[Federal Register Volume 77, Number 140 (Friday, July 20, 2012)]
[Notices]
[Pages 42733-42735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17660]


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FEDERAL TRADE COMMISSION

[File No. 121 0144]


Novartis AG; Analysis of Agreement Containing Consent Orders 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 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 16, 2012.

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 `` Novartis Fougara, 
File No. 121 0144'' on your comment, and file your comment online at 
https://ftcpublic.commentworks.com/ftc/novartisfougera, 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 Tasso (202-326-2232), 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 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 16, 2012), 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 August 16, 2012. 
Write `` Novartis Fougera, File No. 121 0144'' 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 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

[[Page 42734]]

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.
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    \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).
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    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/novartisfougera 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 `` Novartis Fougera, File 
No. 121 0144'' 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 16, 2012. 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

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from Novartis AG (``Novartis'') that is designed to remedy 
the anticompetitive effects of Novartis's acquisition of Fougera 
Holdings Inc. (``Fougera'') in several generic pharmaceutical markets. 
Under the terms of the proposed Consent Agreement, Novartis is required 
to: (1) Terminate Novartis's marketing agreement with Tolmar, Inc. 
(``Tolmar'') with respect to the currently marketed products generic 
calcipotriene topical solution, generic lidocaine-prilocaine cream, and 
generic metronidazole topical gel (``Marketed Divestiture Products'') 
and return all of Novartis's rights to distribute, market, and sell the 
Marketed Divestiture Products to Tolmar; and (2) return all rights to 
develop, distribute, market, and sell the development product generic 
diclofenac sodium gel to Tolmar.
    The proposed Consent Agreement has been placed on the public record 
for thirty (30) days for receipt of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) 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 and Plan of Merger executed on May 1, 
2012, Novartis proposes to acquire Fougera in a transaction valued at 
approximately $1.525 billion (the ``Proposed Acquisition'' or 
``Acquisition''). 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 Federal Trade 
Commission Act, as amended, 15 U.S.C. 45, by substantially lessening 
competition in the U.S. markets for generic calcipotriene topical 
solution, generic lidocaine-prilocaine cream, generic metronidazole 
topical gel, and diclofenac sodium gel. The proposed Consent Agreement 
will remedy the alleged violations by replacing the competition that 
would otherwise be eliminated by the Acquisition.

The Products and Structure of the Markets

    The Acquisition would reduce the number of generic suppliers in 
three current generic drug markets with likely anticompetitive 
consequences. In human pharmaceutical product markets with generic 
competition, price generally decreases as the number of generic 
competitors increases. Accordingly, the reduction in the limited number 
of suppliers within each relevant market has a direct and substantial 
effect on pricing.
    Generic calcipotriene topical solution is used to treat chronic, 
moderately severe scalp psoriasis. Only three companies offer generic 
calcipotriene topical solution in the United States: Novartis, Fougera, 
and G & W Laboratories (``G & W''). Novartis leads the market with a 67 
percent share. G & W accounts for 22 percent, while Fougera represents 
an 11 percent share.
    Generic lidocaine-prilocaine cream is used as a local anesthetic to 
treat intact skin and to relieve pain from injections and surgery. 
Lidocaine-prilocaine is available in both 30 gram tubes and packages 
containing five 5 gram tubes (``5-5 tubes''). The 5-5 tubes are used 
only in hospitals, while the 30 gram tubes are prescribed directly to 
patients for home use. Fougera, Hi-Tech Pharmaceutical Co. (``Hi-
Tech''), and Novartis are the only U.S. suppliers of 30 gram tubes. The 
market for the generic 5-5 tubes is even more concentrated as only 
Fougera and Novartis offer them. The Acquisition would therefore create 
a monopoly in the generic lidocaine-prilocaine 5-5 tube market.
    Generic metronidazole topical gel is used to treat inflamed papules 
and pustules of rosacea, a condition that causes chronic redness of 
facial skin. Taro Pharmaceutical Industries (``Taro'') is the market 
leader with approximately 43 percent market share, Fougera has 
approximately 36 percent market share, Novartis has approximately 19 
percent market share, and G & W has approximately 2 percent market 
share.
    Furthermore, the Acquisition could inhibit significant future 
competition by reducing the number of potential suppliers in the 
diclofenac sodium gel market. Solaraze is a branded drug sold by 
Fougera that is used to treat actinic keratosis. No companies currently 
market a generic version of the drug, diclofenac sodium gel, in the 
United States. Novartis is best positioned to be the first generic 
entrant into this market.

Entry

    Entry into the relevant markets for the sale of the products would 
not be timely, likely, or sufficient in 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 drug development times and U.S. Food and Drug Administration 
(``FDA'') approval requirements are likely to take at least two years.

