Johnson & Johnson; Analysis of Agreement Containing Consent Order To Aid Public Comment, 67706-67709 [05-22165]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 70, Number 215 (Tuesday, November 8, 2005)]
[Notices]
[Pages 67706-67709]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-22165]


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FEDERAL TRADE COMMISSION

[File No. 051-0050]


Johnson & Johnson; Analysis of Agreement Containing Consent Order 
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 December 1, 2005.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Johnson & Johnson, File No. 051-0050,'' 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: consentagreement@ftc.gov.
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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 the 
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 https://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 https://
www.ftc.gov/ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT: Michael R. Moiseyev, Bureau of 
Competition, Federal Trade Commission, 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 November 2, 2005), on the World Wide Web, at https://www.ftc.gov/
os/2005/11/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.

[[Page 67707]]

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''). The purpose of the 
proposed Consent Agreement is to remedy the anticompetitive effects 
that would otherwise result from J&J's acquisition of Guidant 
Corporation (``Guidant''). Under the terms of the proposed Consent 
Agreement, J&J is required to (a) grant to a third party a fully paid-
up, non-exclusive, irrevocable license, enabling that third party to 
make and sell drug-eluting stents (``DESs'') with the Rapid Exchange 
(``RX'') delivery system, (b) divest to a third party J&J's endoscopic 
vessel harvesting (``EVH'') product line, and (c) terminate its 
agreement to distribute the proximal anastomotic assist device 
(``AAD'') of Novare Surgical System, Inc. (``Novare'').
    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 December 15, 
2004, J&J proposes to acquire Guidant in exchange for cash and voting 
securities in a transaction valued at approximately $25.4 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 removing an imminent competitor from the U.S. 
market for DESs and by lessening competition in the U.S. markets for 
EVH devices and proximal AADs. The proposed Consent Agreement would 
remedy the alleged violations by replacing the competition that would 
be lost in these markets as a result of the acquisition.
    J&J is a comprehensive and broadly-based manufacturer of products 
related to all aspects of human health care. In 2004, J&J generated 
global sales of $47.3 billion and U.S. sales of $27.7 billion. J&J is 
divided into three business segments: Consumer, Pharmaceutical, and 
Medical Devices and Diagnostics. The products impacted by the proposed 
transaction, DESs, EVH devices, and proximal AADs, fall within J&J's 
Medical Devices and Diagnostics segment.
    Guidant manufactures products in three broad business units: 
cardiac rhythm management, vascular intervention, and cardiac surgery. 
In 2004, Guidant's sales were $3.8 billion globally and $2.53 billion 
in the United States. Guidant's DES program is part of its vascular 
intervention business unit, and the company's EVH device and proximal 
AAD are part of the cardiac surgery business unit.

