ANALYSIS OF PROPOSED CONSENT ORDER
The Federal Trade Commission (Commission) has accepted, subject to final approval, an Agreement Containing a Proposed Consent Order (Order) from Roche Holding Ltd (Roche), which remedies the anticompetitive effects of Roches acquisition of Corange Limited. Corange is the parent company of Boehringer Mannheim (BM). Both Roche and BM manufacture a wide array of pharmaceutical and diagnostic instruments and reagents. The proposed Order remedies the acquisitions anticompetitive effects by requiring Roche to divest BMs cardiac thrombolytic agent and drugs of abuse testing (DAT) reagent assets as viable, on-going product lines. Roche has entered into an agreement to divest to Centocor, Inc. (Centocor) BMs cardiac thrombolytic agent assets.
The proposed Order has been placed on the public record for sixty (60) days for reception of comments by interested persons. Public comments regarding the proposed divestiture of the United States and Canadian Retavase businesses to Centocor, Inc. will be considered with other comments on the proposed Order. Comments received during this period will become part of the public record. After sixty (60) days, the Commission will review the agreement and the comments received and will decide whether it should withdraw from the agreement or make final the agreements proposed Order.
Pursuant to a Stock Purchase Agreement signed May 24, 1997, Roche agreed to purchase 100% of the outstanding voting stock of Corange for approximately $11 billion. The proposed Complaint alleges that the acquisition violates Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, in the markets for the research, development, manufacture and sale of cardiac thrombolytic agents and workplace DAT reagents.
Cardiac thrombolytic agents are pharmaceuticals used to treat heart attacks by dissolving blood clots in the blood vessels of the heart. Angioplasty, the only other method of treating heart attacks, is a very expensive surgical procedure that is not available at many hospitals in the United States. As a result, there are no competitive substitutes for cardiac thrombolytic agents.
The U.S. cardiac thrombolytic agents market is highly concentrated. According to studies published in the New England Journal of Medicine, the safest and most effective cardiac thrombolytic agents are BMs Retavase and Genentechs Activase. Roche owns 68% of Genentechs stock. As a result of these studies, it appears that the only other cardiac thrombolytic agent approved for use in the United States, Streptokinase, is not an acceptable substitute for most U.S. physicians. Also, because of the lengthy development time involved in entering the cardiac thrombolytic agent market, no other company is expected to enter the United States market for at least two years. For these reasons, the acquisition, if consummated, would lead to the elimination of the only head-to-head competition of safe and effective cardiac thrombolytic agents, and therefore, is likely to lead to higher prices.
DAT reagents are chemical antibodies that are combined with a urine specimen to detect the presence of an illegal drug. Workplace DAT is pre-employment, random, post-accident and reasonable cause testing of employees in law enforcement, federal government and private industry for safety and security reasons. It is conducted at commercial laboratories with high-volume dedicated instruments that can only use workplace DAT reagents. DAT conducted in hospitals is very different from workplace DAT. Hospitals use medium- to low-volume instruments that can conduct a wide-variety of tests and use a wide variety of reagents that cannot be used economically for workplace DAT.
The workplace market of DAT reagents is highly concentrated and new entry would be neither timely nor sufficient. A new producer of workplace DAT reagents would find it very difficult to develop a full line of workplace DAT reagents, as well as gain customer acceptance within two years. Roche and BM are two of only four suppliers of workplace DAT reagents in the United States. By eliminating the competition between two of the top three competitors in this highly concentrated market, the proposed acquisition would enhance the likelihood of coordinated interaction between or among the remaining firms in the market, increasing the likelihood that consumers in the United States would be forced to pay higher prices for workplace DAT reagents.
The proposed Order remedies the anticompetitive effects in the cardiac thrombolytic agent market by requiring Roche to divest all of the assets relating to BMs United States and Canadian Retavase businesses to Centocor, Inc. or another Commission-approved buyer. Centocor is an established biotechnology company that currently sells ReoPro. ReoPro is a drug that is given to a patient after a heart attack to prevent new blood clots from forming. Because this is a complementary product to Retavase, it is anticipated that Centocor will achieve significant marketing synergies if it is allowed to purchase the Retavase businesses. Although Centocor is not one of the large, well-known pharmaceutical companies, it is well-respected by the medical community and has a significant capital base to support its proposed acquisition of the Retavase assets. In the event that Roche does not sell these assets to Centocor or another Commission-approved purchaser within ninety days of the Orders becoming final, a crown jewel provision in the Order permits a Commission-appointed trustee to divest the world-wide rights to Retavase.
The proposed Order also effectively remedies the proposed transactions anticompetitive effects in the workplace DAT reagent market by requiring Roche to divest BMs DAT reagents and grant a non-exclusive license to all other Cloned Enzyme Donor Immuno-Assay (CEDIA) reagents in the United States, including, but not limited to, reagents used for therapeutic drug monitoring, thyroid analysis, testing for anemia, and hormone testing. In the event Roche fails to divest and license these assets within two months of the Orders becoming final, the proposed Order contains a crown jewel provision that allows a Commission-appointed trustee to divest all of BMs CEDIA reagents.
The proposed Order also requires Roche to provide substantial assistance to each of the acquirers so that they can each compete effectively in the relevant markets. First, Roche must contract manufacture a supply of the divested products for the time period it takes for each acquirer to establish its own manufacturing processes and obtain its own FDA approvals to manufacture and sell Retavase and DAT reagents in the United States. Second, Roche must provide technical assistance and advice to assist both acquirers in their efforts to begin manufacturing the divested products. Finally, the Order provides the Retavase acquirer and the reagent acquirer the ability to hire former BM employees associated with the marketing or sales of Retavase or CEDIA reagents, respectively.
In order to facilitate the smooth transfer of assets and ensure that the acquirers will get the assistance necessary to independently manufacture the products, the proposed Order also provides for the appointment of an interim trustee. The interim trustee will serve until the acquirers have received all necessary FDA approvals to manufacture and sell the divested products.
Because it is becoming essential for a DAT reagents supplier to also provide its customers with DAT analyzers, the proposed Order requires Roche to terminate BMs exclusive distribution arrangement with Hitachi Ltd., and to inform Hitachi, within ten days of divesting the DAT reagents, that, as to the reagent acquirer, it waives all exclusivity provisions of BMs agreement with Hitachi.
In addition, because of pending litigation between Genentech and BM, the proposed Order requires Roche to provide: (1) full access to, and cooperation from, former BM employees and agents who have knowledge about the disputed patents; (2) access to any documents that may be relevant to the dispute; and (3) reimbursement for half of all the legal expenses relating to the dispute. In addition, Roche is prohibited from disclosing or otherwise making available to Genentech any information relating to the patent dispute without the prior written consent of the Retavase acquirer.
The Order also requires Roche to provide to the Commission a report of compliance with the divestiture and licensing provisions of the Order within sixty (60) days following the date the Order becomes final, and every ninety (90) days thereafter until Roche has completed the divestitures and licensing. The Order also requires Roche to notify the Commission at least thirty (30) days prior to any change in the structure of Roche that may affect compliance with the Order.
The purpose of this analysis is to facilitate public comment on the proposed Order, and it is not intended to constitute an official interpretation of the agreement and proposed Order or to modify in any way their terms.