[Federal Register Volume 85, Number 219 (Thursday, November 12, 2020)]
[Notices]
[Pages 71895-71900]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25021]
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FEDERAL TRADE COMMISSION
[File No. 191-0182]
Pfizer Inc. and Mylan N.V.; Analysis of Agreement Containing
Consent Orders To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement; request for comment.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair methods of competition.
The attached Analysis to Aid Public Comment describes both the
allegations in the complaint and the terms of the consent order--
embodied
[[Page 71896]]
in the consent agreement--that would settle these allegations.
DATES: Comments must be received on or before December 14, 2020.
ADDRESSES: Interested parties may file comments online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write: ``Pfizer Inc. and Mylan
N.V.; File No. 191 0182'' on your comment, and file your comment online
at https://www.regulations.gov by following the instructions on the
web-based form. If you prefer to file your comment on paper, please
mail your comment to the following address: Federal Trade Commission,
Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610
(Annex D), Washington, DC 20580; or deliver your comment to the
following address: Federal Trade Commission, Office of the Secretary,
Constitution Center, 400 7th Street SW, 5th Floor, Suite 5610 (Annex
D), Washington, DC 20024.
FOR FURTHER INFORMATION CONTACT: Jasmine Rosner (202-326-3558), Bureau
of Competition, Federal Trade Commission, 600 Pennsylvania Avenue NW,
Washington, DC 20580.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 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 of Agreement Containing Consent Orders 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 website at
this web address: https://www.ftc.gov/news-events/commission-actions.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before December 14,
2020. Write ``Pfizer Inc. and Mylan N.V.; File No. 191 0182'' on your
comment. Your comment--including your name and your state--will be
placed on the public record of this proceeding, including, to the
extent practicable, on the https://www.regulations.gov website.
Due to the public health emergency in response to the COVID-19
outbreak and the agency's heightened security screening, postal mail
addressed to the Commission will be subject to delay. We strongly
encourage you to submit your comments online through the https://www.regulations.gov website.
If you prefer to file your comment on paper, write ``Pfizer Inc.
and Mylan N.V.; File No. 191 0182'' on your comment and on the
envelope, and mail your comment to the following address: Federal Trade
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite
CC-5610 (Annex D), Washington, DC 20580; or deliver your comment to the
following address: Federal Trade Commission, Office of the Secretary,
Constitution Center, 400 7th Street SW, 5th Floor, Suite 5610 (Annex
D), Washington, DC 20024. If possible, submit your paper comment by
courier or overnight service.
Because your comment will be placed on the publicly accessible
website at https://www.regulations.gov, you are solely responsible for
making sure that your comment does not include any sensitive or
confidential information. In particular, your comment should not
include sensitive personal information, such as your or anyone else'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 your comment does not
include sensitive health information, such as medical records or other
individually identifiable health information. In addition, your comment
should not include any ``trade secret or any commercial or financial
information which . . . is privileged or confidential''--as provided by
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)--including in particular competitively sensitive
information such as costs, sales statistics, inventories, formulas,
patterns, devices, manufacturing processes, or customer names.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c). 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). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted on https://www.regulations.gov--as legally required by FTC
Rule 4.9(b)--we cannot redact or remove your comment from that website,
unless you submit a confidentiality request that meets the requirements
for such treatment under FTC Rule 4.9(c), and the General Counsel
grants that request.
Visit the FTC website at http://www.ftc.gov to read this Notice and
the news release describing this matter. 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 December 14, 2020. For information on the
Commission's privacy policy, including routine uses permitted by the
Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.
