[Federal Register Volume 71, Number 242 (Monday, December 18, 2006)]
[Notices]
[Pages 75756-75759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-21519]



[[Page 75756]]

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FEDERAL TRADE COMMISSION

[File No. 061 0220, Docket No. C-4180]


Johnson & Johnson and Pfizer Inc.; Analysis of Agreement 
Containing Consent Orders 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 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 11, 2007.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Johnson & Johnson and Pfizer, File No. 061 
0220,'' 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 135-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. Comments containing 
confidential material must be filed in paper form, must be clearly 
labeled ``Confidential,'' and must comply with Commission Rule 4.9(c). 
16 CFR 4.9(c) (2005).\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 
that do not contain any nonpublic information may instead be filed in 
electronic form as part of or as an attachment to e-mail messages 
directed to the following e-mail box: [email protected].
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    \1\ 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).
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    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.

FOR FURTHER INFORMATION CONTACT: Michael R. Moiseyev, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-3106.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 of 
the Commission 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 12, 2006), on the World Wide Web, at http://www.ftc.gov/os/2006/12/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. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

I. Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from Johnson & Johnson (``J&J'') and Pfizer Inc. 
(``Pfizer''), which is designed to remedy the anticompetitive effects 
that would otherwise result from J&J's proposed acquisition of Pfizer 
Consumer Healthcare. Under the terms of the proposed Consent Agreement, 
the parties will be required to divest: (1) Pfizer's Zantac[reg] H-2 
blocker business; (2) Pfizer's Cortizone[reg] hydrocortisone anti-itch 
business; (3) Pfizer's Unisom[reg] nighttime sleep-aid business; and 
(4) J&J's Balmex[reg] diaper rash treatment business.
    The proposed Consent Agreement has been placed on the public record 
for thirty (30) days for receipt 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 
proposed Consent Agreement and will decide whether it should withdraw 
from the proposed Consent Agreement, modify it, or make final the 
Decision and Order (``Order'').
    Pursuant to a Stock and Asset Purchase Agreement dated June 25, 
2006, J&J proposes to acquire certain voting securities and assets 
comprising Pfizer's Consumer Healthcare business in a transaction 
valued at approximately $16.6 billion (``Proposed Acquisition''). 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 United States 
markets for the research, development, manufacture, distribution, and 
sale of the following over-the-counter (``OTC'') medications: (1) H-2 
blockers, (2) hydrocortisone anti-itch products, (3) nighttime sleep-
aids, and (4) diaper rash treatments (the ``Products'').

II. The Parties

    J&J is one of the largest and most diversified suppliers of branded 
consumer health care products in the world, as well as a manufacturer 
and supplier of pharmaceuticals, medical devices, and diagnostic 
products. In 2005, J&J had worldwide net sales of $50.5 billion. The 
more than 230 J&J operating companies employ approximately 116,000 
individuals in 57 countries and sell products throughout the world. In 
the consumer products segment, J&J manufactures and markets a broad 
range of OTC medications, women's health products, nutritional 
products, oral care products, and products used for baby and skin care. 
With its Pepcid[reg] line of products, J&J is the leading supplier of 
OTC H-2 blocker acid relief products in the United States. J&J is also 
a leading supplier of OTC hydrocortisone-based anti-itch medications 
under its Cortaid[reg] and Aveeno[reg] brands and of OTC nighttime 
sleep-aids under its Simply Sleep[reg] brand. J&J is also a leading 
supplier of products for treating diaper

[[Page 75757]]

rash under its Balmex[reg], Aveeno[reg], and Johnson's[reg] No More 
Rash[reg] brands.
    Pfizer is one of the largest pharmaceutical companies in the world. 
Pfizer researches, develops, manufactures, and markets leading 
prescription medicines for humans and animals, as well as consumer 
healthcare products. In 2005, Pfizer had worldwide net sales of $51.3 
billion. Pfizer Consumer Healthcare, which J&J proposes to acquire, is 
a global business that researches, develops, manufactures, and markets 
many well-known brands of OTC medications and oral care products to 
consumers throughout the world. In 2005, Pfizer Consumer Healthcare 
generated net sales of $3.9 billion. Like J&J, Pfizer is one of the 
leading suppliers of OTC H-2 blocker acid relief products in the United 
States with its Zantac[supreg] product line. Pfizer is also the leading 
supplier in the United States of OTC hydrocortisone anti-itch 
medications under its Cortizone[supreg] brand, OTC nighttime sleep-aids 
under its Unisom[supreg] brand, and diaper rash products under its 
Desitin[supreg] brand.

