Under the terms of a proposed consent order designed to protect competition in several important pharmaceutical markets, the Federal Trade Commission would require Baxter International Inc.'s (Baxter) to divest certain assets in connection with its $316 million acquisition of Wyeth Corporation's (Wyeth) generic injectable drug business. The order, which is subject to public comment, would require Baxter to: 1) divest all of Wyeth's assets related to the general anesthetic propofol to Faulding Pharmaceutical Company (Faulding) or another Commission-approved buyer; 2) end Baxter's co-marketing agreement with Watson Pharmaceuticals, Inc. (Watson) regarding Watson's new injectable iron replacement therapy (NIIRT) by March 14, 2004; and 3) terminate Baxter's rights and interests in GensiaSicor's neuromuscular blocking agents, pancuronium, vecuronium, and antiemetic agent, metoclopramide, and divest related assets to GensiaSicor.
"The terms of this proposed order will ensure that consumers of these important pharmaceutical products are protected from reduced competition and the higher prices that would likely occur in these markets had the transaction been allowed to proceed without challenge," said Joe Simons, Director of the FTC's Bureau of Competition.
Baxter, headquartered in Deerfield, Illinois, is a global health care company that had worldwide sales of approximately $7.7 billion in 2001. Baxter does not manufacture injectable pharmaceutical drugs; it contracts with third-party manufacturers, enabling it to market and supply such products for sale through a division of its Medication Delivery business. In 2001, Baxter's U.S. generic injectable pharmaceutical sales were $264 million.
Wyeth's subsidiary ESI Lederle (ESI) is a leading U.S. manufacturer and supplier of injectable drugs. It manufactures and markets a variety of injectable pharmaceuticals, including antinauseants, musculoskeletals, analgesics, hemostats, anti-infectives, and psychotherapeutics.
Under the terms of the proposed transaction, dated June 8, 2002, Baxter would purchase substantially all of Wyeth's assets relating to injectable pharmaceuticals for $305 million in cash and $11 million in assumed liabilities.
According to the Commission's complaint, the proposed acquisition would violate Section 7 of the Clayton Act and Section 5 of the FTC Act by illegally reducing competition in the manufacture and sale of: 1) propofol; 2) new injectable iron replacement therapies; 3) metoclopramide; 4) vecuronium; and 5) pancuronium. Each of these markets is discussed in more detail below.
Propofol. Propofol is a general anesthetic commonly used for the induction and maintenance of anesthesia during surgery and as a sedative for patients who are on mechanical ventilators. Annual U.S. sales of propofol total between $375 and $400 million.
The FTC complaint contends that the market for the manufacture and sale of propofol is highly concentrated, with new entry into the market difficult and time-consuming. Baxter markets the only generic version of AstraZeneca's branded Diprivan product, with its product manufactured by GensiaSicor. Wyeth currently is seeking approval from the U.S. Food and Drug Administration (FDA) for its own generic propofol product, and is one of the two firms best-positioned to enter the market.
The Commission contends that Baxter's acquisition of Wyeth's propofol business would cause significant anticompetitive harm in the U.S. market for the manufacture and sale of the propofol by eliminating potential competition between Baxter and Wyeth. Such a purchase would increase the likelihood that the combined company would forego or delay the launch of Wyeth's product. Because the acquisition would eliminate one of the best-positioned firms to enter the market, U.S. customers would likely be forced to pay higher prices for propofol in the future than they would have paid absent the acquisition.
New Injectable Iron Replacement Therapies. NIIRTs are used to treat iron deficiency in patients undergoing hemodialysis. They include both injectable iron gluconate and iron sucrose, with annual U.S. sales totaling approximately $225 million.
The market for the manufacture and sale of NIIRTs is highly concentrated, with Watson marketing Ferrlecit®, the only injectable iron gluconate product sold in the United States. American Regent markets Venofer®, the only injectable iron sucrose product sold in the United States. Watson recently entered into a co-promotional agreement with Baxter, under which Baxter promotes Ferrlecit® on its behalf.
Entry into this market is likely to be difficult and time-consuming. The complaint states that Wyeth is the best-positioned firm to successfully develop a NIIRT product. Accordingly, the proposed acquisition would likely lead to anticompetitive harm in the U.S. market for the manufacture and sale of NIIRTs by delaying or eliminating additional price competition that would have resulted from Wyeth's entry into this market.