Analysis of Consent Orders To Aid Public Comment
The Federal Trade Commission (``Commission''has accepted, subject
to final approval, an Agreement Containing Consent Orders (``Consent
Agreement'') from Pfizer Inc., Upjohn Inc., Viatris Inc., Mylan N.V.,
and Utah Acquisition Sub Inc., that is designed to remedy the
anticompetitive effects resulting from the proposed combination of
Upjohn and Mylan. Under the terms of the Consent Agreement, the parties
are required to divest Upjohn's generic drug rights and assets related
to six products to Prasco, LLC. The Consent Agreement also requires the
parties to divest Mylan's rights and assets related to eplerenone
tablets to Prasco. Further, the Consent Agreement requires prior
Commission approval before Upjohn, Mylan, or Viatris may gain an
interest in or exercise control over any third party's rights to (1)
levothyroxine sodium tablets, (2) sucralfate tablets, and (3)
varenicline tartrate tablets.
The Consent Agreement has been placed on the public record for
thirty days for receipt of comments from interested persons. Comments
received during this period will become part of the public record.
After thirty days, the Commission will again evaluate the Consent
Agreement, along with the comments received, to make a final decision
as to whether it should withdraw the Consent Agreement, modify it, or
make final the proposed Decision and Order (``Order'').
Pursuant to agreements dated July 29, 2019, Pfizer proposes to spin
off its Upjohn business, which includes legacy Pfizer branded products
and the authorized generic business,
[[Page 71897]]
Greenstone, LLC. Upjohn will combine with Mylan to form a new entity,
Viatris (``Proposed Combination''). The Commission alleges in its
Complaint that the Proposed Combination, if consummated, would violate
Section 7 of the Clayton Act, 15 U.S.C. 18, as amended, and Section 5
of the Federal Trade Commission Act, 15 U.S.C. 45, as amended, by
lessening current competition in the following seven U.S. markets: (1)
Amlodipine besylate/atorvastatin calcium tablets, (2) eplerenone
tablets, (3) gatifloxacin ophthalmic solution, (4) medroxyprogesterone
acetate injectable solution, (5) phenytoin chewable tablets, (6)
prazosin hydrochloride (``HCl'') capsules, and (7) spironolactone
hydrochlorothiazide (``HCTZ'') tablets. The Commission also alleges
that the Proposed Combination would violate the aforementioned statutes
by lessening future competition in the markets for: (1) Levothyroxine
sodium tablets, (2) sucralfate tablets, and (3) varenicline tartrate
tablets. The Consent Agreement will remedy the alleged violations by
preserving the competition that otherwise would be eliminated by the
Proposed Combination.
I. The Products and Structure of the Markets
In human pharmaceutical markets, price generally decreases as the
number of generic competitors increases. Prices continue to decrease
incrementally with the entry of the second, third, fourth, and even
fifth generic competitor. And in markets prone to supply shortages,
additional entry after the fifth generic competitor continues to affect
price and ensures more stable supply. Accordingly, the reduction in the
number of suppliers within each relevant market has a direct and
substantial effect on pricing.
The Proposed Combination would reduce current competition in the
markets for seven products where Greenstone distributes the authorized
generic version of the branded drug:
Amlodipine besylate/atorvastatin calcium tablets combine a
calcium channel blocker to treat hypertension with a lipid-lowering
agent to treat high cholesterol. Only four companies sell generic
amlodipine besylate/atorvastatin calcium tablets: Greenstone, Mylan,
Dr. Reddy's Laboratories Ltd., and Apotex Inc.
Eplerenone is a diuretic that is prescribed as an
adjunctive therapy when treating hypertension or congestive heart
failure after a heart attack. Significant sellers of eplerenone include
Greenstone, Mylan, Breckenridge Pharmaceutical, Inc., and Accord
Healthcare Inc.
Gatifloxacin ophthalmic solution is an eye drop that
treats bacterial conjunctivitis caused by susceptible strains of
certain bacteria. The market for gatifloxacin has faced historical
supply disruptions. Five companies supply this product today:
Greenstone, Mylan, Sandoz International GmbH, Akorn, Inc., and Lupin
Ltd.
