Ensuring Adequate Competition a Concern with Generics Mergers

Mergers and acquisitionsamong generic-drug makersare increasing. According toa recent analysis, the Federal TradeCommission (FTC) reviewed and approvedtwice as many buyouts involvingmajor generic manufacturers in2005?2006 as it did during the entirepreceding decade.¹ An upward trend ingenerics acquisitions can also be foundoutside the United States, where, tocite just one example, the Indian genericsfirm Ranbaxy concluded 6 buyoutsof smaller firms in 2006.²

The reasons for the acquisitionsrange from a desire to enter new geographicmarkets to a need to add productsto a company?s portfolio. Oneaspect each deal shares, however, isthat it reduces the number of companiesin the marketplace. This is potentiallyproblematic because, as the FTChas commented in some fashion whenissuing decisions on all the genericsacquisitions over the past 2 years, ?thenumber of generic suppliers has adirect and substantial effect on genericpricing, as each additional genericsupplier can have a competitive impacton the market.?³

For products sold in the UnitedStates, the FTC has been working tostem loss of competition by askingcompanies to agree to sell off or stopthe development of certain productsbefore they finalize a merger or acquisition.Close scrutiny of deals betweengenerics firms is expected to continue.Divestitures Keep Market Well-served

The Table lists the mergers andacquisitions the FTC has signed off onsince the beginning of last year. Eachhas involved divestitures.

Federal law requires parties to mergersand acquisitions valued at $12 millionor more to submit the details ofthe proposed deal for antitrust review to either the USDepartment of Justice or the FTC.¹⁰ If the reviewing agencydetermines that the deal would substantially limit competition,it can ask one or both parties to the merger or acquisitionto divest certain assets. Companies almost alwaysconsent to these requests, because failure to do so canresult in denial of permission to merge and open the companiesup to liability for violations of antitrust laws.

In the case of the generics acquisitions summarizedhere, the FTC worked with the drug makers to identifythird parties to take possession of the rights, existinginventory, and manufacturing and marketing expertise forthe products listed in the divestiture requests. Generally,the agency applied a rule that divestiture of existing productswas warranted in instances when a merger or acquisitionwould reduce the number of versions of a givenproduct to fewer than 4. Companies also were asked tocease development of products when there were already4 or more options available or if other companies wereexpected to begin marketing equivalent products in thenear future.¹FTC to Remain Vigilant

The next big prize in the generic acquisitions market isthe generics arm of German pharmaceutical giant MerckKGaA. Operating as Dey in the United States and underother names in more than a dozen other countries, MerckKGaA generics is the fourth-largest seller of unbrandeddrugs in the world. This spring, US-based Mylan outbidSwitzerland?s Novartis, Israel?s Teva, and India?s Cipla andTorrent for the German generic, offering $6.7 billion.¹¹ Thedeal includes control of Dey and is beingreviewed by the FTC.

Although the outcome of such a reviewcannot be predicted exactly, it is expectedby the end of 2007, and any positivedecision will almost surely be contingenton divestitures. As the analysis of FTCgenerics mergers and acquisitions decisionsconcludes, ?In light of recent consolidationin the generic-drug industry,future generic-drug mergers will likely besubject to continued scrutiny by the FTC.Mergers between major firms will almostcertainly result in divestitures...Divestituresare almost certain to be requiredwhere the number of competitors dropsfrom 3 to 2.?¹References

1. Silber SC. FTC review of generic drug mergers?four recent consents provide significant guidance on mode of analysis and divestiture requirements. J Gen Med. 2007;4:162-168.

2. Padmanabhan A. Ranbaxy in fray to buy Merck?s generic drugs unit. Available at: www.earthtimes.org/articles/show/24211.html. Accessed April 30, 2007.

3. Federal Trade Commission. Analysis of agreement containing consent orders to aid public comment. In: The Matter of Watson Pharmaceuticals, Inc. and Andrx Corporation (File No. 061-0139). Available at: www.ftc.gov/os/caselist/0610139/0610139analysis.pdf. Accessed April 30, 2007.

4. Federal Trade Commission. FTC challenges Actavis Group?s proposed acquisition of Abrika. Press release. April 16, 2007.

5. Novartis completes acquisition of 98% of Eon Labs. Press release. July 21, 2005.

6. Pliva. Barr completes payment for Pliva shares. Press release. October 24, 2006.

7. FTC. FTC challenges Hospira/Mayne Pharma deal. Press release. January 18, 2007.

8. Hospira. Hospira completes acquisition of Mayne Pharma, announces new commercial leadership structure. Press release. February 1, 2007.

9. Actavis. Actavis completes acquisition of Abrika Pharmaceuticals in the US. Press release. April 24, 2007.

10. Federal Trade Commission. Pre-Merger/Hart?Scott?Rodino Act. Available at: www.ftc.gov/bc/hsr/hsr.shtm. Accessed April 30, 2007.

11. Rangar BS. Opportunities for India in generic drug space. Available at: www.domain-b.com/industry/pharma/2007/20070321_opportunities.html. Accessed April 30, 2007.