The FTC Requires Largest-Ever Generic Drug Divestiture

by Dechert LLP

The U.S. Federal Trade Commission (FTC) recently announced a settlement resolving its competitive concerns over the merger of two leading generic drug manufacturers – Teva and Allergan. In July 2015, Teva agreed to acquire the Actavis generic drug business from Allergan for US$40.5 billion. Eight months later, in March 2018, the European Commission (EC) approved the acquisition subject to divestitures of certain products sold in 24 European countries. While the EC has yet to identify the products, it described the divestiture package as “comprehensive.” The FTC’s action, taken on July 27, 2016, significantly adds to the divestiture package – covering rights to 79 products sold or in development in the United States.

Dechert’s analysis of recent FTC reviews of generic drug mergers demonstrates that Teva/Actavis stands out on several dimensions. From 2014 to the present, the FTC has taken enforcement actions against 15 generic drug mergers including Teva/Actavis. Compared to the other 14, Teva/Actavis took longer, involved many more products, and required more buyers. The Teva/Actavis investigation took 12 months, compared to an average of 5.9 months. Its resolution required the divestiture of 79 products, compared to an average of 3.4 products. And the divestitures are to be made to 11 divestiture buyers, compared to an average of 1.4 divestiture buyers.

View chart:  FTC Reviews of Generic Drug Mergers, 2014-16 »

Key Takeaways

While much attention is paid to branded drug prices, the FTC has also intensified its focus on generic drug pricing. This is reflected not only in the settlement of the proposed Teva/Actavis transaction, but also in the Commission’s statement explaining the grounds for its action. The major takeaways from this FTC action are:

  • The FTC gave consideration to new theories of competitive harm from generic drug mergers, including the potential effects of bundling drug portfolios, reduced incentives to challenge brand drug patents and the possible lessening of competition in complex generics.
  • The FTC continues to focus on potential competition theories, including in situations where manufacturers have exited the relevant market yet still hold an ANDA, have a pending application for an ANDA or have not even applied for an ANDA.
  • While the FTC does not take a hard-and-fast rule on 5-to-4 generic drug markets, it challenged the potential impact of the transaction in 20 5-to-4 markets.
  • The FTC continued its emphasis on even more rigorous analysis of divestiture packages and buyers.

Looking Beyond Individual Drugs

The well-established FTC approach has been to evaluate generic drug mergers by focusing on individual products. This time the FTC took a broader approach. It investigated the merger using several different theories that looked at competition beyond individual drugs. The FTC considered whether the merger would lead to (1) anticompetitive bundling of generic drug portfolios, (2) less effective challenges to brand drug patents and (3) reduced incentives to development complex generics.1

While the complaint adhered to the traditional individual product approach and does not allege competitive harm based on these new theories, the Commission’s statement recognizes the significance of other dimensions of generic drug competition. It concluded: “Another set of facts presented by a different transaction might lead us to find that there are competitive concerns that extend beyond markets for individual pharmaceutical products.”2

Reaching Back into the Pipeline

In Teva/Actavis, as in other recent generic drug mergers, the FTC focused significantly on potential competition between the merging parties. The Commission explained that it assesses both current and potential future competition between the parties. In determining whether a generic drug firm is a future competitor, the FTC looks far back into the drug development pipeline. In Teva/Actavis, the FTC counted as likely future competitors: firms that have an ANDA pending before the Food and Drug Administration, firms that have not yet filed ANDAs and firms that have exited the market but still retain their ANDAs.

Challenging 5-to-4 Markets

In the case of generic drugs, the FTC has required divestitures where the number of competitors drops from five to four. The outcome in 5-to-4 markets may depend on the strength of the merging parties relative to their competitors and the complexity of the drugs. In Teva/Actavis, the FTC continued its focus on 5-to-4 markets, requiring divestitures in 20 such markets.

Rigorous Divestiture Analysis

The FTC’s review of the proposed divestitures in this matter was extremely rigorous, going beyond the agency’s typical process in a number of ways. The FTC divided the divested products into smaller packages “to ease the load on any single buyer,” required divestiture of all strengths of a product where at least one dosage strength raised competitive concerns, required Teva to divest the easier-to-divest product wherever possible and ordered Teva to dedicate a full-time organization to successfully implement the various divestitures.3

Although not new to Teva/Actavis, the FTC’s policy of requiring upfront divestiture buyers in pharmaceutical mergers, rather than allowing merging parties to divest after they close their transactions, adds to the duration and complexity of drug merger investigations. As reported in DAMITT, Dechert’s Antitrust Merger Investigation Timing Tracker, in 2015 merger investigations involving upfront buyers took an average of 2.4 months longer than those with post-order divestitures. The large number of divestiture buyers in Teva/Actavis likely was a factor in the duration (12 months) of the FTC’s investigation.


1) Statement of the Commission at 2-3, In the Matter of Teva/Allergan, July 27, 2016.

2) Id. at 4.

3) Id. at 2.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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