Medroxyprogesterone acetate is an injectable solution used
to treat certain types of dysfunctional uterine bleeding. Injectable
products, such as medroxyprogesterone acetate, have recently
experienced shortages and supply disruptions. Greenstone, Mylan,
Amphastar Pharmaceuticals, Inc., Teva Pharmaceutical Industries Ltd.,
and Sun Pharmaceutical Industries Ltd. currently supply
medroxyprogesterone acetate.
Phenytoin chewable tablets are an anti-epileptic drug that
slows down impulses in the brain that cause seizures. Only three
suppliers provide phenytoin chewable tablets today: Greenstone, Mylan,
and Taro Pharmaceutical Industries Ltd.
Prazosin HCl capsules are an alpha-adrenergic blocker that
treats hypertension by relaxing the veins and arteries so that blood
can more easily pass. The market for prazosin HCl capsules is supplied
by four companies: Greenstone, Mylan, Teva, and Novitium Pharma LLC.
Spironolactone HCTZ tablets are a diuretic used to treat
hypertension. Only three suppliers provide spironolactone HCTZ tablets:
Greenstone, Mylan, and Sun.
The Proposed Combination also would reduce future competition in
the following generic markets:
Levothyroxine sodium tablets are offered in a host of
strengths and are prescribed to treat hypothyroidism or as an adjunct
therapy for patients undergoing treatment for thyroid cancer. Suppliers
for levothyroxine sodium tablets vary by strength. Should Upjohn or
Greenstone launch an authorized generic of Pfizer's levothyroxine
sodium branded product (Levoxyl[supreg]), the Proposed Combination
likely would reduce the number of independent suppliers from three to
two in some strengths.
Sucralfate tablets are used to treat and prevent ulcers in
the small intestines. Three companies sold sucralfate tablets
historically: Greenstone, Mylan, and Teva. Mylan recently discontinued
sales of sucralfate. The Proposed Combination likely alters Mylan's
incentives to relaunch sucralfate tablets and would reduce the number
of firms capable of selling sucralfate tablets from three to two.
Varenicline tartrate tablets are a smoking cessation aid
offered under Pfizer's brand Chantix[supreg]. Currently, only branded
Chantix[supreg] is available in the market. Mylan is one of a limited
number of companies likely to share the Hatch-Waxman 180-day
exclusivity period when the generic market forms. Should Upjohn or
Greenstone launch an authorized generic of Pfizer's Chantix[supreg],
the Proposed Combination would significantly reduce the number of
independent generic suppliers.
II. Entry
Entry into the markets at issue would not be timely, likely, or
sufficient in magnitude, character, and scope to deter or counteract
the anticompetitive effects of the Proposed Combination. The
combination of drug development times and regulatory requirements,
including approval by the FDA, is costly and time-consuming.
III. Competitive Effects
The Proposed Combination would likely cause significant
anticompetitive harm to consumers in the relevant generic
pharmaceutical markets by eliminating current and/or future competition
in concentrated existing generic markets or in future generic markets.
In generic pharmaceuticals markets, price is heavily influenced by the
number of participants with sufficient supply. 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 prices of the
generic pharmaceutical products at issue continue to decrease with new
entry even after a number of suppliers have entered these generic
markets.
The evidence shows anticompetitive effects are likely because the
Proposed Combination will reduce the number of independent competitors
in the markets at issue. In each of the current generic drug markets,
industry participants have indicated that the presence of Greenstone
and Mylan as independent competitors has allowed them to negotiate
lower prices and, in some markets, has improved surety of supply.
In five of the markets where Upjohn and Mylan currently compete
(amlodipine besylate/atorvastatin calcium tablets, eplerenone tablets,
phenytoin chewable tablets, prazosin HCl capsules, and spironolactone
HCTZ tablets), the Proposed Combination likely would reduce competition
by combining two of only four or fewer
[[Page 71898]]
current suppliers, likely leading to higher prices. In two of the
markets where Upjohn and Mylan currently compete and where significant
product shortages have occurred (gatifloxacin ophthalmic solution and
medroxyprogesterone acetate injectable solution), the Proposed
Combination would eliminate an independent supplier. Customers have
indicated that preserving competition between Upjohn and Mylan,
particularly in markets prone to shortages, is important to maintaining
adequate supplies and competitive prices.
