Watson Pharmaceuticals, Inc. and Andrx Corporation; Analysis of Agreement Containing Consent Orders to Aid Public Comment, 64694-64697 [E9-29251]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 74, Number 234 (Tuesday, December 8, 2009)]
[Notices]
[Pages 64694-64697]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-29251]


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FEDERAL TRADE COMMISSION

[File No. 061 0139]


Watson Pharmaceuticals, Inc. and Andrx Corporation; Analysis of 
Agreement Containing Consent Orders to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint and the terms of the consent order -- embodied in the consent 
agreement -- that would settle these allegations.

DATES: Comments must be received on or before January 4, 2010.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form. Comments should refer to ``Watson 
Arrow, File No. 061 0139'' to facilitate the organization of comments. 
Please note that your comment -- including your name and your state -- 
will be placed on the public record of this proceeding, including on 
the publicly accessible FTC website, at (https://www.ftc.gov/os/publiccomments.shtm).
    Because comments will be made public, they should not include any 
sensitive personal information, such as an individual's Social Security 
Number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. Comments also 
should not include any sensitive health information, such as medical 
records or other individually identifiable health information. In 
addition, comments should not include any ``[t]rade secret or any 
commercial or financial information which is obtained from any person 
and which is privileged or confidential. . . .,'' as provided in 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and Commission Rule 
4.10(a)(2), 16 CFR 4.10(a)(2). Comments containing material for which 
confidential treatment is requested must be filed in paper form, must 
be clearly labeled ``Confidential,'' and must comply with FTC Rule 
4.9(c), 16 CFR 4.9(c).\1\
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    \1\The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See FTC Rule 4.9(c), 16 CFR 
4.9(c).
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    Because paper mail addressed to the FTC is subject to delay due to 
heightened security screening, please consider submitting your comments 
in electronic form. Comments filed in electronic form should be 
submitted by using the following weblink: (https://public.commentworks.com/ftc/watsonarrow) and following the instructions 
on the web-based form. To ensure that the Commission considers an 
electronic comment, you must file it on the web-based form at the 
weblink: (https://public.commentworks.com/ftc/watsonarrow). If this 
Notice appears at (https://www.regulations.gov/search/index.jsp), you 
may also file an electronic comment through that website. The 
Commission will consider all comments that regulations.gov forwards to 
it. You may also visit the FTC website at (https://www.ftc.gov/) to read 
the Notice and the news release describing it.
    A comment filed in paper form should include the ``Watson Arrow, 
File No. 061 0139'' reference both in the text and on the envelope, and 
should be mailed or delivered to the following address: Federal Trade 
Commission, Office of the Secretary, Room H-135 (Annex D), 600 
Pennsylvania Avenue, NW, Washington, DC 20580. The FTC is requesting 
that any comment filed in paper form be sent by courier or overnight 
service, if possible, because U.S. postal mail in the Washington area 
and at the Commission is subject to delay due to heightened security 
precautions.
    The Federal Trade Commission Act (``FTC Act'') and other laws the 
Commission administers permit the collection of public comments to 
consider and use in this proceeding as appropriate. The Commission will 
consider all timely and responsive public comments that it receives, 
whether filed in paper or electronic

[[Page 64695]]

form. Comments received will be available to the public on the FTC 
website, to the extent practicable, at (https://www.ftc.gov/os/publiccomments.shtm). As a matter of discretion, the Commission makes 
every effort to remove home contact information for individuals from 
the public comments it receives before placing those comments on the 
FTC website. More information, including routine uses permitted by the 
Privacy Act, may be found in the FTC's privacy policy, at (https://www.ftc.gov/ftc/privacy.shtm).

