FTC Challenges Sun Pharmaceuticals Purchase of Taro Pharmaceutical Industries

The Federal Trade Commission today announced its challenge of Sun Pharmaceutical Industries Ltd.’s (Sun) acquisition of Taro Pharmaceutical Industries Ltd. (Taro), alleging that the transaction as proposed would be anticompetitive and would cause U.S. consumers to pay higher prices for three distinct generic formulations of the anticonvulsant drug carbamazepine. Both companies either manufacture the relevant generic drug products and sell them in the United States, or are set to enter the U.S. market with competing products in the near future, pending regulatory approval.

To remedy the alleged anticompetitive impacts of the proposed transaction, Sun has entered into a consent order with the Commission under which Sun will sell all rights and assets to the three drugs to Torrent Pharmaceutical Limited, another generic drug manufacturer based in India.

“The proposed acquisition would remove the direct competition between Sun and Taro for these key products and deny consumers the benefits of lower generic drug prices,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “The Commission’s action today preserves this vital competition by requiring Sun to sell three products to an independent competitor.”

The Parties and the Proposed Transaction

Sun, based in Mumbai, India, is a leading developer, manufacturer, seller, and distributor of niche pharmaceuticals, active pharmaceutical ingredients, and generic drugs. Sun sells generic drugs in the United States through its wholly owned company Caraco Pharmaceutical Laboratories Ltd. Taro, headquartered in Israel, also develops and manufactures generic drugs, primarily for sale in the United States.

There is some uncertainty regarding the status of the transaction. Regardless of the resolution of the dispute between Sun and Taro, however, Sun has agreed to divest its assets relating to carbamazepine.

The Relevant Products

The Commission’s consent order requires Sun to divest all of its rights and assets needed to develop three generic pharmaceuticals: 1) immediate-release carbamazepine tablets; 2) chewable carbamazepine tablets; and 3) extended-release carbamazepine tablets. Each of the three products is a different form of carbamazepine, an anticonvulsant used primarily as an anti-epileptic drug that is taken daily – either alone or in combination with other drugs – to prevent and control seizures.

Generic immediate-release carbamazepine tablets are the generic versions of the Novartis’s branded drug Tegretol. Taro controls half of the generic market for this drug, followed by Teva Pharmaceuticals and Sun’s Caraco.

Generic chewable carbamazepine tablets are prescribed in the same way as the immediate-release tablets, but come in a more convenient dosing form, making them better-suited for pediatric and geriatric patients who may have trouble swallowing the tablets. With 65 percent of the chewable market, Teva is the leading firm selling the chewable carbamazepine tablets, followed by Taro and Sun.

Finally, Sun and Taro are the only companies anticipating approval from the U.S. Food and Drug Administration (FDA) to manufacture and market generic extended-release carbamazepine tablets – the generic equivalent of Novartis’s Tegretol-XR extended-release tablets. The difference between the immediate-release product and the extended-release product is that the latter does not have to be taken as frequently as the former.

The Commission’s Complaint

According to the Commission’s complaint, the transaction as proposed would violate Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended, in that it would result in anticompetitive effects in the U.S. markets for each of the relevant types of generic carbamazepine drugs. The FTC’s complaint contends that Sun’s acquisition of Taro would reduce the number of competing generic carbamazepine suppliers in each of these markets. As the number of generic drug suppliers in the market has a direct and substantial impact on generic pricing, each additional supplier can have a competitive effect on the market.

In addition, as there are multiple generic equivalents of each of the three carbamazepine products, the branded version no longer constrains the price of the generic versions. The
Commission also contends that entry into the relevant markets is not likely to be timely or sufficient to counteract the anticompetitive impacts of the transaction as proposed.

Specifically, the FTC’s complaint states that Sun’s acquisition of Taro would cause significant harm to consumers in the U.S. market for the three types of carbamazepine drugs byreducing the number of firms producing the generic chewable form from three to two, with Teva being the only remaining competitor and reducing the number of firms producing the immediate-release form from four to three, with Teva again left as the only other significant competitor. In the market for the generic extended-release form of the drug, the transaction likely would eliminate future competition altogether, as Sun and Taro are the only companies expected to enter the market. Based on the current structure of the carbamazepine market, the FTC alleges that the transaction would result in higher prices for consumers through both unilateral effects and coordinated interaction between competitors.

Terms of the Consent Order

The Commission’s consent order is designed to remedy the alleged anticompetitive effects of the proposed acquisition. It requires Sun to divest all of its rights and assets related to the development, manufacture, and marketing of the three generic carbamazepine products to an FTC-approved buyer within 10 days of the deal’s consummation. The Commission has approved Torrent as the up-front purchaser of these assets. A growing generic drug manufacturer headquartered in India, Torrent currently sells generic pharmaceuticals in the United States but does not make or sell any of the relevant products. Torrent also has the resources and capabilities to make it an effective competitor in the U.S. generic drug market and to enable it to replace the competition lost through Sun’s acquisition of Taro.

If, however, the FTC determines that Torrent is not an acceptable buyer of the carbamazepine assets, or that the manner of the divestiture is unacceptable, the consent order would require Sun to unwind the sale and find another Commission-approved buyer within six months of the date the order becomes final. If Sun fails to divest the relevant assets in the time required, the FTC may appoint a trustee to ensure the sale is completed properly.

The Commission vote to accept the complaint and consent order was 4-0. The FTC will publish an announcement regarding the agreement in the Federal Register shortly. The complaint, consent order, and an analysis to aid public comment can be found on the Commission’s Web site at http://www.ftc.gov/os/caselist/0710193/index.shtm.

The agreement will be subject to public comment for 30 days, beginning today and continuing through September 11, 2008, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, DC. 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period 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.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the documents related to this matter are available from the FTC's Web site at http://www.ftc.gov and the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.

(FTC File No. 071-0193)
(Sun-Taro.final)