Pfizer, Pharmacia Will Divest Assets to Settle FTC Charges

Pfizer Inc., and Pharmacia Corporation will divest pharmaceutical products in nine separate product markets to different third parties to settle Federal Trade Commission charges that the merger of Pharmacia and Pfizer likely would have anticompetitive effects in those product markets and violate antitrust laws. The products include extended release drugs for the treatment of overactive bladder; combination hormone replacement therapies; treatments for erectile dysfunction; drugs for canine arthritis; antibiotics for lactating cow mastitis; antibiotics for dry cow mastitis; over-the-counter hydrocortisone creams and ointments; over-the-counter motion sickness medications; and over-the-counter cough drops.

"This settlement will allow Pfizer and Pharmacia to consummate their merger, while it ensures that U.S. consumers continue to enjoy the benefits of rigorous competition," said Joe Simons, Director of the FTC's Bureau of Competition.

Pfizer, is the largest pharmaceutical company in the United States, the largest animal health pharmaceutical company in the world, and one of the world's largest providers of consumer health products. It had worldwide revenues of over $32 billion in 2001. Pfizer, a Delaware corporation, is based in New York City. Pharmacia, based in Peapack, New Jersey, is engaged in the research, development, manufacture, and sale of pharmaceutical products, animal health products, fine chemicals, and consumer health products. In 2001, the company reported sales revenues of over $13.8 billion, with $11.9 billion coming from prescription pharmaceutical sales. Pfizer proposes to acquire Pharmacia in a deal valued at approximately $60 billion.

Extended release drugs for the treatment of overactive bladder (OAB) are used by over 2.4 million Americans. Extended release OAB products are those products taken once or twice-a-day to control the symptoms of OAB. Annual sales of extended release OAB products in the United States total approximately $760 million.

There are only two significant players in the U.S. market for extended release OAB products. Pharmacia markets Detrol and Detrol LA, twice and once-a-day products, respectively. Johnson & Johnson (J&J) markets Ditropan XL, a once-a-day product and the only other extended release OAB product available in the United States. Pfizer is seeking approval from the Food and Drug Administration (FDA) to market its own extended release product, darifenacin. Pfizer, with Yamanouchi Pharma America, is one of the two best-positioned firms seeking to enter the market.

The FTC alleges that the proposed acquisition would cause significant anticompetitive harm in the U.S. market for extended release OAB products by eliminating potential competition between Pfizer and Pharmacia. With only two firms currently marketing extended release OAB products to customers in this market (Pharmacia and J&J), the entry of Pfizer and Yamanouchi would likely increase competition and reduce prices for extended release OAB products.

The proposed consent agreement requires the parties to divest Pfizer's extended release OAB product, darifenacin, and certain other assets designed to ensure that the divestiture is successful, to Novartis AG.

Combination hormone replacement therapies (HRT), which consist of both estrogen and progestin, are used by women to control menopausal symptoms. Total sales of combination HRT products in the United States in 2002 were approximately $807 million.

According to the FTC, there are three significant competitors in the combination HRT market: Wyeth, Pfizer, and Pharmacia. The loss of Pharmacia as an independent competitor in the combination HRT market would likely result in higher prices and fewer product choices for consumers.

The proposed consent agreement preserves competition in the combination HRT market by requiring the parties to divest Pfizer's combination HRT product, femhrt, to Galen Holdings plc. The agreement contains certain other provisions designed to ensure that the divestiture is a success.

Erectile dysfunction (ED) affects 30 million men in the United States and half of the male population between the ages of 40 and 70. Approximately 4 million men take prescription drugs to treat ED. The U.S. market for drugs to treat ED is valued at over $1 billion today and is expected to exceed $1.5 billion by 2005 as the population ages and as awareness of the condition increases.

Pfizer dominates the ED market with its well-known product, Viagra. Pfizer has a market share in the United States in excess of 95 percent. Pfizer also has a second-generation Viagra-like product in development for ED. Pharmacia currently has two products in clinical development for ED: IN APO and PNU-142,774.

The FTC alleges that the proposed acquisition would cause significant anticompetitive harm in the U.S. market for drugs to treat ED by eliminating potential competition between Pfizer and Pharmacia.

The consent agreement requires Pharmacia to return all of its rights in one of its products, IN APO, to Nastech Pharmaceutical Company, Inc. and to divest all of its rights and interests for the field of sexual dysfunction in its other product, PNU-142,774, to Neurocrine Biosciences, Inc. The agreement contains certain other provisions designed to ensure that the divestitures are successful.

Canine arthritis affects an estimated 8.5 million dogs in the United States. Approximately 1.8 million arthritic dogs are treated with prescription canine arthritis drugs. Sales for prescription canine arthritis drugs in the United States in 2001 totaled approximately $81 million, and the U.S. market is expected to grow to over $110 million by the end of 2003.

