Skip to main content

The Federal Trade Commission today accepted a proposed consent order that would allow the merger of pharmaceutical manufacturers SmithKline Beecham plc ("SB") and Glaxo Wellcome plc ("Glaxo"), while addressing a range of competitive concerns that would have resulted from the transaction as originally proposed. Through the proposed order, the companies would be required to make divestitures in six significant product markets, including:

1) antiemetics (drugs used in chemotherapy to reduce the incidence of side effects); 2) the antibiotic ceftazidime; 3) oral and intravenous antiviral drugs for the treatment of herpes, chicken pox and shingles; 4) topical antiviral drugs for the treatment of cold sores; 5) prophylactic vaccines for the treatment of genital herpes; 6) over-the-counter H-2 blocker acid relief products. In three markets where competitive overlaps exist due to existing agreements with other research and development firms, the consent order addresses: 1) topoisomerase I inhibitor drugs used to treat certain tumors; 2) drugs for treating migraines; and 3) drugs to treat irritable bowel syndrome. Following the merger, the newly formed company, Glaxo SmithKline plc, will have an estimated market capitalization of $182 billion and annual sales of $26 billion.

"Today's agreement directly addresses the significant product overlaps that would be expected in a merger of this size within the same industry, and the proposed divestitures will lead to continued competition in these critically important pharmaceutical markets," said Richard G. Parker, Director of the FTC's Bureau of Competition. "Perhaps as importantly, it will ensure that competition occurs in the future in markets where pharmaceutical products are not currently available, but where existing development agreements will no doubt lead to treatments that will benefit U.S. consumers."

The Commission's Complaint

According to the FTC's complaint, the transaction as originally proposed would have violated Section 5 of the FTC Act and Section 7 of the Clayton Act by substantially lessening competition in nine separate markets. The proposed merger's effect in each of these markets is detailed below.

5HT-3 Antiemetic Drugs. Administered to cancer patients undergoing chemotherapy and radiation treatments, antiemetic drugs help reduce or eliminate nausea and vomiting, common side effects of such treatments. 5HT-3 antiemetic drugs are far more effective than older antiemetic products, and have revolutionized the treatment of cancer patients. Because of the efficacy of the 5HT-3 antiemetics, oncologists are able to pursue more aggressive cancer treatments without worrying about an increase in the adverse side-effects experienced by their patients.

In the United States, 5HT-3 antiemetic drugs represent a $778 million market, with Glaxo's Zofran and SB's Kytril together representing approximately 90 percent of all sales. Only one other firm, Aventis, markets a 5HT-3 antiemetic drug, called Anzemet. The merger of SB and Glaxo, therefore, would reduce the number of 5HT-3 antiemetic competitors from three to two, creating a dominant firm controlling more than 90 percent of the market.

Ceftazidime. An injectable antibiotic used to treat hospitalized patients who are critically ill and at risk of contracting strains of potentially life-threatening pseudomonas infection, ceftazidime is considered by physicians to be the "gold standard" in fighting such infections. Ceftazidime is the third generation of a class of antibiotics called cephalosporins and has broad-spectrum capability in effectively treating hospital-borne infections. Nearly all hospitals in the United States use the drug to combat pseudomonas infection. In 1999, sales of ceftazidime in the United States were approximately $82 million. SB and Glaxo are the only two firms manufacturing ceftazidime, with three firms - Glaxo (Fortaz and Ceptaz), Eli Lilly (SB's Tazidime) and Abbott Labs (SB's Tazicef) - marketing these products in the United States. Glaxo is the market leader in this category.

The FTC complaint alleges that the merger of Glaxo and SB would create a monopoly in the manufacture of ceftazidime by reducing the number of firms manufacturing the drug to one and a creating duopoly in the marketing of ceftazidime, with only two firms remaining.

The presence of three suppliers has resulted in favorable pricing for consumers - and with this competition eliminated, post-merger prices would likely increase.

Oral and Intravenous Antiviral Drugs to Treat Herpes. SB currently manufactures and markets Famvir, and Glaxo manufactures and markets Valtrex. Famvir and Valtrex are second-generation oral and intravenous antiviral prescription drugs for the treatment of genital herpes, chicken pox and shingles. Valtrex and Famvir require fewer daily doses than acyclovir, the first-generation drug for herpes, and are, therefore, preferable treatments because patients are more likely to comply with their treatment regimen.

No companies besides SB and Glaxo are currently developing a drug to treat the various types of herpes infections. Without the divestiture of one of the company's drugs, competition in this $500 million market would be eliminated, and American consumers would likely pay higher prices for Valtrex and Famvir. The FTC complaint alleges that because no other companies are developing similar products, such a monopoly could be maintained for an extended period.

