[Federal Register Volume 65, Number 123 (Monday, June 26, 2000)]
[Notices]
[Pages 39407-39409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16041]


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FEDERAL TRADE COMMISSION

[File No. 001-0059]


Pfizer Inc., et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before July 19, 2000.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Molly Boast or Ann Malester, FTC/H-
373, 600 Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-2039 or 
326-2682.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of 
the Commission's Rules of Practice (16 CFR 2.34), notice

[[Page 39408]]

is hereby given that the above-captioned consent agreement containing a 
consent order to cease and desist, having been filed with and accepted, 
subject to final approval, by the Commission, has been placed on the 
public record for a period of thirty (30) days. The following Analysis 
to Aid Public Comment describes the terms of the consent agreement, and 
the allegations in the complaint. An electronic copy of the full text 
of the consent agreement package can be obtained from the FTC Home Page 
(for June 19, 2000), on the World Wide Web, at ``http://www.ftc.gov/
ftc/formal.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, Washington, DC 
20580, either in person or by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania, Ave., NW, 
Washington, DC 20580. Two paper copies of each comment should be filed, 
and should be accompanied, if possible, by a 3\1/2\ inch diskette 
containing an electronic copy of the comment. Such comments or views 
will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an agreement containing a proposed Consent Order 
from Pfizer Inc. (``Pfizer'') and Warner-Lambert Company (``Warner'') 
which is designed to remedy the anticompetitive effects of the merger 
of Pfizer and Warner. Under the terms of the agreement, the companies 
would be required to: (1) Terminate Warner's agreement with Forest 
Laboratories, Inc. (``Forest'') to co-promote the antidepressant 
Celexa; (2) divest Pfizer's RID pediculicide (used to treat head lice) 
business to Bayer Corporation (``Bayer''); (3) divest all of Warner's 
assets relating to the Alzheimer's drug, Cognex, to First Horizon 
Pharmaceutical Corporation; and (4) transfer and surrender to OSI 
Pharmaceuticals, Inc. (``OSI'') all of Pfizer's assets relating to the 
Epidermal Growth Factor receptor tyrosine kinase inhibitor, CP-358,774, 
for the treatment of cancer.
    The proposed Consent Order has been placed on the public record for 
thirty (30) days for reception of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
agreement and the comments received, and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
Consent Order.
    In their merger agreement of February 6, 2000, Pfizer and Warner 
propose to combine their two companies in a transaction valued at 
approximately $90 billion. Thereafter, the merged entity will be 
renamed Pfizer Inc. The proposed Complaint alleges that the proposed 
merger, 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, in the markets for: (1) SSRI/SNRI 
antidepressants; (2) pediculicides; (3) drugs for the treatment of 
Alzheimer's disease; and (4) EGFrtk inhibitors for the treatment of 
cancer. The proposed Consent Order would remedy the alleged violations 
by replacing the lost competition that would result from the merger in 
each of those markets.

