[Federal Register Volume 66, Number 69 (Tuesday, April 10, 2001)]
[Notices]
[Pages 18636-18639]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-8707]


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FEDERAL TRADE COMMISSION

[Docket No. 9293]


Hoechst Marion Roussel, Inc., et al.; Analysis To Aid Public 
Comment

AGENCY: Federal Trade Commission

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the complaint 
previously issued and the terms of the consent order--embodied in the 
consent agreement--that would settle these allegations.

DATES: Comments must be received on or before May 2, 2001.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Markus Meier or Richard Feinstein, 
FTC/S-3115, 600 Pennsylvania Ave., NW., Washington, DC 20580. (202) 
326-3759 or 326-3688.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and section 3.25(f) of 
the Commission's Rules of Practice (16 CFR 3.25(f)), notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted by the 
Commission, has been placed on the public record for a period of thirty 
(30) days. The following Analysis to Aid Public Comment describes the 
terms of the consent agreement, and the allegations in the complaint. 
An electronic copy of the full text of the consent agreement package 
can be obtained from the FTC Home Page (for April 2, 2001), on the 
World Wide Web, at ``http://www.ftc.gov/os/2001/04/index.htm.'' A paper 
copy can be obtained from the FTC Public Reference Room, Room H-130, 
600 Pennsylvania Avenue, NW., Washington, DC 20580, either in person or 
by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW., 
Washington, DC 20580. Two paper copies of each comment should be filed, 
and should be accompanied, if possible by a 3\1/2\ inch diskette 
containing an electronic copy of the comment. Such comments or views 
will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

Analysis To Aid Public Comment

    The Federal Trade Commission has accepted for public comment an 
agreement and proposed consent order with Hoechst Marion Roussel, Inc. 
(``HMR''), Carderm Capital, L.P. (``Carderm''), and Andrx Corporation 
(``Andrx'') to resolve the matters alleged in an administrative 
complaint issued by the Commission on March 16, 2000. The proposed 
consent order has been placed on the public record for 30 days to 
receive comments from interested members of the public. The proposed 
consent order has been entered into for

[[Page 18637]]

settlement purposes only and does not constitute an admission by HMR, 
Carderm, or Andrx (collectively ``the Respondents'') that they violated 
the law or that the facts alleged in the complaint, other than the 
jurisdictional facts, are true. Respondents deny all other allegations 
of the complaint.

