[Federal Register: December 18, 2006 (Volume 71, Number 242)]
[Notices]
[Page 75756-75759]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
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FEDERAL TRADE COMMISSION
[File No. 061 0220, Docket No. C-4180]
Johnson & Johnson and Pfizer Inc.; Analysis of Agreement
Containing Consent Orders To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of Federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaint and the terms of the consent order--embodied in the consent
agreement--that would settle these allegations.
DATES: Comments must be received on or before January 11, 2007.
ADDRESSES: Interested parties are invited to submit written comments.
Comments should refer to ``Johnson & Johnson and Pfizer, File No. 061
0220,'' 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 http://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 http://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 December 12, 2006), on the World Wide Web, at http://www.ftc.gov/os/2006/12/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.
I. 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'') and Pfizer Inc.
(``Pfizer''), which is designed to remedy the anticompetitive effects
that would otherwise result from J&J's proposed acquisition of Pfizer
Consumer Healthcare. Under the terms of the proposed Consent Agreement,
the parties will be required to divest: (1) Pfizer's Zantac[reg] H-2
blocker business; (2) Pfizer's Cortizone[reg] hydrocortisone anti-itch
business; (3) Pfizer's Unisom[reg] nighttime sleep-aid business; and
(4) J&J's Balmex[reg] diaper rash treatment business.
The proposed Consent Agreement has been placed on the public record
for thirty (30) days for receipt of comments by interested persons.
Comments received during this period will become part of the public
record. After thirty (30) days, the Commission will again review the
proposed Consent Agreement and will decide whether it should withdraw
from the proposed Consent Agreement, modify it, or make final the
Decision and Order (``Order'').
Pursuant to a Stock and Asset Purchase Agreement dated June 25,
2006, J&J proposes to acquire certain voting securities and assets
comprising Pfizer's Consumer Healthcare business in a transaction
valued at approximately $16.6 billion (``Proposed Acquisition''). 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 lessening competition in the United States
markets for the research, development, manufacture, distribution, and
sale of the following over-the-counter (``OTC'') medications: (1) H-2
blockers, (2) hydrocortisone anti-itch products, (3) nighttime sleep-
aids, and (4) diaper rash treatments (the ``Products'').
II. The Parties
J&J is one of the largest and most diversified suppliers of branded
consumer health care products in the world, as well as a manufacturer
and supplier of pharmaceuticals, medical devices, and diagnostic
products. In 2005, J&J had worldwide net sales of $50.5 billion. The
more than 230 J&J operating companies employ approximately 116,000
individuals in 57 countries and sell products throughout the world. In
the consumer products segment, J&J manufactures and markets a broad
range of OTC medications, women's health products, nutritional
products, oral care products, and products used for baby and skin care.
With its Pepcid[reg] line of products, J&J is the leading supplier of
OTC H-2 blocker acid relief products in the United States. J&J is also
a leading supplier of OTC hydrocortisone-based anti-itch medications
under its Cortaid[reg] and Aveeno[reg] brands and of OTC nighttime
sleep-aids under its Simply Sleep[reg] brand. J&J is also a leading
supplier of products for treating diaper
[[Page 75757]]
rash under its Balmex[reg], Aveeno[reg], and Johnson's[reg] No More
Rash[reg] brands.
Pfizer is one of the largest pharmaceutical companies in the world.
Pfizer researches, develops, manufactures, and markets leading
prescription medicines for humans and animals, as well as consumer
healthcare products. In 2005, Pfizer had worldwide net sales of $51.3
billion. Pfizer Consumer Healthcare, which J&J proposes to acquire, is
a global business that researches, develops, manufactures, and markets
many well-known brands of OTC medications and oral care products to
consumers throughout the world. In 2005, Pfizer Consumer Healthcare
generated net sales of $3.9 billion. Like J&J, Pfizer is one of the
leading suppliers of OTC H-2 blocker acid relief products in the United
States with its Zantac[supreg] product line. Pfizer is also the leading
supplier in the United States of OTC hydrocortisone anti-itch
medications under its Cortizone[supreg] brand, OTC nighttime sleep-aids
under its Unisom[supreg] brand, and diaper rash products under its
Desitin[supreg] brand.