Effects

    In each of the relevant product markets, the Proposed Acquisition 
likely would eliminate one of a limited number of suppliers and cause 
significant competitive harm by facilitating price increases--or 
eliminating decreases--after the transaction is consummated.
    In generic pharmaceuticals markets, pricing is heavily influenced 
by the number of competitors with sufficient

[[Page 42735]]

supply that participate in the market. Market participants consistently 
characterize generic drug markets as commodity markets in which the 
number of generic suppliers has a direct impact on pricing. Customers 
and competitors alike have confirmed that the price of a generic 
pharmaceutical product decreases with the entry of the second, third, 
and even fourth and fifth generic competitor. Further, customers 
generally believe that having at least four suppliers in a generic 
pharmaceutical market produces the most competitive prices.
    Evidence gathered during our investigation indicates that 
anticompetitive effects are likely to result from a decrease in the 
number of independent competitors in the markets at issue. The Proposed 
Acquisition, by reducing an already limited number of competitors or 
potential competitors in each of these markets, would cause 
anticompetitive harm to U.S. consumers by increasing the likelihood of 
higher post-acquisition prices. In the market for generic calcipotriene 
topical solution, Novartis and Fougera are two of only three suppliers. 
In the lidocaine-prilocaine cream 30 gram tube market, Novartis and 
Fougera are two of only three suppliers of the product, and the 
Proposed Acquisition would eliminate Fougera as an independent 
competitor to Novartis leaving only Hi-Tech. In the generic lidocaine-
prilocaine cream 5-5 gram tubes market, the Acquisition would result in 
a merger to monopoly. In the generic metronidazole gel market, Novartis 
and Fougera are two of four competitors, and combined, Novartis and 
Fougera represent 55 percent of the market. In all of these markets, 
industry participants have indicated that the presence of Fougera as a 
competitor has allowed them to negotiate lower prices.
    Finally, the Acquisition would eliminate significant potential 
competition between Novartis and Fougera in the market for the sale of 
diclofenac sodium gel. Novartis, through its agreement with Tolmar, was 
the first to file for an approval of a generic form of Solaraze with 
the FDA. Thus, Fougera's brand, Solaraze, is likely to face competition 
solely from Novartis for a significant period of time when generic 
competition is introduced into this market. As a result, the 
Acquisition would increase the likelihood that the launch of a generic 
diclofenac sodium gel product would be delayed or abandoned altogether 
and increase the likelihood that the combined entity would delay or 
eliminate the substantial price competition that would have resulted 
from the entry of a supplier of a generic diclofenac sodium gel 
product.

The Consent Agreement

    The proposed Consent Agreement effectively remedies the Proposed 
Acquisition's anticompetitive effects in the relevant product markets. 
Pursuant to the Consent Agreement, Novartis is required to return 
certain rights related to the relevant products to Tolmar no later than 
ten (10) days after the Acquisition. Specifically, the proposed Consent 
Agreement requires that Novartis: (1) Terminate its marketing agreement 
with Tolmar, thereby returning all of its rights to distribute, market, 
and sell the Marketed Divestiture Products back to Tolmar; and (2) 
return all rights to develop, distribute, market, and sell generic 
diclofenac sodium gel to Tolmar. Tolmar is the Colorado-based developer 
and manufacturer of the relevant generic products.
    If Novartis does not fully comply with its obligations to return 
all rights to generic calcipotriene topical solution, generic 
lidocaine-prilocaine cream, generic metronidazole topical gel, and 
generic diclofenac sodium gel, the Commission may appoint a trustee to 
effect the return of such rights.
    The proposed remedy contains several provisions to ensure that the 
transfer of rights back to Tolmar is successful. The Consent Agreement 
contains an Order to Maintain Assets that requires Novartis to continue 
to market the Marketed Divestiture Products in a manner that maintains 
the full economic viability and marketability of the businesses until 
Tolmar directs Novartis to cease marketing the Marketed Divestiture 
Products or Tolmar's new marketing partner commences the distribution, 
marketing, and sale of the Marketed Divestiture Products.
    The Commission appointed William Rahe of Quantic Regulatory 
Services, LLC to act as an interim monitor to assure that Novartis 
expeditiously complies with all of its obligations and performs all of 
its responsibilities as required by the Consent Agreement. In order to 
ensure that the Commission remains informed about the status of the 
returned rights and assets, the Consent Agreement requires Novartis to 
file reports with the interim monitor who will report in writing to the 
Commission concerning performance by Novartis of its obligation under 
the Consent Agreement.
    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. 2012-17660 Filed 7-19-12; 8:45 am]
BILLING CODE 6750-01-P