Southern District of New York Upholds “Product Hop” Claims Against Makers of Namenda

Recently, the Southern District of New York denied a motion to dismiss a monopolization claim for product hopping against Forest and Actavis, the manufacturers of Namenda, an Alzheimer’s drug.  See Sergeants Benevolent Ass'n Health & Welfare Fund v. Actavis, PLC, No. 15-cv-6549 (CM), 2016 U.S. Dist. LEXIS 128349 (S.D.N.Y. Sept. 13, 2016).  In a “product hop,” brand drug manufacturers use various tactics to shift patients from a drug that is about to have generic competition to a new version of that same drug in order to avoid generic competition.  Tactics like these work because pharmacists are legally permitted to substitute a generic only when the brand version is the same; a new brand version destroys that similarity and disrupts the process of generic drug substitution.  In a similar suit brought by the Attorney General of New York, the Second Circuit Court of Appeals upheld a preliminary injunction barring Forest and Actavis from withdrawing the original version of Namenda from the market before generic entry.


Forest launched immediate release Namenda, or Namenda “IR,” in January 2004.  Namenda IR is a drug, labeled to be taken twice a day, that treats moderate to severe stage Alzheimer’s disease, a severe degenerative brain disorder characterized by memory loss.  By June 2010, for reasons that will be fully explored in the lawsuit, Forest had developed another version that was extended release, Namenda “XR.”  The only difference between the two products was that the XR version was labeled for administration once a day.  Because of this difference, a pharmacist could not substitute a generic version of the IR product when a physician prescribed the XR version.  The drugs have the same active ingredient and the same therapeutic effect, and no studies showed that Namenda XR was any more effective than Namenda IR.

The big difference between the two was that Namenda IR was about to lose patent exclusivity in October 2015 (and was about to face competition from generic drug makers), while Namenda XR was patented through 2029 (and not facing imminent generic competition).

This seems to be the basic reason Forest developed Namenda XR.  In fact, fourteen generic manufacturers had lined up to get FDA approval to market less-expensive generic versions of Namenda IR.  Forest sued each for patent infringement, and each settled with Forest between July 2009 and July 2010, agreeing to delay launching generic Namenda IR until July 11, 2015.

But what happened next destroyed those plans, and denied price relief to Alzheimer’s patients.  Forest brought Namenda XR to market in July 2013.  At first, Forest employed a “soft switch” strategy:  it encouraged patients and doctors to switch from the IR version to the XR version, using its marketing budget to promote XR over IR.  To make it attractive to payors, it priced XR slightly lower than IR.

But this was not effective.  Patients and doctors were not switching to the XR version very rapidly at all.  This threatened to ruin Forest’s plans to block generic Namenda competition.  So, by February 2014, with generic entry of Namenda IR just around the corner, Forest implemented a “hard switch” strategy, announcing to doctors and caregivers it would discontinue Namenda IR on August 15, 2014.  Forest urged doctors to discuss switching to Namenda XR with their patients for this reason.  It worked:  the threat of no more branded Namenda IR made doctors and patients switch to the XR version in droves.  When a generic version of IR was launched on July 11, 2015, doctors were mostly prescribing the XR version, meaning that pharmacists could not substitute the less-expensive generic IR version.  The cost savings that Alzheimer’s patients were supposed to enjoy from generic Namenda could not be realized.


In trying to get the case dismissed, Forest argued that it “was not able to follow-through with its planned ‘hard-switch’” (removal of the IR product from the market) and thus Plaintiffs could not “show that Forest engaged in any anticompetitive conduct that would have had a substantially adverse impact on competition.”  Id. at *29.  The Court rejected this argument, finding instead that the “hard switch” was not just the removal of the IR product, but began once Forest announced it would withdraw Namenda IR from the market.  That announcement, the Court found, produced the intended effect of encouraging doctors to immediately switch their patients from IR to XR, before the date of the announced withdrawal.

The Court held that “it is entirely plausible that physicians and their patients preemptively switched medications and had already started using Namenda XR by the time the injunction was entered.”  Id. at *32.   Due to the rarity of “reverse commuting” (switching back) the Court also found it plausible that purchasers continued to pay for Namenda XR prescriptions after generic Namenda IR entry, and if Forest hadn’t announced the imminent withdrawal of Namenda IR from the market, those patients would have stayed on Namenda IR, and obtained the price benefits of generic Namenda IR competition.  The Court adopted the Second Circuit’s finding that a hard switch from one drug product to another begins with an announcement of imminent withdrawal and “crosses the line from persuasion to coercion and is anticompetitive.”  Id. at 35.   

That the Court chose to subject Forest’s pre-injunction conduct to antitrust scrutiny aligns with the practical market realities of the pharmaceutical industry.  If Forest’s announcement that it was about to withdraw Namenda IR from the market caused anticompetitive effects, then it should be held accountable for those effects, regardless of whether the strategy to remove Namenda IR from the market to disrupt the generic substitution process was ultimately carried out to completion.

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About David Calvello

David Calvello is an Associate in the firm’s New York office, focusing his practice on antitrust issues in the pharmaceutical industry.  Faruqi & Faruqi, LLP is counsel for Rochester Drug Co-Operative and the Proposed Direct Purchaser Class in the above case.

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