On September 27, 2017, the FTC announced that Integra LifeSciences Holdings Corp. (“Integra”) and Johnson & Johnson (“J&J”) agreed to a divestiture of five neurosurgical medical device product lines to settle FTC allegations that Integra’s proposed $1 billion acquisition of J&J’s Codman Neuro division (“Codman”) would negatively impact competition in those markets.
Both companies supply a range of devices used in operative neurosurgery, hydrocephalus management and neuro-critical care. According to the FTC’s complaint, the acquisition as it was proposed would likely harm competition in the U.S. markets for (1) intracranial pressure monitoring systems, where Integra and Codman are the only significant suppliers of these systems, together accounting for 94% of the U.S. market; (2) cerebrospinal fluid collection systems, where Integra and Codman are two of the only three competitively significant suppliers of these collection systems in the United States, together accounting for 71% of the market; (3) non-antimicrobial external ventricular drainage catheters, where Integra and Codman are two of the only three competitively significant suppliers of these catheters in the United States, together accounting for 46% of the market; (4) fixed pressure valve shunt systems, where Integra and Codman are two of the only three competitively significant suppliers of these catheters, accounting for a combined 38% of the U.S. market; and (5) dural grafts, where Integra and Codman together control 75% of the U.S. market.
Under the terms of a settlement with the FTC, Integra will sell these medical device product lines to California-based Natus Medical Incorporated (“Natus”), which sells related neurological medical devices. To better guard against any erosion to competition, the companies also must divest Integra’s manufacturing facility in San Diego, and the parties must supply Natus with cranial access kits, which provide tools used during cranial surgery and are often sold with the divestiture assets, until Natus is able to secure its own supply source.
The FTC’s enforcement action demonstrates that it is still continuing for force divestitures to remedy alleged competitive harms in concentrated markets. Here, the competitive harm alleged was straightforward in the five different markets as the merging parties appeared to have either substantial share or they were two of the three competitively significant suppliers in each of the markets where they agreed to a remedy. The action also demonstrates that the FTC is continuing to require upfront buyers and the FTC went the extra step to make sure the buyer obtained additional assets and a short term supply agreement so that it can step in to restore competition to where it was prior to the merger.