When the Price Isn't Right—Lundbeck and a Path to Analyze Competition in Drug Research and Development

• Author: Kent Bernard
• Published date: 01 September 2014
• DOI: 10.1177/0003603X1405900306
• Date: 01 September 2014
• Subject Matter: Lundbeck: A Prescription Drug Merger—Articles & Commets

THE ANTITRUST BUL L E T I N :Vol. 59, N o. 3/Fall 2 014 :527

When the price isn’t right—

Lundbeck and a path to

analyze competition in drug

research and development

BYKENT BERNA RD*

The classic starting point in antitrust merger analysis is to view

market definition and competition in terms of price, which was

reaffirmed in the 2010 Horizontal Merger Guidelines. But in some

cases, such as FTC v. Lundbeck, price is not a determining factor. This

article begins by looking at Lundbeck in enough detail to understand

why the court rejected the FTC’s price-driven market definition

arguments. It then lays out a way to analyz e potential competitive

impact in such nonprice, patent-centric cases. To predict whether or

no t a tr an sa ct io n wi ll l es se n co mp et it io n in r es ea rc h an d

development requires an understanding of the industry at issue and

an appreciation for the facts (such as patent life) that motivate

investment decisions.

KEY WORDS:markets, price, patent life, research, PDA, doctors

© 2014by Federal Legal Publications, Inc.

* Adjunct Professor, FordhamUniversity School of Law.

AUTHOR’S NOTE: I would like to thank Commissioner Thomas Rosch and Darren

Tucker of the U.S. Federal Trade Commission; Herbert Hovenkamp; Daniel Sokol;

James Keyte; Karen Silverman; and Lindsay McSweeney for their comments on ear-

lier drafts of this paper, and Malcolm Coate for his help and guidance. I also would

like to thank Raul Damas of Pfizer for his help on industry economics. Any errors or

oversights are entirely my responsibility.

I. INTRODUCTION

Much of antitrust merger analysis over the past twenty-five years has

relied on the idea that a market can be defined by measuring changes

in dem and w hen th e pri ce of on e goo d chan ges w ith re spec t to

another. Economics has been used as a tool to predict when allowing

two companies to merge will likely lead to higher prices. Indeed, the

vast majority of the literature on mergers relies on this economic par-

adigm. 1In 2010, the Depa rtment o f Justice and the F ederal Trade

Commission (FTC) issued revised Horizontal Merger Guidelines,

which focused on showing where and when a merger would lead to

an unacceptable level of “upward pricing pressure.”2

Much of the debate about the new Guidelines focused on whether

defining a market was a necessary first step, or whether the agencies

could go straight to evidence of increased prices.3The underlying

assumption is that product competition is a factor of price. Hence, the

“small but significant nontransitory increase in price” test (SSNIP),

which is utilized in many countries in making market analyses.4The

528 :THE ANT I T R U S T BULLETIN:Vol. 59, No. 3/F all 2014

1The issue ofwhether or not defininga market is necessaryas an abstract

issue is w ell beyo nd the sco pe of this a rticle . That que stion ha s inspir ed

extensive academic debate. See Special Issue: Louis Kaplow’s Why (Ever) Define

Markets?, 57ANTITRUST BULL. 655 (2012). Regardless of the final outcome of that

debate, it is clear that the courts require market definition in merger cases and

that anyone trying to clear, or block, a merger needs to grapple with the issue

of the relevant market. For an excellent overview and analysis, see Malcom B.

Coate & Joseph B. Simons, In Defense of Market Definition, 57 ANTITRUST BULL.

667 (2012). See alsoABA, AntitrustLaw Developments345 (7th ed. 2012).

2U.S. DEP’T OF JUSTICE &FEDERAL TRADE COMM’N, Horizontal Merger

Guidelines (2010), available at http://www.justice.gov/atr/public/guidelines

/hmg-2010.pdf. While no standard is set out for what is an “unacceptable”

level of upward pricing pressure, the focus clearly is on price.

3Se e Pre ss R e le as e, F TC , Fe de ra l Tra de C om mi ss io n an d U. S.

Department of Justice Issue Revised Horizontal Merger Guidelines, available

at http://www.ftc.gov/opa/2010/08/hmg.shtm.

4One au tho r iden tif ies th e tes t as bei ng us ed in so me fa shio n in

Australia, Brazil, Bulgaria, Canada, the European Union, Israel, the

Netherlands, New Zealand, the United Kingdom, and the United States. See

Kaushal Sharma, SSNIP Test: A Useful Tool, Not a Panacea, COMPETITIO N L.

REPORTS, Apr.–May 2011, at 188, 189.