FOR FURTHER INFORMATION CONTACT: Stephanie C. Bovee (202-326-2083), 
Bureau of Competition, 600 Pennsylvania Avenue, NW, Washington, D.C. 
20580.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 the 
Commission Rules of Practice, 16 CFR 2.34, notice is hereby given that 
the above-captioned consent agreement containing a consent order to 
cease and desist, having been filed with and accepted, subject to final 
approval, by the Commission, has been placed on the public record for a 
period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for October 6, 2009), on the World Wide Web, at (https://www.ftc.gov/os/actions.shtm). A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW, Washington, 
D.C. 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order to Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from Watson Pharmaceuticals, Inc. (``Watson'') and Andrx 
Corporation (``Andrx''), which is designed to remedy the 
anticompetitive effects of the acquisition of Andrx by Watson. Under 
the terms of the proposed Consent Agreement, the companies would be 
required to: (1) terminate Watson's marketing agreement with Interpharm 
Holdings, Inc. (``Interpharm'') and return all of the Watson rights and 
assets necessary to market generic hydrocodone bitartrate/ibuprofen 
tablets back to Interpharm; (2) assign and divest the Andrx rights and 
assets necessary to develop, manufacture, and market generic extended 
release glipizide (``glipizide ER'') tablets to Actavis Elizabeth LLC, 
a subsidiary of The Actavis Group hf. (``Actavis''); and (3) divest the 
Andrx rights and assets necessary to develop, manufacture, and market 
the eleven generic oral contraceptive products to Teva Pharmaceutical 
Industries, Inc. (``Teva'').
    The proposed Consent Agreement has been placed on the public record 
for thirty (30) days for receipt of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
proposed Consent Agreement and the comments received, and will decide 
whether it should withdraw from the proposed Consent Agreement, modify 
it, or make final the Decision and Order (``Order'').
    Pursuant to an Agreement and Plan of Merger dated March 12, 2006, 
Watson proposes to acquire all of the outstanding shares of Andrx at a 
cost of $25.00 per share. The Commission's Complaint alleges that the 
proposed acquisition, if consummated, would violate Section 7 of the 
Clayton Act, as amended, 15 U.S.C. Sec.  18, and Section 5 of the 
Federal Trade Commission Act, as amended, 15 U.S.C. Sec.  45, by 
lessening competition in the U.S. markets for the manufacture and sale 
of the following generic pharmaceutical products: (1) hydrocodone 
bitartrate/ibuprofen tablets; (2) glipizide ER tablets; and (3) eleven 
oral contraceptive products (the ``Products''). The proposed Consent 
Agreement will remedy the alleged violations by replacing the lost 
competition that would result from the acquisition in each of these 
markets.

The Products and Structure of the Markets

    The proposed acquisition of Andrx by Watson would strengthen 
Watson's position in generic pharmaceuticals and provide Watson with a 
stronger pipeline of generic products. The companies overlap in a 
number of generic pharmaceutical markets, and if consummated, the 
transaction likely would lead to anticompetitive effects in thirteen of 
these markets, including eleven oral contraceptive markets.
    The transaction would reduce the number of competing generic 
suppliers in the overlap markets. The number of generic suppliers has a 
direct and substantial effect on generic pricing as each additional 
generic supplier can have a competitive impact on the market. Because 
there are multiple generic equivalents for each of the products at 
issue here, the branded versions no longer significantly constrain the 
generics' pricing.
    For four generic products, Watson and Andrx currently are two of a 
small number of suppliers offering the product. In each of these 
markets, there are a limited number of competitors. In nine additional 
oral contraceptive product markets, both Watson and Andrx have generic 
products either on the market or in development. Furthermore, there are 
few firms that are capable of, and interested in, entering these 
markets. As a result, the proposed acquisition would eliminate 
important future competition in these markets.
    Hydrocodone bitartrate/ibuprofen is a combination of an opioid 
analgesic agent, hydrocodone bitartrate, and a nonsteroidal anti-
inflammatory drug (``NSAID''), ibuprofen and is the generic version of 
Abbott Laboratories Inc.'s Vicoprofen. Generic hydrocodone bitartrate/
ibuprofen tablets are used for the short-term management of acute pain 
and have been available in the United States since 2003. In 2005, sales 
of generic hydrocodone bitartrate/ibuprofen exceeded $62 million. Only 
three companies compete in the generic hydrocodone bitartrate/ibuprofen 
market: Watson, Andrx, and Teva. An additional company is in the 
process of obtaining FDA approval and expects to enter the market once 
the approval is granted, which is likely to occur in the next two 
years. Teva is the market leader with approximately 62 percent of the 
market. Andrx and Watson account for the rest of the market with about 
27 percent and 12 percent market share, respectively. After Watson's 
acquisition of Andrx, Watson's market share would increase from 12 
percent to approximately 39 percent, and Teva would be the only 
remaining competitor to Watson.
    Glipizide ER is the generic version of Pfizer's Glucotrol XL. 
Glipizide ER corrects the effects of type 2 diabetes by stimulating the 
release of insulin in the pancreas, thereby reducing blood sugar levels 
in the body. Generic glipizide ER was first introduced in the United 
States in November 2003. In 2005, sales of generic glipizide ER totaled 
approximately $174 million. Watson is the leading supplier in the U.S. 
market for generic glipizide ER tablets with over 45 percent of the 
market. Only two other firms, Andrx and Greenstone Ltd.

