Mr. Donald S.

Clark
Office of the Secretary
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room H-159
Washington, DC 20580

Re: Genzyme Corporation, et al., File No. 041 0083

Dear Mr. Clark:

On behalf of Citizens for Voluntary Trade, I file the following comments in response
to the Federal Trade Commission’s proposed decision and order in the above-captioned
matter.1

1. Introduction

On February 26, 2004, Genzyme Corporation announced a merger agreement with

ILEX Oncology, Inc. Under the agreement, ILEX shareholders would receive Genzyme

shares valued at approximately $1 billion.2 Genzyme is a biotechnology company that

focuses on six principal areas of medicine: lysosomal storage disorders, renal disease,

orthopaedics, genetics and diagnostics, transplant and immune diseases, and oncology.

The latter two are the subject of the this proceeding. Genzyme’s acquisition of ILEX was

intended to build the company’s oncology business, as ILEX is the owner of Campath, a

drug used in the treatment of leukemia. Campath is marketed by Schering AG under

license from ILEX.

1 CVT thanks Christopher Klick for his assistance with these comments.
2 “Genzyme Corporation to Acquire ILEX Oncology, Inc.” Genzyme Corp. press release, February 26,
2004 (available at www.genzyme.com/corp/media/GENZ%20PR-022604.asp).

Post Office Box 100073, Arlington, Virginia 22210

Tel/Fax: 703-740-8309 * E-mail: info@voluntarytrade.org * Web: www.voluntarytrade.org
 Nearly eight months after the Genzyme-ILEX merger was announced, the FTC issued

a complaint charging the companies with violating Section 7 of the Clayton Act and

Section 5 of the Federal Trade Commission Act. Section 7 prohibits mergers that

“substantially [] lessen competition” or “tend to create a monopoly” while Section 5

broadly prohibits “[u]nfair methods of competition in or affecting commerce.”

The FTC’s complaint specifically charged that Genzyme’s acquisition of ILEX’s

Campath rights would eliminate “actual, direct and substantial competition,” not in the

market for oncology drugs, Campath’s primary use, but in the market for transplant and

immune drugs. Campath has an “off-label,” or secondary, use as a solid organ transplant

(SOT) acute therapy drug, that is, a drug used to suppress the human immune system to

reduce the likelihood that a transplanted organ will be rejected. Genzyme owns and

markets Thymoglobulin, which the FTC claims accounts for 45% of the market for SOT

acute therapy drugs. Campath has a market share of approximately 8%. The FTC’s

complaint states that, “Market participants anticipate that Campath’s share of the SOT

acute therapy drug market will increase significantly in the near future.”

The FTC says there are four other SOT acute therapy drugs used in the United States

—which presumably account for the other 47% of the market—but that Campath and

Thymoglobulin are “especially close competitors” due to similar functionality. The FTC

claims that other immunosuppressant drugs are not acceptable substitutes for SOT acute

therapy drugs. The FTC further claims that a new drug (either on- or off-label) is not

likely to enter the SOT acute therapy drug market because of the it would take

“significantly longer than two years” for another company to develop such a drug, obtain

regulatory approval, and achieve market success.

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 In order to obtain approval of their merger, Genzyme and ILEX signed a proposed

order that addresses the FTC’s objections to the “lost competition” between Campath and

Thymoglobulin. Under this order, Genzyme-ILEX must divest all rights and future

earnings from Campath sales related to solid organ transplant. Genzyme-ILEX

apparently retains rights and earnings to Campath sales related to oncology.

2. Comments

The government is forcing Genzyme and ILEX to partially divest Campath because of

the market for its off label use. This certainly takes federal antitrust policy in a strange

new direction. Previously, companies had only to worry about the markets they intended

their products to compete in. Now firms must worry that if their product achieves

crossover success in another market, a new opportunity will arise for federal regulators to

bring antitrust charges. The message this sends to pharmaceutical companies is

potentially disastrous for consumers: Marketing “off label” uses for existing drugs

substantially increases the risk of future antitrust prosecution. This is not a message that

will encourage innovation, and it may in fact discourage manufacturers from pursuing

future “off label” applications of existing products, especially when a drug is essential to

a company’s business model.

The FTC’s statement that the Genzyme-ILEX merger, as originally proposed, would

“tend to create a monopoly” for SOT acute therapy drugs is false, and the Commission

admits as much in its filings. First, the Commission says there are six SOT acute therapy

drugs available in the United States. The Commission asserts that two of these six—

conveniently, Thymoglobulin and Campath—should be considered a market unto

themselves. Creating arbitrary product groups within markets to justify antitrust

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prosecution is an exercise in absurdity. Any market can be subdivided into an infinite

number of product groups by using one or two related product characteristics to create

distinctions. No company can ever know in advance how its product will be categorized

(and sub-categorized) by regulators striving to find an antitrust violation.

The notion that Thymoglobulin and Campath are a wholly distinct market is further

disproved by the fact that Campath’s price is not principally determined by the demand

for SOT acute therapy drugs, but rather for oncology drugs, Campath’s original function.

The Commission admits, “Virtually all Campath sales are for oncology use and only a

very small portion of sales are attributable to SOT use.”3 Thus, absent the Commission’s

proposed order, there is no reason to believe the price of Campath would change at all as

the result of Genzyme’s “monopoly,” because Campath would remain subject to the

“competitive” pressures of the oncology drug market.

Furthermore, any increase in the price of Thymoglobulin or Campath that might occur

after the Genzyme-ILEX merger would not be the result of “anticompetitive” behavior,

but of routine market forces. If, for example, demand rises for SOT acute therapy drugs,

then all other things being equal, the price will increase. Conversely, if demand falls, then

prices will fall.

