Boston Scientific Corporation and Guidant Corporation; Analysis of Agreement Containing Consent Order To Aid Public Comment, 24714-24717 [E6-6226]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 71, Number 80 (Wednesday, April 26, 2006)]
[Notices]
[Pages 24714-24717]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-6226]


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FEDERAL TRADE COMMISSION

[File No. 061 0046]


Boston Scientific Corporation and Guidant Corporation; 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 May 18, 2006.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Boston Scientific and Guidant, File No. 061 
0046,'' 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 
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, 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 April 20, 2006), on the World Wide Web, at https://www.ftc.gov/os/
2006/04/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.

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 Order (``Consent 
Agreement'') from Boston Scientific Corporation (``Boston 
Scientific''). The purpose of the proposed Consent Agreement is to 
remedy the anticompetitive effects that would otherwise result from 
Boston Scientific's acquisition of Guidant Corporation (``Guidant''). 
Under the terms of the

[[Page 24715]]

proposed Consent Agreement, Boston Scientific and Guidant are required: 
(a) To divest all assets (including intellectual property) related to 
Guidant's vascular business to a third party, enabling that third party 
to make and sell drug eluting stents (``DESs'') with the Rapid Exchange 
(``RX'') delivery system; Percutaneous Transluminal Coronary 
Angioplasty (``PTCA'') balloon catheters; and coronary guidewires, and 
(b) to reform Boston Scientific's contractual rights with Cameron 
Health, Inc. (``Cameron'') to limit Boston Scientific's control over 
certain Cameron actions and the sharing of non-public information about 
Cameron's Implantable Cardioverter Defibrillator (``ICD'') product.
    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 the proposed Consent Agreement or make it final.
    Pursuant to an Agreement and Plan of Merger dated January 25, 2006, 
Boston Scientific proposes to acquire Guidant in exchange for cash and 
voting securities in a transaction valued at approximately $27 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 
PTCA balloon catheters and coronary guidewires. The proposed Consent 
Agreement would remedy the alleged violations by requiring a 
divestiture that will replace the competition that otherwise would be 
lost in these markets as a result of the acquisition.
    Boston Scientific is a worldwide developer, manufacturer, and 
marketer of medical devices used in a broad range of interventional 
medical specialties such as interventional cardiology, peripheral 
intervention, and vascular surgery. In 2005, Boston Scientific reported 
worldwide sales of approximately $6.3 billion, with U.S. sales of $3.8 
billion.
    Guidant manufactures products in three broad business units: 
cardiac rhythm management (``CRM''), vascular intervention, and cardiac 
surgery. In 2005, Guidant's sales were $3.6 billion globally, with U.S. 
sales of $2.3 billion. Guidant's DES program, PTCA balloon catheters, 
and coronary guidewires are part of the vascular intervention business 
unit, while its ICD products are a part of the CRM 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 systems 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, RX 
delivery systems employ a shorter guidewire that can be handled by a 
single operator. RX delivery systems currently are strongly preferred 
by physicians in the United States and continue to increase in 
popularity. Boston Scientific and Guidant own the intellectual property 
rights to the RX delivery system in the United States. The companies 
have cross-licensed each other, and Johnson & Johnson (``J&J'') has 
access to the RX delivery system through an agreement with Guidant. 
Both DESs currently on the market, Boston Scientific's Taxus[supreg] 
and J&J's Cypher[supreg], are available on an 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 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. 
(``Medtronic'') and Abbott Laboratories (``Abbott''), likely to enter 
the U.S. market by the end of 2007 or early 2008. Guidant is the only 
anticipated entrant with rights to the intellectual property necessary 
to market a DES with an 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 reach even the stage of seeking FDA 
approval. The regulatory process itself can also be time-consuming 
because 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 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 to Boston Scientific and J&J with the ability to offer a DES 
on an RX delivery system. Guidant is the only potential entrant with 
access to the RX patents and freedom to commercialize its DES product 
in the United States. Evidence shows a third fully competitive firm--
one with access to an RX delivery system--is likely to enhance 
competition in the DES market. Unless remedial action is taken, the 
acquisition of Guidant by Boston Scientific would deprive customers of 
the benefits of a third fully competitive entrant in the U.S. DES 
market.
    As a third RX competitor in the DES market, Guidant likely would 
increase competition and reduce prices for DESs. Market participants 
expect that the launch of Guidant's DES product would

[[Page 24716]]

increase substantially competition in the market. Customers and 
analysts predict that Guidant's product would take substantial market 
share from both J&J's and Boston Scientific's products upon its launch. 
Customers--both interventional cardiologists and hospital purchasing 
agents--and competitors also agree that a third fully competitive 
entrant would significantly reduce the price of DES products and be 
likely to give them the full benefit of competition in the DES market. 
This view is reinforced by evidence showing that competition between 
Boston Scientific and J&J already has reduced 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 prices in the DES 
market in the near term. The proposed 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.