In addition, the Proposed Combination likely would delay or forego
the introduction of beneficial competition, and subsequent price
decreases, by eliminating future competition in the markets for generic
levothyroxine sodium tablets, sucralfate tablets, and varenicline
tartrate tablets.
Absent the Consent Agreement, the Proposed Combination would
eliminate significant current and future competition between the
parties and likely cause U.S. consumers to pay higher prices for the
aforementioned generic pharmaceutical products.
IV. The Consent Agreement and Order
The proposed Order effectively remedies the competitive concerns
raised by the Proposed Combination for the ten generic pharmaceutical
product areas at issue. Pursuant to the proposed Order, the parties are
required to divest to Prasco Upjohn's authorized generic rights and
assets related to six products. The proposed Order also requires the
parties to divest Mylan's rights and assets related to eplerenone
tablets to Prasco. The parties must accomplish these divestitures and
relinquish their rights no later than ten days after the Proposed
Combination is consummated. The proposed Order further allows the
Commission to appoint a trustee in the event the parties fail to divest
the products.
Further, the proposed Order requires prior Commission approval
before Upjohn, Mylan, or Viatris may gain an interest in, or exercise
control over, any third party's rights to the following products: (1)
Levothyroxine sodium tablets, (2) sucralfate tablets, and (3)
varenicline tartrate tablets.
The Commission's goal in evaluating possible purchasers of divested
assets is to maintain the competitive environment that existed prior to
the Proposed Combination. Prasco is a capable purchaser with management
and employees who have experience marketing and distributing generic
pharmaceutical products. It will be able to replicate the competition
otherwise lost from the Proposed Combination.
The proposed Order contains several provisions to help ensure that
the divestitures are successful. As to the products and rights being
divested to Prasco, generic drug manufacturing will continue to be
performed by the same entity as prior to the Proposed Combination,
reducing the risk of any interruption in supply to Prasco. In some
instances, Pfizer--which will be an independent entity, separate from
Viatris after the Proposed Combination--will serve as Prasco's contract
manufacturer, allowing Prasco to step into the shoes of Upjohn/
Greenstone. Should Prasco decide to move manufacturing to another
contract manufacturer, the proposed Order requires the parties to
provide transitional services to assist Prasco or its designated
contract manufacturer in establishing manufacturing capabilities and
securing all necessary FDA approvals. These transitional services
include technical assistance to manufacture the currently marketed
products in substantially the same manner and quality employed or
achieved by the parties. To the extent that Pfizer will manufacture
relevant products on behalf of both Viatris and Prasco, the proposed
Order requires that supply to Prasco is provided at a pre-determined
cost and is prioritized over supply to Viatris. For amlodipine
besylate/atorvastatin calcium tablets, Viatris will provide the active
pharmaceutical ingredient (``API'') used in Prasco's product. The
proposed Order requires that Viatris provide Prasco with API at a pre-
determined cost and that it prioritizes Prasco's use of API over its
own. Moreover, the proposed Order requires a firewall between Viatris's
API business and its commercial business to prevent the sharing of
commercially sensitive information. Under the proposed Order, the
Commission also will appoint two Monitors.
The purpose of this analysis is to facilitate public comment on the
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, Commissioner Chopra and
Commissioner Slaughter dissenting.
April J. Tabor,
Acting Secretary.
Statement of Commissioner Christine S. Wilson
Today, the Commission announces that it has voted 3-2 to issue a
complaint and accept a settlement to remedy the threats to competition
arising from Mylan's proposed acquisition of Pfizer's off-patent drug
business.
