[Federal Register Volume 85, Number 140 (Tuesday, July 21, 2020)]
[Notices]
[Pages 44080-44083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15724]


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FEDERAL TRADE COMMISSION

[File No. 191 0198]


Elanco Animal Health and Bayer Animal Health; Analysis of 
Agreement Containing Consent Orders To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement; request for comment.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair methods of competition. 
The attached Analysis to Aid Public Comment describes both the 
allegations in the 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 August 20, 2020.

ADDRESSES: Interested parties may file comments online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Please write: ``Elanco and 
Bayer; File No. 191 0198'' on your comment, and file your comment 
online at https://www.regulations.gov by following the instructions on 
the web-based form. If you prefer to file your comment on paper, please 
mail your comment to the following address: Federal Trade Commission, 
Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 
(Annex D), Washington, DC 20580; or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW, 5th Floor, Suite 5610 (Annex 
D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Joseph Lipinsky (206-220-4473), Bureau 
of Competition, Federal Trade Commission, 600 Pennsylvania Avenue NW, 
Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned

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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 of Agreement Containing Consent 
Orders 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 website (for July 15, 2020), at this web address: https://www.ftc.gov/news-events/commission-actions.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before August 20, 2020. 
Write ``Elanco and Bayer; File No. 191 0198'' 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 https://www.regulations.gov website.
    Due to the public health emergency in response to the COVID-19 
outbreak and the agency's heightened security screening, postal mail 
addressed to the Commission will be subject to delay. We strongly 
encourage you to submit your comments online through the https://www.regulations.gov website.
    If you prefer to file your comment on paper, write ``Elanco and 
Bayer; File No. 191 0198'' on your comment and on the envelope, and 
mail your comment to the following address: Federal Trade Commission, 
Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 
(Annex D), Washington, DC 20580; or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW, 5th Floor, Suite 5610 (Annex 
D), Washington, DC 20024. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Because your comment will be placed on the publicly accessible 
website at https://www.regulations.gov, you are solely responsible for 
making sure that your comment does not include any sensitive or 
confidential information. In particular, your comment should not 
include any sensitive personal information, such as your or anyone 
else'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 your comment 
does not include any sensitive health information, such as medical 
records or other individually identifiable health information. In 
addition, your comment should not include any ``trade secret or any 
commercial or financial information which . . . is privileged or 
confidential''--as provided by 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)--including in 
particular competitively sensitive information such as costs, sales 
statistics, inventories, formulas, patterns, devices, manufacturing 
processes, or customer names.
    Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c). 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). Your comment will be kept 
confidential only if the General Counsel grants your request in 
accordance with the law and the public interest. Once your comment has 
been posted on the public FTC website--as legally required by FTC Rule 
4.9(b)--we cannot redact or remove your comment from the FTC website, 
unless you submit a confidentiality request that meets the requirements 
for such treatment under FTC Rule 4.9(c), and the General Counsel 
grants that request.
    Visit the FTC website at http://www.ftc.gov to read this Notice and 
the news release describing this matter. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding, as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before August 20, 2020. For information on the 
Commission's privacy policy, including routine uses permitted by the 
Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.

Analysis of Agreement Containing Consent Orders To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') with Elanco Animal Health, Inc. (``Elanco''), and Bayer 
Animal Health, GmbH (``Bayer''). The proposed Consent Agreement is 
intended to remedy the anticompetitive effects that likely would result 
from Elanco's proposed acquisition of Bayer (the ``Proposed 
Acquisition'').
    Pursuant to a Share and Asset Purchase Agreement dated August 20, 
2019, Elanco proposes to acquire all of the Bayer Animal Health assets 
for approximately $7.6 billion. Both parties sell low-dose prescription 
treatments for canine otitis externa, fast-acting oral treatments that 
kill adult fleas on canines, and brand name cattle pour-on 
insecticides. The Commission alleges in its Complaint 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 these three product categories.
    The proposed Consent Agreement will remedy the alleged violations 
by preserving the competition that would otherwise be eliminated by the 
Proposed Acquisition. Specifically, under the terms of the proposed 
Consent Agreement, Elanco is required to divest its canine otitis 
externa treatment product, Osurnia, to Dechra Pharmaceuticals PLC 
(``Dechra''), its fast-acting oral treatment that kills adult fleas on 
canines, Capstar, to PetIQ, Inc. (``PetIQ''), and its brand name cattle 
pour-on product, StandGuard, to Neogen Corporation (``Neogen'').

