King Pharmaceuticals, Inc. and Alpharma Inc.; Agreement Containing Consent Order To Aid Public Comment

AGENCY:

Federal Trade Commission.

ACTION:

Proposed Consent Agreement.

SUMMARY:

The consent agreement in this matter settles alleged violations of federal law prohibiting unfair or deceptive acts or practices or unfair methods of competition. The attached Analysis to Aid Public Comment describes both the allegations in the draft complaint and the terms of the consent order—embodied in the consent agreement—that would settle these allegations.

DATES:

Comments must be received on or before January 27, 2009.

ADDRESSES:

Interested parties are invited to submit written comments. Comments should refer to “King Alpharma, File No. 081 0240,” to facilitate the organization of comments. A comment filed in paper form should include this reference both in the text and on the envelope, and should be mailed or delivered to the following address: Federal Trade Commission/Office of the Secretary, Room 135-H, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Comments containing confidential material must be filed in paper form, must be clearly labeled “Confidential,” and must comply with Commission Rule 4.9(c). 16 CFR 4.9(c) (2005).¹ The FTC is requesting that any comment filed in paper form be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions. Comments that do not contain any nonpublic information may instead be filed in electronic form by following the instructions on the web-based form at ( http://secure.commentworks.com/ftc-KingAlpharma ). To ensure that the Commission considers an electronic comment, you must file it on that web-based form.

The FTC Act and other laws the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. All timely and responsive public comments, whether filed in paper or electronic form, will be considered by the Commission, and will be available to the public on the FTC website, to the extent practicable, at www.ftc.gov. As a matter of discretion, the FTC makes every effort to remove home contact information for individuals from the public comments it receives before placing those comments on the FTC website. More information, including routine uses permitted by the Privacy Act, may be found in the FTC's privacy policy, at ( http://www.ftc.gov/ftc/privacy.shtm ).

FOR FURTHER INFORMATION CONTACT:

James Southworth, FTC Bureau of Competition, 600 Pennsylvania Avenue, NW, Washington, D.C. 20580, (202) 326-2822.

SUPPLEMENTARY INFORMATION:

Pursuant to section 6(f) of the Federal Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and § 2.34 of the Commission Rules of Practice, 16 CFR 2.34, notice is hereby given that the above-captioned consent agreement containing a consent order to cease and desist, having been filed with and accepted, subject to final approval, by the Commission, has been placed on the public record for a period of thirty (30) days. The following Analysis to Aid Public Comment describes the terms of the consent agreement, and the allegations in the complaint. An electronic copy of the full text of the consent agreement package can be obtained from the FTC Home Page (for December 29, 2008), on the World Wide Web, at ( http://www.ftc.gov/os/2008/12/index.htm ). A paper copy can be obtained from the FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW, Washington, D.C. 20580, either in person or by calling (202) 326-2222.

Public comments are invited, and may be filed with the Commission in either paper or electronic form. All comments should be filed as prescribed in the ADDRESSES section above, and must be received on or before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction

The Federal Trade Commission (“Commission”) has accepted, subject to final approval, an Agreement Containing Consent Order (“Consent Agreement”) from King Pharmaceuticals, Inc. (“King) and Alpharma Inc. (“Alpharma”), which is designed to remedy the anticompetitive effects of King’s acquisition of Alpharma. Under the terms of the Consent Agreement, the companies would be required to divest to Actavis all rights to Kadian, Alpharma’s branded long-acting morphine sulfate opioid analgesic product. Kadian’s patent runs until April of 2010. The divestiture gives Actavis all rights to Kadian, restoring the competition between Kadian and King’s Avinza that would be lost with the acquisition.

The proposed Consent Agreement has been placed on the public record for thirty (30) days for receipt of comments by interested persons. Comments received during this period will become part of the public record. After thirty (30) days, the Commission will again review the proposed Consent Agreement and the comments received, and will decide whether it should withdraw from the proposed Consent Agreement, modify it, or make final the Decision and Order (“Order”).

Pursuant to a merger agreement executed on November 23, 2008, King intends to acquire all the outstanding shares of Alpharma for approximately $1.6 billion. Both parties sell branded pharmaceuticals in the United States. The Commission’s Complaint alleges that the proposed acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45. The proposed Consent Agreement remedies the alleged violations by maintaining existing competition between branded Kadian and Avinza, and permitting an authorized generic version of branded Kadian to be launched prior to when the patent expires.