III. OTC H-2 Blockers

    One of the relevant markets in which to assess the competitive 
effects of the Proposed Acquisition is the United States market for OTC 
H-2 blockers. H2-receptor antagonists, more commonly known 
as ``H-2 blockers,'' are a class of drugs for the prevention and relief 
of heartburn associated with acid indigestion. Originally a 
prescription medicine, H-2 blocker products were later approved by the 
FDA for sale without a prescription. H-2 blockers work by blocking 
histamine from stimulating the gastric parietal cells, thereby 
suppressing secretion of stomach acid. Although there are other OTC 
acid relief medications, including antacids and proton pump inhibitors 
(``PPIs''), H-2 blockers are sufficiently different from these other 
products that they are not close economic substitutes. Currently, 
Prilosec OTC[supreg] is the only PPI available without a prescription. 
OTC PPIs are not a close substitute for OTC H-2 blockers because they 
are indicated for the relief of chronic heartburn and not for immediate 
relief of occasional heartburn or indigestion. Antacid tablets and 
liquids are not a close substitute for OTC H-2 blockers because they 
are less efficacious and do not provide as long relief as H-2 blockers.
    The United States market for OTC H-2 blockers is highly 
concentrated. Today, this approximately $360 million market comprises 
four branded products--J&J's Pepcid[supreg], Pfizer's Zantac[supreg], 
GlaxoSmithKline's Tagamet[supreg], and Reliant Pharmaceutical's Axid 
AR[supreg]--and private label versions of some Pepcid[supreg], 
Zantac[supreg], and Tagamet[supreg] products. J&J and Pfizer are the 
two largest suppliers in this market.
    The Proposed Acquisition would significantly increase market 
concentration and eliminate substantial competition between the two 
leading suppliers of OTC H-2 blockers in the United States. Branded 
manufacturers of these products spend significant sums of money 
annually to create and maintain distinct brand equities. As a result of 
the acquisition, J&J would account for over 70% of the sales of OTC H-2 
blocker in the United States. Here the evidence confirmed that 
Pepcid[supreg] and Zantac[supreg] are close substitutes. Consumers have 
benefitted from the competition between Pfizer and J&J on pricing, 
discounts, promotional trade spending, and product innovation. Thus, 
unremedied, the Proposed Acquisition likely would cause significant 
anticompetitive harm by enabling J&J to profit by unilaterally raising 
the prices of one or both products above pre-merger levels, as well as 
reducing its incentives to innovate and develop new products.

IV. OTC Hydrocortisone Anti-Itch Products

    A second relevant product market in which to assess the competitive 
effects of the Proposed Acquisition is the United States market for OTC 
hydrocortisone anti-itch products. Hydrocortisone is a corticosteroid 
that reduces or inhibits the actions of chemicals in the body that 
cause inflammation, redness and swelling. OTC products containing up to 
1.0 percent hydrocortisone are approved by the FDA for topical 
application to treat minor skin irritations, itching, and rashes due to 
various conditions, including dermatitis, eczema, and psoriasis. 
Although OTC topical anesthetic and antihistamine products are 
available to treat minor skin irritations, itching and rashes, these 
products are not close economic substitutes for hydrocortisone anti-
itch products because they work differently than hydrocortisone 
products. While these products may relieve symptoms of pain or itching, 
unlike hydrocortisone, they do nothing to cure or prevent the actual 
underlying skin conditions such as eczema or psoriasis.
    The United States market for OTC hydrocortisone anti-itch products 
is highly concentrated. There are only two significant branded 
competitors in this market: (1) Pfizer, with its Cortizone[supreg] 
products and (2) J&J, with its Cortaid[supreg] products. In addition, 
private label hydrocortisone anti-itch products account for a 
significant share of the market. Pfizer's Cortizone[supreg] is the 
market leader among branded products, while J&J's Cortaid[supreg] is 
the second leading branded product line. In 2005, sales of OTC 
hydrocortisone anti-itch products in the United States totaled 
approximately $120 million.
    The Proposed Acquisition would significantly increase market 
concentration and eliminate substantial competition between the two 
leading suppliers of OTC hydrocortisone anti-itch products in the 
United States. As a result of the acquisition, J&J would account for 
over 55% of the sales of OTC hydrocortisone anti-itch products in the 
United States. Evidence indicates that the parties' products compete on 
many levels, including pricing, shelf-space, and advertising. By 
eliminating competition between the two leading branded suppliers, the 
Proposed Acquisition would likely result in higher prices, less 
promotional spending, and reduced product innovation. Although private 
label OTC hydrocortisone anti-itch products account for a significant 
share of the market, private label products are less close substitutes 
for a significant share of customers, and it is unlikely that private 
label products would be able to reposition themselves to replace the 
competition between J&J and Pfizer, the two largest branded competitors 
in this market, that would be lost through the Proposed Acquisition. 
Thus, unremedied, the Proposed Acquisition likely would cause 
significant anticompetitive harm by enabling J&J to profit by 
unilaterally raising the prices of one or both products above pre-
merger levels, as well as reducing its incentives to innovate and 
develop new products.