II. The Relevant Products and Competitive Effects

    The Commission's Complaint alleges three relevant product markets 
within which to analyze the Proposed Acquisition. The first relevant 
product market is low-dose prescription treatments for canine otitis 
externa. Canine otitis externa is an inflammation of the outer ear 
caused by bacteria and/or yeast. Common symptoms of otitis externa 
include pain, itching, redness, scaling, and swelling of the ear canal, 
and may result in serious complications if left untreated. Numerous 
prescription products treat canine otitis externa, but only the 
parties' products--Elanco's Osurnia and Bayer's Claro--require only one 
or two doses to treat the condition. Bayer's prescription otitis 
externa treatment product, Claro, is a single-dose otic solution, while 
Elanco's product, Osurnia, is an otic gel given in two doses seven days 
apart. While other prescription products can be used to treat canine 
otitis externa, these other products require numerous applications to 
the ear canal, up to twice daily for 14 consecutive days, and are thus 
not reasonable substitutes for the parties' products, which are 
considerably more convenient to use. As such, the

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Proposed Acquisition would create a monopoly by combining the only two 
low-dose prescription products that treat canine otitis externa.
    A second relevant product market is fast-acting oral treatments 
that kill adult fleas on canines. While there are numerous products 
that kill and prevent fleas on dogs, most are slower-acting or 
preventative, targeting flea larvae. In contrast, Elanco's Capstar and 
Bayer's Advantus start killing adult fleas quickly (within 30 minutes 
for Capstar, and within 60 minutes for Advantus), and eliminate all 
adult fleas within four hours. Medicated shampoos and sprays that can 
be used to kill adult fleas are much less convenient to administer and 
are slower-acting. As Elanco's Capstar and Bayer's Advantus are the 
only fast-acting oral treatments that kill adult fleas on canines, the 
Proposed Acquisition would also create a monopoly for fast-acting oral 
treatments that kill adult fleas on canines.
    A third relevant product market is brand name cattle pour-on 
insecticides. Cattle pour-on insecticides are liquid parasiticides 
administered directly to cattle's skin that kill and deter biting 
flies, lice, and mites. Many customers trust and rely on brand name 
cattle pour-on insecticides rather than generic products. As a result, 
generic cattle pour-on insecticides are not a reasonable substitute for 
the parties' brand-name cattle pour-on insecticides. The market for 
brand name cattle pour-on insecticides is highly concentrated. Bayer is 
the market leader, selling three cattle pour-on insecticide products 
(Clean-Up II, Cylence, and Permectrin). The only other competitors with 
meaningful sales in the market are Merck & Co., Inc., which sells four 
products, and Elanco, which sells StandGuard. Thus, the Proposed 
Acquisition would allow the third largest competitor, Elanco, to 
acquire the market leader, Bayer, significantly increasing 
concentration in brand name cattle pour-on insecticides. Moreover, to 
avoid insects becoming resistant to the active ingredients in 
insecticides, cattle producers typically cycle through different pour-
on insecticides. Elanco's StandGuard and Bayer's Cylence have similar 
chemical structures and may compete for and occupy the same slot in 
cattle producers' pour-on insecticide rotation.
    The United States is the relevant geographic market in which to 
assess the competitive effects of the Proposed Acquisition. Each of 
these products must be approved by the FDA and/or EPA before being sold 
in the United States. Thus, products sold outside the United States, 
but not approved for sale in the United States, are not alternatives 
for U.S. consumers.

