Settlement Negotiated by FTC Would Preserve Competition in Market for Certain Types of Animal Vaccines.

A proposed settlement of Federal Trade Commission antitrust concerns stemming from American Home Products Corporation’s proposed acquisition of Solvay, S.A.’s animal health business would preserve competition in the U.S. market for three types of "companion animal" vaccines. The FTC alleged that the proposed $463 million acquisition would give American Home Products a dominant position in the market for canine lyme vaccines, canine corona virus vaccines, and feline leukemia vaccines. The settlement would require American Home Products to divest Solvay’s U.S. and Canadian rights to the three types of vaccines to the Schering-Plough Corporation or another Commission-approved buyer.

American Home Products has its corporate offices in Madison, New Jersey. Solvay, S.A. is based in Brussels, Belgium. Solvay Animal Health, Inc., a U.S. subsidiary of Solvay, S.A., is headquartered in Mendota Heights, Minnesota. Schering-Plough-Plough Corporation is based in Madison, New Jersey.

According to the complaint detailing the FTC’s allegations, American Home Products and Solvay are actual competitors in the market for the research, development, manufacture and sale of canine lyme vaccines, canine corona virus vaccines, and feline leukemia vaccines in the United States. The complaint also states that American Home Products and Solvay are two of only three suppliers of canine lyme vaccines in the U. S., and are two of only a small number of suppliers of canine corona virus vaccines in the United States. According to the FTC, with the exception of Solvay, other suppliers of canine corona virus vaccines license from American Home Products the right to manufacture and sell their vaccines. American Home Products and Solvay are also two of only three suppliers of feline leukemia vaccines in the United States.

The complaint further states that the market for research, development, manufacture and

sale of each of the three types of vaccines is highly concentrated. Entry into the research, development, manufacture and sale of canine lyme vaccines, feline leukemia vaccines and canine corona virus vaccines is difficult and time consuming, requiring the expenditure of significant resources over a period of many years with no assurance that a viable commercial product will result.

The existence of broad patents governing the manufacture of such products compounds the difficulty of new entry, according to the FTC. Further, the need to obtain approvals by the United States Department of Agriculture to manufacture and sell animal vaccines in the United States further lengthens the time required to enter the relevant markets.

The complaint alleges that the effects of the acquisition, if consummated, may be to lessen competition and to tend to create a monopoly in the relevant markets in the following ways, among others:

• by eliminating actual, direct, and substantial competition between American Home Products and Solvay in the relevant markets;

• by increasing the likelihood that American Home Products will unilaterally exercise market power in the relevant markets; and

• by increasing the likelihood of collusion or coordinated action among the remaining firms in the relevant markets.

In settlement of these charges, a proposed consent agreement, accepted by the FTC for a 60- day public comment period, would require American Home Products to divest Solvay’s U.S. and Canadian rights to the three types of vaccines to the Schering-Plough Corporation no later than 10 days after the date on which the order becomes final. In addition, the proposed settlement would require American Home Products to provide assistance to Schering-Plough in obtaining USDA certifications. Because of the time necessary to obtain USDA approvals, the proposed settlement would require American Home Products to manufacture and supply the three vaccines to Schering-Plough for a period of 24 to 36 months or until Schering-Plough obtains USDA approvals, whichever is earlier, so that Schering-Plough may supply the vaccines to customers during the interim. In addition, the proposed settlement would prevent American Home Products from suing Schering-Plough for patent infringements relating to the three vaccines.

Further, under the terms of the proposed settlement, if Schering-Plough ceases to sell the contract manufactured vaccines before obtaining USDA approval, abandons its effort to obtain USDA approval, or fails to timely obtain USDA approval, or in the event that American Home Products fails to divest the assets fully and in good faith, the FTC may terminate the Divestiture Agreement between American Home Products and Schering-Plough, and appoint a trustee to divest Solvay’s canine lyme vaccine, feline leukemia vaccine and canine corona virus vaccine assets, as well as Solvay’s manufacturing facility in Charles City, Iowa, and all equine vaccines manufactured by Solvay.

The Commission vote to accept the proposed consent agreement -- and Schering-Plough as the buyer -- for public comment was 5-0, with Commissioner Mary L. Azcuenaga issuing a concurring statement. In her statement, Commissioner Azcuenaga said, "I concur in the decision to accept the consent agreement for public comment and write separately to invite comment on whether and when the Commission should require the firm divesting assets to give up patent rights beyond those acquired in the transaction at issue. Paragraph IID of the proposed order requires American Home Products (AHP) not only to license the intellectual property that it acquired from Solvay S.A., but also to agree not to sue the acquiring firm for infringement of vaccine patents that AHP owned before the acquisition. The firm purchasing the divested assets will obtain Solvay’s intellectual property free and clear of any claim that the Solvay vaccines infringe AHP’s patents. Should the Commission resolve the patent dispute regarding whether Solvay’s vaccines infringed AHP’s patents, and if so, how should such a dispute be resolved?"

A summary of the agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will determine whether to issue it as final and binding and to choose Schering-Plough as the buyer. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission by the defendants of a law violation. When the Commission issues a consent agreement on a final basis, the agreement carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, proposed consent agreement, an analysis of the agreement to assist the public in commenting, and Commissioner Azcuenaga’s statement are available on the FTC's web site at http://www.ftc.gov and also from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. Proposed consent agreements also are available by calling 202-326-3627. For the latest FTC news as it is announced, call the FTC's NewsPhone recording at 202-326-2710.

(FTC File No. 971 0009)