V. OTC Nighttime Sleep-Aids

    A third relevant product market in which to assess the competitive 
effects of the Proposed Acquisition is the United States market for OTC 
nighttime sleep-aids. OTC nighttime sleep-aids are non-prescription 
drugs that are indicated solely for the relief of occasional 
sleeplessness by individuals who have difficulty falling asleep. The 
active ingredient in the best-selling sleep-aids is a sedating 
antihistamine, such as diphenhydramine hydrochloride or doxylamine 
succinate. Prescription sleep-aids, such as zolpidem (Ambien[supreg]), 
zaleplon (Sonata[supreg]) or eszopiclone (Lunesta[supreg]), are not 
close economic substitutes for OTC nighttime sleep-aids. Consumers of 
OTC nighttime sleep-aids likely would not switch to prescription sleep-
aids in response to a 5 to 10 percent increase

[[Page 75758]]

in the price of OTC nighttime sleep-aids because of the higher prices 
of prescription sleep-aids (particularly for those without insurance 
coverage) and the inconvenience and cost of a doctor's visit (including 
delays for consumers who have exhausted their prescriptions).
    The United States market for OTC nighttime sleep-aids is highly 
concentrated. J&J and Pfizer are the two largest suppliers of branded 
OTC nighttime sleep-aids in the United States. Pfizer is the market 
leader with its Unisom[supreg] products, while J&J is the second 
leading supplier with its Simply Sleep[supreg] products. In 2005, sales 
of OTC nighttime sleep-aids in the United States totaled approximately 
$100 million.
    The Proposed Acquisition would significantly increase market 
concentration and eliminate substantial competition between the two 
leading suppliers of OTC nighttime sleep-aids in the United States. As 
a result of the acquisition, J&J would account for over 45% of the 
sales of OTC nighttime sleep-aids in the United States. In addition, 
the evidence confirmed that Unisom[supreg] and Simply Sleep[supreg] are 
close substitutes and have similar efficacy, brand equity, and brand 
positioning. Consumers have benefitted from the competition between 
Pfizer and J&J on pricing, discounts, promotional trade spending, and 
product innovation. Although private label OTC nighttime sleep-aids 
account for a significant share of the market, private label products 
are less close substitutes for a significant share of customers, and it 
is unlikely that private label products would reposition themselves to 
replace the competition between J&J and Pfizer, the two largest branded 
competitors in this market, that would be lost through the Proposed 
Acquisition. Thus, unremedied, the Proposed Acquisition likely would 
cause significant anticompetitive harm by enabling J&J to profit by 
unilaterally raising the prices of one or both products above pre-
merger levels, as well as reducing its incentives to innovate and 
develop new products.

