FTC Negotiated Settlement Preserves Competition in U.S. Market for Life-Saving Heart-Lung Machines

The Federal Trade Commission announced today a proposed settlement of antitrust concerns stemming from the acquisition of COBE Cardiovascular, Inc., COBE Laboratories Inc., and other assets and liabilities from Gambro AB, by Sorin Biomedica S.p.A., a subsidiary of SNIA S.p.A.. The proposed settlement would preserve competition in the U.S. market for heart-lung machines -- the durable equipment portion of an extracorporeal bypass system that replaces the function of the heart and lungs by circulating and supplying oxygen to a patient's blood during open heart surgery. The FTC alleged that the $260 million acquisition would eliminate substantial competition between SNIA and Gambro in the market for research, development, manufacture and sale of heart-lung machines. The proposed settlement, while permitting the acquisition, would require SNIA to divest all of COBE's heart-lung machine business to Baxter Healthcare Corporation within ten days after the FTC accepts this proposed ageement for public comment.

The proposed settlement also would provide for the appointment of an interim trustee to monitor the smooth transition of the divested assets and to ensure Baxter's efforts to obtain its own regulatory approvals.

"Our settlement," said William J. Baer, Director of the FTC's Bureau of Competition, "requires divestiture of a package of heart-lung machine assets that will ensure continuing competition in the market for these life-saving devices."

SNIA is headquartered in Italy, and COBE Cardiovascular is based in Denver, Colorado. According to the FTC, there are only four suppliers of heart-lung machines in the United States, with COBE and SNIA being the largest and third largest suppliers. Moreover, because of the time required to design and develop a new machine, gain customer acceptance, obtain U.S. Food and Drug Administration approval, and develop a nationwide sales and service network, no new entry into the market is likely in the foreseeable future.

According to the complaint detailing the allegations, the effects of the acquisition would be to substantially lessen competition and tend to create a monopoly in the relevant markets in the following ways:

• by eliminating actual, direct and substantial competition between SNIA and Gambro in the relevant market for the research, development, manufacture and sale of heart-lung machines;
• by increasing the likelihood of coordinated interaction in the heart-lung machine market;
• by increasing the likelihood that customers of heart-lung machines would be forced to pay higher prices; and
• by increasing the likelihood that innovation will be reduced in the relevant market for the research, development, manufacture and sale of heart-lung machines.

In settlement of these charges, a proposed consent agreement, accepted by the FTC for a 60-day public comment period, would require SNIA to divest COBE's heart-lung machine business as a viable, on-going product line to Baxter, within ten business days after the Commission accepts this agreement for comment. Although Baxter does not currently manufacture or sell heart-lung machines, it is one of the world's leading healthcare businesses, and it manufactures and sells a wide array of complementary products including single-use, disposable products that along with a heart-lung machine comprise a complete extracorporeal bypass system.

Further, the proposed settlement would require SNIA to provide assistance to Baxter to enable it to compete effectively in the market for heart-lung machines. Such assistance would include SNIA "contract manufacturing" heart-lung machines for a limited time period to allow Baxter to establish its own manufacturing processes and to obtain its own regulatory approvals to manufacture and sell heart-lung machines.

Finally, the order contains a number of recordkeeping and reporting requirements designed to assist the FTC in monitoring compliance with its terms.

An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement, including the divestiture to Baxter, will be subject to public comment for 60 days, 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 settlement for public comment was 4-0.

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, the proposed consent agreement, and an analysis of the agreement to aid in 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; 202-326-3128; TTY for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No.: 991 0095)