FTC’s Largest Pharmaceutical Divestiture Gives Insight into Broader Theories of Harm
In pharmaceutical transactions involving generic products, the Federal Trade Commission (FTC) has typically focused on narrow antitrust theories of harm and applied a narrow product market analysis often limited to a treatment for a particular indication (and sometimes to a specific mechanism of action). In these transactions, the FTC has consistently required fixes for generic overlaps when the transaction (1) reduces the number of significant generic competitors in a particular product market to three or fewer or (2) involves the combination of a branded pharmaceutical product with a “first-to-file” generic for the same product for which there are no other generics yet on the market. Using this narrow methodology, pharmaceutical transactions involving generics that required a fix could move through the FTC review process very quickly and generally achieve clearance in approximately six months from filing.
A recent pharmaceutical transaction involving two large generics companies had numerous overlaps of interest and took twice as long to receive clearance (12 months). While the sheer volume of generic overlaps at issue for which a fix was required (79 generics) certainly could explain why achieving clearance took an extended period, a second reason is that the FTC looked at several broader theories of harm than it has typically focused on in past pharmaceutical transactions.
The investigation into broader theories of harm suggests that “business-as-usual” investigations in pharmaceutical cases involving generics may be changing. Pharmaceutical companies need to consider the transactions’ impact not only in narrow product specific overlaps, but also on competition broadly by (1) considering whether the transaction would lead to anticompetitive effects from the bundling of generic products; (2) examining whether the transaction would decrease incentives to challenge patents held by brand-name pharmaceutical companies and bring new generic drugs to market; and (3) analyzing whether the transaction might dampen incentives to develop new generic products.
While the FTC analyzed these potential impacts in the most recent transaction, it did not ultimately find evidence which supported a conclusion that the parties could use bundling to foreclose smaller competitors from competing effectively. Moreover, there was no indication that the effect of the transaction would decrease the pace at which generics would challenge patents held by brand-name pharmaceuticals and/or develop new generics. Nonetheless, we think the FTC’s focus on these issues portends that any transaction involving top generics manufacturers will be treated similarly and receiving clearance will involve the consideration of a larger array of antitrust issues than has typically been the case. This is an issue that merits watching as new pharmaceutical transactions get announced in the year to come.