[Federal Register Volume 69, Number 249 (Wednesday, December 29, 2004)]
[Notices]
[Pages 78029-78032]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-28458]


=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

[File No. 041-0083]


Genzyme Corporation, et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

-----------------------------------------------------------------------

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 January 18, 2005.

ADDRESSES: Comments should refer to ``Genzyme Corporation, et al., File 
No. 041 0083,'' to facilitate the organization of comments. A comment 
filed in paper form should include this reference both in the text and 
on the envelope, and should be mailed or delivered to the following 
address: Federal Trade Commission/Office of the Secretary, Room H-159, 
600 Pennsylvania Avenue, NW., Washington, DC 20580. Comments containing 
confidential material must be filed in paper form, as explained in the 
Supplementary Information section. The FTC is requesting that any 
comment filed in paper form be sent by courier or overnight service, if 
possible, because U.S. postal mail in the Washington area and at the 
Commission is subject to delay due to heightened security precautions. 
Comments filed in electronic form (except comments containing any 
confidential material) should be sent to the following e-mail box: 
[email protected].

[[Page 78030]]


FOR FURTHER INFORMATION CONTACT: Paul Frontczak, FTC, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-3002.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Section 2.34 
of the Commission's Rules of Practice, 16 CFR 2.34, notice 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 December 20, 2004), on the World Wide Web, at ``http://
www.ftc.gov/os/2004/12/ index.htm.'' A paper copy can be obtained from 
the FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue, 
NW., Washington, DC 20580, either in person or by calling (202) 326-
2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. Written comments must be submitted 
on or before January 18, 2005. Comments should refer to ``Genzyme 
Corporation, et al., File No. 041 0083,'' to facilitate the 
organization of comments. A comment filed in paper form should include 
this reference both in the text and on the envelope, and should be 
mailed or delivered to the following address: Federal Trade Commission/
Office of the Secretary, Room H-159, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. If the comment contains any material for which 
confidential treatment is requested, it must be filed in paper (rather 
than electronic) form, and the first page of the document must be 
clearly labeled ``Confidential.'' \1\ The FTC is requesting that any 
comment filed in paper form be sent by courier or overnight service, if 
possible, because U.S. postal mail in the Washington area and at the 
Commission is subject to delay due to heightened security precautions. 
Comments filed in electronic form should be sent to the following e-
mail box: [email protected].
---------------------------------------------------------------------------

    \1\ Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See Commission Rule 4.9(c), 16 CFR 4.9(c).
---------------------------------------------------------------------------

    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at http://www.ftc.gov. As a matter of discretion, the FTC 
makes every effort to remove home contact information for individuals 
from the public comments it receives before placing those comments on 
the FTC Web site. More information, including routine uses permitted by 
the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Orders to Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from Genzyme Corporation (``Genzyme'') and ILEX Oncology, 
Inc. (``Ilex''). The purpose of the proposed Consent Agreement is to 
remedy the anticompetitive effects resulting from Genzyme's acquisition 
of Ilex. Under the terms of the proposed Consent Agreement, Genzyme is 
required to divest all contractual rights to Ilex's monoclonal 
antibody, Campath[reg], for use in solid organ transplant, to Schering 
AG (``Schering'').
    The proposed Consent Agreement has been placed on the public record 
for thirty days to solicit comments from interested persons. Comments 
received during this period will become part of the public record. 
After thirty days, the Commission will again review the proposed 
Consent Agreement and the comments received, and will decide whether it 
should withdraw from the proposed Consent Agreement or make it final.
    Pursuant to an Agreement and Plan of Merger dated February 26, 
2004, Genzyme proposes to acquire one hundred percent (100%) of the 
issued and outstanding shares of Ilex in a stock-for-stock transaction 
valued at approximately $1 billion. The Commission's complaint alleges 
that the proposed acquisition, 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, by lessening 
competition in the U.S. market for acute therapy drugs used in solid 
organ transplant (``SOT''). The proposed Consent Agreement would remedy 
the alleged violations by replacing the competition that would be lost 
as a result of the acquisition.
    SOT acute therapy drugs are immunosuppressant drugs that are used 
in solid organ transplants to suppress the transplant recipient's 
immune system. SOT acute therapy drugs are prescribed for induction 
therapy and to treat acute rejection. Induction therapy refers to the 
use of an immunosuppressant drug for a short time before, during, and/
or after a solid organ transplant procedure in order to suppress the 
immune system and decrease the likelihood of rejection of the 
transplanted organ. An acute rejection is a sudden attack on the 
transplanted organ by the transplant recipient's immune system. If an 
acute rejection occurs, SOT acute therapy drugs are used to provide a 
high dose of immunosuppression in order to stop the rejection.
    The U.S. market for SOT acute therapy drugs is highly concentrated. 
Genzyme is the leading supplier in the market for SOT acute therapy 
drugs with its drug, Thymoglobulin[reg]. Ilex's Campath[reg], the 
newest entrant into the market for SOT acute therapy drugs, currently 
accounts for a relatively small share of the SOT acute therapy drug 
market, but is quickly gaining market share and is expected to continue 
growing. Campath[reg] is FDA-approved for the treatment of chronic 
lymphocytic leukemia, but is used off-label as an SOT acute therapy 
drug.
    In addition to Thymoglobulin[reg] and Campath[reg], there are four 
other SOT acute therapy drugs used in the United States. However, due 
to similar mechanisms of action, Campath[reg] and Thymoglobulin[reg] 
are especially close competitors. Both drugs accomplish 
immunosuppression by depleting T-cells, which are a type of white blood 
cell that attack transplanted organs and can result in rejection. 
Atgam[reg] from Pfizer and OKT-3[reg] from Ortho Biotech/Johnson & 
Johnson are also T-cell depleting SOT acute therapy drugs, but are 
diminished and aged competitors and account for a small share of the 
SOT acute therapy drug market. Novartis' Simulect[reg] and Roche's 
Zenepax[reg] operate by a different mechanism of action--one that 
prevents the body's immune system from responding to and rejecting a 
foreign antigen by blocking the receptor for Interluekin--and are known 
as Interleukin-2 receptor inhibitors. Although Simulect[reg] and 
Zenepax[reg] are significant competitors and properly included in the 
relevant market, they exert more competitive