The market for prescription canine arthritis drugs is highly concentrated. Pfizer markets Rimadyl, the leading product in the U.S. market that held a 70 percent market share in 2001. Wyeth, through its Fort Dodge Animal Health division, markets EtoGesic. Through a license and supply agreement with Pharmacia, Novartis launched its own canine arthritis product, Deramaxx, in February 2003.

The FTC alleges that the proposed acquisition is likely to result in anticompetitive harm in the U.S. market for canine arthritis drugs. Because of the license and supply agreement with Novartis, Pfizer, the leading company in the market, would have undue control over the supply of product needed by Novartis, and access to the sensitive confidential information of its competitor. As a result, Pfizer would be in a position to undermine the competitive position of one of only two competitors in the market for prescription drugs to treat canine arthritis.

The consent agreement preserves competition in the market for prescription canine arthritis drugs by requiring Pharmacia to renegotiate its pre-existing license and supply agreement with Novartis to allow Novartis to operate as an independent competitor rather than a business partner. The settlement would eliminate the control that Pfizer would have over Novartis' product; restrict the type of information Pfizer would be able to obtain about Deramaxx; and allow Novartis to compete with Pfizer in the development of a second generation canine arthritis product.

Bovine mastitis, an infection of the udder of the cow, costs the U.S. dairy industry $2 billion annually. There are two different types of contagious bovine mastitis: (1) lactating cow mastitis; and (2) dry cow mastitis. In the United States, $27 million worth of lactating cow mastitis antibiotic products and $25.5 million worth of dry cow mastitis antibiotic products are sold annually.

The U.S. markets for bovine mastitis treatments are highly concentrated. There are only three significant competitors in the markets for lactating cow and dry cow mastitis antibiotic products - Pharmacia, Wyeth, and Pfizer. Post-acquisition, Pfizer would account for 50 percent of the sales of lactating cow mastitis products and 55 percent of the sales of dry cow mastitis products, and only one firm, Wyeth, would remain as a significant competitor. This is likely to lead to higher prices for drugs used to treat bovine mastitis.

The consent agreement preserves competition in the markets for antibiotics for the treatment of bovine mastitis by requiring Pfizer to divest all of its U.S. rights to its bovine mastitis antibiotic products to Schering-Plough Corporation.

Annual sales in the United States of over-the-counter (OTC) hydrocortisone creams and ointments used to treat skin conditions are approximately $160 million.

According to the complaint, there are only two branded competitors in the market - Pfizer and Pharmacia. Although there are private label hydrocortisone creams that account for a significant market share, those products have limited competitive significance and virtually no impact on the pricing of the products sold by Pfizer and Pharmacia. Post-acquisition, Pfizer would account for 55 percent of the OTC sales of hydrocortisone creams and ointments, and would be left with no significant branded competitor in this market.

The FTC alleges the proposed acquisition would cause significant anticompetitive harm in the U.S. market for OTC hydrocortisone creams and ointments by eliminating competition between Pfizer and Pharmacia. The loss of Pharmacia as an independent competitor in this market would likely result in higher prices for consumers.

The consent agreement preserves competition in the market for OTC hydrocortisone creams and ointments by requiring Pharmacia to divest its Cortaid business to Johnson & Johnson.

Annual sales in the United States of OTC motion sickness medications total approximately $45 million. Pfizer, with its Bonine product, and Pharmacia, with its Dramamine product, are the two leading suppliers in this market, with a combined market share of 77 percent. Even after several years on the market, the third leading brand name product, Marezine, has less than 5 percent of the market. The remainder of the market is accounted for by private label products that do not constrain the pricing of the branded products.

Pfizer's proposed acquisition of Pharmacia would likely lead to higher prices in this market, according to the FTC.

The proposed consent agreement effectively remedies the proposed acquisition's likely anticompetitive harm by requiring Pfizer to divest its U.S. and Puerto Rican Bonine assets to Insight Pharmaceuticals Corporation.

Annual sales of cough drops in the United States are about $240 million. Pfizer, with its Halls brand and Pharmacia, with its Ludens brand, are the only two significant competitors.

The loss of Pharmacia as an independent competitor in the OTC cough drop market is likely to lead to higher prices for consumers, the FTC alleges.

The consent agreement effectively remedies the acquisition's anticompetitive effects in the U.S. market for OTC cough drops by requiring Pfizer to divest its Halls cough drop business to Cadbury Schweppes.

The settlement requires all divestitures to occur no later than 10 days after the Pharmacia acquisition is consummated. If the Commission determines that the specified buyers are not acceptable purchasers, the assets must be divested to a Commission-approved buyer no later than six months from the date the order becomes final.

The Commission vote to accept the proposed settlement was 5-0.

An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until May 14, 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.

(FTC File No. 021 0192)