Merging company

Spotlight on competition law in the pharmaceutical sector in the United States

All the questions

Merger control

Federal authorities, state authorities and private parties have standing to challenge mergers or acquisitions affecting interstate commerce under Section 7 of the Clayton Act.103 A transaction violates Section 7 of the Clayton Act if it can substantially lessen competition.

In general, actionable competitive harm may occur if, after the transaction, the combined enterprise has the ability and incentive to increase price, reduce supply, reduce innovation or product quality – either unilaterally or in coordination with other firms – or to harm competition by excluding competitors from providing inputs or markets for their products.104 Potential harms to competition are more likely to occur if the parties already compete or are likely to compete in the future.105

Merger analysis focuses on competitive effects within defined geographic and product markets. Product markets are defined around products and their substitutes, usually by applying the “hypothetical monopoly” test (HMT). The HMT includes in a product market the products to which a consumer would turn in response to a small price increase by a hypothetical monopolist of a product.

In the pharmaceutical industry, this has resulted in various definitions of product markets, sometimes limited to a narrow market, comprising only a brand name drug and its generic or biosimilar equivalents, or even only a generic drug market. In other cases, the market may include all drugs that treat a given indication using a particular mechanism of action or even more broadly as all drugs used to treat the indication.106 Product markets may also include products still in the research and development stage that may be competitive in the future.

If the products of the parties to the concentration are currently in competition or could be in the future, the antitrust authorities examine whether any loss of competition resulting from the transaction is likely to lead to anti-competitive effects. This includes analysis of the parties’ and other competitors’ market shares and market concentration levels before and after the merger. In addition, antitrust authorities will consider whether third-party entry or expansion would be timely, likely, and of sufficient magnitude to offset any competitive harm resulting from the transaction.

Finally, if antitrust authorities determine that a transaction is likely to cause anti-competitive effects, they will consider whether the transaction will lead to recognizable efficiencies that would offset any competitive harm.107 To be recognizable, efficiencies must be both merger-specific and verifiable.108

Anti-competitive behavior

i Patents and competition law

Patent law grants holders of pharmaceutical patents (in most cases, brand name pharmaceutical companies) the limited right to exclude others, but does not exempt them from antitrust scrutiny. Pharmaceutical patentees have been litigated in a number of cases regarding alleged anti-competitive conduct through various means, including, but not limited to, reverse payment settlements, product switching, brand strategies against generics (B4G), fictitious disputes and discounted bundles. These examples are not exhaustive; there may be other antitrust theories of harm advanced by both antitrust authorities and private plaintiffs.

ii “Reverse payment” regulations

The Hatch-Waxman Act creates a framework for generic drug companies to challenge patents quickly.109 It also offers generic manufacturers a research exemption to legally develop generic drugs while the original brand patent is still in effect.110

Patent disputes between brand companies and generic companies often settle. Settlements typically involve the parties negotiating generic entry dates at or before the brand name drug’s loss of exclusivity (LOE), based on anticipated litigation costs and respective litigation risk assessments.

In “reverse payment” settlements, the plaintiff’s brand-name pharmaceutical company pays the defendant’s generic drug company as part of the settlement.111 In FTC v Actavisthe Supreme Court held that reverse payment settlements are subject to antitrust scrutiny because they can harm competition by delaying generic competitor entry.112

Lower courts have extended Actavis to non-cash “payment” consideration,113 such as an agreement by the brand name pharmaceutical company not to launch an authorized generic for a certain period.114

iii Change of product

Product switching (switching) can occur when a brand name pharmaceutical company reformulates a brand name drug at or near the LOE and encourages patients and physicians to switch to the new product.115 The product switch can be either a “soft switch” (when the original drug remains available for patients) or a “hard switch” (when the original drug is made unavailable or much more difficult to obtain for the patients).

Although the introduction of a new and improved product is not illegal, a radical change that removes the old product from the market can create a significant antitrust risk because it can eliminate demand for the original brand name drug before generics cannot enter the market and thus exclude generic competition.116

iv B4G

A B4G strategy is to offer a pharmacy benefit manager greater discounts on brand name drugs at or near the LOE in exchange for preferred placements on the formulary. B4G strategies can be pro-competitive and pro-patient as they lower the prices of branded drugs for consumers, but they can also create antitrust risk as the brand goes beyond securing placement on the market. formulary by offering lower prices and contractually limiting competition from generic drugs. .

Other market circumstances may affect the antitrust risk of B4G strategies; for example, the risk may be higher when the customer’s co-payments are higher for brand name drugs than for the non-preferred generic (usually because the customer’s drug benefit program requires a higher co-payment for drugs). branded products) or if agreements between a branded manufacturer and pharmacy benefit programs are long-term and cover a substantial portion (at least 30 percent) of a given market.

v Fictitious Petitions and Litigation

Under the Noerr-Pennington Doctrine, parties are generally exempt from liability under antitrust laws for engaging in actions to influence government decision-making (e.g., government petitions, lobbying, and litigation), even if the action they seek would limit competition;117 however, brand-name pharmaceutical companies may face antitrust liability for engaging in such conduct if their actions were a fraud.

As a general rule, a dispute will only be considered a sham if the allegation is “objectively baseless” and – if it is baseless – the dispute itself, rather than the outcome of the dispute, harms the competition.118 The same test was applied to petitioning regulators (eg, delaying the introduction of a competing product while the FDA considers a “citizen petition”).119

vi Bulk Discounts

Companies sometimes offer discounts for the purchase of several types of products at once.120 This strategy is often pro-competitive because it lowers prices;121 however, a bundling strategy may create antitrust risk if it makes it more difficult for a seller of only one of the bundled products to compete, particularly if the bundling competitor is forced to sell its products below the price cost to be able to compete with the group.122