On December 15, Judge Robert Sweet of the Southern District of New York issued an injunction against Actavis, forcing Actavis to continue selling its intermediate release Alzheimer’s drug, Namenda IR. The injunction came on the heels of a 135-page ruling authored by Judge Sweet on December 11, in which he granted the State of New York’s motion for preliminary injunction against Actavis, finding that substantial questions exist as to whether Actavis committed antitrust violations by limiting distribution of the earlier, intermediate-release version of the drug (Namenda IR) and switching patients on Namenda IR to a later, patented extended-release version of the drug (Namenda XR).
Actavis announced that it will immediately file an emergency appeal of Judge Sweet’s ruling to the United States Court of Appeals for the Second Circuit. While numerous issues will undoubtedly be presented on appeal (including product market definition and whether the harm to generics was truly irreparable), the heart of the appeal will likely be Judge Sweet’s finding that Actavis’s conduct was anticompetitive under the framework laid out by the District of Columbia Circuit in United States v. Microsoft, 253 F.3d 34, 64 (D.C. Cir. 2001). Under the Microsoft framework, an antitrust plaintiff must first demonstrate that the defendant’s conduct had an anticompetitive effect. In his ruling, Judge Sweet found that the State of New York had shown such as anticompetitive effect. Specifically, the Court found that Actavis had “thwart[ed] state substitution laws” in the months leading up to generics’ entry into the market by actively converting Namenda IR patients to Namenda XR. The result of that substitution, Judge Sweet found, “is inflation of XR’s share of the memantine market” and that “most patients are effectively denied access to [Namenda] IR for the six months prior to generic entry.” Op. at 117.
Once antitcompetitive effect has been found under Microsoft, an antitrust defendant such as Actavis may proffer a procompetitive justification for its conduct – a “nonpretextual claim that its conduct is indeed a form of competition on the merits because it involves, for example, greater efficiency or enhanced consumer appeal.” Microsoft, 253 F.3d at 58-59. Here, despite Actavis’s arguments that the switching of patients from Namenda IR to Namenda XR had procompetitive effects, Judge Sweet disagreed, finding that Actavis’s pro-competitive arguments were “pretextual.” Op. at 118. In support of his finding, Judge Sweet cited public statements made by Actavis’s CEO in earnings calls which discussed discontinuation of Namenda IR and its effect on generics. Although Activis’s CEO elaborated on those statements in his testimony at the preliminary injunction hearing – testifying that the discontinuation of Namenda IR would allow Activis to better focus on Namenda XR – Judge Sweet found that testimony “not as specific, or as persuasive, as his earlier representations to shareholders.” Op. at 120.
It is that issue – namely, whether Actavis’s development and sale of Namenda XR was a simply a “pretext” under the antitrust law or whether Actavis’s development of that product is indeed “competition on the merits” – that will almost certainly take center stage in the Second Circuit appeal. The Second Circuit’s treatment of that issue will certainly be of interest to all pharmaceutical companies (both branded and generic), and we will provide updates once the Second Circuit has ruled on the Actavis appeal.