The experienced staff of the Federal Trade Commission thoroughly
investigated all cognizable theories of harm to competition during more
than a year of review. Their extensive investigation put to rest some
concerns and produced grounds for other concerns. Staff negotiated
comprehensive remedies to address the potential anticompetitive effects
identified during their exhaustive investigation--as they have done in
many transactions in the pharmaceutical sector, including Bristol-Myers
Squibb/Celgene and AbbVie/Allergan. Yet, as Commissioners Slaughter and
Chopra did in those merger reviews, they are again opposing the
settlement of this enforcement action.
Prices for pharmaceuticals and biologics deserve the attention of
the American public and the federal government. As I stated in
connection with the announcement of the FTC's settlement with Bristol-
Myers and Celgene, within its limited civil authority as a competition
agency, the Commission vigorously pursues a comprehensive agenda to
address anticompetitive mergers and unlawful conduct in the
pharmaceutical industry.\1\ I continue to encourage those government
entities with the appropriate mandates to fix the many problems in this
sector that lie beyond our jurisdiction.
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\1\ Statement of Commissioner Christine S. Wilson, In the Matter
of Bristol-Myers Squibb Company/Celgene Corporation, File No. 191-
0061, Nov. 15, 2019, available at https://www.ftc.gov/system/files/documents/public_statements/1554278/bms-celgene-wilson-statement.pdf.
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Dissenting Statement of Commissioner Rohit Chopra Joined by
Commissioner Rebecca Kelly Slaughter
Summary
The FTC's record when it comes to reviewing pharmaceutical
mergers suggests that the agency will simply never seek to block a
merger. Instead, the agency's approach is to strike narrow settlements.
This encourages market actors to propose even more unlawful mergers.
Both Pfizer and Mylan have been accused of collusion in
the generic drug business. We must assess whether this merger will
enhance their ability to conspire and collude.
Rajiv Malik, who will be president of the merged entity,
is currently a defendant charged with antitrust
[[Page 71899]]
misconduct. The Commission's silence about his role is deeply
problematic.
Drug prices are out of control, and in too many instances, are out
of reach for patients who depend on them. Competition from generic
drugs pushes down high prices. That's why it's critical to combat abuse
of intellectual property that allows branded drug makers to block
generic entry. But we should also be deeply concerned that patients
can't reap the full benefits from generic competition, given the
alleged collusion in the generic drug industry to drive up prices. Any
investigation of massive mergers in the generic business must take this
into account.
Today, the Federal Trade Commission has voted to settle allegations
that Mylan's (NASDAQ: MYL) proposed $12 billion acquisition of Pfizer's
(NYSE: PFE) generic drug business is unlawful.\1\ The combined firm
would become the largest generic pharmaceutical firm in the world and
offer approximately 3,000 drug products that treat a broad range of
diseases and conditions.\2\ The FTC's proposed settlement requires
divestiture of seven individual products, as well as other provisions.
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\1\ Pfizer, Press Release, Mylan and Upjohn, a Division of
Pfizer, to Combine, Creating a New Champion for Global Health
Uniquely Positioned to Fulfill the World's Need for Medicine (July
29, 2019, 2:45 a.m.), https://www.pfizer.com/news/pressrelease/pressreleasedetail/mylan_and_upjohn_a_division_of_pfizer_to_combine_creating_a_new_champion_for_global_health_uniquely_positioned to fulfill the worlds need
for medicine.
\2\ See Mylan & Upjohn Investor Presentation, A New Champion for
Global Health at 17 (July 29, 2019), https://www.championforglobalhealth.com/media/championforglobalhealth/pdf/mylanupjohninvestorpresentation072919.pdf; see also Mylan & Upjohn
Fact Sheet, A New Champion for Global Health (n.d.a.), https://www.championforglobalhealth.com/media/championforglobalhealth/pdf/MylanUpjohnFactsheet072919.pdf.
