- Bruce Hoffman, acting director of the Bureau of Competition at the Federal Trade Commission (FTC), announced that the FTC will no longer accept divestitures of inhalant and injectable pipeline drugs in pharmaceutical mergers.
- Hoffman, speaking at the Global Competition Review Seventh Annual Antitrust Law Leaders Forum on February 2, 2018, explained that divestitures of pipeline products were not working well for complex pharmaceuticals, such as inhalants and injectables.
- Instead, in situations in which the parties to the transaction own both a successfully manufactured inhalant or injectable and an overlapping pipeline inhalant or injectable in a concentrated market, the FTC will seek a divestiture of the manufactured product.
- An internal study at the FTC revealed that the rate of failure was “startlingly high” for divestitures of certain complex pipeline pharmaceutical products. Hoffman blamed the high failure rate on the difficulty in actually getting the complex pipeline pharmaceutical to market by a divestiture buyer. He explained that a divestiture buyer, for example, could struggle to reliably manufacture an inhalant or injectable product, frustrating its ability to ultimately bring the product to market.
At a recent panel discussion during George Mason Law Review’s annual antitrust symposium, Deborah Feinstein, director of the Federal Trade Commission’s (FTC) Bureau of Competition, was asked what levels of gross upwards pricing pressure index (GUPPI) could raise concern in the FTC’s merger review process. Feinstein declined to provide a specific level that would raise concern, thereby rejecting movement towards a safe harbor for merging parties in markets where the GUPPI is particularly low.
The FTC’s policy regarding a GUPPI safe harbor has a substantial impact on its investigations of mergers with potential unilateral price effects. Generally unilateral price effects exist where the merged entity has the incentive to raise the price of the products of one or both firms. One way to conceptualize the potential unilateral effects of a merger is to consider the opposing forces of downwards and upwards pricing pressures. The elimination of competition between merging firms creates upwards pricing pressure. The benefits gained from efficiencies generate downward pricing pressure. GUPPI is an economic measure that attempts to estimate the upwards pricing pressure for a particular product resulting from a merger. Three market conditions lead to a higher GUPPI: 1) a high diversion ratio to the merging partner’s product; 2) a higher margin for the merging partner’s product; and 3) a higher price for the merging partner’s product (Moresi 2010). (more…)
Earlier this week, the Federal Trade Commission (FTC) published an article that offers guidance on the “failing firm” or “flailing firm” defense often invoked in the hospital merger context. The article, written by Debbie Feinstein and Alexis Gilman of the Bureau of Competition, clarifies the circumstances under which this defense is and is not available.
At the outset, Feinstein and Gilman point out the basic requirements for establishing a failing firm defense, as set forth in § 11 of the Horizontal Merger guidelines:
- the company is unable to meet its obligations as they come due;
- the firm would not be able to reorganize successfully in bankruptcy; and
- it has made unsuccessful good-faith efforts to elicit reasonable alternative offers that would keep its assets in the relevant market and pose a less severe danger to competition than does the proposed merger.
The article goes on to emphasize an additional nuance required for the defense—that the acquiring company is the only available purchaser. This goes hand-in-hand with requirement three listed above. As an example, the authors describe a recent FTC investigation that involved “a hospital that was clearly failing.” The hospital’s bankrupt status did not calm the FTC’s concerns about the transaction, because the FTC learned that there was an interested alternate purchaser who did not pose the same competitive risks as the chosen acquirer.
Even if the acquisition price of a “failing” or “flailing” firm is below the Hart-Scott-Rodino reporting threshold, potential acquirers should assess the antitrust risk associated with the transaction and be sure to factor any costs associated with that risk into the sticker price. The failing or flailing firm should be prepared to demonstrate the efforts it made to find an acquirer. Non-reportable transactions are within the FTC’s reach and are often on the agency’s radar, particularly in the health care context.
The full text of the article is available here.
The Federal Trade Commission (FTC or the Commission), along with the U.S. Department of Justice, can challenge mergers it believes will result in a substantial lessening of competition – for example through higher prices, lower quality or reduced rates of innovation. Although the analysis of whether a transaction may be anticompetitive typically focuses on price, privacy is increasingly regarded as a kind of non-price competition, like quality or innovation. During a recent symposium on the parameters and enforcement reach of Section 5 of the FTC Act, Deborah Feinstein, the director of the FTC’s Bureau of Competition, noted that privacy concerns are becoming more important in the agency’s merger reviews. Specifically she stated, “Privacy could be a form of non-price competition important to customers that could be actionable if two kinds of companies competed on privacy commitments on technologies they came up with.”
At this same symposium, Jessica Rich, director of the FTC’s Bureau of Consumer Protection, remarked on the agency’s increasing expectations that companies protect the consumer data they collect and be more transparent about what they collect, how they store and protect it, and about third parties with whom they share the data.
The FTC’s Bureaus of Competition and Consumer Protection fulfill the agency’s dual mission to promote competition and protect consumers, in part, through the enforcement of Section 5 of the FTC Act. With two areas of expertise and a supporting Bureau of Economics under one roof, the Commission is uniquely positioned to analyze whether a potential merger may substantially lessen privacy-related competition.
The concept that privacy is a form of non-price competition is not new to the FTC. In its 2007 statement upon closing its investigation into the merger of Google, Inc. and DoubleClick Inc., the Commission recognized that mergers can “adversely affect non-price attributes of competition, such as consumer privacy.” Commissioner Pamela Jones Harbour’s dissent in the Google/DoubleClick matter outlined a number of forward-looking competition and privacy-related considerations for analyzing mergers of data-rich companies. The FTC ultimately concluded that the evidence in that case “did not support the theories of potential competitive harm” and thus declined to challenge the deal. The matter laid the groundwork, however, for the agency’s future consideration of these issues.
While the FTC has yet to challenge a transaction on the basis that privacy competition would be substantially lessened, parties can expect staff from both the Bureau of Competition and the Bureau of Consumer Protection to be working closely together to analyze a proposed transaction’s impact on privacy. The FTC’s review of mergers between entities with large databases of consumer information may focus on: (1) whether the transaction will result in decreased privacy protections,i.e., lower quality of privacy; and (2) whether the combined parties achieve market power as a result of combining their consumer data.
This concept is not unique to the United States. The European Commission’s 2008 decision inTomTom/Tele Atlas examined whether there would be a decrease in privacy-based competition [...]