[Federal Register Volume 70, Number 141 (Monday, July 25, 2005)]
[Notices]
[Pages 42548-42550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-14548]


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FEDERAL TRADE COMMISSION

[File No. 051 0106]


Novartis AG; Analysis of Agreement Containing Consent Order To 
Aid Public Comment

AGENCY: Federal Trade Commission (FTC).

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 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 August 18, 2005.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Novartis AG, File No. 051 0106,'' to 
facilitate the organization of comments. A comment filed in paper form 
should include this reference both in the text and on the envelope, and 
should be mailed or delivered to the following address: Federal Trade 
Commission/Office of the Secretary, Room 135-H, 600 Pennsylvania 
Avenue, NW., Washington, DC 20580. Comments containing confidential 
material must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with Commission Rule 4.9(c). 16 CFR 
4.9(c) (2005).\1\ The FTC is requesting that any comment filed in paper 
form be sent by courier or overnight service, if possible, because U.S. 
postal mail in the Washington area and at the Commission is subject to 
delay due to heightened security precautions. Comments that do not 
contain any nonpublic information may instead be filed in electronic 
form as part of or as an attachment to e-mail messages directed to the 
following e-mail box: [email protected].
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    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).
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    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at http://www.ftc.gov. As a matter of discretion, the FTC 
makes every effort to remove home contact information for individuals 
from the public comments it receives before placing those comments

[[Page 42549]]

