Schering-Plough and Merck & Co., Inc.; Analysis of Agreement Containing Consent Order to Aid Public Comment, 58019-58022 [E9-27034]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 74, Number 216 (Tuesday, November 10, 2009)]
[Notices]
[Pages 58019-58022]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-27034]


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FEDERAL TRADE COMMISSION

[File No. 091 0075]


Schering-Plough and Merck & Co., Inc.; 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 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 November 30, 2009.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form. Comments should refer to ``Merck 
Schering, File No. 091 0075'' to facilitate the organization of 
comments. Please note that your comment -- including your name and your 
state -- will be placed on the public record of this proceeding, 
including on the publicly accessible FTC website, at (https://www.ftc.gov/os/publiccomments.shtm).
    Because comments will be made public, they should not include any 
sensitive personal information, such as an individual'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. Comments also 
should not include any sensitive health information, such as medical

[[Page 58020]]

records or other individually identifiable health information. In 
addition, comments should 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 Commission Rule 
4.10(a)(2), 16 CFR 4.10(a)(2). 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).\1\
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    \1\FTC Rule 4.2(d), 16 CFR 4.2(d). 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 FTC Rule 4.9(c), 16 CFR 4.9(c).
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    Because paper mail addressed to the FTC is subject to delay due to 
heightened security screening, please consider submitting your comments 
in electronic form. Comments filed in electronic form should be 
submitted by using the following weblink: (https://public.commentworks.com/ftc/0910075) (and following the instructions on 
the web-based form). To ensure that the Commission considers an 
electronic comment, you must file it on the web-based form at the 
(https://public.commentworks.com/ftc/0910075). If this Notice appears 
at (https://www.regulations.gov/search/index.jsp), you may also file an 
electronic comment through that website. The Commission will consider 
all comments that regulations.gov forwards to it. You may also visit 
the FTC website at (https://www.ftc.gov) to read the Notice and the news 
release describing it.
    A comment filed in paper form should include the ``Merck Schering, 
File No. 091 0075'' 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 H-135, 600 Pennsylvania 
Avenue, NW, Washington, DC 20580. 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.
    The Federal Trade Commission Act (``FTC Act'') and other laws 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, 
whether filed in paper or electronic form. Comments received will be 
available to the public on the FTC website, to the extent practicable, 
at (https://www.ftc.gov/os/publiccomments.shtm). As a matter of 
discretion, the Commission makes every effort to remove home contact 
information for individuals from the public comments it receives before 
placing those comments on the FTC website. 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.shtm).

FOR FURTHER INFORMATION CONTACT: Yolanda M. Gruendel, Bureau of 
Competition, 600 Pennsylvania Avenue, NW, Washington, D.C. 20580, (202) 
326-2971.

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 October 29, 2009), on the World Wide Web, at (https://www.ftc.gov/os/2009/04/index.htm). A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW, Washington, 
D.C. 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

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment an Agreement Containing Consent Order (``Consent 
Agreement'') from Schering-Plough Corporation (``Schering-Plough'') and 
Merck & Co., Inc. (``Merck''), and has issued a Complaint and the 
Decision and Order (``Order'') contained in the Consent Agreement. The 
Order seeks to remedy the anticompetitive effects that would otherwise 
result from the proposed merger of Schering-Plough and Merck in a 
number of U.S. markets. Under the terms of the Order, Merck is required 
to divest all of its interest in Merial Limited, an animal health joint 
venture with Sanofi-Aventis S.A. (``Sanofi-Aventis''), and Schering-
Plough is required to divest assets related to rolapitant, a neurokinin 
1 (``NK1'') receptor antagonist for chemotherapy-induced nausea and 
vomiting (``CINV'') and post-operative nausea and vomiting (``PONV'') 
in humans.
    Pursuant to an Agreement and Plan of Merger dated March 8, 2009, 
Schering-Plough proposes to acquire Merck and rename the surviving 
entity Merck (the ``Acquisition''), in a transaction valued at 
approximately $41.1 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. Sec.  18, and Section 5 of the 
Federal Trade Commission Act, as amended, 15 U.S.C. Sec.  45, by 
lessening competition in the market for the manufacture and sale of NK1 
receptor antagonists for CINV and PONV in humans and the manufacture 
and sale of numerous animal health products in the United States, 
including live poultry vaccines, killed poultry vaccines and cattle 
gonadotropins. The Consent Agreement would remedy the alleged 
violations by replacing the competition that would be lost in these and 
other markets as a result of the proposed Acquisition.