Drug-Eluting Stents

    A DES is a medical device typically consisting of a thin, metallic 
stent coated with an antiproliferative drug and a polymer, mounted on a 
delivery system. Interventional cardiologists use DESs to treat 
coronary artery disease, a condition caused by the build up of plaque 
deposits within one or more coronary arteries leading to reduced blood 
flow. DESs work by propping open the clogged artery or arteries and 
eluting a drug, which helps prevent the renarrowing of the artery, 
called restenosis. DESs are the most effective minimally-invasive 
method for treating coronary artery disease, and other products and 
procedures are not economic substitutes for DESs.
    DESs are sold mounted on a delivery system used to deploy the DES 
to the blocked area of the coronary artery. The two most common types 
of delivery system in the United States are over-the-wire and Rapid 
Exchange (``RX''). Over-the-wire delivery systems employ a long 
guidewire and require two operators to implant the DES. In contrast, 
the RX delivery system employs a shorter guidewire that can be handled 
by a single operator. RX delivery systems currently are highly 
preferred by physicians in the United States and are increasing in 
popularity. Boston Scientific Corporation and Guidant own the 
intellectual property rights to the RX delivery system in the United 
States. The companies have cross-licensed each other, and J&J has 
access to the RX delivery system through an agreement with Guidant. 
Both DESs currently on the market, J&J's Cypher[supreg] and Boston 
Scientific's Taxus[supreg], are available on the RX delivery system.
    The relevant geographic market in which to analyze the effects of 
the proposed acquisition on the DES market is the United States. DESs 
are medical devices that are regulated by the United States Food and 
Drug Administration (``FDA''). Performing the necessary clinical 
testing and navigating the approval process for the FDA can be 
burdensome and time-consuming. As such, DESs sold outside of the United 
States but not approved for sale in the United States do not provide 
viable competitive alternatives for U.S. consumers.
    The U.S. market for DESs is highly concentrated; currently only two 
firms, J&J and Boston Scientific, have products on the market. 
Guidant's DES program is still in development, but it is anticipated to 
be one of at least three entrants, along with Medtronic, Inc. and 
Abbott Laboratories, likely to enter the U.S. market by the end of 
2007. Guidant is the only anticipated entrant with rights to the 
intellectual property necessary to market a DES with the RX delivery 
system, the dominant delivery system in the United States.
    Developing and receiving FDA approval for a DES is difficult, time-
consuming and expensive. It can take hundreds of millions of dollars of 
research and development, significant funding for clinical trials, and 
an extensive amount of time to even reach the stage of seeking FDA 
approval. The regulatory process itself can also be time-consuming as 
the FDA reviews the volumes of materials and data a company submits in 
support of its application for approval. Considering all these factors, 
entry into the manufacture and sale of DESs is impossible to achieve 
within two to three years.
    In addition to the regulatory barriers facing firms seeking to 
enter the DES market, there are substantial intellectual property 
barriers an entrant must overcome. Firms must invent around or obtain 
licenses to patents covering nearly every aspect of a DES, including 
the design of stents, stent delivery systems, and the drugs and 
polymers used on DESs. Due to the difficulty of entry, firms must 
commit to entering the market years in advance of any anticipated 
entry, and timely and sufficient entry in response to a small but 
significant price increase is impossible.
    The proposed acquisition would cause significant competitive harm 
in the market for DESs by eliminating Guidant as the only potential 
competitor with the ability to offer a DES on an RX delivery system. As 
a third RX entrant into the DES market, Guidant likely would increase 
competition and reduce prices for DESs. Although two other firms, 
Abbott and Medtronic, are poised to enter the market in the same 
approximate time frame as Guidant, their lack of access to the RX 
delivery system makes it unlikely that either company could be a 
substantial competitive constraint on the DES market in the near term. 
The proposed

[[Page 67708]]

acquisition therefore decreases the number of potential DES suppliers 
with access to the RX delivery system from three to two until at least 
late 2008, when Guidant's key patents relating to the RX delivery 
system begin to expire. (The relevant Boston Scientific RX patents 
begin to expire this year).
    The proposed Consent Agreement effectively remedies the proposed 
acquisition's anticompetitive effects in the market for DESs. Pursuant 
to the proposed Consent Agreement, the combined J&J/Guidant is required 
to license Guidant's intellectual property surrounding the RX delivery 
system at no minimum price to an up-front buyer with a DES program in 
development no later than ten (10) days after the acquisition is 
consummated. Through the course of the investigation, Commission staff 
gathered a great deal of information about each of the companies 
developing DES products. In particular, staff investigated potential 
divestiture candidates and concluded that Abbott was among the 
companies well-positioned to replicate the competitive impact Guidant 
was likely to have absent the proposed acquisition. The parties have 
selected Abbott as the up-front buyer for the divestiture package. 
Abbott is a well-known and respected pharmaceutical and diagnostics 
company that has a number of vascular devices on the market already or 
in development. It has experience with both drugs and vascular devices, 
a highly regarded DES design, a strong and growing vascular sales 
force, and the necessary manufacturing capabilities. Abbott, therefore, 
is poised to become a strong competitor in the DES market when it 
enters in the second half of 2007, approximately the same time as 
Guidant's anticipated date of entry. Access to the RX delivery system 
will allow Abbott to replace Guidant as the third entrant into the DES 
market with an RX delivery system.
    The Commission's merger remedies are intended to maintain or to 
restore the competitive status quo. The Commission does not, as a 
matter of course, seek to ``improve'' on pre-transaction competition. 
Based on the evidence gathered in the investigation, the Commission has 
determined that the license to Abbott should replicate the competitive 
conditions in DESs that existed prior to the proposed transaction 
between J&J and Guidant. As a result, a Commission order requiring 
licenses to additional parties is not necessary.
    Given the uncertainty inherent in a development program, the RX 
license contemplated by the proposed Consent Agreement is transferable, 
so that if Abbott's DES program is not successful, it will have the 
incentive and ability to transfer the RX license to another firm 
developing a DES, ensuring that a successful third DES firm is able to 
enter the market with an RX delivery system in the relevant timeframe. 
The proposed Consent Agreement also requires the parties to enter into 
a covenant not to sue Abbott in relation to certain intellectual 
property rights regarding stent design, stent coating and the use of 
certain drugs on a stent.

