Facing a Federal Trade Commission (FTC) complaint alleging their proposed combination violated federal antitrust laws, CSL Limited and Talecris Biotherapeutics Holdings Corporation announced that they had mutually agreed to terminate their merger agreement on June 8, 2009. Under the merger agreement that was signed in August 2008, Australia-based CSL was to acquire U.S.- based Talecris, combining the second- and third-largest producers of plasma-derivative protein therapies. If the approximately $3.1 billion transaction had gone through, CSL would have eclipsed Baxter International as the world’s largest producer of these therapies.
The FTC filed its complaint seeking to block the deal in late May, 2009. In its complaint, the FTC alleged violations of section 7 of the Clayton Act, 15 U.S.C. § 18, and section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. According to the Commission, the deal would have substantially reduced competition in U.S. markets for four plasma-derivative protein therapies: Immune globulin (Ig), Albumin, Rho-D, and Alpha-1. These therapies treat illnesses such as primary immunodeficiency diseases, chronic inflammatory demyelinating polyneuropathy, alpha-1 antitrypsin disease, and hemolytic disease of the newborn.
In its complaint, the Commission alleged that CSL’s proposed acquisition of Talecris would have resulted in anticompetitive effects in the markets for each of the four products. The deal would have reduced the number of firms in the Ig and Albumum markets from five to four, with CSL and Baxter accounting for more than 80 percent of each market. In the Commission’s view, the proposed acquisition would have enabled the remaining firms to engage more completely and successfully in coordinated interaction in these markets. The number of competitors in the Rho-D and Alpha-1 markets would have been reduced from three to two. The FTC alleged that, in these markets, the proposed merger would have made price coordination easier and facilitated prompt detection of any deviations from the terms of coordination.
The Commission also noted that the proposed merger would have continued the trend of consolidation in the plasma-derivative protein products industry that has occurred over the past two decades. In 1990, there were 13 producers of plasma-derivative products; in 2009, only five remain. According to the FTC’s complaint, the industry has used consolidation as a tool to control capacity and reduce supply, rather than to produce benefits for consumers. Specifically, the Commission alleged that group purchasing organizations, hospitals, and physicians have faced tightening supplies and rising prices as a result of consolidation. In its complaint, the FTC bluntly described the industry as a “tight oligopoly, with a high level of information sharing and interdependence among firms.” The Commission not only alleged that competitive information is widely available from industry sources but also that that firms in the plasma industry regularly engage in signaling, the purposeful sharing of competitive information to coordinate with their competitors.
In the FTC’s view, eliminating Talecris would have been particularly detrimental to competition in each of the four relevant product markets. Absent the acquisition, Talecris would have increased availability and lowered prices of the four therapies. In fact, in its complaint, the Commission asserted that the “aggressively expanding” Talecris is “the one firm in the industry that can thwart the prevailing restrained, oligopolistic approach.” According to the Commission, the other competitors are not large enough to impact significantly the market. Moreover, because of barriers to entry such as significant up-front costs, onerous regulations, and specialized technical experience, the FTC rejected the notion that new entry would reduce the anticompetitive effects of the proposed merger. Finally, the FTC noted the lack of merger-specific efficiencies to offset the potential harm to competition.
The Commission’s action here is notable for several reasons. First, in recent years the predominant issue in pharmaceutical mergers has been the potential for “unilateral effects” where the concern is that the acquisition would eliminate a very close competitor and thereby make it more likely that post-merger the acquiring firm will be able to unilaterally raise prices. In this case, in large part due to the conduct that the FTC alleged had been occurring in recent years, the Commission charged that the merger would facilitate more coordinated interaction, or collusion, among the remaining competitors – not unilateral effects. Second, companies contemplating acquisitions in concentrated markets should also recognize that the nine month period it took the FTC to review this transaction before deciding to challenge is a typical time line for the review of such transactions. Third, the action illustrates how once the FTC decides to file a complaint challenging a merger, particularly where a deal already has been subject to a long investigation, it may be difficult for the parties to hold out for an additional extended period of time to litigate the matter. In this case, the parties initially announced that they would fight the FTC in court, but soon abandoned the effort, in part apparently due to the risk of a preliminary injunction that would block the deal for an additional extended time period while the administrative proceeding ran its course.