On June 1, 2011, the Federal Trade Commission (“FTC”) entered into a consent agreement with Grifols, S.A. (“Grifols”), a Spain based manufacturer of plasma-derived drugs requiring Grifols to make significant divestitures as part of a settlement allowing Grifols to acquire a leading plasma-derived drug manufacturer, Talecris Biotherapeutics Holdings Corp. The antitrust review took approximately a year as the deal was announced on June 6, 2010. The transaction was worth approximately $3.4 billion. The settlement resolves FTC charges that Grifols' proposed acquisition of Talecris would be anticompetitive and would violate federal antitrust laws.
As part of the settlement, Grifols will sell the Talecris fractionation facility in Melville, New York, and Grifols' plasma collection centers in Mobile, Alabama, and Winston-Salem, North Carolina, to Kedrion, an Italian plasma-derived products manufacturer, who will be a new entrant in the U.S. plasma-derived products industry. Grifols will also manufacture three plasma-derived products for Kedrion for several years under a manufacturing agreement.
According to the FTC, Grifols and Talecris currently have approximately 8.4 percent and 22.8 percent of the U.S. plasma derived products market, respectively, and their merger would have left only three meaningful manufacturers with nearly all U.S. sales. The other two major manufacturers of plasma derived products are Baxter and CSL. Therefore, the deal without any remedy would have resulted in a highly concentrated market that has in the past been prone to coordinated activity.
In its complaint, the FTC alleges that the acquisition of Talecris by Grifols would eliminate direct competition for the products in the plasma-derived markets. With fewer competitors in the market, those remaining could more easily work together through coordinated interaction to reduce supply and raise prices for consumers.
In addition, Commissioner Julie Brill issued a concurring statement indicating her hesitation to allow the deal due to the consolidated state of the market. Commissioner Brill strongly supported issuing the Complaint against Grifols because the plasma derived market is already controlled by an oligopoly. Commissioner Brill noted that Congress specifically mandated pharmaceutical companies to reduce prices to health care providers, but allowing the acquisition enhances existing market power, and gives companies less incentive to reduce prices. The commissioner supported the consent order because it provided relief for consumers, even though she emphasized the continuing need to monitor the plasma derived product market. Given that Commissioner Brill is relatively new to her position, it is instructive to understand her specific views on health care matters.
The settlement is noteworthy because it resolves the competitive concerns of a transaction in a concentrated industry where the FTC recently challenged CSL's acquisition of Talecris in May of 2009. No settlement could resolve the anticompetitive effects of the CSL/Talecris merger so the FTC filed a lawsuit to block that transaction. Two years later, the FTC allows one of the smaller manufacturers, Grifols, to acquire Talecris with conditions. An interesting aspect of the remedy is that it allows for a manufacturing/supply arrangement. The key to any remedy is that the buyer obtains assets sufficient to operate an effective competitive business, and whether the buyer has sufficient incentives, competence, resources and experience to restore competition. Here, the FTC required a divestiture of a package of selected assets along with a manufacturing/supply arrangement. A manufacturing/supply contract allows for Grifols to have a continuing relationship with the buyer. Sometimes these agreements can become detrimental or competitively harmful to the buyer so these agreements are usually approached by the FTC with caution. Nevertheless, the proposed order will expedite the entry of Kedrion as an additional competitor into the blood plasma-derived markets, making a potential industry-wide coordinated plan to raise prices more difficult.