A proposed settlement of Federal Trade Commission antitrust concerns stemming from Roche Holding Ltd.'s (Roche) proposed acquisition of Corange Limited (Corange) would preserve competition in the U.S. markets for cardiac thrombolytic agents, which are drugs used to treat heart attack victims, and for chemicals -- known as drugs of abuse testing (DAT)
reagents -- used to test urine samples for the presence of illegal substances. The FTC alleged that the $11 billion acquisition would eliminate competition between the two leading suppliers of drugs used to dissolve blood clots at the onset of a heart attack, and would eliminate competition between two of only four manufacturers of the reagents used to test for drug abuse in the workplace. The proposed settlement, while permitting the acquisition, would require Roche, among other things, to divest Corange’s U.S. and Canadian cardiac thrombolytic agent businesses and Corange's worldwide DAT reagent business to FTC-approved buyers.
The proposed settlement would also provide for the appointment of interim trustees to monitor the smooth transition of divested assets and to ensure that the acquirers receive the necessary technical assistance to manufacture and sell the divested products.
"The settlement we have announced today will preserve price competition for two important products," said William J. Baer, Director of the FTC's Bureau of Competition. "Cardiac thrombolytic agents are life saving pharmaceuticals used to treat heart attack patients. DAT reagents are critical components in the growing market of workplace drug testing. Our settlement requires divestiture of a package of assets that will ensure there is continuing competition in the market for both products."
Roche is headquartered in Basel, Switzerland, and Corange is based in Hamilton, Bermuda.
Roche, through its majority ownership in Genentech Inc., manufactures "Activase" and Corange, through its Boehringer Mannheim subsidiary, manufactures "Retavase," the two safest and most effective cardiac thrombolytic agents in the highly concentrated U.S. market. The only other cardiac thrombolytic agent approved for use in the United States -- Streptokinase -- is significantly less effective. According to the FTC, new entry into the manufacture or sale of cardiac thrombolytic agents is difficult due to lengthy U.S. Food and Drug Administration (FDA) approval requirements.
Both companies also manufacture DAT reagents, which are chemical antibodies that detect whether an illegal substance is present in a urine sample. Each DAT reagent is specifically designed to detect a particular drug, and customers typically purchase nine or ten DAT reagents from a single supplier to provide a full testing profile. Thus, workplace DAT reagents constitute a relevant product market, the FTC said. Workplace DAT is conducted at commercial laboratories with instruments designed to use only workplace DAT reagents. According to the Commission, drug screening at hospitals is significantly different from drug screening done for the workplace. The DAT reagent market also is highly concentrated, the agency said, dominated by three of only four producers -- Syva, Roche and Boehringer Mannheim. New entry into the workplace DAT reagents market would be difficult because a new entrant would need to provide a full panel of workplace reagents and then obtain customer acceptance of their product.
According to the FTC's complaint detailing the allegations, Roche and Boehringer Mannheim are direct competitors in the U.S. market for the research, development, manufacture and sale of cardiac thrombolytic agents and DAT reagents. The complaint alleges that the acquisition, if consummated, may lessen competition and tend to create a monopoly in the relevant markets in the following ways, among others:
- by eliminating actual, direct, and substantial competition between Roche and Corange in the markets for the research, development, manufacture and sale of cardiac thrombolytic agents and of DAT reagents used in workplace testing;
- by increasing the likelihood that Roche will unilaterally exercise market power in the market for the research, development, manufacture and sale of cardiac thrombolytic agents;
- by increasing the likelihood that consumers in the United States will be charged higher prices for cardiac thrombolytic agents and for DAT reagents used in workplace testing;
- by reducing the likelihood of innovation in the markets for the research, development, manufacture and sale of cardiac thrombolytic agents and of DAT reagents used in workplace testing; and
- by increasing the likelihood of collusion or coordinated action among the remaining firms in the DAT reagents market.
In settlement of these charges, a proposed consent agreement, accepted by the FTC for a 60- day public comment period, would require Roche to divest or license all of the assets relating to Boehringer Mannheim's United States and Canadian Retavase business to Centocor, Inc., or another Commission-approved buyer. If Roche does not sell these assets to Centocor or another Commission-approved buyer within 90 days after the order becomes final, a "crown jewel" provision in the order permits a Commission-appointed trustee to divest the worldwide rights to Retavase.
The proposed settlement also would require Roche to divest or license, within 60 days after the order becomes final, Boehringer Mannheim's worldwide DAT reagents business, and grant a royalty-free, non-exclusive license to all other patents based on Boehringer Mannheim's Closed Enzyme Donor Immuno Assay (CEDIA) patents, including reagents used for therapeutic drug monitoring, thyroid analysis, testing for anemia, and hormone testing. If Roche fails to divest and license these assets within the time specified, a "crown jewel" provision would allow the trustee to divest all of Boehringer Mannheim's CEDIA reagents.
Further, the proposed settlement would require Roche to provide substantial assistance to each of the acquirers, so that they each can compete effectively in the relevant markets. Roche would be required to "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. In addition, Roche would be required to provide the necessary technical assistance and advice to assist the acquirers in their efforts to begin manufacturing the products. The proposed settlement would allow the Retavase acquirer and the DAT reagents acquirer to hire former Boehringer Mannheim employees associated with the marketing or sales of Retavase or DAT reagents, respectively.
The proposed settlement provides for the appointment of an interim trustee to monitor the smooth transition of divested assets and to ensure that the acquirers receive the necessary technical assistance. The trustee would serve in this capacity until all acquirers have received the FDA approvals needed to begin the manufacture and sale of the divested products.
Finally, the order contains a number of recordkeeping and reporting requirements designed to assist the FTC in monitoring compliance with its terms.
The Commission vote to accept the proposed settlement for public comment was 4-0, with Commissioner Mary L. Azcuenaga not participating. An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, the proposed consent agreement, and an analysis of the agreement to aid in public comment, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TTY for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC Matter No. 971 0103)
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