The function of market prices is to allocate scare resources. If Genyzme decides to

pull either Thymoglobulin or Campath off the market, or decides to stop investing in new

research for SOT acute therapy drugs, this is because the company has chosen to allocate

its scarce resources elsewhere. Genzyme will not make decisions about Thymoglobuin or

Campath divorces from the profit-making objectives of the company as a whole. This is

why it is particularly dangerous for the FTC to view individual product markets as self-
3 Competitive Impact Statement, p. 3.

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contained units (i.e., SOT acute therapy drugs), because all products in all markets must

compete for the attention of scarce resources.

The Commission further errs in presuming that six firms independently producing

SOT acute therapy drugs are inherently better than five. As economist Murray Rothbard

famously stated, “We do not know, and economics cannot tell us, the optimum size of a

firm in any given industry.”4 Forecasting, Rothbard said, is the proper function of

entrepreneurs and not government officials. If the existing firms in a market cannot

satisfy consumer demand, the skillful entrepreneur will amass the resources necessary to

enter the market in an attempt to remedy the situation.

(To put this concept in a related context, the Commission should take note of the fact

that with all of the available resources and capital worldwide, more firms have chosen not

to enter the market for SOT acute therapy drugs. Such choices represent the essence of

genuine competition, and do not constitute of market failure.)

The Commission’s counter-response is that new firms are precluded from entering the

market due to the existence of numerous barriers. The problem with this argument is that

these barriers are primarily the consequence of government intervention, not the result of

“anti-competitive” behavior by Genzyme and ILEX. Once again, the Commission freely

admits its own error: “As with many pharmaceutical products, entry into the manufacture

and sale of SOT acute therapy drugs is difficult, expensive, and time-consuming.

Developing a drug for SOT acute therapy and conducting clinical trials necessary to gain

FDA approval is expensive and takes a significant amount of time.”5 A second barrier is

the FDA’s ban on actively promoting “off label” uses of approved drugs, such as

4 Murray N. Rothbard, Man, Economy and State with Power and Market, p. 645 (Ludwig von Mises
Institute, second ed., Scholar’s ed. 2004).
5 Competitive Impact Statement, p. 2.

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Campath’s use by organ transplant patients. The FDA, then, and not Genzyme is

restricting the potential supply of SOT acute therapy drugs through costly regulation.

The Commission goes on to claim that even FDA-approved drugs face an uphill battle

in the market: “After developing a drug and receiving FDA approval, a company must

then convince doctors to prescribe the drug. In order to convince doctors to prescribe a

new SOT acute therapy drug, the new drug would need to be more efficacious, safer,

and/or significantly less expensive than currently available SOT acute therapy drugs.”6

Again, this is not a barrier created by Genzyme’s “anti-competitive” behavior, but rather

it is a reflection of the superior competitive position Genzyme (and ILEX) attained by

overcoming the hurdles listed by the Commission. Genzyme achieved a certain level of

efficiency in producing SOT acute therapy drugs, and that efficiency cannot be recreated

simply by wishing it so.

But even if the Commission could conclusively demonstrate that its vision of the SOT

acute therapy drug market is economically superior to that created by the original terms of

the Genzyme-ILEX merger—and it can’t—the FTC still has constitutional authority to

act upon its beliefs. Ultimately, the Commission has no legal power to take any action

against any business, the terms of the antitrust laws to the contrary notwithstanding.

The Constitution separates executive, legislative, and judicial powers among separate

branches of government. The Commission, however, purports to exercise all three types

of power simultaneously. In this case, the Commission legislated the policies that held

the Genzyme-ILEX merger to be a legal violation, executed this policy by appointing

prosecutors and directing their actions, and finally adjudicated the complaint and

imposed punishment. Ignoring the separation-of-powers may be administratively

6 Ibid.

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convenient, but it contradicts the clear scheme enunciated in the text of the Constitution.

If the executive branch claims that the laws passed by Congress have been violated, the

accused has the absolute right to have its case heard before an Article III court.

But even if one accepts the legitimacy of the Commission’s existence and powers,

there is still no constitutional authority to force Genzyme and ILEX to divest their SOT-

related interest in Campath to Schering. The Commission itself acknowledges its

legislative power derives from the Commerce Clause of the Constitution, which grants

Congress the power “to regulate commerce . . . among the several states.” This power is

limited to abolishing restraints created by state governments that prevent interstate

commerce; it does not authorize Congress, or the FTC, to go after private restraints. Such

a construction defies the Constitution’s overall purposes and structure. The framers

created a government dedicated to the protection of individual rights, including the right

of persons to enter into enforceable contracts for the disposition of property. Indeed, the

Constitution forbids the states from impairing the obligation of contracts. It is thus wholly

unreasonable for the Commission to assert that it has a power that is neither expressly

granted to the federal government nor permitted to the states.

The Commission claims that the proposed order, and all of its actions, are undertaken

to promote the “public interest.” But this is an arbitrary claim that can neither be proved

nor refuted, since the “public interest” cannot be defined conceptually. Therefore, CVT

takes no position regarding whether entry of the proposed order is in the “public interest.”

These comments serve simply as a formal statement of CVT’s objections to the economic

and political philosophy employed by the Commission in the prosecution of this matter.

Whether the Commission ultimately adopts the proposed order is thus not our ultimate

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concern. Rather, we seek to educate the Commission and the public on the errors that

arise from application of antitrust policy.

Submitted for Your Consideration,

/s/
S.M. “Skip” Oliva
President

CITIZENS FOR VOLUNTARY TRADE

Post Office Box 100073
Arlington, Virginia 22210
Tel./Fax: (703) 740-8309
E-mail: info@voluntarytrade.org

Dated: January 18, 2005

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