III. Entry

    Entry into the U.S. market for low-dose prescription treatments for 
canine otitis externa, fast-acting oral treatments that kill adult 
fleas on canines, and brand name cattle pour-on insecticides would not 
be timely, likely, or sufficient in magnitude, character, and scope to 
deter or counteract the anticompetitive effects of the Proposed 
Acquisition. Several major obstacles stand in the way of a prospective 
entrant. De novo entry would require significant investment to, among 
other things, develop products, obtain regulatory approval, where 
needed, and establish recognized brand names. Moreover, entry would be 
unlikely because the required investment would be difficult to justify 
given the sales opportunities in the affected markets.

IV. The Proposed Consent Agreement

    The proposed Consent Agreement effectively remedies the Proposed 
Acquisition's anticompetitive effects in the three relevant product 
markets by requiring the parties to divest the rights and assets 
related to Elanco's products in each of the markets. The proposed 
Consent Agreement requires Elanco to divest Osurnia to Dechra, Capstar 
to PetIQ, and StandGuard to Neogen. The Order requires Elanco to divest 
the relevant rights and interests in these products no later than ten 
days after the consummation of the Proposed Acquisition.
    Dechra, headquartered in Northwich, England, is a global animal 
health company and is publicly traded on the London Stock Exchange. 
Dechra has significant presence and experience in the United States, 
operating in the United States for over 15 years and offering more than 
80 U.S. products, including both prescription and non-prescription 
companion animal products. Osurnia will complement Dechra's broad 
dermatology portfolio, which includes Animax Ointment, an 
antibacterial, antifungal, and anti-inflammatory skin application that 
is a daily-dose treatment and is indicated for multiple skin 
conditions, anal gland infections in dogs, as well as canine otitis 
externa. Although Animax can treat canine otitis externa, it is not a 
direct competitor to Osurnia given it is an older generation product 
requiring daily application to treat the condition.
    PetIQ, headquartered in Boise, Idaho, is a rapidly growing pet 
health and wellness company. It has served as Elanco's exclusive 
distributor of Capstar to retailers since 2018. Capstar aligns well 
with the other products for dogs in PetIQ's portfolio. PetIQ's products 
include complementary flea and tick products for dogs that offer longer 
lasting treatments to kill eggs and larvae and are sold under the 
Sergeant's, Advecta, and Sentry brand names. PetIQ sells products 
through all the companion animal retail channels through which Elanco 
currently sells Capstar and also sells its current product lines to pet 
specialty retailers, mass merchandisers/grocers, club stores, and e-
commerce sites.
    Neogen, headquartered in Lansing, Michigan, is a global animal and 
food safety company offering a wide portfolio of solutions, including 
insecticides, diagnostic test kits to detect contamination in animal 
feed, animal pharmaceuticals, vaccines, and diagnostics for production 
animals. Neogen currently markets and sells its products through the 
same distribution channels Elanco uses for StandGuard. In addition, 
Neogen manufactures and sells liquid insecticides and aerosol products 
used both on livestock and for in-premise insect control, and it has 
the capability to manufacture StandGuard in-house.
    Each of the divestitures requires Elanco to transfer all supply 
input and other manufacturing contracts, business information, product 
approvals (including relevant FDA marketing authorizations), 
intellectual property, and other related assets to the relevant 
divestiture buyer. The proposed Consent Agreement also contains 
provisions to ensure that the divestitures are successful and timely, 
including provisions that require Elanco to provide the purchasers the 
opportunity to review product contracts and to designate knowledgeable 
employees to assist each divestiture buyer in transferring and 
integrating the relevant divested product into its business.
    The Commission will appoint an Interim Monitor to ensure that the 
parties comply with all of their obligations pursuant to the Consent 
Agreement and to keep the Commission informed about the status of the 
transfer of the rights and assets to Dechra, PetIQ, and Neogen. The 
Commission's goal in evaluating possible purchasers of divested rights 
and assets is to maintain the competitive environment that existed 
prior to the Proposed Acquisition.
    The Commission does not intend this analysis to constitute an 
official interpretation of the proposed Order or to modify its terms in 
any way.


[[Page 44083]]


    By direction of the Commission, Commissioner Slaughter not 
participating.
April J. Tabor,
Secretary.
[FR Doc. 2020-15724 Filed 7-20-20; 8:45 am]
BILLING CODE 6750-01-P