[Federal Register Volume 76, Number 110 (Wednesday, June 8, 2011)]
[Notices]
[Pages 33298-33301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-14082]


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FEDERAL TRADE COMMISSION

[File No. 101 0153]


Grifols, S.A. and Talecris Biotherapeutics Holdings Corp.; 
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 July 1, 2011.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``Grisfols-Talecris, 
File No. 101 0153'' on your comment, and file your comment online at 
https://ftcpublic.commentworks.com/ftc/grifols-talecris, by following 
the instructions on the web-based form. If you prefer to file your 
comment on paper, mail or deliver your comment to the following 
address: Federal Trade Commission, Office of the Secretary, Room H-113 
(Annex D), 600 Pennsylvania Avenue, NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Jeffrey Perry (202-326-2331), FTC, 
Bureau of Competition, 600 Pennsylvania Avenue, NW., Washington, DC 
20580.

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 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 June 1, 2011), on the World Wide Web, at http://www.ftc.gov/os/actions.shtm. 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.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before June 10, 2011. 
Write ``Grifols-Talecris, File No. 101 0153'' on your comment. Your 
comment--including your name and your state--will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to 
remove individuals' home contact information from comments before 
placing them on the Commission Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which is obtained from any person and which is privileged or 
confidential,'' as provided in Section 6(f) of the FTC Act, 15 U.S.C. 
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do 
not include competitively sensitive information such as costs, sales 
statistics, inventories, formulas, patterns, devices, manufacturing 
processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/grifols-talecris by following the instructions on the web-based 
form. If this Notice appears at http://www.regulations.gov/#!home, you 
also may file a comment through that Web site.
    If you file your comment on paper, write ``Grifols-Talecris, File 
No. 101 0151'' on your comment and on the envelope, and mail or deliver 
it to the following address: Federal Trade Commission, Office of the 
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as

[[Page 33299]]

appropriate. The Commission will consider all timely and responsive 
public comments that it receives on or before July 1, 2011. You can 
find more information, including routine uses permitted by the Privacy 
Act, in the Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Order to Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted from 
Grifols, S.A. (``Grifols'') and Talecris Biotherapeutics Holdings Corp. 
(``Talecris''), subject to final approval, an Agreement Containing 
Consent Orders (``Consent Agreement'') and Decision and Order, and has 
issued a Complaint and the Order to Maintain Assets (``OMA'') contained 
in the Consent Agreement. The Consent Agreement is designed to remedy 
the anticompetitive effects resulting from Grifols' proposed 
acquisition of Talecris (the ``Acquisition''). Under the Consent 
Agreement, Grifols will: (i) Divest the fractionation facility 
currently owned by Talecris in Melville, New York, to Kedrion S.p.A. 
(``Kedrion''); (ii) divest plasma collection centers to Kedrion; (iii) 
divest to Kedrion Talecris' Koate DVI plasma-derived Factor VIII 
(``pdFVIII'') business, including the Koate brand name, in the United 
States; and (iv) for a seven-year period, manufacture immune globulin 
(``Ig''), albumin, and Koate for Kedrion to sell in the United States.
    The proposed Consent Agreement has been placed on the public record 
for 30 days to solicit comments from interested persons. Comments 
received during this period will become part of the public record. 
After 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 it final.
    On June 6, 2010, Grifols entered into an agreement to acquire 
Talecris for approximately $3.4 billion in cash and stock. The 
Commission's Complaint alleges that the Acquisition violates Section 5 
of the FTC Act, as amended, 15 U.S.C. 45, and if consummated, would 
violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and 
Section 5 of the FTC Act by lessening competition in the U.S. markets 
for Ig, albumin, and pdFVIII (the ``Relevant Products'').

