Second Circuit Addresses Product-Hopping and Requires Branded Company to Continue Selling Product with Expiring Patent Protection

Last week the Second Circuit upheld an injunction blocking Forest Laboratories (“Forest”) from removing immediate-release Namenda (“Namenda IR”) from the market.  The decision prevents Forest from effectuating a so-called “product-hopping” strategy under which it planned to stop selling Namenda IR and switch patients to its newer extended-release product, Namenda XR, prior to entry of a generic IR product.

The Plan.  In the wake of its successful development of its extended-release product, Forest announced that it would stop selling its Namenda IR product in August 2014.  Supply problems with the newer Namenda XR product pushed back that date, but Forest indicated that Namenda IR would only be available through specialty, mail-order pharmacies and only with a prescription and doctor’s statement providing that Namenda IR was a medical necessity.

The Arguments.  In response, the New York Attorney General filed suit, arguing such “product-hopping” was anti-competitive.  Specifically, the Attorney General’s Office argued that Forest—facing a large drop in revenues from it popular Alzheimer drug upon the expiration of patent protection—was attempting to preclude competition from generic manufacturers by moving the Alzheimer market to a similar product that was not subject to imminent patent expiration.  The Attorney General contended it was impermissible for Forest to remove its twice-daily Namenda IR product from the market, thereby forcing patients to switch to the Namenda XR product, only months before patent protection expired for the original Namenda IR product in July 2015.

Forest responded that it had no affirmative obligation—either under patent or antitrust law—to continue selling Namenda IR.  Forest stated that an injunction would result in “unprecedented and extraordinary relief,” whereby it would be forced to sell an older version of Namenda solely for the benefit of generic competition.

The Decision.  In December 2014, U.S. District Judge Robert W. Sweet granted the Attorney General a preliminary injunction requiring Forest to continue selling Namenda IR.  In an expedited appeal, a three-judge panel of the Second Circuit upheld the preliminary injunction.

The Second Circuit’s ruling is the first appellate decision to address whether a branded company can remove an older version of a product from its shelves upon release of a newer, more lucrative product (i.e., hard-switching).  The Second Circuit’s decision is likely to open the door to additional hard-switching, product hopping cases.  What remains to be seen—and which will depend largely on the substance of the Second Circuit’s opinion (which has not yet been made publically available)—is how the ruling will impact “soft-switching,”  such as where a company continues to make its older product available but steers patients to the newer product through strategies such as increasing the price of the older drug product, decreasing the price of the replacement product, or dedicating marketing funds to convincing doctors that the newer product is better.