021 0192

UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

COMPLAINT

Pursuant to the Federal Trade Commission Act and the Clayton Act, and by virtue of the authority vested in it by said Acts, the Federal Trade Commission ("Commission"), having reason to believe that Respondent Pfizer Inc. ("Pfizer"), a corporation subject to the jurisdiction of the Commission, has agreed to merge with Respondent Pharmacia Corporation ("Pharmacia"), a corporation subject to the jurisdiction of the Commission, in violation of 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, and it appearing to the Commission that a proceeding in respect thereof would be in the public interest, hereby issues its Complaint, stating its charges as follows:

I. DEFINITIONS

1. "Asset Purchase Agreement" means the Agreement and Plan of Merger by and among Pfizer, Pilsner Acquisition Sub Corp., and Pharmacia, dated July 13, 2002.

2. "Canine arthritis" means a painful, inflammatory condition of dogs.

3. "Combination HRT" means any product indicated for the treatment of menopausal symptoms that contains fixed dosages of both estrogen and progestin.

4. "Commission" means Federal Trade Commission.

5. "Dry Cow Mastitis" means an infection of the udder affecting dairy cows during periods when those cows are not producing milk.

6. "Erectile Dysfunction" or "ED" means a condition which is diagnosed by the consistent inability to achieve and maintain a penile erection adequate to sustain sexual intercourse.

7. "Extended Release OAB Products" means once-a-day and twice-a-day formulations of products to treat overactive bladder.

8. "FDA" means the United States Food and Drug Administration.

9. "HRT" means Hormone Replacement Therapy.

10. "Johnson & Johnson" means Johnson & Johnson, a corporation organized, existing and doing business under and by virtue of the laws of the State of New Jersey, with its office and principal place of business located at 1 Johnson & Johnson Plaza, New Brunswick, New Jersey 08933.

11. "Lactating Cow Mastitis" means an infection of the udder affecting dairy cows when those cows are producing milk.

12. "Novartis" means Novartis AG, a corporation organized, existing and doing business under and by virtue of the laws of the Swiss Confederation, with its registered office located at Lichtstrasse 35, 4056, Basel, Switzerland.

13. "Overactive Bladder" or "OAB" means a symptomatic condition that includes urinary frequency, urinary urgency, and urinary incontinence.

14. "Respondents" means Pfizer and Pharmacia individually and collectively.

15. "Wyeth" means Wyeth, a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 5 Giralda Farms, Madison, New Jersey 07940.

II. RESPONDENTS

16. Respondent Pfizer is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 235 East 42^nd Street, New York, New York 10017. Pfizer, among other things, is engaged in the research, development, manufacture and sale of human pharmaceutical products, animal pharmaceutical products, and over-the-counter products.

17. Respondent Pharmacia is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 100 Route 206 North, Peapack, New Jersey 07977. Pharmacia, among other things, is engaged in the research, development, manufacture, and sale of human pharmaceutical products, animal pharmaceutical products, and over-the-counter products.

18. Respondents are, and at all times relevant herein have been, engaged in commerce, as "commerce" is defined in Section 1 of the Clayton Act as amended, 15 U.S.C. § 12, and are corporations whose business is in or affects commerce, as "commerce" is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 44.

III. THE PROPOSED ACQUISITION

19. On July 13, 2002, Pfizer and Pharmacia entered into an Asset Purchase Agreement whereby Pfizer agreed to acquire, through its wholly-owned subsidiary Pilsner Acquisition Sub Corp., 100 percent of the issued and outstanding shares of Pharmacia ("Acquisition"). Pfizer intends to pay consideration such that each issued and outstanding share of Pharmacia common stock will be converted into the right to receive 1.4 shares of Pfizer common stock. The parties estimate the aggregate value of the transaction to be approximately $60 billion. After the completion of the transaction, Pfizer will be the surviving corporate entity.

20. For the purposes of this Complaint, the relevant lines of commerce in which to analyze the effects of the Acquisition are:

a. the research and development, and the manufacture and sale, of extended release prescription drugs for the treatment of OAB;

b. the research, development, manufacture, and sale of prescription combination HRT;

c. the research and development, and the manufacture and sale, of prescription drugs for the treatment of ED;

d. the research, development, manufacture, and sale of prescription drugs for the treatment of canine arthritis;

e. the research, development, manufacture, and sale of prescription drugs for the treatment of dry cow mastitis;

f. the research, development, manufacture, and sale of prescription drugs for the treatment of lactating cow mastitis;

g. the manufacture and sale of over-the-counter hydrocortisone creams and ointments;

h. the manufacture and sale of over-the-counter motion sickness medication; and

i. the manufacture and sale of over-the counter cough drops.

21. For the purposes of this Complaint, the United States is the relevant geographic area in which to analyze the effects of the Acquisition in the relevant lines of commerce.

V. THE STRUCTURE OF THE MARKETS

22. The markets for the research and development, and for the manufacture and sale, of extended release prescription drugs for OAB are highly concentrated. Currently, Pharmacia and Johnson & Johnson are the only companies that market extended release OAB products in the United States. Pfizer is currently seeking FDA approval for its own extended release OAB product, darifenacin. Pfizer is one of only two companies that are well-positioned to enter this market and compete successfully within the next two years.