The Complaint

    The complaint alleges that the Respondents entered into an 
agreement that had the tendency or capacity to restrain competition 
unreasonably by discouraging generic competition to Cardizem CD. 
Cardizem CD is a prescription drug manufactured and sold by HMR and is 
used to treat two chronic conditions that affect millions of Americans: 
hypertension (high blood pressure) and angina pectoris (chest pain). 
Andrx is a generic drug manufacturer that developed a generic version 
of Cardizem CD.
    Generic drugs typically are sold at substantial discounts from the 
price of branded drugs. Generic drugs can have a swift marketplace 
impact, the complaint states, because pharmacists generally are 
permitted, and in some instances are required, to substitute lower-
priced generic drugs for their branded counterparts, unless the 
prescribing physician directs otherwise. In addition, there is a ready 
market for generic products because certain third-party payers of 
prescription drugs (e.g., state Medicaid programs and many private 
health plans) encourage or insist on the use of generic drugs wherever 
possible.
    Congress enacted the Drug Price Competition and Patent Term 
Restoration Act of 1984, commonly referred to as ``the Hatch-Waxman 
Act,'' to facilitate the entry of lower priced generic drugs while 
maintaining incentives to invest in new drug development. A company 
seeking approval from the Food and Drug Administration (``FDA'') to 
market a new drug must file a New Drug Application (``NDA'') 
demonstrating the safety and efficacy of its product. In order to 
receive FDA approval to market a generic version of a brand name drug a 
company must file an Abbreviated New Drug Application (``ANDA'') 
demonstrating that its product is bioequivalent to its brand-name 
counterpart.
    The Hatch-Waxman Act establishes certain rights and procedures in 
situations where a company seeks FDA approval to market a generic drug 
prior to the expiration of a patent or patents relating to the brand 
name drug upon which the generic is based. In such cases, the applicant 
must: (1) Certify to the FDA that the patent in question is invalid or 
is not infringed by the generic product (known as a ``paragraph IV 
certification''); and (2) notify the patent holder of the filing of the 
certification. If the holder of the patent rights riles a patent 
infringement suit within 45 days, FDA approval to market the generic 
drug is automatically stayed for 30 months, under certain 
circumstances, unless before that time the patent expires or the patent 
is judicially determined to be inlaid or not infringed. This automatic 
30-month stay allows the patent holder time to seek judicial protection 
of its patent rights before a generic competitor is permitted to market 
its product.
    In addition, the Hatch-Waxman Act provides an incentive for generic 
drug companies to bear the cost of patent litigation that may arise 
when they challenge invalid patents or design around valid ones. Under 
current FDA regulations, the Act grants the first company to file an 
ANDA with a paragraph IV certification a 180-day period during which it 
has the exclusive right to market a generic version of the brand name 
drug. No other generic manufacturer may obtain FDA approval to market 
its product until the first filer's 180-day exclusivity period has 
expired. At the time the Respondents entered into the challenged 
agreement in 1997, the governing FDA regulations required that an ANDA 
applicant successfully defend the patent holder's patent suit in order 
to be entitled to this exclusivity.
    Andrx was the first company to file an ANDA for a generic version 
of Cardizem CD. It filed a paragraph IV certification with the FDA 
stating its belief that the product did not infringe any valid patent 
covering Cardizem CD. In January 1996, HMR sued Andrx for patent 
infringement. The lawsuit triggered a 30-month stay of final FDA 
approval of Andrx's generic product, until July 1998.
    According to the complaint, HMR and Andrx entered into an agreement 
in September 1997, in the midst of this patent lawsuit. At the time of 
the agreement, approximately nine months before the 30-month stay of 
FDA approval of Andrx's application would expire, the patent lawsuit 
had already been pending for twenty-one months and both sides had filed 
numerous dispositive motions with the trial court that had not been 
acted on. Also by that time, two other companies, Purepac 
Pharmaceutical Co. and Biovail Corporation International, had filed for 
FDA approval of a generic Cardizem CD product, neither of which had yet 
obtained tentative approval from the FDA.
    HMR's forecasts, the complaint states, projected that a generic 
once-a-day diltiazem product would capture roughly 40 percent of 
Cardizem CD sales within the first year following its launch. Cardizem 
CD was HMR's largest selling product at the time. Accordingly, the 
complaint charges, HMR sought to delay Andrx--and all other potential 
generic competition to Cardizem CD--from entering the market because of 
the threat they represented to the high profits it was making from 
Cardizem CD.
    The complaint alleges that on September 24, 1997, HMR, Carderm, and 
Andrx entered into a ``Stipulation and Agreement.'' The Stipulation and 
Agreement did not settle the lawsuit. Instead, under this agreement, 
the complaint alleges that Andrx agreed not to enter the market with 
its generic Cardizem CD product until the earliest of: (1) Final 
resolution of the patent infringement litigation; (2) Andrx's exercise 
of an option to obtain a license from HMR in the future; or (3) notice 
by HMR that it would allow entry of another generic Cardizem CD product 
or market its won generic version of Cardizem CD. According to the 
complaint, Andrx also agreed to refrain from selling during the patent 
infringement suit any other bioequivalent or generic version of 
Cardizem CD. In addition, the complaint alleges that Andrx agreed not 
to withdraw its pending ANDA or to relinquish or otherwise compromise 
any right accruing under its ANDA, including its 180-day exclusively 
right. In return, the complaint alleges, HMR agreed to pay Andrx $10 
million per quarter during the litigation beginning when Andrx received 
final FDA approval of its ANDA, unless the litigation was resolved 
prior to that time. Under the agreement, if HMR lost the patent 
infringement suit it would pay Andrx an additional $60 million per year 
for that same time period. On September 25, 1997, the parties made 
public disclosures of the existence of the agreement. The Commission's 
complaint alleges that this agreement, at the time it was entered into, 
had the potential to affect Andrx's incentive to compete once it 
received final FDA approval.
    In July 1998, upon expiration of the 30-month stay under Hatch-
Waxman, Andrx received final FDA approval to market its original 
formulation of generic Cardizem CD that was subject to the still on-
going lawsuit with HMR. Pursuant to the terms of the Stipulation and 
Agreement, HMR began making

