Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Drug maker Allergan allegedly used license agreement to restrain competition for Botox, (Feb 25, 2015)

By Linda O’Brien, J.D., LL.M.

Pharmaceutical manufacturer Allergan restrained competition and allocated markets for its brand drug, Botox, by entering into an exclusive license agreement with the foreign manufacturer of a competing neurotoxin product in order to prevent the competitor’s impending entry into the U.S. market, according to a complaint filed in the federal district court in the Central District of California (Tawfilis v. Allergan, Inc., February 24, 2015).

Allergan, Inc. is a multinational pharmaceutical company which focuses on ophthalmic pharmaceuticals, dermatology, neuroscience, urology, and cosmetics. It produces Botox, an injectable neuromodulator derived from the neurotoxin, botulinum toxin, for the treatment of facial wrinkles.

Adel Tawfilis is a licensed dentist and oral and maxillofacial surgeon, and the principal of the Carmel Valley Center for Oral and Maxillofacial Surgery.

The complaint alleges that Allergan’s Botox product line has overwhelming market power within the U.S. and possesses a market share of at least 85 percent. The competition for injectable neurotoxins for cosmetic use is limited to two other products, Dysport and Ximeon. The two products combined market share is only 15 percent of the U.S. market and is insufficient to pose price-constraining competition to Allergan’s Botox.

Medytox, a Korean company, manufactured and distributed an injectable neurotoxin for cosmetic use, known as Meditoxin. The product was sold in approximately 40 countries throughout Asia, Eastern Europe, and Latin America. Medytox planned to enter six other national markets, including the United States. To facilitate entry into the new markets, Medytox undertook considerable investment and preparation, reformulated its product, and invested in clinical trials with the reformulated product, the complaint states.

The complaint also alleged that the competitive threat posed to Allergan by Medytox planned entry into the U.S. market was significant. Unlike the competitive situation in the U.S., in Korea both Allergan’s and Medytox’s neurotoxin were available and Allergan’s sales were 40 percent of neurotoxin sales and Medytox’s sales accounted for 35 percent of all such sales. Allergan’s concern for Medytox’s remarkable market share growth was well founded since a series of published medical studies showed that Medytox’s injectable neurotoxin was effective and yielded essentially indistinguishable results in cosmetic use as those from the use of Botox. Furthermore, Medytox’s product was consistently priced 30 to 50 percent less than the price of Botox in the same country.

According to the complaint, in September 2013, Allergan announced an agreement with Medytox under which it obtained exclusive rights worldwide, other than Korea, to commercialize Medytox’s neurotoxin products. In exchange, Allergan agreed to pay Medytox more than $300 million plus royalties on sales made by Allergan. The Allergan-Medytox agreement is a horizontal agreement between competitors and assures Allergan that Medytox will not enter and compete against it in the U.S. market. Additionally, the agreement serves to maintain Allergan’s existing monopoly market power in the U.S. for injectable neurotoxins for cosmetic use. As a result, the plaintiff, who has purchased Botox directly from Allergan, has had to pay supra-competitive prices for his Botox purchases.

There are high barriers to entry into the market for injectable neurotoxins for cosmetic use. Due to the lethal effect of botulinum toxin and its classification as a bio-terror threat by the U.S. government, the manufacturing facilities are subject to heavy regulation and control. Therefore, the manufacturing of neurotoxins for cosmetic use requires specialized facilities and equipment. Moreover, neurotoxins for use in cosmetic applications have no reasonable substitutes. Cosmetic surgery, the closest treatment for achieving results similar to Botox applications, is not viewed by consumers as a reasonable substitute and is significantly more expensive, carries a greater risk, and involves a longer recovery time, the complaint states.

Tawfilis asserts claims for violations of Sections 1 and 2 of the Sherman Act and California’s Cartwright Act and Unfair Competition Law. The action seeks declaratory relief, treble damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 8:15-cv-00307.

Attorneys: Roy A. Katriel (The Katriel Law Firm) and Ralph B. Kalfayan (Krause, Kalfayan, Benink & Slavens, LLP) for Adel Tawfilis.

Companies: Allergan, Inc.

News: Antitrust CaliforniaNews