[[Page 64696]]

(``Greenstone''), compete with Watson in this market. Andrx and 
Greenstone have market shares of about 35 percent and 20 percent, 
respectively. Post-acquisition, Watson's market share would increase to 
over 80 percent, and Greenstone would be the only other remaining U.S. 
supplier of generic glipizide ER.
    Oral contraceptives are pills taken by mouth to prevent ovulation 
and pregnancy. They are the most common method of reversible birth 
control, used by up to 82 percent of women in the United States at some 
time during their reproductive years. Oral contraceptives contain 
various formulations of synthetic estrogen and progestin, which are 
chemical analogues of natural female hormones. Andrx and Teva have an 
agreement whereby Andrx develops and manufactures these oral 
contraceptives and Teva markets the products. Andrx also receives a 
royalty payment on Teva's sales of the products. In each of the eleven 
relevant oral contraceptive markets, Watson and Andrx/Teva are two of a 
limited number of suppliers or potential entrants.
    Two of the oral contraceptive products at issue are currently 
marketed formulations of generic norgestimate/ethinyl estradiol 
bioequivalent to the branded products, Ortho-Cyclen and Ortho Tri-
Cyclen, from Johnson & Johnson. Both products have varying ratios of 
norgestimate (a progestin) and ethinyl estradiol (an estrogen) that 
prevent ovulation and pregnancy. Generic formulations of Ortho-Cyclen 
and Ortho Tri-Cyclen are among the best selling generic oral 
contraceptives, representing sales of over $58 million and $261 
million, respectively, in 2005.
    Watson, Andrx/Teva, and Barr Pharmaceuticals, Inc. (``Barr'') are 
the only suppliers of generic Ortho-Cyclen and generic Ortho Tri-Cyclen 
in the United States. After the acquisition, the combined Watson/Andrx 
would account for 28 percent of the generic Ortho-Cyclen market. Watson 
is the leading supplier in the U.S. market for the manufacture and sale 
of generic Ortho Tri-Cyclen tablets. After the acquisition, Watson 
would account for 56 percent of the market.
    Watson currently competes in seven additional oral contraceptive 
markets where Andrx/Teva is developing competitive products. These 
seven markets represent generic products that are equivalent to Ortho-
cept, Triphasil 28, Alesse, Ortho-Novum 1/35, Ortho-Novum 7/7/7, 
Loestrin FE (1 mg/0.020 mg), and Loestrin FE (1.5 mg/0.030 mg). In each 
of these highly concentrated markets, Watson is one of only two or 
three suppliers. Andrx/Teva is one of a limited number of firms 
developing generic oral contraceptives that would compete in each of 
these markets, and is well-positioned to enter the markets in a timely 
manner.
    Both Watson and Andrx/Teva are developing generic Mircette tablets 
and generic Ovcon-35 tablets. They are two of a limited number of 
suppliers capable of entering these future generic markets in a timely 
manner.

Entry

    Entry into the markets for the manufacture and sale of the Products 
would not be timely, likely or sufficient in its magnitude, character, 
and scope to deter or counteract the anticompetitive effects of the 
acquisition. Developing and obtaining Food and Drug Administration 
(``FDA'') approval for the manufacture and sale of the Products takes 
at least two (2) years due to substantial regulatory, technological, 
and intellectual property barriers.

