Watson buy of Arrow requires product divestments, says USA's FTC

The US Federal Trade Commission today announced a proposed consent order settling charges that Watson Pharmaceutical' of Robin Hood Holdings, owner of Arrow Pharmaceuticals, would have harmed consumers by eliminating future competition for important generic drugs used to treat Parkinson's disease notably (cabergoline) and the side effects of chemotherapy (dronabinol). The Commission's order requires the firms to sell assets related to the two drugs to FTC-approved buyers and to ensure the acquirers have the means to compete effectively in the future.

The ruling comes with regard to Watson's announcement in June that it plans to acquire the Arrow Group for $1.75 billion. In so doing, Watson would have gained a generic drugmaker with $647 million in revenue last year, selling drugs in more than 20 countries, including Canada, France and the UK. Agreeing to the FTC terms, Watson announced its completion of the Arrow acquisition, effective December 2. The firm's shares edged up 1.3% to $38.05 in afternoon trading that day.

Disposals of cabergoline and dronabinol interests ordered

Under the FTC order's terms, Watson will sell its generic cabergoline product to Impax Laboratories. Arrow will spin off its subsidiary, Resolution Chemicals, which is currently developing generic dronabinol, to a new entity, Reso Holdings, and, within 10 days of the acquisition. Arrow must also sell the US marketing rights for generic dronabinol to Impax.

According to the Commission's complaint, Watson's acquisition of Arrow, as originally proposed, would violate federal antitrust law because it would lessen competition in the US markets for generic cabergoline tablets and generic dronabinol capsules. The complaint alleges that the acquisition would reduce the number of generic suppliers in the market, which could raise the prices that patients pay for these drugs.

Cabergoline, the generic name of Pfizer's Dostinex, is a dopamine receptor agonist used to treat Parkinson's disease and medical problems related to the overproduction of the hormone prolactin. The $44.8 million US market for the generic version of the drug is highly concentrated, and Arrow is one of only three suppliers in the United States. Watson has Food and Drug Administration approval to sell generic cabergoline, and is poised to enter the market within the next two years. Its proposed acquisition of Arrow, therefore, would eliminate its incentive to enter the market as a fourth generic alternative, said the FTC.

Dronabinol, the generic name for Solvay Pharmaceutical's Marinol, is used to treat nausea and vomiting caused by chemotherapy, as well as loss of appetite and weight loss in HIV patients. The $74.4 million US market for generic dronabinol is also highly concentrated, with only Watson and Par Pharmaceuticals currently supplying the drug. Arrow's subsidiary, Resolution, is one of a limited number of companies developing a generic dronabinol product, and is planning to enter the market within two years. Thus, Watson's proposed acquisition of Arrow would eliminate one of a limited number of potential competitors, the agency decreed.

The Commission vote approving the proposed consent order was three to nil, with Commissioner Harbour recused. The order will be subject to public comment for 30 days, until January 4, 2010, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580. To submit a comment electronically, go to: https://public.commentworks.com/ftc/watsonarrow.