VI. OTC Diaper Rash Treatments

    A fourth relevant product market in which to assess the competitive 
effects of the Proposed Acquisition is the United States market for OTC 
diaper rash treatment products. Consumers use diaper rash creams or 
ointments to treat and prevent diaper rash and to protect sore or 
chafed skin from moisture or irritation. Most diaper rash products fall 
into one of two categories: (1) Creams or pastes containing the active 
ingredient zinc oxide and (2) ointments containing the active 
ingredient petrolatum. There are no close substitutes for OTC diaper 
rash creams or ointments.
    The United States market for OTC diaper rash treatments is highly 
concentrated. Today, three large, established brands--Pfizer's 
Desitin[supreg], Schering-Plough's A&D[supreg], and J&J's 
Balmex[supreg]--account for over 70% of sales in this approximately $84 
million market. The rest of the market is composed of several small, 
niche brands. Private label products account for a negligible share of 
the market. Pfizer is the largest supplier of OTC diaper rash treatment 
products with its Desitin[supreg] line of products, while J&J is the 
third largest supplier with its Balmex[supreg], Aveeno[supreg], and 
Johnson's[supreg] No More Rash[supreg] brands. Neither the 
Aveeno[supreg] nor the Johnson's[supreg] No More Rash[supreg] brands, 
however, account for a significant share of sales in this market.
    The Proposed Acquisition would significantly increase market 
concentration and eliminate substantial competition between the two 
leading suppliers of OTC diaper rash treatment products in the United 
States. As a result of the acquisition, J&J would account for nearly 
50% of the sales of OTC diaper rash treatment products in the United 
States. Although there are additional suppliers of branded OTC diaper 
rash treatment products in this market, the evidence confirmed that 
Desitin[supreg] and Balmex[supreg] are perceived to be close 
substitutes by consumers, and evidence suggests that they are similar 
in formulation, texture, and appearance. Consumers have benefitted from 
the competition between Pfizer and J&J on pricing, discounts, 
promotional trade spending, and product innovation. Thus, unremedied, 
the Proposed Acquisition likely would cause significant anticompetitive 
harm by enabling J&J to profit by unilaterally raising the prices of 
one or both products above pre-merger levels, as well as reducing its 
incentives to innovate and develop new products.

VII. Entry

    Entry into the markets for the research, development, manufacture, 
and sale of the Products is unlikely to deter or counteract the 
anticompetitive effects of the Proposed Acquisition. Each of the 
relevant markets is relatively mature and dominated by a few well-
established brand names. In such a market environment, a new entrant 
faces a difficult task of convincing retailers to carry its product, 
especially if the new product does not have a competitive advantage 
based on differentiated claims or efficacy. Developing and obtaining 
Food and Drug Administration approval for the manufacture and sale of a 
novel, differentiated medication takes at least two (2) years. Once 
product development is complete, a new entrant must invest extremely 
high sunk costs on marketing, advertising, and promotional allowances 
to create and maintain consumer awareness and acceptance of the new 
product. Given the sales opportunities available in the markets for the 
Products, coupled with the significant investment necessary to market 
and sell the Products, it is unlikely that a new competitor will enter 
any of the markets for the Products.

VIII. The Consent Agreement

    The Consent Agreement effectively remedies the Proposed 
Acquisition's anticompetitive effects in the relevant markets discussed 
above. The Consent Agreement preserves competition in these markets by 
requiring the divestiture of: (1) All assets related to the Zantac[reg] 
H-2 blockers to Boehringer Ingelheim Pharmaceuticals, Inc. 
(``Boehringer Ingelheim Pharmaceuticals''); and (2) all assets relating 
to Cortizone[reg] hydrocortisone anti-itch products, all assets 
relating to Unisom[reg] sleep-aids, and all assets relating to 
Balmex[reg] diaper rash treatment products to Chattem, Inc. 
(``Chattem'') (the ``Divested Assets''). These divestitures must take 
place within fifteen days after the closing of the Proposed Acquisition 
or January 2, 2007, whichever is later.
    The Commission is satisfied that Boehringer Ingelheim 
Pharmaceuticals is a well-qualified acquirer of the Zantac business. 
Boehringer Ingelheim Pharmaceuticals engages in the research, 
development, sale and marketing of branded pharmaceuticals and OTC 
drugs, including well known brands such as Dulcolax[reg], Spiriva[reg], 
Atrovent[reg], Combivent[reg], Flomax[reg] and Mirapex[reg]. Boehringer 
Ingelheim Pharmaceuticals is part of the Boehringer Ingelheim Group, 
which is a leading worldwide manufacturer of pharmaceuticals for humans 
and animals and the eighth largest manufacturer and marketer of OTC 
health care products worldwide. Boehringer Ingelheim Pharmaceutical's 
Consumer Health Care business has an existing sales and distribution 
network that sells products through the same channels as Zantac[reg] is 
currently sold, and has a strong record of integrating product 
acquisitions successfully.
    The proposed Consent Agreement contains several provisions designed 
to ensure the successful divestiture of the