SSRI/SNRI Antidepressants

    Selective serotonin reuptake inhibitors (``SSRIs'') and selective 
norepinephrine reuptake inhibitors (``SNRIs'') are used to treat 
depression. Both SSRIs and SNRIs have the same effect on the 
neurotransmitter serotonin, which is believed to be an important mood 
regulator, SSRIs and SNRIs are favored by physicians because they offer 
once-a-day dosing and a lower side effect profile compared to earlier 
generation antidepressants. Annual U.S. sales of SSRI/SNRI 
antidepressants total approximately $7 billion.
    The market for SSRI/SNRIs is highly concentrated. Pfizer and Warner 
compete directly against each other in the market for SSRI/SNRI 
antidepressants. Pfizer markets Zoloft, while Warner co-promotes Celexa 
with Forest. In 1999, Pfizer's Zoloft was the second-leading SSRI, with 
sales in the United States of over $2 billion, while Warner and 
Forest's Celexa was the fastest-growing SSRI with sales of $210 
million.
    There are significant barriers to entry into the SSRI/SNRI market. 
New entry into the manufacture and sale of drugs for the treatment of 
depression is difficult, expensive and time-consuming. It requires 
identifying a preclinical compound, performing animal safety tests, 
clinically developing the product in humans, and submitting a New Drug 
Application for approval by the Food and Drug Administration 
(``FDA'').In order to enter the market, a firm must incur substantial 
sunk costs to research, develop, manufacture and sell a SSRI/SNRI. De 
novo entry has been estimated to take between 8-12 years and cost 
upwards of $250 million. New entry sifficient to deter or counteract 
the anticompetitive effects of the merger would not occur in a timely 
manner. Nor would such entry be likely to occur in the face of a 5 to 
10 percent increase in the prices of these drugs.
    The proposed merger of Pfizer and Warner is likely to cause 
significant anticompetitive effects in the U.S. SSRI/SNRI market by 
increasing the likelihood of coordinated interaction among the 
remaining firms in the market and by eliminating Celexa, an aggressive 
new market entrant, as an independent competitor. As a result, American 
consumers of these drugs would likely pay higher prices and have fewer 
alternatives for SSRI/SNRI drugs for the treatment of depression.
    The proposed Consent Order maintains competition in the SSRI/SNRI 
market requiring that: (1) Warner terminate, absolutely and in good 
faith, the Celexa Co-Promotion Agreement and Celexa Amendment in 
accordance with the terms of the Celexa Termination Agreement with 
Forest; (2) Warner return all confidential information regarding Celexa 
to Forest; (3) the former Warner sales personnel who participated in 
the marketing of Celexa maintain the confidentiality of this 
information; and (4) the former Warner sales personnel involved in 
marketing Celexa be prohibited from selling Zoloft for a period of 
time.

Pediculicides

    Over-the-counter (``OTC'') pediculicides are used to treat head-
lice infestation. While prescription products and home remedies may 
also be used for the treatment of head lice, OTC pediculicides are more 
effective, cheaper and safer than any available alternatives. Annual 
U.S. sales of OTC pediculicides total over $150 million.
    The market for OTC pediculicides is highly concentrated. Pfizer and 
Warner are the two leading suppliers of OTC pediculicides in the United 
States, with approximately 30 percent of the market each. Thus, as a 
result of the merger, Pfizer would have a 60 percent share of the 
market. There are significant barriers to entry and expansion into this 
market. In order to enter the market, a firm must incur substantial 
sunk costs to research, develop, manufcture and sell OTC pediculicides. 
Existing private label and small branded suppliers of pediculicides are 
not likely to effectively reposition themselves in order to counteract 
a post-merger price

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increase because of their minimal market presence, lack of scale 
economies and lack of consumer brand loyalty. The proposed merger is 
likely to lead to unilateral anticompetitive effects in the OTC 
pediculicide market by eliminating the actual, direct, and substantial 
competition between Pfizer and Warner and allowing the combined firm to 
raise prices.
    The proposed Consent Order remedies the merger's anticompetitive 
effects by requiring that Pfizer divest its entire RID brand of 
pediculicide and all assets associated with this product line to Bayer.

Drugs for the Treatment of Alzheimer's Disease

    Pfizer and Warner market the only two products sold in the United 
States for the treatment of Alzheimer's disease, Aricept and Cognex, 
respectively. Aricept dominates the market with more than 98 percent 
market share, while Cognex accounts for the remainder of the market. 
While the FDA has recently approved one new product, Novartis AG's 
Exelon, for the treatment of Alzheimer's disease, Novartis has yet to 
market its product. Even taking into account Novartis's entry into the 
market, the market will still be highly concentrated. There are 
significant barriers to entry into this market. New entry into the 
manufacture and sale of drugs for the treatment of Alzheimer's disease 
is difficult, expensive and time-consuming because of the lengthy 
development periods, the need for FDA approval, and the substantial 
sunk costs required to research, develop, manufacture and sell these 
drugs. As a result, entry likely to deter or counteract the likely 
anticompetitive effects of the proposed merger is unlikely.
    The merger would result in Pfizer's having a monopoly in the market 
for drugs for the treatment of Alzheimer's disease, with that monopoly 
position lessening only slightly when Exelon is launched in the United 
States. Accordingly, the merger would increase Pfizer's dominant 
position in the market, allowing it to increase prices and potentially 
eliminate Cognex, the smaller competitor, from the market. The proposed 
Consent Order remedies the merger's anticompetitive effects by 
requiring Warner to divest Cognex to First Horizon Pharmaceutical 
Corporation.

