UNITED STATES OF AMERICA
In the Matter of
HOECHST MARION ROUSSEL, INC., a corporation,
ANDRX CORPORATION, a corporation.
Docket No. 9293
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 Hoechst Marion Roussel, Inc., Carderm Capital L.P., and Andrx Corporation 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 Hoechst Marion Roussel, Inc. ("Hoechst MRI") is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 10236 Marion Park Drive, Kansas City, Missouri. Hoechst MRI is, directly or indirectly, a wholly-owned subsidiary of Aventis, S.A., which is incorporated under the laws of the Republic of France with its office and principal place of business at 25 Quai Paul Doumier, 92408 Courbevoie Cedex, France. Hoechst MRI is engaged in the development, manufacture, distribution, and sale of pharmaceutical and health care products in the United States. Among other products, Hoechst MRI manufactures and sells Cardizem CD, a cardiovascular drug used to treat hypertension and angina.
2. At all relevant times herein, Hoechst MRI 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 Carderm Capital L.P. ("Carderm") is a Delaware limited partnership having its office and principal place of business at Richmond House, 12 Par-la-Ville Road, Hamilton, Bermuda. Carderm is directly or indirectly owned or controlled by Hoechst MRI. Carderm holds the rights to three patents relating to Cardizem CD.
4. At all relevant times herein, Carderm has been, and is now, a partnership as "partnership" is used in Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.
5. Respondent Andrx Corporation ("Andrx") is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Florida, with its office and principal place of business located at 4001 S.W. 47th Avenue, Fort Lauderdale, Florida, 33314. Andrx develops, manufactures, and markets controlled-release pharmaceutical products. Andrx developed a generic or bioequivalent version of Cardizem CD, which has been approved by the FDA for sale in the United States.
6. At all relevant times herein, Andrx 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.
7. 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
8. 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.
9. 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.
10. 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 prior to the expiration of one or more patents relating to a brand name drug, the applicant must certify to the FDA, when appropriate, 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 a lawsuit; or (iii) the expiration of a 30-month period from the time the patent holder receives Paragraph IV Certification.
11. 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
12. A relevant product market for assessing respondents'
anticompetitive conduct is once-a-day diltiazem. Diltiazem belongs to a group of drugs
known as "calcium channel blockers," and is used principally to treat high blood
pressure (hypertension) and to decrease the occurrence of chronic chest pain
("angina"). Once-a-day diltiazem is a time-release version of diltiazem, in
capsule form, that is designed to be taken once every 24 hours. Other calcium channel
blockers are not acceptable substitutes for diltiazem for several reasons, including, inter
alia, the differences in efficacy and side effects, and the risks associated with
switching patients from one calcium channel blocker to another. In addition, narrower
relevant product markets may be contained within the market for once-a-day diltiazem
products. Total U.S. sales of once-a-day diltiazem products amount to roughly $1 billion
per year, with Hoechst MRI's U.S. sales of Cardizem CD, one of the brand name once-a-day
diltiazem products, accounting for over $700 million per year.
14. At all relevant times herein, Hoechst MRI had monopoly power in the U.S. market for once-a-day diltiazem ("the relevant market"), and in narrower markets contained therein. Hoechst MRI distributes the leading once-a-day diltiazem drug, Cardizem CD, which, at all relevant times, accounted for over 70% of total sales in the relevant market.
15. At all relevant times herein, entry into the relevant market was restricted and unlikely to diminish Hoechst MRI's monopoly power. Before entry could occur, potential entrants were required to, inter alia, file an NDA or an ANDA with the FDA, and obtain FDA final approval. At all relevant times, the FDA did not have an NDA accepted for filing for a new once-a-day diltiazem drug. If a new NDA were to be filed with the FDA, final approval would likely take a minimum of 12-18 months. Furthermore, any new once-a-day diltiazem drug introduced pursuant to an NDA would be unlikely to have a significant impact on the market, unless the new drug were bioequivalent to Cardizem CD.
16. At all relevant times herein, FDA final approval of an ANDA for a generic version of Cardizem CD for anyone other than Andrx was blocked. Pursuant to the Hatch- Waxman Act, as interpreted by the FDA, Andrx held the right to a 180-day Exclusivity Period for the sale of a generic version of Cardizem CD. As a result, no company could obtain FDA final approval of an ANDA to market or sell a generic version of Cardizem CD until 180 days after Andrx first sold its product, or until Andrx relinquished or otherwise lost its exclusivity right. Other than Andrx, only two companies had submitted ANDAs for a generic version of Cardizem CD to the FDA: Purepac Pharmaceutical Co. ("Purepac"), a subsidiary of Faulding Inc., and Biovail Corporation International ("Biovail"). Purepac and Biovail did not receive final FDA approval until Andrx's 180-day Exclusivity Period expired in December 1999.
