AMERICAN HOME PRODUCTS MUST SELL ITS DIPHTHERIA AND TETANUS VACCINES, LICENSE CYANAMID's ROTAVIRUS VACCINES TO MERGE; FTC ORDER APPROVED 4-0

The American Home Products Nov. 10 consent agreement reached with the Federal Trade Commission regarding AHP's acquisition of American Cyanamid requires the pharmaceutical conglomerate to divest two of its vaccine programs and one vaccine under development by Cyanamid's Lederle Labs. The consent agreement allows AHP to proceed with the merger with Cyanamid announced in August for $9.7 bil. ("The Pink Sheet" Aug. 22, p. 6).

Chiron, on behalf of Biocine and its other vaccine joint ventures with Ciba-Geigy, will purchase AHP's diphtheria and tetanus vaccines, subject to final FTC approval. AHP will continue to manufacture and distribute the vaccines until Chiron or Biocine can begin manufacturing.

Under the terms of the agreement, AHP is required to license Lederle's rotavirus vaccine research, but a licensee has not yet been announced. The vaccine divestitures are deemed necessary by the FTC because AHP and Cyanamid are both major presences in certain portions of the vaccine market. The tetanus and diphtheria vaccine markets "are highly concentrated, with relatively few competitors, and it is difficult and time-consuming for another company to begin to compete in them," the FTC order states. Connaught Laboratories is the only other major supplier of diphtheria and tetanus vaccines.

The consent order further states that, for rotavirus, "AHP and Cyanamid are two of only three producers of vaccines with research projects either in or near the clinical trial stage."

AHP also must "discontinue reporting arrangements with licensees that may provide competitively-sensitive information about cytokine drugs used in conjunction with chemotherapy," the order continues.

Both AHP and Cyanamid own controlling interests in firms with cytokine products in development or on the market. In 1992, AHP bought a 60% share in Genetics Institute, whose Leucomax GM-CSF agent, licensed to Sandoz and Schering-Plough, is still awaiting approval. Lederle Oncology purchased a majority stake in Immunex, which sells the GM-CSF agent Leukine, in 1992.

The AHP/Cyanamid consent order comes little more than two weeks after the FTC set mild restrictions on the Lilly/McKesson merger. The FFC voted unanimously to approve the proposed AHP/Cyanamid consent for public comment, a change from the 2-1 vote on the PCS/Lilly agreement ("The Pink Sheet" Nov. 7, p. 3).

Commissioner Mary Azcuenaga, who dissented from the Lilly consent agreement, saying it "exudes a lack of conviction in the underlying theory of competitive harm," issued a separate concurring statement on the AHP decision in which she questions "whether the remedy is sufficient."

Azcuenaga recommends that FTC "require the divestiture of a viable business unit, even if the business unit in question produces and sells products other than the vaccines in question." She fears "the order will not restore the competition lost as a result of the acquisition." Because of the overlap between the Immunex and Genetics Institute research portfolios, AHP, known for its tight cost controls, could spin-off of one or the other biotech firm or tighten up and consolidate R&D efforts ("The Pink Sheet" Aug. 8, p. 12).

As the Lilly/PCS agreement appeared to represent an implicit FTC endorsement of pharmacy benefit management industry practices, so the AHP/Cyanamid agreement could be seen as a fairy permissive take on large-scale pharmaceutical industry mergers. With the upcoming Republican dominance of Congress, heightened scrutiny of drug industry transactions is unlikely in the near future. There will be a 60-day public comment period on the consent order. AHP has also extended its tender offer for Cyanamid stock until 8 p.m. on Monday Nov. 21.