II. The Parties

    Merck is a global pharmaceutical firm that researches, develops, 
manufactures and markets a variety of human and animal health products. 
In 2008, Merck had worldwide revenues of $23.9 billion, of which 56 
percent were derived from U.S. sales. In 1997, Merck and Rh[ocirc]ne-
Poulenc S.A. (now Sanofi-Aventis S.A.) combined their respective animal 
health businesses to form Merial Limited, a stand-alone equally-owned 
animal health company. Merial markets a comprehensive line of animal 
health pharmaceuticals and vaccines for a variety of species, including 
companion and production animals. The joint venture generated global 
revenues of approximately $2.6 billion in 2008.
    Schering-Plough is a global pharmaceutical firm that researches, 
develops, manufactures and markets human prescription and over-the-
counter medications, as well as animal health products. In 2008, the 
company

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reported worldwide revenues of approximately $18.5 billion, of which 
only $5.6 billion were derived from sales of products in the United 
States. The company's human pharmaceutical business, which includes 
oncology and women's health drugs, ranks sixteenth in sales in North 
America. In April 2007, Schering-Plough acquired the Intervet animal 
health business. The combined Schering-Plough/Intervet animal health 
portfolio consists of more than a thousand pharmaceuticals and vaccines 
for a variety of companion and production animals. Schering-Plough's 
animal health business generates worldwide annual revenues of 
approximately $3 billion.

III. Animal Health Products

    Merck and Schering-Plough are two of the leading animal health 
suppliers in the United States, and the proposed Acquisition raises 
significant competitive concerns in numerous U.S. animal health markets 
where Merck, through Merial Limited, and Schering-Plough compete 
directly. Both companies have extensive animal health portfolios that 
include pharmaceutical and vaccine products for a variety of companion 
and production animals.
    The Commission initially focused its animal health investigation on 
certain overlap markets in poultry and cattle that raised significant 
competitive concerns. In the United States, for example, Merial and 
Schering-Plough are the two largest producers of poultry vaccines, and 
together they account for approximately 75 percent of U.S. sales of 
poultry vaccines. Poultry vaccines are used extensively by poultry 
producers to prevent a variety of diseases that can either kill poultry 
or impede their growth or development.
    For example, poultry producers routinely vaccinate their flocks for 
Marek's disease, Newcastle disease and infectious bronchitis, the most 
common diseases affecting poultry in the United States. Marek's disease 
is caused by a herpes virus that affects the central nervous system and 
can cause lesions on internal organs and feather follicles. When an 
outbreak occurs, Marek's disease can be deadly, and it is often 
necessary to condemn the entire flock. Newcastle disease is a highly 
contagious virus characterized by gastro-intestinal, respiratory and 
nervous signs. Because it is easily transmitted and can cause 
significant damage to poultry operations, vaccines against Newcastle 
are widely administered by poultry producers. A third poultry disease 
that is commonly vaccinated against is infectious bronchitis, which 
targets not only the respiratory tract but also the uro-genital tract. 
Because infection can result in drops in egg production, it is a 
particularly significant problem for layers and breeders.
    In addition to these commonly used vaccines, there are a number of 
other vaccines that are used in poultry operations to a lesser degree 
that would be affected by the proposed transaction. These include 
vaccines for infectious bursal disease, reovirus, infectious 
laryngotracheitis, coccidiosis, fowl pox, avian encephalomyelitis, and 
infectious tenosynovitis. Even though they are not used as universally 
as the core vaccines, these more minor vaccines play an important role 
in many poultry operations, as an outbreak of the disease can have 
equally disastrous economic consequences for poultry producers. Because 
of the unique characteristics of live and killed versions of poultry 
vaccines, they are not considered substitutes for each other.
    The anticompetitive implications of eliminating one of the two 
leading suppliers of poultry vaccines in the United States are 
significant. Poultry producers have benefitted from direct competition 
between Merial and Schering-Plough, which has resulted in, among other 
things, steeper discounts and lower prices for customers. The remaining 
three market participants are smaller than either Merial or Schering-
Plough, and do not have the capacity that either of these firms 
currently enjoys. As a result, these other firms would not be able to 
replace the competition that the proposed Acquisition would eliminate. 
In addition, because of research, development and regulatory barriers, 
entry sufficient to deter or counteract the competitive effects of the 
proposed transaction is unlikely to occur within two years.
    The proposed transaction is also likely to result in 
anticompetitive harm in the market for cattle gonadotropins. These 
products are used to treat follicular cysts in cattle and to 
synchronize the reproductive cycles of cattle undergoing artificial 
insemination. Although there are other reproductive products on the 
market, these other products are used in combination with, and not as 
substitutes for, cattle gonadotropins in order to achieve reproductive 
synchronization. The combination of Merial and Schering-Plough would 
result in a duopoly in the market for cattle gonadotropins leaving only 
Wyeth to compete with the combined firm. Thus, the proposed merger 
would eliminate a significant competitor in the U.S. market for cattle 
gonadotropins, and absent a remedy, customers would likely pay higher 
prices for these drugs.
    The Commission's Complaint specifically identifies those markets 
that the Commission concluded would be adversely impacted by the 
transaction. The transaction likely affects competition in numerous 
other existing and future animal health product markets, but the 
Commission did not reach a conclusion with respect to these markets as 
the comprehensive settlement addressed any potential competitive 
concerns in these areas.