II. The Parties

    Grifols is a public company, headquartered in Barcelona, Spain. Its 
bioscience division develops and manufactures human blood plasma-
derived products with manufacturing facilities in Barcelona and Los 
Angeles, California. Grifols entered the U.S. market in 2002, when it 
acquired the assets of a U.S. manufacturer, Alpha Therapeutics 
Corporation, and 42 plasma collection centers from SeraCare. Since 
then, Grifols has acquired additional plasma centers and is now 
vertically integrated, making it the second largest plasma collector in 
the world. Grifols employs approximately 6,000 people worldwide and had 
global 2009 revenues of $1.3 billion.
    Talecris is also a public company--owned in part by the private 
investment firm Cerberus Capital Management, L.P. (``Cerberus'')--that 
specializes in the development, manufacture, and worldwide sale of 
human blood plasma-derived products. Talecris began its U.S. operations 
in 2005, when Cerberus acquired Bayer AG's global plasma business and 
Precision Pharma in the same year. Talecris is headquartered in 
Research Triangle Park, North Carolina, with additional regional 
headquarters in Canada and Germany. Like Grifols, Talecris is a 
vertically integrated company, owning numerous plasma collection 
centers, as well as manufacturing facilities in Clayton, North 
Carolina, and Melville, New York. It employs approximately 5,000 people 
worldwide and had global 2009 revenues of approximately $1.5 billion.

III. Market Structure and Relevant Products

A. Relevant Geographic Market
    The relevant geographic market in which to analyze the 
Acquisition's effects is the United States. Plasma-derived products 
must be FDA-approved for sale in the United States, which requires that 
these products be made solely from plasma collected in the United 
States in FDA-approved collection centers and manufactured in FDA-
approved plants. Thus, plasma products not approved for sale in the 
United States do not provide viable competitive alternatives for U.S. 
consumers in the face of an increase in price for U.S. products.
B. Relevant Product Markets
i. Ig
    Ig is a plasma protein replacement therapy largely used to treat 
immune deficient patients. The relevant product market for Ig includes 
all brands, concentrations (i.e., 5% and 10%), formulations (i.e., 
liquid and lyophilized/powder), and means of administration (i.e., 
intravenous and subcutaneous). Because intravenous Ig (``IVIG'') 
accounts for the overwhelming majority of Ig sales in the United 
States, industry participants often refer to the Ig market as the IVIG 
market. Although IVIG is available in two concentrations (5% and 10%), 
they are therapeutically equivalent. The main difference is one of 
convenience: A 10% IVIG requires less volume, meaning treatment 
typically takes less time. Ig has numerous FDA-approved indications 
(e.g., primary immunodeficiencies and Chronic Inflammatory 
Demyelinating Polyneuropathy), and there is a significant amount of 
off-label use.
    Hospitals, physicians, and patients would not switch, and 
historically have not switched, from Ig products to non-Ig products in 
response to a small but significant and non-transitory increase in 
price (``SSNIP''). Although Ig products differ somewhat (e.g., based on 
sucrose levels, immunoglobulin A content, or concentration), ample 
evidence demonstrates that the brands and products are largely 
interchangeable. Grifols and Talecris account for approximately 8.4% 
and 22.8% of the U.S. Ig market, respectively, and their merger would 
leave three manufacturers with nearly 100% of current U.S. Ig sales.
ii. Albumin
    Physicians use albumin to expand blood volume, prime heart valves 
during cardiac surgery, treat burn victims, and replace proteins in 
treating liver failure. In the United States, the parties compete in 
the sale of two different albumin concentrations: 5% and 25% liquid. 
The 5% and 25% concentrations have different clinical uses, but if a 5% 
product is unavailable, hospitals can dilute a 25% product to a 5% 
concentration if necessary. On the manufacturing side, there are no 
significant costs associated with shifting production between 5% and 
25% albumin, and manufacturers can make such changes in a matter of 
days. Because competitive conditions--including the number and identity 
of suppliers--for 5% and 25% albumin solutions are the same, it is 
appropriate to analyze albumin as a single market comprising both 5% 
and 25% products.
    In most circumstances where it is used, albumin has no viable 
substitutes. While starches and salines can act as volume expanders 
like 5% albumin, those non-albumin products cannot substitute for 
albumin in the great majority of uses and do not meaningfully constrain 
albumin prices and, hence, are not included in the relevant product 
market. Even for those

