SNIA S.p.A; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 9910095]

SNIA S.p.A; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

-----------------------------------------------------------------------

SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

DATES: Comments must be received on or before July 19, 1999.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:

Christina Perez or Michael Barnett, FTC/S-2308, 601 Pennsylvania

Avenue, N.W., Washington, D.C. 20580, (202) 326-2048 or (202) 326-2541.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of

the Commission's Rules of Practice, 16 CFR 2.34, notice is hereby given

that the above-captioned consent agreement containing a consent order

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 sixty (60) 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 May 14th, 1999), on the World Wide Web, at ``http://www.ftc.gov/

os/actions97.htm.'' A paper copy can be obtained from the FTC Public

Reference Room, Room H-130, 600 Pennsylvania Avenue, N.W., Washington,

D.C. 20580, either in person or by calling (202) 326-3627.

Public comment is invited. Comments should be directed to: FTC/

Office of the Secretary, Room 159, 600 Pennsylvania Avenue, N.W.,

Washington, D.C. 20580. Two paper copies of each comment should be

filed, and should be accompanied, if possible, by a 3\1/2\ inch

diskette containing an electronic copy of the comment. Such comments or

views will be considered by the Commission and will be available for

inspection and copying at its principal office in accordance with

Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR

4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission (``Commission'') has accepted, subject

to final approval, an agreement containing a proposed Consent Order

(``Order'') from SNIA S.p.A. (``SNIA''), which is designed to remedy

the anticompetitive effects of SNIA's acquisition of all of the

outstanding voting securities of COBE Cardiovascular, Inc. (``COBE''),

as well as certain cardiopulmonary and other cardiovascular assets and

liabilities from other subsidiaries of Gambro AB (``Gambro''). Both

SNIA and Gambro manufacture and sell a wide variety of cardiovascular

products, including heart-lung machines. The proposed Order remedies

the acquisition's anticompetitive effects by requiring SNIA to divest

COBE's heart-lung machine business.

The proposed Order has been placed on the public record for sixty

(60) days for reception of comments by interested persons. Comments

received during this period will become part of the public record.

After sixty (60) days, the Commission will review the proposed Order

and the comments received and will decide whether it should withdraw

from the proposed Order or make final the proposed Order.

Pursuant to an Asset and Stock Purchase Agreement signed on

November 23, 1998, SNIA, through its Sorin Biomedica, Inc. subsidiary

(``Sorin''), has agreed to purchase 100% of the outstanding voting

securities of COBE, as well as certain other assets and liabilities

from other subsidiaries of Gambro, for approximately $260 million. The

proposed Complaint alleges that the 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. market for heart-lung machines.

Heart-lung machines are life-sustaining medical devices that are

essential for any surgery that requires the heart to be stopped, such

as surgeries to implant coronary artery bypass grafts, repair or

replace heart valves, repair cerebral aneurysms, or transplant livers

and hearts. A heart-lung machine is the equipment portion of an

extracorporeal bypass system, which replaces the function of the heart

and lungs during surgery by circulating and providing oxygen to the

patient's blood throughout the procedure. In addition to a heart-lung

machine, a complete extracorporeal bypass system is comprised of

various single-use products, called disposables, that come into direct

contact with the patient's blood, and therefore cannot be reused for

safety reasons. Approximately 450-550 new units are sold worldwide each

year, amounting to $50 million in sales.

The U.S. market for heart-lung machines is highly concentrated and

the proposed acquisition would substantially increase concentration in

this market. The acquisition would result in a Herfindahl-Hirschman

Index (``HHI'') of 4,638 points, which is an increase of 1,554 points

over the preacquisition level. SNIA and COBE are two of only four

suppliers of heart-lung machines in the United States, with the fourth

competitor being significantly smaller than the other three. By

eliminating the competition between SNIA and COBE in this highly

concentrated market, the proposed acquisition would enhance the

likelihood of coordinated interaction between or among the remaining

firms in the market, thus increasing the likelihood that consumers in

the United States would be forced to pay higher prices for heart-lung

machines.

It is unlikely that this lost competition would have been replaced

by new entrants into the relevant market due to the substantial

barriers to entry into the U.S. market for heart-lung machines. A new

entrant into this market would need to undertake the difficult,

expensive and time-consuming process of researching and developing a

new product, obtaining approval from the U.S. Food and Drug

Administration, establishing a nationwide service and sales network and

gaining customer acceptance. This is a very difficult

[[Page 27549]]

process for new entrants because manufacturers are reluctant to

establish a nationwide service and sales network until they have gained

customer acceptance and have an established customer base, and

customers are reluctant to purchase from a supplier unless it has an

established service and sales network. As a result, a new entrant often

finds itself in a ``Catch 22'' problem. For these reasons, new entry

into the market would not be timely, likely or sufficient to deter or

counteract the anticompetitive effects resulting from the acquisition.

The proposed Order remedies the anticompetitive effects in the

heart-lung machine market by requiring SNIA to divest COBE's heart-lung

machine business to Baxter Healthcare Corporation, a large manufacturer

of medical products, including disposables for heart-lung machines,

within ten (10) days after the Commission accepts the Agreement

Containing Consent Order for public comment, or to another Commission-

approved buyer within one hundred eighty (180) days after the Agreement

Containing Consent Order is accepted for public comment. In the event

that SNIA fails to divest the heart-lung machine assets, or the

acquirer fails to obtain FDA approval and the ability to manufacture

and sell heart-lung machines, the Commission may appoint a trustee to

divest the COBE heart-lung machine business to a new acquirer. The

divestiture trustee will have the authority and power to divest the

heart-lung machine assets in a manner that satisfies the requirements

of the Order.

The proposed Order requires SNIA to provide assistance to the

acquirer so that it can compete effectively in the heart-lung machine

business. First, SNIA must contract manufacture a supply of heart-lung

machines for a limited time period while the acquirer obtains its own

FDA approval and obtains the commercial capability to manufacture and

sell heart-lung machines in the United States. Second, SNIA must

provide technical assistance and advice to help the acquirer in its

efforts to begin manufacturing and selling heart-lung machines. The

proposed Order enables the acquirer to hire former COBE employees

associated with the research, development, manufacture, marketing, or

sales of heart-lung machines. Finally, the Order requires SNIA to

cooperate with the acquirer in any patent dispute in which a third

party attempts to challenge any of the patents divested pursuant to the

Order and in which the ability of the acquirer to become an effective

competitor in the heart-lung machine market could be affected.

In order to facilitate the smooth transfer of assets and ensure

that the acquirer will get the assistance necessary to independently

manufacture the products, the proposed Order provides for the

appointment of an interim trustee. The interim trustee will serve until

the acquirer has received all necessary FDA approvals and obtains the

commercial capability to manufacture and sell heart-lung machines. The

Order also requires SNIA to provide to the Commission a report of

compliance with the divestiture provisions of the Order within thirty

(30) days following the date the Order becomes final, and every ninety

(90) days thereafter until SNIA has completed the divestiture. The

Order also requires SNIA to notify the Commission at least thirty (30)

days prior to any change in SNIA that may affect compliance obligations

arising out of the Order.

The purpose of this analysis is to facilitate public comment on the

proposed Order and the divestiture to Baxter Healthcare Corporation,

and it is not intended to constitute an official interpretation of the

agreement and proposed Order or to modify their terms in any way.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 99-12658 Filed 5-19-99; 8:45 am]

BILLING CODE 6750-01-M