PTCA Balloon Catheters and Coronary Guidewires

    PTCA balloon catheters and coronary guidewires are also devices 
used in interventional cardiology procedures, including DES placement. 
A PTCA balloon catheter is a long, thin flexible tube (the catheter) 
with a small inflatable balloon at its tip. During an angioplasty 
procedure, it is inserted into a blocked coronary artery and inflated 
to widen the artery and improve blood flow. The PTCA balloon catheter 
is delivered to the lesion site over a coronary guidewire, an extremely 
thin wire with a flexible tip.
    As with DESs, the relevant geographic market in which to analyze 
the effects of the proposed acquisition on the PTCA balloon catheter 
and coronary guidewire markets is the United States. Both are medical 
devices regulated by the FDA. PTCA balloon catheters and coronary 
guidewires sold outside the United States but not approved for sale in 
the United States do not provide viable competitive alternatives for 
U.S. consumers.
    Boston Scientific and Guidant are the only suppliers in the PTCA 
balloon catheter and coronary guidewire markets with substantial sales 
in the United States. In the PTCA balloon catheter market, Boston 
Scientific is the market leader with a market share of approximately 69 
percent. Guidant has a 21 percent market share, and J&J and Medtronic 
combined account for the remaining 10 percent of the market. Guidant is 
the market leader in the coronary guidewire market with a 46 percent 
share of the market, while Boston Scientific has a market share of 39 
percent. J&J, Medtronic, and Abbott account for the remaining 15 
percent of the market.
    Entry into the U.S. markets for PTCA balloon catheters and coronary 
guidewires is difficult, time-consuming, and expensive. FDA approval, 
which can take several years to obtain, is required to market both 
products in the United States. In addition, intellectual property 
barriers relating to the design of these products exist, and a new 
entrant would need to successfully navigate through these barriers to 
enter the PTCA balloon catheter or coronary guidewire market. New entry 
in these small markets is also unlikely because of the large sales and 
marketing force necessary to detail these products to physicians 
compared to the limited size of the likely sales opportunity.
    The proposed acquisition is likely to cause competitive harm in the 
markets for PTCA balloon catheters and coronary guidewires by 
eliminating competition between Boston Scientific and Guidant and 
reducing the number of significant competitors in the market. The 
evidence has also shown that Boston Scientific's and Guidant's products 
are likely each others' closest competitors in the PTCA balloon 
catheter and coronary guidewire markets. For example, numerous industry 
participants consider Boston Scientific and Guidant to be the closest 
competitors in these markets, a view confirmed by the parties' own 
documents. Moreover, customers uniformly consider Boston Scientific and 
Guidant to be their first and second choices for PTCA balloon catheters 
and coronary guidewires. The proposed acquisition therefore likely 
would enable the combined Boston Scientific/Guidant to raise prices for 
PTCA balloon catheters and coronary guidewires unilaterally.

The Consent Agreement

    The proposed Consent Agreement effectively remedies the proposed 
acquisition's anticompetitive effects in the markets for DESs, PTCA 
balloon catheters, and coronary guidewires. Pursuant to the proposed 
Consent Agreement, the combined Boston Scientific/Guidant is required 
to divest Guidant's entire vascular business, at no minimum price, to 
an up-front buyer before Boston Scientific's acquisition of Guidant.
    Guidant's vascular business includes, among other things, its DES 
development program (including the RX delivery system patents) and its 
PTCA balloon catheter and coronary guidewire products. 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. As such, Abbott is 
well-positioned to replicate Guidant's competitiveness in the DES 
market with the acquisition of the RX intellectual property, and in the 
PTCA balloon catheter and coronary guidewire markets with the addition 
of Guidant's product lines in those areas.
    Boston Scientific's agreement with Abbott provides Boston 
Scientific with a license to the Guidant DES program, and Abbott and 
Boston Scientific will therefore share the Guidant DES program. In 
addition, Abbott has its own DES product in development upon which it 
will be able to use the RX delivery system patents. Abbott is poised to 
become a strong competitor in the DES market when it enters in the 
second half of 2007 or early 2008, 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 independent 
competitor in the DES market with an RX delivery system. Because 
Abbott's DES (after acquiring the RX intellectual property in the 
divestiture) will resolve the competitive concerns associated with the 
elimination of the third RX DES, the proposed sharing of the Guidant 
program between Abbott and Boston Scientific is competitively neutral.
    The Consent Agreement contains a number of provisions to help 
ensure that the divestiture to Abbott is successful. First, in 
purchasing all of Guidant's vascular business, Abbott will obtain four 
existing manufacturing facilities and one currently under construction. 
Although certain Guidant vascular products are manufactured in 
facilities that are not being transferred, the space dedicated to the 
Guidant vascular products in those facilities is physically separate, 
and the manufacturing of those products will be transferred to Abbott-
owned facilities in a timely fashion. To minimize the possibility of 
supply disruptions and to prevent information exchanges between Abbott 
and Boston Scientific during the