[[Page 78031]]

pressure on each other than on Thymoglobulin[reg] or Campath[reg].
    Other immunosuppressant drugs used in connection with SOT, such as 
maintenance therapy drugs, are not substitutes for SOT acute therapy 
drugs. Maintenance therapy drugs refer to low doses of 
immunosuppressant drugs that are typically used for the duration of a 
patient's life to prevent rejection. Maintenance therapy drugs are 
designed to provide a low dose of immunosuppression over a long period 
of time. Transplant patients typically start on maintenance therapy 
drugs a short time after the transplant and continue taking maintenance 
drugs for the rest of their lives. In contrast, SOT acute therapy drugs 
are designed to deliver a potent dose of immunosuppression over a short 
period of time, ranging from one day to two weeks. Using maintenance 
therapy drugs in higher doses to administer the same level of 
immunosuppression over a short period of time may be toxic to the 
patient. Thus, doctors would not likely prescribe maintenance therapy 
drugs in place of SOT acute therapy drugs. Likewise, SOT acute therapy 
drugs likely would not be used for maintenance therapy because SOT 
acute therapy drugs may be too powerful to use on a long-term basis.
    As with many pharmaceutical products, entry into the manufacture 
and sale of SOT acute therapy drugs is difficult, expensive, and time-
consuming. Developing a drug for SOT acute therapy and conducting 
clinical trials necessary to gain FDA approval is expensive and takes a 
significant amount of time. After developing a drug and receiving FDA 
approval, a company must then convince doctors to prescribe the drug. 
In order to convince doctors to prescribe a new SOT acute therapy drug, 
the new drug would need to be more efficacious, safer, and/or 
significantly less expensive than currently available SOT acute therapy 
drugs. Off-label entry by a drug already approved for another 
indication is also expensive and time-consuming, because a drug company 
would still need to develop and implement costly clinical trials to 
demonstrate benefits over other SOT acute therapy drugs. A company may 
not actively market a drug for off-label use. There are no drugs that 
are being evaluated currently for off-label use in SOT acute therapy. 
Additionally, entry is unlikely because the market for SOT acute 
therapy drugs is relatively small, lessening the incentive to invest 
the time and money necessary to develop these drugs. It is therefore 
unlikely that entry into the market for SOT acute therapy drugs, either 
by a new drug approved by the FDA, or by off-label entry, will occur in 
a manner that is timely or sufficient to resolve the anticompetitive 
effects of the proposed acquisition.
    The proposed acquisition would cause significant competitive harm 
in the U.S. market for SOT acute therapy drugs by eliminating the 
actual, direct, and substantial competition between Genzyme and Ilex. 
This loss of competition would likely result in higher prices and 
decreased development in the market for SOT acute therapy drugs.
    The proposed Consent Agreement effectively remedies the 
acquisition's anticompetitive effects in the market for SOT acute 
therapy drugs by requiring Genzyme to divest to Schering all of its 
contractual and decisionmaking rights regarding Campath[reg] for solid 
organ transplant, including its portion of the earnings from sales of 
Campath[reg] in solid organ transplant. Through an existing 
distribution and development agreement with Ilex, Schering already 
distributes and markets Campath[reg] in the United States, sharing 
costs and profits. Thus, Schering is already responsible for 
distributing and marketing Campath[reg] in the United States, and 
