FTC Challenges Schering-Ploughs Acquisition of Organon BioSciences N.V.

The Federal Trade Commission today announced a complaint challenging Schering-Plough Corporation’s proposed $14.4 billion acquisition of Organon BioSciences N.V. from Akzo-Nobel N.V., alleging that the deal would harm competition in the U.S. markets for the manufacture and development of three poultry vaccines. In settling the charges, the companies have entered into a consent order with the Commission, requiring them to divest the rights and assets needed to develop, manufacture and market each vaccine to Wyeth within 10 days of the acquisition and to provide supply and transitional support services to Wyeth’s Fort Dodge division for two years.

“The U.S. poultry business plays a vital role in our economy, and its success depends in large part on the availability of effective and affordable vaccines,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “The Commission’s action today maintains competition for three important poultry vaccines and ensures that consumers will continue to benefit from lower prices and better products.”

The Relevant Product Markets

Each of the poultry vaccines that will be divested under the terms of the consent order with the Commission is described below. Each of the markets is highly concentrated, with Schering-Plough and Intervet, Inc. – a wholly owned subsidiary of Organon BioSciences that manufactures and markets animal health products – controlling significant market shares in each vaccine market.

Live vaccines for the prevention and treatment of the Georgia 98 strain of infectious bronchitis virus treat a highly contagious respiratory disease in poultry that is spread by contact with infected respiratory discharge and feces. Live Georgia 98 vaccines are the only vaccines that can effectively prevent and treat this strain of infectious bronchitis virus. Schering-Plough and Intervet are the only suppliers of the vaccine in the United States, and the acquisition would create a monopoly in the market for this product.

Live vaccines for the prevention and treatment of fowl cholera due to Pasteurella multocida in poultry treat an infectious disease caused by this bacteria. Schering-Plough and Intervet are two of only three major suppliers of the vaccine in the United States, together accounting for more than 85 percent of sales in this highly concentrated market.

Live vaccines for the prevention and treatment of Mycoplasma gallisepticum (MG) in poultry treat a laterally transmitted disease caused by MG. The market for this vaccine in the United States is highly concentrated, with Schering-Plough and Intervet making up more than 72 percent of all sales.

The Commission’s Complaint

On March 12, 2007, Schering-Plough proposed to acquire all outstanding shares of Organon BioSciences from Akzo Nobel. According to the Commission’s complaint, the proposed acquisition would violate Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended, by lessening competition in the U.S. markets for the manufacture and sale of the following poultry vaccines: 1) live vaccines for the prevention and treatment of the Georgia 98 strain of infectious bronchitis virus in poultry; 2) live vaccines for the prevention and treatment of fowl cholera due to Pasteurella multocida in poultry; and 3) live vaccines for the prevention and treatment of Mycoplasma gallisepticum (MG) in poultry.

The FTC’s complaint states that the markets for the Georgia 98 strain of infectious bronchitis, fowl cholera, and MG live vaccines are highly concentrated, with Schering-Plough and Intervet controlling significant market shares of each. The proposed acquisition would create a monopoly in the live Georgia 98 vaccine market and would establish Schering-Plough’s dominance in the two other markets. Schering-Plough and Intervet are each other’s closest competitors in all of the relevant markets. Consumers have benefitted from competition between the two companies, and the proposed acquisition would eliminate this competition, resulting in higher prices for these products. According to the complaint, entry into the relevant markets by another competitor would not be timely, likely, or sufficient to deter or counteract the anticompetitive effects of the acquisition.

Terms of the Consent Order

The consent order approved by the Commission is designed to remedy the alleged anticompetitive effects of Schering-Plough’s acquisition of Organon BioSciences by replacing the competition that would have been lost in each relevant product market. Under its terms, within 10 days after the acquisition, Schering-Plough is required to divest the rights and assets necessary to develop, manufacture, and market live vaccines for the prevention and treatment in poultry of: 1) the Georgia 98 strain of infectious bronchitis virus; 2) fowl cholera due to Pasteurella multocida; and 3) MG to Wyeth’s Fort Dodge division. These products are Schering-Plough’s Avimune IB98, Intervet’s CHOLERVAC-PM-1, and Schering-Plough’s
F VAX-MG, respectively.

The assets to be divested include research and development, customer, supplier and manufacturing contracts, as well as all intellectual property (excluding trademarks) related to the three vaccines. In addition, Schering-Plough will provide Fort Dodge with the relevant vaccines for two years, under a supply and transition services agreement, while it obtains the necessary regulatory approvals to bring the vaccines in-house.

The Commission has determined that Wyeth, a global leader in pharmaceuticals, health care products, and animal health products, would be a strong acquirer. In addition to already having an established poultry vaccine distribution network and experienced sales force, the company’s Fort Dodge division has its own manufacturing facilities with excess capacity to bring the acquired vaccines in house. However, if the FTC determines that Wyeth is not an acceptable buyer, the order would require Schering-Plough to divest the relevant vaccine assets to another approved buyer within six months.

Finally, the order contains several provisions to ensure that the divestitures are successful, including the requirement that Schering-Plough provide the transitional services necessary to enable the FTC-approved buyer to obtain all necessary U.S. Department of Agriculture approvals. Based on his experience and knowledge of veterinary biologics, Dr. David A. Espeseth has been appointed by the Commission as Interim Monitor Trustee to oversee the order’s implementation.

The Commission vote to approve the consent order was 5-0. The order will be subject to public comment for 30 days, until December 19, 2007, after which the FTC 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.

International Cooperation

The European Commission’s Competition Directorate (EC) and Canada’s Competition Bureau also are reviewing or already have 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.

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.

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 394, 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.