Will Namenda IR Withdrawal Force A Legal Switch on Product Hopping?

On September 15, 2014, New York Attorney General Eric Schneiderman filed an anti-trust lawsuit against the specialty pharmaceutical company Forest Laboratories and its new owner, Actavis. In the suit, Schneiderman alleges the companies’ plans to remove from the market a soon-to-be generic version of the Alzheimer’s medicine Namenda are “manipulative” and “illegal”.

“Purely to squeeze every last dollar out of their Namenda franchise, and with no concern about the effects that its ‘forced switch’ could have on the highly vulnerable Alzheimer’s patient population, [the] Defendants are substituting their own, profit-driven motives for the judgment of physicians and patients,” the 39-page complaint contends.

But the case is more than just a pronouncement about a single company’s ethics. It could have widespread implications for the life sciences industry and how pharmas typically manage loss-of-exclusivity, that important point in a drug’s life cycle when it loses patent protection and suffers a sharp drop-off in revenues thanks to generic competition.

Indeed, The People of the State of New York v. Actavis raises questions about when product switching, one of the standard mechanisms the pharma industry uses to extend a drug’s patent life, is legal – and when it’s not. Moreover, while this is not the first product switching case to land in the courts, it is the first one mounted by government regulators. As such, it bears close scrutiny. (Prior challenges have been brought by pharmacy benefit managers, health plans or generic companies.)

Product switching is just one of a set of tools pharma companies typically employ to extend the life cycle of a portfolio drug. By altering a medicine’s formulation to change how – or when – it is dosed, a company is eligible for additional patents that can stave off generic competition after the original composition-of-matter patents have expired. In the case of Namenda, for instance, the short-acting, twice-daily version, Namenda IR, loses patent protection in July 2015, but the long-acting, once-daily form, Namenda XR, is protected until 2025.

Since new patents only apply to a specific product iteration — not the original formulation — the tactic only preserves revenues if physicians stop prescribing the older version in favor of the newer one. Thus, how a company achieves a switch from an older product to a newer one is a key component of the life-cycle management strategy. And, as the New York AG’s lawsuit suggests, going forward, it’s also a critical element in the legality of such so-called “product hopping” cases.

The New York Attorney General’s Case against Actavis is the fourth product hopping case to be decided by the courts. In two of the three previous cases (Abbott Laboratories v. Teva Pharmaceuticals USA and Walgreen Co. v. AstraZeneca Pharmaceuticals), district courts differentiated between soft switches, where the drug manufacturer heavily promoted the clinical superiority of newer, on-patent medicines while doing little to market older, soon-to-be generic formulations, and forced switches, where access to older versions was limited because they were taken off the market or distribution was restricted. In those two cases, only forced switches triggered antitrust claims, seeming to provide clarity around when product hopping rises to the level of being anti-competitive.

A more recent case, 2012’s Mylan Pharmaceuticals, Inc. v. Warner Chilcott Public Limited Co., muddied the legal waters, however. In that case, which centered on formulation changes to the anti-acne medicine Doryx, the plaintiffs argued Warner Chilcott blocked generic competition by implementing three different product switches that “devastated the market for the prior versions of Doryx.” Warner Chilcott, meantime, countered that its activities weren’t anti-competitive but “merely precluded generic firms from taking advantage of automatic [generic] substitution laws.” In moving to dismiss the case, the Mylan court hedged on whether Warner’s action were anti-competitive: “Although I am skeptical that the ‘product hopping’ alleged here constitutes anticompetitive conduct…I cannot definitively address the question without going beyond the pleadings,” the court decided.

In the current case against Actavis and its subsidiary Forest, Schneiderman alleges that in 2013, when the long-acting version of Namenda first launched, Forest attempted to shift patients from the old version to the new one via a soft switch. However, the pharma was “dissatisfied with the number of patients who were willing to switch voluntarily.” Thus, in 2014, Schneiderman charges the company chose to implement a forced switch by “eliminating – or severely limiting – patient access to the original version of Namenda” starting several months before the generic version became available.

As a result of these actions, the New York Attorney General is seeking an injunction to prevent Actavis and Forest from withdrawing Namenda IR from the market until after the introduction of generic versions, while also asking for civil penalties, and/or damages and restitution.

Nine days after news of the lawsuit broke came word that Actavis had reached an agreement with Schneiderman to keep selling Namenda IR for the next 60 days. Still, the case is far from settled. As noted, existing case law is far from clear, and it’s difficult to say what will happen when the 60-day stay concludes at the end of November. Among the many questions: Will Actavis’ decision to delay withdrawal of Namenda IR blunt criticism that it has acted anti-competitively? Is there additional evidence that could be presented that might justify the shift from a soft switch to a forced switch?

Certainly, the New York Attorney General’s involvement in the case remains an important signpost. For starters, it signals greater activism on the part of government regulators on this issue at a time when patients, physicians, and payers are hyper-aware of rising drug costs. (Prior to this case, government regulators had talked about the anti-trust implications of product hopping but limited their actions to filing one friend-of-the-court brief on the topic.) More importantly, there is the opportunity for additional clarity on which specific product switching strategies run afoul of existing antitrust legislation.

Until a decision is reached, however, pharmaceutical companies will need to switch products softly. No big sticks – or, forced switches, required.