23. The market for the research, development, manufacture, and sale of prescription combination HRT products is highly concentrated, with a pre-acquisition Herfindahl-Hirschman Index ("HHI") of 5906 points. Pfizer and Pharmacia are two of the three leading suppliers of combination HRT products in the United States, with their products femhrt and Activella, respectively. The Acquisition would leave only two significant players in this market, leaving Pfizer and Wyeth with almost 94% of total prescriptions. The post-acquisition HHI would be 6066 points, representing a 160 point increase in the HHI.

24. Pfizer dominates the markets for the research and development, and for the manufacture and sale, of prescription drugs for ED. With its well-known product, Viagra, Pfizer currently occupies a monopoly position in the ED market, with a share of over 95%. Pharmacia is the only significant potential competitor to Pfizer for many years with intranasal apomorphine and D2 dopamine receptor agonist (PNU-142,774) products, each in early clinical development.

25. Pfizer dominates the market for the research, development, manufacture, and sale of prescription drugs for the treatment of canine arthritis, with its Rimadyl product that has a 70% share. There are only two other companies that sell prescription drugs for the treatment of canine arthritis: Wyeth, with its EtoGesic product that has a 30% market share; and Novartis, with its Deramaxx product that was launched in February 2003. However, Novartis markets Deramaxx under a licensing agreement with Pharmacia, which currently manufactures Deramaxx and supplies it to Novartis. Thus, after the Acquisition, Pfizer would control both the leading product in this market, Rimadyl, and the manufacturing and supply of Deramaxx for its chief competitor. Furthermore, under the existing licensing agreement between Novartis and Pharmacia, Pfizer would have access to Novartis's competitively sensitive information concerning Deramaxx pricing, forecasts, and marketing strategy.

26. The market for dry cow mastitis drugs is highly concentrated with a pre-acquisition HHI of 4120 points. There are only three significant competitors in this market: (1) Pharmacia; (2) Pfizer; and (3) Wyeth. Pharmacia and Wyeth currently account for 90% of this market. Pfizer is an important third competitor with a full range of mastitis products, including Orbenin DC for the treatment of dry cow mastitis. This acquisition would increase Pfizer's market share to 55%, and it would increase concentration by 672 points, resulting in a post-acquisition HHI of 4792 points. The fringe competitors that offer generic versions of older drugs for dry cow mastitis collectively account for less than 3% of the market.

27. The market for lactating cow mastitis drugs is also highly concentrated with a pre-acquisition HHI of 3800 points. As in the dry cow mastitis market, there are only three significant competitors in the lactating cow mastitis market: (1) Pharmacia; (2) Pfizer; and (3) Wyeth. Pharmacia and Wyeth currently account for 85% of this market. Pfizer is the only other significant competitor with a full range of mastitis products, including Dariclox and Amoximast for the treatment of lactating cow mastitis. This acquisition would increase Pfizer's market share to 50%, and it would increase concentration by 912 points, resulting in a post-acquisition HHI of 4712 points. The fringe competitors that offer generic versions of older drugs for lactating cow mastitis collectively account for approximately 3% of the market.

28. Pfizer and Pharmacia are the two leading U.S. suppliers of branded over-the-counter hydrocortisone creams and ointments. Pfizer sells Cortizone and Pharmacia sells Cortaid. After the Acquisition, the combined company would account for 55% of the annual sales of over-the-counter hydrocortisone creams and ointments in the United States. The post-acquisition HHI would be 4,469 points, representing a 1,428 point increase in the HHI. Although over-the-counter hydrocortisone creams and ointments sold under private label brands also account for a significant share of the market, those products have limited influence on the pricing of the over-the-counter hydrocortisone creams and ointments sold by Pfizer and Pharmacia.

29. The market for the manufacture and sale of over-the-counter motion sickness medication is highly concentrated. Pfizer and Pharmacia are the two leading suppliers of over-the-counter motion sickness medication in the United States, with a combined market share of approximately 77%. Pfizer sells Bonine and Pharmacia sells Dramamine. The post-acquisition HHI would be 6,089 points, representing a 2,041 point increase in the HHI.

30. The market for the manufacture and sale of over-the-counter cough drops is highly concentrated as measured by the HHI. Pfizer and Pharmacia are the two leading suppliers of branded over-the-counter cough drops, and the only two such firms with more than 5% of the market. Pfizer sells Halls brand cough drops and Pharmacia sells Ludens. Pfizer and Pharmacia combined would account for approximately 64% of the market. The post-acquisition HHI would be 4,775 points, an increase of 1,130 points above the pre-acquisition HHI.

VI. ENTRY CONDITIONS

31. Entry into any of the relevant lines of commerce described in Paragraphs 20(a) through (f) would not be timely, likely, or sufficient in its magnitude, character, and scope to deter or counteract the anticompetitive effects of the Acquisition. Developing and obtaining FDA approval for even the simplest product takes at least two years and significantly longer for more complex products. Additionally, patents and other intellectual property create significant barriers to entry into these markets.

