FTC Requires Asset Divestitures Before Allowing Boston Scientifics $27 Billion Acquisition of Guidant Corporation

The Federal Trade Commission today announced a consent agreement that will protect competition and consumers in several significant medical device markets affected by Boston Scientific’s proposed $27 billion acquisition of the Guidant Corporation (Guidant). The agreement will allow the transaction to proceed, provided the parties comply fully with its terms.

Under the terms of the order conditionally approving the transaction, Boston Scientific and Guidant are required 1) to divest all assets – including intellectual property – related to Guidant’s vascular business to a third party, enabling that third party to sell drug eluting stents (DES) with the rapid exchange (RX) delivery system, percutaneous transluminal coronary angioplasty (PTCA) balloon catheters, and coronary guidewires; and 2) to reform certain contractual rights between Boston Scientific and Cameron Health, Inc. (Cameron) to limit Boston Scientific’s control over certain Cameron actions and the sharing of nonpublic information about Cameron’s Implantable Cardioverter Defibrillator (ICD) product.

“Absent the terms of this comprehensive consent order, Boston Scientific’s acquisition of Guidant would reduce competition in several significant medical device markets in the United States,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “The order protects competition and consumers whose very lives may depend on their ability to obtain treatment with these devices.”

The Relevant Product Markets

The FTC’s competitive concerns regarding Boston Scientific’s proposed acquisition of Guidant arose in the following product markets: 1) drug eluting stents with the rapid exchange delivery system; 2) percutaneous transluminal coronary angioplasty balloon catheters; 3) coronary guidewires; and 4) implantable cardioverter defibrillators. A description of each product is provided below.

Drug Eluting Stents. DESs are medical devices typically consisting of a small, lattice-shaped metal tube coated with a drug and polymer, mounted on a delivery system. Interventional cardiologists use such stents to treat patients with coronary artery disease, a condition caused by the build-up of plaque deposits that reduce blood flow through affected coronary arteries. DESs work by propping open the clogged arteries and eluting a drug that helps prevent the arteries from renarrowing. DESs are sold mounted on a delivery system used to deploy the stent to the blocked artery, with the two most common systems being RX and over-the-wire. RX delivery systems are currently highly preferred by doctors in the United States, and continue to grow in popularity.

PTCA Balloon Catheters and Coronary Guidewires. PTCA balloon catheters are devices used in interventional cardiology procedures, including DES placement. The catheter is a long, thin, flexible tube with a small inflatable balloon at its tip. During an angioplasty, the catheter is inserted into a blocked coronary artery and the balloon is inflated to widen the artery to improve blood flow. The PTCA balloon catheter is delivered to a lesion site over a coronary guidewire, an extremely thin wire with a flexible tip.

Implantable Cardioverter Defibrillators (ICDs). ICDs are small electronic devices implanted to prevent sudden death from cardiac arrest due to abnormal heart rhythms. They are designed to counteract heart muscle fibrillation and restore normal heart rhythms, typically by applying a brief electric shock.

The Commission’s Complaint

According to the Commission’s complaint, the transaction as originally proposed would violate the FTC Act and Section 7 of the Clayton Act, as amended, and would reduce competition in the medical device markets identified in the United States. Each of these markets is highly concentrated and potential entry would not be timely, likely, or sufficient to deter or offset the alleged anticompetitive impact of the acquisition.

Specifically, as described in more detail in the Commission’s analysis to aid public comment (which can be found as a link to this press release on the FTC’s Web site), Boston Scientific’s acquisition of Guidant 1) would remove Guidant as the only potential competitor to Boston Scientific and Johnson & Johnson (J&J) with the ability to offer a DES with an RX delivery system; 2) would cause competitive harm in the markets for PTCA balloon catheters and coronary guidewires by eliminating competition between Boston Scientific and Guidant and reducing the number of significant competitors in the market – thereby allowing the combined Boston Scientific/Guidant to raise prices unilaterally for both PTCA balloon catheters and coronary guidewires; and 3) may adversely affect competition in the ICD market by allowing Boston Scientific to receive information and exercise control over Cameron, a potential significant competitor.

Three firms – Medtronic, Guidant, and St. Jude Medical – account for more than 98 percent of the $1.8 billion in annual sales in the U.S. market for ICDs, and have been the only significant competitors in the market for more than a decade. Cameron is expected to enter the market in the next few years. The FTC’s investigation led to competitive concerns with Boston Scientific’s acquisition of Guidant’s ICD business because Boston Scientific has an option to purchase Cameron, and this option gives Boston Scientific contractual rights to certain nonpublic information about Cameron’s ICD product and control over certain Cameron activities.

The Consent Order

The Commission’s consent order is designed to remedy the alleged anticompetitive impact of Boston Scientific’s acquisition of Guidant. First, it requires Boston Scientific to divest Guidant’s vascular business, which includes, among other things, its DES development program (including the RX delivery system patents) and its PTCA balloon catheter and coronary guidewire products, to an up-front buyer approved by the FTC.

The companies have selected Abbott Laboratories (Abbott), a well-known and respected drug, diagnostics, and medical device company, to purchase these assets. Abbott has experience with both drugs and vascular devices, and is well-positioned to maintain these assets as competitive entities following their acquisition. The specific terms of the companies’ agreement with Abbott is provided in the FTC’s analysis to aid public comment regarding this transaction. It also details a number of order provisions put in place to ensure the divestiture to Abbott is successful. Finally, to limit any entanglements between the parties, the consent order requires Abbott immediately to relinquish the voting rights to the small equity position it owns in Boston Scientific, and to divest that equity position within thirty months.

Regarding Boston Scientific’s arrangements with Cameron, the order imposes limits on Boston Scientific’s access to Cameron information and on Boston Scientific’s ability to exercise control over Cameron. Each of these provisions is described in more detail in the analysis to aid public comment. Lastly, with respect to its equity stake in Cameron, Boston Scientific has agreed to provisions similar to those governing Abbott’s equity holdings in Boston Scientific. Namely, it will vote its shares in the same proportion as all other shareholders in any shareholder vote. Boston Scientific also will divest its equity investment in Cameron within eighteen months if it does not acquire Cameron prior to the expiration of its option to do so. Also pursuant to the order, Boston Scientific will notify the FTC prior to any attempt to exercise its option to acquire Cameron.

Other Terms of the Agreement

The consent agreement also contains a provision allowing the FTC to appoint an interim monitor to oversee Boston Scientific’s compliance with all of its obligations under its terms. The interim monitor will file periodic reports with the Commission to ensure the FTC remains informed about Boston Scientific’s compliance performance. The order allows the FTC to appoint a divestiture trustee if any of the defined remedies are not accomplished within the time required.

International Cooperation

The European Commission’s Competition Directorate (EC), Canada’s Competition Bureau, and Japan’s Fair Trade Commission also are reviewing or have already reviewed this proposed merger. Throughout the course of their respective investigations, FTC staff and their counterparts in those authorities communicated and cooperated with each other under the terms of their respective bilateral cooperation agreements and, in the case of the EC, the 2002 Best Practices on Cooperation in Merger Investigations.

The Commission vote to accept the consent agreement and place copies on the public record was 4-0, with Commissioner Pamela Jones Harbour recused. The consent agreement will be subject to public comment for 30 days, until May 18, 2006, after which the Commission will determine 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 order, 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, in coordination with the Bureau of Economics, 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. 061-0046)