The Federal Trade Commission (FTC) announced on April 16, 2007, that it had accepted a proposed divestiture in order to allow Actavis Group hf.’s proposed acquisition of Abrika Pharmaceuticals, Inc. to go forward. Under a merger agreement announced last November, Actavis proposed to acquire all of the voting securities of Abrika for $235 million. After a 5-month investigation, the FTC announced that it believed the transaction would create a monopoly in the U.S. market for generic isradipine capsules, a drug typically prescribed to patients to lower their blood pressure and which also is used to treat hypertension, ischemia, and depression. Under the proposed consent order agreed to by Actavis, the companies are required to divest all rights and assets needed to make and market generic isradipine capsules to Cobalt Laboratories, Inc. within 10 days of the acquisition.

The FTC, as it has in several prior generic company mergers, defined a separate product market for generic drugs. This finding was supported by evidence indicating that if there is more than one competitor in the market for a generic drug, customers can benefit from lower generic drug prices. The FTC concluded here that a reduction in the number of competitors in the generic isradipine capsules market, from two to one, would allow the merged company to exercise its unilateral market power to increase prices. The Commission also contended that entry into the market for generic isradipine capsules would not be timely, likely, or sufficient to deter or counteract the anticompetitive impact of the acquisition as proposed. In reaching this conclusion, the FTC cited the length of time required for drug development and Food and Drug Administration (FDA) approval and that the market for generic isradipine is relatively small and in decline, which would limit sales opportunities for a new entrant.

This is one of a number of recent cases in which the FTC has defined a separate product market for generic drugs. We expect that the FTC will continue to analyze transactions involving generic manufacturers in this light.