Antitrust Alert: Drug Companies Abandon Merger Plans after FTC Challenge

Just two weeks after the FTC filed a complaint seeking an injunction to stop the proposed $3.1 billion acquisition by Australia-based CSL Limited of Talecris Biotherapeutics Holding Corporation, the parties have withdrawn their plans for a merger.  The announcement, made on June 8, 2009, came despite the parties' initial statements that they would "vigorously oppose the FTC's actions."  The FTC complaint and its aggressive public statements about the proposed deal may exemplify a new hard-ball approach to enforcement under the agency’s new leadership. 

The proposed merger, announced last August, would have combined two of the world's three largest producers of plasma-derivative protein therapies used to treat immune, pulmonary, and other diseases.  The FTC's complaint, filed May 27 in the U.S. District Court for the District of Columbia, alleged that a merger of CSL and Talecris would substantially reduce competition in the U.S. markets for four plasma-derivative protein therapies – Immune globulin ("Ig"), Albumin, Rho-D, and Alpha-1.  Specifically, the FTC alleged that the merger would reduce the number of competitors in the U.S. markets for Ig and Albumin from five to four, leaving CSL and another competitor with more than 80 percent of each market.  In the U.S. markets for Rho-D and Alpha-1, the proposed transaction allegedly would have reduced the number of competitors from three to two.

The FTC's complaint also alleged that there has already been dramatic consolidation in the market for plasma-derivative proteins over the past two decades – the number of competitors falling from 13 in 1990 to only five today – and asserted that future entry or expansion into these markets is unlikely due to significant regulatory, intellectual property, and capital requirements in the industry.  The complaint alleged that the proposed acquisition would further consolidate the industry and increase the likelihood of collusive behavior among the remaining competitors.  The FTC also noted that the CSL/Talecris deal was "particularly concerning" because Talecris was undergoing substantial expansion that, absent the acquisition, "would have increased the availability and lowered prices of these life-saving drugs."

Abandoning the transaction, CSL explained that the costs and distractions of a lengthy legal battle with the FTC would not be in the best interests of the company's stakeholders.  CSL will pay Talecris a $75 million breakup fee.  CSL emphasized in a press release that it continues to "fundamentally disagree with the FTC case and matters included in their complaint."  The parties had argued to the FTC that the merger would lead to better services for patients and would allow CSL to supply therapies with greater efficiency through expanded manufacturing.  They had also emphasized that the plasma therapies market was robust and that several international manufacturers were planning to enter the U.S. market in the near future.

In its own press release, the FTC heralded the parties' abandonment of the merger as "a tremendous victory for the patients who rely on life-sustaining treatments" made possible by plasma-derivative products.  The Commission stated it had strong evidence to challenge the merger and emphasized that it "was fully prepared to demonstrate the anticompetitive harm that would have resulted from this acquisition."

The enforcement action against CSL/Talecris is the latest example of the Obama administration's efforts to ramp up antitrust enforcement.  Since filing its complaint in May, the FTC had begun to take a particularly aggressive stance against CSL/Talecris and had issued press releases and court documents accusing CSL and its rivals of cartel-like behavior.  The Commission pointed to several instances of what it considered to be coordinated behavior between CSL and other makers of plasma therapies, and it accused CSL and others of "collecting and cataloguing an extraordinary wealth of timely competitive information" to "signal to one another" and restrain output.  In addition to these allegations, the FTC also petitioned the court to unseal certain parts of its complaint to make them available to the public, arguing that the redacted portions made it nearly impossible for interested third parties to understand fully the nature of the allegations against CSL and Talecris.  

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Toby G. Singer

Aimee E. DeFilippo

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