EGFr-tk Inhibitors for the Treatment of Cancer

    Pfizer and Warner are developing Epidermal Growth Factor receptor 
tyrosine kinase (``EGFr-tk'') inhibitors for the treatment of solid 
cancerous tumors. Solid tumor cancer targets include head and neck, 
non-small-cell lung, breast, ovarian, pancreatic and colorectal 
cancers. Currently, over 1.2 million Americans are diagnosed with solid 
tumor cancers each year. It is anticipated that EGFr-tk inhibitors will 
be used in conjunction with surgery, radiation and chemotherapy to 
treat cancer patients.
    EGFr-tk inhibitors target the EGFr oncogene that regulates cancer 
cell growth. The EGFr has been identified as being over-expressed (too 
prevalent) in as many as 700,000 of the 1.2 million Americans diagnosed 
with a solid tumor cancer each year. Patients with an over-expression 
of EGFr are believed to have a worse prognosis than other cancer 
patients. Accordingly, scientists have developed drugs that attemp to 
inhibit the EGFr activity of cell division signal transduction that 
results in cancer cell proliferation.
    The most advanced EGFr-tk inhibitors include those being developed 
by Pfizer and Warner. Pfizer and Warner are two of only a few companies 
in clinical development of EGFr-tk inhibitors for solid tumor cancers. 
There are significant barriers to entry into the market. In order to 
enter the market, a firm must incur substantial sunk costs to research, 
develop, manufacture and sell EGFr-tk inhibitors.
    The proposed merger is likely to create anticompetitive effects in 
the EGFr-tk inhibitor market by potentially eliminating one of the few 
research and development efforts in this area. As a result of the 
merger, the combined entity could unilaterally delay, terminate or 
otherwise fail to develop one of the two competing EGFr-tk drugs, 
resulting in less product innovation, fewer choices, and higher prices 
for consumers.
    To resolve these concerns, the proposed Consent order requires 
Pfizer to return its EGFr-tk inhibitor, CP-358,774, to its development 
partner, OSI. OSI holds a contractual right to obtain CP-358,774 should 
Pfizer terminate development efforts. Thus, while other companies have 
expressed interest in acquiring the rights to CP-358,774, none may do 
so without the prior approval of OSI.
    The proposed Consent Order maintains competition in the research 
and development of EGFr-tk inhibitors for the treatment of cancer by 
requiring that Pfizer fulfill its obligations under the May 23, 2000 
agreement between Pfizer and OSI to (1) transfer and surrender its 
rights to CP-358,774 to OSI; (2) grant OSI a royalty-free, irrevocable 
worldwide license, including the right to sublicense, to all of its 
rights in, and to, the patents currently owned jointly by OSI and 
Pfizer relating to EGFr-tk ihibitors; (3) complete, a Pfizer's cost, 
ongoing clinical trials of CP-358,774; (4) provide OSI with a 
manufacturing and supply agreement for the continued supply of CP-
358,774, pending transfer of manufacturing technology to a new 
manufacturer; (5) assume liability for all completed clinical trials; 
and (6) transfer all know-how and technology relating to CP-358,774 to 
OSI. The Consent Order also provides for an Interim Trustee to be 
appointed to oversee Pfizer's obligations under the Order and to ensure 
the continued development and viability of CP-358,774.
    The purpose of this analysis is to facilitate public comment on the 
proposed Consent Order, and it is not intended to constitute an 
official interpretation of the proposed Consent Order or to modify its 
terms in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 00-16041 Filed 6-23-00; 8:45 am]
BILLING CODE 6750-01-M