32. Entry into any of the relevant lines of commerce described in Paragraphs 20(g) through (i) would be unlikely and not timely to deter or counteract the effects of the Acquisition. Entry into these markets would require the investment of extremely high sunk costs, which would be difficult to justify given the limited sales opportunities in the affected markets. Even if a new entrant were willing to take on such investments, it would also face the difficult task of convincing retailers to take limited and valuable shelf space away from established brands. As a result, new entry into any of these markets sufficient to achieve a significant market impact within two years is unlikely.

33. The effects of the Acquisition, if consummated, may be to lessen competition and tend to create a monopoly in the relevant markets in violation of 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 following ways, among others:

a. by eliminating actual, direct, and substantial competition between Pfizer and Pharmacia in the market for the research and development of extended release prescription drugs for the treatment of OAB, thereby reducing innovation in this market; and by eliminating potential competition between Pfizer and Pharmacia in the market for the manufacture and sale of extended release prescription drugs for the treatment of OAB, thereby: (a) increasing the likelihood that the combined entity would delay or forego the launch of Pfizer's darifenacin product, and (b) increasing the likelihood that the combined entity would delay or eliminate the additional price competition that would have resulted from Pfizer's entry into the market for extended release OAB products;

b. by eliminating actual, direct, and substantial competition between Pfizer and Pharmacia, and lessening competition, in the market for the research, development, manufacture, and sale of prescription combination HRT products, thereby: (a) increasing the likelihood of coordinated interaction, and (b) increasing the likelihood that customers for prescription combination HRT products would be forced to pay higher prices;

c. by eliminating actual, direct, and substantial competition between Pfizer and Pharmacia in the market for the research and development of prescription drugs for the treatment of ED, thereby reducing innovation in this market; and by eliminating potential competition between Pfizer and Pharmacia in the market for the manufacture and sale of prescription drugs for the treatment of ED, thereby: (a) increasing the likelihood that the combined entity would delay or forego the launch of Pharmacia's intranasal apomorphine (IN APO) and D2 dopamine receptor agonist (PNU-142, 774) products, and (b) increasing the likelihood that the combined entity would delay or eliminate the additional price competition that would have resulted from Pharmacia's entry into the market for ED products;

d. by eliminating actual, direct, and substantial competition between Pfizer and Pharmacia, and lessening competition, in the market for the research, development, manufacture, and sale of prescription drugs for the treatment of canine arthritis, thereby: (a) increasing the likelihood of a unilateral exercise of market power, (b) increasing the likelihood of coordinated interaction, (c) increasing the likelihood that customers for prescription drugs for the treatment of canine arthritis would be forced to pay higher prices, and (d) reducing innovation in the market;

e. by eliminating actual, direct, and substantial competition between Pfizer and Pharmacia, and lessening competition, in the market for the research, development, manufacture, and sale of prescription drugs for the treatment of dry cow mastitis, thereby: (a) increasing the likelihood of coordinated interaction, and (b) increasing the likelihood that customers for prescription drugs for the treatment of dry cow mastitis would be forced to pay higher prices;

f. by eliminating actual, direct, and substantial competition between Pfizer and Pharmacia, and lessening competition, in the market for the research, development, manufacture, and sale of prescription drugs for the treatment of lactating cow mastitis, thereby: (a) increasing the likelihood of coordinated interaction, and (b) increasing the likelihood that customers for prescription drugs for the treatment of lactating cow mastitis would be forced to pay higher prices;

g. by eliminating actual, direct, and substantial competition between Pfizer and Pharmacia, and lessening competition, in the market for the manufacture and sale of over-the-counter hydrocortisone creams and ointments, thereby: (a) increasing the likelihood of a unilateral exercise of market power, and (b) increasing the likelihood that customers for over-the-counter hydrocortisone creams and ointments would be forced to pay higher prices;

h. by eliminating actual, direct, and substantial competition between Pfizer and Pharmacia, and lessening competition, in the market for the manufacture and sale of over-the-counter motion sickness medication, thereby: (a) increasing the likelihood of a unilateral exercise of market power, and (b) increasing the likelihood that customers for over-the-counter motion sickness medication would be forced to pay higher prices; and

i. by eliminating actual, direct, and substantial competition between Pfizer and Pharmacia, and lessening competition, in the market for the manufacture and sale of over-the-counter cough drops, thereby: (a) increasing the likelihood of a unilateral exercise of market power, and (b) increasing the likelihood that customers for over-the-counter cough drops would be forced to pay higher prices.

VIII. VIOLATIONS CHARGED

34. The Acquisition Agreement described in Paragraph 19 constitutes a violation of Section 5 of the FTC Act, as amended, 15 U.S.C. § 45.

35. The Acquisition described in Paragraph 19, if consummated, would constitute a violation of 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.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this eleventh day of April, 2003, issues its Complaint against said Respondents.

By the Commission.

Donald S. Clark
Secretary

SEAL: