Dive Brief:
- The Federal Trade Commission (FTC) ordered Teva Pharmaceuticals to provide manufacturers in up to 15 markets with the option of entering into long-term supply contracts for 8 of the company's newly-enhanced portfolio of active pharmaceutical ingredients (APIs).
- The condition was made public when the FTC approved Teva Pharmaceutical's $40.5 billion acquisition of Allergan's generics portfolio on Wednesday. In addition, the regulator also required Teva to sell off 79 pharmaceutical products to 11 rival companies.
- Teva, the world's largest API supplier, used to supply APIs to Allergan's competitors in various generics markets. Since Teva will now own Allergan's generics portfolio, the FTC argued in a public analysis, the company could squeeze out the Allergan generics competitors by raising the supply price of its APIs. A long-term supply contract would limit Teva's ability to do this.
Dive Insight:
Unlike many other manufacturing markets, the nature of pharmaceuticals often prohibits producers from easily switching between API suppliers if prices rise. When a drug-maker applies to produce a new drug via the appropriate regulator, the producer includes a list of API sources as part of its New Drug Application (ANDA).
If a supplier was not originally listed in the ANDA, the producer must first suppliment its application and submit it for approval with the appropriate regulator, a process that could take up to two years, according to the FTC.
As a result, Teva's old clients may not be able to find a neutral supplier for at least two years, during which time Teva could raise the prices of its APIs, and potentially force competitors to raise the price of their Teva-API-produced generic drugs.
"The Commission determined that this vertical relationship could raise competitive concerns in markets for finished drug products by creating the incentive and ability for Teva to raise prices or withhold supply where third parties source from the merged firm," the FTC explains in its statement. "To address these concerns, the order requires Teva to provide affected customers with the option of entering into longterm API supply contracts to ensure that they have an adequate supply of API until they are able to qualify alternative suppliers.”
Teva will have to provide its current or future (via Allergan) API clients with long-term contracts for the following eight ingredients: Betamethasone dipropionate; Betamethasone valerate; Clobetasol propionate; Desonide; Fluocinolone; Fluorouracil; Probenecid; and Triamcinolone acetonide. These APIs could have lessened competition in thirteen productive markets and two pipeline products, according to the FTC analysis.