FTC Places Conditions on Watson Pharmaceutical's Proposed Acquisition of Actavis

The Federal Trade Commission will require Watson Pharmaceuticals, Inc. and Actavis Inc. to sell the rights and assets to 18 drugs to Sandoz International GmbH and Par Pharmaceuticals, Inc, and relinquish the manufacturing and marketing rights to three others, to settle charges that Watson’s proposed $5.9 billion acquisition of Actavis would otherwise be anticompetitive.

The settlement protects competition in the markets for 21 current and future generic drugs, used to treat a wide range of conditions ranging from hypertension and diabetes to anxiety and attention deficit hyperactivity disorder (ADHD).  It is part of the FTC’s ongoing effort to promote competition in the health care sector, which benefits U.S. consumers by keeping prices low and quality and choice of products and services high.

Watson is a global pharmaceutical company specializing in the development, production, and marketing of generic and branded drugs, as well as active pharmaceutical ingredients (APIs).  Based in Parsippany, New Jersey, it is the fourth-largest generic drug company in the world, with production facilities in North and South America, Europe, and Asia.  Watson markets more than 160 generic pharmaceutical product families in the United States, including drugs for cardiovascular conditions, pain relief, depression, diabetes, dermatological conditions, and neurological conditions.

Actavis, headquartered in Switzerland, is a global pharmaceutical company specializing in the development, production, and marketing of generic drugs, as well as APIs and over-the-counter drugs.  It has production facilities in Europe, Asia, and the United States.  Actavis is the ninth-largest generic drug company in the United States, and its generic drug portfolio includes more than 1,100 products in a wide range of therapeutic areas.

Under an agreement dated April 25, 2012, Watson proposes to acquire Actavis in a deal valued at approximately $5.9 billion. 

According to the FTC’s complaint, Watson’s acquisition of Actavis as originally proposed would reduce competition in 21 generic drug product markets, violating federal antitrust laws.  These generic markets are or are expected to be concentrated, and Watson and Actavis are currently one or expected to be one of only a few competitors.  Seven of the relevant generic drug markets involve generic drugs that are currently sold; eight of the relevant generic drug markets involve generic drug products that either one or both of the companies currently sell or have in development; and both companies have generic products in development in the remaining six relevant markets.  A list of all 21 drugs, along with the structure of the relevant markets, can be found in the analysis to aid public comment for this matter on the FTC’s website.

Currently Marketed Products

The FTC’s complaint alleges that the proposed acquisition would reduce competition in markets for the following seven drugs:  1) the generic version of GlaxoSmithKline plc’s extended-release Zyban, which is designed to help people quit smoking by reducing cravings and the effects of withdrawal; 2) the generic version of extended-release Cardizem CD, which is used to treat hypertension, angina, and certain heart rhythm disorders; 3) the generic version of Janssen Pharmaceuticals, Inc.’s fentanyl patch system, which is used to ease chronic pain; 4) the generic version of Valeant Pharmaceuticals International, Inc.’s Ativan, which is used to treat anxiety disorders; 5) the generic version of Ani Pharmaceuticals, Inc.’s Reglan, which is used to treat nausea; 6) the generic version of Actavis’s extended-release drug Kadian, which is used to treat acute pain; and 7) the generic version of Bayer AG’s extended-release drug Adalat CC, which is used to treat hypertension and angina.

Generic Products in the Pipeline

The FTC’s complaint also alleges that the proposed acquisition would significantly reduce competition in the future for the following eight drugs:  1) the generic version of extended- release Adderall XR, which is used to treat ADHD; 2) the generic version of extended release Tiazac capsules, which are used to treat hypertension and angina; 3) the generic version of Endo Health Solutions, Inc.’s extended-release Opana ER tablets, which are used to treat chronic pain; 4) an alternate generic version of Watson and Pfizer, Inc.’s extended-release glipizide diabetes medication that boosts insulin production to control blood sugar levels; 5) an alternate generic version of Dynacirc, which is used to treat high blood pressure; 6) an alternate generic version of Loxitine, which is used to treat the symptoms of schizophrenia; 7) the generic version of Janssen’s extended-release Concerta, which is used to treat ADHD in people over age six; and 8) alternate generic versions of Watson’s Urso 250 and Urso Forte, which are used to treat a certain type of cirrhosis.

Future Products in Development

Finally, the FTC’s complaint alleges that the proposed acquisition would reduce future competition in the markets for six generic drugs that are not currently on the market, but are in development by both Watson and Actavis.  They include: 1) a topical treatment for acne; 2) a product to treat uncontrolled episodes of crying or laughing in people with certain neurological diseases: 3) a product used to treat acne pain; 4) a generic version of the tamper-resistant pain relief drug OxyContin; 5) an extended-release patch used to treat Alzheimer’s disease and dementia resulting from Parkinson’s disease; and 6) a generic version of Pfizer’s Chantix, which is used to help people stop smoking.

The proposed consent order is designed to remedy the anticompetitive effects of Watson’s proposed acquisition of Actavis.  It requires the companies to sell either Watson’s or Actavis’s rights and assets to 18 of the 21 drugs to an FTC-approved buyer within 10 days of the acquisition. 

The proposed order requires Watson or Actavis to sell assets related to four of the 18 drugs to Sandoz, and the rest to Par, a New Jersey-based generic drug company that sells more than 60 prescription drug products and has an active product development pipeline. Based in Germany, Sandoz offers approximately 200 generic drug products for sale in the United States, and also has an active product development pipeline.  The FTC expects that Sandoz and Par will be able to replicate the competition that otherwise would have been lost through the acquisition.

For the other three drugs, different steps have been taken to address the competition concerns. To remedy the FTC’s concerns related to one drug product, the combined firm is required to end Actavis’s existing development and manufacturing agreement with Pfizer and transfer the manufacturing rights back to Pfizer.  For two other drugs, Watson and Actavis must relinquish the marketing rights to another firm.

If the FTC determines that Par and/or Sandoz are not acceptable buyers for the 18 drugs, the proposed order would require Watson and Actavis to unwind the deals and find new Commission-approved buyers within six months of the time the deal becomes final.  Finally, to ensure the divestitures are successful, Watson and Actavis must maintain the viability of the drugs until they are transferred to the FTC-approved buyer.

Generic Drug Shortages

Watson and Actavis supply some products that the FDA has identified as being in short supply, and the FTC evaluated whether the proposed transaction would exacerbate any of those shortages.  Information gathered during the investigation indicated that the manufacture of those products would not likely be altered in a way that could impact their continued availability, and that the transaction would not impact or otherwise affect incentives to continue to supply those products.

The Commission’s vote approving the complaint and proposed settlement order was 5-0.  The order will be subject to public comment for 30 days, until November 14, 2012, after which the Commission will decide whether to make it final.  Comments should be sent to:  FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.  Comments can be submitted electronically.

NOTE:  The Commission issues 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.  The issuance of a complaint is not a finding or ruling that the respondent has violated the law.  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 $16,000.

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{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580.  To learn more about the Bureau of Competition, read Competition Counts.  Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

(FTC File No. 121-0132)