April 23, 2019

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THE LATEST: Integra Forced to Divest Neurosurgical Tools to Gain FTC Clearance

WHAT HAPPENED

  • On February 14, 2017, Integra agreed to purchase Johnson & Johnson’s Codman neurosurgery business (excluding Codman’s neurovascular and drug deliver businesses) for $1.045 billion.

  • Seven months later, on September 25, 2017, the Federal Trade Commission (FTC) agreed to clear the transaction subject to the parties divesting five neurosurgical tools and associated assets including the relevant intellectual property (IP), manufacturing technology and know-how, and research & development (R&D) information related to the five tools. Additionally the buyer of the divested assets can freely negotiate to hire any employees that worked on sales, marketing, manufacturing, or R&D for the divestiture products. The parties must also supply Natus Medical Incorporated (Natus) with cranial access kits often sold with the divestiture assets until Natus can start sourcing them independently.

  • The FTC required that the parties divest the following medical devices:

    • Intracranial pressure monitoring systems, which measure pressure inside the skull. The FTC determined that Integra (68 percent) and Codman (26 percent) combined market share in the United States would be 94 percent and that only fringe competitors with limited presence would have remained.

    • Cerebrospinal fluid collections systems, which drain excess cerebrospinal fluid and monitor pressures within the fluid. The FTC found that Integra (57 percent) and Codman (14 percent) would combine for 71 percent market share in the United States and would have reduced the number of significant competitors from three to two.

    • Non-antimicrobial external ventricular drainage catheters, which funnel excess cerebrospinal fluid form the brain to cerebrospinal fluid collection systems to relieve intracranial pressure. Here, the FTC said Integra (29 percent) and Codman (17 percent) are the number two and three competitors accounting for 46 percent of the market in the United States and would have reduced the number of significant competitors from three to two.

    • Fixed pressure valve shunts, which are used to treat excessive accumulation of cerebrospinal fluid. The FTC found that Integra (23 percent) and Codman (15 percent) were the number two and three competitors would control 38 percent of the US market and, again, that the number of competitors would have been reduced from three to two.

    • Dural grafts, which are used to repair or replace the membrane that surrounds the brain and spinal cord and keep cerebrospinal fluid in place. The FTC determined that the merger would have reduced the number of significant competitors from four to three with Integra (66 percent) and Codman (nine percent) combining for 75 percent market share.

  • Under the terms of the settlement, the parties must divest within 10 days of closing to Natus, which is a global health care company with an existing neurology business including systems that are complementary to the divestiture assets.

WHAT THIS MEANS

  • The FTC continues to apply narrow product market definitions in the medical device industry because often each tool has a specific end use for which there are no substitutes.

  • As explained in the FTC’s Merger Remedies Study released in February, the FTC continues to require a buyer-up-front for a less than complete business divestiture and has a strong preference for buyers with industry experience and a strong financial commitment.

  • The FTC also continues to require divestitures of R&D assets in businesses where R&D is critical to maintaining ongoing and future competition in the industry.

  • Finally, companies should bear in mind that even if a transaction does not create a leading competitor and/or involves the two smallest competitors in a segment, overlapping activities may still be problematic if the merging parties are two of just a few significant competitors or are close competitors.

© 2019 McDermott Will & Emery

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About this Author

Louise-Astrid Aberg, McDermott WIll Emery Law firm, Antitrust Attorney
Associate

Louise-Astrid Aberg is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Paris office. She focuses her practice on competition law.

+33 1 81 69 15 00
Gregory E. Heltzer, Mergers and Acquisitions Lawyer, Antitrust Attorney, McDermott Will Emery, Law Firm
Partner

Gregory E. Heltzer is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's Washington, D.C., office.  He focuses his practice on defending mergers and acquisitions before the Federal Trade Commission, Department of Justice, state antitrust authorities and foreign competition authorities.  In addition, his practice also includes complex antitrust litigation, government investigations and antitrust counseling (e.g., advising agricultural cooperatives on the requirements of the Capper Volstead Act).

Greg has experience in all three branches of government. Prior to joining the Firm, he served as a judicial law clerk for the Honorable John A. Terry of the DC Court of Appeals. Before entering law school, Greg worked for the US Environmental Protection Agency in the Energy Star Program. He also served as a legislative intern on the staff of the US Senate Committee on Environment and Public Works under the late Senator John Chafee (R-RI).

202-756-8178