already participates in development activities for the drug. Therefore, 
the company is well-positioned to acquire the divested assets, and to 
compete vigorously in the market for SOT acute therapy drugs. In 
addition, because Campath[reg] is manufactured by a third-party, there 
is no need for an interim supply agreement as is required in many 
pharmaceutical merger settlements.
    The parties, with the assistance of a Monitor and the approval of 
the Commission, will implement a formula to determine the portion of 
Campath[reg] earnings attributable to solid organ transplant sales. The 
formula uses drug utilization data maintained by the United Network for 
Organ Sharing (``UNOS'') and its federally-mandated database to 
determine the portion of Campath[reg] sales that are attributable to 
SOT. This unique database provides a reliable, independent source for 
information regarding the use of Campath[reg] in SOT, because all 
hospitals performing SOT operations in the United States are required 
to submit data to UNOS on many aspects of SOT operations. Hospital 
compliance is high, due in part to the fact that hospitals not 
submitting the required data face losing Medicare reimbursement. The 
proposed Consent Agreement also allows for this formula to be 
reevaluated based on changes in the market or in the use of 
Campath[reg].
    The Commission has appointed Trinity Partners, LLC (``Trinity'') as 
Monitor to oversee the divestiture of the Campath[reg] earnings from 
solid organ transplant. The Monitor will work with the parties to 
develop and implement the formula to compute Campath[reg] earnings 
attributable to use in solid organ transplant. John E. Corcoran, 
Trinity's Managing Partner, will oversee the monitoring team. Mr. 
Corcoran founded Trinity in 1996, and has over twenty years of 
experience servicing clients in the pharmaceutical, biotechnology, 
diagnostic, and medical device industries.
    Genzyme and Schering will continue to have a relationship regarding 
uses of Campath[reg] outside solid organ transplant. Virtually all 
Campath[reg] sales are for oncology use and only a very small portion 
of sales are attributable to SOT use. The price of Campath[reg], 
therefore, is driven by the competitive dynamics in the oncology 
market. To provide further protection, the proposed Consent Agreement 
contains firewall provisions to ensure that Genzyme does not receive 
competitively sensitive information regarding Campath[reg]'s use and 
development in solid organ transplant. Additional firewalls prohibit 
Genzyme from participating in pricing decisions should Campath[reg] SOT 
sales surpass a set percentage of overall Campath[reg] sales.
    The purpose of this analysis is to facilitate public comment on the 
proposed Consent Agreement, and it is not intended to constitute an 
official interpretation of the proposed Decision and Order or the 
Agreement to Hold Separate, or to modify their terms in any way.

    By direction of the Commission, Commissioner Harbour recused.
Donald S. Clark,
Secretary.

Concurring Statement of Commissioner Jon Leibowitz

    I support the conclusion reached by my fellow Commissioners to 
approve the proposed consent order regarding Genzyme's acquisition of 
ILEX. Through this transaction, Genzyme intends to acquire ILEX's key 
oncology product Campath. However, because a small percentage of 
Campath sales are used off-label for acute therapy in solid organ 
transplants (``SOT''), a significant competitive problem arises 
concerning the overlap between ILEX's SOT use and Genzyme's Thymoglubin 
acute therapy SOT product. The proposed relief provides a solution 
designed to protect consumers against the likely harm otherwise caused 
by this

