UNITED STATES OF AMERICA
In the Matter of
ABBOTT LABORATORIES, a corporation, and GENEVA PHARMACEUTICALS, INC., a corporation.
Pursuant to the provisions of the Federal Trade Commission Act, and by virtue of the authority vested in it by said Act, the Federal Trade Commission ("Commission"), having reason to believe that respondents Abbott Laboratories and Geneva Pharmaceuticals, Inc., have engaged in conduct, as described herein, that violates Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, and it appearing to the Commission that a proceeding in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows:
1. Respondent Abbott Laboratories ("Abbott") is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Illinois, with its office and principal place of business located at 100 Abbott Park Road, Abbott Park, Illinois 60064. Abbott is engaged principally in the development, manufacture, and sale of a broad line of health care products and services. In 1998, Abbott had net sales of $12.5 billion worldwide and $7.7 billion domestically. Among other products, Abbott manufactures and sells the brand-name product Hytrin, a drug that accounts for over 20% of the net sales of Abbott's U.S. pharmaceutical products division.
2. At all relevant times herein, Abbott has been, and is now, a corporation as "corporation" is defined in Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44.
3. Respondent Geneva Pharmaceuticals, Inc. ("Geneva") is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Colorado, with its office and principal place of business located at 2555 W. Midway Blvd., Broomfield, Colorado 80020. Geneva, an indirect wholly-owned subsidiary of Novartis Corporation, is one of the leading generic drug manufacturers in the United States. Geneva sought and received approval from the United States Food and Drug Administration ("FDA") to market a generic version of Hytrin.
4. At all relevant times herein, Geneva has been, and is now, a corporation as "corporation" is defined in Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44.
5. Respondents' acts and practices, including the acts and practices alleged herein, are in or affect commerce as "commerce" is defined in Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44.
Federal Regulation of Pharmaceutical Products
6. Under the Federal Food, Drug and Cosmetic Act, 21 U.S.C. § 301 et seq., approval by the United States Food & Drug Administration ("FDA") is required before a company may market or sell a pharmaceutical product in the United States. Approval for a new or brand name drug is sought by filing a New Drug Application ("NDA") with the FDA.
7. A generic drug is a product that the FDA has found to be bioequivalent to a brand name drug. Generic drugs are chemically identical to their branded counterparts, but typically are sold at substantial discounts from the branded price. Approval may be sought for a generic version of a brand name drug by filing an Abbreviated New Drug Application ("ANDA") with the FDA.
8. The FDA maintains a book of Approved Drug Products With Therapeutic Equivalence Evaluations (commonly known as the "FDA Orange Book"), which lists all patents that the brand name manufacturer asserts relate to each brand name drug. If an applicant intends to market a generic product before the expiration of one or more patents relating to a brand name drug, the applicant must certify to the FDA that the patent or patents listed in the FDA Orange Book are either invalid or not infringed by the generic version of the product (a "Paragraph IV Certification"), and must notify the holder of the approved NDA and the owner of the patent or patents of the filing of the ANDA. If neither the patent holder nor the NDA holder files a patent infringement suit against the ANDA filer within 45 days of receipt of notification of a Paragraph IV Certification, the FDA review and approval process may proceed and, upon FDA approval of the ANDA, the generic product may be marketed. If a patent infringement suit is filed against the ANDA filer within the 45-day period, however, FDA approval of the ANDA is automatically stayed until the earliest of: (i) patent expiration; (ii) a final judicial determination of non-infringement or invalidity in the lawsuit; or (iii) the expiration of a 30-month period from the time the patent holder receives Paragraph IV Certification.
9. The Drug Price Competition and Patent Term Restoration Act of 1984, 98 Stat. 1585, 21 U.S.C. § 355 (the "Hatch-Waxman Act"), as currently implemented by the FDA, provides that the first applicant to submit an ANDA with a Paragraph IV Certification for a generic version of a brand name drug ("ANDA first filer") is entitled to a 180-day period of marketing exclusivity ("180-day Exclusivity Period") before the FDA may grant final approval of any other generic manufacturer's ANDA regarding the same brand name drug. This period does not begin to run until either the generic is commercially marketed or a court enters final judgment that the patents subject to the Paragraph IV Certification are invalid or not infringed. No other generic manufacturer may obtain FDA approval to market its product until the ANDA first filer's 180-day Exclusivity Period has expired.
Relevant Product and Geographic Market
10. The relevant product market for assessing respondents' anticompetitive conduct is terazosin hydrochloride ("terazosin HCL"). Terazosin HCL is used principally to treat benign prostatic hyperplasia ("BPH" or enlarged prostate) and hypertension. Both hypertension and BPH are chronic conditions that afflict millions of Americans, many of whom are senior citizens. BPH afflicts at least 50% of the men over 60, and results in 1.7 million men each year making office visits to their physicians. Total U.S. sales of terazosin HCL amount to approximately $540 million per year.
