugs — and lawmakers aren't exactly happy about it. 

The deal, which passed off the patents for the blockbuster eye drug Restasis to the Saint Regis Mohawk Tribe, is an unusual move that gives the drug sovereign immunity, keeping it from having its patents challenged as the drug starts to face generic competitors. 

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Revellers perform during a "pow-wow" celebrating the Indigenous Peoples' Day Festival in Randalls Island, in New York, U.S., October 8, 2017. The festival is held as a counter-celebration to Columbus Day and to promote Native American culture and history. REUTERS/Eduardo Munoz
Revellers perform during a "pow-wow" celebrating the Indigenous Peoples' Day Festival in Randalls Island, in New York, U.S., October 8, 2017. The festival is held as a counter-celebration to Columbus Day and to promote Native American culture and history. REUTERS/Eduardo Munoz
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Revellers get ready to perform during a "pow-wow" celebrating the Indigenous Peoples' Day Festival in Randalls Island, in New York, U.S., October 8, 2017. The festival is held as a counter-celebration to Columbus Day and to promote Native American culture and history. REUTERS/Eduardo Munoz
Attendees perform during a "pow-wow" celebrating the Indigenous Peoples' Day Festival in Randalls Island, in New York, U.S., October 8, 2017. The festival is held as a counter-celebration to Columbus Day and to promote Native American culture and history. REUTERS/Eduardo Munoz
A reveller performs during a "pow-wow" celebrating the Indigenous Peoples' Day Festival in Randalls Island, in New York, U.S., October 8, 2017. The festival is held as a counter-celebration to Columbus Day and to promote Native American culture and history. REUTERS/Eduardo Munoz
A reveller dances during a "pow-wow" celebrating the Indigenous Peoples' Day Festival in Randalls Island, in New York, U.S., October 8, 2017. The festival is held as a counter-celebration to Columbus Day and to promote Native American culture and history. REUTERS/Eduardo Munoz
Revellers perform during a "pow-wow" celebrating the Indigenous Peoples' Day Festival in Randalls Island, in New York, U.S., October 8, 2017. The festival is held as a counter-celebration to Columbus Day and to promote Native American culture and history. REUTERS/Eduardo Munoz
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LOS ANGELES, CA - OCTOBER 08: Hollywood character impersonators walk near a girl carrying a sign on Hollywood Boulevard during an event celebrating Indigenous Peoples Day in the Hollywood area on October 8, 2017 of Los Angeles, Californiaa. The event is a celebration of the Los Angeles County's decision to replace Columbus Day with Indigenous Peoples Day. Both the city and the county of Los Angeles have approved the replacement on each second Monday in October, starting no later than 2019. October 12 will be Italian-American Heritage Day. (Photo by David McNew/Getty Images)
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LOS ANGELES, CA - OCTOBER 08: A student of Anahuacalmecac International University Preparatory of North America school for indigenous students holds incense during an event celebrating Indigenous Peoples Day in the Hollywood area on October 8, 2017 of Los Angeles, Californiaa. The event is a celebration of the Los Angeles County's decision to replace Columbus Day with Indigenous Peoples Day. Both the city and the county of Los Angeles have approved the replacement on each second Monday in October, starting no later than 2019. October 12 will be Italian-American Heritage Day. (Photo by David McNew/Getty Images)
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LOS ANGELES, CA - OCTOBER 08: A man carries a sign on Hollywood Boulevard during an event celebrating Indigenous Peoples Day on October 8, 2017 in the Hollywood section of Los Angeles, California. Both the city and the county of Los Angeles have approved Indigenous Peoples Day to replace Columbus Day on each second Monday in October, starting no later than 2019. October 12 will be Italian American Heritage Day. (Photo by David McNew/Getty Images)
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LOS ANGELES, CA - OCTOBER 08: Dancers from Anahuacalmecac International University Preparatory of North America school for indigenous students pray before dancing on Hollywood Boulevard near the El Capitan Theatre and Jimmy Kimmel Live Studio during an event celebrating Indigenous Peoples Day on October 8, 2017 in the Hollywood section of Los Angeles, California. Both the city and the county of Los Angeles have approved Indigenous Peoples Day to replace Columbus Day on each second Monday in October, starting no later than 2019. October 12 will be Italian American Heritage Day. (Photo by David McNew/Getty Images)
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The deal has prompted lawmakers to introduce bills that would make such a maneuver illegal, but Allergan's standing by the move, arguing the move helps protect them from "patent trolls" and facing "double jeopardy" when it comes to lawsuits over its patents. 