on the FTC Web site. More information, including routine uses permitted 
by the Privacy Act, may be found in the FTC's privacy policy, at http:/
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/www.ftc.gov/ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT: Elizabeth A. Jex, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-3273.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 of 
the Commission 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 July 19, 2005), on the World Wide Web, at http://www.ftc.gov/os/2005/07/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. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Order (``Consent 
Agreement'') from Novartis AG (``Novartis''), which is designed to 
remedy the anticompetitive effects of the acquisition of Eon Labs, Inc. 
(``Eon'') by Novartis. Under the terms of the proposed Consent 
Agreement, Novartis, including its generic pharmaceuticals division 
Sandoz, Inc. (``Sandoz''), would be required to divest to Amide 
Pharmaceutical, Inc. (``Amide'') the Eon assets necessary to 
manufacture and market generic desipramine hydrochloride tablets, and 
the Sandoz assets necessary to manufacture and market orphenadrine 
citrate ER tablets and rifampin oral capsules in the United States. 
Further, Novartis, through Sandoz, has agreed to enter into a supply 
agreement with Amide to enable Amide to market these products until 
Amide obtains Food and Drug Administration (``FDA'') approval to 
manufacture the products itself. Further, Novartis is required to 
provide technology transfer assistance to enable Amide to obtain all 
necessary FDA approvals as soon as possible.
    The proposed Consent Agreement has been placed on the public record 
for thirty days for receipt of comments by interested persons. Comments 
received during this period will become part of the public record. 
After thirty days, the Commission will again review the proposed 
Consent Agreement and the comments received, and will decide whether it 
should withdraw from the proposed Consent Agreement, modify it, or make 
final the Decision and Order (``Order'').
    Pursuant to an Agreement for Purchase and Sale of Stock dated 
February 20, 2005, Novartis agreed to purchase 60 million shares of Eon 
from Santo Holding AG (``Santo'') for $1.72 billion in cash. These 
shares represent approximately 67% of the outstanding stock of Eon. 
Further, Novartis has made a definitive agreement, approved by the Eon 
Board of Directors, to offer to acquire the remaining 31.9 million 
fully diluted shares of Eon for $31.00 per share cash. The Commission's 
Complaint alleges that the proposed acquisition, if consummated, would 
violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and 
Section 5 of the FTC Act, as amended, 15 U.S.C. 45, in the markets for 
the manufacture and sale of: (1) Generic desipramine hydrochloride 
tablets, (2) generic orphenadrine citrate ER tablets, and (3) generic 
rifampin oral capsules. The proposed Consent Agreement will remedy the 
alleged violations by replacing in each of these markets the lost 
competition that would result from the acquisition.
    Desipramine hydrochloride is a tricyclic antidepressant. The 
branded desipramine product, Norpramin, does not offer any significant 
price pressure in the generic desipramine market other than setting a 
price ceiling that is currently many times higher than the generic 
pricing level. The brand price is essentially irrelevant with respect 
to the pricing of generic desipramine tablets. In contrast, the 
competition between producers of generic desipramine tablets has a 
direct and substantial effect on generic desipramine pricing. Annual 
U.S. sales of generic desipramine hydrochloride tablets are reported to 
be less than $6 million. The U.S. market for the manufacture and sale 
of generic desipramine hydrochloride tablets is highly concentrated. 
Only Novartis and Eon make all six strengths of generic desipramine 
hydrochloride tablets. Watson Pharmaceuticals, Inc., the only other 
firm supplying generic desipramine hydrochloride tablets, sells only 
three of the six strengths. The acquisition of Eon by Novartis would 
increase significantly the concentration in the generic desipramine 
hydrochloride market. Post-acquisition, only Novartis would supply the 
full line, accounting for more than 95% of U.S. generic desipramine 
hydrochloride sales.
    Orphenadrine citrate is a muscle relaxant. The branded orphenadrine 
citrate product, Norflex, does not impact the pricing of generic 
orphenadrine citrate other than setting a price ceiling that is 
currently many times higher than the generic pricing level. In 
contrast, the competition between producers of generic orphenadrine 
citrate tablets has a direct and substantial effect on generic 
orphenadrine citrate pricing. Annual U.S. sales of generic orphenadrine 
citrate ER tablets is slightly under $10 million. The U.S. market for 
the manufacture and sale of generic orphenadrine citrate ER tablets is 
highly concentrated. Only Eon, Novartis, and Impax Laboratories, Inc. 
(through its generic marketing division, Global Pharmaceuticals) 
manufacture and market generic orphenadrine citrate ER tablets in the 
United States. The acquisition would result in a duopoly with Novartis 
accounting for approximately 70% of all prescriptions of generic 
orphenadrine citrate. The acquisition of Eon by Novartis would increase 
the concentration in the market significantly.
    Rifampin is one of several drugs used in a multi-drug cocktail for 
the treatment of tuberculosis. Rifampin is indicated for the treatment 
of tuberculosis. The branded rifampin product, Rifadin, does not offer 
any significant price pressure in the generic rifampin oral capsule 
market other than setting a price ceiling that is currently many times 
higher than the generic pricing level. In contrast, the competition 
between producers of generic rifampin capsules has a direct and 
substantial effect on generic rifampin pricing. Annual U.S. sales of 
generic rifampin oral capsules is about $14.5 million. The U.S. market 
for the manufacture and sale of generic rifampin oral capsules is 
highly concentrated. Only Eon, Novartis, and VersaPharm, Incorporated 
market generic rifampin oral capsules in the United States. The 
acquisition would result in a duopoly with Novartis accounting for more 
than 70% of sales of generic rifampin in the United States.

[[Page 42550]]