11. Hytrin, which is manufactured and marketed by Abbott, is the pioneer brand name drug in the United States containing terazosin HCL. Hytrin was introduced in 1987. It was the only terazosin HCL product sold in the United States until Geneva introduced such a product on or around August 13, 1999.
12. Other drugs are not effective substitutes for terazosin HCL because they are different in terms of chemical composition, safety, efficacy, and side effects. In addition, there is little price sensitivity between terazosin HCL and non-terazosin HCL products.
13. The relevant geographic market is the United States.
14. Hytrin, which Abbott markets in tablet and capsule form, has been one of the company's most important products. Abbott introduced Hytrin tablets in 1987. In 1995, Abbott launched Hytrin capsules, which now account for over 90% of Hytrin sales. In 1998, Abbott's sales of Hytrin amounted to $542 million in the United States alone, accounting for 9.41 million prescriptions. For the first 6 months of 1999, Abbott reported $292 million in U.S. sales of Hytrin, representing over 20% of the net sales of Abbott's pharmaceutical division.
15. Abbott currently holds at least seven patents that relate to terazosin HCL. Abbott's initial patent covering the chemical compound terazosin HCL expired in or around 1994.
16. Geneva filed ANDAs covering a tablet form and a capsule form of generic terazosin HCL. It was the first company to file an ANDA for each form. Geneva submitted its tablet ANDA to the FDA in or around January 1993, and its capsule ANDA was submitted in or around December 1995.
17. In early 1996, Abbott notified the FDA of a new patent ('207 patent) relating to its Hytrin product, and the FDA listed that patent in the FDA Orange Book. In April 1996, Geneva filed a Paragraph IV certification with the FDA, claiming that its generic terazosin HCL tablet and capsule products did not infringe any of Abbott's patents covering terazosin HCL, including Abbott's newly listed '207 patent, and notified Abbott of the Paragraph IV certification.
18. On June 4, 1996, Abbott sued Geneva in the Northern District of Illinois, claiming patent infringement by Geneva's terazosin HCL tablet product. Abbott made no infringement claim against Geneva's terazosin HCL capsule product, even though both of Geneva's products involved the same potential infringement issues.
19. Pursuant to the Hatch-Waxman Act, Abbott's lawsuit triggered a 30-month stay of final FDA approval of Geneva's terazosin HCL tablet ANDA, until December 1998. Because no infringement claim had been filed within the requisite 45-day period, the FDA review and approval process for Geneva's terazosin HCL capsule ANDA could proceed without delay.
20. By early 1998, Geneva, including particularly its CEO, was confident that it ultimately would prevail in its patent infringement dispute with Abbott.
21. Accordingly, Geneva pushed ahead in early 1998 with plans to bring to market as soon as possible its generic terazosin HCL capsule product, which could have received FDA approval at any time. Preparations to launch this product were proceeding on all fronts: the manufacturing team sought to validate with the FDA its terazosin HCL capsule manufacturing process; the purchasing department instructed its product supplier to manufacture commercial quantities of terazosin HCL active ingredient; sales and marketing personnel were contacting customers to inform them of an impending launch and to enter into distribution contracts; and the legal staff was drafting papers to oppose any effort by Abbott to block Geneva's entry.
22. The FDA granted Geneva final approval to market generic terazosin HCL capsules on March 30, 1998.
23. As the first generic company to submit a Paragraph IV Certification for generic terazosin HCL, Geneva was entitled to the 180-day Exclusivity Period pursuant to the Hatch-Waxman Act, as currently interpreted. Unless and until Geneva's 180-day Exclusivity Period had been triggered and had expired, or Geneva relinquished its entitlement to this period of exclusivity, only Geneva would be approved by the FDA to market a generic terazosin HCL product.
24. On March 30, 1998, the very day it was granted FDA approval to market its generic terazosin HCL capsules, Geneva contacted Abbott and announced that it would launch its generic terazosin HCL capsules unless it was paid by Abbott not to enter the market. From Abbott's perspective, a launch of Geneva's generic terazosin HCL product would have had a significant adverse impact on Abbott's financial performance. Abbott forecasted that entry of generic terazosin HCL on April 1, 1998 would have eliminated over $185 million in Hytrin sales in just six months. Because Hytrin was highly profitable, Abbott sought to keep from the market Geneva and all other potential generic competition to Hytrin, until at least February 2000.
25. Over the course of two days, representatives of Abbott and Geneva negotiated the framework for an agreement, whereby Abbott would pay Geneva not to enter the market. Abbott estimated Geneva's revenues from launching generic terazosin HCL at $1 million to $1.5 million per month, but was willing to pay Geneva a "premium" over that not to compete.
26. On April 1, 1998, Abbott and Geneva entered into a written agreement ("Agreement"), pursuant to which Geneva agreed not to enter the market with any generic terazosin HCL capsule or tablet product until the earlier of: (1) the final resolution of the patent infringement litigation involving Geneva's terazosin HCL tablets product, including review through the Supreme Court; or (2) entry of another generic terazosin HCL product. Geneva also agreed - at Abbott's insistence - not to transfer, assign, or relinquish its right to a 180-day Exclusivity Period.
