FTC Sues to Stop Anticompetitive Agreement in U.S. Drug Industry

The Federal Trade Commission today filed a complaint in federal district court seeking to put an end to an agreement between drug manufacturers Galen Chemicals Ltd. (now known as Warner Chilcott) and Barr Laboratories (Barr) that is denying consumers the choice of a lower-priced generic version of Warner Chilcott’s Ovcon® oral contraceptive.
 

According to the FTC’s complaint, Barr planned to launch a generic version of Ovcon as soon it received regulatory approval from the Food and Drug Administration (FDA). Warner Chilcott expected to lose half its Ovcon sales within the first year if Ovcon faced competition from a generic equivalent. Faced with this prospect, instead of competing with Barr, Warner Chilcott entered into an agreement with Barr preventing entry of Barr’s generic Ovcon into the United States for five years. In exchange for Barr’s promise not to compete, Warner Chilcott paid Barr $20 million.
 

“The agreement between Warner Chilcott and Barr is a naked agreement not to compete and to share the resulting profits between a branded drug seller and its only prospective generic competitor,” said FTC Chairman Deborah Platt Majoras. “When firms agree to eliminate competition without plausible justification, the Commission will step in to protect consumers.”
 

The FTC’s Complaint

In January 2000, Warner Chilcott acquired Ovcon 35, a branded oral contraceptive, from Bristol-Myers Squibb (BMS). Ovcon is not subject to any patent protection. As part of the acquisition, BMS agreed to provide Ovcon to Warner Chilcott. According to the complaint, Galen’s sales of Ovcon more than doubled since 2000, and the drug was one of the company’s largest sellers by 2004.
 

The complaint alleges that in September 2001, Barr filed an application with the FDA for approval to make and sell a generic version of Ovcon. Barr planned to sell generic Ovcon at a 30 percent discount to the branded product. In January 2003, Barr publicly announced its intention to market generic Ovcon by the end of that year. Generic Ovcon entry was understood by Warner Chilcott to be the “biggest risk to the company,” the complaint alleges. Warner Chilcott expected that Barr’s generic Ovcon would capture at least 50 percent of Ovcon’s new prescriptions within the first year, thus causing a significant decline in Ovcon revenues.
 

To protect these revenues from generic competition, Warner Chilcott intended to introduce a chewable form of the product (Ovcon Chewable) before generic entry occurred. Warner Chilcott’s strategy, the complaint states, was to convert its Ovcon customers to Ovcon Chewable and to stop selling Ovcon. Prescriptions for Ovcon Chewable could not be replaced at the pharmacy with generic Ovcon without express approval of the patient’s physician.
 

According to the FTC, by mid-2003, Warner Chilcott’s switch strategy to protect its Ovcon revenues – by converting customers to Ovcon Chewable before generic Ovcon entry – was in jeopardy. Barr’s generic Ovcon entry appeared imminent, and Ovcon Chewable had not obtained FDA approval. Facing the imminent threat of generic Ovcon entry, the complaint alleges, Warner Chilcott, in September 2003, entered into an agreement in principle with Barr. Under this agreement, after Barr received final FDA approval for its generic Ovcon product, Warner Chilcott would have the option to pay Barr a total of $20 million. In return for this payment, the complaint alleges, Barr would not compete in the United States for five years with its generic Ovcon product. Instead of entering and competing, alleges the FTC, Barr would agree to be available as a second supplier of Ovcon to Warner Chilcott if Warner Chilcott so requested.
 

The complaint alleges that Warner Chilcott and Barr carried out their horizontal agreement not to compete. In April 2004, Barr received FDA approval to make and sell generic Ovcon. Several weeks later, Warner Chilcott paid Barr the money owed under the agreement. As a result, Barr is precluded from entering with its own generic Ovcon product until May 2009.
 

The Commission’s complaint charges that defendants’ horizontal agreement not to compete, which prevents entry of Barr’s generic version of Ovcon for five years, constitutes an unfair method of competition in violation of Section 5 of the FTC Act. According to the complaint, the agreement on its face eliminates competition, has no plausible justification, and thus is a naked restraint of trade.
 

The Commission vote authorizing the staff to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the District of Columbia under Section 13(b) of the FTC Act on November 7, 2005. The Commission seeks permanent injunctive relief to undo the provision in the Warner Chilcott-Barr agreement prohibiting Barr from selling a generic version of Ovcon, with the goal of facilitating the prompt introduction of a generic version of Ovcon into the United States. Twenty-one states and the District of Columbia also have filed a complaint in the same court challenging the agreement. In addition to injunctive relief, the states will be seeking disgorgement and civil penalties.
 

Copies of the complaint will be available shortly 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, DC 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 Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 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.: 041-0034)