82 FR 847 - C.H. Boehringer Sohn AG & Co. KG; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

Federal Register Volume 82, Issue 2 (January 4, 2017)

The consent agreement in this matter settles alleged violations of federal law prohibiting unfair methods of competition. The attached Analysis to Aid Public Comment describes both the allegations in the complaint and the terms of the consent orders-- embodied in the consent agreement--that would settle these allegations.

[Federal Register Volume 82, Number 2 (Wednesday, January 4, 2017)]
[Notices]
[Pages 847-850]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-31848]


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FEDERAL TRADE COMMISSION

[File No. 161 0077]


C.H. Boehringer Sohn AG & Co. KG; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair methods of competition. 
The attached Analysis to Aid Public Comment describes both the 
allegations in the complaint and the terms of the consent orders--
embodied in the consent agreement--that would settle these allegations.

DATES: Comments must be received on or before January 27, 2017.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/FTC/chboehringersohnagcokgconsent online or 
on paper, by following the instructions in the Request for Comment part 
of the SUPPLEMENTARY INFORMATION section below. Write ``C.H. Boehringer 
Sohn AG & Co. KG File No. 1610077--Consent Agreement'' on your comment 
and file your comment online at https://ftcpublic.commentworks.com/FTC/chboehringersohnagcokgconsent by following the instructions on the web-
based form. If you prefer to file your comment on paper, write ``C.H. 
Boehringer Sohn AG & Co. KG File No. 1610077--Consent Agreement'' on 
your comment and on the envelope, and mail your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
600 Pennsylvania Avenue NW., Suite CC-5610 (Annex D), Washington, DC 
20580, or deliver your comment to the following address: Federal Trade 
Commission, Office of the Secretary, Constitution Center, 400 7th 
Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Michael Barnett (202-326-2362), Bureau 
of Competition, 600 Pennsylvania Avenue NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing consent orders to cease and desist, having been filed with 
and accepted, subject to final approval, by the Commission, has been 
placed on the public record for a period of thirty (30) days. The 
following Analysis to Aid Public Comment describes the terms of the 
consent agreement, and the allegations in the complaint. An electronic 
copy of the full text of the consent agreement package can be obtained 
from the FTC Home Page (for December 28, 2016), on the World Wide Web, 
at http://www.ftc.gov/os/actions.shtm.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before January 27, 
2017. Write ``C.H. Boehringer Sohn AG & Co. KG File No. 1610077--
Consent Agreement'' on your comment. Your comment--including your name 
and your state--will be placed on the public record of this proceeding, 
including, to the extent practicable, on the public Commission Web 
site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of 
discretion, the Commission tries to remove individuals' home contact 
information from comments before placing them on the Commission Web 
site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which . . . is privileged or confidential,'' as discussed in Section 
6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 
4.10(a)(2). In particular, do not include competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/FTC/chboehringersohnagcokgconsent by following the instructions on the 
web-based form. If this Notice appears at http://www.regulations.gov/#!home, you also may file a comment through that Web site.
    If you file your comment on paper, write ``C.H. Boehringer Sohn AG 
& Co. KG File No. 1610077--Consent Agreement'' on your comment and on 
the envelope, and mail your comment to the following address: Federal 
Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., 
Suite CC-5610 (Annex D), Washington, DC 20580, or deliver your comment 
to the following address: Federal Trade Commission, Office of the 
Secretary, Constitution Center, 400 7th Street SW., 5th Floor, Suite 
5610 (Annex D), Washington, DC. If possible, submit your paper comment 
to the Commission by courier or overnight service.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before January 27, 2017. You can find more 
information, including routine uses permitted by the Privacy Act, in 
the Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Orders To Aid Public Comment

Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from C.H. Boehringer Sohn

[[Page 848]]

AG & Co. KG (``Boehringer Ingelheim''), which is designed to remedy the 
anticompetitive effects of Boehringer Ingelheim's acquisition of the 
Merial Animal Health business (``Merial'') from Sanofi. Under the terms 
of the proposed Decision and Order (``Order'') contained in the Consent 
Agreement, Boehringer Ingelheim is required to divest its relevant U.S. 
companion animal vaccine business to Eli Lily and Company, which 
participates in the animal health industry through its Elanco Animal 
Health (``Elanco'') division. Boehringer Ingelheim is also required to 
divest its U.S. Cydectin parasiticide product to Bayer AG (``Bayer'').
    The proposed Consent Agreement has been placed on the public record 
for thirty days for receipt of comments from interested persons. 
Comments received during this period will become part of the public 
record. After thirty days, the Commission will again evaluate the 
proposed Consent Agreement, along with the comments received, in order 
to make a final decision as to whether it should withdraw from the 
proposed Consent Agreement, modify it, or make it final.