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Zantac[reg] business to Boehringer Ingelheim Pharmaceuticals by 
requiring that: (1) J&J divest to Boehringer Ingelheim Pharmaceuticals 
all assets relating to Pfizer's Zantac[reg] line of products, including 
all research and development, intellectual property, and customer and 
supply contracts; (2) J&J and Pfizer take steps to ensure that 
confidential business information relating to Zantac[reg] will not be 
obtained or used by J&J (3) Boehringer Ingelheim Pharmaceuticals have 
the opportunity to enter into employment contracts with certain key 
individuals who have experience relating to Zantac[reg]; and (4) 
certain management employees of Pfizer who were substantially involved 
in the research, development or marketing of Zantac[reg] be precluded 
from working on competitive H-2 blocker products at J&J for a period of 
two years.\2\
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    \2\ This firewall will prevent J&J from taking competitive 
advantage of know-how, product development, marketing, and sales 
plans relating to Zantac[reg].
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    The Commission is also satisfied that Chattem is a well-qualified 
acquirer of the Cortisone[reg], Unisom[reg], and Balmex[reg] 
businesses. Chattem is a leading manufacturer and marketer of a broad 
portfolio of branded OTC healthcare products, toiletries, and dietary 
supplements, including brands such as Icy Hot[reg], Gold Bond[reg], 
Selsun blue[reg], Garlique[reg], Pamprin[reg], and BullFrog[reg]. 
Chattem's products are among the market leaders in their respective 
categories across food, drug and mass merchandisers. Chattem has an 
experienced sales force with existing relationships with major 
retailers and has a strong record of integrating prior product 
acquisitions successfully.
    The proposed Consent Agreement contains several provisions designed 
to ensure the successful divestiture of the Cortisone[reg], 
Unisom[reg], and Balmex[reg] businesses to Chattem by requiring that: 
(1) J&J divest to Chattem all assets relating to the Cortisone[reg], 
Unisom[reg], and Balmex[reg] line of products, including all research 
and development, intellectual property, and customer and supply 
contracts; (2) J&J and Pfizer take steps to ensure that confidential 
business information relating to Cortisone[reg], Unisom[reg], and 
Balmex[reg] will not be obtained or used by J&J and (3) Chattem have 
the opportunity to enter into employment contracts with certain key 
individuals who have experience relating to Cortisone[reg], 
Unisom[reg], and Balmex[reg].
    The Order to Maintain Assets that is included in the proposed 
Consent Agreement requires that J&J and Pfizer maintain the viability 
of the Divested Assets for the brief transition period between the time 
the Commission approves the proposed Order and when the divestitures 
take place, which will not be later than January 2, 2007. Even though 
such a period is relatively short, maintenance of current supply, 
advertising and promotional levels and activities at all times prior to 
divestiture is of paramount importance. The proposed Consent Agreement 
incorporates this plan in the Order to Maintain Assets, detailing 
requirements for the assets that must be held separate, services that 
may be shared with the ongoing business, and the employee positions 
that are necessary for the held separate business.
    The Commission has appointed David Painter of LECG as Interim 
Monitor to oversee the transfer of assets, the establishment of 
appropriate firewalls to prevent the transfer or use of confidential 
business information and to ensure that J&J and Pfizer comply with all 
other provisions of the Order. To ensure that the Commission remains 
informed about the status of the Divested Assets and their transfer, 
the proposed Consent Agreement requires J&J and Pfizer to file reports 
with the Commission periodically until the divestitures are 
accomplished.
    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 Order 
to Maintain Assets, or to modify their terms in any way.

    By direction of the Commission with Commissioners Harbour, 
Kovacic and Rosch recused.
Donald S. Clark,
Secretary.
 [FR Doc. E6-21519 Filed 12-15-06; 8:45 am]
BILLING CODE 6750-01-P