[[Page 18638]]

quarterly payments of $10 million to Andrx.
    Andrx filed a supplement to its ANDA reflecting a reformulation of 
its generic Cardizem CD product in September 1998. This reformulation 
altered the dissolution profile of the Andrx product, which was the 
basis of the patent dispute between Andrx and HMR. The FDA required 
Andrx to file a new certification and give notice to HMR of the 
reformulated product under the Hatch-Waxman procedures described above. 
Following its analysis of the reformulated product, HMR agreed that it 
would not assert a patent claim against the reformulated product. By 
June 1999, Andrx had solved the difficulties it had encountered since 
the summer of 1997 in consistently manufacturing commercial scale 
quantities of its formulations of its product in conformity with FDA 
regulations. Andrx received FDA approval in June 1999 to market its 
reformulated version of Cardizem CD. On or about the day Andrx received 
FDA approval of its reformulated product, the Respondents entered into 
a stipulation dismissing the litigation, with an agreement by Andrx not 
to sell its original formulation and an agreement by HMR not to sue 
Andrx for patent infringement on Andrx's reformulated product. The 
challenged agreement terminated.
    On or about June 23, 1999, the federal district court dismissed the 
patent suit, and Andrx commenced marketing its reformulated generic 
Cardizem CD product, triggering its 180-day exclusivity period. At that 
time, Biovail Corporation International had not received tentative FDA 
approval for its product, and Purepac Pharmaceutical Co. had entered 
into a licensing arrangement with HMR for manufacture of generic 
Cardizem CD. Andrx's 180-day exclusivity period expired on December 19, 
1999. Purepac launched its generic Cardizem CD product the next day 
pursuant to a license from HMR. Biovail obtained final FDA approval on 
December 23, 1999, and launched its product shortly thereafter.
    Based on the FTC's investigation, it does not appear that there was 
any delay in the entry into the market of a generic version of Cardizem 
CD by Andrx or any other potential manufacturer, or that the conduct or 
agreement at issue delayed consumer access to a generic version of 
Cardizem CD. The agreement terminated in June 1999. It was at that time 
that Andrx received FDA approval to market, and commenced marketing, a 
reformulated generic version of Cardizem CD that HMR stipulated did not 
infringe any HMR patent.
    The complaint alleges that the challenged agreement was not 
justified by countervailing efficiencies. In its complaint, the 
Commission alleged that the presence in the agreement of a licensing 
provision (permitting Andrx to obtain a license from HMR to market 
generic Cardizem CD in January 2000, in the event Andrx lost the 
patient litigation, or if another generic company obtained final FDA 
approval) did not justify the agreement. The complaint that entry by 
Andrx under a license, had it occurred, likely would have been later 
than entry by Andrx or another generic manufacturer absent the 
agreement.
    Finally, the complaint charges that HMR had a monopoly in the 
market for once-a-day diltiazem, and, that by entering into the 
agreement with Andrx, HMR sought to preserve its dominance by delaying 
the entry of Andrx and other generic companies into the market. At the 
time of the challenged agreement, HMR accounted for 70% of the sales of 
once-a-day diltiazem in the United States. Other drugs, the complaint 
alleges, are not effective substitutes for once-a-day diltiazem because 
they are different in efficacy and side effects, and because of risks 
associated with switching patients from one treatment to another. In 
addition, the complaint alleges that HMR and Andrx conspired to 
monopolize the market for once-a-day diltiazem products. The complaint 
alleges that HMR and Andrx acted with specific intent that HMR 
monopolize the market for once-a-day diltiazem, and entered into a 
conspiracy to achieve that goal. Finally, the complaint charges that 
the Respondents' agreement otherwise amounts to an unfair method of 
competition in violation of Section 5 of the FTC Act.

