NEW YORK (TheStreet) -- Shares of Actavis (ACT) are dropping after New York's attorney general announced that he had sued the company to prevent it from forcing Alzheimer's patients to switch to a medicine that will be under patent for a longer period. Actavis develops both brand name and generic drugs.
WHAT'S NEW: New York Attorney General Eric Schneiderman yesterday announced that he had filed a lawsuit seeking to prevent Actavis from forcing Alzheimer's patients to switch medications. Actavis has said that it will withdraw Namenda, an Alzheimer's treatment whose patent will expire shortly, from the market, the attorney general noted. The company plans to shift Alzheimer's patients onto a different drug with a patent that expires much later, Schniderman said. By taking this action, the drug maker will be able to avoid competition from generic versions of Namenda and increase its profits, as patients are unlikely to switch from Actavis' new medicine to generic versions of Namenda, the attorney general indicated.
ANALYST REACTION: Schneiderman's lawsuit will put pressure on Actavis not to introduce its new treatment, BMO Capital analyst David Maris wrote in a note to investors today. Analysts have expected Alzheimer's patients to switch to Actavis' newer drug, Maris added. Annual sales of approximately $990M would be vulnerable to "severe generic competition” should Actavis be unable to make the switch, the analyst estimated. The lawsuit may have positive implications for generic drug makers and negative implications for brand name drug makers, Maris added. Teva (TEVA) is looking to force multiple sclerosis patients to switch to a new version of its Copaxone drug, although the new version does have improved safety data, making a forced switch more feasible, the analyst stated. He kept a $227 price target and Outperform rating on Actavis.