[Federal Register Volume 79, Number 234 (Friday, December 5, 2014)]
[Notices]
[Pages 72178-72181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28605]


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FEDERAL TRADE COMMISSION

[File No. 141 0141]


GlaxoSmithKline, PLC and Novartis AG; Analysis of Proposed 
Consent Orders To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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[[Page 72179]]

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 draft 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 December 29, 2014.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/gsknovartisconsent online or on paper, 
by following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``GlaxoSmithKline, PLC 
and Novartis AG--Consent Agreement; File No. 141-01414'' on your 
comment and file your comment online at https://ftcpublic.commentworks.com/ftc/gsknovartisconsent by following the 
instructions on the Web-based form. If you prefer to file your comment 
on paper, write ``GlaxoSmithKline, PLC and Novartis AG--Consent 
Agreement; File No. 141-01414'' 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: Mark Silvia, Bureau of Competition, 
(202-326-3291), 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 November 26, 2014), 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 December 29, 
2014. Write ``GlaxoSmithKline, PLC and Novartis AG--Consent Agreement; 
File No. 141-01414'' 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/gsknovartisconsent 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 ``GlaxoSmithKline, PLC and 
Novartis AG--Consent Agreement; File No. 141-01414'' 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. 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 December 29, 2014. 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

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from Novartis AG (``Novartis''), which is designed to 
remedy the anticompetitive effects of Novartis's proposed consumer 
healthcare joint venture with GlaxoSmithKline, PLC (``GSK'').
    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 final the Decision and 
Order (``Order'').
    Pursuant to a series of agreements dated April 22, 2014, GSK and 
Novartis intend to combine the GSK consumer healthcare business and 
most of the Novartis consumer healthcare business

[[Page 72180]]

(excluding Novartis's nicotine replacement therapy (``NRT'') 
transdermal patch business) into a joint venture in which GSK will hold 
a 63.5% controlling share and Novartis will hold the remaining 36.5% 
share (the ``Transaction''). Both parties sell over-the-counter 
(``OTC'') NRT transdermal patches in the United States. The Commission 
alleges in its Complaint that the Transaction, 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, by lessening competition in the market for the manufacture, 
marketing, distribution, and sale of NRT transdermal patches. The 
proposed Consent Agreement will remedy the alleged violations by 
preserving the competition that would otherwise be eliminated by the 
Transaction. Specifically, under the terms of the Consent Agreement, 
Novartis would be required to divest all of its rights and assets 
related to U.S. NRT transdermal patches, including its branded product, 
Habitrol. Novartis has proposed Dr. Reddy's Laboratories (``Dr. 
Reddy's'') as the buyer of these assets.

II. The Product and Structure of the Market

    The proposed joint venture would likely substantially increase 
concentration in the market for NRT transdermal patches. Tobacco 
consumption introduces nicotine into the body, and nicotine addiction 
is a major contributor to addiction to tobacco. Nicotine replacement 
therapies work by providing nicotine to the body through sources other 
than smoking, thereby replacing the nicotine that would have come from 
tobacco and helping to ease tobacco cravings in those who are 
attempting to quit. Users of NRT products are therefore more likely to 
have success in quitting tobacco. NRT transdermal patches work by 
adhering to the skin, much like an adhesive bandage, and slowly 
providing a steady amount of nicotine through the skin over the course 
of a day. Patches are usually provided in decreasing dosages to help 
the user step down their nicotine intake over time.
    Novartis markets and sells the branded NRT transdermal patch 
Habitrol. The only other branded patch is GSK's NicoDerm CQ. Both 
companies also market private label versions of their branded patch. 
Private label products are competitive with the branded products, but 
there is only one other manufacturer of private label patches, Aveva 
Drug Delivery Systems. Therefore, without a remedy, the Transaction 
will consolidate the only two providers of branded NRT transdermal 
patches, and two of the three producers of private label NRT 
transdermal patches.

