FTC Conditions Watson’s Proposed Acquisition of Actavis on Divestitures

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC announced on October 15 that it has approved Watson Pharmaceuticals, Inc.'s proposed $5.9 billion acquisition of Actavis Inc., subject to the parties' agreement to divest the rights and assets to 18 drugs and to relinquish the manufacturing and marketing rights to three others. When the parties announced the proposed combination in April, they said that the transaction would make Watson the third largest global generics company.

According to the parties, all regulatory approvals required to close the transaction have been received. As a result, the parties anticipate consummating the acquisition in late October or early November. The European Commission cleared U.S.-based Watson's acquisition of the Swiss-based Actavis on October 5.

According to the FTC's complaint, the acquisition, if consummated as proposed, would have lessened current and/or future competition in U.S. markets for 21 generic pharmaceutical products. These products are used to treat a wide range of conditions, including hypertension, high blood pressure, diabetes, anxiety, schizophrenia, nausea, chronic and acute pain, and attention deficit hyperactivity disorder. Seven of the relevant generic drug markets involve generic drugs that are currently sold, and eight of the relevant generic drug markets involve generic drug products that either one or both of the companies currently sell or have in the pipeline. In the remaining six markets, generic drugs are not currently on the market; however, Watson and Actavis are among a limited number of likely potential suppliers of these drugs.

Under the terms of a proposed consent order, Watson and Actavis would be required to divest either Watson’s or Actavis’s rights and assets related to 18 of the 21 products. The majority of the assets in these 18 markets would be divested to Par Pharmaceutical, Inc. Par is a New Jersey-based generic pharmaceutical company selling over 60 prescription drug product families and has an active product development pipeline. Assets related to four of the markets would be divested to Sandoz International GmbH, a subsidiary of Novartis AG. Sandoz is based in Germany and has approximately 200 generic product families in the United States and an active product development pipeline.

 According to the FTC, with their experience in generic markets, Par and Sandoz are expected to replicate the competition that would otherwise be lost with the proposed acquisition. If the Commission were to determine that Par and/or Sandoz were not acceptable acquirers of the divestiture assets, it could require the parties to unwind the sales. The parties are required to maintain the viability, marketability, and competitiveness of the divestiture products.

To remedy the FTC's concerns with respect to the three remaining product markets, the combined entity would be required to amend an existing development and manufacturing agreement between Actavis and Pfizer, Inc. and transfer the manufacturing rights back to Pfizer. For two other drugs, Watson and Actavis would be required to relinquish the marketing rights to another firm.

The case is Watson Pharmaceuticals, Inc., FTC Dkt. C-4373, FTC File No. 121-0132.

FTC Action Challenging Patent Settlement Agreements Transferred

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

An action brought by the FTC and the State of California—challenging agreements in which Solvay Pharmaceuticals, Inc. allegedly paid generic drug makers Watson Pharmaceuticals, Inc. and Par Pharmaceutical Companies, Inc. to delay generic competition to Solvay’s branded testosterone-replacement drug AndroGel—has been transferred to the federal district court in Atlanta.

The patent settlement agreements at issue were entered into in the federal district court for the Northern District of Georgia.

The FTC and the state brought the action in the federal district court in Los Angeles, alleging that the settlement agreements harmed competition by having brand-name and generic pharmaceutical companies agree not to compete and instead share monopoly profits. (See “FTC, California Sue Drug Makers for Delaying Generic Competition,” Trade Regulation Talk, February 10, 2009)

Avoiding Eighth Circuit

In arguing for the transfer, the defendants suggested that the FTC sought to avoid Eleventh Circuit law and to create a split among the federal appellate courts regarding the legality of reverse-payment patent settlement agreements. The FTC in 2005 lost a challenge to a patent settlement agreement in the U.S. Court of Appeals in Atlanta (2005-1 Trade Cases ¶74,716).

“Because of the close ties between this antitrust case and the underlying patent cases, the judge in the Northern District of Georgia is more appropriate to hear this case,” the federal district court in Los Angeles held. The court decided that the FTC was not forum shopping when it filed the action in California.

While the court noted the agency’s efforts to create the circuit split, it concluded that this strategy “bears little weight on the determination of transfer in the interest of justice and convenience of the parties and witnesses.”

Application for Stay of Transfer

The court ordered the transfer of the case on April 8. The next day, the court denied the FTC’s emergency ex parte application for a stay pending transfer. Thus, the defendants’ joint motion to dismiss will be heard in the federal district court for the Northern District of Georgia. Private actions that followed the government suit in the federal district court in Los Angeles were transferred as well.

The April 8 decision in FTC v. Watson Pharmaceuticals, Inc., will appear in CCH Trade Regulation Reporter.