IV. NK1 Receptor Antagonists

    The proposed Acquisition raises competitive concerns in the market 
for NK1 receptor antagonists for CINV and PONV. CINV is a common side 
effect of chemotherapy that can last up to six or seven days after 
treatment. The most widely prescribed class of drugs used to treat CINV 
is the 5-HT3 receptor antagonist class. For some patients, particularly 
those who receive highly emetogenic chemotherapy regimes, treatment 
with 5-HT3 receptor antagonists alone may not fully relieve CINV. For 
these patients, NK1 receptor antagonists in combination with 5-HT3 
receptor antagonists appear to provide effective relief. Likewise, NK1 
receptor antagonists in combination with 5-HT3 receptor antagonists can 
also benefit patients with PONV.
    Merck introduced the first NK1 receptor antagonist, Emend[reg] 
(aprepitant), in 2003, and remains the only firm in the United States 
with an approved drug in the class. A very limited number of other 
firms, including Schering-Plough with its rolapitant, have NK1 receptor 
antagonists in development for CINV and PONV. At the time the proposed 
Acquisition was announced, Schering-Plough was in the process of out-
licensing rolapitant to a third party. The proposed Acquisition, 
however, would likely diminish the combined firm's incentive to license 
the product, as rolapitant's launch could have a significant impact on 
the revenues for Merck's first-to-market product. The proposed 
Acquisition could therefore delay or eliminate a future entrant into 
the U.S. market for NK1 receptor antagonists for CINV and PONV and any 
benefits associated with that additional competition.

V. Terms of the Order

    The Order issued by the Commission effectively remedies the 
proposed Acquisition's likely anticompetitive effects in the human and 
animal health markets at issue. The Order requires Merck to divest all 
of its interest in Merial Limited to its joint venture

[[Page 58022]]

