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Biotech Mergers:Biotech Mergers:

FTC Review Process and GuidanceFTC Review Process and Guidance

Seth C. SilberSeth C. Silber

Wilson Sonsini Goodrich & RosatiWilson Sonsini Goodrich & Rosati

January 2007January 2007

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OverviewOverview•• Background on FTCBackground on FTC

•• FTC Merger ReviewFTC Merger Review

•• Theories of Anticompetitive HarmTheories of Anticompetitive Harm

•• Case StudiesCase Studies

•• GuidanceGuidance

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Demystifying the FTCDemystifying the FTC

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Background on the FTCBackground on the FTC

•• Small, but effective agencySmall, but effective agency

•• Why on earth do we have two antitrustWhy on earth do we have two antitrustagencies?agencies?

•• FTC has FTC has ““jurisdictionjurisdiction”” over biotech/ over biotech/pharmaceuticals industrypharmaceuticals industry

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FTC Merger ReviewFTC Merger Review•• Clayton Act standardClayton Act standard

–– ““may be substantially to lessen competitionmay be substantially to lessen competition””

•• ResourcesResources–– Merger GuidelinesMerger Guidelines–– Merger CommentaryMerger Commentary–– Merger Data ReleaseMerger Data Release

•• FTC/DOJ Merger GuidelinesFTC/DOJ Merger Guidelines–– Market definition and shareMarket definition and share–– Competitive effectsCompetitive effects–– EntryEntry–– EfficienciesEfficiencies

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FTC Biotech InvestigationsFTC Biotech Investigations•• Phases under Hart-Scott-Rodino ReviewPhases under Hart-Scott-Rodino Review

–– Initial waiting period (first 30 days)Initial waiting period (first 30 days)–– Second RequestSecond Request–– Full Commission reviewFull Commission review

•• Tools Tools –– Biotech is Different from Other Industries Biotech is Different from Other Industries–– Company information (pipeline, business plans, interviews)Company information (pipeline, business plans, interviews)–– ““Opinion LeadersOpinion Leaders””–– FDAFDA–– Subpoena authoritySubpoena authority

•• OutcomesOutcomes–– No actionNo action–– ConsentConsent–– LitigationLitigation

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FTC Merger Review FTC Merger Review –– All Industries All Industries•• When does the FTC actually challenge (When does the FTC actually challenge (i.e.,i.e., obtain a obtain a

consent or sue to block) a deal?consent or sue to block) a deal?

7 to 6: 7 to 6: 18%18%6 to 5:6 to 5: 38%38%5 to 4: 5 to 4: 60%60%4 to 3: 4 to 3: 72%72%3 to 2: 3 to 2: 85%85%2 to 1: 2 to 1: 97%97%

•• Key factors:Key factors:–– Concentration/Number of significant competitorsConcentration/Number of significant competitors–– ““Hot DocumentsHot Documents””–– Complaining customersComplaining customers

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FTC Merger Review FTC Merger Review –– Pharma/Biotech Pharma/Biotech

•• When does the FTC actually challenge (When does the FTC actually challenge (i.e.,i.e.,obtain a consent or sue to block) a deal?obtain a consent or sue to block) a deal?

7 to 6: 7 to 6: 0%0%6 to 5:6 to 5: 0%0%5 to 4: 5 to 4: 0%0%4 to 3: 4 to 3: 30%30% (3 of 10)(3 of 10)3 to 2: 3 to 2: 60%60% (6 of 10)(6 of 10)2 to 1: 2 to 1: 100% (8 of 8)100% (8 of 8)

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Theories of Anticompetitive Harm:Theories of Anticompetitive Harm:Biotech Merger Cases StudiesBiotech Merger Cases Studies

•• Actual Competition (Amgen/Immunex)Actual Competition (Amgen/Immunex)

•• Potential Competition (Amgen/Immunex)Potential Competition (Amgen/Immunex)

•• Platform Technologies (Ciba/Sandoz)Platform Technologies (Ciba/Sandoz)

•• Innovation Markets (Genzyme/Novazyme)Innovation Markets (Genzyme/Novazyme)

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Case Study Actual Competition:Case Study Actual Competition:Amgen/Immunex (2002 Amgen/Immunex (2002 –– Consent) Consent)

•• Product market:Product market:–– Neutrophil regeneration factors Neutrophil regeneration factors –– treats neutropenia treats neutropenia

•• Competition:Competition:–– Amgen Amgen –– Neupogen and Neulasta Neupogen and Neulasta–– Immunex Immunex –– Leukine Leukine

