On January 20, 2012, the Federal Trade Commission (“Commission”) issued a statement by Chairman Leibowitz, Commissioner Ramirez, and Commissioner Brill stating the Commission’s intention not to seek review by the U.S. Supreme Court of the Eighth Circuit Court of Appeal’s decision in FTC v. Lundbeck, Inc. This statement was accompanied by a separate statement by Commissioner Rosch.
In 2008, the FTC sued Lundbeck, Inc. (then Ovation Pharmaceuticals, Inc.) to enjoin the acquisition of NeoProfen and from forcing hospitals to pay monopoly prices for drugs used to treat a life-threatening heart defect in premature babies. Only two pharmaceutical treatments existed for this congenital disorder: Indocin and NeoProfen. Lundbeck purchased the rights to Indocin in 2005 (which was in the pipeline and had not yet reached the market) and immediately after its 2006 purchase of NeoProfen, prices for the drug increased over 1300%. The district court ruled for Lundbeck based on its opinion that the FTC failed to identify a relevant market that was harmed by Lundbeck’s acquisition of the NeoProfen, and the Court of Appeals upheld the district court’s decision. (For more on the district court’s ruling, see FTC Loses Merger Trial Because Of Market Definition, October 12, 2010) Although the FTC disagrees with both courts, it declined to seek certiorari in order to “…turn [its] energies to other enforcement priorities.”
In a separate statement, Commissioner Rosch listed several reasons for seeking Supreme Court review. He remarked that antitrust law failed to protect the most vulnerable of consumers, premature babies with congenital heart defects, when the courts allowed Lundbeck to charge whatever the market, that is, “desperate, frightened families” can bear. He argued that the district court committed an error of law and ignored basic economic principles by focusing only on cross-price elasticity of demand, to the erroneous exclusion of non-price considerations. He also argued that such an error by the district court allowed an economic expert’s opinion to trump undisputed findings of fact made by the court itself, allowing the court to ignore the parties’ own business documents, which showed that Lundbeck advantaged NeoProfen and disadvantaged Indocin in the marketplace. Moreover, Commissioner Rosch criticized the court’s failure to consider a hypothetical market, a common tool in merger analysis to postulate alternatives in which the merger did not occur.
The Commission took into account a number of factors and reasons for not seeking review in this case. As it stands, there are some negative implications for FTC reviews of pharmaceutical and biotech deals. The Eight Circuit decision now stands and it may result in more aggressive pharmaceutical merger activity. Pharmaceutical and biotech firms may not be so willing to enter into consent agreements requiring divestitures or walk away from the government’s threat of challenge given the Lundbeck decision. The other commissioners, however, must have reasoned that a loss at the Supreme Court would have made it even more difficult for the FTC to challenge pharmaceutical and biotech deals in the future.