On December 29, 2008, the Federal Trade Commission (FTC) announced a consent order allowing King Pharmaceuticals, Inc. , to acquire rival drug-maker Alpharma Inc. . The consent order requires King to divest its rights to Alpharma’s branded oral long-acting opioid (LAO) analgesic drug Kadian to Actavis, the company that currently manufactures the drug for Alpharma at its New Jersey plant. King and Alpharma executed a merger agreement on November 23, 2008, pursuant to which King would acquire all the outstanding shares of Alpharma through a cash tender offer valued at $1.6 billion.
Tennessee-based King and New Jersey-based Alpharma each market and sell oral LAOs, which the FTC’s complaint defines as “orally-administered extended-release formulations of potent pure opioid agonists, including, but not limited to, oxycodone, morphine sulfate, and oxymorphone.” Oral LAOs have become the standard of care for managing moderate-to-severe chronic pain, and total annual sales of oral LAOs reached approximately $4 billion in 2007. According to the complaint, the relevant market is “no broader than the manufacture and sale of oral LAOs, and includes the narrower market for oral long-acting morphine sulfate.” Purdue Pharma L.P.’s oxycodone-based OxyContin is the dominant product in this highly concentrated market. However, King’s LAO, Avinza, and Alpharma’s LAO, Kadian, are the only two competitively-significant branded drugs in the narrower, morphine sulfate-based LAO market.
The complaint alleges that further entry into the market for the manufacture and sale of oral LAOs would be difficult, expensive, and time-consuming given that obtaining FDA approval for a new oral LAO takes at least two years. King’s acquisition of Alpharma would eliminate competition between the companies in the relevant market and, given that Kadian and Avinza are considered substitutes by many consumers, the complaint alleges that the acquisition would increase the likelihood that King could unilaterally exercise market power and force consumers to pay higher prices for branded morphine sulfate-based LAOs.
The consent order requires King to divest Kadian to Actavis no later than ten days after it completes its acquisition of Alpharma. Iceland-based Actavis is one of the world’s largest generic pharmaceutical companies. The order requires the divestiture of all intellectual property, regulatory approvals, inventory, books and records, marketing materials, and assumed contracts necessary for Actavis to sell Kadian as either a branded or generic product. However, because Actavis already manufactures Kadian, the order does not require the divestiture of fixed assets, an interim supply agreement, provision of any technical assistance, or asset maintenance. Actavis will continue to sell branded Kadian in competition with Avinza and other oral LAOs, but will also have the incentive and ability to introduce the first “authorized” generic version of Kadian before the Kadian patent expires in 2010. If the FTC later determines that Actavis is not an acceptable acquirer of Kadian, the order requires the parties to unwind the sale and then divest the drug to another FTC-approved buyer within six months.