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FTC Looks to Impact on Generic Competition in Ruling on Actavis Acquisition of Forest Laboratories

On June 30, 2014, the FTC announced in a series of orders that it would consent to Actavis PLC’s acquisition of Forest Laboratories only under certain conditions. Under a February 2014 Merger Agreement, Actavis plans to acquire Forest for approximately $25 billion. The FTC filed a complaint alleging that the proposed merger would negatively impact the market for four drugs, resulting in violations of Section 7 of the Clayton Act and Section 5 of the FTC Act.

For three of the four drugs at issue, the FTC alleged that the merger would make highly concentrated markets even more concentrated. With regard to generic diltiazem hydrochloride, which is used to treat hypertension and angina, the FTC claimed that the merger would reduce the number of suppliers (two of which are currently Actavis and Forest) from three to two, and would increase the HHI concentration of the market from 3550 to 6250. For generic propranolol hydrochloride, which is also used to treat hypertension, the FTC claimed the merger would reduce the number of suppliers from four to three, and raise the HHI concentration from 4523 to 5931. And for generic ursodiol, which is used to treat cirrhosis, the merger would also reduce the number of suppliers from four to three and raise the HHI concentration from 5416 to 5758. (Under the DOJ and FTC Horizontal Merger Guidelines, any market that has an HHI above 2500 is considered to be “highly concentrated,” and any merger that would increase the HHI in such a market by more than 200 are considered presumptively likely to increase market power.) According to the FTC’s allegations, each of these markets fell well within its presumption that there would be an increase in market power.

The fourth drug, lamotrigine, which is used to treat seizures, presented a different scenario. Lamotrigine is currently sold by GSK under the brand name Lamictal ODT, but is manufactured by Forest. Actavis currently has an approved ANDA for a generic version of Lamictal ODT, but has not yet entered the market. In light of the fact the Actavis product was only generic version on the horizon, and “the combination of drug development times and FDA approval requirements would be lengthy,” the FTC alleged that the merger would delay or preclude the entry of Actavis’s generic product.

According to the consent order, which the FTC Commission unanimously voted to accept, Actavis and Forest will be required to relinquish their rights to sell the drugs to various other manufacturers but must ensure the viability and marketability of the drugs until they are divested. In addition, under the terms of the consent order, the FTC has the power to appoint a monitor to oversee the companies’ compliance with the terms of the consent order while the acquiring companies obtain FDA approval to market the drugs. The FTC also has the right to appoint a divestiture trustee to oversee the divestiture of the drugs if necessary.

Based on this order, it appears that the FTC is continuing to monitor any type of deal that will impact the competitive market for drugs. As part of this, the FTC remains cognizant of the impact of generic drugs into a market previously occupied by brands, and seems to be wary of any deal that might prevent the entry of competition, even if it is the FDA’s own approval requirements that is providing one of the barriers to entry. Any type of transaction that impacts when and how a generic may enter the market may therefore run the risk of scrutiny by the FTC.