Appeal panel seconds FTC defeat on infant drug deal - The Deal Pipeline (SAMPLE CONTENT: NEED AN ID?)
Subscriber Content Preview | Request a free trialSearch  


Print  |  Share  |  Reprint

Appeal panel seconds FTC defeat on infant drug deal

by William McConnell  |  Published August 23, 2011 at 11:05 AM
In a major blow to the Federal Trade Commission, a panel of judges on the U.S. Court of Appeals for the 8th Circuit Friday upheld a lower court ruling that affirmed Lundbeck Inc.'s purchase of the only competitor to its treatment for a potentially fatal birth defect.

The FTC is appealing a Aug. 31, 2010, ruling by Judge Joan Ericksen of the U.S. District Court in Minneapolis in which she dismissed an agency monopolization case against Lundbeck.

The appeals court panel, comprised of Steven Colloton, Duane Benton and Richard Kopf, upheld Ericksen's finding that the two drugs were not part of the same market for antitrust purposes even though they are used to treat the same medical condition.

Ericksen ruled that the drugs were not competitors because the price of the drugs played little to no role when physicians chose which one to prescribe. Her decision was derided by many antitrust lawyers and the FTC appealed to the appeals court in St. Louis. Richard Brunell, director of legal advocacy for the American Antitrust Institute and an author of the group's amicus curiae brief supporting the FTC, told The Deal in January that Ericksen's opinion was "one of the worst decisions we've seen in a while out of a district court."

But the appeals court panel in an opinion authored by Benton said that Ericksen's finding must be upheld because it "was not clearly erroneous." The panel also emphasized that whether they agreed with her finding was not at issue. "Whether this court would come to the same conclusion is irrelevant," Benton wrote.

Colloton and Benton were appointed to their posts by President George W. Bush. Kopf is not a member of the 8th Circuit Court of Appeals but rather a U.S. district judge for the District of Nebraska who was designated to serve on the appeals panel for this case. Kopf, who was appointed to his seat by Bush's father, is best known nationally for a ruling striking down a ban on late-term abortions. Kopf issued a concurring statement criticizing some of Ericksen's findings but agreeing that the standard of review obligates the appeals court to uphold her ruling.

FTC Competition Bureau Director Richard Feinstein said the agency is "very disappointed" by the appeals court's ruling and predicted it will have a "harmful impact on the cost of life-saving neonatal drugs."

Noting that Lundbeck increased the price of both drugs by almost 1,300% after the second drug was acquired, Feinstein said, "We continue to believe this constituted illegal anticompetitive conduct and are carefully considering our options."

Lundbeck in 2006 bought the only product that competed with its treatment for a potentially fatal infant disorder named patent ductus arteriosus, or PDA, and then raised prices on both promptly and dramatically. Lundbeck, then named Ovation Pharmaceuticals, acquired NeoProfen, still in trials at the time, as Lundbeck's original PDA treatment Indocin IV was losing patent protection. After acquiring NeoProfen, the company increased the price of a three-dose treatment to $1,500 from $120. When NeoProfen was finally approved later that year, it was offered at $1,449.

The FTC has argued that the steep price increase is unequivocal evidence that the acquisition of NeoProfen was illegal and should be broken up. But Ericksen instead held that even though they treat the same condition the two drugs aren't in the same market because physicians tend to be loyal to one drug or the other and do not consider price when deciding which one to prescribe.

"We're very pleased with the result," said Lundbeck's attorney, Alfred Pfeiffer Jr., a partner in Latham & Watkins LLP's San Francisco office and a member of the firm's litigation department and global antitrust and competition practice group. "The court of appeals got it exactly right. It reconfirms what should be obvious: Any plaintiff has the burden of proving an economically defensible relevant market. There are not free passes around that based on surface similarities," he said. Pfeiffer said that the FTC's case against Lundbeck was plagued by an "unusual lack of economic analysis ... including that they openly stated they were not presenting any analysis whatsoever of cross-elasticity of demand."

The notion that antitrust regulators have defined pharmaceutical markets too simplistically has been discussed among antitrust lawyers before but until the Lundbeck case there have been few opportunities to litigate the issue, said Robert Leibenluft, a partner at Hogan Lovells LLP who specializes in healthcare antitrust.

"In the past the FTC has tended to look at whether drugs have been used to treat the same indication without focusing on how pricing might affect prescribing physicians' decisions or how hospitals or third-party payors might influence those decisions," he said. "Now we have a case which highlights how the government is going to have to give lots of attention to who makes decisions on what drugs are prescribed and what role price plays in those decisions."

Leibenluft said the FTC could seek en banc review by the 8th Circuit's entire complement of judges in hope of overturning the latest ruling. "Pharmaceutical cases are important to the commission and it wouldn't shock me if they try to see what they can do to have this reviewed."

Jon Dubrow, a partner in the Washington office of McDermott Will & Emery LLP said both Lundbeck rulings indicate judges still insist that antitrust regulators properly define a relevant market, despite the FTC and Department of Justice's effort to reduce the importance of market definition when they revised their horizontal merger guidelines last summer. "The main take-away here is that courts are likely to hold them to proving a relevant market," Dubrow said. He said that requirement might be more complicated in healthcare mergers than in other industries because the people who decide what product to use -- doctors -- are different those who have to pay for it -- insurance companies and patients. As a result, he said, there will tend to be less of a connection between a change in a healthcare product's price and in demand for that product.

Tags: Federal Trade Commission | healthcare | Judge Joan Ericksen | Lundbeck Inc. | McDermott Will & Emery LLP | regulatory

Meet the journalists

William McConnell

Assistant Managing Editor: Regulatory & Arbitrage

Movers & Shakers

Launch Movers and shakers slideshow

French mergers and acquisitions lawyer Laurent Faugerolas joined Dechert LLP. For other updates launch today's Movers & shakers slideshow.


Struggling TeleCommunication Systems is sold

After announcing in July that it was exploring strategic alternatives, TeleCommunication Systems Inc. has agreed to sell to Comtech Telecommunications Corp. in a transaction with an enterprise value of $430.8 million. More video