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.

WHAT THIS MEANS:

• Pharmaceutical deals may take longer for the FTC to review. In the past, deals with overlaps involving a Phase I or early Phase II product were often cleared in the initial HSR waiting period. The FTC review may be longer now that the agency plans to take a close look at overlaps involving these early stage products.
• On the other hand, if the FTC considers Phase I and Phase II products to be competitive with marketed products, you may be able to show that there are additional competitors that the FTC should consider in the relevant market. In the past, the FTC may not have given much weight to the competitive significance of early phase products, but under the FTC’s current philosophy, more of these products may be competitive with products in the deal.
• When you are completing pharmaceutical deals, be aware that if divestitures are necessary, the FTC may want the parties to divest the marketed product in marketed-to-pipeline overlaps, particularly if it involves somewhat complicated products to make, such as inhalants or injectables.