How the deal came to be

In September, Allergan put out a press release announcing that it had made the deal, calling it a "sophisticated" opportunity. Restasis, the drug in question that's used to treat chronic dry eye, was approved in 2003 and has patents protecting it until 2024. In 2016, the drug made $1.5 billion in sales, making up about 15% of Allergan's profits, according to Reuters. Out of the deal, St. Regis got $13.75 million from Allergan and can receive up to $15 million in annual royalties.

Native American tribes, along with institutions like universities, have sovereign immunity that protects patents from certain challenges to their validity. 

The tribe, in the Allergan press release, said it viewed the agreement as a way to diversify its income.

"We realize that we cannot depend solely on casino revenues and, in order for us to be self-reliant, we must enter into diverse business sectors to address the chronically unmet needs of the Akwesasne community; such as housing, employment, education, healthcare, cultural and language preservation," the tribe's council said in the release. 

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Dale White, general counsel for the tribe, told CNBC's Meg Tirrell in September that he'd be interested in doing similar deals, asking Tirrell if she would put his phone number in an article. 

But outside the two parties involved in the deal, the move almost immediately sparked a negative reaction. "Anyone who cares about drug pricing should be very, very concerned about the potential impact of Allergan’s actions here," Rachel Sachs, a professor of law at Washington University in St. Louis wrote in a blog post.

Protecting exclusivity

Generic competition to branded drugs like Restasis can get on the market easier thanks to a law from 1984 known as the Hatch-Waxman Act, which gives the generic drugmakers a shorter process leading up to an FDA approval than a first-of-its-kind branded drug might experience. This helped get more generic drugs on the market and drove the prices for prescription drugs down.

The act also set up a way for branded drugmakers to have a certain period of exclusivity where their drug was the only one on the market. During that time, drugmakers can recoup the investment they made in developing the drug. Once a drug goes off patent and generics come on the market, the price of the drug dramatically drops.

The timelines for this market exclusivity aren't set in stone, though. Generic drugmakers are able to challenge the validity of the branded drugmaker's patents, through both the Hatch-Waxman Act and a newer law called the America Invents Act. For example, Allergan is waiting for a ruling on a court case on Restasis underway in Texas, which could lead to generic competition sooner than 2024. In that case, however, the tribe has waived its sovereign immunity. 

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What Allergan is trying to avoid is a procedure that lets parties challenge the validity of patents called inter partesreview that's part of the America Invents Act, which could also invalidate the Restasis patents. Allergan's CEO Brent Saunders referred to this process as "double jeopardy" in a Wall Street Journal opinion piece. The deal with St. Regis grants Allergan sovereign immunity over the IPR process.

In September, Senators Maggie Hassan, Bob Casey, Sherrod Brown, and Richard Blumenthal in a letter asked for Senators Chuck Grassley and Dianne Feinstein of the judiciary committee to investigate Allergan's  "anti-competitive attempt to shield its patents from review and keep drug prices high." 

Saunders disagreed with that characterization in a letter to Grassley and Feinstein: 

"The opposite is true. Allergan is committed to vigorously defending the intellectual property that protects its products and has recently completed a Hatch-Waxman trial in a Federal District Court in Texas which includes attacks on the validity of the patents covering Restasis, and a ruling is anticipated in the near future. To be clear, if the District Court ruling is adverse to Allergan’s patent position, and there is an FDA approval of a generic version of Restasis, that product could enter the market many years in advance of the listed patent expiry dates."

claire mccaskill(Win McNamee/Getty Images)

Closing a 'loophole'

In the month since Allergan announced the deal, members of Congress have spoken out against it.  

Representatives Trey Gowdy,  Elijah Cummings, Dennis Ross, and Peter Welch sent a letter to Saunders on October 3, asking for more information about the deal. Saunders has until October 17 to respond.

"The implications of Allergan's patent transfer raise questions for Congress as the exchange may impair competition across the pharmaceutical industry and ultimately dissuade companies from pursuing less-costly generic alternatives to brand drugs," the congressmen wrote in the letter. 

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And on October 5, Senator Claire McCaskill introduced a bill aimed at closing the sovereignty "loophole."

"If this drug company thinks I’ll just sit by and watch, while they brazenly exploit loopholes to protect their profits and make Missourians pay more in the process, they obviously don’t know me very well," McCaskill said in a statement. "Any thinking person would look at what this company did and say, 'That should be illegal.' Well, I agree. Congress never imagined tribes would allow themselves to be used by pharmaceutical companies to avoid challenges to patents, and this bill will shut the practice down before others follow suit."

But Allergan's standing by its plan. 

"We at Allergan fully support generic competition for our medicines. Hatch-Waxman has created an effective balance between investment in innovation and the need to ensure affordable access to medicines," Saunders said in The Journal. "What we cannot support, however, is a system that creates an unfair burden on owners of intellectual property, while empowering hedge funds and patent trolls."

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