27. In exchange, Abbott agreed to pay Geneva $4.5 million per month in non-refundable payments until a district court judgment in the parties' patent infringement dispute. Respondents agreed that if the district court declared that Geneva's tablet product did not or would not infringe any valid and enforceable claim of the '207 patent, Abbott would thereafter pay the $4.5 million monthly payments into an escrow fund until the final resolution of the litigation. Under the Agreement, the party prevailing in the litigation would receive the money in the escrow fund.
28. The court hearing the patent litigation was not made aware of the respondents' Agreement.
29. In the words of Geneva's CEO at the time the Agreement was signed, this Agreement represented to Geneva the "best of all worlds," because Geneva obtained a risk-free "monetary settlement on an ongoing basis until the litigation was resolved" and still could market its product exclusively for 180 days after the litigation was over.
30. In accordance with the terms of the Agreement, in April 1998, Geneva refrained from entering the market with its generic terazosin HCL capsules, and instead began receiving monthly payments of $4.5 million from Abbott.
31. On September 1, 1998, the United States District Court for the Northern District of Illinois granted Geneva's motion for summary judgment in its patent tablet litigation with Abbott, invalidating Abbott's patent under the on-sale provision of 35 U.S.C. § 102(b).
32. The district court's decision invalidating Abbott's patent only strengthened Geneva's litigation position. Nonetheless, Geneva, in accordance with the terms of the Agreement, did not enter the generic terazosin HCL market even after the favorable district court decision.
33. On July 1, 1999, the United States Court of Appeals for the Federal Circuit affirmed, without dissent, the summary judgment in favor of Geneva. Under the Agreement, Geneva still could not enter the generic terazosin HCL market until after the Supreme Court either denied Abbott's petition for certiorari or disposed of the patent infringement litigation. Nonetheless, in August 1999, aware of the Commission's investigation, the respondents canceled their Agreement, and on August 13, 1999, Geneva finally introduced its generic terazosin HCL capsule product to the marketplace. The Supreme Court denied certiorari on January 10, 2000.
The Effects of Respondents' Conduct
34. The acts and practices of the respondents as herein alleged have had the purpose or effect, or the tendency or capacity, to restrain competition unreasonably and to injure competition by preventing or discouraging the entry of competition in the form of generic versions of Hytrin into the relevant market.
35. As a result of respondents' conduct as herein alleged, consumers were deprived of the benefits of new competition from Geneva and other generic competitors. Without this lower-priced generic competition, consumers, pharmacies, hospitals, insurers, wholesalers, government agencies, managed care organizations, and others were forced to purchase Abbott's more expensive Hytrin product.
36. Earlier entry of a generic terazosin HCL product would have had a significant procompetitive impact in the relevant market. Pharmacists generally are permitted, and in some instances required, to substitute generic drugs for their branded counterparts, unless the prescribing physician has directed that the branded product be dispensed. In addition, there is a ready market for generic products because certain third-party payers of prescription drugs (e.g., managed care plans and Medicaid programs) encourage or insist on the use of generic drugs wherever possible. A generic product can quickly and efficiently enter the marketplace at substantial discounts, generally leading to a significant erosion of the branded drug's sales within the first year. For example, Abbott's forecasts projected that generic terazosin HCL would capture roughly 70% of Hytrin sales within the first six months alone.
37. The purpose and effect of the $4.5 million monthly payments from Abbott to Geneva during the term of the Agreement were to ensure that Geneva would not enter the relevant market, and would not take any steps, including giving up its right to a 180-day Exclusivity Period, to permit or facilitate the entry of any other generic manufacturer.
38. By prohibiting Geneva from transferring, assigning, or giving up its right to a 180-day Exclusivity Period until the final resolution of the patent infringement litigation involving Geneva's terazosin HCL tablets product, the Agreement had the purpose and effect of preventing Geneva from relinquishing its eligibility for a 180-day Exclusivity Period under the Hatch-Waxman Act. As of February 1999, at least one other generic manufacturer had satisfied the FDA's requirements for approval and was barred from entering the market because Geneva's 180-day Exclusivity Period had not begun to run.
39. The Agreement is not justified by any countervailing efficiency.
40. The Abbott-Geneva Agreement as a whole, and particular provisions such as that described in Paragraphs 37 and 38 above, constitute an unreasonable restraint of trade in violation of Section 5 of the Federal Trade Commission Act, as amended.
41. Abbott and Geneva acted with the specific intent that Abbott monopolize the relevant market, and engaged in overt acts described in Paragraphs 24-33 above in furtherance of a conspiracy to monopolize the relevant market, in violation of Section 5 of the Federal Trade Commission Act, as amended.
42. Abbott had monopoly power in the relevant market and monopolized that market in violation of Section 5 of the Federal Trade Commission Act, as amended.
43. The acts and practices described above are anticompetitive in nature and tendency and constitute unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act, as amended.
WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this ____ day of __________, ____, issues its complaint against said respondents.
By the Commission.
Donald S. Clark