At the conclusion of a several month comment period, the FTC has approved a final order settling charges that Sun Pharmaceutical Industries Ltd.’s approximately $4 billion acquisition of competitor Ranbaxy Laboratories Ltd. would likely be anti-competitive. The proposed settlement order was first announced in January 2015, but was held for public comment. Once consummated, the merger will create India’s largest and the world’s fifth largest pharmaceutical drug maker. However, the charges would not have been settled and the merger would not have been approved absent agreed upon divestitures by Sun Pharma.
The FTC’s administrative complaint alleged that the proposed merger between Sun Pharma and Ranbaxy would likely have harmed future competition by reducing the number of suppliers in the U.S. for three dosage strengths of the generic drug minocycline. Currently, Ranbaxy is one of only three suppliers of these drugs, while Sun Pharma is only one of a limited number of firms likely to sell generic minocycline tablets in the United States in the immediate future. According to the FTC, Sun Pharma’s entry into the market would result in significantly lower prices for these drugs.
Under the settlement order, Sun Pharma is required to divest Ranbaxy’s interest in generic minocycline tablets to Torrent Pharmaceuticals Ltd., a global drug company based in India that markets generic drugs in the United States. Additionally, Sun Pharma must also sell Ranbaxy’s generic minocycline capsules to Torrent so that Torrent is able to obtain regulatory approval for its tablets as quickly as Ranbaxy would have absent the deal. When the order was first announced in January, the FTC said that Sun Pharma and Ranbaxy had agreed to divest the latter’s interest in generic minocycline to quiet any monopoly concerns.
The FTC’s approval comes after India’s fair trade watchdog CCI had directed both companies to divest seven products as it found that the deal could hit competition in the Indian market last December. The requirement that companies agree to certain divestitures in order to gain approval of their merger is not a new phenomenon. In fact, now-embroiled Sysco and US Foods attempted to agree to divest significant assets in order to receive approval of their proposed merger. However, the FTC was not persuaded by the offered divestitures and chose to sue anyways. There, Sysco offered to sell eleven US Foods facilities to a competitor, which accounted for $4.6 billion in revenue, but to no avail. As it appears, not all proposed divestitures are the same. Where anticompetitive concerns remain despite enormous proposed divestitures, the FTC has signaled that it will not hesitate to take action to block the merger. The Sun-Ranbaxy merger escaped that fate, but not without being required to make significant divestitures to calm anticompetitive concerns.