III. OTC H-2 Blockers
One of the relevant markets in which to assess the competitive
effects of the Proposed Acquisition is the United States market for OTC
H-2 blockers. H2-receptor antagonists, more commonly known
as ``H-2 blockers,'' are a class of drugs for the prevention and relief
of heartburn associated with acid indigestion. Originally a
prescription medicine, H-2 blocker products were later approved by the
FDA for sale without a prescription. H-2 blockers work by blocking
histamine from stimulating the gastric parietal cells, thereby
suppressing secretion of stomach acid. Although there are other OTC
acid relief medications, including antacids and proton pump inhibitors
(``PPIs''), H-2 blockers are sufficiently different from these other
products that they are not close economic substitutes. Currently,
Prilosec OTC[supreg] is the only PPI available without a prescription.
OTC PPIs are not a close substitute for OTC H-2 blockers because they
are indicated for the relief of chronic heartburn and not for immediate
relief of occasional heartburn or indigestion. Antacid tablets and
liquids are not a close substitute for OTC H-2 blockers because they
are less efficacious and do not provide as long relief as H-2 blockers.
The United States market for OTC H-2 blockers is highly
concentrated. Today, this approximately $360 million market comprises
four branded products--J&J's Pepcid[supreg], Pfizer's Zantac[supreg],
GlaxoSmithKline's Tagamet[supreg], and Reliant Pharmaceutical's Axid
AR[supreg]--and private label versions of some Pepcid[supreg],
Zantac[supreg], and Tagamet[supreg] products. J&J and Pfizer are the
two largest suppliers in this market.
The Proposed Acquisition would significantly increase market
concentration and eliminate substantial competition between the two
leading suppliers of OTC H-2 blockers in the United States. Branded
manufacturers of these products spend significant sums of money
annually to create and maintain distinct brand equities. As a result of
the acquisition, J&J would account for over 70% of the sales of OTC H-2
blocker in the United States. Here the evidence confirmed that
Pepcid[supreg] and Zantac[supreg] are close substitutes. Consumers have
benefitted from the competition between Pfizer and J&J on pricing,
discounts, promotional trade spending, and product innovation. Thus,
unremedied, the Proposed Acquisition likely would cause significant
anticompetitive harm by enabling J&J to profit by unilaterally raising
the prices of one or both products above pre-merger levels, as well as
reducing its incentives to innovate and develop new products.
IV. OTC Hydrocortisone Anti-Itch Products
A second relevant product market in which to assess the competitive
effects of the Proposed Acquisition is the United States market for OTC
hydrocortisone anti-itch products. Hydrocortisone is a corticosteroid
that reduces or inhibits the actions of chemicals in the body that
cause inflammation, redness and swelling. OTC products containing up to
1.0 percent hydrocortisone are approved by the FDA for topical
application to treat minor skin irritations, itching, and rashes due to
various conditions, including dermatitis, eczema, and psoriasis.
Although OTC topical anesthetic and antihistamine products are
available to treat minor skin irritations, itching and rashes, these
products are not close economic substitutes for hydrocortisone anti-
itch products because they work differently than hydrocortisone
products. While these products may relieve symptoms of pain or itching,
unlike hydrocortisone, they do nothing to cure or prevent the actual
underlying skin conditions such as eczema or psoriasis.
The United States market for OTC hydrocortisone anti-itch products
is highly concentrated. There are only two significant branded
competitors in this market: (1) Pfizer, with its Cortizone[supreg]
products and (2) J&J, with its Cortaid[supreg] products. In addition,
private label hydrocortisone anti-itch products account for a
significant share of the market. Pfizer's Cortizone[supreg] is the
market leader among branded products, while J&J's Cortaid[supreg] is
the second leading branded product line. In 2005, sales of OTC
hydrocortisone anti-itch products in the United States totaled
approximately $120 million.