Effects

    The proposed acquisition would cause significant anticompetitive 
harm to consumers in the U.S. markets for the manufacture and sale of 
generic hydrocodone bitartrate/ibuprofen tablets, generic glipizide ER 
tablets, generic Ortho-Cyclen tablets, and generic Ortho Tri-Cyclen 
tablets. In generic pharmaceutical markets, pricing is heavily 
influenced by the number of competitors that participate in a given 
market. Here, the evidence shows that the price of the generic 
pharmaceutical product at issue decreases with the entry of each 
additional competitor. The proposed transaction would eliminate one of 
at most four competitors in these markets. Evidence gathered during our 
investigation indicates that anticompetitive effects - whether 
unilateral or coordinated - are likely to result from a decrease in the 
number of independent competitors in the markets at issue.
    In the markets for generic hydrocodone bitartrate/ibuprofen and 
generic glipizide ER, the acquisition of Andrx by Watson would leave 
only two current competitors: the combined firm and one other company. 
The evidence indicates that the presence of three independent 
competitors in these markets allows customers to negotiate lower 
prices, and that a reduction in the number of competitors would allow 
the merged entity and other market participants to raise prices. 
Likewise, in the generic oral contraceptive markets, the reduction in 
the number of competitors from three to two would likely lead to higher 
prices.
    The competitive concerns can be characterized as both unilateral 
and coordinated in nature. The homogenous nature of the products 
involved, the minimal incentives to deviate, and the relatively 
predictable prospects of gaining new business all indicate that the 
firms in the market will find it profitable to coordinate their 
pricing. The impact that a reduction in the number of firms would have 
on pricing can also be explained in terms of unilateral effects, as the 
likelihood that the merging parties would be the first and second 
choices in a significant number of bidding situations is enhanced where 
the number of firms participating in the market decreases 
substantially.
    The acquisition also would cause significant anticompetitive harm 
to consumers in the U.S. markets for the manufacture and sale of 
generic Ortho-Cept tablets, generic Triphasil 28 tablets, generic 
Alesse tablets, generic OrthoNovum 1/35 tablets, generic OrthoNovum 7/
7/7 tablets, generic Loestrin FE (1 mg/0.020 mg) tablets, and generic 
Loestrin FE (1.5 mg/0.030 mg) tablets, generic Mircette tablets and 
generic Ovcon-35 tablets by eliminating future competition between 
Watson and Andrx. In each of these markets, there are no more than 
three current suppliers, and Andrx is poised to enter in the near 
future. Andrx's independent entry into these markets likely would 
result in lower prices. The proposed transaction would eliminate that 
independent entry and, hence, would leave prices at their current, 
higher levels.

The Consent Agreement

    The proposed Consent Agreement effectively remedies the proposed 
acquisition's anticompetitive effects in the relevant product markets. 
Pursuant to the Consent Agreement, Watson and Andrx are required to 
divest certain rights and assets related to the relevant products to a 
Commission-approved acquirer no later than ten (10) days after the 
acquisition. Specifically, the proposed Consent Agreement requires 
that: (1) Watson terminate its marketing agreement with Interpharm, 
thereby returning all of its rights to generic hydrocodone bitartrate/
ibuprofen back to Interpharm; (2) Andrx divest its rights and assets to 
generic glipizide ER to Actavis, including assigning its supply 
agreement with Pfizer, Inc.; and (3) Andrx divest its rights and assets 
related to the eleven generic oral contraceptives to Teva, and supply 
Teva with the products for five years in order for Teva (or its 
designated contract manufacturer) to obtain all necessary FDA approvals 
to

