The legal death of Actavis' Namenda strategy spells doom for the 'hard switch'

There goes Plan A. A U.S. appeals court has officially spoiled Actavis' ($ACT) plot to force patients over to a new, patent-protected version of Namenda to preserve the med's revenues when generics hit. So if other drugmakers are considering the tactic, they'd better think twice.

On Friday, the Dublin drugmaker confirmed that a U.S. Court of Appeals had upheld a ruling from last December requiring the company to keep Namenda on the market. That means the company can't make a "hard switch" over to Namenda XR to thwart generics makers.

"As further meaningful legal steps are unlikely before the mid-July 2015 entry of generic[s], the decision in effect finalizes the competitive dynamics for the product," Bernstein analyst Ronny Gal wrote in a note to investors.

While CEO Brent Saunders said in a statement that Actavis was "disappointed," he reassured investors that the company would be fine even without the move. It's a tune management sang during the company's Q1 earnings call this month, pledging a 60% conversion rate to Namenda XR by the end of this quarter and touting "sales accelerator" Namzaric--a new product that combines the Alzheimer's drug's active ingredient with that in Eisai's Aricept.

And Gal largely echoed the sentiment in a note to investors. While it does take some minor potential upside for Actavis off the table, "this scenario is in company guidance and largely anticipated by consensus," he said.

In fact, the decision may be most troubling for fellow companies looking to pursue the hard switch as a market-share shield, he wrote, noting that the district and appeals courts' direction suggests it would be "increasingly difficult" to pull it off.

"Companies will likely have to demonstrate no hardship for patients and business rationale which differs from attempting to force the market to their new product," he wrote.

- read Actavis' release

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