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few indications for which there might be a potential alternative 
therapy, hospitals generally prefer albumin and would not switch from 
albumin to another product in response to a SSNIP. Grifols and Talecris 
have U.S. albumin market shares of approximately 13% each, and the 
Acquisition would leave only four meaningful competitors in that 
market.
iii. pdFVIII
    Physicians use pdFVIII to treat bleeding disorders, namely 
Hemophilia A and von Willebrand Disease (``VWD''). While both pdFVIII 
and its non-plasma counterpart, recombinant Factor VIII (``rFVIII''), 
can be used to treat Hemophilia A, rFVIII and pdFVIII have limited 
interchangeability and, hence, limited ability to constrain each 
other's prices. For instance, although rFVIII is the standard of care 
for previously untreated patients with Hemophilia A (due to the 
perception that pdFVIII carries an increased risk of viral 
transmission), evidence suggests that patients using rFVIII are more 
likely to develop inhibitors--antibodies that impede the treatment's 
effectiveness. Thus, for some Hemophilia A patients, pdFVIII is the 
only viable treatment. Likewise, patients with severe VWD are treated 
with pdFVIII products containing von Willebrand Factor (``VWF''). No 
recombinant products contain VWF, so those patients also may have no 
choice but to use pdFVIII.
    Clinical considerations, not price, determine whether a particular 
patient is given pdFVIII or rFVIII, and hospitals would not switch from 
pdFVIII to rFVIII in response to an increase in the price of pdFVIII. 
Grifols and Talecris account for approximately 23% and 3.6% of the U.S. 
pdFVIII market, respectively, and their merger would leave only three 
meaningful competitors in that market.

IV. Industry Background and the Acquisition's Effects

    A decade ago, there was robust competition in the plasma-derived 
products industry. After supply increases in the early 2000s led to 
lower prices, suppliers reduced production and plasma collection 
capacity and began to vertically integrate, placing plasma collection 
almost entirely in the control of the few remaining firms in the 
market. Manufacturers also engaged in horizontal consolidation, leading 
to an industry dominated by three large firms, including Talecris. In 
the years that followed that consolidation, the Ig market in particular 
experienced a tightening of supply and dramatic year-over-year price 
increases.
    The relevant markets have characteristics that allow manufacturers 
to promote stability and rational, coordinated behavior. First, the 
markets are transparent, with firms monitoring each other's 
collections, output, pricing, and future expansion plans. Second, firms 
have engaged in signaling to limit supply levels and maintain higher 
prices. Third, if a firm were to ``break ranks'' from a coordinated 
scheme, the other manufacturers can detect any ``cheating'' over the 
course of the long manufacturing period and inflict punishment in other 
geographic markets. Fourth, the relevant markets are characterized by 
highly inelastic demand, increasing the firms' incentives to coordinate 
because even a small change in supply can have a large effect on price.
    The Acquisition would substantially lessen competition in the 
relevant markets. It would eliminate actual, direct, and substantial 
competition between Grifols and Talecris. Moreover, given that each of 
the relevant markets already is highly concentrated, the Acquisition 
would facilitate successful coordinated interaction among the few 
remaining meaningful competitors, leading to reduced supply and higher 
prices for consumers. In addition, the Acquisition increases the 
likelihood that consumers would experience lower levels of innovation 
and service in the markets for the Relevant Products.

V. Entry Conditions

    Neither new entry nor expansion sufficient to deter or counteract 
the Acquisition's anticompetitive effects is likely to occur within two 
years. The barriers to entering the plasma fractionation industry are 
extraordinary, with costs reaching hundreds of millions of dollars. 
Indeed, the barriers are so immense that de novo entry is unrealistic 
in less than five years. For example, an entrant must develop a product 
and secure all necessary regulatory approvals, with the required 
clinical trials alone taking up to three years. Additionally, the time 
and capital investment required to build and obtain regulatory 
clearance for a fractionation facility are significant, taking four to 
eight years and costing $100 million or more. Finally, entrants must 
navigate a substantial body of intellectual property in the field, 
including trade secrets relating to purification and safety, and must 
incur substantial product research and development costs before 
bringing a product to market. Accordingly, new entry by a domestic or 
foreign firm would not be timely, likely, or sufficient to counteract 
the Acquisition's anticompetitive effects.

