Analysis of Proposed Consent Order
The Federal Trade Commission ("Commission") has accepted, subject to final approval, an agreement containing a proposed Consent Order from Respondent Zeneca Group PLC ("Zeneca"), which is designed to remedy the anticompetitive effects resulting from the merger of Zeneca and Astra AB ("Astra"). Under the terms of the agreement, Respondent will be required, among other things, to transfer and surrender all of Zeneca's rights and assets relating to levobupivacaine, a long-acting local anesthetic, to Chiroscience Group plc ("Chiroscience"), the developer of levobupivacaine.
The proposed Consent Order has been placed on the public record for sixty (60) days for reception of comments by interested persons. Comments received during this period will become part of the public record. After sixty (60) days, the Commission will again review the proposed Consent Order and the comments received, and will decide whether it should withdraw from the proposed Consent Order or make final the proposed Order.
Pursuant to a December 9, 1998, Merger Agreement and Plan of Merger, Zeneca agreed to acquire 100 percent of all issued shares of Astra stock for approximately $30.5 billion. Upon completion of the merger, Zeneca will be renamed AstraZeneca. The proposed Complaint alleges that the merger, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C § 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, in the U.S. market for long-acting local anesthetics.
Long-acting local anesthetics are pharmaceutical products used to relieve pain during the course of surgical or other medical procedures by blocking pain impulses from reaching the central nervous system. Long-acting local anesthetics have an effective duration of up to six to seven hours, and allow patients to remain awake and conscious throughout the medical procedure.
The U.S. market for long-acting local anesthetics is highly concentrated, with a pre-acquisition HHI of 6,682. Astra is the leading supplier of long-acting local anesthetics in the United States and worldwide, and is one of only two companies (along with Abbott Laboratories) with Food and Drug Administration ("FDA") approval for the manufacture and sale of long-acting local anesthetics in the United States. While Zeneca does not currently sell long-acting local anesthetics, it had entered into an agreement with Chiroscience to market and assist in the development of levobupivacaine (known commercially as Chirocaine), a new long-acting local anesthetic being developed by Chiroscience. Thus, through this agreement with Chiroscience, Zeneca is an actual potential competitor in the U.S. market for long-acting local anesthetics.
The impending introduction of levobupivacaine in 1999 was expected to result in increased competition in the U.S. market for long-acting local anesthetics, leading to lower prices and potential improvements in product safety. The proposed merger of Zeneca and Astra would eliminate this significant source of new competition and leave the long-acting local anesthetic market highly concentrated for the foreseeable future.
It is unlikely that this lost competition would have been replaced by new competitors due to the substantial barriers to entry that exist in the U.S. market for long-acting local anesthetics. A new entrant into this market would need to undertake the difficult, expensive and time-consuming process of researching and developing a new product, obtaining FDA approval and gaining customer acceptance. Because of the difficulty of accomplishing these tasks, new entry into this market, other than Zeneca's and Chiroscience's imminent introduction of levobupivacaine, would not be timely, likely or sufficient to deter or counteract the anticompetitive effects resulting from the merger.
The proposed Consent Order effectively remedies the merger's anticompetitive effects in the U.S. market for long-acting local anesthetics by requiring Zeneca to transfer and surrender all of its rights and assets relating to levobupivacaine to Chiroscience, the developer of levobupivacaine, no later than ten (10) business days after the date the Commission accepts the Consent Agreement for public comment. Under the terms of the Consent Order, Zeneca is required to transfer and surrender these assets pursuant to an agreement entered into between Chiroscience and Zeneca that is defined in the Agreement Containing Consent Order as the "Chiroscience/Zeneca Agreement." The assets to be transferred to Chiroscience consist principally of intellectual property and know-how and include, among other things, all of the applicable patents, trademarks, copyrights, technical information and market research relating to levobupivacaine. In addition, the Consent Order requires Zeneca to comply with the other provisions of the Chiroscience/Zeneca Agreement. That agreement establishes, among other things, a transitional period during which Zeneca is required to continue carrying out certain ongoing activities relating to the commercialization of levobupivacaine, including manufacturing, regulatory, clinical, development and marketing activities. The Chiroscience/Zeneca Agreement also contains provisions that will protect the confidentiality of any information provided by Chiroscience to Zeneca in the past, or during the transitional period.
In addition, the Consent Order requires Zeneca to divest its approximately 3% investment interest in Chiroscience within four (4) months of the expiration of the Agreement Amending Share Subscription Agreement, as defined in the proposed Consent Order. Pending divestiture of this investment interest, the Order prohibits Zeneca from, directly or indirectly: (i) exercising dominion or control over, or otherwise seeking to influence, the management, direction or supervision of the business of Chiroscience; (ii) seeking or obtaining representation on the Board of Directors of Chiroscience; (iii) exercising any voting rights attached to the investment interest; (iv) seeking or obtaining access to any confidential or proprietary information of Chiroscience; or (v) taking any action or failing to take any action in a manner that would be incompatible with the status of Zeneca as a passive investor in Chiroscience.
The proposed Consent Order also requires Zeneca to provide the Commission a report of compliance with the Order within thirty (30) days following the date the Order becomes final and every ninety (90) days thereafter until its has complied with the terms of the Order. Finally, the Order allows the Commission to appoint an Interim Trustee to facilitate an orderly transfer of the levobupivacaine assets and to ensure that Zeneca carries out its obligations under the Consent Agreement and the Chiroscience/Zeneca Agreement.
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.