The Federal Trade Commission and the Department of Justice issued the 29th Annual Hart-Scott- Rodino Report on July 24, 2007. Under the Hart-Scott Rodino Act, the agencies must submit a report to Congress on an annual basis outlining the major accomplishments of each agency under the HSR Act during the most recently completed fiscal year. The 29th Annual Report covers fiscal year 2006 (FY06), which ran from October 1, 2005, until September 30, 2006. The report contains several items of interest relating to merger enforcement in the life sciences industry. The report summarizes all of the merger enforcement actions brought by either agency during FY06 relating to deals filed under the HSR Act. In FY06, the FTC challenged 16 transactions, leading to nine consent orders and seven abandoned transactions. The Antitrust Division challenged 16 transactions during this same time period, leading to eight consent orders, two abandoned transactions, and six transactions that were restructured to address competitive concerns raised by staff.1 The report identifies seven enforcement actions in deals in the life sciences area – two pharmaceutical, three medical devices, and two outpatient dialysis transactions.
The report shows that although the overall number of transactions reported under the HSR Act for FY06 grew slightly from the previous years, the number of filings are still less than half the total number of filings made toward the end of the last merger wave in the late 1990s and early 2000s. However, the number of 2nd Request investigations conducted by both agencies, as a percentage of total transactions filed, continues to be in the 2-4 percent range, which has been the general range of Second Requests investigations in every year since 1997.
The report provides data on the number of deals that are reported under various industry codes, which can be used to make some general observations regarding the life sciences area. First, pharmaceutical deals fall exclusively to the FTC – the FTC obtained clearance2 in 43 transactions under this industry code while the DOJ did not investigate any deals in this category. Second, the data suggests that transactions in these areas garner more attention than the average transaction by the fact that the agencies open an investigation (suggesting that they had serious questions about the transaction) in a far higher percentage of deals in these areas than on average for all transactions reported. For example, the agencies investigated approximately 17 percent of all transactions reported for FY06, but in the industry code that includes pharmaceuticals, the agencies investigated approximately 40 percent of the transactions filed. Similarly, the agencies investigated over 24 percent of all transactions reported in the codes covering medical devices, and over 50 percent of the transactions under codes for health services.
Even so, the percentage of transactions in these categories that underwent very serious scrutiny from the agencies (i.e., receives a 2nd Request) is relatively consistent with the number of transactions that receive a Second Request across all industries. Overall, approximately 14 percent of those transactions which were investigated received a Second Request. Similarly, approximately 10-14 percent of the deals in these life science categories raised significant enough issues to warrant a Second Request.
Although more data than available in the HSR Annual Report would be necessary to reach any definitive conclusions regarding the antitrust agencies enforcement proclivities towards transactions in the life science industry, these numbers do suggest that this is an area that continues to receive far greater scrutiny than most other industries.