FTC probes Novartis, Heska deal

FORT COLLINS — A huge Swiss pharmaceutical company’s investment in Fort Collins-based Heska Corp. has prompted a probe by the Federal Trade Commission for possible violations of antitrust laws.

Novartis AG’s predecessor invested $36 million in Heska in April 1996 — an investment not made public at the time — giving it the right to market and manufacture any flea-control vaccine or feline heartworm-control vaccine developed by Heska, which produces vaccines for companion animals.

The FTC investigation was revealed in a May 30 amendment to Heska’s registration statement with the U.S. Securities and Exchange Commission. Heska filed the initial public offering with the SEC April 18 and began trading on the NASDAQ exchange July 1.

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Heska’s amendment to its registration statement states that “the company has been notified that the staff of the United States Federal Trade Commission (“FTC”) is conducting an investigation of Novartis, a principal stockholder of Heska, with respect to Novartis’ relationship with Heska. É The company believes that the FTC staff is investigating Novartis’ actions in acquiring an equity interest in Heska and representation on its board of directors and certain rights to market Heska products to determine whether these actions violate federal antitrust laws.”

The filing adds that it’s unknown whether the investigation will result in formal proceedings before the FTC.

Officials from the FTC and Novartis could not be reached for comment. Fred Schwarzer, president and CEO of Heska, said Heska was informed of the FTC investigation in early May.

“Their concern was that Novartis was buying an interest in Heska in order to monopolize the flea-control market,” Schwarzer said, noting that Novartis owns “significant” market share in that area.

“They’re probably market leaders in the flea-control area and very strong in heartworm control, as well,” he said.

Basel, Switzerland-based Novartis was formed in 1996 from the merger of Ciba-Geigy Ltd. and Sandoz Ltd., the largest corporate merger in history. The company boasted 1996 revenues of $19 billion.

The FTC first raised the issue of the company’s investment in Heska when the Ciba-Geigy/Sandoz deal was announced but did not launch an antitrust investigation, instead deciding that the issue did not warrant delaying the merger, Schwarzer said. Novartis was required to divest Sandoz’ animal-health business to satisfy antitrust provisions.

Now, however, the FTC apparently feels that Novartis might be in violation of antitrust laws in its investment in Heska. Heska stated in its filing that if the FTC concludes that antitrust violations exist, the agency could require:

” Limitation of Novartis’ voting rights with respect to its Heska stock.

” Limitation of Novartis’ representation on the company’s board of directors.

” Orderly divestiture of Novartis’ equity investment.

” Reformation of Novartis’ collaborative agreements with the company.

Heska employs 425 workers worldwide. The company occupies 75,000 square feet in six buildings locally, while its Diamond Animal Health subsidiary occupies 166,000 square feet in Des Moines, Iowa.

Heska posted 1996 revenues of $8 million. The company lost $18 million in 1996, compared with losing $4.6 million in 1995.

Heska trades under the ticker symbol “HSKA.”