Pharmaceutical Mergers

• Pages: 181-229

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CHAPTER IV

PHARMACEUTICAL MERGERS

Transactions in the pharmaceutical industry follow the same process

and are subject to the same rules as transactions in any other industry,

except for transactions involving exclusive licenses. This chapter

discusses the merger review process under the Hart-Scott-Rodino (HSR)

Act, the substantive analysis conducted in connection with merger review,

and remedies for potentially anticompetitive transactions.

A. Merger Review Process

The HSR Act requires parties to a transaction that meet certain

jurisdictional thresholds to file a notification with the Federal Trade

Commission (FTC) and the U.S. Department of Justice (DOJ) and to

observe a preclosing waiting period.1 The HSR Act is a procedural statute

designed to give the U.S. antitrust authorities prior notice of economically

significant transactions and the opportunity to investigate and, if needed,

challenge such transactions prior to their consummation.

The parties to a negotiated transaction are permitted to file their HSR

Notification and Report Forms (HSR Forms) after execution of a letter of

intent, memorandum of understanding, or definitive agreement, as long as

they certify a good faith intention to complete the notified transaction.2

For a transaction in which the acquisition is made from a third party rather

than from the issuer or its “ultimate parent entity”3 (e.g., a tender offer or

open market purchase),4 the acquiring person may file its HSR Form after

it has provided the requisite notice to the target company, and in the case

1. 15 U.S.C. §18a. Although both the DOJ and the F TC have authority t o

review and investigate proposed mergers under the HSR Act, only one of

the agencies will conduct the investigation of a proposed transaction.

Pharmaceutical transactions are typically reviewed in the first instance by

the staff attorneys of the Mergers I Division at the FTC.

2. 16 C.F.R. §803.5(b).

3. 16 C.F.R. § 801.1(a)(3)

4. 16 C.F.R§ 801.30(a).

182 Pharmaceutical Industry Antitrust Handbook

of a tender offer, has also publicly announced its intention to make the

offer.5

There is no deadline for submitting the HSR Forms, but the parties are

prohibited from closing the transaction until the statutory waiting period

ends. For negotiated transactions, the waiting period begins to run once

each party to the transaction has submitted completed HSR Forms and

required documentary attachments. 6 In the case of a nonnegotiated

transaction, the waiting period begins after the acquiring party submits its

completed HSR Form.7 The acquiring person must pay a filing fee to the

FTC, the amount of which is based upon the value of the reported

transaction.8 Fee splits (or shifts) can be negotiated contractually by the

parties. Submission of the HSR Forms is not deemed to be complete until

the full amount of the required fee has been received.

The FTC’s Premerger Notification Office (PNO) typically determines

within a few days after filing whether the HSR Forms are complete. If the

PNO finds a material omission or error in the filing, it may require the

resubmission of corrected data or documents, as appropriate, and the

recertification of the HSR Form. If recertification is required, the waiting

period will begin anew after the PNO receives the updated materials and

a new certification.9 If the waiting period associated with a transaction is

not extended, it expires at 11:59 p.m. (Eastern) on the thirtieth calendar

day following the submission of the HSR Forms, or on the 15th calendar

day following the submission of the HSR Forms for all cash tender offers

and acquisitions of assets from sellers involved in bankruptcy

proceedings.10 If the final day of the waiting period falls on a Saturday,

Sunday, or a holiday, however, the waiting period will end on the next

regular business day.11

The waiting period may be shortened if the DOJ and FTC decide not

to take further action, and at least one of the filing parties requests “early

termination.”12 The expiration of the waiting period or the grant of early

5. 16 C.F.R §803.5(a).

6. 15 U.S.C. § 18a(b)(1)(A); 16 C.F.R. §803.10(a).

7. 15 U.S.C. § 18a(b)(1)(A); 16 C.F.R. §803.10(a).

8. 16 C.F.R. §803.9.

9. 16 C.F.R. § 803.10(c)(2).

10. 15 U.S.C. § 18a(b)(1)(B); 16 C.F.R. § 803.10(b)(1).

11. 16 C.F.R. § 803.10(b)(3).

12. See Formal Int. No. 13, Concerning Early Termination of the Waiting

Period Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976

(Aug. 20, 1982), available at http://www.ftc.gov/enforcement/ premerger-

notification-program/statut e-rules-and-for mal-interpretations/ for mal-9.

Pharmaceutical Mergers 183

termination, however, does not bar the agencies from subsequently

investigating the transaction and taking appropriate enforcement action.

Conversely, if FTC or DOJ staff has lingering concerns at the end of

the initial waiting period about the effect(s) the transaction may have on

competition, either agency can extend the waiting period by issuing a

request for additional information and documentary materials (commonly

referred to as a “Second Request”).13 A Second Request is essentially a

broad civil subpoena that requires an extensive production of documents

from the companies’ files and production of a wide range of data.14 The

issuance of a Second Request extends the waiting period during which the

parties are prohibited from closing the transaction. The waiting period is

extended until 30 days after certification of substantial compliance with

the Second Request, or ten days from compliance by the acquiring party

in the case of an all-cash tender offer or the acquisition of assets from a

seller involved in a bankruptcy proceeding.15 The reviewing agency will

decide by the end of the waiting period whether to challenge the

transaction in court (unless the parties agree to extend the waiting period).

1. Applicability of the HSR Act

The FTC has promulgated rules to implement the HSR Act, which are

contained in 16 C.F.R. Parts 801-803. The application of the HSR Act to

a particular transaction requires careful consideration of the HSR Act,

rules, and FTC formal and informal interpretations, as well as the

particular factual circumstances of the transaction.

The HSR Act can apply to almost any form of acquisition transaction,

including a merger, consolidation, tender offer, asset acquisition, private

purchase, or other acquisition of voting securities. The HSR Act also can

apply to certain joint venture formation transactions.16 Even transactions

concerning only a subset of an entity’s assets or voting securities may be

subject to the Act. The HSR Act does not apply to acquisitions of debt

instruments or other acquisitions of securities that do not presently carry

13. 16 C.F.R. §803.20.

14. See generally FED. TRADE COMM’N, MODEL REQUEST FOR ADDITIONAL

INFORMATION AND DOCUMENTARY MATERIAL (June 2010).

15. 16 C.F.R. §803.20(c).

16. Id. §§ 801.40, 801.50.