Metoclopramide. Metoclopramide is an antiemetic used to prevent and treat nausea and vomiting in patients undergoing certain types of chemotherapy and for post-operative treatment. Annual U.S. sales of metoclopramide total approximately $13 million.
The market for the manufacture and sale of metoclopramide is highly concentrated. Wyeth developed the branded version of the drug, known as Reglan. Baxter is the exclusive supplier of GensiaSicor's generic metoclopramide product. Wyeth and Baxter make up more than half of U.S. metoclopramide sales, with only two other companies, Abbott and Faulding, supplying the product.
According to the FTC's complaint, new entry into the market for the manufacture and sale of metoclopramide would be difficult, expensive, and unlikely to occur. As an older antiemetic, it is unattractive to develop because sales opportunities are limited. Even if a company did decide to enter the market, the FTC contends it would take such a firm two years or more to launch a metoclopramide product. By reducing the number of suppliers from four to three, and with new entry not likely to occur, the proposed acquisition likely would result in higher prices of metoclopramide nationwide.
Vecuronium. Vecuronium is an intermediate-acting neuromuscular blocking agent used during surgery to temporarily freeze muscles and for patients who are mechanically ventilated. The market for the manufacture and sale of vecuronium in the United States is approximately $12 million. Baxter, which markets vecuronium under an exclusive agreement with GensiSicor, is the leading supplier of the drug. Wyeth was the second-largest supplier, until it suspended production in 2001. However, prior to the announcement of the Baxter/Wyeth agreement, Wyeth indicated that it was planning to re-launch its vecuronium product. The Commission contends that the acquisition as proposed would delay or eliminate the price competition that would have resulted from Wyeth's re-launch of its vecuronium product.
Abbott, Bedford, and Organon are the only other suppliers of vecuronium in the United States. According to the complaint, new entry into the market for the manufacture and sale of vecuronium is unlikely because it is an older drug with established suppliers and is difficult to manufacture.
Pancuronium. Pancuronium is a long-acting neuromuscular blocking agent used to temporarily freeze muscles during surgery or for use with patients that are mechanically ventilated.
According to the FTC, the market for the manufacture and sale of pancuronium is highly concentrated. Baxter, Wyeth, and Abbott Laboratories (Abbott) are the only suppliers of pancuronium in the United States, with Baxter - through its exclusive license with GensiaSicor - accounting for almost half of all U.S. sales. After the proposed acquisition, Baxter would account for 74 percent of the U.S. market, and the proposed acquisition would create a duopoly, increasing the likelihood that customers would have to pay higher prices for pancurorium.
Because pancuronium is an older drug whose usage has declined, the FTC contends that it is unlikely to attract new market entrants. Even if another supplier were to attempt to develop pancuronium, it would be costly and time-consuming as it would require research and development, as well as FDA approval.
The proposed consent order would preserve competition in the relevant markets by requiring the companies to divest all of Wyeth's assets relating to propofol to a Commission-approved buyer - Faulding - no later than 10 business days after the acquisition. If the Commission determines that Faulding is not an acceptable purchaser, or that the manner of the divestiture is not acceptable, Baxter (purchaser of the assets) must divest these assets to another FTC-approved buyer within 90 business days of the date the order becomes final. If it fails to do so, the FTC may appoint a trustee to accomplish the divestiture. The order also contains certain licensing requirements and other provisions designed to ensure the divestiture is successful, including: requiring termination of Baxter's rights and interests in GensiaSicor's pancuronium, vecuronium, and metoclopramide products; requiring the divestiture of assets related to these products to GensiaSicor no later than five business days after the acquisition; and requiring the termination of Baxter's co-marketing agreement with Watson regarding NIIRTS by March 14, 2004, providing an incentive for Baxter to continue developing, and ultimately launch, the iron gluconate product being acquired from Wyeth.
Finally, to ensure that the Commission remains informed about the status of the proposed divestitures and the transfers of assets, the proposed order requires Baxter and Wyeth to file reports with the FTC periodically until they are accomplished.
The Commission vote to accept the proposed consent order and place a copy on the public record was 5-0. The proposed consent order will be subject to public comment for 30 days, until January 18, 2003, after which the Commission will determine whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, D.C. 20580.