FTC Charges Drug Manufacturers with Stifling Competition in Two Prescription Drug Markets

The Federal Trade Commission today charged two drug makers, Hoechst Marion Roussel (now Aventis) and Andrx Corporation, with engaging in anticompetitive practices in violation of Section 5 of the FTC Act, alleging that Hoechst, the maker of Cardizem CD, a widely prescribed drug for treatment of hypertension and angina, agreed to pay Andrx millions of dollars to delay bringing its competitive generic product to market. The Commission also announced a proposed settlement with two other drug makers, Abbott Laboratories and Geneva Pharmaceuticals, Inc., resolving charges that the companies entered into a similar anticompetitive agreement in which Abbott paid Geneva substantial sums to delay bringing to market a generic alternative to Abbott's brand-name hypertension and prostate drug, Hytrin.

"The financial arrangements between the branded and generic manufacturers were designed to keep generic versions of Cardizem CD and Hytrin off the market for an extended period of time," said Richard Parker, Director of the FTC's Bureau of Competition. "These types of agreements have the potential to cost consumers hundreds of millions of dollars each year, Parker noted. He further explained that "the proposed consents with Abbott and Geneva will provide immediate guidance to the drug industry and the antitrust bar with regard to these kinds of arrangements, and the Hoechst-Andrx complaint will allow the Commission to further consider the issues as it examines the arrangement in that case in light of a record developed during an administrative hearing."

Under legislation commonly known as the Hatch-Waxman Act, a company can seek approval from the Food and Drug Administration (FDA) to market a generic drug before the expiration of a patent relating to the brand name drug upon which the generic is based. Pursuant to this Act, the first company to file an Abbreviated New Drug Application (ANDA) with the FDA has the exclusive right to market the generic drug for 180 days. No other generic can gain FDA approval until this 180-day period expires. The purpose of the exclusivity period is to encourage generic entry.

To begin the FDA approval process, the generic applicant must: 1) certify in its ANDA that the patent in question is invalid or is not infringed by the generic product (known as a "paragraph IV certification"); and 2) notify the patent holder of the filing of the ANDA. If the patent holder files an infringement suit against the generic applicant within 45 days of the ANDA notification, FDA approval to market the generic drug is automatically stayed for 30 months, unless, before that time, the patent expires or is judicially determined to be invalid or not infringed. This 30-month automatic stay allows the patent holder time to assert its patent rights in court before a generic competitor is permitted to enter.

Hoechst-Andrx Complaint Allegations

Hoechst sells Cardizem CD, a once-a-day diltiazem product used to treat hypertension and angina -- chronic, severe chest pain due to a reduction in blood flow to the heart. The Hoechst product accounts for approximately 70 percent of all once-a-day diltiazem products sold in the United States.

In September 1995, Andrx filed its ANDA with the FDA to manufacture and distribute a generic version of the drug, and, as the first to file, was entitled to the 180-day exclusivity right. Hoechst promptly sued Andrx for patent infringement, which triggered the 30-month stay on FDA approval of Andrx's ANDA. This 30-month period expired in July 1998.

In September 1997, the FTC's complaint alleges, Hoechst and Andrx entered into an agreement in which Andrx was paid to stay off the market. Under the agreement, Andrx would not market its product when it received FDA approval, would not give up or transfer its 180-day exclusivity right, and would not even market a non-infringing generic version of Cardizem CD.

In exchange, Hoechst paid Andrx $10 million per quarter, beginning in July 1998, when Andrx gained FDA approval for its product. The agreement also stipulated that Hoechst would pay Andrx an additional $60 million per year from July 1998 to the conclusion of the lawsuit if Andrx prevailed.

According to the FTC, the agreement acted as a bottleneck that prevented any other potential competitors from entering the market because: 1) Andrx would not market its product and thus its 180 days of exclusivity would not begin to run; and 2) other generics were precluded from entering the market because Andrx agreed not to give up or transfer its exclusivity.