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When it comes to pharmaceutical mergers, I am unable to identify a
single instance in recent history where the agency has filed a
complaint in federal court seeking to halt a prescription drug company
merger. This lack of litigation creates the strong impression that the
FTC simply looks to strike settlement deals involving individual
product divestitures. Virtually every market participant I have spoken
to in this industry believes that there is simply no risk of the FTC
blocking an unlawful pharmaceutical merger outright.
I respectfully disagree with the status quo approach the Commission
applied to this pharmaceutical merger. The use here is especially
concerning, since both firms and two of Mylan's top executives have
been accused of a wide-ranging price fixing and market allocation
conspiracy in the generic drug industry.\3\ With an expanded empire of
generic drug products, these alleged antitrust crimes may be even
easier to perpetrate by the new entity.\4\
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\3\ See Compl., Connecticut v. Teva Pharms. USA, Inc., Case No.
3:19-cv-00710 (D. Conn. filed May 10, 2019) ] 50; In re Generic
Pharms. Pricing Antitrust Litig. ] 34, Civ. Action No. 17-3768 (E.D.
Pa. filed June 15, 2018).
\4\ The Department of Justice also charged Teva with criminally
conspiring to fix prices, rig bids, and allocate customers for
generic drugs. Five previous corporate cases were resolved by
deferred prosecution agreements; Teva and its co-conspirator
Glenmark are awaiting trial. Four executives have also been charged;
three have entered guilty pleas, and one is awaiting trial. See
Press Release, Dep't. of Just., Seventh Generic Drug Manufacturer Is
Charged In Ongoing Criminal Antitrust Investigation (Aug. 25, 2020),
https://www.justice.gov/opa/pr/seventh-generic-drug-manufacturer-charged-ongoing-criminal-antitrustinvestigation.
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In this statement, I focus on how mergers involving companies
competing across a large number of product lines can exacerbate the
risk of collusive conspiracies, particularly in industries where
middlemen may not have an incentive to keep prices low.\5\ I also focus
on issues we must always confront. For example, the Commission should
always look to testimony from top executives at companies proposing to
merge in order to fully understand the range of potential effects on
competition. The Commission can only make a conclusion about the risk
of collusion and any impacts on competition when it has a full range of
data and evidence.
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\5\ Most generic drugs are sold by their manufacturers to group
purchasing organizations and large retail purchasers, who negotiate
pricing contracts for their members that ultimately purchase the
products. These contracts typically have inflation-based provisions
that allow for potentially greater compensation when prices are
higher. See In re Generic Pharms. Pricing Antitrust Litig. ] 74.
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Conditions for Collusion
When competitors enter into agreements to fix prices, rig bids, and
divvy up markets, they can face civil and criminal charges. Pfizer and
Mylan are defendants in several state attorneys general and private
plaintiff lawsuits alleging market allocation and price fixing in the
generic drug industry.\6\ They are also under investigation for
criminal market allocation and price fixing by the Department of
Justice.\7\ Over thirty additional generic drug companies are
defendants in the same state attorneys general suits, including well-
known drug firms Sandoz, Actavis, Teva, and Allergan, among others.
Patients have allegedly paid many billions of dollars in overcharges
for the generic drugs involved, causing a significant negative impact
on our national health and economy.\8\
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\6\ See e.g., Pl. States' Consol. Am. Compl., In re Generic
Pharms. Pricing Antitrust Litig.; Compl., Connecticut v. Teva
Pharms.; Compl., Connecticut v. Sandoz, Inc., Civ. Action No. 3:20-
cv-802 (D. Conn. filed June 10, 2020).
\7\ See Pfizer Inc., Current Report (Form 8-K) (Aug. 6, 2020) at
175; Mylan N.V., Annual Report (Form 10-K) (Dec. 31, 2019) at 153.
\8\ Compl., Connecticut v. Teva Pharms. USA, Inc. ] 5.
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Typically, collusion is easier to pull off when a market has only a
few big players, since coordination is more difficult with more
actors.\9\ However, there are many generic drug companies that operate
in the United States. So why might there be widespread misconduct?
