Where now for Allergan?

Allergan’s attempts to protect its blockbuster dry-eye franchise have won it no friends, and now look likely to come to naught. A federal court’s decision to invalidate the Restasis patents will probably supersede whatever happens to the company’s deal with a Native American tribe, meaning that all eyes now turn to the FDA for approval of generics.

This could theoretically happen any time, though sellside analysts reckon that copycats will enter the market in 2019, after further appeals and legal wrangling. This is five years sooner than Allergan was hoping, and is a huge blow, particularly as another big product, Namenda XR, is expected to fall early next year.

What this means for future growth is at the forefront of investors’ minds, and their concern is readily apparent – shares fell 3.5% yesterday, erasing $2.4bn from Allergan’s market value. The stock is down 40% since it divested its generics business to Teva in July 2015.

Yesterday’s decision was handed down by a district court in Texas, which invalidated the contested Restasis patents on the basis of obviousness, a decision that Allergan will certainly appeal. However, the judge also made very disparaging remarks about the company’s deal with the Saint Regis Mohawk Tribe, a move that was essentially designed to shelter Restasis’s patents from review by the US PTO.

The arrangement has already proven highly controversial with legal professionals and politicians alike, and US Circuit Judge William Bryson added to these criticisms by questioning the legitimacy of the tactic. So, through the federal courts or otherwise, Allergan’s means of keeping Restasis generics off the market through legal channels have taken a big knock.

As the main challengers Mylan and Teva stand to benefit here – both are awaiting the FDA’s verdict on their applications. The agency’s recent push on generics will also diminish hopes that regulatory inaction goes in Allergan’s favour.

Past the peak

As the company’s second-biggest seller after Botox, the dry-eye treatment is a hugely profitable franchise. Growth was already under threat from Shire’s Xiidra, which was launched in the US in July 2016 (Approval makes Xiidra the apple of Shire’s eye, 12 July 2016).

Analysts believe that Restasis sales have already peaked – at $1.5bn last year – but the forecasts below reflect erosion due to Shire’s Xiidra, rather than generics. Thus investors are now assuming that Restasis sales will fall even faster.

Big players in the branded dry-eye market
Sales ($m)
Product Company 2016 2019 2022
Xiidra Shire 54 767 1,193
Restasis Allergan 1,488 1,265 908
Refresh Allergan 333 369 408
Systane Novartis 377 359 321
Diquas Santen  110 153 179
 Total market (incl. others) 2,789 3,414 3,608
Source: EvaluatePharma.

Allergan could do without this dent to its top line, with the loss of Namenda XR looming. The Alzheimer’s treatment sold $628m last year – if Allergan wins a legal appeal in the next couple of months generics could be delayed until 2020, although this is thought unlikely.

The company has a number of fairly newly launched drugs that are projected to be selling around $700m by 2022 – Vraylar for schizophrenia or the IBS treatment Viberzi, for example – but none that will fill Restasis or Namenda XR size holes anytime soon, on sales and more importantly on profits.

RBS analysts believe that calls for the company to consider a break-up could well grow louder in the coming months, amid concern that its higher value aesthetics business is being overshadowed by generic pressures.

Of course Restasis might still survive this setback, and the FDA might fail to approve generics any time soon. But, as a company built on business development deals, Allergan needs to prove that this strategy can keep delivering growth.

To contact the writer of this story email Amy Brown in London at AmyB@epvantage.com or follow @ByAmyBrown on Twitter

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