FTC Reaches Record Financial Settlement To Settle Charges of Price-fixing in Generic Drug Market

The Federal Trade Commission today approved a $100 million settlement with Mylan Laboratories, Inc., the largest monetary settlement in Commission history. If the settlement is approved by the federal district court, Mylan will pay the money into a fund for distribution to injured consumers and state agencies. The settlement would resolve the Commission's charges that four companies, including Mylan, conspired to deny Mylan's competitors ingredients necessary to manufacture two widely-prescribed anti-anxiety drugs, lorazepam and clorazepate. The companies also agreed to the entry of an injunction barring similar unlawful conduct in the future.

"Anticompetitive acts in the pharmaceutical industry potentially cost consumers millions of dollars in higher prescription prices. This settlement serves notice of the Commission's determination to pursue investigations of such behavior and to seek disgorgement of ill-gotten gains in appropriate cases," said Richard Parker, Director of the FTC's Bureau of Competition.

The proposed settlement resolves a complaint that the Commission filed in December 1998 seeking, among other things, a permanent injunction and disgorgement of profits the Commission alleged that Mylan and the other defendants had garnered from their illegal activity. Thirty-two State Attorneys General and the District of Columbia filed parallel actions. The FTC's proposed settlement resolves the States' claims as well. Combined with a settlement in a related suit between the defendants and certain private plaintiffs, Mylan's payments will roughly equal all profits earned from the conduct challenged by the Commission.

The Commission's Suit

The Commission's complaint charged that Mylan, Cambrex Corporation, Profarmaco S.R.L., and Gyma Laboratories of America, Inc. carried out a plan intended to give Mylan the power to raise the price of generic lorazepam tablets and generic clorazepate tablets by depriving its competitors of the active pharmaceutical ingredient (API) necessary to manufacture each product. Generic drugs are identical versions of branded drugs and typically sell at a substantial discount from the price of the branded drug. Many companies that manufacture generic drugs purchase the API from a third-party.

Lorazepam is the generic form of Ativan, a highly prescribed anti-anxiety medication, and clorazepate is the generic form of Traxene, an anti-anxiety medication also used as an adjunct therapy for nicotine and opiate withdrawal. By early 1997, vigorous competition among generic manufacturers had driven down the prices of both lorazepam and clorazepate to very competitive levels.

Defendant Profarmaco, an API manufacturer, supplied Mylan and most of its competitors with lorazepam API and clorazepate API; Cambrex is the parent company of Profarmaco. Gyma Laboratories distributes Profarmaco's products in the United States.

In late 1997, the defendants entered into exclusive licenses that deprived Mylan's competitors of the API for lorazepam and clorazepate. Pursuant to those licenses, Mylan agreed to share the profits from its sales of lorazepam and clorazepate tablets with Cambrex, Profarmaco, and Gyma.

Without access to the API for lorazepam or clorazepate tablets, the Commission alleged, Mylan's competitors could not effectively compete for the sale of either product. Therefore, Mylan could and did raise prices approximately 2000-3000% depending on the bottle size and strength. For example, in January 1998, Mylan raised the wholesale price of clorazepate from $11.36 to $377.00 for a 500-count bottle of 7.5 mg tablets. In March 1998, Mylan raised the wholesale price of lorazepam from $7.30 to $190 for a 500-count bottle of 1 mg tablets. The Commission's December 1998 complaint, filed in the District Court for the District of Columbia, alleged that through its agreements with the other defendants, Mylan had earned an additional $120 million.

The complaint alleged that Mylan, Cambrex Corporation, Profarmaco, and Gyma violated the Federal Trade Commission Act by agreeing to restrain trade and conspiring to monopolize the generic lorazepam market and the generic clorazepate market. In addition, the complaint alleged that Mylan violated the Federal Trade Commission Act by monopolizing and attempting to monopolize those two markets. The Commission's authority to seek disgorgement under Section 13(b) of the Federal Trade Commission Act was upheld in a July 7, 1999 decision of the District Court.

