Protecting Competition, FTC Clears Genzyme Corp.'s $1 Billion Acquisition of Ilex Oncology, Inc.

The Federal Trade Commission today announced that it will conditionally allow Genzyme Corporation’s (Genzyme) proposed $1 billion acquisition of ILEX Oncology, Inc. (Ilex), provided the companies divest overlapping assets in the U.S. market for solid organ transplant (SOT) acute therapy drugs. Under the terms of the consent agreement with the Commission, competition in the SOT acute therapy drug market will be maintained through Genzyme’s divestiture of all contractual rights to Ilex’s monoclonal antibody Campath®, for use in solid organ transplants, to Schering AG (Schering). According to the FTC, Genzyme’s Thymoglobulin®, a polyclonal antibody, competes directly with Campath, and the two products are two of the primary therapies available in the U.S. SOT acute therapy drug market.

“Genzyme and Ilex are direct and substantial competitors in the U.S. market for solid organ transplant acute therapy drugs,” said Susan A. Creighton, Director of the FTC’s Bureau of Competition. “Without the effective remedies put in place by the Commission’s order, users of these important, life-saving drugs likely could be forced to pay higher prices.”

SOT Acute Therapy Drugs

SOT acute therapy drugs are immunosuppressant drugs used in solid organ transplants to suppress the recipient’s immune system and are prescribed for induction therapy and acute rejection treatment. Induction therapy is the short-term use of immunosuppressant drugs before, during, and after solid organ transplants to decrease the likelihood of rejection. Acute rejection is a sudden attack on the transplanted organ by the recipient’s immune system. If an acute rejection occurs, SOT acute therapy drugs can act to provide a high immunosuppression dose to help halt the rejection.

Parties to the Proposed Transaction

Genzyme, a global biotechnology company headquartered in Cambridge, Massachusetts, is focused on genetic disorders, renal disease, organ transplant, immune-mediated diseases, and diagnostic products and services. Genzyme has more than 5,600 employees around the world, and had 2003 total revenues of $1.58 billion. In September 2003, Genzyme acquired SangStat Medical Corporation (SangStat), a bio-pharmaceutical company focused on immunology, for approximately $600 million. In doing so, it acquired SangStat’s leading drug, Thymoglobulin, a polyclonal antibody that suppresses certain types of immune cells and is used as an SOT acute therapy drug. Thymoglobulin is the leading drug in the U.S. SOT acute therapy drug market, with 2004 sales expected to exceed $90 million.

Ilex, headquartered in San Antonio, Texas, develops and sells novel therapeutic treatments, mainly for cancer-related applications. It has one U.S. Food and Drug Administration (FDA)-approved product, Campath, and several other products in clinical development. Campath was approved by the FDA in 2001 for the treatment of patients with chronic lymphomatic leukemia. Campath also is used off-label as a SOT acute therapy drug, and is one of the significant products in that market. In 2003, Campath’s overall sales were approximately $70 million, with a small portion of that amount comprising U.S. sales to SOT acute therapy customers. In August 1999, Ilex entered into an agreement to distribute and develop Campath with Schering, under which Schering jointly markets and develops the drug. Schering, through its U.S. subsidiary Berlex, is solely responsible for distributing Campath in the United States.

Through an agreement announced on February 26, 2004, Genzyme proposed to acquire Ilex in a stock-for-stock transaction valued at approximately $1 billion.

The FTC’s Complaint

According to the Commission’s complaint, the transaction as proposed would violate Section 7 of the Clayton Act and Section 5 of the FTC Act by lessening competition in the market for SOT acute therapy drugs. The FTC contends that the U.S. market for such drugs is highly concentrated and that Genzyme is the leading supplier in the market with its product, Thymoglobulin. Ilex’s Campath, the newest entrant into the market for SOT acute therapy drugs, currently accounts for a relatively small share but is quickly gaining market share and is expected to continue growing. There are four other SOT acute therapy drugs used in the United States, but Thymoglobulin and Campath are especially close competitors because their mechanisms of action are more alike than those of the other four products. In addition, although there are other types of immunosuppressant drugs available in the United States, they are not adequate substitutes for SOT acute therapy drugs.

As with many pharmaceutical products, entry into the market for manufacturing and selling SOT acute therapy drugs is difficult, expensive, and time-consuming. Entry is unlikely to alleviate the alleged anticompetitive impacts of the proposed transaction in a timely manner. In addition, the market for SOT acute therapy drugs is small, which decreases the incentive for a manufacturer to enter the market. Finally, according to the complaint, the proposed acquisition would cause significant harm in the U.S. market for SOT acute therapy drugs by reducing the actual, direct, and substantial competition between Genzyme and Ilex. The likely result would be higher prices and decreased development in this specialized drug market.

The Consent Order

To address the possible anticompetitive effects of the transaction as originally proposed, the consent order requires Genzyme to divest all contractual rights related to Ilex’s Campath, for use in SOT, to Schering, including Ilex’s portion of future U.S. earnings from the sales of Campath in SOT. Through existing contracts, Schering already distributes and markets Campath in the United States and also participates in the drug’s development activities. The FTC believes, therefore, that Schering is well-positioned to acquire the Campath assets and vigorously compete in the SOT acute drug therapy marketplace. In addition, because Campath is manufactured by a third party, there is no need for an interim supply agreement pending divestiture to Schering.

Under the terms of the order, the companies will be assisted by an FTC-approved monitor to implement a formula to determine the portion of U.S. Campath earnings attributable to SOT sales. That formula is based in large part on sales information from the United Network for Organ Sharing (UNOS), including UNOS’s federally mandated database, which will help determine the portion of Campath sales attributable to SOT. The order also allows for the formula to be reevaluated based on changes in the market for, or in the use of, Campath.

The Commission vote to accept the consent agreement and place a copy on the public record was 4-0-1, with Commissioner Pamela Jones Harbour recused and Commissioner Jon Leibowitz issuing a separate concurring statement. The order will be subject to public comment for 30 days, until January 18, 2005, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.

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.

Copies of the complaint, consent agreement, and an analysis 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. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm

(FTC File No.: 041-0083)