[Federal Register Volume 67, Number 128 (Wednesday, July 3, 2002)]
[Notices]
[Pages 44606-44609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-16711]


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FEDERAL TRADE COMMISSION

[File No. 011 0132]


Biovail Corporation and Elan Corporation, plc; 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 draft 
complaint that accompanies the consent agreement 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 July 29, 2002.

ADDRESSES: Comments filed in paper form should be directed to: FTC/
Office of the Secretary, Room 159-H, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. Comments filed in electronic form should be 
directed to: [email protected], as prescribed below.

FOR FURTHER INFORMATION CONTACT: Joseph Simmons or Randall Marks, 
Bureau of Competition, 600 Pennsylvania Avenue, NW., Washington, DC 
20580, (202) 326-3300 or 326-2571.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 28 Stat. 721, 15 U.S.C. 46(f), and Section 2.34 
of the Commission's Rules of Practice, 16 CFR 2.34, notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, 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 June 27, 2002), on the World Wide Web, at http://www.ftc.gov/os/2002/06/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. Comments filed in paper form should 
be directed to: FTC/Office of the Secretary, Room 159-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. If a comment contains 
nonpublic information, it must be filed in paper form, and the first 
page of the document must be clearly labeled ``confidential.'' Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form (in ASCII format, WordPerfect, or Microsoft Word) as 
part of or as an attachment to email messages directed to the following 
email box: [email protected]. Such comments 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 Biovail Corporation 
(``Biovail'') and Elan Corporation, plc (``Elan''), settling charges 
that the two companies illegally agreed to restrain competition in the 
market for generic Adalat CC. The Commission has placed the proposed 
consent order on the public record for thirty days to receive comments 
by interested persons. The proposed consent order has been entered into 
for settlement purposes only and does not constitute an admission by 
either Biovail or Elan that it violated the law or that the facts 
alleged in the complaint, other than the jurisdictional facts, are 
true.

Background

    Biovail is a Canadian manufacturer of branded and generic 
pharmaceutical products. Elan is an Irish manufacturer of branded and 
generic pharmaceutical products. Biovail and Elan are the only two 
sellers of generic forms of Adalat CC (``generic Adalat''), a once-a-
day antihypertension medication. No other company has even sought Food 
and Drug Administration (``FDA'') approval to sell a 30 mg or a 60 mg 
dosage form of generic Adalat. Bayer AG (``Bayer'') manufactures 
branded Adalat CC. In 1999, before the entry of generic equivalents to 
Adalat CC, Bayer's United States sales of the 30 mg and 60 mg doses of 
Adalat CC were in excess of $270 million.
    Biovail was the first to file an Abbreviated New Drug Application 
(``ANDA'') for FDA approval on the 60 mg dosage, and Elan was the first 
to file an ANDA for FDA approval on the 30 mg dosage. Thus, Elan had 
180 days of exclusivity for the 30 mg product upon receiving final FDA 
approval, and Biovail had the 180-day exclusivity on the 60 mg product 
upon receiving final FDA approval. Each was the second to file on the 
other dosage.
    In October 1999, after both Biovail and Elan (hereinafter sometimes 
referred to as ``Respondents'') had filed for FDA approval of their 30 
mg and 60 mg generic Adalat products, they entered into an agreement 
involving all

[[Page 44607]]

four of their generic Adalat products. That agreement (the 
``Agreement''), and the Respondents' conduct arising out of that 
Agreement, are the subject of the Commission's complaint. The complaint 
alleges that, by entering the Agreement, Respondents illegally created 
market power in the United States market for sales of 30 mg and 60 mg 
dosages of generic Adalat. There is little prospect of new entry in the 
near future, because no other companies have applied for FDA approval 
of a 30 mg or a 60 mg generic Adalat product.

