FTC Order Restores Competition Lost Through Schering-Plough's Acquisition of Merck

Merck & Co., Inc. must sell its interest in Merial Limited, an animal health joint venture with Sanofi-Aventis S.A., and Schering-Plough must sell its assets related to significant drugs for nausea and vomiting in humans, in order for Schering-Plough to complete its proposed $41.1 billion acquisition of Merck, the Federal Trade Commission announced today. The consent order detailing the requirements resolves the Commission’s concerns regarding the proposed transaction’s potential anticompetitive effects, and the FTC will allow the acquisition to proceed if the assets are sold as required by the order.

“The consent order announced today addresses the competitive concerns related to Schering-Plough’s proposed acquisition of Merck,” said Richard Feinstein, Director of the FTC’s Bureau of Competition. “The Commission analyzed the likely impact of this proposed transaction and is confident that its order will ensure continued competition in the relevant human and animal health care markets.”

Pursuant to an Agreement and Plan of Merger dated March 8, 2009, Schering-Plough proposes to acquire Merck and rename the surviving entity Merck, in a transaction valued at approximately $41.1 billion. According to the FTC’s complaint, Schering-Plough’s acquisition of Merck would have violated U.S. antitrust laws by reducing competition in a range of animal health markets in which the companies compete. The companies are two of the leading animal health suppliers in the United States, and the proposed acquisition raises significant concerns in markets where Merck, through Merial, and Schering-Plough directly compete.

The FTC’s complaint also alleges that the transaction raises competitive concerns regarding human drugs known as NK 1 receptor antagonists. Nausea and vomiting are common side effects of both chemotherapy and surgery. Merck’s Emend® is the first and only NK 1 receptor antagonist approved for human use to treat such side effects. Schering-Plough, however, was in the process of licencing its own NK 1 receptor antagonist, rolapitant, to a third party when the company’s acquisition of Merck was announced. The transaction, therefore, likely would have reduced the combined firm’s incentives to launch rolapitant, delaying or eliminating a future entrant into the market for NK 1 receptor antagonist drugs for nausea and vomiting.

Under the terms of the FTC’s consent order, Merck must divest all of its interest in Merial and Schering-Plough must sell assets related to rolapitant. Consequently, the order remedies the proposed acquisition’s alleged anticompetitive effects and ensures continued competition in these important animal and human health markets.

The order requires Merck to sell its interest in Merial to Sanofi-Aventis, its current partner in the joint venture. In mid-September 2009, it completed this sale and terminated the joint venture agreement with Sanofi-Aventis in response to concerns raised by the Commission. By divesting its part of the joint venture, Merck has remedied all competitive concerns related to its acquisition by Schering-Plough regarding the combination of the companies’ animal health businesses. Further, because Sanofi-Aventis already owned half of the Merial joint venture and Merial has operated as a stand-alone business for some time, Sanofi-Aventis will be able to continue Merial’s operations uninterrupted after the acquisition.

The order also contains a “prior approval” provision designed to preserve the remedial benefits of the Merial animal health divestiture to Sanofi-Aventis, because there is a credible risk that Merck/Schering-Plough and Sanofi-Aventis would combine their animal health businesses after the divestiture. Therefore, the order prohibits Merck from acquiring any of Merial’s animal health assets, or in any way combining the animal health businesses of Merck and Sanofi-Aventis, without the Commission’s prior approval.

To comply with the order’s human health care requirements, Schering-Plough must sell its rolapitant-related assets to Opko Health, Inc. within 10 days of acquiring Merck. The divestiture will remedy the competitive concerns related to NK 1 receptor antagonists in the human health market. Opko is a well-qualified acquirer of the rolapitant assets and has the financial resources and experience to effectively compete in the U.S. NK1 receptor antagonist market for nausea and vomiting.

International Cooperation

During the FTC’s investigation, staff communicated and cooperated with their enforcement counterparts in Australia, Canada, the European Commission (EC), Israel, Mexico, and New Zealand that also are reviewing, or already have reviewed, this proposed merger. This cooperation was conducted according to bilateral cooperation agreements, the OECD Recommendation on cooperation among its members, and, in the case of the EC, the 2002 Best Practices on Cooperation in Merger Investigations.

The Commission vote approving the consent order was 2-0, with Commissioners Pamela Jones Harbour and William E. Kovacic recused. The FTC served the complaint and order on Merck and Schering-Plough at the same time it accepted them. Therefore, the order has already become effective. Making the order final immediately is appropriate in this matter for reasons detailed in the analysis to aid public comment, which can be found on the FTC’s Web site and as a link to this release.

Although the consent order is in effect already, it has been placed on the public record for 30 days, until November 30, 2009, after which the Commission will decide whether it should be modified. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580. To file a public comment, please click on: https://public.commentworks.com/ftc/0910075 and follow the instructions at that site.

NOTE: A consent order is for settlement purposes only and does not constitute an admission of a violation of the law. When the Commission issues an 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 up to $16,000.

Copies of the documents related to these cases can be found on 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 works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 383, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.

(FTC File No. 091-0075)