FTC Provides Guidance on How to Resolve Future Competition Concerns in Generic Pharmaceutical Deals

On April 27, 2018, the FTC announced that Amneal Pharmaceuticals LLC (“Amneal”) may complete its acquisition of an equity share in Impax Laboratories Inc. (“Impax”) so long as Impax divests its rights and assets for ten products to three separate companies.

The FTC concluded that the proposed acquisition would have reduced competition in three markets where both Amneal and Impax competed: (1) generic desipramine hydrochloride tablets; (2) generic ezetimibe and simvastatin immediate release (“IR”) tablets; and (3) generic felbamate tablets.

The FTC also concluded that the proposed acquisition would reduce future competition in seven markets where Amneal or Impax is a current competitor and the other would have been likely to enter the market absent the acquisition: (1) generic aspirin and dipyridamole extended release (“ER”) capsules; (2) generic azelastine nasal spray; (3) generic diclofenac sodium and misoprostol delayed release (“DR”) tablets; (4) generic erythromycin tablets; (5) generic fluocinonide-E cream; (6) generic methylphenidate hydrochloride ER tablets; and (7) generic olopatadine hydrochloride nasal spray.

Under the terms of the proposed settlement, ANI Pharmaceuticals, Inc. will acquire seven products (or in some cases the pipeline assets).  The FTC specifically noted “ANI’s track record in developing and bringing to market pipeline products suggests that the divested products will be placed in the hands of a firm with the same ability and incentive to bring the products to market.”  Perrigo Company plc will acquire Impax’s rights to two products that it had partnered with Impax to develop, manufacture, and sell.  And G&W Laboratories (“G&W”) will acquire Impax’s marketing rights to one product that G&W manufactures for Impax.

The FTC’s Analysis to Aid Public Comment provides further insight on how the FTC determined which of the merging parties’ products should be divested.  The FTC pointed to The FTC Merger Remedies Study, which states that “products made at third-party manufacturing sites are easier to divest and involve less risk than the technology transfer from in-house manufacturing to a new facility.”  The FTC’s goal is to ensure the success of divestitures so if one of the products is developed or manufactured by a third party, the FTC would rather that product be divested to the actual manufacturer.  The FTC also pointed out that “in mergers involving complex pharmaceutical products that are difficult to manufacture, the Commission generally will require the divestiture of an on-market product over a pipeline product to place the greater risk on the merging parties rather than the public, with exceptions for compelling and fact-specific reasons.”

The FTC applied the “easier-to-divest” principle where Impax sold products in partnership with a third party. Impax partnered with Perrigo to sell generic azelastine nasal spray and generic olopatadine hydrochloride nasal spray products and partnered with G&W to sell generic fluocinonide -E cream. Perrigo and G&W also were the Abbreviated New Drug Application (“ANDA”) owners for these products. The FTC also required Impax to return the rights and assets relating to Impax’s third-party partnership products to Perrigo and G&W.

While the FTC’s general rule is to require divestitures of manufactured products over pipeline products, the FTC carved out exceptions for compelling and fact-specific reasons during this merger review.  The FTC found exceptions in four product markets. In four overlap markets in which Amneal has an on-market product and Impax has a product in development, Impax will divest its rights and assets to ANI rather than requiring Amneal to divest its on-market, in-house manufactured products.  The FTC said that each product market had specific facts that warrant the divestiture of the Impax rights and assets rather than the Amneal product.

• For generic aspirin and dipyridamole ER capsules, Amneal is the only manufacturer with a marketed product. Impax received FDA approval for its ANDA in 2017, but had not yet launched a product. Because Amneal had the only generic product on the market, the FTC thought it was less risky for Impax to assign its manufacturing contract to ANI than to transfer technology from Amneal to another buyer for such a complex product.
• For generic methylphenidate hydrochloride ER tablets, the FTC applied the “easier-to-divest” Both Amneal and Impax had approved ANDAs. While Impax had not launched its product yet, the FTC required divestiture of Impax’s product because the ER tablets are complex products, and it would be less risky for Impax to assign its manufacturing contract to ANI than for Amneal to transfer technology to ANI.
• For erythromycin tablets, Amneal recently launched a product and it competed with one other player. Impax was developing erythromycin tablets. The FTC allowed Amneal to keep the marketed product to ensure an “ongoing and viable competitor to Arbor,” the only other competitor with a marketed product.
• For generic diclofenac sodium and misoprostol DR tablets, Amneal has an on-market in-house manufactured product, and Impax is partnered with Micro Labs to commercialize a competing product. Impax holds only marketing rights to the product; Micro Labs is responsible for development and manufacturing. Impax will transfer its marketing agreement with Micro Labs to ANI, and Micro Labs will manufacture the product for ANI for the current contract term.

 Observations:

The FTC’s enforcement action demonstrates that the FTC is being very thoughtful in its decisions regarding divestiture remedies in the pharmaceutical industry.  A couple of months ago, the FTC seemed to setting a hard and fast rule, but there does not appear to be any such thing.  In pharmaceutical mergers in which one party manufactures a pharmaceutical product that is difficult and complex to manufacture and the other party has a similar product in the research and development pipeline, there is a strong presumption that the FTC will require a divestiture of the product already being manufactured rather than the one in development.  The FTC will also require merging parties to divest the product that is easier to divest.  That being said, there will always be exceptions.  Before making any decisions, the FTC will examine the competitive landscape, the complexity in transferring technology, as well as the capabilities of third-party manufacturers or third-party partners.  The FTC’s goal is to make sure that the divested product or pipeline assets will be as competitive in the hands of the divestiture buyer as it would have been absent the deal so the FTC will have an open mind and use a fact specific approach when negotiating divestitures.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com