WHAT HAPPENED:

  • Recent developments indicate that pharmaceutical deals are attracting greater scrutiny from the Federal Trade Commission (FTC).
  • In September 2019, FTC Chairman Joseph Simons reportedly stated that the FTC will more closely scrutinize deals with overlaps involving products that are still in clinical study or development. Because of the high failure rate of products in early phases of study, the FTC typically has focused on overlaps between marketed products or products near Federal Drug Administration (FDA) approval, g., products in Phase III of the FDA pipeline. Chairman Simons’s statement makes clear that the FTC plans to examine earlier stage products while reviewing deals.
  • In 2018, the director of the FTC’s Bureau of Competition announced in a speech that the FTC would favor divestitures of marketed drugs over pipeline drugs in pharmaceutical deals. Traditionally, when the FTC has had a concern about overlapping products, it has allowed the merging parties to decide which of the overlapping products to divest to remedy the concern. The director explained that, unlike marketed products, pipeline products may be costly to transfer or never be brought to market, eliminating a potential source of future competition.
  • Legislators on Capitol Hill have placed pressure on the FTC to scrutinize pharmaceutical deals with more vigor. Nine US senators wrote the FTC in September to voice concerns about the effect of pharmaceutical deals on innovation and prices. In their letter, the senators specifically highlighted divestitures of pipeline products, stating that such divestitures may not sufficiently address threats to competition because pipeline products may never make it to market.


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WHAT HAPPENED:

  • On September 4, 2019, the US Department of Justice’s Antitrust Division (DOJ) sued to block Novelis Inc.’s proposed $2.6 billion acquisition of Aleris Corporation.
  • DOJ alleged that the transaction would combine two of only four North American producers of aluminum auto body sheet (ABS). DOJ further alleged that Aleris was a new and disruptive rival supplier of aluminum ABS whose expansion into the North American market immediately impacted pricing.
  • Prior to DOJ’s suit to block the transaction, the merging parties and DOJ agreed that the dispute boiled down to a single dispositive issue: whether aluminum ABS constitutes a relevant product market, and specifically, whether the market for aluminum ABS also includes steel ABS.
  • DOJ and the merging parties agreed to refer this product market issue to arbitration pursuant to the Administrative Dispute Resolution Act of 1996 (5 U.S.C. § 571 et seq.) and the Antitrust Division’s implementing regulations (61 Fed. Reg. 36,896 (July 15, 1996).
  • In a filing in federal court the DOJ explained that it decided to arbitrate rather than litigate the merger in federal court because all sides agreed that the case turned on the single question of product market definition and referring the matter to arbitration would lessen the burden on the Court and reduce litigation costs to the merging parties and to the United States.


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WHAT HAPPENED:

  • 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.


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The Federal Trade Commission (FTC) and US Department of Justice’s (DOJ) Antitrust Division have been actively challenging mergers and acquisitions (M&A) across a variety of industries where there is not a viable or acceptable remedy to mitigate the agencies’ competitive concerns. Parties to M&A transactions that the FTC or the DOJ believe are likely to

McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related