Pharmacy Times

Ensuring Adequate Competition a Concern with Generics Mergers

Author: Ed Lamb

Mergers and acquisitions among generic-drug makers are increasing. According to a recent analysis, the Federal Trade Commission (FTC) reviewed and approved twice as many buyouts involving major generic manufacturers in 2005?2006 as it did during the entire preceding decade.1 An upward trend in generics acquisitions can also be found outside the United States, where, to cite just one example, the Indian generics firm Ranbaxy concluded 6 buyouts of smaller firms in 2006.2

The reasons for the acquisitions range from a desire to enter new geographic markets to a need to add products to a company?s portfolio. One aspect each deal shares, however, is that it reduces the number of companies in the marketplace. This is potentially problematic because, as the FTC has commented in some fashion when issuing decisions on all the generics acquisitions over the past 2 years, ?the number of generic suppliers has a direct and substantial effect on generic pricing, as each additional generic supplier can have a competitive impact on the market.?3

For products sold in the United States, the FTC has been working to stem loss of competition by asking companies to agree to sell off or stop the development of certain products before they finalize a merger or acquisition. Close scrutiny of deals between generics firms is expected to continue.

Divestitures Keep Market Well-served

The Table lists the mergers and acquisitions the FTC has signed off on since the beginning of last year. Each has involved divestitures.

FTC-Approved Acquisition by Generic Drug Makers

Federal law requires parties to mergers and acquisitions valued at $12 million or more to submit the details of the proposed deal for antitrust review to either the US Department of Justice or the FTC.10 If the reviewing agency determines that the deal would substantially limit competition, it can ask one or both parties to the merger or acquisition to divest certain assets. Companies almost always consent to these requests, because failure to do so can result in denial of permission to merge and open the companies up to liability for violations of antitrust laws.

In the case of the generics acquisitions summarized here, the FTC worked with the drug makers to identify third parties to take possession of the rights, existing inventory, and manufacturing and marketing expertise for the products listed in the divestiture requests. Generally, the agency applied a rule that divestiture of existing products was warranted in instances when a merger or acquisition would reduce the number of versions of a given product to fewer than 4. Companies also were asked to cease development of products when there were already 4 or more options available or if other companies were expected to begin marketing equivalent products in the near future.1

FTC to Remain Vigilant

The next big prize in the generic acquisitions market is the generics arm of German pharmaceutical giant Merck KGaA. Operating as Dey in the United States and under other names in more than a dozen other countries, Merck KGaA generics is the fourth-largest seller of unbranded drugs in the world. This spring, US-based Mylan outbid Switzerland?s Novartis, Israel?s Teva, and India?s Cipla and Torrent for the German generic, offering $6.7 billion.11 The deal includes control of Dey and is being reviewed by the FTC.

Although the outcome of such a review cannot be predicted exactly, it is expected by the end of 2007, and any positive decision will almost surely be contingent on divestitures. As the analysis of FTC generics mergers and acquisitions decisions concludes, ?In light of recent consolidation in the generic-drug industry, future generic-drug mergers will likely be subject to continued scrutiny by the FTC. Mergers between major firms will almost certainly result in divestitures...Divestitures are almost certain to be required where the number of competitors drops from 3 to 2.?1

References

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.