The Proposed Order

    In a statement issued at the time of the filing of the complaint in 
this matter, the members of the Commission stated that cases like this 
one ``must be examined with respect to [their] particular facts,'' and 
that the ``development of a full factual record in the administrative 
proceeding * * * will help to shape further the appropriate parameters 
of permissible conduct in this area, and guide other companies and 
their legal advisors.'' \1\ Although the particular agreement 
challenged in the complaint has been terminated, the Commission 
believes prospective relief is necessary to prevent a recurrence of the 
types of agreements covered by the proposed order. Private agreements 
in which the brand name drug company (the ``NDA Holder'') pays the 
first generic to seek FDA approval (the ``ANDA First Filer''), and the 
ANDA First Filer agrees not to enter the market, have the potential to 
delay generic competition and raise serious antitrust issues. Moreover, 
the FDA has observed that the incentives for companies to enter into 
such arrangements are becoming greater, as the returns to a brand name 
company from extending its monopoly increasingly exceed the potential 
economic gains to the generic applicant from its 180 days of market 
exclusivity.\2\
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    \1\ Statement of Chairman Pitofsky, Commissioner Anthony, 
Commissioner Thompson, Commissioner Swindle, and Commissioner Leary 
concerning Abbott Laboratories and Geneva Pharmaceuticals, Inc., 
File No. 981-0395 (March 16, 2000).
    \2\ FDA Proposed Rule Regarding 180-Day Generic Drug Exclusivity 
for Abbreviated New Drug Applications, 64 Fed. Reg. 42873, 42882-83 
(August 6, 1999).
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    The proposed order strikes an appropriate balance, on a prospective 
basis, between the legitimate interests of the Respondents and the 
Commission's concerns with the possible competitive effects of 
agreements between NDA Holders and ANDA First Filers. By not imposing 
any broad prohibitions on the Respondents' ability to compete, the 
order maintains HMR's incentive to develop and sell new drug products 
and Andrx's incentive to develop and sell generic products that do not 
infringe valid intellectual property rights held by others. In 
addition, the order preserves Andrx's ability to decide for itself 
whether to market a product in the face of a claim of patent 
infringement, so long as such decision is otherwise lawful.
    As described more fully below, the proposed order:
     Bars (except in certain licensing arrangements) two 
particular types of agreements between brand name drug companies and 
potential generic competitors--restrictions on giving up Hatch-Waxman 
180-day exclusivity rights and on entering the market with a non-
infringing product;
     Requires that interim settlements of patent litigation 
involving payments to the generic company in which the generic company 
temporarily refrains from bringing its generic product to market, be 
approved by the court, with notice to the Commission to allow it time 
to present its views to the court; and
     Requires the Respondents to give the Commission written 
notice 30 days before entering into such agreements in other contexts.
    Paragraph II prohibits two kinds of agreements between an NDA 
Holder and

[[Page 18639]]