Topical Antiviral Cold Sore (Herpes) Drugs. These drugs are used orally to treat herpes infections on the mouth, commonly referred to as cold sores. SB's Denavir is currently the only prescription topical antiviral medication approved by the FDA to treat such infections. However, both SB's Denavir and Glaxo's topical Zovirex cream compete in Europe, and Zovirex is the leading prescription cold sore treatment sold in Europe. Until April of this year, Glaxo had been in the final stages of seeking FDA approval to market Zovirex in the United States, but withdrew its application this past spring, several months after its proposed merger with SB was announced. Zovirex topical cream was within one year of being made available to U.S. consumers, offering price competition for SB's Denavir for the first time. The merger, as proposed, would eliminate the only potential entrant into the market - Glaxo's Zovirex - as the combined Glaxo SmithKline would likely not bring Zovirex to market to compete against its own product, Denavir.

Prophylactic Herpes Vaccines. While there currently is no vaccine to prevent or treat herpes infections, SB and Glaxo are two of the few firms developing prophylactic (preventative) vaccines. SB is one of the world's leading vaccine suppliers, and currently has the most advanced development effort in place toward developing a prophylactic herpes vaccine. Glaxo, while relatively new to the vaccine development arena, has a significant effort under way to develop a vaccine to prevent the contraction of genital herpes. To accomplish this, it has been working in collaboration with a British company, Cantab Pharmaceuticals, which has developed a process called Disabled Infectious Single Cycle (DISC) technology. Working with Cantab, Glaxo is pursuing a therapeutic indication, and has begun plans to design Phase III clinical trials for a prophylactic vaccine this year.

While a small number of other firms have begun developing a prophylactic herpes vaccine, entry into this market is extremely difficult, time-consuming and expensive. Indeed, all other efforts are far behind those of SB and Glaxo/Cantab. The Commission's complaint contends that the merger, as proposed, would chill innovation in the market for new herpes vaccines, as Glaxo SmithKline could forego one of the two firms' development efforts.

Even if both products were developed, the FTC contends, the merger would eliminate future price competition between the two prophylactic herpes vaccines.

OTC H-2 Blocker Acid Relief Products. Histamine-2 blockers (H-2 blockers) comprise a class of over-the-counter ("OTC") drugs designed for acid relief. Originally sold by prescription only, H-2 blockers operate on the body by blocking histamine (acid) production, acting like corks to prevent the release of stomach acid. The U.S. market for OTC H-2 blockers totals $502 million, consisting of four branded products - SB's Tagamet, Glaxo's Zantac 75 (marketed by Pfizer), Johnson & Johnson's Pepcid AC and Whitehall-Robin's Axid - along with private-label equivalents. The complaint contends that no new OTC H-2 blockers are expected to enter the market in the near future.

After the merger of SB and Glaxo, the competitiveness of Zantac 75 in the OTC H-2 blocker market would likely decrease. Under current arrangements between Pfizer and Glaxo, Pfizer is required to obtain certain approvals from Glaxo before it can pursue any product or trademark changes or improvements to Zantac 75. Today, Glaxo's incentive is to approve proposed actions that would enhance the competitiveness of Zantac 75 because it does not have rights to any other OTC H-2 blocker product. After the merger, however, Glaxo SmithKline would be less inclined to approve changes that would increase Zantac 75's competitiveness against its own Tagamet. The situation could result in both consumers paying more for OTC H-2 blockers and discouraging product innovations by Pfizer.

Topoisomerase I Inhibitor Drugs. These drugs are used to treat ovarian, non-small cell lung, colorectal and other types of solid-tumor cancers. SB's Hycamptin is currently a leading second-line therapy for non-small cell lung cancers, and SB is also pursuing a first-line indication for treating colorectal and other solid-tumor cancers. Glaxo, through a collaboration with Gilead Sciences, is developing a drug that would treat ovarian, breast, non-small cell lung and other solid tumors, including colorectal cancer, in direct competition with SB's Hycamptin. The only other drug in this class currently on the market is Pharmacia's Camptosar, which is used to treat colorectal cancer and is being tested for non-small cell lung cancer.

The proposed merger would create anticompetitive effects in the market for this class of cancer drugs by eliminating one of the few research and development efforts currently underway. As a result of the merger, Glaxo SmithKline could terminate or otherwise fail to develop its product with Gilead Sciences, resulting in less product innovation, fewer consumer choices and ultimately higher consumer prices for topoisomerase I inhibitor drugs.

Migraine Treatment Drugs. Glaxo, through its products Immitrex and Amerge, is the leading seller of triptan drugs for the treatment of migraine headaches. SB has an interest in another triptan drug, frovatriptan, currently being developed by Vernalis Ltd. for the treatment of migraines. The only other approved migraine drugs in the triptan class are Merck's Maxalt and Astra Zeneca's Zomig. Vernalis is likely to launch frovatriptan as a treatment for migraines in the second half of 2001. The merger is likely to eliminate one of the few research and

development efforts on other triptan drugs to treat migraines, as Glaxo SmithKline would likely delay, terminate or otherwise fail to develop frovatriptan because it would compete directly against Glaxo's Immitrex and Amerge. The result would be less product innovation, and, consequently, fewer product choices and higher prices for consumers.