The Transaction

    Pursuant to an Exclusivity Agreement dated December 15, 2015, 
Boehringer Ingelheim proposes to swap its consumer health care business 
for Sanofi's Merial animal health business (the ``Proposed 
Acquisition''). In the proposed swap, Boehringer Ingelheim obtains 
Merial, valued at $13.53 billion, and Sanofi obtains Boehringer 
Ingelheim's Consumer Health Care business unit, valued at $7.98 
billion, as well as cash compensation of $5.54 billion. The Commission 
alleges in its Complaint that the Proposed Acquisition, if consummated, 
would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, 
and Section 5 of the Federal Trade Commission Act, as amended, 15 
U.S.C. 45, in the U.S. markets for two types of animal health products: 
(1) Companion animal vaccines--which include various canine, feline, 
and rabies vaccines--and (2) cattle and sheep parasiticides. The 
proposed Consent Agreement will remedy the alleged violations by 
preserving the competition that would otherwise be eliminated by the 
Proposed Acquisition.

The Parties

    Headquartered in Germany, Boehringer Ingelheim is one of the 
world's leading pharmaceutical companies. It manufacturers, researches, 
develops and markets an array of human and animal health products. The 
company's animal health division, Boehringer Ingelheim Vetmedica, Inc., 
is the sixth-largest animal health supplier in the world.
    Sanofi is a multinational pharmaceutical company headquartered in 
Gentilly, France. The company develops and markets a diverse portfolio 
of products, including pharmaceuticals, human vaccines, and, through 
its subsidiary Merial, animal health products. Merial is the fourth-
largest animal health supplier in the world.

The Relevant Products and Structure of the Markets

Companion Animal Vaccines

    There are three classes of companion animal vaccines in which to 
analyze the effects of the Proposed Acquisition: Canine vaccines, 
feline vaccines, and rabies vaccines. A vaccine is a version of an 
antigen that triggers an immune response to the antigen but not the 
disease, causing the animal to develop an immunity that prevents the 
disease. Only vaccines containing an antigen of a specific virus can 
provide the desired immunity response to that virus and the 
corresponding disease. No substitute product immunizes against a 
disease. Nor is treatment following infection a substitute for the 
vaccinations at issue. For these reasons, each vaccine containing an 
antigen to immunize against a particular disease constitutes a relevant 
market in which to analyze the effects of the acquisition.
    Canine vaccines prevent specific illnesses in dogs. The Proposed 
Acquisition raises competitive concerns in the markets for seven canine 
vaccines: Canine distemper virus, canine parvovirus, leptospirosis, 
canine adenovirus, canine parainfluenza virus, canine coronavirus, and 
borreliosis (``Lyme disease''). In addition, the proposed transaction 
raises future competition concerns in the canine vaccine market for 
Bordetella bronchiseptica bacterium, in which Boehringer Ingelheim 
currently competes and Merial is the most likely entrant in the near 
future. The canine vaccine markets are highly concentrated. Boehringer 
Ingelheim, Merial, Zoetis, Inc. (``Zoetis''), and Merck & Co. 
(``Merck'') are the only four suppliers offering or likely to offer 
canine vaccines in the United States. In 2015, Boehringer Ingelheim, 
Merial, Zoetis and Merck had market shares of approximately 30%, 11%, 
35%, and 24%, respectively, of all revenues from canine vaccines sold 
in the United States and comparable shares in each relevant market, 
except Bordetella bronchiseptica bacterium, where Merial is the next 
likely entrant. The Proposed Acquisition would reduce the number of 
current or likely competitors in each market from four to three.
    Feline vaccines prevent diseases common to cats. The transaction 
raises competitive concerns in the feline vaccine markets for five 
diseases: Panleukopenia, calicivirus, viral rhinotracheitis, Chlamydia 
psittaci bacterium, and feline leukemia. The feline vaccine industry in 
the United States is highly concentrated with the same four market 
participants--Boehringer Ingelheim, Merial, Zoetis, and Merck--as the 
canine vaccine industry. In 2015, these four companies had market 
shares of approximately 28%, 33%, 16%, and 23%, respectively, of all 
revenues from feline vaccines sold in the United States and comparable 
shares in each relevant market. The proposed transaction would combine 
the two leading feline vaccine suppliers, reducing the number of 
competitors in each market from four to three.
    The rabies virus, transmitted through bites from infected animals, 
triggers a fatal neurological condition culminating in paralysis, 
respiratory failure, and eventual death. Because this fatal disease is 
transmittable to humans, most U.S. states have mandatory rabies 
vaccination requirements. Regular vaccination for all animals is the 
only means of protection, and there are no substitutes for rabies 
vaccines. All rabies vaccines are approved for use in both dogs and 
cats, although some are approved for use in additional species as well. 
The market for the sale of rabies vaccines in the United States is 
highly concentrated. Boehringer Ingelheim, Merial, Zoetis, and Merck 
are the only four significant suppliers of rabies vaccines in the 
United States, with market shares of 10%, 65%, 13%, and 12% of 
revenues, respectively.

