US Antitrust Review May Not Pose Threat To Drug Co Mergers
March 12 2009 - 2:15PM
Dow Jones News
Even if U.S. antitrust regulators are worried about
consolidation in the pharmaceutical industry, they may have a tough
time making a case against two recently announced mergers: Merck
& Co.'s (MRK) purchase of Schering-Plough Corp. (SGP) and
Pfizer Inc.'s (PFE) acquisition of Wyeth (WYE).
Neither merger appears to involve significant overlap of drug
products - both for drugs being sold and products in development -
allowing the companies to potentially skirt around antitrust
restrictions that can complicate large corporate mergers.
The U.S. Federal Trade Commission, when analyzing pharmaceutical
mergers, traditionally looks at whether the companies have
overlapping on-market drugs, pipeline drugs and research and
development efforts. Executives involved in the Pfizer-Wyeth and
Merck-Schering mergers have said their companies have complementary
offerings. Observers largely agree.
"There don't seem to be a lot of overlaps," said Karen Bokat, a
Washington partner with Wiley Rein LLP and a former long-time FTC
attorney.
Separately, Roche Holding AG (ROG.VX) on Thursday reached an
agreement to buy the remaining shares of biotechnology company
Genentech Inc. (DNA), the third major drug deal in recent weeks.
But because the Swiss drug maker already owns more than half of
Genentech and the two companies have collaborated closely, the deal
might not raise similar antitrust questions.
In past drug-company mergers, when product overlaps have raised
concerns about harms to competition, regulators have required the
companies to sell their stakes in some drugs as a condition for
merger approval.
"The FTC has often tried to focus on where the overlaps were
rather than trying to block a deal," Bokat said. "I can't remember
the last time the agency tried to block a drug merger."
Chul Pak, a New York lawyer who worked on merger cases for eight
years at the FTC, said a wave of consolidation in the drug industry
may "raise red flags" at the commission, but he said the FTC would
have difficulty bringing an antitrust challenge based on general
competitive concerns about industry consolidation.
"The FTC would have a tough time in court if there weren't
substantial overlaps," said Pak, a partner at Wilson Sonsini
Goodrich & Rosati. "On a pure antitrust analysis, the courts
are going to say that there are eight or nine competitors
left."
Even though the mergers will reduce the number of major U.S.
drug companies, the pharmaceutical industry is a global market that
still has several major international drug makers in the mix, Pak
said.
Bokat, meanwhile, also noted that biotechnology companies
provide competition in the market for drug innovation. "You still
have a lot of innovation bubbling along," she said.
Albert Foer, the president of the American Antitrust Institute,
which supports strong antitrust enforcement, said it is important
for the FTC to look beyond the traditional way it has examined drug
deals to take into account the big-picture concerns about industry
consolidation.
"What happens to innovation?" Foer asked. "What happens in the
pharmaceutical industry when the number of researchers, the number
of projects and the number of decision makers is reduced?
"All of a sudden you have many fewer gateways for new drugs," he
said.
Bokat, of Wiley Rein, said adopting this sort of focus would
require a new approach by the FTC.
But, referring to President Barack Obama's pledge to
reinvigorate antitrust enforcement, she said, "Maybe in a new
administration you'll see some new thinking."
-By Brent Kendall, Dow Jones Newswires; 202-862-9222;
brent.kendall@dowjones.com