VI. The Consent Agreement

    The proposed Consent Agreement requires Grifols to divest certain 
assets to Kedrion and take other actions to alleviate the Acquisition's 
effects. In particular, the Consent Agreement expedites the entry of an 
additional competitor into each of the relevant markets, making a 
potential industry-wide coordinated scheme more difficult, and limiting 
the combined firm's ability to raise prices.
    Kedrion possesses the resources and ability to be an effective 
competitor and meaningful constraint on any potential coordination in 
the industry. Created in 2001, Kedrion is the seventh largest 
fractionator in the world. Specializing in the development, production, 
and distribution of plasma-derived products, Kedrion actively sells 
plasma-derived products in more than 30 countries. Kedrion currently 
sells IVIG in a number of European and other markets and has started 
the process for FDA approval of its own IVIG product for sale in the 
United States. Kedrion also expects final FDA approval to sell a new 
albumin product in the United States in 2011. It currently operates two 
plants in Italy and is nearing completion of an expansion to its 
manufacturing facility in Godollo, Hungary.
    Under the Consent Agreement, Grifols will enter into a sale-and-
leaseback agreement with Kedrion for Talecris' Melville fractionation 
facility. Specifically, Kedrion will acquire the Melville facility and 
lease it back to Grifols for three to four years to ensure continuity 
of operations; at the end of the lease term, Kedrion can assume 
Melville operations and fractionate its own plasma. Additionally, 
Grifols will divest to Kedrion plasma collection centers and sell 
Kedrion an initial supply of raw plasma, ensuring that Kedrion will 
have an independent and reliable source of raw plasma.
    In addition, Grifols will manufacture and supply Kedrion with FDA-
approved and established IVIG, albumin, and pdFVIII products. Kedrion 
will market and sell private-label versions of Talecris' Gamunex IVIG 
and Plasbumin albumin for a period of seven years. And Grifols will 
transfer to Kedrion all commercial agreements and rights to sell Koate 
pdFVIII in the U.S. market, making Kedrion the sole provider of Koate 
in the United States. Kedrion will also have the option to purchase the 
rights to manufacture Koate for sale in the United States.
    Through the Consent Agreement, Kedrion will have immediate market 
access and the ability to supply customers with established products in

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all three product markets. Kedrion's presence in the U.S. market will 
add incremental supply of these life-saving products while still 
allowing the combined firm to take full advantage of the Acquisition's 
expected efficiencies. In addition, Kedrion will also have the 
opportunity to hire Grifols and Talecris employees to facilitate its 
entry and ensure continuity in the manufacture and sale of its 
products. By eliminating many of the industry's immense barriers to 
entry, the Consent Agreement will facilitate Kedrion's current and 
future entry with its own IVIG and albumin products and position 
Kedrion to replace the competition lost as a result of the Acquisition.
    To ensure that the Commission remains informed about the status of 
the proposed divestitures, the Consent Agreement also requires the 
parties to file periodic reports with the Commission until the 
divestitures are accomplished. Furthermore, the OMA requires that the 
parties maintain all assets scheduled to transfer to Kedrion and 
authorizes the Commission to appoint a monitor to oversee the various 
agreements between Kedrion and Grifols. Under the OMA, Grifols and 
Talecris must maintain the full economic viability, marketability, and 
competitiveness of the proposed divested business and assets. This 
includes, among other things, retaining all rights, title, and interest 
in the divested assets, maintaining operations in their regular course, 
and not interfering in Kedrion's hiring of designated Grifols and 
Talecris employees. If Grifols does not comply with the OMA or any of 
the Consent Agreement's other terms, the Commission may appoint a 
divestiture trustee to divest the assets and enter into a product 
manufacturing agreement with a Commission-approved acquirer.
    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement. It is not intended to constitute an official 
interpretation of the proposed Decision and Order or to modify its 
terms in any way.
    By direction of the Commission, Commissioner Kovacic recused and 
Commissioner Brill issuing a separate concurring statement.

Donald S. Clark,
Secretary.