partner, Sanofi-Aventis, and requires Schering-Plough to divest all of 
the assets relating to its NK1 receptor antagonist for CINV and PONV, 
rolapitant, to Opko Health, Inc. (``Opko''), within ten (10) days after 
the proposed Acquisition is consummated. In mid-September, Merck 
completed the sale of its interest in Merial to Sanofi-Aventis and 
terminated the Merial joint venture in response to the competitive 
concerns raised by the proposed Acquisition as required by the Order.
    The Commission is satisfied that the divestiture of Merck's 
interest in Merial to Sanofi-Aventis remedies any and all competitive 
concerns raised by the combination of the parties' animal health 
businesses. Because Merck has no animal health operations outside of 
Merial, the divestiture of Merck's interest in Merial and termination 
of the Merial joint venture effectively eliminates all of the animal 
health overlaps created by the proposed Acquisition. The Commission is 
also satisfied that Sanofi-Aventis is a well-qualified acquirer of 
Merck's interest in Merial. Sanofi-Aventis already owned 50 percent of 
Merial, as Merck's joint venture partner, and Merial has been operating 
as a stand-alone business for quite some time. Merial's operations, 
therefore, would continue without interruption despite the change in 
ownership.
    The Order contains several provisions designed to preserve the 
remedial benefits of the animal health divestiture to Sanofi-Aventis, 
most important of which is the ``prior approval'' provision. At the 
time the parties entered into an agreement to divest Merck's shares in 
Merial to Sanofi-Aventis, they also entered into a call option 
agreement (``Call Option'') granting Sanofi-Aventis the right to 
combine the animal health businesses of Merial and Schering-Plough 
after the Acquisition is consummated and to recreate the 50/50 joint 
venture between Merck and Sanofi-Aventis. The effect of the Call 
Option, if exercised, would be to reverse the animal health remedy 
required by the Order. Consistent with Commission policy, the Order 
contains a prior approval provision to address the credible risk (here, 
the high likelihood) that the combined Merck/Schering-Plough and 
Sanofi-Aventis would combine their animal health businesses after the 
divestiture. The call option was entered into with the expectation that 
it is likely to be exercised, and the firms have publicly identified 
the advantages of such a combination. As a result, Merck is prohibited 
from acquiring any of Merial's animal health assets, or in any way 
combining the animal health businesses of Merck and Sanofi-Aventis 
without the prior approval of the Commission.
    On the human health side, the Commission is satisfied that 
divestiture of the assets relating to Schering-Plough's NK1 receptor 
antagonist for CINV and PONV would remedy the competitive concerns 
raised by the proposed transaction in that market. The Commission is 
satisfied that Opko is a well-qualified acquirer of the rolapitant 
assets. Opko, headquartered in Florida, is a publicly traded healthcare 
company involved in the discovery, development and commercialization of 
pharmaceutical and biological products. Opko has the financial 
resources and experience to develop and launch rolapitant, and to serve 
as an effective competitor in the market for NK1 receptor antagonists 
for CINV and PONV in the United States. If the Commission determines 
that Opko is not an acceptable acquirer of the assets to be divested, 
or that the manner of the divestitures is not acceptable, the parties 
must unwind the sale and divest the assets to another Commission-
approved acquirer within six months of the date the Order becomes 
final. If Merck fails to divest within the six months, the Commission 
may appoint a trustee to divest the relevant assets.
    The Order includes certain provisions to ensure that the 
divestiture to Opko is successful. For example, the parties are 
required to provide transitional services, some of which may extend for 
up to 24 months, to enable Opko to complete clinical testing and obtain 
regulatory approval to market the product in the United States. The 
Order also allows the Commission to appoint an Interim Monitor to 
ensure that the parties fulfill all of their obligations related to the 
divestiture of the assets.
    In order to ensure, among other things, that the Commission remains 
informed about the status of the rolapitant assets pending divestiture 
and about the efforts being made to accomplish the divestiture, as well 
as the divestiture of Merck's interest in Merial and termination of the 
joint venture, the Order requires the parties to file periodic reports 
with the Commission until the divestiture is accomplished.

VI. Effective Date of the Order and Opportunity for Public Comment

    The Commission issued the Complaint and the Order, and served them 
upon respondents at the same time it accepted the Consent Agreement for 
public comment. As a result of this action, the Order has already 
become effective. The Commission adopted procedures in August 1999 to 
allow for immediate implementation of an Order prior to a public 
comment period. The Commission announced that it ``contemplates doing 
so only in exceptional cases where, for example, it believes that the 
allegedly unlawful conduct to be prohibited threatens substantial and 
imminent public harm.'' 64 Fed. Reg. 46267 (1999).
    This case is an appropriate one in which to issue a final order 
before receiving public comment because of the risk that Sanofi-Aventis 
will exercise the Call Option shortly after the proposed Acquisition is 
consummated, which would reverse the animal health remedy of the 
Consent Agreement. Making the Order final immediately ensures that the 
safeguards embodied in the Order are implemented before the Call Option 
can be exercised and subjects the respondents to civil penalties for 
failing to comply with the Order.
    The Consent Agreement and Order have also 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 Order and 
the comments received, and may determine that the Order should be 
modified.\2\
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    \2\If the respondents do not agree to such modifications, the 
Commission may (1) initiate a proceeding to reopen and modify the 
Order in accordance with Rule 3.72(b), 16 CFR Sec.  3.72(b), or (2) 
commence a new administrative proceeding by issuing an 
administrative complaint in accordance with Rule 3.11, 16 CFR Sec.  
3.11. See 16 CFR Sec.  2.34(e)(2).
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    The Commission anticipates that the Order, as issued, will resolve 
the competitive problems alleged in the Complaint. The purpose of this 
analysis is to facilitate public comment on the Order and to aid the 
Commission in determining whether to modify the Order in any respect. 
This analysis is not intended to constitute an official interpretation 
of the Consent Agreement or the Order or to modify their terms in any 
way.
    By direction of the Commission, with Commissioners Harbour and 
Kovacic recused.

Donald S. Clark
Secretary.
[FR Doc. E9-27034 Filed 11-9-09; 8:45 am]
BILLING CODE 6750-01-S