the ANDA First Filer (that is, the party possessing an unexpired right 
to Hatch-Waxman 180-day exclusivity). Paragraph II.A. bars agreements 
in which the first company to file an ANDA agrees with the NDA Holder 
not to relinquish its right to the 180-day exclusivity period (as 
interpreted by the courts at the time of the agreement). Paragraph 
II.B. prohibits the ANDA First Filer from agreeing not to develop or 
market a generic drug product that is not the subject of a claim of 
patent infringement. The order recognizes, however, that even these 
types of agreements, in the context of certain licensing arrangements, 
might not raise competitive concerns. Accordingly, conduct otherwise 
falling within the conduct described in Paragraph II would not be 
prohibited where the ANDA First Filer agrees to license and introduce a 
competitive product to the market, its 180-day exclusivity right is not 
extended, and the Commission is provided notice.
    Paragraph II's focus on agreements between an NDA Holder and the 
ANDA First Filer does not mean that the Commission believes that there 
is no risk of competitive harm in other types of agreements. In 
particular substantial competitive concerns could arise from an 
agreement in which a generic company (other than the ANDA First Filer) 
agrees with the NDA Holder to refrain from marketing a non-infringing 
product. Given the variety of circumstances in which the restraints may 
arise, however, and the possibility that some legitimate justifications 
might exist for such arrangements, the Commission believes that it is 
appropriate at this time to limit the bans in Paragraph II to the 
described agreements between NDA Holders and ANDA First Filers.
    Paragraph III covers certain private agreements involving payments 
form the NDA Holder to the ANDA First Filer during patent infringement 
litigation. Generally, the Respondents can enter into such arrangements 
only if (a) the agreement is presented to the court and embodied in a 
court-ordered preliminary injunction, and (b) the following other 
conditions are met: (i) Along with any stipulation for preliminary 
injunction, Respondents provide the court with a copy of the 
Commission's complaint, order, and the analysis to Aid Public Comment 
in this matter, as well as the proposed agreement; (ii) at least 30 
days before submitting the stipulation to the court, they provide 
written notice (as set forth in Paragraph V of the order) to the 
Commission; and (iii) they do not oppose Commission participation in 
the court's consideration of the request for preliminary relief.
    This part of the proposed order is designed to enhance the court's 
ability to assess the competitive implications of such agreements. This 
remedy, in addition to facilitating the court's access to information 
about the Commission's views, may also make the process more public and 
thereby may prompt other generic drug manufacturers (or other 
interested parties) to participate.
    Paragraph IV addresses private agreements in which an ANDA First 
Filer agrees with the NDA Holder not to enter the market. Such 
situations would include agreements that are part of a final settlement 
of the litigation, and situations in which no litigation has been 
brought. In these circumstances, there may be no judicial role in 
ordering relief agreed to by the Respondents. Thus, the order requires 
that the Respondents notify the Commission at least 30 days before 
entering into such agreements. Such notice will assist the Commission 
because of the potential for competitive harm that these agreements may 
create. Absent the order, there may be no effective mechanism for the 
Commission to find out about such agreements.
    The form of notice that the Respondents must provide to the 
Commission under Paragraphs II, III and IV of the order is set forth in 
Paragraph V. In addition to supplying a copy of the proposed agreement, 
the Respondents are required to provide certain other information to 
assist the Commission in assessing the potential competitive impact of 
the agreement. Accordingly, the order requires the Respondents to 
identify, among other things, all others who have filed an ANDA for a 
product containing the same chemical entities as the product at issue, 
and the court that is hearing any relevant legal proceedings involving 
either party. In addition, the Respondents must provide the Commission 
with all documents that evaluate the proposed agreement.
    The proposed order also contains certain reporting and other 
provisions that are designed to assist the Commission in monitoring 
compliance with the order and are standard provisions in Commission 
orders.
    The order will expire in 10 years.

Opportunity for Public Comment

    The proposed order has been placed on the public record for 30 days 
in order to receive comments from interested persons. Comments received 
during this period will become part of the public record. After 30 
days, the Commission will again review the proposed order and the 
comments received and will decide whether it should withdraw from the 
proposed order or make the proposed order final.
    By accepting the proposed order subject to final approval, the 
Commission anticipates that the competitive issues alleged in the 
complaint will be addressed. The purpose of this analysis is to 
facilitate public comment on the agreement. It is not intended to 
constitute an official interpretation of the agreement, the complaint, 
or the proposed consent order, or to modify their terms in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 01-8707 Filed 4-9-01; 8:45 am]
BILLING CODE 6750-01-M