Editor

An appellate court ruling could prompt drug companies to more aggressively pursue mergers, acquisitions and product licenses – even in situations where such deals might raise antitrust concerns.

The case in question is Federal Trade Commission v. Lundbeck Inc. It represents the first time the FTC has taken a drug company to court over anti-competitive behavior related to deal making – and the FTC lost.

Usually an FTC challenge to a deal results in the companies agreeing to divest their competitive products. Merck & Co. Inc.'s merger with Schering-Plough Corp. required a handful of divestitures including Schering's NK 1 receptor antagonists, which were picked up by OPKO Health Inc. And when Roche AG and Genentech Inc. joined forces, each made divestitures, including Roche's human growth hormone releasing factor program. (See BioWorld Today, March 10, 2009, and March 13, 2009.)

More rarely, FTC challenges can cause a deal to be abandoned. CSL Ltd. and Talecris Biotherapeutics Inc. dropped their plans for a $3.1 billion merger rather than fight the FTC over competition in the plasma products field. Talecris was later sold to Grifols SA for $3.4 billion. (See BioWorld Today, June 9, 2009, and June 8, 2010.)

But in the case of Lundbeck, the FTC felt it had a strong enough case to go all the way to trial. And Lundbeck decided not to give in.

The story began in 2005, when Ovation Pharmaceuticals Inc. acquired Indocin I.V. (indomethacin for injection) from Merck & Co. Inc. The drug is used to treat patent ductus arteriosus (PDA), a disorder that prevents holes from healing in the hearts of premature infants. A few years later, Deerfield, Ill.-based Ovation also acquired NeoProfen (ibuprofen lysine injection), a drug used for the same condition, from Abbott.

The FTC sued Ovation in 2008, challenging the acquisition of NeoProfen from Abbott on the grounds that the drug was the only available treatment for PDA, other than Indocin I.V. While Merck had previously charged $77.77 per treatment with Indocin I.V., Ovation was charging $1,614.44, and the firm had raised the price of NeoProfen 13-fold, to $1,522.50.

Congress also launched an investigation into what some called price gauging, not just by Ovation but by other acquirers of older drugs for rare diseases. Yet the scandal didn't make Ovation any less attractive to H. Lundbeck A/S, which bought the firm for $900 million in 2009. (See BioWorld Today, July 28, 2008, and Feb. 10, 2009.)

In the end, Lundbeck was right not to worry: The district court dismissed the FTC's case after a bench trial in 2010, and now the Eighth Circuit appellate court has agreed. Why?

As Cooley LLP attorney Howard Morse explained, the FTC failed to prove Indocin I.V. and NeoProfen were in the same market. Yes, the drugs treat the same disease, but the definition of a market depends on the assumption customers will switch from one product to the other depending on price. Ovation used physician testimony to prove doctors don't factor the cost of treatment into their decisions.

What does that mean for the drug industry? Morse suggested – perhaps more important – is what it doesn't mean. It doesn't mean the FTC will stop scrutinizing drug industry deals. Biotech and pharmaceutical company deals have been a "very active area" for the FTC for 20 years, Morse said, and "that will no doubt continue."

But what the Lundbeck case does show is that defining the market will be key in antitrust cases. Morse noted that drug companies usually try to define a market in as broad of terms as possible, reasoning that their two competitive products, when combined, will hold less market share if the overall market is larger. But in this case, arguing for a very narrow market definition helped Lundbeck establish that the drugs could be considered to serve different markets.

"What this case shows is there may be times when an argument can be made that two competing drugs are in separate markets," Morse said. He cautioned, however, that he "wouldn't go as far as to say every time a drug is [chemically] different, the merger will go through."

Morse also noted that while the FTC has trended away from focusing on markets and has instead emphasized pricing, internal company documents and other factors, the courts are bringing the focus back to the market definition.

Another interesting point: in this case at least, doctors did not consider price in making their treatment decisions. Despite the pressures of managed care, tiered reimbursement, and other efforts to push prescribers toward lower priced drugs, "doctors are not making choices based on this kind of influence and pressure, but on safety and efficacy," Morse said.