The Challenged Conduct

    Under the Respondents' Agreement, Elan appointed Biovail as the 
exclusive distributor of Elan's 30 mg and 60 mg generic Adalat 
products. At the time of the Agreement, neither Elan nor Biovail 
distributed its own generic drugs in the United States. Teva 
Pharmaceuticals, Inc. (``Teva''), a distributor of some of Biovail's 
products, participated in the negotiations leading up to the Agreement. 
The Agreement provided that Biovail appoint Teva to sub-distribute 
Elan's 30 mg generic Adalat product in the United States. With respect 
to Elan's 60 mg product, the Agreement provided that, upon notice from 
Elan that Elan's 60 mg product was ready for commercial launch, Biovail 
would appoint either Teva or another company as a sub-distributor of 
that product. The Agreement has a minimum term of 15 years.
    The FDA approval Elan's mg generic Adalat product in March 2000 and 
its 60 mg product in October 2001. It approved Biovail's 30 mg and 60 
mg generic Adalat products in December 2000. Biovail began selling 
Elan's 30 mg product immediately after receiving final FDA approval. 
Biovail began selling its own 60 mg product through Teva immediately 
after the FDA gave final approval to that product. Neither Elan's 60 mg 
product nor Biovail's 30 mg product, however, has ever been launched 
commercially. Thus, although two 30 mg generic Adalat products and two 
60 mg generic Adalat products have had FDA approval for many months, 
consumers can purchase only one product at each strength.
    The complaint alleges that, in exchange for the right to distribute 
Elan's products and share in the profits of those products, Biovail 
agreed to make specified payments to Elan. To date, Biovail has paid 
Elan approximately $33 million in connection with its distribution of 
Elan's 30 mg generic Adalat product, and $12.75 million in connection 
with the right to distribute Elan's 60 mg generic Adalat product.
    As the complaint alleges, the Agreement gave Biovail substantial 
incentives not to launch its own 30 mg product. Although Biovail has 
had final FDA approval to market its 30 mg product for over one year, 
and the Agreement purports to require Biovail to use ``reasonable 
commercial endeavors'' to launch that product ``with reasonable 
dispatch,'' Biovail has not yet launched that product. Biovail's launch 
of its own 30 mg product could be expected to cause a significant 
reduction in the price of Elan's incumbent 30 mg product, and generate 
for Elan's product lower total profits, which Biovail shares with Elan. 
For the same reasons, the Agreement diminished Biovail's incentives to 
exercise maximum efforts at eliminating the technological obstacles, if 
any, that Biovail asserts have impeded its ability to launch a self-
manufactured 30 mg product. Elan also does not have any incentive to 
enforce the Agreement's provision requiring that Biovail use reasonable 
efforts to launch its 30 mg product in competition with Elan's product.
    Similarly, the complaint alleges that the Agreement gave Elan 
substantial incentives not to launch its 60 mg product. Under the 
Agreement, in exchange for receiving a large up-front payment, Elan, in 
effect, stood to receive no royalties upon launch of its 60 mg product, 
until that product generated certain profits for Biovail. It would take 
several years of sales before Elan's 60 mg product would generate such 
profits, and once that triggering event happened, Elan's royalty was to 
be only 6% of profits. Accordingly, the complain alleges that the 
Agreement compensated Elan for its 60 mg product up-front and pre-
entry, while substantially diminishing that product's value to Elan 
thereafter. The Agreement also diminished Elan's incentives to exercise 
maximum efforts at eliminating any technological obstacles to launching 
its 60 mg product, if any, that Elan has asserted to exist. Moreover, 
neither Elan nor Biovail had any financial incentives to enforce the 
provision requiring launch of Elan's 60 mg product. As with the launch 
of Biovail's 30 mg product, Respondents knew that Elan's launch of its 
own 60 mg product could be expected to cause a reduction in the price 
of Biovail's incumbent 60 mg product by a significant amount and 
generate lower total profits for Biovail's product. It was in Bilvail's 
strategic interest, therefore, for Elan not to launch its 60 mg 
products.
    The complaint further alleges that even its Bilvail had launched 
its 30 mg product and Elan had launched its 60 mg product, the 
Agreement allows Biovail to control or influence pricing and other 
competitive features of both its and Elan's 30 mg and 60 mg generic 
Adalat products. Biovail was thus in a position to profit by 
suppressing competition between its and Elan's products.
    For the above reasons, the complaint alleges that Respondents' 
Agreement is an agreement not to compete between the only two producers 
of the 30 mg and 60 mg generic Adalat products. As a result, Teva, 
Biovail's distributor, is the only firm selling generic Adalat to 
consumers in the United States, and consumers have had access to only 
one of two approved generic Adalat products at each strength. Moreover, 
the Agreement is not justified by an countervailing efficiency.