Irritable Bowel Syndrome Drugs. IBS is a medical condition that is not very well understood and has often been labeled as several different conditions, including irritable colon and spastic colon. Patients with IBS experience a variety of symptoms, including diarrhea, constipation or a mix of both, or cramping and other types of abdominal discomfort. It is estimated that up to 15 percent of the U.S. population, 70 percent of them women, suffers from IBS.

Glaxo currently owns a drug called Lotronex. Although effective in treating IBS sufferers, Lotronex was recently taken off the market by Glaxo because of concerns about serious side effects in some patients. Glaxo continues to conduct clinical trials for Lotronex. While SB currently does not have an IBS drug on the market, it has an option to acquire and market renzapride, which is being developed by Alizyme Therapeutics plc, a British firm, and appears to be two to three years from coming to market. Aside from these drugs, only two other IBS treatments are now in clinical development, but they are far behind SB's efforts with Alizyme. Despite its recent market withdrawal, Lotronex remains the only effective treatment for IBS approved by the FDA The merger would eliminate one of the few efforts under way to develop a drug for the treatment of IBS, because the combined Glaxo SmithKline would likely delay, terminate or otherwise fail to develop renzapride as a competitor to Lotronex. The result, according to the complaint, would be less product innovation, fewer consumer choices and higher prices for IBS drugs.

Terms of the Proposed Order

Through the proposed order, Glaxo and SB would be required to: 1) divest all of SB's worldwide rights relating to its antiemetic drug Kytril to F. Hoffman LaRoche; 2) divest SB's U.S. rights to manufacture and market ceftazidime to Abbott Laboratories; 3) divest SB's worldwide rights relating to its antiviral drugs Famvir and Denavir (including the rights to the base active ingredients penciclovir and famciclovir) to Novartis Pharm AG and Novartis Pharmaceuticals Corporation; 4) return to Cantab Pharmaceuticals all rights to use Cantab's DISC technology to develop a prophylactic herpes vaccine, allowing Cantab to pursue a prophylactic indication for the vaccine developed by the joint venture using its DISC technology; 5) divest Glaxo's U.S. and Canadian Zantac trademark rights to Pfizer, thereby removing restrictions on the ability of Pfizer's Zantac 75 to compete in the OTC H-2 blocker acid relief market; 6) assign all of Glaxo's relevant intellectual property rights and relinquish its reversionary rights to the topoisomerase I inhibitor being developed by Gilead Sciences, Inc.; 7) assign all of SB's relevant intellectual property right and relinquish all options to regain control over frovatriptan to Vernalis Ltd.; and 8) assign all of SB's relevant intellectual property rights and relinquish all options to the IBS treatment drug renzapride to Alizyme plc.

With respect to its divestiture of Kytril, the 5HT-3 antiemetic product, if it is not sold to Roche, the Commission may appoint a trustee to sell either Kytril or Zofran, Glaxo's 5HT-3 antiemetic product that is currently the market leader. In addition, if any interruption arises in its supply of Kytril to Roche before Roche has obtained FDA approvals for the manufacture of Kytril on its own, the Commission may appoint a trustee to sell Zofran.

With respect to Kytril, Tazicef (ceftazidime), and the antiviral drugs Famvir and Denavir, Glaxo SmithKline would be required to submit all confidential information and know-how to the corresponding purchaser, ensure that the former sales force and management who participated in marketing the drug maintain the confidentiality of this information, prohibit former sales and marketing personnel from selling competing products (as specified in the agreement) for between six and twelve months, and require Glaxo SmithKline to contract manufacture the drugs until each purchaser obtains FDA approval to manufacture the drug for itself.

With respect to the remaining technologies, in addition to the divestitures detailed above, the proposed order would require Glaxo SmithKline not to impede the transfer of intellectual property to, or development and implementation of, these processes by the purchasing entities.

The proposed order also allows the Commission to appoint a monitor trustee to ensure Glaxo SmithKline's compliance with its terms, along with a divestiture trustee if the company fails to divest any of the assets as required. Finally, Glaxo SmithKline is required to meet certain reporting requirements until it has fully complied with the divestiture requirements.

A summary of the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment until January 17, 2001, 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 and publish a copy in the Federal Register for public comment was 5-0. In addition to the relief obtained through its consent order, the Commission will continue to investigate the potential effects of this merger in the area of products used by consumers for assistance in quitting smoking. Both companies market products used for smoking cessation -- Glaxo sells a prescription product called Zyban, while SB markets two over-the-counter nicotine-replacement therapy products, Nicoderm (a transdermal patch) and Nicorette (a nicotine gum).

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 consent agreement 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. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the online complaint form. The FTCenters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.

Media Contact:

Mitchell J. Katz,
Office of Public Affairs
202-326-2161  

Staff Contact:

Molly S. Boast,
Bureau of Competition
202-326-2039  

Jacqueline K. Mendel,
Bureau of Competition
202-326-2603

(FTC File No. 001-0088)

Return to top