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Innovation and Merger Control: M-3687 - Johnson & Johnson - Guidant

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?

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Innovation and Merger Control: M-3687 - Johnson & Johnson - Guidant

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  1. Innovation and Merger Control: M-3687 - Johnson & Johnson - Guidant Benoit Durand Director of Economic Analysis 24 November 2006 BIICL

  2. 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

  3. 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

  4. Artery with plaque (CAD)

  5. Pre-Dilatation Balloon Angioplasty Procedure

  6. Stent Procedure

  7. Result After Stent Procedure

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

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