The Proposed Order

    The proposed order remedies the Respondents' anticompetitive 
conduct by requiring them to end their anticompetitive Agreement and 
barring them from engaging in similar conduct in the future. It 
maintains supply of the incumbent generic Adalat products while 
Respondents unwind their anticompetitive Agreement and eliminates the 
anticompetitive obstacles to entry of a second 30 mg and a second 60 mg 
generic Adalat product.
    Paragraph I of the proposed order contains definitions, one of 
which defines the ``Adalat CC Agreement'' as the ``License, 
Distribution & Supply Agreement'' covering generic Adalat that Biovail 
and Elan executed on October 4, 1999, and all modifications and 
amendments thereto. We discuss other definitions below, as needed to 
explain the substantive provisions of the proposed order.
    Paragraph II of the proposed order is a core provision, prohibiting 
Biovail or Elan from repeating the instant conduct by entering 
anticompetitive price, output, or distribution agreements with other 
generic drug companies. This provision targets agreements between 
either Respondent and other persons concerning a generic drug for which 
both parties to the agreement have filed for FDA approval of an ANDA 
referencing the same pioneer drug product. It aims to prohibit 
agreements between competing generic drug manufacturers that restrict 
the marketing of competing generic drugs.
    Paragraph III of the proposed order requires Biovail and Elan to 
terminate their agreement on generic Adalat no later than the date on 
which the order becomes final. Paragraph 13 of the Agreement Containing 
Consent Order required them to start the termination process upon their 
execution of that

[[Page 44608]]