According to the complaint, Hoechst's agreement with Andrx had the "purpose or effect, or the tendency or capacity" to restrain trade in the market for once-a-day diltiazem and in other narrower markets. Entry of a generic into the market immediately would have introduced a lower-cost alternative and would have started the 180-day waiting period.

The complaint alleges that the agreement between Hoechst and Andrx constituted an unreasonable restraint of trade; that Hoechst attempted to preserve its monopoly in the relevant market; that Hoechst and Andrx conspired to monopolize the relevant market; and that the acts and practices are anticompetitive and constitute unfair methods of competition, all in violation of Section 5.

Abbott-Geneva: Complaint Allegations

Hytrin is the brand-name for terazosin HCL, a prescription drug marketed and sold by Abbott Laboratories. This drug is used to treat hypertension and benign prostatic hyperplasia ("BPH" or enlarged prostate). Both hypertension and BPH are chronic conditions affecting millions of Americans each year, many of them senior citizens. According to the complaint, Abbott paid Geneva $4.5 million per month to keep Geneva's generic version of Hytrin off the U.S. market. This agreement also resulted in a significant delay in the introduction of other generic versions of Hytrin because Geneva was the first filer with the FDA and other companies could not market their generic products until 180 days after Geneva's entry.

In January 1993, Geneva filed an ANDA with the FDA for a generic version of terazosin HCL in tablet form; Geneva filed a similar ANDA for a generic version of terazosin in capsule form in December 1995. In April 1996, Geneva filed a Paragraph IV certification with the FDA for both ANDAs.

On June 4, 1996, Abbott sued Geneva, claiming patent infringement by Geneva's generic terazosin HCL tablet product. Abbott mistakenly made no such claim against Geneva's capsule version of the product, even though both tablets and capsules involved the same potential infringement issues.

Pursuant to the Hatch-Waxman Act, Abbott's lawsuit triggered a 30-month stay of final FDA approval of Geneva's generic tablet ANDA, until December 1998. Because no similar lawsuit was filed regarding the generic capsule, the FDA's review and approval process regarding this product continued.

The complaint alleges that Geneva, confident that it would win its patent infringement dispute with Abbott, planned to bring its generic terazosin HCL capsule to market as soon as possible after FDA approval. As the first filer for approval of generic Hytrin capsules, Geneva would enjoy the 180-day exclusivity period provided under the Hatch-Waxman Act.

When Geneva actually received FDA approval to market its generic capsules, Geneva contacted Abbott and announced that it would launch its product unless Abbott paid it not to enter the market. Abbott, which estimated that the entry of a generic would eliminate $185 million in Hytrin sales in the first six months, reached an agreement with Geneva on April 1, 1998, pursuant to which Geneva would not bring a generic terazosin HCL product to market until the earlier of: 1) final resolution of the patent infringement lawsuit involving the generic tablet product (including possible review by the Supreme Court); or 2) entry into the market of another generic terazosin HCL product. Geneva also agreed not to transfer, assign or relinquish its 180-day exclusivity right to market its generic product.

In exchange, the complaint alleges, Abbott would pay Geneva $4.5 million per month until the district court ruled on the ongoing patent infringement dispute. If the court found that Geneva's tablet product did not infringe any "valid and enforceable claim" of Abbott's patent, Abbott agreed to pay $4.5 million monthly after that decision into an escrow account until the final resolution of the litigation. Under the agreement, the party ultimately prevailing in the patent litigation would receive the escrow funds. The court hearing the patent infringement case was not made aware of the agreement between the companies.

In accordance with the agreement, Geneva did not introduce its generic capsules in April 1998, and instead began collecting the $4.5 million monthly payments from Abbott, which exceeded the amount Abbott expected Geneva to receive from actually marketing the drug. On September 1, 1998, the district court granted Geneva's motion for summary judgment in its patent litigation with Abbott, invalidating Abbott's patent. Despite this victory, Geneva still did not enter the market with its generic product, content to have Abbott make monthly $4.5 million payments into the escrow account. On July 1, 1999, the Court of Appeals for the Federal Circuit affirmed the decision invalidating Abbott's patent. Under the agreement, Geneva was to await Supreme Court consideration of the matter before entering. According to the complaint, Geneva did not enter until August 13, 1999, when, aware of the Commission's investigation, it canceled its agreement with Abbott.