Endoscopic Vessel Harvesting Devices

    EVH devices are used in coronary artery bypass graft (``CABG'') 
surgery to remove a patient's leg vein, arm artery, or other blood 
vessel that is then used as a conduit to bypass one or more blocked 
coronary arteries. EVH devices allow for a minimally-invasive procedure 
requiring only one to three small incisions. EVH has several clinical 
benefits over the other methods of vessel harvesting (the open method 
and bridging) both of which are much more invasive, leave large, 
unsightly scars and carry a greater risk of infection. Surgeons and 
physician's assistants would not switch to these other methods of 
vessel harvesting even if the price of using EVH devices increased by 
five to ten percent.
    As with DESs, the United States is the relevant geographic market 
in which to analyze the effects of the proposed acquisition on the EVH 
device market. EVH devices are also medical devices subject to 
regulation by the FDA. Receiving FDA approval to market an EVH device 
in the United States can be a lengthy process, but is necessary in 
order to sell the devices in the Unites States. EVH devices sold 
outside of the United States but not approved by the FDA for sale in 
the United States therefore do not provide viable competitive 
alternatives for U.S. consumers.
    The U.S. market for EVH devices is highly concentrated with J&J and 
Guidant as the only competitors until very recently, when Terumo 
Corporation entered. Guidant currently dominates the market with over 
eighty percent market share. Terumo received FDA approval for its 
device in January, 2005 and has yet to generate significant sales.
    Firms seeking to enter the market for EVH devices face regulatory 
hurdles and significant intellectual property barriers, both of which 
make entry into the market for EVH devices in the next two to three 
years highly unlikely. In addition, while the use of EVH devices in 
CABG surgery is increasing, the number of overall CABG surgeries 
appears to be decreasing due to, among other things, the increase in 
stenting procedures; this steady decline in the number of CABG 
procedures being performed in the United States makes it less likely 
that firms would choose to enter the EVH device market in response to a 
modest increase in the price of the devices.
    The proposed acquisition would constitute a virtual merger to 
monopoly in the market for EVH devices and is likely to lead to 
increased prices and decreased innovation in the market for those 
devices. Until recently, Guidant and J&J were the only two firms to 
offer an EVH device in the United States, and while Terumo recently 
entered, it is likely that it will take several years before Terumo's 
device has a significant impact on the market for EVH devices.
    The proposed Consent Agreement effectively remedies the proposed 
acquisition's anticompetitive effects in the market for EVH devices by 
requiring J&J to divest its EVH product line to a Commission-approved 
buyer at no minimum price. J&J has reached an agreement to divest the 
EVH business to Datascope. Datascope, a diversified medical device 
company, has a line of products used in cardiac surgery, including 
products used in CABG procedures. Pursuant to the Consent Agreement, 
J&J is required to accomplish the divestiture of its EVH product line 
no later than fifteen (15) business days after the acquisition is 
consummated.
    The proposed Consent Agreement permits the Commission-approved 
buyer of the EVH product line assets to enter into a supply agreement 
with J&J for a period of up to two (2) years. The supply agreement may 
be necessary because of the need to recreate or move manufacturing and/
or packaging equipment and to allow time for the acquirer to receive 
approval from the FDA to begin manufacturing and/or packaging EVH 
device kits in its own facility. This supply agreement may also be 
necessary to allow J&J to supply certain components of the EVH devices 
until the acquirer is able to procure similar components from third-
party vendors.
    In addition, the proposed Consent Agreement permits J&J to provide 
certain transitional services to the Commission-approved buyer of the 
EVH product line assets. These transitional services may be necessary 
for a smooth transition of the product line to the acquirer and to 
ensure continued and uninterrupted service to customers during the 
transition.