[[Page 64697]]

manufacture and sell the products independently.
    The acquirers of the divested assets must receive the prior 
approval of the Commission. The Commission's goal in evaluating 
possible purchasers of divested assets is to maintain the competitive 
environment that existed prior to the acquisition. A proposed acquirer 
of divested assets must not itself present competitive problems.
    Interpharm specializes in the development, manufacture, and 
marketing of generic pharmaceutical and over-the-counter products. 
Interpharm currently manufactures and markets 23 generic pharmaceutical 
products, and has ten ANDAs under review by the FDA. As a contract 
manufacturer for Watson's product, Interpharm is an acceptable acquirer 
of generic hydrocodone bitartrate/ibuprofen because it already has the 
experience, know-how, and manufacturing infrastructure to produce and 
sell generic hydrocodone bitartrate/ibuprofen in the United States. 
Interpharm understands the scientific and technical details of generic 
hydrocodone bitartrate/ibuprofen because it formulated, developed, and 
tested the product, and registered the product with the FDA. Moreover, 
Interpharm will not present competitive problems in any of the markets 
in which it will acquire a divested asset because it currently does not 
compete in those markets. With its resources, capabilities, good 
reputation, and experience marketing generic products, Interpharm is 
well-positioned to replicate the competition that would be lost with 
the proposed acquisition.
    Actavis is a leading developer, manufacturer, marketer, and 
distributer of generic pharmaceutical products, and is an acceptable 
acquirer of generic glipizide ER. Actavis has an extensive distribution 
network in the United States, with three major manufacturing facilities 
and approximately 162 pharmaceutical products in the U.S. market. 
Actavis also has experience obtaining FDA approvals for generic 
pharmaceutical products. While Actavis currently does not compete in 
the market for the divested assets, it has the resources, capabilities, 
good reputation, and experience necessary to restore fully the 
competition that would be lost if the proposed Watson/Andrx transaction 
were to proceed unremedied.
    Teva is a global pharmaceutical company specializing in the 
development, production, and marketing of generic and branded 
pharmaceuticals. Founded in 1901 and headquartered in Petach Tikva, 
Israel, Teva employs approximately 25,000 people worldwide and has 
production facilities in Israel, North America, Europe, and Mexico. 
Teva and its affiliates are the world's largest generic pharmaceutical 
company with over 300 generic products, representing $6.6 billion in 
estimated 2006 revenue. Because of its current agreement with Andrx, 
and its well-known reputation and experience in the pharmaceutical 
industry, Teva is ideally positioned to be a viable, independent 
competitor in the eleven generic oral contraceptive markets. The 
acquisition of the eleven generic oral contraceptive products by Teva 
would effectively restore the competition that would be lost with the 
proposed merger.
    If the Commission determines that either Interpharm or Actavis is 
not an acceptable acquirer of the assets to be divested, or that the 
manner of the divestitures to Interpharm, Actavis, or Teva is not 
acceptable, the parties must unwind the sale and divest the Products 
within six (6) months of the date the Order becomes final to another 
Commission-approved acquirer. If the parties fail to divest within six 
(6) months, the Commission may appoint a trustee to divest the Product 
assets.
    The proposed remedy contains several provisions to ensure that the 
divestitures are successful. The Order requires Watson and Andrx to 
provide transitional services to enable the Commission-approved 
acquirers to obtain all of the necessary approvals from the FDA. These 
transitional services include technology transfer assistance to 
manufacture the Products in substantially the same manner and quality 
employed or achieved by Watson and Andrx.
    The Commission has appointed Francis J. Civille as the Interim 
Monitor to oversee the asset transfer and to ensure Watson and Andrx's 
compliance with all of the provisions of the proposed Consent 
Agreement. Mr. Civille has over 27 years of experience in the 
pharmaceutical industry. He is a highly-qualified expert in areas such 
as pharmaceutical research and development, regulatory approval, 
manufacturing and supply, and marketing. He has provided consulting 
services in healthcare business development to major pharmaceutical 
companies, biotechnology companies, universities, and government 
agencies. In order to ensure that the Commission remains informed about 
the status of the proposed divestitures and the transfers of assets, 
the proposed Consent Agreement requires Watson and Andrx to file 
reports with the Commission periodically until the divestitures and 
transfers are accomplished.
    The purpose of this analysis is to facilitate public comment on the 
proposed Consent Agreement, and it is not intended to constitute an 
official interpretation of the proposed Order or to modify its terms in 
any way.
    By direction of the Commission, with Commissioner Harbour recused.

Donald S. Clark
Secretary.
[FR Doc. E9-29251 Filed 12-7-09: 7:54 am]
BILLING CODE 6750-01-S