The complaint alleges that Abbott's agreement with Geneva had the "purpose or effect, or the tendency or capacity" to restrain competition unreasonably and to injure competition by preventing or discouraging the entry of competition into the relevant market. As a result of the anticompetitive behavior, the complaint alleges, the lower-priced generic version of Hytrin was not made available to consumers, pharmacies, hospitals, insurers, wholesalers, government agencies, managed care organizations and others during the time the agreement was in place.

Entry by a generic competitor would have had a significant procompetitive effect. The complaint alleges that the agreement between Abbott and Geneva constituted an unreasonable restraint of trade; that Abbott monopolized the relevant market; that Abbott and Geneva conspired to monopolize the relevant market; and that the acts and practices are anticompetitive in nature and tendency and constitute unfair methods of competition, all in violation of Section 5.

The Proposed Consent Orders

Under the terms of the proposed settlement, Abbott and Geneva would be barred from entering into agreements pursuant to which a first-filing generic company agrees with a manufacturer of a branded drug that the generic company will not 1) give up or transfer its exclusivity or 2) bring a non-infringing drug to market. In addition, agreements involving payments to a generic company to stay off the market would have to be approved by the court when undertaken during the pendency of patent litigation (with notice to the Commission), and the companies would be required to give the Commission 30 days' notice before entering into such agreements in other contexts. In addition, Geneva would be required to waive its right to a 180-day exclusivity period for its generic terazosin HCL tablet product, so other generic tablets could immediately enter the market.

The proposed orders, which would expire in 10 years, also contain certain reporting and other provisions designed to help the Commission monitor compliance by the companies.

The Commission vote to issue the administrative complaint against Hoechst/Andrx was 5-0. The vote to accept the proposed consent orders with Abbott and Geneva was 5-0.

In a unanimous statement, the Commissioners said: "These consent orders represent the first resolution of an antitrust challenge by the government to a private agreement whereby a brand name drug company paid the first generic company that sought FDA approval not to enter the market, and to retain its 180-day period of market exclusivity. Because the behavior occurred in the context of the complicated provisions of the Hatch-Waxman Act, and because this is the first government antitrust enforcement action in this area, we believe the public interest is satisfied with orders that regulate future conduct by the parties. We recognize that there may be market settings in which similar but less restrictive arrangements could be justified, and each case must be examined with respect to its particular facts.

"We have today issued an administrative complaint against two other pharmaceutical companies with respect to conduct that is in some ways similar to the conduct addressed by these consent orders. We anticipate that the development of a full factual record in the administrative proceeding, as well as the public comments on these consent orders, will help to shape further the appropriate parameters of permissible conduct in this area, and guide other companies and their legal advisors.

"Pharmaceutical firms should now be on notice, however, that arrangements comparable to those addressed in the present consent orders can raise serious antitrust issues, with a potential for serious consumer harm. Accordingly, in the future, the Commission will consider its entire range of remedies in connection with enforcement actions against such arrangements, including possibly seeking disgorgement of illegally obtained profits."

The Commission is accepting public comment on the consent in the Abbott/Geneva matter until April 17, 2000, after which it will decide whether to make it final. Comments should be sent to the FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, D.C. 20580.

NOTE: The Commission issues or files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. Neither complaint is a finding or ruling that the named party has violated the law. The administrative complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing by an administrative law judge.

NOTE: The consent agreement reached in the Abbott/Geneva matter 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 Commission's complaints in both matter, consent in the matter of Abbott/Geneva, and analysis to aid public comment in the matter of Abbott/Geneva 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; 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.

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(FTC File No. 981-0368, Hoechst-Andrx)
(FTC File No. 981-0395, Abbott-Geneva)