Antitrust Lawyer Blog

Commentary on Current Developments

On March 30th, Fresenius AG agreed to sell 91 outpatient kidney dialysis clinics and financial interests in 12 more to settle Federal Trade Commission charges that Fresenius' purchase of rival dialysis provider Renal Care Group, Inc. would violate federal antitrust laws. When the deal is finalized, Fresenius will be the largest provider of outpatient dialysis services in the United States.

The German firm Fresenius AG, and the companies it controls, including Fresenius Medical Care AG&Co. KGaA; Fresenius Medical Care Holdings, Inc.; and Florence Acquisition, Inc., proposed to acquire RCG for approximately $3.5 billion. In 2005, Fresenius had revenues of approximately $4.1 billion from providing outpatient dialysis services to about 89,000 renal disease patients at about 1,155 outpatient dialysis clinics nationwide. RCG, based in Nashville, Tennessee, is the third-largest provider of outpatient dialysis services in the United States, with approximately 450 clinics serving more than 32,000 patients. In 2005, RCG had earnings of $1.5 billion providing dialysis treatment.

According to the FTC's complaint, most end-stage renal disease patients require dialysis three times a week, in sessions lasting between three and five hours each. For patients with ESRD, dialysis treatments replace the lost function of their kidneys by removing toxins and excess fluid from their blood. The only alternative is a kidney transplant but wait time for donor kidneys can be several years, and some patients are not viable transplant candidates. Dialysis services are local in nature because most patients are unwilling or unable to travel long distances for the service. With few exceptions, the 66 outpatient dialysis markets identified by the Commission have no more than one significant dialysis provider other than Fresenius and RCG. The consent agreement would remedy the illegal anticompetitive effects of the acquisition, by requiring that Fresenius sell 91 outpatient dialysis clinics and RCG's joint venture equity interests in 12 additional clinics to National Renal Institutes, Inc. (“NRI”), a wholly-owned subsidiary of DSI Holding Company, Inc

On March 29th, the Federal Trade Commission announced its intention to conduct a study of the use, and likely short- and long-term competitive effects, of authorized generics in the prescription drug marketplace. An authorized generic is chemically identical to a particular brand-name drug, but the brand-name manufacturer authorizes it to be marketed in a generic version. This study continues the FTC's research and development efforts to identify and report on marketplace trends and developments that affect the price of prescription drugs. Comments on the FTC's “Authorized Generic Drug Study” were accepted until June 5, 2006. The Commission also authorized the staff to use compulsory process to collect the information needed for the study from approximately 80 brand-name drug manufacturers, 10 authorized generic companies, and 100 independent generic manufacturers.

In certain circumstances, the Hatch-Waxman Act allows the first-filing generic competitor of a branded drug a 180-day marketing exclusivity period. This marketing exclusivity period granted to certain generic first-filers, however, does not preclude competition from “authorized generics” that have an approved New Drug Application on file with the FDA. Recently, brand-name drug makers began marketing authorized generics at exactly the same time the generic first-filer is beginning its 180-day marketing exclusivity period, leading to questions about the effects of authorized generics on pharmaceutical competition.

The goal of the Commission's study will be to assess the likely short- and long-run effects of market entry by authorized generics on generic drug competition. Among other things, the study will examine actual wholesale prices (including rebates, discounts, etc.) for brand-name and generic drugs, both with and without competition from authorized generics; business reasons that support authorized generic entry; factors relevant to the decisions of generic firms about whether and under what circumstances to seek entry prior to patent expiration; and licensing agreements with authorized generics. The data collected will enable the FTC to advance the understanding of the effects of generic entry on prescription drug prices – in particular, the role of the 180-day exclusivity period in generic competition prior to patent expiration – beyond what is available in the economic literature today.

On March 28th, Federal Trade Commission Chairman Deborah Platt Majoras announced the appointments of two new deputy directors of the FTC's Bureau of Competition. Kenneth L. Glazer joins the agency from The Coca-Cola Company, and David P. Wales, Jr. from Cadwalader, Wickersham & Taft LLP's Washington office.

On March 27th, the Federal Trade Commission and the U.S. Department of Justice jointly released a “Commentary on the Horizontal Merger Guidelines” that continues the agencies' ongoing efforts to increase the transparency of their decision-making processes – in this case, with regard to federal antitrust review of “horizontal” mergers between competing firms. The analytical framework and standards used to scrutinize the likely competitive effects of such mergers are embodied in the Horizontal Merger Guidelines, which the agencies jointly issued in 1992, and revised, in part, in 1997. The Commentary, which is available now on both agencies' Web sites, explains how the FTC and DOJ have applied particular Guidelines' principles, in the context of actual merger investigations.
The Commentary contains an introductory chapter that describes the fundamental legal principles that govern the agencies' law enforcement approach to merger analysis, noting that “[t]he core concern of the antitrust laws, including as they pertain to mergers between rivals, is the creation or enhancement of market power.” It follows with an overview of the Guidelines' central focus – the likely competitive effects of mergers – and of the intensively fact-driven nature of merger investigations, as well as the use of evidence in addressing multiple analytical elements within the Guidelines' framework. In separate chapters, the Commentary addresses key Guidelines' elements including market definition and concentration; the potential adverse competitive effects of mergers, including coordinated interaction and unilateral effects; entry conditions; and efficiencies. Throughout the Commentary there are short summaries of actual investigations into proposed mergers that one of the agencies conducted. These cases are included illustratively to enhance understanding of particular points under discussion in the narrative.