•• FTC Analysis:FTC Analysis:–– Only two companies with products on marketOnly two companies with products on market–– Entry Entry –– requires lengthy trials and FDA approval (likely 6-10 years and requires lengthy trials and FDA approval (likely 6-10 years and

over $200m)over $200m)–– Thus, merger likely to cause harm by eliminating Thus, merger likely to cause harm by eliminating ““actual, direct, andactual, direct, and

substantial competition between the only two firms in the marketsubstantial competition between the only two firms in the market””

•• Consent Provision: Divest Immunex productConsent Provision: Divest Immunex product

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Case Study Potential Competition:Case Study Potential Competition:Amgen/Immunex (2002 Amgen/Immunex (2002 –– Consent) Consent)

•• Product market:Product market:–– IL-1 inhibitors (block inflammation cascade)IL-1 inhibitors (block inflammation cascade)

•• Stage of Development:Stage of Development:–– Amgen -- Kineret on market; R&D on second generationAmgen -- Kineret on market; R&D on second generation–– Immunex Immunex –– Phase 1 Phase 1–– Regeneron Regeneron –– Phase 2, but likely blocked Phase 2, but likely blocked

•• FTC Analysis:FTC Analysis:–– Merger would cause Merger would cause ““significant anticompetitive effects . . . by eliminatingsignificant anticompetitive effects . . . by eliminating

AmgenAmgen’’s most significant (and likely only) potential competitor, Immunexs most significant (and likely only) potential competitor, Immunex””–– Cites concerns relating to Cites concerns relating to ““potentialpotential”” competition, as well as competition, as well as ““ongoing R&Dongoing R&D””

between the companiesbetween the companies

•• Consent Provision:Consent Provision:–– Amgen to license certain patents to RegeneronAmgen to license certain patents to Regeneron

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Case Study Platform Technologies:Case Study Platform Technologies:Ciba-Geigy/Sandoz (1997 Ciba-Geigy/Sandoz (1997 –– Consent) Consent)

•• Product markets:Product markets:–– ““Gene therapy technologyGene therapy technology”” and and ““R&D for gene therapiesR&D for gene therapies””–– R&D for four specific gene therapiesR&D for four specific gene therapies

•• FTC alleged two bases for anticompetitive harm:FTC alleged two bases for anticompetitive harm:–– Innovation in gene therapiesInnovation in gene therapies

•• Combined patent position post-merger would be so dominant that othersCombined patent position post-merger would be so dominant that otherswould have to invent around or licensewould have to invent around or license

•• Result -- Reduction or delay in research due to combining two dominantResult -- Reduction or delay in research due to combining two dominantgene therapy firmsgene therapy firms

–– Specific markets: generally two most advanced companies in R&D forSpecific markets: generally two most advanced companies in R&D forthese specific productsthese specific products

•• Consent:Consent:–– Gene therapy Gene therapy –– licensing of gene therapy IP licensing of gene therapy IP–– Specific products Specific products –– licensing and divestitures (herbicides and flea- licensing and divestitures (herbicides and flea-

control)control)

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Case Study Innovation Markets:Case Study Innovation Markets:Genzyme/Novazyme (2004 Genzyme/Novazyme (2004 –– Closed) Closed)

•• Product market:Product market:–– Enzyme replacement treatment for Pompe diseaseEnzyme replacement treatment for Pompe disease

•• Stage of Development:Stage of Development:–– Both programs early pre-clinical (at time deal was consummated)Both programs early pre-clinical (at time deal was consummated)

•• Key Issues:Key Issues:–– Consummated merger Consummated merger –– FTC can review deal even if under HSR FTC can review deal even if under HSR

thresholdsthresholds–– Merger to monopoly Merger to monopoly –– is there a presumption of anticompetitive is there a presumption of anticompetitive

harm?harm?–– Race to market Race to market –– does presence of competing R&D program create does presence of competing R&D program create

incentives to get to market fasterincentives to get to market faster–– EfficienciesEfficiencies

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General Guidance on Biotech MergersGeneral Guidance on Biotech Mergers

•• Very Early Development Cases (e.g., Innovation orVery Early Development Cases (e.g., Innovation orPlatform Technology)Platform Technology)–– Enforcement unlikely, because harm is too speculativeEnforcement unlikely, because harm is too speculative–– Possible exception where: merger to monopoly, or patentPossible exception where: merger to monopoly, or patent

portfolio concernsportfolio concerns

•• ““PotentialPotential”” Competition Cases Competition Cases–– Key is assessment product market (who competes or mayKey is assessment product market (who competes or may

compete), andcompete), and–– Whether merging programs are Whether merging programs are ““closest competitorsclosest competitors””

•• ““ActualActual”” Competition Cases Competition Cases–– Analysis much more similar to other product marketsAnalysis much more similar to other product markets–– Concerns focus on price and outputConcerns focus on price and output