17. In or around September 1995, Andrx filed the first ANDA with the FDA for the manufacture and sale of a generic version of Cardizem CD. In December 1995, Andrx certified to the NDA holder of Cardizem CD that the product covered by its ANDA did not infringe any of the patents covering Cardizem CD. Pursuant to the Hatch-Waxman Act, as currently interpreted, this filing entitled Andrx to a 180-day period during which it would hold the exclusive right to market and sell a generic version of Cardizem CD.
18. On January 31, 1996, Hoechst MRI and Carderm filed a lawsuit against Andrx in the U.S. District Court for the Southern District of Florida, alleging infringement of a patent claiming Cardizem CD. Pursuant to the Hatch-Waxman Act, unless the lawsuit was resolved at an earlier date, this lawsuit triggered a 30-month stay of final FDA approval of Andrx's ANDA, until July 1998.
19. In January 1997, Purepac filed an ANDA with the FDA for the manufacture and sale of a generic version of Cardizem CD. On January 31, 1997, Hoechst MRI filed a lawsuit against Purepac in the U.S. District Court for the District of New Jersey, alleging patent infringement. Pursuant to the Hatch-Waxman Act, unless the lawsuit was resolved at an earlier date, this lawsuit triggered a 30-month stay of final FDA approval of Purepac's ANDA, until July 1999.
20. On or about June 19, 1997, Biovail filed an ANDA with the FDA for the manufacture and sale of a generic version of Cardizem CD. Hoechst AG, Hoechst MRI, and Biovail had previously entered into a General Release and Covenant Not to Sue with respect to any claim of patent infringement relating to formulations for a once-daily medicine containing diltiazem.
21. Despite the terms of the General Release and Covenant Not to Sue, representatives of Hoechst MRI met with Biovail in early August 1997, ostensibly to discuss resolution of a potential claim of Hoechst MRI against Biovail for patent infringement relating to Biovail's generic version of Cardizem CD, as well as to discuss development of a new indication or use for the drug Probucol, a product for which Hoechst MRI held an approved NDA but which was not then being marketed or sold. During the course of these meetings, Hoechst MRI offered to pay Biovail a substantial amount of money to complete testing and the FDA approval process for a new Probucol indication. This offer was contingent on Biovail's agreeing to refrain from entering the market with a bioequivalent or generic version of Cardizem CD until at least July 1999. Biovail rejected Hoechst MRI's proposal. Hoechst MRI did not sue Biovail for patent infringement with respect to Biovail's generic or bioequivalent Cardizem CD product.
22. Beginning in late July 1997, representatives of Hoechst MRI and Andrx engaged in discussions of a possible agreement in connection with Hoechst MRI's pending patent infringement lawsuit against Andrx, pursuant to which Andrx would agree to refrain from bringing a generic version of Cardizem CD to market for a specific period of time.
23. On September 24, 1997, Hoechst MRI, Carderm, and Andrx entered into a Stipulation and Agreement. The Stipulation and Agreement did not settle the lawsuit -- indeed, it specifically contemplated that the parties would continue the litigation to final judicial resolution. Instead, Hoechst MRI, Carderm, and Andrx agreed among themselves that Andrx would not enter the market with the generic version of Cardizem CD covered by its ANDA until the earliest of (1) the entry of final judgment in the patent lawsuit, (2) Andrx's obtaining a license from Hoechst MRI under the terms and conditions specified in the Stipulation and Agreement, or (3) Hoechst MRI's providing notice that it intended to license a third party or sell its own bioequivalent or generic version of Cardizem CD. In the Stipulation and Agreement, Andrx also agreed - at Hoechst MRI's insistence - to refrain from selling any other bioequivalent or generic version of Cardizem CD, regardless of whether such product would infringe Hoechst MRI's or Carderm's patents. In addition, Andrx agreed not to withdraw its pending ANDA or to relinquish or otherwise compromise any right accruing under its ANDA, including its right to a 180-day Exclusivity Period, until the entry of final judgment in the patent lawsuit.