document. The proviso to Paragraph III allows Biovail and Elan to 
resolve financial issues connected to the termination of their 
agreement on generic Adalat on mutually agreeable terms; however, they 
cannot resolve those financial issues by using sales, revenues, or 
profits generated by generic Adalat or any other drug product, or by 
transferring rights connected to any drug product. This limitation is 
intended to ensure that, in resolving the financial issues, Respondents 
do not perpetuate the anticompetitive effects of the Agreement by 
continuing the entanglements between them on generic Adalat or on other 
drug products.
    Paragraph IV of the proposed order prohibits Elan from distributing 
its generic Adalat product through Teva. This prohibition is necessary 
because Biovail and Teva have a longstanding commercial relationship, 
whereby Teva distributes some of Biovail's product. Forbidding Elan 
from distributing this generic Adalat products through Teva will 
minimize the risk of inappropriate information exchange among Biovail, 
Elan, and Teva regarding generic Adalat, by eliminating any legitimate 
reason for all three companies to discuss their marketing of the 
products. Thus, it will help ensure that the termination of the 
Agreement fully restores the proper competitive incentives for each 
company.
    The proviso to Paragraph IV requires Elan to supply Teva, through 
Biovail, with Elan's 30 mg product, until the earlier of Biovail's 
launch of its own 30 mg product or May 31, 2003 (the ``Interim Supply 
Agreement''). This provision eliminates any disruption of supply of the 
30 mg product to consumers while Elan makes alternate arrangements for 
the distribution of its products. Once Elan begins to distribute its 
own product through an independent distributor, the Interim Supply 
Agreement will assure that consumers have access to two generic 30 mg 
Adalat products. The Interim supply Agreement may continue for up to a 
year, to give consumers the continued benefit of two 30 mg generic 
Adalat products while Biovail solves its purported manufacturing 
difficulty. Biovail has assured the Commission that it expects to 
overcome any manufacturing problems it has and launch its 30 mg generic 
Adalat product within a year. (Paragraph V further addresses Biovail's 
launch of its own 30 mg product, as we discuss below.)
    Paragraph IV prohibits Elan from charging Biovail more than Elan's 
``Cost'' for the product. Paragraph I of the proposed order defines 
``Cost'' to mean Elan's actual manufacturing cost. The cost definition 
is narrow, to minimize Elan's ability to profit from the Interim Supply 
Agreement through manipulation of the definition. Preventing Elan from 
profiting by supplying Biovail with the Elan 30 mg generic Adalat 
product gives Elan a strong incentive to launch its own 30 mg product 
through an indecent distributor as quickly as possible. Only through 
that launch will Elan begin to earn a profit on its 30 mg product. 
Because, under the Interim Supply Agreement, Biovail will receive 
Elan's 30 mg product at Elan's 30 mg product at Elan's manufacturing 
cost, Biovail will be in the same competitive position with respect to 
the cost of the 30 mg product as will Elan. In addition, Biovail will 
have to compete with Elan's new distributor to gain and maintain market 
share. Thus, the narrow cost definition will also give consumers the 
benefit of immediate price competition between the 30 mg product 
marketed by Teva and the 30 mg product marketed by Elan's independent 
distributor.
    Paragraph V of the proposed order require Elan to use best efforts 
to launch its 30 mg and 60 mg generic Adalat products as promptly as 
possible through a distributor other than Teva. It also requires 
Biovail to use best efforts to manufacture and distribute its 30 mg 
Adalat product, and to use best efforts to continue to manufacture and 
distribute its 60 mg generic Adalat product through a distributor other 
than Elan's generic Adalat distributor. Paragraph V.C states that the 
purpose of these requirements is to restore competitive incentives in 
the market for generic Adalat, and to remedy the lessening of 
competition resulting from the anticompetitive practices alleged in the 
Commission's complaint. This provision covers all four generic Adalat 
products, to ensure that Biovail and generic market their 30 mg and 60 
mg products through separate distributors. The proposed order defines 
``Launch'' to require Biovail and Elan to deliver commercial quantities 
of their generic Adalat products to a viable pharmaceutical distributor 
pursuant to a commercially reasonable, multi-year contract. This 
definition will ensure that the launch of Elan's 60 mg product and of 
Biovail's 30 mg product is on a competitive scale.
    The Commission will closely monitor Respondents' efforts to market 
their products. To facilitate this, the proposed order includes 
reporting requirements. Paragraph VIII requires Biovail and Elan to 
submit to the Commission verified written reports detailing each of 
their efforts to comply with the proposed order. Biovail and Elan must 
submit these reports every thirty days until they have complied with 
the proposed order.
    Paragraph VI of the proposed order requires Biovail and Elan to 
give the Commission notice of two types of agreements with other 
pharmaceutical manufacturers. First, Paragraph VI.A requires Biovail 
and Elan to give notice of agreements where, at the time of the 
agreement, the parties to the agreement each own, control, or license 
another product that is in the same ``Therapeutic Class'' as the 
product covered by the agreement. (The proposed order defines 
``Therapeutic Class'' as a class of drugs categorized by the Unified 
System of Classification contained in the most recent version of the 
IMS Health Incorporated publication Market Research Database: Product 
Directory.) Aa proviso excepts from the reporting requirement 
agreements that only transfer ``Drug Delivery Technology'' in exchange 
for a commercially reasonable cash royalty not to exceed drive per cent 
of revenue. The proposed order defines ``Drug Delivery Technology'' to 
mean technology that controls the release rate, or enhances the 
absorption or utilization of a pharmaceutical compound.)
    Second, Paragraph VI.B requires Biovail and Elan to give notice of 
agreements involving a product for which one party to the agreement has 
an ANDA that references a New Drug Application (``DNA'') that the other 
party owns, controls, or licenses. The notification provisions 
contained in Paragraph VI are necessary, because the core prohibition 
in Paragraph II only reaches agreements involving ANDAs that reference 
the same branded drug. Paragraph VI ensures that the Commission will 
receive notice of potentially anticompetitive agreements not covered by 
Paragraph II (i.e., agreements involving potentially competitive 
branded products, and agreements regarding a brand product and its 
generic equivalent.)
    Paragraphs VII, VIII, IX, and X of the proposed order contain 
reporting and other standard Commission order provisions designed to 
assist the Commission in monitoring compliance with the order. 
Paragraph XI provides that the order will expire in ten years.

Opportunity for Public Comment

    The proposed order has been placed on the public record for thirty 
days in order to receive comments from interested persons. Comments 
received during this period will become part of the public record. 
After thirty days, the Commission will again review the proposed order 
and the comments received and will decide whether it should withdraw 
from the agreement

[[Page 44609]]

containing 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 resolved. 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. 02-16711 Filed 7-2-02; 8:45 am]
BILLING CODE 6750-01-M