The Federal Trade Commission has secured an agreement from Hoechst AG to maintain competition for four drugs, including a hypertension and cardiac drug -- a once-a-day dosage of diltiazem, one of the ten largest selling drugs in the U.S. The Commission's action will provide the opportunity for new entry and lower prices in markets that exceed $1.4 billion and affect hundreds of thousands of consumer who suffer from hypertension, angina, arteriosclerosis and tuberculosis.
The FTC's action resolved charges stemming from the $7.1 billion merger of Hoechst and Marion Merrell Dow, Inc. (MMD). The merger, which creates the world's third largest pharmaceutical firm, took place last June under a unique agreement in which the FTC permitted Hoechst to consummate the merger so long as the company did not exert control over MMD's operations pending the conclusion of the FTC antitrust investigation. The agreement also gave the Commission the ability to obtain whatever remedy was necessary to protect consumers from any anticompetitive effects of the merger.
In the diltiazem market, where MMD was the dominant firm, Hoechst had been developing jointly with Biovail Corporation International a competing drug, Tiazac, a once-a-day diltiazem product. The Commission alleged that competition was injured, because Hoechst's incentives to develop the new drug were affected by the possibility of a merger with MMD.
Hoechst attempted to remedy the competitive problem by returning the rights to Tiazac to Biovail. The FTC alleged that this agreement was inadequate to remedy the anticompetitive effects of the merger. Thus, the FTC entered into a settlement that requires Hoechst to take additional steps to ensure that Tiazac becomes an effective competitive product, thereby lowering costs to consumers.
"The settlement underscores the FTC's commitment to ensure that drugs in research and development are brought to the market quickly so that consumers can benefit from competition, which leads to better products and lower prices," said FTC Bureau of Competition Director William J. Baer. "Often one of the barriers to entry for new drugs may be strategic conduct -- efforts to delay entry through litigation or interference in the regulatory process. In the diltiazem market, the settlement removes these barriers by securing an agreement from Hoechst to settle ongoing litigation between MMD and Biovail, a commitment not to pursue further litigation and providing Biovail with a toxicology package necessary to secure additional FDA approvals. The settlement also shows that, when companies attempt to fix anticompetitive problems resulting from a merger before the Bureau completes its investigation, such a fix must adequately resolve all of the anticompetitive problems.
"The FTC order removes a number of barriers that interfered with the effective entry of Tiazac," Baer said. "With those barriers removed, competition from Tiazac is projected to save consumers who suffer from hypertension and cardiac disease between $15 and $30 million a year."
The FTC settlement would also lower prices for three other drugs: drugs used to treat intermittent claudication, severe leg cramps caused by arteriosclerosis; oral-dosage forms of mesalamine, used to treat inflammatory bowel disease; and rifadin, used to treat tuberculosis. The settlement would require divestitures of products in order to restore competition for these drugs.
"In these three markets," Baer observed, "the FTC is requiring divestitures in order to preserve competition. In each of these markets, products in the research and development pipeline may have to be divested. These products may offer the promise of lower priced drugs to consumers. In order to make sure the divestitures happen, the order mandates that the assets to be divested be maintained in marketable and viable condition pending divestiture."
Hoechst AG is a German firm operating in the United States through its wholly-owned subsidiaries, Hoechst Corporation and Hoechst-Roussel Pharmaceuticals, Inc., both of which are based in Somerville, New Jersey. Prior to the merger, MMD was based in Kansas City, Missouri. The North American headquarters of the combined firm, Hoechst Marion Roussel Inc., is in Kansas City.
According to the FTC complaint detailing those alleged effects, MMD's Cardizem CD has a dominant share of the $1 billion once-a-day diltiazem market. Diltiazem is one of the top 10 drugs sold in the U.S. and is used by millions of patients with high blood pressure and angina. Prior to the merger, Hoechst and Biovail were jointly developing Tiazac to compete against Cardizem CD. However, the complaint alleges "the pendency of the merger negotiations affected Hoechst's incentives with respect to the development of Tiazac," resulting in delayed Food and Drug Administration (FDA) approval. Then, just before finalizing the merger, Hoechst returned to Biovail its rights in Tiazac in an effort to avoid an antitrust challenge. But this attempt at fixing the merger before the Hoechst and MMD merger underwent antitrust review was inadequate, the FTC alleged, because it left Tiazac as a less effective competitive product than it would have been absent the merger. In addition, the complaint charges that Hoechst, the new owner of Cardizem CD, has access to sensitive information relating to Tiazac, which is now owned by Biovail.
Under the proposed consent agreement Hoechst has entered into, announced today for public comment, Hoechst would be required to provide Biovail with a letter of access to the toxicology data necessary to secure additional FDA approvals for Tiazac. The order also would require Hoechst to return any confidential information obtained from Biovail during the course of their relationship, refrain from using the information, dismiss a patent infringement lawsuit filed by MMD regarding Tiazac, withdraw a citizen petition MMD filed with the FDA relating to Tiazac, and agree not to file any subsequent litigation against Biovail regarding diltiazem.
In the other three drug markets, the merger also allegedly eliminates or substantially reduces potential competition, and the FTC settlement is designed to restore that competition so that consumers, third party payers and others retain access to lower-cost drugs:
The settlement would also require Hoechst to prevent the deterioration of the assets involved and maintain its research and development efforts at planned levels pending divestiture, and to provide technical assistance and advice to the purchasers in obtaining FDA approval. Further, the settlement also provides that, should these divestitures not be completed within nine months of the date the Commission approves the settlement as final (at which point it would become effective), the FTC may appoint a trustee to complete them.
Finally, the settlement contains various reporting provisions that would assist the FTC in monitoring Hoechst's compliance.
This is the sixth pharmaceutical merger challenged by the Commission in the past twelve months. The Commission has sought relief in some of the largest mergers in history: Glaxo's $14.5 billion acquisition of Wellcome; American Home Products $9.7 billion acquisition of American Cynamid; Roche Holding's $6 billion acquisition of Syntex Corp.; Ivax Corp.'s $593 million acquisition of Zenith Lab and Marion Merrell Dow's $300 million acquisition of Rugby. The actions in these cases protect competition in a number of vital markets affecting millions of consumers, including vaccines for tetanus, diptheria, rotavirus, and medications for migraine headaches.
The Commission vote to announce the proposed consent agreement for public comment was 5-0. It will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
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 $10,000.
Copies of the complaint, proposed consent agreement and an analysis of the agreement to assist the public in commenting are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at : http://www.ftc.gov
(FTC File No. 951 0090)