The acquisition of Eon by Novartis would increase the concentration in 
the market significantly.
    Entry into manufacture and sale of: (1) Generic desipramine 
hydrochloride tablets, (2) generic orphenadrine citrate ER tablets, and 
(3) generic rifampin oral capsules would not be timely, likely, or 
sufficient in its magnitude, character, and scope to deter or 
counteract the anticompetitive effects of the acquisition. Developing 
and obtaining FDA approval for the manufacture and sale of generic 
desipramine hydrochloride tablets, generic orphenadrine citrate ER 
tablets, and generic rifampin oral capsules takes at least two years 
due to substantial regulatory, technological, and intellectual property 
barriers.
    The proposed acquisition would cause significant anticompetitive 
harm to consumers in the U.S. markets for generic desipramine 
hydrochloride tablets, generic orphenadrine citrate ER tablets, and 
generic rifampin oral capsules by eliminating actual, direct, and 
substantial competition between Novartis and Eon; by increasing the 
likelihood that Novartis will be able to unilaterally exercise market 
power; by increasing the likelihood and degree of coordinated 
interaction between the few remaining competitors; and by increasing 
the likelihood that consumers will pay higher prices.
    The proposed Consent Agreement preserves competition in the generic 
desipramine hydrochloride tablets, generic orphenadrine citrate ER 
tablets, and generic rifampin oral capsules markets by requiring that 
Novartis divest all of the Sandoz orphenadrine citrate ER and rifampin 
assets and all of Eon's desipramine hydrochloride assets to Amide no 
later than ten days after the acquisition. Amide, a reputable generic 
manufacturer, is particularly well-positioned to manufacture and market 
generic rifampin, because Amide already currently contract manufactures 
generic rifampin capsules for Novartis. Amide is also well-positioned 
to obtain FDA approval to manufacture and market generic desipramine 
hydrochloride and orphenadrine citrate ER in the near future. If the 
Commission determines that Amide is not an acceptable purchaser, or 
that the manner of the divestiture is not acceptable, Novartis must 
rescind the transaction with Amide and divest the assets to a 
Commission-approved buyer not later than six months from the date the 
Order becomes final. If Novartis fails to divest within the six months, 
the Commission may appoint a trustee to divest the desipramine 
hydrochloride, rifampin, and orphenadrine citrate ER assets.
    The proposed remedy contains several provisions designed to ensure 
the successful divestiture of the desipramine hydrochloride, rifampin, 
and orphenadrine citrate ER assets to Amide. Novartis must provide 
various transitional services to enable Amide to compete against 
Novartis immediately following the divestiture. Novartis is obligated 
to provide Amide with all inventory of the three divested products and 
to supply Amide the two products that Amide does not currently 
manufacture--desipramine hydrochloride and orphenadrine citrate ER--
while Amide attempts to obtain FDA approval to manufacture the products 
for itself in its own facility. Novartis will supply Amide with 
desipramine hydrochloride for two years, and Amide will have options to 
extend that supply for two additional one-year periods if Amide is 
making progress toward approval and needs the additional time to obtain 
FDA approval. Novartis will supply Amide with orphenadrine citrate ER 
for four years, and Amide will again have options to extend the supply 
up to two additional one-year periods as it seeks FDA approval to 
manufacture orphenadrine citrate for itself. Novartis is also required 
to provide technology transfer assistance to enable Amide to obtain all 
necessary FDA approvals to manufacture and sell desipramine 
hydrochloride, rifampin, and orphenadrine citrate for itself.
    The proposed remedy does not provide for a technology transfer or 
supply obligation for rifampin because Amide is already in possession 
of the manufacturing technology, having contract manufactured generic 
rifampin for Novartis for several years.
    The proposed remedy also incorporates the use of an Interim 
Trustee, experienced in obtaining regulatory approval and the 
manufacture of pharmaceuticals, to oversee the technology transfer and 
to assist Amide and the Commission in the event of difficulties with 
supply or delays in obtaining approval. As part of the proposed remedy, 
Novartis is required to execute an agreement conferring all rights and 
powers necessary for the Interim Trustee to satisfy his 
responsibilities under the Order to assure successful divestitures of 
the desipramine hydrochloride, rifampin, and orphenadrine citrate 
assets. Novartis has selected Francis J. Civille to be the Interim 
Monitor and Amide has consented to his selection. The monitor will 
ensure that the Commission remains informed about the status of the 
proposed divestitures and asset transfers.
    The purpose of this analysis is to facilitate public comment on the 
proposed Consent Agreement, and it is not intended to constitute an 
official interpretation of the proposed Consent Agreement or to modify 
its terms in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 05-14548 Filed 7-22-05; 8:45 am]
BILLING CODE 6750-01-P