[[Page 67709]]

Proximal Anastomotic Assist Devices

    Surgeons use proximal AADs in CABG procedures to avoid the need to 
clamp the aorta when attaching a harvested vessel to it. If a proximal 
AAD is not used, the surgeon must use a clamp to stop the flow of blood 
to a segment of the aorta while the harvested vessel is surgically 
attached. Using a clamp can cause calcified plaque particles to 
dislodge from the aorta and travel through the blood stream to the 
brain, risking neurological dysfunction or stroke.
    The proper geographic market in which to analyze the effects of the 
proposed transaction on the market for proximal AADs is the United 
States. Proximal AADs are medical devices that must be approved by the 
FDA before being marketed in the United States. As with other medical 
devices, the clinical testing and regulatory approval process for 
proximal AADs can be costly and time-consuming, preventing proximal 
AADs approved outside of the United States but not approved within the 
United States from serving as a competitive alternative for U.S. 
consumers.
    There are currently three firms in the U.S. market for proximal 
AADs, making it a highly concentrated market. The evidence indicates 
that J&J and Guidant's manual proximal AADs are each others' closest 
competitors. Medtronic also participates in the market with an 
automatic device that it recently launched in the United States. A 
fourth firm, St. Jude Medical, removed its automatic device, 
Symmetry[supreg], from the market last year amidst reports of device 
failures. J&J's proximal AAD, eNclose[supreg], was developed and is 
manufactured by Novare; J&J and Novare have a distribution agreement 
making J&J the sole distributor of eNclose[supreg] in the United 
States.
    As with the other medical devices discussed, entry into the market 
for proximal AADs is difficult, costly, and time-consuming. 
Additionally, the alleged safety concerns regarding St. Jude's Symmetry 
device have resulted in greater scrutiny of proximal AADs by the FDA. 
The increased scrutiny is likely to substantially increase the cost of 
developing a proximal AAD. In addition, it appears that the publicity 
surrounding Symmetry's removal from the market has dampened physician 
enthusiasm for these devices. These developments, along with the 
declining number of overall U.S. CABG procedures, decrease the 
likelihood of entry into this market.
    The proposed acquisition is likely to cause significant competitive 
harm in the market for proximal AADs by eliminating competition between 
J&J and Guidant and reducing the number of competitors in the market 
from three to two. The evidence has also shown that J&J and Guidant's 
products are likely each others' closest competitors in the proximal 
AAD market because they are more similar to each other than to 
Medtronic's product. The proposed acquisition is therefore likely to 
enable the combined J&J/Guidant to raise prices for proximal AADs 
unilaterally.
    The proposed acquisition's anticompetitive effects in the market 
for proximal AADs are remedied by the proposed Consent Agreement's 
requirement that J&J terminate its distribution agreement with Novare 
for Novare's proximal AAD, eNclose. It is anticipated that it will take 
Novare no more than two months to find a new distribution partner for 
eNclose.

Appointment of an Interim Monitor and a Divestiture Trustee

    The proposed Consent Agreement contains a provision that allows the 
Commission to appoint an interim monitor to oversee J&J's compliance 
with all of its obligations and performance of its responsibilities 
pursuant to the Commission's Decision and Order. The interim monitor is 
required to file periodic reports with the Commission to ensure that 
the Commission remains informed about the status of the divestitures, 
about the efforts being made to accomplish the divestitures, and the 
provision of services and assistance during the transition period for 
the EVH divestiture.
    Finally, the proposed Consent Agreement contains provisions that 
allow the Commission to appoint a divestiture trustee if any or all of 
the above remedies are not accomplished within the time frames required 
by the Consent Agreement. The divestiture trustee may be appointed to 
accomplish any and all of the remedies required by the proposed Consent 
Agreement that have not yet been fulfilled upon expiration of the time 
period allotted for each.
    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 to modify 
its terms in any way.

    By direction of the Commission, with Chairman Majoras and 
Commissioner Harbour recused.
Donald S. Clark,
Secretary.
[FR Doc. 05-22165 Filed 11-7-05; 8:45 am]
BILLING CODE 6750-01-P