Consent Agreement Resolves Complaint Against Pharmaceutical Companies Hoechst Marion Roussel, Inc. and Andrx Corp.

The Federal Trade Commission today announced a consent agreement with Hoechst Marion Roussel ("HMR," now Aventis Pharmaceuticals, Inc), Carderm Capital, L.P. ("Carderm") and Andrx Corporation ("Andrx") to resolve an allegedly illegal agreement between the companies, affecting the $750 million a year market for Cardizem CD, a widely prescribed drug for treatment of hypertension and angina. Under the terms of the consent agreement, the companies would be barred from entering into arrangements in the future that have the purpose or effect of delaying the entry of generic pharmaceuticals, absent certain potentially procompetitive conditions set forth in the order.

On March 16, 2000, the Commission charged the two pharmaceutical manufacturers (and Carderm, the holder of certain Cardizem CD patents) with engaging in anticompetitive practices in violation of Section 5 of the FTC Act. The Commission's complaint alleged that HMR, the maker of Cardizem CD, agreed to pay Andrx millions of dollars to delay bringing its generic version of Cardizem CD to market. A complaint alleging similar anticompetitive behavior by drug manufacturers Abbott Laboratories and Geneva Pharmaceuticals, Inc. concerning Abbott's brand-name Hytrin hypertension and prostate drug was filed and settled at the same time through a Commission order prohibiting similar arrangements in the future.

"The Commission's decision to bring this proceeding clearly illustrates its commitment to ensuring that consumers have every opportunity to gain timely access to less-expensive generic versions of branded pharmaceuticals," said Molly Boast, Acting Director of the Commission's Bureau of Competition. "The Commission will continue to investigate and challenge in court, if necessary, agreements that threaten to harm consumers by delaying generic entry."

Background

Under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, a company can seek approval from the U.S. 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. Under 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, during which no other generic can gain FDA approval. The purpose of the exclusivity period for the first filer is to encourage generic entry into the marketplace.

To begin the FDA approval process, the generic applicant must: 1) certify in its application 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 that it has filed the application. 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 gives the patent holder time to assert its patent rights in court before a generic competitor is permitted to enter the market.

The Commission's Complaint

HMR sells Cardizem CD, a once-a-day diltiazem drug used to treat hypertension (high blood pressure) and angina (chronic, severe chest pain due to a reduction in blood flow to the heart). HMR's product accounts for approximately 70 percent of all once-a-day diltiazem drugs 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. HMR promptly sued Andrx for patent infringement, triggering the 30-month stay on FDA approval of Andrx's application. This 30-month period expired in July 1998.

In September 1997, in the midst of the patent lawsuit, the FTC's complaint alleges that HMR and Andrx entered into an agreement through which Andrx was paid to keep its generic product off the market. Under the agreement, Andrx would not market its product when it received FDA approval, would not give up its 180-day exclusivity right and would not even market a noninfringing generic version of Cardizem CD. In exchange, HMR allegedly paid Andrx $10 million per quarter, beginning in July 1998, when Andrx gained FDA approval for its product. The agreement also stipulated that HMR 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 between HMR and Andrx 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.

HMR's forecasts, the complaint states, projected that a generic once-a-day diltiazem product would capture roughly 40 percent of Cardizem CD sales in the first year of its launch alone. Cardizem CD was HMR's largest-selling product at the time. Accordingly, the complaint charges that HMR sought to delay Andrx - and all other potential generic competition to Cardizem CD - from entering the market due to the threat these drugs represented to the high profits being made through the sale of its Cardizem CD product.

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

The Consent Order

Under the terms of the order, the Commission would receive prospective relief to prevent a recurrence of the type of anticompetitive behavior alleged. While the agreement challenged in the complaint has been terminated by HMR and Andrx, the FTC contends that such agreements have the potential to delay generic entry, therefore raising serious antitrust concerns.

The Commission's order is designed to strike a balance by maintaining HMR's incentive to develop and sell new drug products and Andrx's incentive to develop and sell generic products that do not infringe existing valid patents held by other companies. It also preserves Andrx's ability to determine whether to market a product in the face of a patent infringement claim, so long as the decision is otherwise lawful.

Specifically, the order:

• Bars - except in certain licensing arrangements - two particular types of agreements between brand name drug companies and generic competitors: 1) restrictions on relinquishing Hatch-Waxman 180-day exclusivity rights; and 2) restrictions on entering the market with a noninfringing product.

• Requires that interim settlements of patent litigation involving payments to the generic company in which the generic company temporarily refrains from bringing its generic product to market be approved by the court, with notice to the Commission to allow it time to present its views to the court.

• Requires HMR and Andrx to provide the FTC with written notice 30 days before entering into such agreements in other contexts, as detailed in the order.

The order, which would expire in 10 years, also contains standard reporting and monitoring provisions designed to ensure the companies' compliance with its terms.

The Commission vote to approve the consent order and place a copy on the public record was 5-0. Public comments on the order will be accepted until May 2, 2001, after which the Commission 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 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 Commission's complaint, consent agreement and analysis to aid 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; 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.

Mitchell J. Katz

Office of Public Affairs

202-326-2161

Markus H. Meier

Bureau of Competition

202-326-3759

Richard A. Feinstein

Bureau of Competition

202-326-3688

(FTC File No. 981-0368; Docket No. D09239)