FTC Puts Conditions on Novartis AG's Acquisition of Fougera Holdings, Inc.

The Federal Trade Commission will require drug supplier Novartis AG to give up its marketing rights to four topical skin care medications, under a proposed settlement resolving charges that Novartis' acquisition of pharmaceutical firm Fougera Holdings, Inc. would harm competition in the market for these topical drugs. The settlement order requires Novartis to end a marketing agreement that allows it to sell three topically-applied generic drugs and return all rights to a fourth generic drug in development to its manufacturer, Tolmar, Inc.

On May 1, 2012, Novartis entered into an agreement under which it proposes to acquire Fougera in a deal valued at approximately $1.5 billion. According to the FTC's complaint, Novartis' acquisition of Fougera would violate Section 5 of the FTC Act and Section 7 of the Clayton Act by reducing competition in the generic drug markets for three skin care drugs: 1) generic calcipotriene topical solution, 2) generic lidocaine-prilocaine cream, and 3) generic metronidazole topical gel. The complaint also alleges that the acquisition would eliminate potential competition in the market for the sale of diclofenac sodium gel.

Generic calcipotriene topical solution is used to treat chronic, moderately severe scalp psoriasis. Only three firms offer a generic version of the drug in the United States – Novartis, Fougera, and G&W Laboratories. Novartis leads the market with an approximately 67 percent share, followed by G&W with 22 percent, and Fougera with 11 percent.

Generic lidocaine-prilocaine cream is used as a local anesthetic to prevent pain resulting from injections and surgery. It is available in both 30 gram tubes and packages of five 5 gram tubes, known as 5-5 tubes, with the former prescribed to patients for home use and the latter used only in hospitals. Fougera, Hi-Tech Pharmaceutical Co., and Novartis are the only U.S. suppliers of 30 gram tubes. The market for generic 5-5 tubes is even more concentrated, with Novartis and Fougera being the only U.S. suppliers. The proposed acquisition, therefore, would create a duopoly in the U.S. market for 30 gram tubes and a monopoly in the U.S. market for generic 5-5 tubes.

Generic metronidazole topical gel is used to treat inflamed rosacea, a condition that causes facial skin to become chronically red. Taro Pharmaceutical Industries is the market leader for the drug, with an approximately 43 percent share, followed by Fougera with approximately 36 percent share, Novartis with approximately 19 percent, and G&W with about two percent.

In each of the markets, the FTC contends, the proposed acquisition would eliminate one of a limited number of suppliers and cause significant competitive harm by facilitating price increases – or eliminating price decreases – after the deal is completed.

Finally, according to the FTC, Novartis' acquisition of Fougera could inhibit future competition for the branded drug Solaraze in the U.S. market, which is used to treat actinic keratosis. No companies currently market a generic version of Solaraze, Fougera's branded version of the drug that is a formulation with the active ingredient diclofenac sodium. Novartis is best-positioned to become the first generic competitor. The proposed acquisition, therefore, allegedly likely would reduce the number of competitors for the drug in the future.

Under the proposed order settling the FTC charges, Novartis is required to:

• end its marketing agreement with Tolmar, with respect to the three currently marketed generic drugs (generic calcipotriene topical solution, generic lidocaine-prilocaine cream, and generic metronidazole topical gel) and return all of the rights to distribute, market, and sell these products to Tolmar; and
• end its marketing agreement with Tolmar and return all rights to develop, distribute, market, and sell the development product generic diclofenac sodium gel to Tolmar.

Tolmar is the Colorado-based developer and manufacturer of each of the four generic drugs. If Novartis fails to fully comply with its obligations to return all rights for the drugs to Tolmar, the proposed order would allow the FTC to appoint a trustee to ensure they are returned as required. The FTC also has appointed an interim monitor to ensure that Novartis expeditiously complies with the order's requirements.

The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 5-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until August 16, 2012, after which the Commission will decide whether to make the proposed consent order final.

The deadline for public comments (August 16, 2012) inadvertently was not included in the news release when it was issued, but does appear in the Federal Register Notice containing the Analysis to Aid Public Comment, and on the CommentWorks comment form. 

Interested parties can submit written comments electronically or in paper form by following the instructions in the "Invitation To Comment" part of the "Supplementary Information" section. Comments filed electronically can be submitted here. Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 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: The Commission issues an administrative complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the respondent has actually violated the law. A consent order is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated. 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 up to $16,000.

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, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.