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FTC Conditions Watson's Proposed Acquisition of Actavis on Divestitures

By Jeffrey May, J.D.

The FTC announced on October 15 that ithas approved Watson Pharmaceuticals, Inc.'s proposed $5.9 billion acquisitionof Actavis Inc., subject to the parties' agreement to divest the rights andassets to 18 drugs and to relinquish the manufacturing and marketing rights tothree others. When the parties announced the proposed combination in April,they said that the transaction would make Watson the third largest globalgenerics company.

According to the parties, all regulatoryapprovals required to close the transaction have been received. As a result,the parties anticipate consummating the acquisition in late October or earlyNovember. The European Commission cleared U.S.-based Watson's acquisition ofthe Swiss-based Actavis on October 5.

According to the FTC's complaint, the acquisition, if consummated asproposed, would have lessened current and/or future competition in U.S. marketsfor 21 generic pharmaceutical products. These products are used to treat a widerange of conditions, including hypertension, high blood pressure, diabetes,anxiety, schizophrenia, nausea, chronic and acute pain, and attention deficithyperactivity disorder. Seven of the relevant generic drug markets involvegeneric drugs that are currently sold, and eight of the relevant generic drugmarkets involve generic drug products that either one or both of the companiescurrently sell or have in the pipeline. In the remaining six markets, genericdrugs are not currently on the market; however, Watson and Actavis are among alimited number of likely potential suppliers of these drugs.

Under the terms of a proposed consent order, Watson and Actavis would berequired to divest either Watson's or Actavis's rights and assets related to 18of the 21 products. The majority of the assets in these 18 markets would bedivested to Par Pharmaceutical, Inc. Par is a New Jersey-based genericpharmaceutical company selling over 60 prescription drug product families andhas an active product development pipeline. Assets related to four of themarkets would be divested to Sandoz International GmbH, a subsidiary ofNovartis AG. Sandoz is based in Germany and has approximately 200 genericproduct families in the United States and an active product developmentpipeline. According to the FTC, with their experience in generic markets, Parand Sandoz are expected to replicate the competition that would otherwise belost with the proposed acquisition. If the Commission were to determine thatPar and/or Sandoz were not acceptable acquirers of the divestiture assets, itcould require the parties to unwind the sales. The parties are required tomaintain the viability, marketability, and competitiveness of the divestitureproducts.

To remedy the FTC's concerns with respectto the three remaining product markets, the combined entity would be requiredto amend an existing development and manufacturing agreement between Actavisand Pfizer, Inc. and transfer the manufacturing rights back to Pfizer. For twoother drugs, Watson and Actavis would be required to relinquish the marketingrights to another firm.

The case is Watson Pharmaceuticals,Inc., FTC Dkt. C-4373, FTC File No.121-0132.


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