FTC requires pharmaceutical companies to sell veterinary drug lines
BY MATEUSZ PERKOWSKI
Veterinary drug prices would probably rise if two major U.S. pharmaceutical companies were allowed to merge as planned, according to the Federal Trade Commission.
The agency has agreed not to block the merger of Pfizer and Wyeth as long as they sell several product lines used to treat cattle and other animals.
The divestiture is expected to settle a legal complaint filed by the FTC against the two firms.
The agency claimed the merger between Pfizer and Wyeth would decrease competition in the veterinary drugs market, violating antitrust laws.
The U.S. livestock industry has long been contending with rising veterinary bills, according to the USDA's Economic Research Service.
Dairy producers have seen a 120 percent hike in veterinary and medicine costs in the past decade, from about $0.39 to $0.86 per hundredweight of milk, according to ERS. Cow-calf producers have seen annual veterinary costs rise more than 23 percent in the past decade, from about $22 to $27 per bred cow.
The transaction between Pfizer and Wyeth would unite two of the largest veterinary drug companies in the U.S., increasing the likelihood of collusion among suppliers, according to FTC documents related to the merger.
"The evidence shows customers are able to obtain lower prices by threatening to switch to another supplier or presenting the incumbent supplier with a rival's lower offer," the agency said.
Animal health products are a relatively minor part of Pfizer and Wyeth's overall business, according to financial statements filed with the U.S. Securities and Exchange Commission.
Of the $5.7 billion earned by Wyeth in its most recent fiscal quarter, veterinary drugs contributed about $285 million, or 5 percent.
Such products made up about $680 million of the $11.6 billion earned by Pfizer in its most recent fiscal quarter, or about 6 percent of the firm's total revenues.
Even so, the FTC's investigation indicated the merger would have a major impact on the market for veterinary drugs.
Wyeth and Pfizer would control more than 50 percent of the market for cattle respiratory vaccines, dwarfing the merged company's competitors, the agency said.The merger would also result in a "near monopoly" in the market for certain cattle antibiotics.
About 90 percent of the market for certain cattle mastitis treatments would be controlled by the merged company, the agency said.
To gain FTC's approval of the merger, several veterinary drugs produced by Wyeth's Fort Dodge Animal Health division will be sold to Boehringer Ingelheim, a German pharmaceutical company.
The firm currently sells about $215 million worth of veterinary drugs a year in the U.S.
BI's purchase of the Fort Dodge product lines shouldn't discourage competition, the FTC said. The company doesn't currently have much of a presence with those drug types.
Pfizer or Wyeth won't be required to divest any human drug products.
Pfizer first announced its intent to buy Wyeth for $68 billion in January. Based on 2008 sales figures, the two firms' combined annual revenues would top $70 billion.
The FTC's settlement agreement is up for public comment until Nov. 18, when the agency will decide whether to make it final.
Staff writer Mateusz Perkowski is based in Salem, Ore. E-mail: firstname.lastname@example.org.
Not everyone agrees with the U.S. Federal Trade Commission that the merger between Pfizer and Wyeth won't harm the market for human drugs.
In August, several pharmacy companies filed suit against Pfizer and Wyeth, alleging antitrust violations and asking a federal judge to stop the deal.
On Oct. 14, the same day that FTC announced a settlement allowing the merger, a federal judge dismissed the pharmacies' complaint.
The judge decided the plaintiffs' allegations weren't backed up with enough evidence of the merger's anti-competitive effects.
However, the ruling allowed them to correct deficiencies in the complaint, and an amended version was filed Oct. 16.
-- Mateusz Perkowski