Health Law Daily Effects of product hopping scheme felt before scheduled drug withdrawal
Thursday, September 22, 2016

Effects of product hopping scheme felt before scheduled drug withdrawal

By Patricia K. Ruiz, J.D.

A scheme to engage in "product hopping" constituted illegal anticompetitive conduct even when a preliminary injunction prevented the brand-name manufacturer from completing the withdrawal of the original drug from the market, held the Southern District of New York. The court reasoned that patients had begun switching to the new drug as soon as the brand-name manufacturer announced that the original drug was being discontinued, well before the lower court issued a preliminary injunction (Sergeants Benevolent Association Health & Welfare Fund v. Actavis, PLC, September 13, 2016, McMahon, C.).

The federal Food, Drug, and Cosmetic Act (FDC Act) (21 U.S.C. §301, et seq.) requires pharmaceutical companies to submit a New Drug Application (NDA) to the FDA before bringing a new drug to the market. Once approved, a patented drug enjoys a period of exclusivity on the market, which ends when the patent expires and one or more low-cost generic versions of the drug enter the market and compete with the brand-name drug. The Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Act) (P.L. 98-417) allows brand-name manufacturers to extend their patents for up to five years as compensation for the time that lapsed during the FDA regulatory process. The Hatch-Waxman Act also expedites the entry of generic drugs into the market once the patent exclusivity period on the brand-name drug expires, to encourage competition. Most states also encourage competition by allowing or requiring pharmacists to substitute generic drugs that are AB-rated—pharmaceutically equivalent with the same active ingredient, dosage form, strength, and route of administration.

Generic settlements. Actavis PLC and its wholly owned subsidiary, Forest Laboratories, LLC, (collectively, Forest) manufactures and sells branded pharmaceutical products. Forest entered into a license and cooperation agreement with Merz GmbH & Co. KGaA, (Merz), which gave Forest the exclusive right to market a memantine hydrochloride-based drug in the United States. Under the agreement, Forest developed Namenda IR, a twice-daily immediate-release memanine drug to treat moderate-to-severe stages of Alzheimer’s disease. The drug was approved by the FDA in 2003 and became the first medication in the U.S. to be approved for individuals suffering from moderate-to-severe stages of Alzheimer’s disease. In June 2010, the FDA approved a second memantine drug developed by Forest, Namenda XR®, which has the same active ingredient and therapeutic effect as the original drug.

In the fall of 2007, fourteen or more generic manufacturers sought to market AB-rated generic versions of Namenda IR, the patent for which was set to expire October 2015. The manufacturers certified that the Namenda IR patent was invalid or not infringed by their drugs, but Forest filed a patent infringement lawsuit against each of the manufacturers, triggering a 30-month stay on FDA final approval under the Hatch-Waxman Act. Forest settled the lawsuits and granted licensing agreements allowing the manufacturers to launch generic versions of Namenda IR beginning July 11, 2015. The FDA tentatively approved several applications from the generic manufacturers, signaling that they would receive final approval after the end of the 30-month stay.

Product hopping. Namenda IR is not therapeutically equivalent to Namenda XR, so it cannot be substituted for Namenda XR under most state drug substitution laws. To take advantage of this fact, when Forest brought Namenda XR to market in July 2013, it employed "soft switch" tactics to encourage patients and physicians to switch from Namenda IR to Namenda XR. Eventually, Forest announced it would effectively discontinue Namenda IR and urged caregivers and providers to discuss switching to Namenda XR with their patients. Forest also requested that Namenda IR be removed from CMS’s formulary list in hopes of discouraging Medicare plans from covering it.

Shortly after Forest announced its intention to discontinue Namenda IR, the State of New York filed a complaint alleging that Forest’s decision to restrict access to Namenda IR was intended to maintain its monopoly in the memantine-drug market by thwarting competition from generics in violation of the Sherman Antitrust Act (15 U.S.C. §§1 and 2). The state sought a preliminary injunction barring Forest from restricting access to Namenda IR during the course of the litigation. The court granted the request, holding that the state had raised serious questions regarding the merits of its claims, demonstrated the potential for irreparable harm, and concluded that the equities favored an injunction. The injunction required Forest to continue to make Namenda IR available on the same terms and conditions applicable since before the release of Namenda XR (see Preliminary injunction barring ‘forced switch’ to reformulated Namenda upheld, May 29, 2015).

Indirect purchaser lawsuit. Sergeants Benevolent Association Health & Welfare Fund (Sergeants Benevolent) is a welfare fund that administers the prescription drug benefit plan of active and retired New York City Police Department sergeants and their dependents. An indirect purchaser of Namenda IR, Sergeants Benevolent filed suit against Forest and the generic manufacturers, alleging that it indirectly purchased Namenda IR at prices higher than it would have absent Forest’s unlawful anticompetitive conduct.

The drug companies filed motions to dismiss, arguing that Sergeants Benevolent did not state a federal claim for product hopping, as the preliminary injunction prevented any of the alleged exclusionary conduct form occurring. Because Forest was not able to follow through with its planned switch, Sergeants Benevolent cannot show that Forest engaged in any anticompetitive conduct that would have had a substantially adverse impact on competition in the memantine drug market or caused Sergeants Benevolent to suffer damages. Sergeants Benevolent responded that the motion overlooks the fact that the anticompetitive "hard switch" began well before the injunction, as patients began switching to Namenda XR as soon as Forest announced it was withdrawing Namenda IR from the market.

The court found Sergeants Benevolent’s argument to be plausible on its face. The "forced switch" began when Forest publicly announced that Namenda IR tablets would be discontinued, well before the proposed withdrawal was scheduled to take place. The same day, Forest notified the FDA that it intended to discontinue the sale of Namenda IR tablets and published open letters announcing the plan and urging caregivers to speak with health care providers about switching to Namenda XR. The court found that the efforts likely had the intended effect of encouraging Namenda IR patients to switch to Namenda XR before the withdrawal was scheduled to take place. Given these findings, the court held that Sergeants Benevolent’s allegations were more than sufficient to state a claim that is plausible on its face.

Attorneys: Lori Ann Fanning (Miller Law LLC) and Peter George Safirstein (Morgan & Morgan, PC) for Sergeants Benevolent Association Health & Welfare Fund. Jack Pace (White & Case LLP) for Actavis, PLC and Forest Laboratories, LLC. Jay Philip Lefkowitz (Kirkland & Ellis LLP) for Amneal Pharmaceuticals, LLC. Christopher T. Holding (Goodwin Procter, LLP) for Teva Pharmaceuticals USA, Inc.

The case is No. 15-cv-6549 (CM).

Companies: Sergeants Benevolent Association Health & Welfare Fund; Actavis, PLC; Forest Laboratories, LLC; Amneal Pharmaceuticals, LLC; Teva Pharmaceuticals USA, Inc.

MainStory: TopStory CaseDecisions FDCActNews AntitrustNews DrugBiologicNews GenericDrugNews PrescriptionDrugNews NewYorkNews

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