Watson’s Acquisition of Arrow Requires Settlement

On December 2, 2009, the FTC announced an order settling charges that Watson Pharmaceuticals, Inc.’s acquisition of Robin Hood Holdings Limited, owner of Arrow Pharmaceuticals, would have harmed consumers by eliminating future competition for important generic drugs used to treat Parkinson’s disease (cabergoline) and the side effects of chemotherapy (dronabinol).

Under the order’s terms, Watson will sell its generic cabergoline product to Impax Laboratories Inc. and Arrow will spin off its subsidiary, Resolution Chemicals, which is currently developing generic dronabinol, to a new entity, Reso Holdings, within 10 days of the acquisition. Arrow also must sell the U.S. marketing rights for generic dronabinol to Impax.

According to the Commission’s complaint, Watson’s acquisition of Arrow, as originally proposed, would violate federal antitrust law because it would lessen competition in the U.S. markets for generic cabergoline tablets and generic dronabinol capsules. The complaint alleges that the acquisition would reduce the number of generic suppliers in the market, which could raise the prices that patients pay for these drugs.

Cabergoline, the generic name of Pfizer’s Dostinex, is a dopamine receptor agonist used to treat Parkinson’s disease and medical problems related to the overproduction of the hormone prolactin. The FTC alleged that the $44.8 million U.S. market for the generic version of the drug is highly concentrated, and Arrow is one of only three suppliers in the United States. Watson has U.S. Food and Drug Administration approval to sell generic cabergoline, and is poised to enter the market within the next two years. Its proposed acquisition of Arrow, therefore, would eliminate its incentive to enter the market as a fourth generic alternative.

Dronabinol, the generic name for Solvay Pharmaceutical’s Marinol, is used to treat nausea and vomiting caused by chemotherapy, as well as loss of appetite and weight loss in HIV patients. The $74.4 million U.S. market for generic dronabinol is also highly concentrated, with only Watson and Par Pharmaceuticals currently supplying the drug. Arrow’s subsidiary, Resolution, is one of a limited number of companies developing a generic dronabinol product, and is planning to enter the market within two years. Thus, Watson’s proposed acquisition of Arrow would eliminate one of a limited number of potential competitors.

The FTC’s proposed consent order remedies the anticompetitive effects of the acquisition in both markets. It requires Watson to divest its generic cabergoline product to Impax. The order also requires Arrow to spin-off its wholly-owned subsidiary, Resolution Chemicals, to a new entity, Reso Holdings, which will be owned in part by Resolution’s current management. Resolution’s managers are the original developers of Arrow’s generic dronabinol product and have been involved with all aspects of generic dronabinol development. As Reso Holdings will not have sales and marketing capabilities, however, the order also requires Arrow to sell the U.S. marketing rights for generic dronabinol to Impax. The FTC stated that the combined divestitures preserve competition in the generic dronabinol market by allowing Resolution to continue dronabinol development as Reso Holdings and providing a capable marketing partner once generic dronabinol receives all necessary regulatory approvals.

The order is noteworthy because it demonstrates that the FTC continues to scrutinize generic merger deals. The Commission’s order requires the firms to sell assets related to the two drugs to FTC-approved buyers and to ensure the acquirers have the means to compete effectively in the future. Generic drug competition is very important at the FTC. Indeed, the Commission vote approving the proposed consent order was 3-0, with Commissioner Harbour recused.

Robert Doyle
(202) 589-1834
rdoyle@dbmlawgroup.com