Second Circuit Becomes First Court Of Appeals To Address Pharmaceutical 'Product Hopping' Under Antitrust Laws In Decision Barring Actavis From Pulling Older Version Of Drug From Shelves

Few courts have addressed antitrust challenges to pharmaceutical "product hopping," i.e., the practice of shifting customers from a drug nearing the end of its patent protection to a modified version that is covered by newer patents and thus is protected from generic competition for a longer period of time. The Second Circuit recently became the first Court of Appeals to do so in People of the State of New York v. Actavis, Case No. 14-4624 (2d Cir. May 28, 2015). It upheld a preliminary injunction prohibiting Actavis from ceasing production of an Alzheimer's drug in advance of its July 2015 patent expiration, a move Actavis intended to shift patients to an extended-release version of the drug which is patented through 2029. The decision has significant implications for the pharmaceutical industry and provides some guidance for branded pharmaceutical companies seeking to switch customers to a modified version of an older product or generic pharmaceutical companies seeking to challenge such conduct.

Legal Background

Application of the antitrust laws to drug makers' efforts to switch customers to a modified version of an older drug has been subject to much debate and little case law. Prior to the Second Circuit's recent decision in Actavis, only a handful of lower courts had confronted the issue.

The takeaway from those decisions (summarized in the following chart) was that merely introducing and marketing a modified version of a drug did not violate the antitrust laws, but doing so together with other conduct of arguably anticompetitive nature could give rise to a violation.

These cases involved private lawsuits, not government enforcement. The Second Circuit in Actavis nonetheless cited Abbott Laboratories and In re Suboxone Antitrust Litigation with approval, which is likely to give them enhanced precedential value going forward. Indeed, the Second Circuit's case law analysis closely matched analysis in those prior cases in justifying the application of the antitrust laws to product hopping and in finding a distinction with important legal implications between (a) giving customers a choice to switch to a new product and (b) forcing customers to switch to a new product.1

Actavis Litigation Background

In Actavis, the Second Circuit heard an appeal of a preliminary injunction issued by the US District Court for the Southern District of New York that prohibited Actavis PLC and its subsidiary Forest Laboratories (referred to together herein as "Actavis") from pulling Alzheimer's drug Namenda IR from the market prior to the July 2015 expiration of the drug's patent protection.

The underlying complaint, brought against Actavis by New York's Attorney General, alleged that Actavis violated the antitrust laws by planning to withdraw Namenda IR from the market before its patent protection expired in order to force patients dependent on the drug to switch to Namenda XR, a newer version covered by patents that did not expire until 2029.

The two drugs, which have the same active ingredient (memantine), differ in two ways: (1) IR needs to be taken twice a day, while XR is an extended-release formula that only needs to be taken once a day; and (2) IR is marketed in tablet form, while XR is marketed in capsule form.

Prior to filing the complaint, New York's Attorney General had obtained discovery through investigational demands and found evidence (e.g., internal documents) showing that Actavis' withdrawal had been expressly motivated by a desire to limit generic competition and thus avoid the "patent cliff" - i.e., the normal substantial drop in revenue for a branded drug that occurs once its patent protection expires and generics enter the market.

The district court held an evidentiary hearing on the Attorney General's motion for a preliminary injunction on November 10-14, 2014. The district court considered testimony either live or via affidavit from 24 witnesses and the parties presented over 1,400 exhibits. The Attorney General argued that the combination of introducing Namenda XR and withdrawing Namenda IR from the...