24. In exchange for Andrx's various agreements, Hoechst MRI agreed to pay Andrx $10 million per quarter, beginning upon final FDA approval of Andrx's ANDA (i.e., once Andrx could otherwise have marketed) and continuing until the occurrence of either (1), (2) or (3) described above in Paragraph 23. The Stipulation and Agreement also provided that, should Hoechst MRI lose the patent infringement suit, Hoechst MRI would pay Andrx an additional $60 million per year for that same time period.
25. The Stipulation and Agreement further provided that, beginning January 9, 2000 or upon the earlier occurrence of any of certain specified events, Andrx would have an option to acquire a license to Hoechst MRI's intellectual property in Cardizem CD. The amount of the royalties to be paid by Andrx to Hoechst MRI would depend on the ultimate outcome of the patent litigation - i.e., Andrx would pay a higher royalty if Andrx ultimately lost the patent infringement litigation.
26. In the event Andrx breached any of its obligations under the Stipulation and Agreement, it would be required to repay all amounts received. For example, if Andrx breached one of its obligations one year after receiving final FDA approval, it would be required to repay $40 million to Hoechst MRI. In addition, by its terms, the Stipulation and Agreement would terminate in the event of a breach by Andrx, thus extinguishing any right of Andrx to receive an additional payment should it prevail in the patent lawsuit, or to exercise a license should it lose the lawsuit.
27. On July 9, 1998, the FDA granted final approval for Andrx's ANDA for a generic version of Cardizem CD. This approval permitted Andrx to begin the marketing and sale of its generic version of Cardizem CD immediately. In accordance with the terms of the Stipulation and Agreement, Andrx did not begin commercial sale of its generic product. As a result, pursuant to the terms of the Stipulation and Agreement, Hoechst MRI began making quarterly payments of $10 million to Andrx.
28. On September 11, 1998, Andrx submitted a Supplemental ANDA to the FDA reflecting a modified formulation of its generic Cardizem CD product. Andrx filed a Paragraph IV Certification, stating its belief that Hoechst MRI had no legitimate basis to claim patent infringement by the product reflected in the Supplemental ANDA. Andrx's Supplemental ANDA received FDA approval on June 8, 1999. On or around that same day, Andrx and HMRI entered into a second agreement, essentially abrogating the Stipulation and Agreement and clearing the way for Andrx to go to market. Andrx began marketing a generic version of Cardizem CD on or around June 23, 1999.
The Effects of Respondents' Conduct
29. 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 and consumers by preventing or discouraging the entry of competition in the form of generic versions of Cardizem CD into the relevant market.
30. Earlier entry of a generic version of Cardizem CD would have had a significant procompetitive impact in the relevant market. Pharmacists generally are permitted, and in some instances required, to substitute FDA-recognized generic drugs for their branded counterparts, without obtaining the prescribing physician's approval. 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 quicky 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, respondents' forecasts projected that a generic version of Cardizem CD, sold at 70% of the brand price, would capture roughly 40% of Cardizem CD sales within the first year.
31. The purpose and intended effect of the $10 million quarterly payments from Hoechst MRI to Andrx during the term of the Stipulation and Agreement was to provide an incentive for Andrx to refrain both from entering the relevant market, and from taking any steps, including relinquishing its right to a 180-day Exclusivity Period, to permit or facilitate the entry of any other generic manufacturer.
32. By prohibiting Andrx from commencing the commercial sale not only of the product subject to the patent infringement suit, but also of any bioequivalent or generic version of Cardizem CD during the term of the agreement, the Stipulation and Agreement had the purpose and intended effect of deterring Andrx from selling any non-infringing or potentially non-infringing version of its generic Cardizem CD product. As a result, the Stipulation and Agreement was intended to have the effect of delaying substantially Andrx's entry into the relevant market with a generic version of Cardizem CD.
33. By prohibiting Andrx from withdrawing its pending ANDA or relinquishing or otherwise compromising any right accruing under its ANDA, including its right to a 180-day Exclusivity Period, until the entry of final judgment in the patent lawsuit, the Stipulation and Agreement had the purpose or effect of deterring Andrx from relinquishing its eligibility for a 180-day Exclusivity Period under the Hatch-Waxman Act. As a result, the Stipulation and Agreement was intended to have the effect of delaying substantially the entry into the relevant market of generic versions of Cardizem CD produced by other manufacturers.