Concurring Statement of Commissioner Julie Brill

    I concur in the Commission's decision to issue a complaint against 
Grifols challenging its acquisition of Talecris. I write separately to 
express my view that whether to resolve this matter through the 
proposed consent order is a close call, though I ultimately concur in 
that decision as well.
    The vitally important plasma protein industry has seen considerable 
consolidation in recent years. Today, only four significant active 
competitors remain as to immune globulin (``Ig''), the largest product 
by sales at issue in this merger: Grifols, Talecris, CSL and Baxter.\1\ 
In the meantime, prices have increased substantially. Just two years 
ago, when CSL tried to buy Talecris, the Commission alleged that these 
``price increases have been caused by the consolidation of competitors 
and the resulting increases in concentration.'' \2\ The industry has 
operated as a tight oligopoly in the words of a 2007 Department of 
Health and Human Services report, carefully controlling supply, 
avoiding robust price competition, and engaging in signaling of future 
competitive moves.\3\
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    \1\ A fifth competitor, Octapharma, withdrew its Ig product from 
the market in September 2010 due to safety concerns. As the 
Commission alleges in its complaint, ``its future competitive 
significance is uncertain.''
    \2\ Compl. ] 33, FTC v. CSL Ltd., No. 09-1000 (D.D.C., filed May 
28, 2009), available at http://www.ftc.gov/os/caselist/0810255/091110csl-cerberusunsealedcmplt.pdf.
    \3\ Id. ]] 37-44.
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    One outgrowth of the supply limitations and coordinated behavior 
described in the Commission's CSL complaint has been the difficulty 
safety-net providers have had in obtaining Ig under the 340B Drug 
Pricing Program. This Congressionally mandated program is designed to 
provide pharmaceuticals at reduced prices to health care providers 
serving indigent and other at-risk patients. All too often, however, 
plasma-derivative manufacturers have not made their products available 
at statutorily-mandated prices.\4\ This subverts Congress's goal of 
ensuring access to life-saving pharmaceuticals and increases costs to 
the health care system overall.
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    \4\ See, e.g., Public Hospital Pharmacy Coalition, ``Access to 
IVIG by Safety Net Hospitals Participating in the 340B Drug Discount 
Program'' (Sept. 2006), available at http://www.phpcrx.org/public/documents/pdfs/IVIG_report.pdf.
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    Against this backdrop, almost any merger in this industry would 
merit the significant scrutiny this one has received at the FTC. 
Although Grifols is today one of the smaller firms in the U.S. market, 
with a roughly 9% share of Ig sales, it recently launched a new 10% 
concentration intravenous Ig product that could threaten the industry-
leading products offered by Talecris, Baxter and CSL. In addition, as 
alleged in the Commission's current complaint, the Ig market is highly 
concentrated and the change in market concentration effected by this 
merger easily raises a presumption of enhanced market power under the 
antitrust agencies' 2010 Merger Guidelines.\5\ Finally, as also alleged 
in the complaint, the risk of post-merger coordinated behavior is very 
real, given the history of coordination in this industry and the fact 
that the immediate post-merger U.S. Ig market will consist of three 
firms of roughly equal size. Given these and other significant facts, I 
strongly support issuance of the Commission's complaint.
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    \5\ The Ig market share and HHI figures in the Commission's 
complaint date from 2009 and are thus conservative, as they count 
Octapharma as a market participant, which it currently is not.
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    Whether the consent order does enough to remedy competition 
concerns is a much closer call. On the one hand, the consent allows for 
the near-term introduction of product into the market from a new 
competitor, Kedrion. The consent should also facilitate Kedrion's entry 
into the U.S. market with its own Ig product in several years. On the 
other hand, Grifols will keep 67 of Talecris's 69 plasma collection 
centers, as well as its own 80 centers, while divesting two to Kedrion. 
In addition, the Melville, NY, manufacturing plant that Grifols is 
divesting to Kedrion is a smaller facility that is not currently 
outfitted to purify fractionated plasma into finished product. While 
Grifols will fractionate and purify a ``Designated Amount of [finished] 
Product'' for Kedrion for several years under the consent order, 
Kedrion may need to build or purchase a new facility in order to 
effectively compete over the longer term.\6\
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    \6\ Compare In re Polypore Int'l, Inc., 2010-2 Trade Cas. ] 
77,267, 2010 FTC LEXIS 97, at *108-110 (F.T.C. 2010) (requiring 
divestiture of second manufacturing plant to ensure that divestiture 
assets constituted viable ongoing business).
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    In the end, given the particular facts and circumstances of this 
matter, I support the consent because it provides some degree of 
immediate, sure relief to consumers. I expect, though, that the 
Commission, other Federal and State agencies, and affected purchasers 
will closely monitor these markets, both as to future proposed 
consolidations and potential coordinated behavior, including behavior 
that may adversely impact indigent and other at-risk patients through 
the critical 340B program.

[FR Doc. 2011-14082 Filed 6-7-11; 8:45 am]
BILLING CODE 6750-01-P