Cattle and Sheep Parasiticides

    Parasiticides prevent and control outbreaks of parasites such as 
worms, flies, lice, and ticks.
Cattle Parasiticides
    Parasiticides are a key part of cattle health care regimens. If 
left unchecked, parasites reduce milk production in dairy cattle and 
prevent weight gain in beef cattle. There are two primary types of 
cattle parasiticides: Macrocyclic lactones, which prevent both internal 
and external parasites, and benzimidazoles, which prevent only internal 
parasites. Because macrocyclic lactones reach a much broader spectrum 
of parasites, other parasiticides, including benzimidazoles, are not 
viable substitutes.

[[Page 849]]

    Boehringer Ingelheim, Merial, and Zoetis are the three primary 
participants in the macrocyclic lactone cattle parasiticide market, and 
the Proposed Acquisition would combine the two most significant 
competitors. Merial, the market leader, offers three brands: Ivomec, 
Eprinex, and LongRange. After Merial, Boehringer Ingelheim is the next 
largest supplier of macrocyclic lactone cattle parasiticides. 
Boehringer Ingelheim's sole product is Cydectin, a parasiticide that is 
functionally identical to Ivomec and Eprinex for beef cattle. Zoetis 
also offers a macrocyclic lactone product, Dectomax, that is similar to 
the products of Merial and Boehringer Ingelheim. Merial, Boehringer 
Ingelheim and Zoetis accounted for 45%, 22%, and 17% of revenues, 
respectively, of U.S. sales in 2015. Beyond these three companies, 
multiple manufacturers produce generic versions of Merial's Ivomec. 
Although these generic products are significantly cheaper than the 
branded products, they have limited competitive significance. Many 
customers prefer the branded products because the branded product 
manufacturers offer valuable technical support, field support, and 
education. In addition, many customers also perceive the generic 
products to be inferior and unreliable, preferring to pay a higher 
price for the guaranteed success of branded products.
    Merial and Boehringer Ingelheim are the only two macrocyclic 
lactone cattle parasiticide suppliers that offer ``zero-day milk 
withhold'' products--Cydectin and Eprinex, respectively. The Proposed 
Acquisition would eliminate the competition between them, effectively 
leaving dairy cattle customers with a sole supplier.
Sheep Parasiticides
    Sheep parasiticides are critical for optimizing wool and meat 
production. Sheep parasiticides utilize the same compounds as cattle 
parasiticides, but use a different route of administration. Because a 
sheep's wool and skin prevent the absorption of topical products and 
the thickness of a sheep's wool makes injections difficult, customers 
view oral administration as the only viable option for sheep 
parasiticides. Both macrocyclic lactones and benzimidazoles can be used 
as sheep parasiticides, but benzimidazoles are not economic substitutes 
for macrocyclic lactones in most cases because they do not treat 
external parasites and are less efficacious.
    Merial and Boehringer Ingelheim are the two primary suppliers of 
macrocyclic lactone sheep parasiticides. Boehringer Ingelheim offers 
Cydectin Oral Drench and Merial offers Ivomec Oral Drench. Following 
the Proposed Acquisition, the merged firm would control more than 78% 
of this market. The other macrocyclic lactone sheep parasiticides are 
generic versions of the Merial product, which are of limited 
competitive significance.

Relevant Geographic Market

    The United States is the relevant geographic market in which to 
assess the competitive effects of the Proposed Acquisition. The USDA 
must approve companion animal vaccines before they are sold in the 
United States. Cattle and sheep parasiticides must be approved by the 
FDA before being sold in the United States. Thus, products sold outside 
the United States, but not approved for sale in the United States, are 
not alternatives for U.S. consumers.