[[Page 78032]]

transaction, while allowing the parties to move forward, even though it 
creates entanglements that could raise serious concerns under a 
different set of facts. Thus, I write separately to clarify my support 
for the proposed relief here, and to express some general observations 
on merger policy, which I am sure will continue to develop during my 
tenure here at the Commission.
    Merger enforcement is a vital component of the Commission's 
mission. We are charged under the Clayton Act with ensuring that 
competition and consumers do not suffer from transactions whose effects 
may be to ``substantially lessen competition.'' Of course, the Clayton 
Act provides no inalienable right to merge. It is important, then, for 
the Commission to rigorously scrutinize each transaction we review in 
fulfilling our mission. Where a transaction may substantially lessen 
competition, a high burden should be placed on the parties to show that 
harm is demonstrably outweighed by efficiencies or that potential 
relief restores competition. My fellow Commissioners and our attorneys, 
economists and staff take our responsibility very seriously.
    At the same time, where transactions present potential economic 
benefit--through efficiencies or enhanced research and innovation--we 
should weigh those benefits relative to the likely harm, and not seek 
to impose unnecessary obstacles to the parties achieving those 
benefits. In particular, each merger should be reviewed carefully on 
its merits and its own facts, and we should remain flexible in 
considering remedies that restore competition.
    My support of the proposed remedy regarding Genzyme's acquisition 
of ILEX is consistent with these principles. Absent the proposed 
relief, this transaction would have resulted in significant harm to 
consumers through increased prices and a possible reduction in research 
and innovation. And since the original transaction's purported 
efficiencies (assuming they were cognizable under the Merger 
Guidelines) were not sufficient to reverse the likely anticompetitive 
harm, it was incumbent that the parties demonstrate that the relief 
proposed effectively restores competition.
    Here, the proposed remedy likely accomplishes that purpose. It is a 
creative solution--severing Genzyme from its rights and revenues 
relating to use of ILEX's Campath product in the SOT market (while 
allowing Genzyme to maintain its rights and revenues to the product in 
the oncology market) in a manner that substantially diminishes the 
likelihood of anticompetitive harm.
    As a general matter, creative and flexible remedies should be 
encouraged where we are confident they will succeed in restoring 
competition. However, no matter how creative the parties are in 
devising relief, and no matter how flexible the Commission is willing 
to be, such an approach will not work in many situations. The specific 
facts concerning each transaction will drive the analysis.
    The unique facts of this case add assurance that the proposed 
relief will work. For example, virtually all of Campath sales are 
derived from the competitive oncology market, and only a very small 
portion of its sales are attributable to SOT use. Thus, the price of 
Campath is constrained by the oncology market (not the SOT market), 
substantially diminishing the ability or incentive of Genzyme to 
attempt a price increase on Campath. Another key fact that allows the 
remedy to work here is the divestiture to Schering AG of the Campath 
SOT rights and revenues. Schering AG was already responsible (through a 
pre-merger relationship with ILEX) for distributing and marketing 
Campath in the United States, and thus is well-positioned to acquire 
the ILEX SOT rights and vigorously compete post-merger. These facts, 
along with other particulars of this transaction, allow for this well-
tailored proposed order to fit the facts, and remedy the likely 
competitive harm.
    One concern raised by this transaction is that the remedy creates 
entanglements between the merged firm and Schering AG: Genzyme will 
continue to receive revenues post-merger from oncology sales for 
Campath, while Schering will receive revenues for Campath's SOT sales. 
It is possible that this relationship could lead to collusion (via side 
payments or some other mechanism) between the companies that make it 
mutually profitable for them to increase price or reduce research and 
development to the detriment of consumers.
    We should be concerned ordinarily about such entanglements. 
However, the possibility of collusion in this case is not a sufficient 
concern for us to challenge this transaction. First, the entanglements 
are minimized because Campath SOT earnings can easily be determined 
without requiring communication between the parties since a federally-
mandated independent database on organ transplants will identify the 
number of SOT patients using Campath. Second, the proposed order makes 
use of several of the Commission's key tools to prevent this from 
happening (e.g., employing a monitor, erecting firewalls, and the 
threat of civil penalties for violating the proposed order), and a 
violation of the proposed order through collusion could result in 
criminal sanctions for violating section 1 of the Sherman Act. In the 
past, the Commission has demonstrated its willingness to sue companies 
for illegal side payments in the pharmaceutical industry (e.g., In the 
Matter of Schering-Plough Corp.), and the Commission, no doubt, will 
remain vigilant in ensuring that we continue to do so in the future.
    For these reasons, I concur in the decision of the Commission, but 
will remain cautious about considering future consent orders that 
create entanglements which could foster collusion and potentially harm 
consumers.

[FR Doc. 04-28458 Filed 12-28-04; 8:45 am]
BILLING CODE 6750-01-P