February 15, 2015 (Vol. 35, No. 4)

Preliminary Injunction Makes “Hard Switch” Substitutions Tougher but Not Impossible

If a recent federal court action survives an appeal to be decided mid-February, drug developers will likely find it harder but not impossible to stoke sales of treatments set to lose patent protection by withdrawing an older drug formulation and forcing patients onto the new version before generics reach the market.

U.S. District Court Judge Robert W. Sweet sided with New York Attorney General Eric T. Schneiderman last month in granting his motion for a preliminary injunction. The temporary order blocks Actavis from carrying out plans announced last year to stop selling its twice-daily Namenda IR (memantine) tablets—the oral version will continue being sold—and requiring IR tablet patients to buy Namenda XR, the once-daily, extended-release version of the drug launched in June 2013. The hard switch, months before generic IR is due for launch, had been set for August, then postponed due to manufacturing issues.

The preliminary injunction was approved in a 136-page decision that Sweet partially redacted. The temporary order is in effect while the case remains pending in U.S. District Court for the Southern District of New York. Actavis immediately appealed to the U.S. Court of Appeals for the Second Circuit, which granted the company’s motion to expedite its review—but rejected Actavis’ request to stay Sweet’s decision.

The appellate court is expected to decide Actavis’ appeal by February 16.

Namenda is the only N-Methyl D-Aspartate (NMDA) receptor antagonist approved to treat Alzheimer’s, and one of four marketed drugs for the disease (a fifth was withdrawn in 2012). Namenda’s IR and XR formulations split a market that can be fairly approximated at about 500,000 prescriptions, according to testimony from David F. Stitt, R. Ph., director of pharmacy at health plan MVP Health Care.

Watching and Waiting

“The entire pharmaceutical and biotech industries are watching this case carefully,” Ryan Abbott, M.D., J.D., a physician and associate professor of law at Southwestern Law School, told GEN.

Dr. Abbott noted that hard switches are among methods by which innovator drug developers have strived to extend monopoly protection on their drugs. Other methods include “soft” switches where newer versions of a drug are launched while the older one stays on the market, as well as patenting REMS methods, citizen suits against generic filers, and reverse patent settlements.

“These are all very important from a business perspective in maximizing profits from a new drug, and I think that depending on how this case goes, you’re either going to see a lot of other companies following Actavis’ strategy, or you’re going to see them not, at least in the U.S.,” Dr. Abbott said.

Charles E. Yon, J.D., a partner in the Framingham, MA, office of the law firm Bowditch & Dewey, told GEN the preliminary injunction was less a death-knell for hard switches than a response to the circumstances of the case.

“It’s fairly dependent on the fact that Namenda is not available as a generic, and that Actavis, by withdrawing it, was withdrawing consumer choice or more importantly, doctors’ choices, because there was no generic available on the market,” Yon said.

“If you’re the innovator, and you’re the only one selling the immediate release form, you run the risk of a court and a jury saying, you’re coercing patients and doctors. You’re withdrawing one of their choices. I think it’s much less likely that anyone will do what Actavis did,” added Yon, a former svp, general counsel and secretary at Coley Pharmaceutical Group from 2001 through its acquisition by Pfizer in 2008.

New York is among states requiring that prescriptions be filled with generics unless a doctor insists otherwise, but only if the generic is FDA-approved as “AB-rated” to the branded drug—having the same active ingredient, form, dosage, strength, and safety and efficacy profile. While that is supposed to promote more use of generics, Sweet wrote that AB-rating “provides an opportunity for branded manufacturers to game the system” by launching new versions with later patent expirations, then promoting them over older versions.

Searching for Benefits

Actavis found itself at odds with Schneiderman by pursuing hard-switch, then failed to persuade Sweet that it enjoyed benefits beyond reducing competition. One such benefit is cost savings. Another is market acceptance of a new formulation, such as when a large percentage of patients adopt a drug’s new formulation while the old one remains on the market.

Sweet sided with Schneiderman’s office, which argued that the hard switch violated federal antitrust law because it was part of an anti-competitive strategy designed to maintain high drug prices. Actavis denied wrongdoing, noting that its patent monopoly over the Alzheimer’s disease treatment was legal and set to expire starting in July, when five companies can begin selling their generic versions of Namenda IR tablets; another seven can launch in October 2015. Patents for XR do not expire until 2029.

Actavis also disputed Schneiderman’s contention that the hard switch represented an abuse of the monopoly, and accused the state of tilting the proverbial playing field.

“The primary issue in this case is whether the antitrust laws should be read for the first time to impose a mandatory, affirmative duty on an innovator—such as Forest Labs—to continue selling an older product, solely for the benefit of its generic competitors,” Actavis contended in a November 7, 2014, filing.

Two days earlier, Actavis said it would market Namenda IR to patients with “medical need” as determined by their physician, through mail-order pharmacy Foundation Care. That deal came after Schneiderman’s office sued Actavis and subsidiary Forest Laboratories in September 2014, Sweet pointedly noted; the company announced the agreement in releasing quarterly results. The judge also cited testimony from William Kane, Actavis’ vp marketing, internal medicine, that only 2.4% of patients would continue on IR through the deal.

“The limited distribution of Namenda IR does not materially alter the nature and impact of the earlier hard switch strategy,” Sweet declared.

Sweet’s decision, in part, came down to numbers. Schneiderman estimated Namenda XR would cost users of the twice-daily version $300 million more were Actavis to carry out its hard switch. The judge said Actavis failed to quantify its potential harm from an injunction.

The company did quantify its savings from limited distribution of IR as a percentage of the loss of IR revenue within the first six month. The judge redacted that number, as well as Actavis’ projection for how much in sales it would lose should the force switch be blocked.

Strategy Backfires

Unfortunately for supporters of greater biopharma business transparency, Actavis also hurt its case by discussing its strategy publicly.

“If we do the hard switch and we convert patients and caregivers to once-a-day therapy versus twice a day, it’s very difficult for the generics then to reverse-commute back, at least with the existing Rxs. They don’t have the sales force. They don’t have the capabilities to go do that,” Actavis CEO Brent Saunders said in February 2014, on a conference call with analysts. “It doesn’t mean that it can’t happen, it just becomes very difficult and is an obstacle that will allow us to, I think, again go into to a slow decline versus a complete cliff.”

Sweet juxtaposed that public statement with what he called less persuasive and “late-in-time” arguments presented by Actavis in court—namely that the hard switch would allow the company to better “focus” on delivering XR and FDC to patients.

Yet even with the preliminary injunction against Actavis, drug developers may still find a way to pull off hard switches in future, according to one analyst. “We suspect that going forward, companies will treat hard switches like they treat settlements—limit the circle of those involved, put nothing in writing, and only discuss publicly how pro-consumer those are,” Ronny Gal of Bernstein & Co. wrote in a note to investors.

That would be an unfortunate, but understandable, outcome. So too would a rush toward hard switches by companies eager to emulate Actavis and protect aging drug franchises, at risk of angering patients and providers. One possible answer may be rules that advance generics, and thus competition, by limiting hard switches in return for longer patent exclusivity periods to recoup innovators’ rising development costs. The outcome of the Namenda case will determine the need for such action, and how quickly it should occur.

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