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\9\ This concept is reflected in the FTC's Horizontal Merger
Guidelines. U.S. DEP'T OF JUST. & FED. TRADE COMM'N, HORIZONTAL
MERGER GUIDELINES Sec. 7.2 (Aug. 19, 2010), https://www.justice.gov/sites/default/files/atr/legacy/2010/08/19/hmg-2010.pdf.
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One potential explanation is that these companies compete with each
other in multiple different product markets. The enormous profit
potential for these firms from collusion likely contributes to their
incentives to engage in mutually beneficial coordination. By trading
favorable competitive terms in one market for favorable competitive
terms in another market, it may be easier for competing firms to reach
mutually beneficial terms of trade and punish each other for any
deviations.\10\
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\10\ See Federico Ciliberto & Jonathan W. Williams, Does
multimarket contact facilitate tacit collusion? Inference on conduct
parameters in the airline industry, 45 RAND J. OF ECON. 764-791
(2014) (noting that such multimarket contact facilitates tacit
collusion in the U.S. airline industry).
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Pfizer and Mylan allegedly did just that.\11\ In addition to
colluding within individual generic drug product markets, Pfizer's
Greenstone division, Mylan, and others are charged with trading
customers across different drug markets.\12\ They allegedly allowed
price increases on generic drugs without competing, based on a quid pro
quo from competitors on different drug products.\13\ Given these
allegations, it is important that we closely investigate how this
transaction could increase the ability of the merged entity to engage
in similar--or even more harmful--collusive conduct. For example, the
merged entity would become the top supplier of generic drugs by global
revenues, with an enormous number of
[[Page 71900]]
products and a broad range of competitors with which to engage in quid
pro quo collusive arrangements.\14\ With more generic drugs in the
hands of one competitor, it may be easier to form a cartel and punish
those who don't adhere to its terms. Despite this risk, the
Commission's analysis is silent with respect to the alleged price
fixing conduct.\15\
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\11\ Compl., In re Generic Pharms. Pricing Antitrust Litig. ]]
103-105 (describing Defendant Malik's willingness to ``play fair''
and give up two large customers to Heritage because Heritage had
previously allowed Mylan to enter another market without
competition); see also Compl., Connecticut v. Sandoz, Inc. ] 1299.
\12\ Id.
\13\ Compl., In re Generic Pharms. Pricing Antitrust Litig. ]
101; see also Compl., Connecticut v. Teva Pharms ] 12.
\14\ Beth Snyder Bulik, Mylan and Pfizer roll out tricolor
branding for their giant generics combo, Viatris, FIERCEPHARMA (July
9, 2020, 10:06 a.m.), https://www.fiercepharma.com/marketing/mylan-and-pfizer-debuts-new-viatris-generics-merged-brandunveils-tri-color-logo-for.
\15\ See, e.g., Analysis Of Agreement Containing Consent Orders
To Aid Public Comment, In the Matter of Pfizer Inc./Mylan N.V., File
No. 191 0182 (Oct. 29, 2020).
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The FTC often acts without the benefit of the experience of other
law enforcement partners.\16\ In all matters, the Commission should
avoid a go-it-alone approach and collaborate with other agencies to
help shed light on the mechanisms involved in the allegations.
Together, we should closely assess whether the likelihood of harm
increases post-merger.
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\16\ See Statement of Commissioner Rohit Chopra In the Matter of
AbbVie, Inc./Allergan plc, File No. 191 0169, 2, 19 (May 5, 2020),
https://www.ftc.gov/system/files/documents/public_statements/1574583/191_0169_dissenting_statement_of_commissioner_rohit_chopra_in_the_matter_of_abbvie-allergan_redacted.pdf; see also Statement of
Commissioner Rohit Chopra In the Matter of Social Finance, Inc.,
File No. 162 3917 (Oct. 29, 2018), https://www.ftc.gov/system/files/documents/public_statements/1418711/162_3197_statement_of_commissioner_chopra_on_sofi_10-29-18.pdf.
