FTC Approves Final Order for Actavis Acquisition of Forest Laboratories

On September 5, 2014, following a public comment period, the Federal Trade Commission (“FTC”) has approved a final order settling charges that Actavis plc (“Actavis”)’s acquisition of Forest Laboratories (“Forest”), Inc. would likely be anticompetitive. Under the proposed order, the two companies agreed to divest four drugs in order to preserve competition in those markets. On July 1, 2014, Actavis announced that it has completed the acquisition of Forest in a cash and equity transaction currently valued at approximately $28 billion. The combination creates one of the world’s fastest-growing specialty pharmaceutical companies, with annual revenues of more than $15 billion anticipated for 2015. On a pro forma combined basis for full year 2014, the combined company will have an approximately $2 billion CNS franchise; Gastroenterology (GI) and Women’s Health franchises valued at approximately $1 billion each; a Cardiovascular franchise that generates approximately $500 million; and Urology and Dermatology/Established Brand franchises approaching $500 million a year in sales each. The combined company will be led by Paul Bisaro, Chairman and CEO of Actavis plc. The integration of the two companies will be led by the Actavis and Forest senior management teams, with integration planning expected to begin immediately in order to assure a rapid transition to a single company following close. Actavis has agreed that three members of the Forest Board of Directors will be named to the Actavis Board of Directors following the close. The proposed transaction has been unanimously approved by the Boards of Directors of Actavis and Forest, and is enthusiastically supported by the management teams of both companies. The transaction is subject to the approval of the shareholders of both companies, as well as customary regulatory approvals, including a Hart-Scott-Rodino review in the United States. Almost immediately, the FTC issued a complaint against the acquisition. The FTC cited four markets of concern – the markets for drugs:

• Generic diltiazem hydrochloride extended release capsules (AB4) (generic Tiazac) (“generic diltiazem hydrochloride (AB4)”).It is used to treat hypertension and chronic stable angina. The market for generic diltiazem hydrochloride (AB4) is highly concentrated, with only three current suppliers—Actavis, Forest, and Sun Pharmaceutical Industries, Ltd. The Acquisition would reduce the number of suppliers of generic diltiazem hydrochloride (AB4) from three to two and increase the Herfindahl-Hirschman Index concentration (“HHI”) by 2700, from 3550 to a post-merger total of 6250.
• Generic ursodiol tablets (“generic ursodiol”); these are used to treat primary biliary cirrhosis of the liver. Four firms – Actavis, Forest, which distributes its product pursuant to an authorized generic arrangement with Prasco Laboratories, Par Pharmaceutical Companies, and Glenmark Pharmaceuticals, Ltd. – currently supply generic ursodiol in this highly concentrated market. The Acquisition would reduce the number of suppliers of generic ursodiol from four to three and increase the HHI by 342, from 5416 to a post-merger total of 5758.
• Generic propranolol hydrochloride extended release capsules (“generic propranolol hydrochloride”), used to treat hypertension. The market for generic propranolol hydrochloride is highly concentrated with only four current suppliers—Actavis, Forest, which distributes its product through Breckenridge Pharmaceutical LLC, Rouses Point Pharmaceuticals, and Upsher-Smith Laboratories. The Acquisition would reduce the number of suppliers of generic propranolol hydrochloride from four to three and increase the HHI by 1408, from 4523 to a post-merger total of 5931.
• Lamotrigine orally disintegrating tablets, a version of which is currently marketed under the brand name Lamictal ODT; it is a lamotrigine orally disintegrating tablet used to treat seizures. Forest currently manufactures Lamictal ODT for GlaxoSmithKline plc (“GSK”). GSK owns the New Drug Application for Lamictal ODT and markets the product. No companies currently market a generic version in the United States. Actavis holds the only approved Abbreviated New Drug Application to market generic Lamictal ODT. Thus, absent the Acquisition, Actavis is likely to be the first generic entrant and would be the sole competitor to Forest/GSK’s branded Lamictal ODT product for a significant period of time. The Proposed Acquisition would likely delay or preclude the entry of Actavis’ generic product.

The FTC also does not believe that any entry to these markets for these drugs will be timely or sufficient to offset the reduction in competition that is the result of this merger, due to long drug development times and likely regulatory delays from the Food and Drug Administration. Under the proposed FTC settlement order, the companies have agreed to relinquish their rights to market generic diltiazem hydrochloride (AB4) to Valeant Pharmaceuticals International, Inc.; sell generic ursodiol and generic lamotrigine ODT to Impax Laboratories, Inc.; and sell generic propranolol hydrochloride to Catalent Pharma Solutions, Inc. Under the terms of the proposed settlement, Actavis and Forest must ensure the viability, marketability, and competitiveness of the drugs that are being divested until they are sold. The Commission vote approving the final order was 5-0. Mark Ye 202-589-1834 mye@dbmlawgroup.com