34. The Stipulation and Agreement is not justified by any countervailing efficiencies.
35. Although the Stipulation and Agreement provided Andrx with the option of selling a generic version of Cardizem CD pursuant to a license from Hoechst MRI at a future date, this did not offset the anticompetitive effects set forth above. Entry by Andrx pursuant to the license was likely to occur, if at all, at a later date than would entry by Andrx or another generic manufacturer in the absence of the Stipulation and Agreement. In addition, the license required payment of substantial license fees, subject to the possibility of repayment if Andrx ultimately prevailed in the patent infringement suit. The requirement to pay substantial license fees may have reduced Andrx's incentive to exercise the licensing option. Moreover, entry by Andrx subject to the payment of substantial license fees, even if they may ultimately have been reimbursable, was likely to be competitively less significant than entry without the requirement to pay such fees.
36. The Stipulation and Agreement among Hoechst MRI, Carderm and Andrx as a whole, and in particular the specific provisions described in Paragraphs 32 and 33 above, constitute unreasonable restraints of trade in violation of Section 5 of the Federal Trade Commission Act, as amended.
37. Hoechst MRI had the specific intent to preserve its monopoly in the relevant market and narrower markets contained therein, and its actions - including proposing, negotiating and entering into the Stipulation and Agreement among Hoechst MRI, Carderm, and Andrx, and proposing a similar agreement with Biovail - created a dangerous probability that it would accomplish its monopolistic objectives, in violation of Section 5 of the Federal Trade Commission Act, as amended.
38. Hoechst MRI, Carderm, and Andrx acted with the specific intent that Hoechst MRI monopolize the relevant market, and engaged in overt acts described in Paragraphs 21-28 above in furtherance of a conspiracy to monopolize the relevant markets, in violation of Section 5 of the Federal Trade Commission Act, as amended.
39. 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.
Proceedings on the charges asserted against you in this complaint will be held before an Administrative Law Judge (ALJ) of the Federal Trade Commission, under Part 3 of the Commission's Rules of Practice, 16 C.F.R. Part 3. A copy of Part 3 of the Rules is enclosed with this complaint.
You may file an answer to this complaint. Any such answer must be filed within 20 days after service of the complaint on you. If you contest the complaint's allegations of fact, your answer must concisely state the facts constituting each ground of defense, and must specifically admit, deny, explain, or disclaim knowledge of each fact alleged in the complaint. You will be deemed to have admitted any allegations of the complaint that you do not so answer.
If you elect not to contest the allegations of fact set forth in the complaint, your answer shall state that you admit all of the material allegations to be true. Such an answer will constitute a waiver of hearings as to the facts alleged in the complaint and, together with the complaint, will provide a record basis on which the ALJ will file an initial decision containing appropriate findings and conclusions and an appropriate order disposing of the proceeding. Such an answer may, however, reserve the right to submit proposed findings and conclusions and the right to appeal the initial decision to the Commission under Section 3.52 of the Commission's Rules of Practice.
If you do not answer within the specified time, you waive your right to appear and contest the allegations of the complaint. The ALJ is then authorized, without further notice to you, to find that the facts are as alleged in the complaint and to enter an initial decision and a cease and desist order.
The ALJ will schedule an initial prehearing scheduling conference to be held not later than 7 days after the last answer is filed by any party named as a respondent in the complaint. Unless otherwise directed by the ALJ, the scheduling conference and further proceedings will take place at the Federal Trade Commission, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Rule 3.21(a) requires a meeting of the parties' counsel as early as practicable before the prehearing scheduling conference, and Rule 3.31(b) obligates counsel for each party, within 5 days of receiving a respondent's answer, to make certain initial disclosures without awaiting a formal discovery request.
A hearing on the complaint will begin on November 14, 2000 at 10:00 A.M. in Room 532, or such other date as determined by the ALJ. At the hearing, you will have the right to contest the allegations of the complaint and to show cause why a cease and desist order should not be entered against you.
NOTICE OF CONTEMPLATED RELIEF
Should the Commission conclude from the record developed in an adjudicative proceeding in this matter that the respondents are in violation of Section 5 of the Federal Trade Commission Act, as alleged in the complaint, the Commission may order such relief as is supported by the record and is necessary and appropriate including, but not limited to, an order that requires the following:
WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission, on this sixteenth day of March, 2000, issues its complaint against said Respondents.
By the Commission.
Donald S. Clark