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Investigating Executives
In any matter where a company has a history of potential
wrongdoing, a key method to determine the motivations for a merger and
to predict how it will affect competition is to seek sworn testimony
from key executives. This is especially critical to understand how
sales, pricing, and market forces are working. This evidence is also
helpful if the agency must prepare a lawsuit.
While filings submitted by merging parties shed light on many
aspects of a transaction, they do not always provide a complete picture
of the deal rationale, pricing models, and boardroom behavior. The
state allegations of price fixing and market allocation make clear that
individual executives play a key role in sales and price setting, so it
is critical that we fully understand this element of the competitive
process. For example, what is their involvement in developing a pricing
model? Do they approve deviations from this pricing model? How do they
decide which new markets to enter? In what contexts do they interact
with their competitors? There are a long list of questions that are
absolutely essential in an inquiry like this.
In this transaction, one of the alleged masterminds of the ongoing
price fixing and market allocation schemes is Rajiv Malik, Mylan's
current president, who is a named defendant in one of the state
lawsuits.\17\ A second Mylan executive, Vice President of Sales James
Nesta, is also a named defendant in one of the cases.\18\ The merging
parties have publicly announced that Mr. Malik will retain the top
executive role in the expanded generic drug empire, if the transaction
closes.\19\ As president, he will be in charge of the merged entity's
sales and marketing operations.\20\ He will also serve on the merged
company's board.\21\
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\17\ Compl., In re Generic Pharms. Pricing Antitrust Litig. ]
34.
\18\ See Compl., Connecticut v. Teva Pharms. USA, Inc. ] 50.
\19\ See Pfizer Press Release, supra note 1.
\20\ Compl., In re Generic Pharms. Pricing Antitrust Litig. ]
34.
\21\ See Pfizer Press Release, supra note 1.
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Mr. Malik's role in the alleged price fixing scheme is significant.
He allegedly conceived and directed many of the schemes.\22\ In one
example, he is alleged to have agreed to cede market share in one
market to a specific competitor in exchange for an agreement from that
competitor to allow Mylan to enter a different market without
competition.\23\
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\22\ Compl., In re Generic Pharms. Pricing Antitrust Litig. ]
10.
\23\ Id. ] 188.
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Despite the alarm bells raised by Mr. Malik's planned role in the
merged firm, the Commission's analysis does not discuss his involvement
in the ongoing price fixing and market allocation allegations in the
industry or his plans for the company. In my view, the Commission owes
the public a clear explanation about Mr. Malik's role. In matters like
this, it is critical that the Commission rely on a wide range of data
and evidence, including testimony from key executives.\24\
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\24\ This is particularly important in industries where the
Commission cannot rely on evidence and testimony from customers who
act as middlemen. We know from the allegations in the state
attorneys general lawsuits that drug wholesalers and large retailers
allegedly benefit when generic drug prices are higher. These firms
have contractual provisions allowing for potentially greater
compensation when prices are higher. Id. ]] 71-75.
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Conclusion
I am concerned that executives in the pharmaceutical industry
routinely propose anticompetitive mergers without any fear that their
transactions will ever be blocked. In my view, the status quo approach
of seeking settlements through divestitures of individual products is
myopic and misses some of the fundamental elements of how firms compete
in this industry. I am also not aware of any instance where the
Commission publicly relied on the testimony under oath of a
pharmaceutical executive in approving a pharmaceutical divestiture
settlement.
Unless we change our approach, anticompetitive mergers in the
pharmaceutical industry will continue unabated, and we will all suffer
for it. I appreciate the diligence of our staff, who work at the
direction of the Commission. Unfortunately, the directives of the
Commission are deeply flawed, favoring routine over rigor. For all
these reasons, I respectfully dissent.
[FR Doc. 2020-25021 Filed 11-10-20; 8:45 am]
BILLING CODE 6750-01-P