The Proposed Acquisition would significantly increase market
concentration and eliminate substantial competition between the two
leading suppliers of OTC hydrocortisone anti-itch products in the
United States. As a result of the acquisition, J&J would account for
over 55% of the sales of OTC hydrocortisone anti-itch products in the
United States. Evidence indicates that the parties' products compete on
many levels, including pricing, shelf-space, and advertising. By
eliminating competition between the two leading branded suppliers, the
Proposed Acquisition would likely result in higher prices, less
promotional spending, and reduced product innovation. Although private
label OTC hydrocortisone anti-itch products account for a significant
share of the market, private label products are less close substitutes
for a significant share of customers, and it is unlikely that private
label products would be able to reposition themselves to replace the
competition between J&J and Pfizer, the two largest branded competitors
in this market, that would be lost through the Proposed Acquisition.
Thus, unremedied, the Proposed Acquisition likely would cause
significant anticompetitive harm by enabling J&J to profit by
unilaterally raising the prices of one or both products above pre-
merger levels, as well as reducing its incentives to innovate and
develop new products.
V. OTC Nighttime Sleep-Aids
A third relevant product market in which to assess the competitive
effects of the Proposed Acquisition is the United States market for OTC
nighttime sleep-aids. OTC nighttime sleep-aids are non-prescription
drugs that are indicated solely for the relief of occasional
sleeplessness by individuals who have difficulty falling asleep. The
active ingredient in the best-selling sleep-aids is a sedating
antihistamine, such as diphenhydramine hydrochloride or doxylamine
succinate. Prescription sleep-aids, such as zolpidem (Ambien[supreg]),
zaleplon (Sonata[supreg]) or eszopiclone (Lunesta[supreg]), are not
close economic substitutes for OTC nighttime sleep-aids. Consumers of
OTC nighttime sleep-aids likely would not switch to prescription sleep-
aids in response to a 5 to 10 percent increase
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in the price of OTC nighttime sleep-aids because of the higher prices
of prescription sleep-aids (particularly for those without insurance
coverage) and the inconvenience and cost of a doctor's visit (including
delays for consumers who have exhausted their prescriptions).
The United States market for OTC nighttime sleep-aids is highly
concentrated. J&J and Pfizer are the two largest suppliers of branded
OTC nighttime sleep-aids in the United States. Pfizer is the market
leader with its Unisom[supreg] products, while J&J is the second
leading supplier with its Simply Sleep[supreg] products. In 2005, sales
of OTC nighttime sleep-aids in the United States totaled approximately
$100 million.
The Proposed Acquisition would significantly increase market
concentration and eliminate substantial competition between the two
leading suppliers of OTC nighttime sleep-aids in the United States. As
a result of the acquisition, J&J would account for over 45% of the
sales of OTC nighttime sleep-aids in the United States. In addition,
the evidence confirmed that Unisom[supreg] and Simply Sleep[supreg] are
close substitutes and have similar efficacy, brand equity, and brand
positioning. Consumers have benefitted from the competition between
Pfizer and J&J on pricing, discounts, promotional trade spending, and
product innovation. Although private label OTC nighttime sleep-aids
account for a significant share of the market, private label products
are less close substitutes for a significant share of customers, and it
is unlikely that private label products would reposition themselves to
replace the competition between J&J and Pfizer, the two largest branded
competitors in this market, that would be lost through the Proposed
Acquisition. Thus, unremedied, the Proposed Acquisition likely would
cause significant anticompetitive harm by enabling J&J to profit by
unilaterally raising the prices of one or both products above pre-
merger levels, as well as reducing its incentives to innovate and
develop new products.
VI. OTC Diaper Rash Treatments
A fourth relevant product market in which to assess the competitive
effects of the Proposed Acquisition is the United States market for OTC
diaper rash treatment products. Consumers use diaper rash creams or
ointments to treat and prevent diaper rash and to protect sore or
chafed skin from moisture or irritation. Most diaper rash products fall
into one of two categories: (1) Creams or pastes containing the active
ingredient zinc oxide and (2) ointments containing the active
ingredient petrolatum. There are no close substitutes for OTC diaper
rash creams or ointments.
