Download Innovation and Merger Control: M - 3687

Innovation and Merger Control:
M-3687 - Johnson & Johnson - Guidant
Benoit Durand
Director of Economic Analysis
24 November 2006
BIICL
Innovation and Merger Control
 What is Innovation?
 Covers a broad spectrum of activities ranging
from scientific discoveries to improving existing
products
 Innovation is often viewed as welfare enhancing
 Innovation is the result of dynamic process
Johnson & Johnson - Guidant
 Two merging firms are involved in production of
devices used in Interventional Cardiology
 Interventional Cardiology cures Coronary Artery
Disease (CAD)
 Instead of Bypass Surgery, use of a minimally
invasive procedure
Artery with plaque (CAD)
Pre-Dilatation Balloon Angioplasty Procedure
Stent Procedure
Result After Stent Procedure
Interventional Cardiology: High Technology Market


Interventional Cardiology has experienced new development
over the last 20 years
Drug Eluting Stents (DES) are quickly replacing Bare Metal
Stents (BMS)
 Not a Winner-take-all Market but First New Product
Reaps Monopoly Profit until Entry of Rivals
 Two firms active on DES market: Johnson & Johnson
and Boston Scientific
Potential Competition
 Mergers may have negative effect on potential
competition in an existing market
 Remove potential entrant
 Competitive assessment through the lenses of
unilateral effect theory
Competitive Assessment
 Assessment of whether the elimination of Guidant
as a potential entrant would remove a future
competitive constraint on the DES market
 Two incumbents pricing at duopoly levels – no
existing constraint from potential entrants
 Potential Entrants with different probabilities of
having a significant impact
 Prediction of DES market structure and
performance with and without acquisition of
Guidant
Competitive assessment
 DG-Comp determines entrants that are most likely to
offer significant competitive constraint
 Determine and Review key Assets
 DG-Comp reviews facts, clinical trials and key
“independent” experts’ opinion to predict
 Guidant’s future position
 Medtronics and Abbott future position
Competitive assessment
 Role of Intellectual Property in the Competitive
Assessment
 IPRs are viewed as Barriers to Entry
 Acquisition of Guidant IP portfolio
 Existence of blocking patents?
 Important IP Litigation in the US
 US remedies dealt with the issue
Effect on Innovation
 Merger may have an effect on Competition on a
market that does not yet exist but is predicted to exist
(next generation of DES)


Cannot Rely on Traditional Static Analysis but use of
Innovation Markets
Innovation market => firms do not sell products,
they are in the process of developing products
Competitive assessment


DG-Comp did not determine impact of the Merger on
Innovation, yet R&D spending would determine next
generation of product
What likely impact on Innovation?
 Elimination of one major player in IC => reduced rivalry
 Merger and dynamic efficiencies