- Lawyers see evidence of focus on new, non-merger-specific issues in FTC’s requests
- Instances of firms’ anticompetitive conduct could be raised during merger reviews
- Potential focus on labor/equity, race and firms’ engagement with the FDA
The Federal Trade Commission’s requests for information from merging drugmakers have recently broadened in scope as the agency increases its scrutiny of acquisitions in the sector, according to antitrust attorneys with relevant experience.
The demand for new types of documents complements an initiative announced last month by the FTC’s acting chair, Rebecca Kelly Slaughter, to update the Commission’s approach to pharmaceutical mergers, said Baker Botts Partner Maureen Ohlhausen. More broadly, the move is consistent with Slaughter’s interest in using antitrust as a means of addressing concerns like racial justice and labor market issues, said Ohlhausen, who formerly served as FTC acting chair and commissioner.
Historically, when the FTC issues a second request in pharmaceutical merger cases, the scope is broad at the outset but enforcers will reach an agreement with the parties to narrow the focus of their investigation to product overlaps, limiting requests for documents to those associated with certain marketed and pipeline drug products, said Debevoise & Plimpton Partner Ted Hassi.
However, following the drumbeat of calls for more aggressive enforcement, both US antitrust agencies have begun demanding more and different types of documents from merging parties, which enforcers may use in the context of broadening the focus of merger investigations or to address competition issues unrelated to the transactions at hand, Hassi said.
On 16 March, Slaughter unveiled an FTC-led global working group of antitrust agencies and other stakeholders that will be tasked with retooling how enforcers review pharmaceutical mergers to more fully analyze and address their impact on competition. Among other endeavors, the group will explore the full range of ways in which drugmaker acquisitions can affect innovation and consider how past instances of anticompetitive conduct by drug companies, like price fixing, reverse payments and regulatory abuses, should factor into merger reviews.
Ohlhausen previously told this news service that merging drugmakers should expect longer merger reviews as the agency explores a wider array of theories of competitive harm.
A third attorney said that a recent episode, in which the FTC requested resumes and employment information for new hires at two merging drug companies, might reflect some of the aims of Slaughter’s working group initiative. Those documents – which the attorney said the agency does not traditionally collect in pharmaceutical merger investigations – could perhaps be used to assess whether a “brain drain” is happening, whereby some large multinational pharmaceutical companies are siphoning off and hoarding top talent, this attorney said.
Hassi said that such as a request could indicate that the FTC is focusing in on narrow concerns, like hiring issues that might be linked to the development of drugs in a specific therapeutic area, or could be part of a broader inquiry by the agency into the competitive impact of industrywide hiring practices or labor market dynamics.
It is unclear what conclusions the FTC could hope to reach from such an analysis, either about the transaction under review or about the industry more broadly, said a fourth attorney. Every company or organization works to recruit and retain the most qualified and highest performing employees, he said.
Ohlhausen said she is concerned about a scenario in which the FTC might put companies in the “penalty box” by challenging their mergers or demanding remedies on the basis of conduct enforcers find objectionable – conduct that is not directly related to transactions under their review, and for which the law already provides some penalty or injunctive relief. “Stopping someone’s merger is not a punishment for some other violation,” she said.
An exception to this, however, can arise in circumstances where the agency finds evidence of coordinated effects or a history of collusion in the market in which the merging companies operate, Ohlhausen said. For example, the FTC ordered a divestiture remedy on this basis in 2015, after reviewing a deal between building materials companies Holcim and Lafarge, now LafargeHolcim [SIX:LHN], she said.
One issue that could carry implications both for merger reviews and FTC enforcement going forward concerns pharmaceutical companies’ conduct vis-à-vis the Food and Drug Administration, said Paul D. Rubin, partner and co-chair of Debevoise & Plimpton’s Healthcare and Life Sciences practice group.
“There is an interrelationship between the FTC’s concerns about drug prices and competition and certain regulatory requirements imposed by the FDA,” Rubin said. For example, he said the FTC has challenged innovator companies for implementing restrictive distribution programs pursuant to FDA-mandated Risk Evaluation and Mitigation Strategies (REMS) and has also expressed concerns over companies allegedly abusing the FDA petitioning process to prevent generic competition, as well as purported “pay for delay” patent settlements that potentially impact the introduction of generic drugs. Accordingly, Rubin said, the antitrust concerns identified by the FTC in a merger context should be evaluated in the context of the FTC’s broader concerns about potential anticompetitive behavior by innovator drug companies in the FDA regulatory context.
Beyond these issues, Slaughter has pushed for the FTC to explore reforms to antitrust enforcement and merger review that would redress racial inequities, including in comments reported by this news service that she delivered in her previous role as commissioner.
Among other recommendations, Slaughter said the FTC could collect new types of information in merger reviews to better learn how each transaction might affect populations of customers, employees and the communities in which the companies operate. For example, she said, the FTC could ask merging hospitals for demographic information with which enforcers can better determine a deal’s likely impact on healthcare access and affordability for communities of color and tailor enforcement decisions accordingly, in order to mitigate existing racial disparities.
The third attorney said that while the goals behind such proposed reforms are laudable, there could be problems if enforcers were to condition merger clearance on the parties’ ability to show their proposed transaction will not adversely affect certain communities, or that it will have a neutral or net positive impact on racial equity. For instance, it would be very difficult for pharmaceutical companies to find the evidence to meet such a burden, this attorney said.
The FTC declined to comment.
by Christopher Kane in Washington, DC and Yiqin Shen in New York