II. The Competitive Effects of the Proposed Acquisition

The proposed acquisition would cause significant anticompetitive harm by eliminating actual, direct and substantial competition between King and Alpharma in the market for oral long acting opioid analgesics (“oral LAOs”). The merging firms today offer the only two competitively significant branded morphine sulfate oral LAOs, and the evidence shows that they are particularly close competitors within the larger oral LAO market. The loss of head-to-head competition between King’s Avinza and Alpharma’s Kadian would result in higher prices for branded ER morphine sulfate.

While King and Alpharma oral LAO products compete most directly with each other, they also compete, to a lesser extent, with other oral LAOs. Oral LAOs have become the standard of care for the management of moderate-to-severe chronic pain because of their effectiveness, ease of titration and favorable risk-to-benefit ratio. Other oral LAOs are based on distinct chemical compounds, but all of these products have the same mechanisms of action, similar indications, similar dosage forms and similar dosage frequency. The most significant of the other oral LAOs is Purdue Pharma L.P.’s OxyContin, which is four times lager than Avinza and Kadian, combined. A fourth product, Endo Pharmaceutical’s Opana ER, also competes in the market.

As with most pharmaceutical products, entry into the manufacture and sale of oral LAOs, is difficult, expensive and time consuming. Developing and obtaining U.S. Food and Drug Administration (“FDA”) approval for the manufacture and sale of oral LAOs takes at least two years due to substantial regulatory, technological and intellectual property barriers. As a result, new entry is unlikely to ameliorate the anticompetitive effects of the acquisition.

III. The Consent Agreement

The order would remedy the competitive concerns raised by the proposed acquisition by requiring King to divest Kadian to Actavis no later than ten days after its acquisition of Alpharma is consummated. Headquartered in Iceland, Actavis is one of the world’s largest generic pharmaceutical companies. Currently, Actavis manufactures Kadian for Alpharma at its plant located in Elizabeth, New Jersey. With the divestiture, Actavis will continue to sell Kadian in competition with Avinza and other oral LAOs, and be able to introduce an “authorized” generic version of Kadian earlier than would have been otherwise possible, as Kadian’s patent expires in April of 2010. An “authorized” generic is a pharmaceutical product that was originally marketed and sold by a brand company but is relabeled and marketed under a generic product name. As the current manufacturer of Kadian for Alpharma, Actavis has the incentive and ability to launch the first generic Kadian product prior to patent expiry.

The assets to be divested include all intellectual property and regulatory approvals, inventory, books and records, marketing materials, and assumed contracts necessary for Actavis to sell Kadian as either a branded or generic product. Because Actavis already manufactures Kadian, no divestiture of fixed assets, interim supply agreement, provision of technical assistance is required, or asset maintenance order are required.² The proposed order also contains provisions designed to restrict King’s use of confidential business information relating to Kadian.

The FTC’s prior orders involving the divestiture of branded pharmaceutical products have required that any buyer of branded products have the requisite brand marketing experience to replace the competition that would have been eliminated through the transactions. However, the Commission has determined that the divestiture of Kadian to the generic drug manufacturer Actavis is an appropriate remedy in this case because (1) with only a little over a year left to Kadian’s patent life, further innovation of the Kadian product is unlikely, and (2) the proposed remedy not only prevents the loss of price competition between Avinza and Kadian which was the competitive concern identified in our investigation, but also makes possible early introduction of a generic product—with lower pricing for consumers—before the patent expires.

In the event that the Commission determines that Actavis is not an acceptable acquirer, the proposed order requires the parties to unwind the sale and then divest Kadian within six months of the date the order becomes final to another Commission-approved acquirer. The proposed order also provides that, in the event that the Commission determines that the manner of the divestiture is not acceptable, that the Commission may appoint a divestiture trustee to effectuate such modifications as are necessary to satisfy the requirements of the order. Additionally, the proposed order allows the Commission to appoint an Interim Monitor to ensure the respondents’ compliance with the terms of the order.

The purpose of this analysis is to facilitate public comment on the proposed Consent Agreement, and it is not intended to constitute an official interpretation of the proposed Consent Agreement or to modify its terms in any way.