Consent Order Resolves Charges That Biovail and Elan Agreement Unreasonably Restrained Competition In Market for Generic Anti-hypertension Drug

The Federal Trade Commission today voted to accept for public comment a proposed consent order with two generic drug manufacturers to resolve charges that they entered into an agreement that unreasonably reduced competition in the market for a generic anti-hypertension drug. In its complaint against Biovail Corporation (Biovail) and Elan Corporation, plc (Elan), the FTC alleged that the companies violated the Federal Trade Commission Act by entering into an agreement that provided substantial incentives not to compete in the market for the 30 mg and 60 mg dosage forms of generic Adalat CC. The proposed consent order would require the companies to terminate their agreement and would prohibit them from entering into similar agreements in the future. The order would be the Commission's first enforcement action regarding an allegedly anticompetitive agreement between two competing generic drug manufacturers.

"Biovail and Elan are the only two companies with FDA approval to market generic versions of Bayer AG's branded Adalat product," said Joseph Simons, Director of the FTC's Bureau of Competition. "Their agreement gave them substantial incentives not to compete with each other and to deprive consumers of the price cuts that normally occur with generic competition. Generic competition is an important way of restraining drug costs and hence of controlling overall health care costs, which have been escalating."

Elan, an Irish corporation based in Dublin, manufactures branded and generic pharmaceutical products. In 2001, Elan reported worldwide revenues of $1.7 billion. Biovail, a Canadian corporation based in Toronto, also manufactures branded and generic pharmaceuticals. At the time of the conduct giving rise to the Commission's complaint, neither Elan nor Biovail distributed its own generic drugs in the United States. Biovail's 2001 world-wide revenues were over $538 million.

Biovail and Elan are the only companies with Food and Drug Administration (FDA) approval to manufacture and sell 30 mg and 60 mg generic Adalat products. Elan was the first to file with the FDA an Abbreviated New Drug Application (ANDA) for FDA approval on the 30 mg dosage, and Biovail was the first to file an ANDA for FDA approval on the 60 mg dosage. Pursuant to the Hatch-Waxman Amendments to the Food, Drug and Cosmetic Act, as the first ANDA filers, Elan qualified for 180 days of exclusivity for the 30 mg product upon receiving final FDA approval, and Biovail qualified for 180 days of exclusivity on the 60 mg product upon receiving final FDA approval. Each was the second firm to file an ANDA on the dosage for which the other was the first filer. Prior to generic entry, Bayer's sales of the branded form of the 30 mg and 60 mg products were in excess of $270 million a year.

In October 1999, Biovail and Elan entered into an agreement involving both companies' generic Adalat products. Under their agreement, in exchange for specified payments, Elan would appoint Biovail as the exclusive distributor of Elan's 30 mg and 60 mg generic Adalat products and allow Biovail to profit from the sale of both products. The agreement further provided that Biovail would appoint Teva Pharmaceuticals, Inc. (Teva), a distributor of some of Biovail's products, to sub-distribute Elan's 30 mg generic Adalat product in the United States, and either Teva or another firm to sub-distribute Elan's 60 mg product. The agreement has a minimum term of 15 years.

In March 2000, the FDA gave final approval to Elan's 30 mg product and Elan, under its agreement with Biovail, promptly entered the market with its 30 mg product through Biovail. In December 2000, the FDA gave final approval to Biovail's 60 mg product and Biovail promptly entered the market with that product. Also in December 2000, the FDA gave final approval to Biovail's 30 mg product, but Biovail has never launched that product. Similarly, in October 2001, the FDA gave final approval to Elan's 60 mg product, but Elan has never launched that product. Thus, although two 30 mg generic Adalat products and two 60 mg generic Adalat products have had FDA approval for many months, the companies have marketed only one product at each strength. Elan has a monopoly over 30 mg generic Adalat, the profits from which it shares with Biovail; Biovail has a monopoly over 60 mg generic Adalat, having paid Elan a multi-million dollar royalty; and neither has launched a product in competition with the other's dosage form. As of September 2001, Biovail had paid Elan approximately $45 million for the 60 mg and 30 mg products covered by the agreement.

According to the Commission's complaint, Biovail and Elan agreed not to compete in violation of the FTC Act. The complaint alleges that the companies' agreement substantially reduces their incentives to introduce competing 30 mg and 60 mg generic Adalat products, and that the agreement lacks any countervailing efficiencies.

The complaint alleges that the agreement gave Biovail a substantial incentive not to launch a 30 mg generic Adalat product in competition with Elan's 30 mg product. The complaint also alleges that the agreement gave Elan a substantial incentive not to launch a 60 mg generic Adalat product in competition with Biovail's incumbent product. Entry of a second generic product at each dosage level would likely cause a significant reduction in the price of, and hence the profits from, that dosage. Moreover, as the complaint alleges, the agreement diminished each firm's incentive to surmount purported technological obstacles that each asserted prevented entry of the second products.

The complaint further alleges that, even if Biovail had launched its 30 mg product and Elan had launched its 60 mg product, the agreement allows Biovail to control or influence pricing and other competitive features of both its and Elan's 30 mg and 60 mg generic Adalat products. Thus, even with entry of "competing" products, Biovail was in a position to profit by suppressing competition between the products.

The proposed order, which has a ten-year term, remedies the companies' alleged anticompetitive conduct by requiring them to terminate the agreement and barring them from engaging in similar conduct in the future. It maintains commercial supply of the incumbent generic Adalat products while the companies unwind their agreement, and eliminates the anticompetitive obstacles to entry of a second 30 mg and 60 mg generic Adalat product.

The proposed order would prohibit each company from entering anticompetitive price, output, or distribution agreements with a generic competitor. In addition, the order would prohibit Elan from distributing its generic Adalat product through Teva, Biovail's distributor. This provision is designed to minimize the risk of inappropriate information exchanges between Biovail, Elan, and Teva regarding generic Adalat, and helps ensure that proper competitive incentives are restored after the agreement is ended.

The proposed order would require Elan to use best efforts to sell, as promptly as possible, its 30 mg and 60 mg generic Adalat products through a distributor other than Teva. Similarly, the proposed order would require Biovail to use best efforts to launch, as promptly as possible, its 30 mg generic Adalat product, and to continue to market its 60 mg product. The purpose of these requirements is to restore competitive incentives in the market for generic Adalat, and to remedy any lessening of competition resulting from the anticompetitive practices that the Commission's complaint alleges. The Analysis to Aid Public Comment that the Commission has issued with the proposed Consent Agreement states that "[t]he Commission will monitor closely Respondents' efforts to market their products." Accordingly, the proposed order includes strict reporting requirements until the companies launch the competing products.

The proposed order would require Elan to supply Teva, through Biovail, with its 30 mg product at cost until Biovail launches its own 30 mg product or May 31, 2003, whichever comes first. This provision ensures that supply of Elan's 30 mg generic Adalat product will continue uninterrupted as the parties unwind their agreement and as Elan re-launches its 30 mg product through a new distributor. This provision also ensures that consumers will have access to two competing sources of 30 mg generic Adalat even before Biovail launches its own self-manufactured 30 mg product through Teva.

The proposed order would require the companies to notify the FTC of certain types of agreements with other pharmaceutical manufacturers that they may enter into in the future.

The Commission vote to accept the consent order and place a copy on the public record was 5-0. A summary of the proposed consent agreement will be published in the Federal Register shortly. The order will be subject to public comment for 30 days, until July 29, 2002, after which the Commission will decide whether to make it final. Comments should be sent to: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, proposed consent agreement, and an analysis of the agreement to aid in public comment 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. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

(FTC File No. 011-0132)