[Federal Register Volume 76, Number 147 (Monday, August 1, 2011)]
[Notices]
[Pages 45801-45804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-19422]


-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

[File No. 111 0083]


Perrigo Company and Paddock Laboratories, Inc.; Analysis of 
Agreement Containing Consent Orders To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

-----------------------------------------------------------------------

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 26, 2011.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``Perrigo Paddock, File 
No. 111 0083'' on your comment, and file your comment online at https://ftcpublic.commentworks.com/ftc/perrigopaddockconsent, by following the 
instructions on the Web-based form. If you prefer to file your comment 
on paper, mail or deliver your comment to the following address: 
Federal Trade Commission, Office of the Secretary, Room H-113 (Annex 
D), 600 Pennsylvania Avenue, NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Christine Palumbo (202-326-3330), FTC, 
Bureau of Competition, 600 Pennsylvania Avenue, NW., Washington, DC 
20580.

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 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 26, 2011), on the World Wide Web, at http://www.ftc.gov/os/actions.shtm. 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.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before June 10, 2011. 
Write ``Perrigo Paddock, File No. 111 0083'' on your comment. Your 
comment B including your name and your state B will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to 
remove individuals' home contact information from comments before 
placing them on the Commission Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state

[[Page 45802]]

identification number or foreign country equivalent, passport number, 
financial account number, or credit or debit card number. You are also 
solely responsible for making sure that your comment does not include 
any sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which is obtained from any person and which is privileged or 
confidential,'' as provided in Section 6(f) of the FTC Act, 15 U.S.C. 
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do 
not include competitively sensitive information such as costs, sales 
statistics, inventories, formulas, patterns, devices, manufacturing 
processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
---------------------------------------------------------------------------

    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
---------------------------------------------------------------------------

    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/perrigopaddockconsent by following the instructions on the Web-
based form. If this Notice appears at http://www.regulations.gov/#!home, you also may file a comment through that Web site.
    If you file your comment on paper, write ``Perrigo Paddock, File 
No. 111 0083'' on your comment and on the envelope, and mail or deliver 
it to the following address: Federal Trade Commission, Office of the 
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before August 26, 2011. You can find more 
information, including routine uses permitted by the Privacy Act, in 
the Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from Perrigo Company (``Perrigo'') and Paddock 
Laboratories, Inc. (``Paddock'') that is designed to remedy the 
anticompetitive effects resulting from Perrigo's acquisition of 
Paddock. Under the terms of the proposed Consent Agreement, the 
companies would be required to divest to Watson Pharmaceuticals, Inc. 
(``Watson'') Paddock's rights and assets necessary to manufacture and 
market generic: (1) Ammonium lactate external cream 12 percent 
(``ammonium lactate cream''); (2) ammonium lactate topical lotion 12 
percent (``ammonium lactate lotion''); (3) ciclopirox shampoo 1 percent 
(``ciclopirox shampoo''); and (4) promethazine hydrochloride rectal 
suppository 12.5 mg and 25 mg (``promethazine suppository''). The 
proposed Consent Agreement also requires the companies to divest to 
Watson all of Perrigo's rights and assets necessary to manufacture and 
market generic clobetasol proprionate spray 0.05 percent (``clobetasol 
spray'') and diclofenac sodium topical solution 1.5 percent 
(``diclofenac solution''). Further, the proposed Consent Agreement 
prohibits the companies from accepting certain payments under a backup 
supply agreement between Paddock and Abbott Laboratories (``Abbott'') 
for Androgel, the branded version of testosterone gel 1 percent 
(``testosterone gel''), and entering into any ``pay-for-delay'' 
arrangements with Abbott.
    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 a Purchase Agreement dated January 20, 2011, Perrigo 
plans to acquire substantially all of Paddock's assets for $540 
million. 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, by substantially lessening competition in the 
U.S. markets for the manufacture and sale of the following generic 
pharmaceuticals: (1) Ammonium lactate cream; (2) ammonium lactate 
lotion; (3) ciclopirox shampoo; (4) promethazine suppository; (5) 
clobetasol spray; (6) diclofenac solution (collectively, the 
``Products''); and (7) testosterone gel. The proposed Consent Agreement 
will remedy the alleged violations in each of these markets.

