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Second Circuit Hears Argument in People of the State of New York v. Actavis PLC

On April 13, 2015 the Second Circuit (Hon. Walker, Raggi, Droney) heard oral argument in People of the State of New York v. Actavis PLC.

This case began in September 2014, when the New York Attorney General’s Office (the “NYAG”) brought an action seeking to enjoin Defendants Actavis, PLC (“Actavis”) and Forest Laboratories, LLC (“Forest”) from discontinuing sales of the Forest drug Namenda IR, which is used in the treatment of Alzheimer’s disease.  (We wrote about the allegations in the complaint here.)  More specifically, this is a “product hopping” case in which the NYAG alleged that Actavis and Forest are attempting to force prescribers and patients to switch to a new extended-release version of Namenda before a generic version of the drug can be introduced into the market.

In December 2014, the District Court (Hon. Sweet, S.D.N.Y.) granted the NYAG’s request for an injunction and required Actavis and Forest to keep the immediate-release version of Namenda on the market for the remainder of the litigation.  (We wrote about the District Court’s opinion here and here.)

It is no surprise that Actavis and Forest immediately appealed.  Briefing, including multiple briefs from amici, was completed quickly and the Second Circuit agreed to an expedited oral argument.  (See here and here.)  The Second Circuit declined to stay the injunction while it hears the case.

The panel asked Actavis why the fact that it was “timing [the withdrawal] to inhibit generics” did not “suggest [Actavis was] doing this for an anticompetitive purpose.”  Actavis argued that the goal in removing the old version of Namenda was not anticompetitive, but was simply to remove an obsolete drug.  This line of questioning and argument addressed one of the core issues in product-hopping cases:  while courts are skeptical of pharmaceutical companies that withdraw products at times that have the effect of inhibiting generic competition, they are also reluctant to force companies to keep older, obsolete drugs on the market.  Indeed, the panel expressed concern that a company with a new, superior product may be forced to continue to produce the inferior product if its efforts to discontinue it are labelled as anticompetitive.

The panel also expressed concern about a nationwide injunction, when generic substitution laws vary across states.  The panel thus seemed to maintain the possibility that appropriate antitrust relief might vary by state, depending on each state’s generic substitution laws.  New York and other states have laws that require pharmacists to substitute generic drugs when an identical version is available; but not all states have such laws.  Judge Walker noted that there was “evidence [the defendants’] actions were being taken in light of those laws.”

On the other side, the panel asked the NYAG about the line between “soft” and “hard” switches, and whether it would matter if the new drug used a different active ingredient.  This is an important distinction in product hopping cases.  As we’ve previously explained, in a hard switch, a manufacturer completely removes the drug from the market.  In a soft switch, the manufacturer continues to sell the older version of the drug, but aggressively promotes a newer version.  Most courts to address the issue have suggested that hard switches may raise potential antitrust concerns, but have been less skeptical of soft switches.

We’ll continue to monitor this case; Actavis asked for an expedited ruling (arguing that there are hundreds of millions of dollars at stake), so there is a possibility that a decision will be issued quickly.