Allergan Says Mohawks Bought Restasis Patents With Immunity Promise

Allergan’s (AGN) odd patent transfer to the St. Regis Mohawk Tribe is gaining a lot of scrutiny. It sued rivals from offering generic Restasis, its blockbuster dry eye treatment. Now the judge in he case, Judge William Bryson, has asked for details of the patent transfer meant as an IPR defense. According to Allergan it sold the Restasis patents in exchange for a promise of immunity from the Mohawks:

The Saint Regis Mohawk Tribe agreed to assert immunity during patent challenges and extend that immunity to Allergan Inc. in exchange for Allergan giving it ownership of patents protecting the dry eye treatment Restasis, the drugmaker said Tuesday after a federal judge in Texas told it to prove the deal wasn’t a “sham.”

The tribe agreed not to waive its sovereign immunity when facing challenges at the U.S. Patent and Trademark Office, including inter partes reviews, or during other administrative proceedings trying to invalidate the drug’s patents, Allergan said. Additionally, the tribe agreed to give Allergan a limited field of use exclusive license, and then continue to assert its immunity in any related PTO proceeding.

By my calculation the Restasis patents are worth over $14 billion. Restasis had Q2 revenue of $354 million at an estimated EBITDA margin of 68% or $241 million. That equates to annualized revenue and EBITDA of $1.4 billion and $963 million, respectively. With an enterprise value of $96 billion AGN currently trades at 15x EBITDA, so that would make Restasis worth about $14 billion. Allergan is paying the Mohawks [i] $13.75 million up front and [ii] $15 million in annual royalties for the benefit of their immunity. In effect, the Mohawks received $14 billion in value and annual royalties payments to take Restasis off Allergan’s hands.

Judge Bryson has to make his own determination of the true value of the Restasis patents. He then has to determine if the Mohawks’ sovereign immunity is a fair exchange for Restasis patents which currently generate over $1.4 billion in annual revenue.