II. The Products and Structure of the Markets

    The proposed acquisition would reduce the number of generic 
suppliers in six generic drug markets. The number of generic suppliers 
has a direct and substantial impact on generic pricing, as each 
additional generic supplier can have a competitive impact on the 
market. Because there are multiple generic equivalents for each of the 
products at issue here and the branded products are substantially more 
expensive than the generic versions, the branded versions no longer 
significantly constrain the generics' pricing.
    The proposed acquisition would reduce the number of competitors 
from three to two in four markets: (1) Ammonium lactate cream; (2) 
ammonium lactate lotion; (3) ciclopirox shampoo; and (4) promethazine 
suppository. The structure of each of these markets is as follows:
     The ammonium lactate cream and lotion products are both 
prescription moisturizers used to treat dry, scaly skin conditions, and 
help relieve itching. In 2010, annual sales of ammonium lactate cream 
were approximately $9.7 million, while sales of the ammonium lactate 
lotion totaled $19 million. The same firms compete in both markets--
Perrigo, Paddock, and Taro Pharmaceutical Industries Ltd. (``Taro''), 
although Paddock has temporarily withdrawn its products from the U.S. 
market. Perrigo leads the market for ammonium lactate cream with a 70 
percent share in the United States. Paddock has 17 percent of the 
market and Taro has 12 percent. In the market for ammonium lactate 
cream, the combined firm would account for 87 percent after the 
proposed acquisition. Perrigo and Paddock are the leading U.S. 
suppliers

[[Page 45803]]

of ammonium lactate lotion, with 43 percent and 50 percent of the 
market, respectively. Taro has only captured a 5 percent market share 
to date. Post-acquisition, Perrigo's share would increase to 93 percent 
of the market.
     Ciclopirox shampoo is a prescription shampoo used to treat 
seborrheic dermatitis, an inflammatory condition that causes flaky 
scales and patches on the scalp. Paddock is the leading supplier in the 
$14.5 million market for ciclopirox shampoo, with a share of 
approximately 83 percent. Perrigo, with a share of 16 percent, and E. 
Fougera & Co., with a 1 percent share, are the only other U.S. 
suppliers of the product. The proposed acquisition, therefore, would 
result in a combined market share of 99 percent.
     Promethazine suppository is indicated for a variety of 
uses, including to treat allergic reactions, to prevent and control 
motion sickness, and to relieve nausea and vomiting associated with 
surgery. Sales of the 12.5 mg and 25 mg strengths were approximately 
$7.9 million and $36.1 million in 2010, respectively. Perrigo, Paddock, 
and G&W Laboratories, Inc. (``G&W'') are the only U.S. suppliers of 
both strengths. For the 12.5 mg strength, Perrigo has 15 percent of the 
market, Paddock has 19 percent, and G&W has 66 percent. For the 25 mg 
strength, Perrigo has 15 percent of the market, Paddock has 20 percent, 
and G&W has 65 percent. A combined Perrigo and Paddock would possess 34 
percent of the 12.5 mg market and 35 percent of the 25 mg market.
    Both Perrigo and Paddock also are developing products for two 
future generic drug markets: (1) Clobetasol spray and (2) diclofenac 
solution. Clobetasol spray is a topical steroid used to treat moderate 
to severe psoriasis in adults. Diclofenac solution is a non-steroidal 
anti-inflammatory drug used to treat osteoarthritis of the knee. 
Perrigo and Paddock are among a limited number of suppliers that are 
capable of, and interested in, entering these markets in a timely 
manner. Accordingly, the proposed acquisition would eliminate important 
future competition in these markets.
    Finally, the proposed acquisition also could inhibit important 
future competition in the testosterone gel market. Testosterone gel, 
marketed by Abbott under the brand name Androgel, is a prescription gel 
used to treat adult males with a testosterone deficiency. Perrigo is 
one of a limited number of suppliers capable of entering this future 
generic market in a timely manner. Pursuant to an agreement between Par 
Pharmaceutical Companies, Inc. (``Par''), Paddock, and Solvay 
Pharmaceuticals, the former owner of Androgel, Par agreed to delay 
introducing a generic version of Androgel in exchange for, among other 
things, payments under a backup supply agreement. That agreement has 
since been transferred to Paddock. The proposed acquisition would make 
Perrigo a party to that agreement, thereby enhancing Abbott's and 
Perrigo's ability to coordinate to delay the introduction of Perrigo's 
product.

III. Entry

    Entry into the markets for the manufacture and sale of the products 
would not be timely, likely, or sufficient in its magnitude, character, 
and scope to deter or counteract the anticompetitive effects of the 
acquisition. Entry would not take place in a timely manner because the 
combination of generic drug development times and U.S. Food and Drug 
Administration (``FDA'') drug approval requirements take a minimum of 
two years. Furthermore, entry would not be likely because many of the 
relevant markets are small, so the limited sales opportunities 
available to a new entrant would likely be insufficient to warrant the 
time and investment necessary to enter.

