FTC Closes its Investigation of Genzyme Corporation's 2001 Acquisition of Novazyme Pharmaceuticals, Inc.

Separate Statements Issued by Chairman Muris, Commissioners Thompson and Jones Harbour

For Release

By a 3-1-1 vote, the Federal Trade Commission today closed its investigation into Genzyme Corporation's (Genzyme) 2001 acquisition of Novazyme Pharmaceuticals, Inc. (Novazyme). At the time of its acquisition, Novazyme was engaged primarily in conducting early pre-clinical studies relating to enzyme-replacement treatment (ERT) for Pompe disease. Genzyme was also engaged in preclinical animal testing of ERTs. The Commission's investigation focused on the transaction's potential impact on the pace and scope of research into the development of a treatment for Pompe disease.

Pompe disease is a rare, often fatal, disease affecting infants and children, for which there is currently no effective treatment. Because of the relatively limited number of Pompe patients, therapies for Pompe disease fall under the Orphan Drug Act (ODA). The first Pompe therapy to gain FDA approval will obtain seven years of market exclusivity under the ODA. A second therapy may break that exclusivity only by establishing superiority over the first therapy.

Three of the FTC's Commissioners have issued separate statements presenting their views on this transaction and the analyses of innovation concerns in merger investigations. Each is summarized below and can be found as a link to this press release on the FTC's Web site.

Summary of Separate Statements

In his statement, Chairman Timothy J. Muris said, "[t]he Commission's investigation properly focused on how the transaction would affect the pace and scope of research into pharmaceutical products for a life-threatening medical condition affecting infants and young children for which no treatment presently exists. The facts of this matter do not support a finding of any possible anticompetitive harm. Moreover, on balance, rather than put patients at risk through diminished competition, the merger more likely created benefits that will save patients' lives."

The Commission has been cautious in using innovation market analysis, Chairman Muris said, because "economic theory and empirical investigations have not established a general causal relationship between innovation and competition." Rather, a "careful, intense factual investigation is necessary" to "distinguish between pro-competitive and anticompetitive combinations of innovation efforts."

The Chairman's statement discussed the various potential anticompetitive harms that might arise from the merger, including "whether Genzyme and Novazyme would have engaged in a 'race to market' absent the merger" and whether "the merger might influence the [further development of the] 'Novazyme program' if Genzyme's internal program to develop a treatment succeeds. The Chairman went on to note his conclusion that the investigation uncovered "no evidence that the merger reduced R&D spending on either the Genzyme or the Novazyme program or slowed progress along either of the R&D paths."

The Chairman went on to say that there are "strong reasons to believe that the merger will benefit patients" and that "we are without a basis for concluding that the merger is likely to result in net harm to patients. On balance, the merger is likely to be pro-competitive, and thus patients' lives are more likely to be saved by this merger than to be put at risk."

In conclusion, Chairman Muris noted that he strongly disagreed with the dissent's "suggest[ion] that the Commission has found evidence that the merger already has caused, or is likely to cause, anticompetitive effects." The Chairman stated that "on the direction the Commission should take in analyzing innovation competition, Commissioner Thompson and I clearly disagree,"and "the adoption of presumptions without economic foundation would constitute a major step backward in antitrust law."

In his separate dissenting statement, Commissioner Mozelle W. Thompson stressed the importance of this case, writing that, "[P]rotecting innovation competition has been a Commission success story over the past decade. Our actions have directly benefitted competition and consumers, and these actions have sent a strong signal of support to innovators. In this matter, the failure to issue a complaint may lead the marketplace to draw a different conclusion."

Commissioner Thompson pointed out that this case involves a merger among two rival innovators that resulted in a merger to monopoly and, based on the FTC/U.S. Department of Justice Horizontal Merger Guidelines, the merger is presumptively anticompetitive. Further, he stated that Genzyme's $120 million acquisition of Novazyme should have been challenged irrespective of this presumption because the merger in this specific innovation market eliminated the only other rival in the world, while providing no merger-specific efficiencies.

Commissioner Thompson said that the "Novazyme acquisition affords Genzyme market power over Pompe ERT innovation and extinguishes any chance for competition to push innovation that could possibly bring the first or second Pompe ERT product to the actual goods market sooner."

Thompson also stated that Novazyme's being "placed in the hands of a biotech industry member other than Genzyme's . . . could have resulted in either Novazyme's winning the initial race to market or Novazyme's breaking Genzyme's Orphan Drug Act exclusivity even if Genzyme had won the initial race."

Thompson stressed that the Commission should not have been deterred from challenging this merger to monopoly because it feared harming Genzyme's innovation efforts. Commissioner Thompson noted that Genzyme's innovation efforts were clearly not retarded during the time period that the FTC was investigating Genzyme. Commissioner Thompson further stated that the arguments in favor of the Genzyme merger to monopoly failed because the possible financial or other incentives for Genzyme or its corporate officials were not adequate substitutes for the lost innovation competition.

In her separate statement, Commissioner Pamela Jones Harbour noted that when she joined the Commission, it was already in the final stages of considering the complex issues raised by the acquisition of Novazyme by Genzyme. Given these circumstances, she chose not to participate in the vote regarding whether to close the investigation of this merger, but took the opportunity to express some of her views on the relationship between competition and innovation, an important antitrust policy issue raised by this case.

Commissioner Harbour voiced her concern about the precedent set by the majority's decision to close this case based upon a factual background that appeared straightforward. The pharmaceutical industry is extremely dependent on innovation. Races to innovate in the pharmaceutical industry are common. In this particular innovation market, there were only two known firms competing to find a cure for a rare disease, and the winner of this Orphan Drug Act race would be granted seven years of market exclusivity. Additionally, entry barriers were high, and there was no clear evidence of significant cognizable efficiencies.

The Commissioner remarked that competition drives innovation, and emphasized that innovation competition is especially important in markets, such as pharmaceuticals, where the products of innovation often can be monopolized for significant periods of time.

Commissioner Harbour noted that a rebuttable presumption of anticompetitive effects may be appropriate where a firm has acquired, over time, all of the research and development tracks of its immediate rivals, and is unencumbered by the threat of timely and sufficient entry. The absence of a suggested presumption, the Commissioner stated, was troublesome in this case of merger to monopoly, where post-merger evidence of a slowdown in research efforts exist. At the same time, she noted, enthusiasm for justifiable enforcement must always be disciplined by pragmatic considerations regarding the ability to achieve effective relief in a given case.

The Commission vote to close the investigation and to issue separate public statements was 3-1-1, with Commissioner Mozelle W. Thompson dissenting and Commissioner Pamela Jones Harbour not participating.

The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, NW, Washington, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

(FTC File No: 021-0026)

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