The People of the State of New York v. Actavis: Making a Hard-Switch Procompetitive

By Ryan Abbott

Actavis is back in the spotlight regarding its allegedly anticompetitive behavior. Last month, the U.S. District Court for the Southern District of New York issued an injunction against Actavis and its subsidiary, Forest Laboratories LLC based on the New York Attorney General’s “product hopping” suit.

The suit concerns Actavis’ attempt to extend monopoly protection for its drug Namenda. Namenda is one of only a few FDA approved drugs to treat Alzheimer’s disease, and the only approved drug in a class of medications that act on the glutamatergic system by blocking NMDA receptors. Namenda is also Actavis’ largest revenue generating drug; it brought in $1.5 billion in sales last year. Unfortunately for Actavis, Namenda’s patent protection is due to expire in 2015. Once the patent protection for Namenda has expired, Actavis should ordinarily expect to see a dramatic reduction in sales revenue, as much as 90% in the first year, as consumers switch to a lower-cost generic version.

Namenda was initially approved and marketed as a twice-a-day formulation, intermediate-release Namenda (Namenda IR). Actavis subsequently created a new once-a-day formulation, extended release Namenda (Namenda XR). Patent protection on Namenda ER will expire in 2029. As the patent cliff for Namenda IR approached, Actavis began a marketing campaign to attempt to convince patients, doctors, and insurers to switch patients to the once-a-day version, despite the fact it will cost substantially more than generic versions of Namenda. Attempting to transition patients to a novel formulation of an existing drug is a long-standing strategy of originator pharmaceutical companies−the practice is referred to as product hopping.

However, Actavis went beyond the customary practice of aggressively marketing its new formulation (a soft switch) by attempting to force patients to transition to the new formulation by discontinuing manufacturing of its old formulation (a hard switch). The idea being that if Actavis discontinues Namenda IR after Namenda XR is on the market, but before a generic version of Namenda IR is available, then most Namenda patients will transition to the extended release version. Even after a generic version of Namenda IR becomes available most patients will remain on the extended release version because pharmacists will not be able to automatically substitute the generic IR version for the branded XR version. Although, even with a hard switch, payors might balk at reimbursing for the more expensive formulation. As CVS/Caremark’s decision to provide exclusive coverage for Gilead’s hep C drugs demonstrates, pharmacy benefit managers are becoming more aggressive in terms of what they’re willing to reimburse for. Regardless, the Attorney General objected to the hard switch arguing that patients and their doctors should have the choice of whether to switch to an extended release version. Further, that a hard switch would harm a group of vulnerable patients, some of whom would not be able to transition from IR to XR.

Unfortunately for Actavis in this case, company executives stated amongst themselves, to their sales force, and to shareholders that Namenda IR was being discontinued for financial reasons. While Actavis has subsequently claimed that the switch is necessary because the XR version will benefit patients by improving compliance, the District Judge found that Actavis’ and their experts’ “rationalizations for the hard switch strategy are not only later-in-time but also not as persuasive.” Though in general there is evidence to support improved patient compliance with once-daily dosing.

While Actavis is unlikely to prevail in this case, it isn’t necessarily the case that courts will find all hard switch tactics to be anticompetive. To determine whether a defendant has engaged in anticompetitive conduct, the plaintiff must demonstrate an anticompetitive effect, but the defendant may overcome this by proving there is a procompetitive justification for its conduct that outweighs the anticompetitive effect. In the future, if companies are interested in utilizing a hard switch strategy, they may need to conduct clinical research that establishes the new formulation has a substantial patient benefit. For example, if research established that Namenda XR resulted in better clinical outcomes than Namenda IR, that might be sufficient to avoid liability for withdrawing the earlier product. Given the vast sums of money at stake, there is certainly a financial case for conducting such research. A soft switch was only predicted to convert about 30% of patients from IR to XR. After a hard switch to XR, only 20% of patients were predicted to convert to a generic.

Evaluating head-to-head clinical outcomes may be what Actavis could do with regards to their next Namenda formulation – a fixed dose combination (FDC) that combines Namenda XR with a second drug, donepezil. Actavis is currently seeking FDA approval for that product. Although not necessary for FDA approval, from Actavis’ standpoint they might be wise to investigate whether the use of their FDC formulation results in improved hard outcomes compared to patients taking the two drugs independently. Otherwise, the only thing Actavis is going to get out of the present suit is likely to be more bad case law.

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