Antitrust Law Daily Wrap Up, TOP STORY—2d Cir.: Preliminary injunction barring “forced switch” to reformulated Namenda upheld, (May 28, 2015)

By Jeffrey May, J.D.

The U.S. Court of Appeals in New York today released its decision, explaining why Actavis PLC and its wholly-owned subsidiary Forest Laboratories, LLC must continue selling the widely-used Alzheimer’s drug Namenda IR until 30 days after generic IR enters the market. In pursuing an antitrust action against the pharmaceutical companies for attempting to thwart generic competition for the Alzheimer’s drug, the State of New York won a preliminary injunction that barred Actavis from effectively withdrawing from the market Namenda IR, which was nearing the end of its patent exclusivity. The drug company’s move was purportedly part of an effort to force patients to switch to a reformulated once-daily version—Namenda XR—whose exclusivity period does not expire until 2029. On May 22, the appellate court affirmed the preliminary injunctive relief. The opinion offering the appellate court’s reasoning was unsealed today (New York v. Actavis plc, May 22, 2015, Walker, J.).

According to the appellate court, the case raises a novel question of under what circumstances does conduct by a monopolist to perpetuate patent exclusivity through successive products, commonly known as “product hopping,” violate the Sherman Act. This is a question of first impression in the circuit courts. The appellate court concluded: “the combination of withdrawing a successful drug from the market and introducing a reformulated version of that drug, which has the dual effect of forcing patients to switch to the new version and impeding generic competition, without a legitimate business justification, violates § 2 of the Sherman Act.”

Preliminary injunction standard. At the outset, the appellate court ruled that a heightened standard for a preliminary injunction applied and that New York satisfied that standard. The heightened standard was found to be appropriate because the preliminary injunction preventing Actavis’s hard switch to Namenda XR from succeeding rendered a trial on the merits largely or partly meaningless. The heightened standard applies where: an injunction is “mandatory,” or the injunction “will provide the movant with substantially all the relief sought and that relief cannot be undone even if the defendant prevails at a trial on the merits.” Under the heightened pleading standard, the movant must show a “clear” or “substantial” likelihood of success on the merits, and make a “strong showing” of irreparable harm, in addition to showing that the preliminary injunction is in the public interest. New York met the heightened pleading standard required for the injunction.

Anticompetitive, exclusionary conduct. Because the defendants had monopoly power in the U.S. memantine-drug market—represented by Namenda IR and XR—the case turned on whether the defendants willfully sought to maintain or attempted to maintain that monopoly in violation of § 2 of the Sherman Act. The defendants unsuccessfully argued that product hopping was not anticompetitive or exclusionary under § 2.

The court explained that “when a monopolist combines product withdrawal with some other conduct, the overall effect of which is to coerce consumers rather than persuade them on the merits, and to impede competition, its actions are anticompetitive under the Sherman Act (citations omitted).” In this case, Actavis effectively withdrew Namenda IR prior to generic entry, thereby forcing Alzheimer’s patients who depended on memantine therapy to switch to XR (to which generic IR is not therapeutically equivalent). This would likely impede generic competition by precluding generic substitution through state drug substitution laws, in the court’s view. The district court had determined that competition through state drug substitution laws was the only cost-efficient means of competing available to generic manufacturers.

The appellate court also rejected the defendants’ suggestion that the switch was a proper effort to prevent “free riding”―generic substitution by pharmacists following the end of Namenda IR’s exclusivity period. Moreover, the court found the defendants’ procompetitive justifications for withdrawing IR to be pretextual.

The case is No. 14-4624.

Attorneys: Anisha S. Dasgupta for New York State Office of the Attorney General. Lisa S. Blatt (Arnold & Porter LLP), George T. Conway III (Wachtell, Lipton, Rosen & Katz), and J. Mark Gidley (White & Case LLP) for Actavis plc and Forest Laboratories, LLC.

Companies: Actavis plc; Forest Laboratories, LLC

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