IV. Effects of the Acquisition

    The proposed acquisition would cause significant anticompetitive 
harm to consumers in the U.S. markets for ammonium lactate cream, 
ammonium lactate lotion, ciclopirox shampoo, and promethazine 
suppository. In generic pharmaceutical markets, pricing is heavily 
influenced by the number of competitors that participate in a given 
market. The evidence shows that with the entry of each additional 
competitor, the prices of the generic products at issue have decreased. 
Customers consistently state that the price of a generic drug decreases 
with the entry of the second, third, and even fourth competitor. In 
these markets, the proposed acquisition would eliminate one of only 
three competitors. The evidence indicates that anticompetitive 
effects--both unilateral and coordinated--are likely to result from a 
decrease in the number of independent competitors in these markets, 
thereby increasing the likelihood that customers will pay higher 
prices.
    The proposed acquisition also eliminates or delays important future 
competition between Perrigo and Paddock in the U.S. markets for 
clobetasol spray and diclofenac solution. Perrigo's and Paddock's 
independent entry into these markets likely would have resulted in 
lower prices for customers. The proposed acquisition would deprive 
customers of the expected price decrease that would occur upon the 
parties' entry into these markets.
    Similarly, the proposed acquisition increases the likelihood and 
degree of coordinated interaction between Perrigo and Abbott in the 
U.S. testosterone gel market. Perrigo would become a party to the Par/
Paddock backup supply agreement, thereby enhancing Abbott's and 
Perrigo's ability to coordinate to delay the introduction of Perrigo's 
product. Perrigo's independent entry into the market likely would 
result in lower prices for customers. The proposed acquisition could 
therefore deprive customers of the expected price decrease that would 
ensue upon Perrigo's timely entry into the market.

V. The Consent Agreement

    The proposed Consent Agreement effectively remedies the 
acquisition's anticompetitive effects in the relevant product markets 
by requiring a divestiture of the Products to a Commission-approved 
acquirer no later than ten days after the acquisition. The acquirer of 
the divested assets must receive the prior approval of the Commission. 
The Commission's goal in evaluating a possible purchaser of divested 
assets is to maintain the competitive environment that existed prior to 
the acquisition.
    The Consent Agreement requires that the parties divest rights and 
assets related to the Products to Watson. Watson is the third largest 
generic drug manufacturer in the United States, and well-situated to 
manufacture and market the acquired products. Watson has extensive 
experience in the development, manufacturing, and distribution of 
generic pharmaceuticals, as well as experience transferring assets from 
other pharmaceutical companies. Watson has approximately 325 active 
products and an active product development pipeline. Moreover, Watson's 
acquisition of the divested assets does not in itself present 
competitive concerns because Watson does not compete, nor does it have 
plans to independently enter, any of the markets affected by the 
proposed transaction. With its resources, capabilities, strong 
reputation, and experience manufacturing and marketing generic 
products, Watson is well-positioned to replicate the competition that 
would be lost with the acquisition.
    If the Commission ultimately determines that Watson is not an 
acceptable acquirer of the assets to be divested, or that the manner of 
the

[[Page 45804]]

divestitures to Watson is not acceptable, the parties must unwind the 
sale and divest the Products within six months of the date the Order 
becomes final to another Commission-approved acquirer. If the parties 
fail to divest within six months, the Commission may appoint a trustee 
to divest the Product assets.
    The proposed remedy contains several provisions to ensure that the 
divestitures are successful. The Order requires Perrigo and Paddock to 
provide transitional services to enable Watson to obtain all of the 
necessary approvals from the FDA. These transitional services include 
technology transfer assistance to manufacture the Products in 
substantially the same manner and quality employed or achieved by 
Perrigo and Paddock. In addition, the parties must supply Watson with 
the Products pursuant to a supply agreement while they transfer the 
manufacturing technology to a third-party manufacturer of Watson's 
choice.
    The Consent Agreement also preserves competition in the market for 
testosterone gel by prohibiting the parties from: (1) receiving any 
payments that accrue after the initial term of the backup supply 
agreement aside from those for manufacturing the product; and (2) 
entering into any anticompetitive pay-for-delay arrangements with 
Abbott regarding the testosterone gel product.
    The Commission has appointed F. William Rahe of Quantic Regulatory 
Services, LLC (``Quantic'') as the Interim Monitor to oversee the asset 
transfer and to ensure Perrigo and Paddock's compliance with the 
provisions of the proposed Consent Agreement. Mr. Rahe is a senior 
consultant at Quantic and has several years of experience in the 
pharmaceutical industry. He is a highly-qualified expert on FDA 
regulatory matters and currently advises Quantic clients on achieving 
satisfactory regulatory compliance and interfacing with the FDA. In 
order to ensure that the Commission remains informed about the status 
of the proposed divestitures and the transfers of assets, the proposed 
Consent Agreement requires the parties to file reports with the 
Commission periodically until the divestitures and transfers are 
accomplished.
    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 Order or to modify its terms in 
any way.

    By direction of the Commission.
Richard C. Donohue,
Acting Secretary.
[FR Doc. 2011-19422 Filed 7-29-11; 8:45 am]
BILLING CODE 6750-01-P