FTC Order Clears Way for $90 Billion Merger of Pfizer Inc. and Warner-Lambert Company

The Federal Trade Commission today accepted a proposed consent agreement that would allow Pfizer Inc. (Pfizer) to consummate its $90 billion merger with Warner-Lambert Company (Warner), while ensuring that competition in several key pharmaceutical markets is maintained. Through the Commission's order, which must still receive final approval, the companies would be required to: 1) end Warner's agreement with Forest Laboratories, Inc. (Forest) to co-promote the antidepressant drug Celexa; 2) divest Pfizer's RID head-lice treatment business to Bayer Corporation; 3) divest all of Warner's assets related to the Alzheimer's drug Cognex to First Horizon Pharmaceutical Corporation (First Horizon); and 4) transfer and give up all of Pfizer's assets related to the Epidermal Growth Factor receptor tyrosine kinase (EGFr-tk) inhibitor, CP-358,774, under development to treat solid tumor cancers, to OSI Pharmaceuticals, Inc. (OSI). The companies first announced their intention to merge on February 6 of this year.

"Competition in pharmaceutical markets encourages lower prices and spurs innovation for drugs that continue to improve the health of the American public," said Richard G. Parker, Director of the FTC's Bureau of Competition. "The Commission's order preserves competition for several very important drugs that treat diseases suffered by millions of Americans annually -- head lice in children, depression, Alzheimer's and cancer."

According to the Commission's complaint, Pfizer's merger with Warner would violate Section 7 of the Clayton Act, as amended, and Section 5 of the FTC Act, as amended. The merger would lessen competition in the markets for: 1) selective serotonin reuptake inhibitor/selective norepinephrine reuptake inhibitors (SSRI/SNRI), the leading class of antidepressants in one of the largest pharmaceutical markets in the United States; 2) treatments known as pediculicides for head lice infestation, one of the most prevalent communicable diseases among younger school children; 3) drugs for treating Alzheimer's disease, for which, absent the Commission's order, the merger would create a monopoly; and 4) EGFr-tk inhibitors being developed for the treatment of cancer.

SSRI/SNRI Antidepressants

SSRI/SNRI medications are used to treat depression, with U.S. sales of these medications currently totaling approximately $7 billion annually. These products include such widely known antidepressant brand names as Paxil, Prozac and Pfizer's Zoloft.

The market for SSRI/SNRI is highly concentrated, according to the Commission's complaint, and Pfizer and Warner compete directly against one another. In 1999, Pfizer's Zoloft was the second-leading SSRI, with sales of more than $2 billion. Celexa, co-promoted by Warner and Forest, was the fastest-growing SSRI in the U.S., with sales of more than $210 million. New entry into the SSRI/SNRI market is expensive and time-consuming, requiring substantial research and development costs and lengthy testing and reviews. Any new entry, the Commission alleges, would therefore not be timely enough to counteract the anticompetitive effects of the proposed merger in this market.

According to the Commission, the merger would likely lead to significant anticompetitive effects in the U.S. market for these drugs. Due to these effects, U.S. consumers would likely pay higher prices and have fewer alternatives in choosing SSRI/SNRI drugs.

Under the terms of the consent order, competition would be maintained by the requirements that: 1) Warner end its Celexa co-promotion agreement with Forest; 2) Warner return all confidential information regarding Celexa to Forest; 3) former Warner sales employees who marketed Celexa maintain the confidentiality of all sales information; and 4) former Warner sales employees who were involved in marketing Celexa be prohibited from selling Zoloft for a set period of time.

Pediculicides

Pediculicides are over-the-counter (OTC) products used to treat head-lice infestation, which affects more than eight million children each year. U.S. sales are currently more than $150 million per year. Pfizer and Warner are the two leading suppliers of OTC lice treatments in the United States, each with about 30 percent of a market that is already highly concentrated. Following the merger, the companies would have 60 percent of the market.

As detailed in the complaint, there are significant barriers to entry in the lice-treatment market, including substantial sunk costs to research, develop, manufacture and sell pediculicides. The proposed merger would eliminate competition between Pfizer and Warner and allow the combined firm to raise prices for head-lice treatments. Under the proposed order, Pfizer would be required to divest its entire RID brand of lice treatment to Bayer Corporation.

Alzheimer's Drugs

Pfizer and Warner currently market the only two drugs in the United States for the treatment of Alzheimer's disease. Pfizer's Aricept dominates the industry, with a 98 percent market share, while Warner's Cognex makes up the remaining two percent. The merger would result in Pfizer gaining a literal monopoly in the market for Alzheimer's drugs. The consent order would preserve competition by requiring Warner to divest Cognex to First Horizon.

EGFr-tk Inhibitors

Both Pfizer and Warner are currently developing EGFr-tk inhibitors, drugs designed to treat solid cancerous tumors such as head and neck, non-small-cell lung, breast, ovarian, pancreas and colorectal cancers. Each year more than 1.2 million Americans are diagnosed with these types of cancers. It is expected that in the future EGFr-tk inhibitors will be used in conjunction with surgery, radiation and chemotherapy to treat solid tumor cancers by targeting the EGFr oncogene that regulates cancer cell growth.

The merging companies produce two of the most advanced EGFr-tk inhibitors currently being developed, and are among a relatively small number of companies working on these types of drugs. The proposed merger would likely create anticompetitive effects in the market for EGFr-tk inhibitors by reducing one of the few clinical development efforts taking place in this field. Following the merger, Pfizer could delay or simply fail to develop one of the two competing drugs, leading to less product innovation, fewer consumer choices and higher prices in the marketplace.

To remedy these concerns, and minimize any delay in bringing these important anti-cancer compounds to market, the consent order would require Pfizer to return its EGFr-tk inhibitor, CP-358,774, and related technology and know-how, to its development partner OSI. As Pfizer's partner, OSI has intimate knowledge of the compound. Such knowledge should ensure a smooth transition and expeditious development of CP-358,774. It also would require Pfizer to pay OSI's cost for completing clinical trials for CP-358,774. Finally, the consent order would provide for the appointment of an interim trustee to oversee Pfizer's obligations and to ensure that the development and viability of CP-358,774 is maintained in the future.

A summary of the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment until July 19, 2000, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

The Commission vote to accept the proposed consent agreement was 5-0.

NOTE:  A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it 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 per day.

Copies of the complaint, proposed consent agreement, and an analysis of the proposed consent order to aid public comment, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

Mitchell J. Katz

Office of Public Affairs

202-326-2161

Molly S. Boast

Bureau of Competition

202-326-2039

Ann B. Malester

Bureau of Competition

202-326-2682

(FTC File No. 001-0059)