UPDATED: Forest to discontinue old Namenda to 'force switch' patients to XR version

Forest Laboratories ($FRX) wants more people to use its once-daily version of Namenda. It is, after all, the formula launched just last year, the one that theoretically stays on patent till at least 2025. So, it's planning a "forced switch." Forest will discontinue its original Namenda pill in August, pushing current patients onto Namenda XR--and hoping they won't bother to switch back when generics appear next April.

When nearing the patent-cliff deadline on a drug, drugmakers often hike prices on the original version, to drive patients toward a new-and-improved formula that has plenty of patent life left. Outright discontinuing older versions--that's less common. But Forest is needier than most; its by-far-biggest seller, the antidepressant Lexapro, went off patent in 2012, and sales plummeted.

Forest is now pledged for sale to Actavis, but that doesn't obviate its need for sales growth, and Namenda is front and center in that effort. Hence the "forced switch," set to take place in August. Patients on the twice-daily version will get new scripts for Namenda XR, and doctors will have to prescribe the XR version. Until generics make their debut next April, that's their only option, unless they choose to go for the oral liquid. And even then, patients who have switched may never switch back. That, of course, is Forest's goal.

When Forest raised the idea late last year, analysts called it a cheap trick. "It seems that eliminating choice is a major disservice to patients, some of whom like the twice-a-day dosing option for a variety of reasons," BMO Capital Markets analyst David Maris said at the time. Not to mention the additional healthcare costs.

The forced switch could be better for shareholders in the short term, Maris allowed. "[M]anagement will use that as cover for these actions," he wrote. "The fact that it is not illegal and it is potentially good for shareholders is enough for many investors." 

Of course, Forest might not resort to such maneuvers if its pipeline was paying off as it hoped. Fact is, its antipsychotic drug candidate cariprazine recently fell flat at the FDA, and cariprazine was one of the new drugs on which Forest had built its growth promises. That failure followed a delay on a new respiratory drug that combines aclidinium and formoterol.

Forest Laboratories CEO Brent Saunders

After that bad news, Forest's new CEO, Brent Saunders, announced a $500 million cost-cutting plan, with more than half those cuts to R&D. The cost cuts don't include sales layoffs, because Forest needs as many feet on the ground as it can get, to push its new drugs--and to steer doctors toward Namenda XR ahead of the forced switch. It does include $150 million in marketing cuts.

Dollar-wise, Maris thinks the Namenda switch could work. BMO Capital expects Forest to be able to move almost all its Namenda sales into the XR pot, or about $400 million in quarterly sales at the time of the switch. Then, when Namenda generics hit, Forest is likely to lose about 25% of that to generic rivals. That's a much smaller loss than Forest would face otherwise. When multiple generics hit at patent expiration, the brand tends to lose 90% of its sales almost immediately.

A few other companies have tried similar strategies, including Endo Health Solutions ($ENDP), Purdue Pharma and Warner Chilcott, to varying degrees of success. 

Meanwhile, Forest is fighting off would-be generic competitors for Namenda XR. The company sued India-based Sun Pharmaceuticals, Israel-based Teva Pharmaceutical Industries ($TEVA), and India-based Wockhardt for patent infringement after the companies filed approval applications with the FDA.

- read the release from Forest

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