[[Page 24717]]

transition period, the Consent Agreement requires Abbott and Boston 
Scientific to enter into interim transitional service and 
confidentiality agreements.
    Finally, Abbott has taken a small equity position (under 5 percent) 
in Boston Scientific as part of the financing of Boston Scientific's 
acquisition of Guidant. To limit any long-term entanglements between 
the parties, the proposed Consent Agreement requires Abbott to 
relinquish its voting rights (by voting its shares in the same 
proportion as all other shareholders in shareholder votes) and to 
divest its equity stake in Boston Scientific within thirty months of 
closing.

Implantable Cardioverter Defibrillators

    ICDs are small electronic devices installed inside the chest to 
prevent sudden death from cardiac arrest due to abnormal heart rhythms. 
They are designed to counteract fibrillation of the heart muscle and 
restore normal heart rhythms by applying a brief electric shock. Three 
firms--Medtronic, Guidant, and St. Jude Medical--account for more than 
98 percent of the $1.8 billion in annual sales in the U.S. ICD market, 
and have been the only competitively significant providers of ICDs in 
the United States for over ten years. Although Boston Scientific does 
not currently sell and is not developing any ICD products, it owns a 
ten to fifteen percent equity stake in a CRM start-up known as Cameron 
Healthcare Inc. More importantly, it has an option to acquire Cameron 
that provides certain information sharing and control rights prior to 
the exercise of the option. Cameron is developing a novel, ``leadless'' 
subcutaneous ICD that is on track to receive FDA approval in 
approximately two to three years.
    As in the DES, PTCA balloon catheter, and coronary guidewire 
markets, additional entry into the U.S. market for ICDs is difficult, 
time-consuming, and expensive. FDA approval is required to market ICDs 
in the United States and a new entrant would need to navigate around 
the substantial intellectual property barriers that exist in order to 
make a significant market impact.
    Boston Scientific's option to acquire Cameron provides Boston 
Scientific with access to non-public information about Cameron and 
control over certain actions of Cameron that were originally intended 
to protect Boston Scientific's investment. After Boston Scientific is 
combined with Guidant, those previously unobjectionable provisions may 
adversely affect competition in the ICD market because they allow the 
combined Boston Scientific/Guidant to receive information from and 
exercise control over Cameron--a potentially significant future 
competitor.
    To alleviate these competitive concerns, the proposed Consent 
Agreement imposes limits on Boston Scientific's access to Cameron 
information and on Boston Scientific's ability to exercise any control 
over Cameron. First, a firewall will be established that will limit the 
circumstances under which Boston Scientific will receive Cameron 
information, as well as the individuals at Boston Scientific who may 
receive such information. Second, with respect to the control 
provisions, Boston Scientific will relinquish its right to exercise 
those provisions unilaterally. Pursuant to the proposed consent order, 
a proxy will be appointed who will independently determine whether 
Boston Scientific may exercise its contractual control rights. The 
purpose of the proxy is to ensure that Boston Scientific makes 
decisions with respect to the control provisions in the same manner as 
it would have absent the Guidant transaction. In making that 
determination, the proxy will act as an ordinary, prudent corporation 
of the scope of Boston Scientific (prior to the acquisition of the 
Guidant CRM business).
    Finally, with respect to the ten to fifteen percent equity stake 
held by Boston Scientific in Cameron, Boston Scientific has agreed to 
provisions similar to those governing Abbott's equity investment in 
Boston Scientific, namely that it will vote its shares in the same 
proportion as all other shareholders in any shareholder vote. 
Furthermore, Boston Scientific will divest its equity investment in 
Cameron within eighteen months if it does not acquire control of 
Cameron prior to the expiration of its option or if it is enjoined from 
acquiring Cameron.
    To ensure that the Commission will have an opportunity to review 
any attempt by Boston Scientific to exercise its option to acquire 
Cameron, the proposed Consent Order contains a prior notice provision 
committing Boston Scientific to an H-S-R framework even if the 
transaction otherwise would be non-reportable.

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 Boston Scientific'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 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 
established 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 one.
    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 Commissioner Harbour 
recused.
Donald S. Clark,
Secretary.
[FR Doc. E6-6226 Filed 4-25-06; 8:45 am]
BILLING CODE 6750-01-P