The United States market for OTC diaper rash treatments is highly
concentrated. Today, three large, established brands--Pfizer's
Desitin[supreg], Schering-Plough's A&D[supreg], and J&J's
Balmex[supreg]--account for over 70% of sales in this approximately $84
million market. The rest of the market is composed of several small,
niche brands. Private label products account for a negligible share of
the market. Pfizer is the largest supplier of OTC diaper rash treatment
products with its Desitin[supreg] line of products, while J&J is the
third largest supplier with its Balmex[supreg], Aveeno[supreg], and
Johnson's[supreg] No More Rash[supreg] brands. Neither the
Aveeno[supreg] nor the Johnson's[supreg] No More Rash[supreg] brands,
however, account for a significant share of sales in this market.
The Proposed Acquisition would significantly increase market
concentration and eliminate substantial competition between the two
leading suppliers of OTC diaper rash treatment products in the United
States. As a result of the acquisition, J&J would account for nearly
50% of the sales of OTC diaper rash treatment products in the United
States. Although there are additional suppliers of branded OTC diaper
rash treatment products in this market, the evidence confirmed that
Desitin[supreg] and Balmex[supreg] are perceived to be close
substitutes by consumers, and evidence suggests that they are similar
in formulation, texture, and appearance. Consumers have benefitted from
the competition between Pfizer and J&J on pricing, discounts,
promotional trade spending, and product innovation. Thus, unremedied,
the Proposed Acquisition likely would cause significant anticompetitive
harm by enabling J&J to profit by unilaterally raising the prices of
one or both products above pre-merger levels, as well as reducing its
incentives to innovate and develop new products.
VII. Entry
Entry into the markets for the research, development, manufacture,
and sale of the Products is unlikely to deter or counteract the
anticompetitive effects of the Proposed Acquisition. Each of the
relevant markets is relatively mature and dominated by a few well-
established brand names. In such a market environment, a new entrant
faces a difficult task of convincing retailers to carry its product,
especially if the new product does not have a competitive advantage
based on differentiated claims or efficacy. Developing and obtaining
Food and Drug Administration approval for the manufacture and sale of a
novel, differentiated medication takes at least two (2) years. Once
product development is complete, a new entrant must invest extremely
high sunk costs on marketing, advertising, and promotional allowances
to create and maintain consumer awareness and acceptance of the new
product. Given the sales opportunities available in the markets for the
Products, coupled with the significant investment necessary to market
and sell the Products, it is unlikely that a new competitor will enter
any of the markets for the Products.
VIII. The Consent Agreement
The Consent Agreement effectively remedies the Proposed
Acquisition's anticompetitive effects in the relevant markets discussed
above. The Consent Agreement preserves competition in these markets by
requiring the divestiture of: (1) All assets related to the Zantac[reg]
H-2 blockers to Boehringer Ingelheim Pharmaceuticals, Inc.
(``Boehringer Ingelheim Pharmaceuticals''); and (2) all assets relating
to Cortizone[reg] hydrocortisone anti-itch products, all assets
relating to Unisom[reg] sleep-aids, and all assets relating to
Balmex[reg] diaper rash treatment products to Chattem, Inc.
(``Chattem'') (the ``Divested Assets''). These divestitures must take
place within fifteen days after the closing of the Proposed Acquisition
or January 2, 2007, whichever is later.
The Commission is satisfied that Boehringer Ingelheim
Pharmaceuticals is a well-qualified acquirer of the Zantac business.
Boehringer Ingelheim Pharmaceuticals engages in the research,
development, sale and marketing of branded pharmaceuticals and OTC
drugs, including well known brands such as Dulcolax[reg], Spiriva[reg],
Atrovent[reg], Combivent[reg], Flomax[reg] and Mirapex[reg]. Boehringer
Ingelheim Pharmaceuticals is part of the Boehringer Ingelheim Group,
which is a leading worldwide manufacturer of pharmaceuticals for humans
and animals and the eighth largest manufacturer and marketer of OTC
health care products worldwide. Boehringer Ingelheim Pharmaceutical's
Consumer Health Care business has an existing sales and distribution
network that sells products through the same channels as Zantac[reg] is
currently sold, and has a strong record of integrating product
acquisitions successfully.