On March 27th, Federal Trade Commission Chairman Deborah Platt Majoras kicked off an International Competition Network workshop to discuss the implementation of the ICN’s recommended practices for merger notification and review. These standards are designed to make the process for reviewing mergers more effective and efficient for both the merging parties and the sometimes multiple agencies reviewing the merger. Participating in the two-day workshop in Washington, DC, hosted by the FTC and the Department of Justice’s Antitrust Division, were nearly 100 delegates from 35 jurisdictions. The ICN is made up of 97 antitrust agencies from 85 countries, and is supported by non-governmental experts from around the world.

Andre Barlow

The staff of the FTC stated on March 18 in an advisory opinion letter that the proposed plan by a physician-hospital organization that would involve collective bargaining with insurers over doctor fees likely would violate federal antitrust laws. The staff concluded that the price and other competitive restraints proposed by the network were not reasonably necessary to achieve any of its potential efficiencies.
Under the proposed program, Suburban Health Organization (“SHO”), an Indiana non-profit corporation, would be the exclusive bargaining and contracting agent with most insurers for 192 primary care physicians employed at SHO’s eight member hospitals. Under the proposed plan, SHO hospitals would deal only through SHO, at prices set by the group, when selling their employed physicians’ services to most insurers. The FTC staff advisory opinion letter states that the plan would eliminate price competition that otherwise would exist among the hospitals for the physicians’ services. Consequently, the staff analyzed whether the price agreement could be justified in light of the other aspects of SHO’s proposal to improve care and create efficiencies in the delivery of physician services.

Andre Barlow

On March 14th, the FTC announced that Valassis Communications, Inc., a leading producer of free-standing newspaper inserts (“FSIs”) in the United States, has settled charges that it attempted to collude with News America Marketing, its only FSI rival, to eliminate competition between the two companies. Under the consent order settling the FTC’s complaint, Valassis is barred from engaging in, or attempting to engage in, similar anticompetitive conduct in the future. FSIs are multi-page booklets containing discount coupons for the products sold by various firms. They are inserted into newspapers for distribution to consumers. For the manufacturers of consumer-packaged goods and others, FSIs are a uniquely efficient way to distribute coupons on a mass scale. On a typical Sunday, Valassis’ and News America’s FSIs are distributed to more than 50 million households in hundreds of newspapers nationwide.
Valassis, a publicly traded company based in Michigan, holds conference calls with securities analysts on a quarterly basis. The calls are open to the public and can be heard live on the Internet. According to the FTC, during such a call in July 2004, Valassis invited its direct competitor, News America, to join in a scheme to allocate FSI customers and fix FSI prices and thereby end an ongoing price war between the two companies. Valassis’ goal, the FTC contends, was to raise FSI prices, which had decreased from about $6.00 per full page per thousand booklets in 2001, to less than $5.00 per full page per thousand booklets in 2004.

Andre Barlow

On March 8th, Botox marketer Allergan, Inc., and Inamed Corporation agreed to divest the rights to develop and distribute Reloxin, a potential Botox rival, in order to settle Federal Trade Commission charges that Allergan’s $3.2 billion purchase of Inamed would violate federal antitrust laws. The FTC alleges that Allergan’s purchase of the expected first serious competitor to Botox likely would reduce competition and force consumers to pay higher prices for the botulinum toxin type A products used by millions of Americans to temporarily erase frown lines and wrinkles. Under the terms of the FTC settlement, the companies will return the development and distribution rights to Reloxin to Ipsen Ltd., its U.K.-based manufacturer.

 

Andre Barlow

On March 5, AT&T announced its intention to merge with Bellsouth. While the Antitrust Division is conducting its investigation of the proposed merger, very little with regards to conditions or divestitures are expected because there is little overlap between the companies’ two networks. One area of concern is the area of wholesale dedicated access and spectrum.

 

Andre Barlow

On December 20, 2005, the Department of Justice’s (“DOJ”) Antitrust Division entered into a settlement agreement with UnitedHealth to resolve the DOJ’s antitrust concerns related to UnitedHealth’s acquisition of PacifiCare.  The settlement agreement covered three geographic markets:  Tucson, Arizona; Boulder, Colorado; and California.

Tucson, Arizona

The DOJ was concerned that UnitedHealth and PacifiCare were among the principal competitors in the market for the sale of commercial health insurance to small-group employers in Tucson, Arizona.  Besides UnitedHealth and PacifiCare, there were few other substantial competitors.  Many small-group employers had only one, or in some cases two, additional competitive options in Tucson, Arizona.  Indeed, UnitedHealth and PacifiCare were the second and third largest sellers of commercial health insurance to small-group employers in Tucson.  UnitedHealth had an approximate 16% share of the small-group employer commercial health insurance lives in Tucson; PacifiCare’s market share was approximately 17 percent.  The combined share would have been approximately 33%, which was roughly equal to the market share of the largest commercial health insurer in Tucson, Arizona.