III. Entry

    Entry into the manufacture and sale of NRT transdermal patches 
would not be timely, likely, or sufficient in magnitude, character, and 
scope to deter or counteract the anticompetitive effects of the 
Transaction. Developing a patch that adheres to the skin and properly 
delivers nicotine to the body over time is expensive and time 
consuming, and has a high risk of failure. Even if an entrant is able 
to successfully develop a new patch, it must then obtain an FDA 
approval to market the product, which adds several years to the entry 
process.

IV. Effects

    The Transaction is likely to result in significant competitive harm 
in the market for NRT transdermal patches. Although the Novartis NRT 
patch business has been excluded from the consumer healthcare joint 
venture, GSK's patch business will be included. Thus, Novartis's 
partial interest in the joint venture means it will benefit from any 
sales lost to GSK NRT patches in the future. With an interest in its 
most significant competing product, Novartis would have an increased 
incentive to raise prices for its NRT patches post-transaction. The 
Transaction, by altering the interactions between Novartis's and GSK's 
branded and private label NRT transdermal patches, would likely result 
in price increases for NRT patches in several ways. First, the 
Transaction would reduce the competition between the only two branded 
NRT transdermal patches, and reduce the competition between Novartis's 
branded Habitrol product and GSK's private label patches, both of which 
would increase the likelihood that Novartis would increase the prices 
of Habitrol. Second, the Transaction would reduce the competition 
between Novartis's private label patches and GSK's NicoDerm CQ and 
private label patches, which would create incentives for Novartis to 
increase the price of its private label NRT transdermal patches.

V. The Consent Agreement

    The proposed Consent Agreement effectively remedies the 
Transaction's anticompetitive effects in the relevant market. Pursuant 
to the Consent Agreement, the parties are required to divest Novartis's 
rights and assets related to its U.S. NRT transdermal patch business to 
Dr. Reddy's. Further, the proposed Consent Agreement requires Novartis 
to assign to Dr. Reddy's its contract manufacturing agreements for the 
divested assets. Finally, Novartis will provide a short term packaging 
agreement to Dr. Reddy's for secondary packaging of the product while 
Dr. Reddy's seeks a contract packager. The parties must accomplish 
these divestitures and relinquish their rights no later than ten days 
after the Transaction is consummated.
    Dr. Reddy's is well positioned to assume Novartis's role in the NRT 
transdermal patch market. Dr. Reddy's manufactures a wide range of 
branded and private label OTC products for sale in the United States, 
including private label versions of popular allergy and 
gastrointestinal products. Thus, Dr. Reddy's is already a supplier to 
most major retailers of OTC consumer healthcare products. In addition, 
because Novartis will be transferring its existing contract 
manufacturing arrangement for its NRT transdermal patches, the 
divestiture to Dr. Reddy's will not require a transfer of manufacturing 
processes or facilities. Dr. Reddy's will therefore be able to step 
into Novartis's current position and immediately begin competing in the 
market for NRT transdermal patches.
    The Commission's goal in evaluating possible purchasers of divested 
assets is to maintain the competitive environment that existed prior to 
the Transaction. If the Commission determines that Dr. Reddy's is not 
an acceptable acquirer of the divested assets, or that the manner of 
the divestiture is not acceptable, the parties must unwind the sale of 
rights to Dr. Reddy's, and divest the U.S. NRT transdermal patch assets 
to a Commission-approved acquirer within six months of the date the 
Order becomes final. In that circumstance, the Commission may appoint a 
trustee to divest the product if the parties fail to divest the 
business as required.
    The proposed Consent Agreement contains several provisions to help 
ensure that the divestiture is successful. The Order requires Novartis 
to take all action necessary to maintain the economic viability, 
marketability, and competitiveness of the product to be divested until 
such time that they are transferred to a Commission-approved acquirer. 
The Order also requires that Novartis transfer all confidential 
business information, including customer information related to the 
divestiture product, to Dr. Reddy's.
    The purpose of this analysis is to facilitate public comment on the 
proposed Consent Agreement, and it is not intended to constitute an 
official

[[Page 72181]]

interpretation of the proposed Order or to modify its terms in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2014-28605 Filed 12-4-14; 8:45 am]
BILLING CODE 6750-01-P