FTC Intervenes in King Pharmaceuticals Acquisition of Rival Alpharma Inc.

The Federal Trade Commission has issued a consent order to settle its charges that King Pharmaceuticals, Inc.’s proposed $1.6 billion acquisition of rival drug-maker Alpharma Inc. would be anticompetitive and would violate federal law. The proposed consent order requires King to divest the rights to Alpharma’s branded oral long-acting opioid (LAO) analgesic drug Kadian to Actavis, restoring the competition between Kadian and King’s LAO Avinza that would be lost as a result of the acquisition. Actavis is well-positioned to acquire the Kadian assets, as it currently manufactures the drug for King at its plant in Elizabeth, New Jersey.

“Tens of millions of Americans suffer from chronic pain, and a significant number use King’s Avinza or Alpharma’s Kadian for treatment,” said David P. Wales, Acting Director of the FTC’s Bureau of Competition. “The Commission’s action announced today will ensure that consumers will continue to benefit from the important competition between these two drugs through lower prices.”

Oral LAOs have become the standard of care for managing moderate-to-severe chronic pain. Although these drugs include oral extended-release formulations of different chemical compounds such as morphine, oxycodone, and oxymorphone, these products, in addition to sharing a common mechanism of action, have similar indications, dosage forms, and dosage frequency. Other drugs such as short-acting opioids or non-oral opioids are not close therapeutic substitutes for the oral LAO products. King’s Avinza and Alpharma’s Kadian are the only competitively significant brands of morphine sulfate oral LAOs in the United States. The total annual sales of oral LAOs in 2007 was approximately $4 billion.

According to the Commission’s complaint, King’s acquisition of Alpharma as proposed would be anticompetitive and would violate federal law. The FTC contends that the deal would reduce the close and substantial competition between King and Alpharma in the relevant market, which is already highly concentrated. Purdue Pharma L.P.’s OxyContin, a branded oxycodone-based LAO, is the dominant product in the oral LAO market in the United States. While much smaller players than OxyContin, King’s Avinza and Alpharma’s Kadian both are significant branded competitors. As the only two branded morphine sulfate products, Kadian and Avinza are considered to be particularly close substitutes by many customers.

The complaint states that entry into the market for the manufacture and sale of oral LAOs is difficult, expensive, and time consuming and would not offset the anticompetitive impact of the acquisition as proposed. Developing and obtaining U.S. Food and Drug Administration (FDA) approval to make and sell oral LAOs takes at least two years, according to the complaint, due to significant regulatory, technological, and intellectual barriers.

The FTC’s order is designed to remedy the anticompetitive impact of the proposed transaction. It requires King to divest Kadian to Actavis no later than 10 days after it completes its acquisition of Alpharma. With the divestiture, Actavis, one of the world’s largest generic drug companies, will continue to sell Kadian in competition with Avinza and other oral LAOs, and will be able to introduce an “authorized” generic version of Kadian earlier than it would have been able to otherwise, as the patent on Kadian does not expire until 2010. As the current manufacturer of Kadian, Actavis has the incentive and ability to launch the first generic Kadian product before the patent expires. Because Actavis is already the maker of Kadian, the order does not require the divestiture of any fixed assets, does not contain an interim supply agreement, and does not require King to provide any technical assistance to the acquirer. The order does, however, restrict King’s use of confidential business information related to Kadian.

If the FTC later determines that Actavis is not an acceptable acquirer of the Kadian assets, the order requires that the parties unwind the divestiture and then divest Kadian to another Commission-approved buyer within six months of when the order becomes final. The FTC may appoint a divestiture trustee to oversee the sale of the assets if necessary and may appoint an interim monitor to ensure the companies’ compliance with the terms of the order.

The Commission vote to accept the complaint and consent order and place copies on the public record was 3-0, with Commissioner Pamela Jones Harbour recused. The FTC will publish an announcement regarding the agreement in the Federal Register shortly. The complaint, consent order, and an analysis to aid public comment can be found now on the Commission’s Web site at http://www.ftc.gov/os/caselist/0810240/index.shtm.

The agreement will be subject to public comment for 30 days, beginning today and continuing through January 27, 2009, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period 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.

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 documents related to this matter are available from the FTC's web site at http://www.ftc.gov and the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 383, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.

(FTC File No. 081-0240)
(Alpharma.final.wpd)