If drugmakers have to give up on hard switches, they may have Actavis ($ACT) to thank. Last week, a New York judge called a halt on the company's plan to pull Namenda off the market, throwing off its strategy for switching patients to a newer extended-release version. On Monday, the judge nixed Actavis' attempt to block the injunction--and analysts started talking about a precedent.
Here's the background: Before Actavis bought it last year, Forest Laboratories was struggling from generic competition to its antidepressant Lexapro, and staring down the barrel at a patent loss on Namenda, its top-selling Alzheimer's remedy. If the company could run a fast launch on its extended-release version, Namenda XR, converting a big chunk of patients before the original's patent ran out, Forest could limit the generic pain. So, why not get Namenda XR going and then scrap the old version before its exclusivity ran out? That would force patients onto the still-protected brand, because they'd have no generic alternative.
But the "hard switch" plan quickly drew fire. New York Attorney General Eric Schneiderman sued Forest--which had sold out to Actavis by then--to stop the company from pulling its older version. Actavis raised some arguments and offered a few explanations, but they didn't persuade Schneiderman. Nor did they convince U.S. District Judge Robert Sweet, who granted the AG's request for an injunction on Friday. Sweet ordered Actavis to keep the old Namenda on the market till August 2015, at least a month after generic versions are due. And after a hearing Monday, the judge denied Actavis' request for a stay.
What did Forest-slash-Actavis do wrong? It's not as if the hard switch is an unprecedented move. Teva Pharmaceutical Industries ($TEVA) considered it when planning its campaign to move patients to its new long-acting version of Copaxone. But according to Sweet's decision, Forest itself thought a Namenda hard switch would be different, because there's no other drug on the market--brand or generic--that could substitute for it.
Plus, Actavis was quite up front about its motives for pulling Namenda: It wanted to move patients to the XR version ASAP to prevent patent-loss pain. CEO Brent Saunders said so publicly on an earnings call with analysts.
|Actavis CEO Brent Saunders|
"[I]f 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," Saunders said, as quoted in Sweet's decision. "They don't have the sales force. … 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."
Potentially fatal mistake. As Bernstein & Co. analyst Ronny Gal points out in an investor note, Sweet cited that quote, along with internal company emails, investor presentations and discussions with shareholders in his 136-page decision. Actavis' arguments he rejected as post facto window dressing.
"[T]he language used by Actavis in explaining to investors why the hard switch would help keep generics at low market share was quoted," Gal said of the judge's decision. "Here, Actavis' approach of open communication worked against it."
Actavis has already appealed Sweet's decision, but Gal isn't optimistic about its success. The order "reads like an opinion," the analyst says, lending weight to the idea of a new precedent. And as a potentially precedent-setting case, the success of an appeal carries a bigger burden.
That's not to say that drugmakers couldn't pull off a hard switch in the future. But to have a prayer of success, they'll have to be more circumspect about it. "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," Gal figures.
- here's the U.S. District Judge's decision
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