The proposed Consent Agreement contains several provisions designed
to ensure the successful divestiture of the
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Zantac[reg] business to Boehringer Ingelheim Pharmaceuticals by
requiring that: (1) J&J divest to Boehringer Ingelheim Pharmaceuticals
all assets relating to Pfizer's Zantac[reg] line of products, including
all research and development, intellectual property, and customer and
supply contracts; (2) J&J and Pfizer take steps to ensure that
confidential business information relating to Zantac[reg] will not be
obtained or used by J&J; (3) Boehringer Ingelheim Pharmaceuticals have
the opportunity to enter into employment contracts with certain key
individuals who have experience relating to Zantac[reg]; and (4)
certain management employees of Pfizer who were substantially involved
in the research, development or marketing of Zantac[reg] be precluded
from working on competitive H-2 blocker products at J&J for a period of
two years.\2\
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\2\ This firewall will prevent J&J from taking competitive
advantage of know-how, product development, marketing, and sales
plans relating to Zantac[reg].
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The Commission is also satisfied that Chattem is a well-qualified
acquirer of the Cortisone[reg], Unisom[reg], and Balmex[reg]
businesses. Chattem is a leading manufacturer and marketer of a broad
portfolio of branded OTC healthcare products, toiletries, and dietary
supplements, including brands such as Icy Hot[reg], Gold Bond[reg],
Selsun blue[reg], Garlique[reg], Pamprin[reg], and BullFrog[reg].
Chattem's products are among the market leaders in their respective
categories across food, drug and mass merchandisers. Chattem has an
experienced sales force with existing relationships with major
retailers and has a strong record of integrating prior product
acquisitions successfully.
The proposed Consent Agreement contains several provisions designed
to ensure the successful divestiture of the Cortisone[reg],
Unisom[reg], and Balmex[reg] businesses to Chattem by requiring that:
(1) J&J divest to Chattem all assets relating to the Cortisone[reg],
Unisom[reg], and Balmex[reg] line of products, including all research
and development, intellectual property, and customer and supply
contracts; (2) J&J and Pfizer take steps to ensure that confidential
business information relating to Cortisone[reg], Unisom[reg], and
Balmex[reg] will not be obtained or used by J&J; and (3) Chattem have
the opportunity to enter into employment contracts with certain key
individuals who have experience relating to Cortisone[reg],
Unisom[reg], and Balmex[reg].
The Order to Maintain Assets that is included in the proposed
Consent Agreement requires that J&J and Pfizer maintain the viability
of the Divested Assets for the brief transition period between the time
the Commission approves the proposed Order and when the divestitures
take place, which will not be later than January 2, 2007. Even though
such a period is relatively short, maintenance of current supply,
advertising and promotional levels and activities at all times prior to
divestiture is of paramount importance. The proposed Consent Agreement
incorporates this plan in the Order to Maintain Assets, detailing
requirements for the assets that must be held separate, services that
may be shared with the ongoing business, and the employee positions
that are necessary for the held separate business.
The Commission has appointed David Painter of LECG as Interim
Monitor to oversee the transfer of assets, the establishment of
appropriate firewalls to prevent the transfer or use of confidential
business information and to ensure that J&J and Pfizer comply with all
other provisions of the Order. To ensure that the Commission remains
informed about the status of the Divested Assets and their transfer,
the proposed Consent Agreement requires J&J and Pfizer to file reports
with the Commission periodically until the divestitures are
accomplished.
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 the Order
to Maintain Assets, or to modify their terms in any way.
By direction of the Commission with Commissioners Harbour,
Kovacic and Rosch recused.
Donald S. Clark,
Secretary.
[FR Doc. E6-21519 Filed 12-15-06; 8:45 am]
BILLING CODE 6750-01-P