Will Allergan's Deal With Tribe Hold Up?

I'm happy to report that Miami survived Hurricane Irma quite well and for the most part flooding did little major damage. Our Florida brethren down in the Keys were not nearly as lucky and our thoughts and prayers go out to them, hoping here for a speedy recovery from a devastating storm. Today, we are going to take a few questions from the biotech mailbag. What is your take on Allergan's recent legal maneuver? The Irish drug giant recently transferred the patent rights for Restasis to the St. Regis Mohawk Indian Nation. Restasis targets dry eyes and does about $1 billion in annual sales. While technically the patent holds until 2024, both Mylan and Teva Pharmaceuticals were launching patent challenges for generic versions of Restasis before this. Last December, the U.S. Patent Office granted an inter partes review of the relevant patents on Restasis. Up-front payments and continuing annual payments went to the tribe in this deal. The kicker is that whatever patented intellectual property is owned by the tribe is technically protected from inter partes review challenges by their sovereign immunity. The tribe has already challenged the Patent Office's previous decision in court. Some have asked whether other drug giants will use the same legal maneuver. My take is I doubt it. I also don't think Allergan, which previously was the poster child for tax reversions, will get away with it in the long term. The transaction might be legally sound, though extremely dodgy. Politicians are still talking drug price gouging on a regular basis and the new FDA leadership is focusing intently to bringing more competition to the generic drug space. I think this maneuver, which has come under intense media coverage, will come under additional scrutiny from regulators. In the end, I believe Allergan will probably have to back out of this transaction in some form to save face. Why isn't the stock of Synergy Pharmaceuticals reacting better to a recent financing deal? The stock of Synergy has been under pressure throughout 2017 mainly due to the financing overhang. The company has needed to acquire additional funding for the continued rollout of Trulance, which was approved in January. The company recently acquired $300 million in financing through a debt deal in installments that was done at a very reasonable interest rate (9.5%) compared with other similar debt deals in this space. However, the stock has not risen as expected on the deal's announcement; it actually has declined about 5% since the announcement to around $2.75 a share. So what gives? In the details of the debt deal, there is a provision that Synergy must pay at least four years of coupons before the debt can be retired. This was a key reason they got a lower interest rate and did not have to grant warrants or convertible debt. This means absolutely nothing if Synergy remains a stand-alone concern, but probably takes 50 cents a share off a buyout price. I am moving my buyout target on Synergy as a result from $8.50 to $10.50 to $8 to $10 as a result. Given that the stock trades under $3 a share, I believe long-term shareholders will be rewarded greatly at some point. Trulance should be approved in late January for an additional indication and also benefit from expanded insurance network coverage at the start of 2018.

Will Allergan's Deal With Tribe Hold Up?

Answering questions from the biotech mailbag.

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