May 22, 2015 / 3:20 PM / 4 years ago

UPDATE 2-Actavis cannot drop old version of Alzheimer's drug -appeals court

(Adds statement from Actavis, details from ruling, quote from New York attorney general, case citation)

By Joseph Ax and Brendan Pierson

NEW YORK, May 22 (Reuters) - Actavis Plc cannot pull its top-selling Alzheimer’s drug from the market in favor of a pricier extended-release version, a federal appeals court in New York ruled on Friday.

The decision from the 2nd U.S. Circuit Court of Appeals is a win for New York State Attorney General Eric Schneiderman, who sued to block the switch, arguing that Actavis was trying to stifle competition from generic drugmakers.

A three-judge panel upheld an order by U.S. District Judge Robert Sweet in December requiring Actavis to keep the older drug, Namenda IR, on the market.

The plan to take Namenda IR off the market, forcing patients to switch to the newer version, “crosses the line from persuasion to coercion and is anticompetitive,” the court wrote.

It is the first ruling from a U.S. appeals court to address whether “product hopping,” in which pharmaceutical companies extend patent exclusivity by releasing successive products, can violate antitrust law.

In a statement, Actavis said it was “disappointed” but would continue to manage sales and development expenses to ensure the decision has “minimal to no impact” on earnings.

Lawyers for Actavis previously said it would lose $200 million in sales if barred from withdrawing Namenda IR.

Schneiderman filed the lawsuit last year after Dublin-based Actavis said it would discontinue the drug in favor of Namenda XR. The two drugs have the same active ingredient, memantine, but Namenda XR is taken once daily instead of twice.

The lawsuit claimed that by forcing patients to switch to the new version before its patent protection for Namenda IR expired, Actavis hoped to stave off competition from drugmakers who plan to release generic versions of Namenda IR in July.

About 30 U.S. states, including New York, have laws requiring pharmacists to substitute a generic drug for a brand-name drug whenever an exact equivalent is available.

Sweet’s injunction prohibits Actavis from taking Namenda IR off the market until 30 days after generic versions launch in July.

If Actavis left Namenda IR on the market, the appeals court said, it would allow patients to evaluate whether Namenda XR was worth the extra cost over a generic version of Namenda IR.

“By removing Namenda IR from the market prior to generic IR entry, defendants sought to deprive consumers of that choice,” the court said.

Michael Carrier, a Rutgers University law professor who focuses on antitrust issues and filed a brief in support of New York State, said the ruling could significantly curtail the practice.

“This is a court saying to a drug company, ‘You have to keep the old product on the market,’” he said. “That is the most aggressive move we have seen.”

Schneiderman said in a statement: “The litigation brought by my office sends a clear message: Drug companies cannot illegally prioritize profits over patients.”

The decision was filed under seal, but a copy was provided to a Reuters reporter by a member of the court clerk’s office upon request. It is set for public release on Tuesday absent any objections from the parties.

The case is People of the State of New York v. Actavis Plc, et al, U.S. Court of Appeals for the 2nd Circuit, No. 14-4624. (Editing by Jeffrey Benkoe, David Gregorio, David Ingram and Dan Grebler)

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