Entry

    Entry into the U.S. markets for companion animal vaccines and 
cattle and sheep parasiticides would not be timely, likely or 
sufficient in magnitude, character and scope to deter or counteract the 
anticompetitive effects of the Proposed Acquisition. Three major 
obstacles stand in the way of a prospective entrant into the relevant 
markets: Lengthy development periods, FDA and USDA approval 
requirements, and difficulty of establishing a brand name and 
reputation and convincing veterinarians to prescribe new products.

Effects of the Acquisition

    The Proposed Acquisition would cause significant competitive harm 
to consumers in the relevant U.S. markets for companion animal vaccines 
and cattle and sheep parasiticides by eliminating actual or future, 
direct, and substantial competition between Boehringer Ingelheim and 
Merial. The transaction would increase the likelihood that Boehringer 
Ingelheim will be able to unilaterally exercise market power, increase 
the likelihood of coordinated interaction between or among suppliers, 
and increase the likelihood that consumers will pay higher prices.

The Consent Agreement

    The proposed Consent Agreement effectively remedies the Proposed 
Acquisition's anticompetitive effects by requiring Boehringer Ingelheim 
to divest its relevant companion animal vaccine business and certain of 
its cattle and sheep parasiticides assets to Elanco and Bayer, 
respectively.
    Under the proposed Order, Boehringer Ingelheim will divest its 
relevant U.S. rights and interests in its companion animal vaccine 
business to Elanco no later than ten days after the consummation of the 
Proposed Acquisition or on the date on which the proposed Order becomes 
final, whichever is earlier. Similarly, the proposed Order requires 
Boehringer Ingelheim to divest all of its respective U.S. rights and 
interests in its parasiticide product, Cydectin, to Bayer. These 
divestitures include all regulatory approvals, brand names, marketing 
materials, confidential business information, customer information, and 
other assets associated with marketing and selling both products. To 
ensure the divestitures are successful, the proposed Order requires 
Boehringer Ingelheim to secure all third-party consents and waivers 
required to permit both buyers to conduct business with the divested 
assets. Additionally, Elanco and Bayer also will have the right to 
interview and offer employment to employees associated with the 
divested businesses.
    Elanco is an experienced supplier in the global animal health 
industry and has the resources and expertise to replicate Boehringer 
Ingelheim's role in the companion animal vaccine markets. In 2015, 
Elanco generated approximately $1 billion in revenue. Elanco currently 
offers a limited portfolio of companion animal pharmaceutical products 
such as parasiticides, pain relievers, and dermatological products. 
Elanco, however, is not a meaningful participant in any of the 
companion animal vaccines subject to divestiture, and its proposed 
acquisition of those assets will complement and expand its existing 
companion animal portfolio. Elanco is well positioned to replicate 
immediately Boehringer Ingelheim's competitive position in all 
companion animal vaccine markets.
    Bayer is similarly well qualified to replicate Boehringer 
Ingelheim's competitive position in the United States with respect to 
the Cydectin product line. Bayer is currently the fifth-largest animal 
health company both worldwide and in the United States. Bayer had 2015 
worldwide sales of $1.6 billion, of which $595 million derived from its 
animal health business. Bayer does not currently offer a parasiticide 
that controls external and internal parasites to cattle and sheep 
farmers. However, Bayer offers a variety of other products to cattle 
and sheep farmers, such as ear tags and external parasite control 
products.
    The Commission has agreed to appoint a Monitor to ensure that 
Boehringer Ingelheim complies with all of its obligations pursuant to 
the Consent Agreement and to keep the

[[Page 850]]

Commission informed about the status of the transfer of the rights and 
assets to Elanco and Bayer.
    The Commission's goal in evaluating possible purchasers of divested 
rights and assets is to maintain the competitive environment that 
existed prior to the Proposed Acquisition. If the Commission determines 
that either buyer is not an acceptable acquirer, or that the manner of 
the divestiture is not acceptable, the proposed Order requires the 
parties to unwind the sale and then divest the products to another 
Commission-approved acquirer within six months of the date that the 
proposed Order becomes final. The proposed Order further allows the 
Commission to appoint a trustee in the event the parties fail to divest 
the products.
    The purpose of this analysis is to facilitate public comment on the 
proposed Consent Agreement, and it is not intended to constitute an 
official interpretation of the proposed Order or to modify its terms in 
any way.

    By direction of the Commission.
April J. Tabor,
Acting Secretary.
[FR Doc. 2016-31848 Filed 1-3-17; 8:45 am]
 BILLING CODE 6750-01-P