The expedited appeal to the Second Circuit pits New York State’s arguments for facilitating competition in a “molecule market” (a product market defined by the active ingredient of a prescription drug) against the brand name manufacturer’s arguments about innovation and compelled support of potential competitors. The potential competitors are the generic manufacturers that are expected to receive FDA approval for generic substitutes for Actavis’s first generation Alzheimer’s drug, the twice-a-day Namenda IR. The business plan of Actavis is to switch Namenda IR prescribers and patients to its once-a-day, extended-release product Namenda XR and discontinue sales of twice-a-day Namenda IR. Ten amici briefs have been submitted in support of Actavis’s position, including an amici brief several business school professors (from Harvard Business School, Stanford University, and New York University, among others) filed last week in support of overturning the preliminary injunction requiring Actavis to continue manufacturing Namenda IR.

The professors make essentially one point: They contend that injunctions such as the one at issue will dampen innovation. They analogize Actavis’s new drug to Apple’s new iPhone, explaining that “product rollover” – or the process of replacing an older product with a new product – can either occur with a “single roll” or “dual roll” rollover. In a single roll, the old product is “discontinued as soon as the new product is available”; by contrast, a dual roll rollover occurs when the old product is “maintained on the market for some time after the new product.”

The professors argue that a single roll is “especially preferred” when the new product has clear advantages over the old. On the other hand, the dual roll is more expensive due to “higher per-unit production costs, added design costs, and additional inventory costs.” Thus, by requiring Actavis to maintain its old drug, the professors argue the court creates “massive inefficiencies in the supply chain, significantly increasing the cost of healthcare.” The professors explain that Apple (and others) keep old products on the market for reasons inapplicable in Actavis’s case – namely, to enable “greater market segmentation by price” or to ensure customers who have the old model “are not stranded.” Here, there is little added benefit to keeping the old drug on the market and so firms who do not have the resources “to simultaneously support both old and new product lines” may be required to wait to release their new products, thus dampening innovation.

As we have previously reported, the District Court originally granted the injunction, reasoning that by introducing a new version of the drug and announcing the discontinuance of the older version before generics had entered the market, Actavis was forcing consumers to pay the higher price for the new drug with no alternative. This would also maintain Actavis’s position in the molecule market once generics had launched their generic substitutes for Namenda IR. Generic drug manufacturers assert that they depend on the continued availability of the reference drug to gain prescriptions and reduce their prices; whereas Actavis emphasized the innovative properties of Namenda XR (among other defenses).

As all the amici briefs have observed, the district court’s decision was unprecedented and could have harmful effects on innovation and businesses. The business professors concluded, “To require [Actavis] to continue investing in its old product is both a waste of resources, and an inappropriate subsidization of the generic companies.

The Second Circuit Court of Appeals will hear oral argument on an expedited schedule and issue a decision by February 16.