The Proposed Settlement

Mylan will pay $100 million in disgorged profits into a fund to compensate injured consumers and state agencies. The State Attorneys General will distribute the fund to patients who paid the increased prices and to state agencies, including Medicaid programs, that purchased lorazepam and clorazepate while the licenses were in effect.

This settlement, when combined with the proposed resolution of private actions involving the same conduct, means that virtually all of the profits Mylan obtained through its allegedly unlawful conduct will be disgorged. In addition to the $100 million settlement, Mylan agreed to pay $8 million in attorney's fees to the State Attorneys General. Separately, Mylan will pay $35 million, plus $4 million in attorney's fees, to settle certain class actions with insurers and managed care organizations.

The defendants have also agreed to an injunction barring similar anticompetitive behavior in the future. The proposed ten-year injunction would prohibit any exclusive agreement on active pharmaceutical ingredients that harms competition or creates a monopoly. The proposed injunction would also prohibit, for five years, any exclusive agreements affecting the raw material for lorazepam or clorazepate tablets.

Under the proposed injunction, for five years, each defendant would have to give the Commission advance notice of any proposed exclusive agreement on any other raw materials. The proposed injunction excludes exclusive agreements related to the development of new branded or generic drugs.

The District Court for the District of Columbia must approve the settlement before any funds are disbursed. Consumers who believe that they were injured by the 1998 lorazepam and clorazepate price increases should contact the Attorney General of their State.

The Commission vote to accept the proposed agreement was 4-1, with Commissioner Thomas Leary dissenting in part and concurring in part.

In his statement, Commissioner Leary stated: "I concur without reservation in the underlying injunctive relief that bars defendants from entering into exclusive agreements similar to those that triggered this lawsuit. However, I am compelled to dissent in part from the financial aspects of the settlement because I believe they may create an undesirable precedent for antitrust enforcement at both the state and the federal levels."

Commissioner Leary added: "If the Commission approves the settlement in this particular case - based on the District Court rulings that we have helped to obtain - I believe it is essential that we somehow communicate our views on the appropriate parameters of the Section 13(b) remedy generally for antitrust cases. At the very least, we might indicate that the remedy will not be sought in cases where the violation is unclear and where private damage remedies are available and being pursued."

According to the Commissioner, "[a] particularly serious spillover effect of the federal court decisions in this case is the potential conflict with federal policy established by the decisions in Hanover Shoe, Inc. v. United Shoe Machinery Corp. and Illinois Brick Co. v. Illinois, and consistently maintained since that time.

"Illinois Brick and Hanover Shoe relied on broad congressional policies to define the recovery that federal antitrust law authorizes under Section 4 of the Clayton Act. While these decisions only involved Section 4, the reliance on federal antitrust policy suggests the Federal Trade Commission remedies should be applied consistently."

Leary concluded: "Illinois Brick has withstood frontal assaults for over 20 years. It would be ironic, indeed, if a barrier against indirect purchaser suits under a federal statute (Clayton Act Section 4) that specifically refers to monetary recoveries in antitrust cases could be so easily avoided by a backdoor approach under a statute (Section 13(b) of the FTC Act) that nowhere specifically authorizes monetary recoveries in antitrust cases and that was never so employed until very recently."

Chairman Pitofsky and Commissioners Anthony and Thompson issued a statement responding to the issues raised by Commissioner Leary. The Chairman and the Commissioners stated: "We agree with Commissioner Leary that the Commission should cautiously exercise its prosecutorial discretion to seek disgorgement in antitrust cases. Such relief is best reserved for cases, like this one, in which the defendants have engaged in particularly egregious conduct. Past history demonstrates that the Commission has used its ability to obtain disgorgement sparingly. The Commission's decision to seek disgorgement in light of the facts of this particular case, and its decision to use the settlement monies to compensate consumers who suffered the consequences of defendants' conduct, were entirely appropriate and consistent with the policy considerations raised by the Supreme Court in Illinois Brick."

NOTE: The agreement approved by the Commission is for settlement purposes only and does not constitute an admission of a law violation.

Copies of the complaint, the proposed injunction and the statements by the Commissioners are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll-free: 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC Matter No. X990015-1)