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March 01, 2017

Pharmaceutical Antitrust Enforcement in the Trump Administration

Forecast Based on Past Administrations and Current Trends

Pharmaceutical Antitrust Enforcement in the Trump Administration

Source: www.whitehouse.gov

  • Competition in the pharmaceutical industry has long been a priority for the federal agencies responsible for enforcing the antitrust laws: the FTC and the antitrust division of the DOJ. Public attention to prescription drug pricing has amplified this focus over the past several years, and federal and state antitrust enforcers have filed a series of high-profile law enforcement actions. With the change in Presidential administration, both the FTC and DOJ will be under new leadership. Although President Trump has yet to fill many of the key antitrust posts, the administration’s interim appointments, experience from past Republican administrations, and statements and actions by key individuals guiding antitrust policy for the transition team provide useful insights into the direction of antitrust enforcement. In this article, we provide practical guidance on how these changes can be expected to impact the pharmaceutical industry. 

  • Consistent Approach for Reviewing Mergers and Acquisitions

    One area where we do not expect significant changes in antitrust enforcement is the FTC’s review of pharmaceutical mergers and acquisitions. The FTC carefully scrutinizes pharmaceutical transactions, including both deals that must be reported under the Hart-Scott-Rodino (HSR) Act and, increasingly, certain deals that fall outside the HSR reporting requirement.1 The FTC has developed well-established methods for reviewing pharmaceutical transactions, involving actively marketed products as well as pipeline products, and spanning both the branded and generic segments. While the FTC’s approach to particular issues has evolved over time, the overall framework for evaluating pharmaceutical transactions has remained relatively consistent across Democratic and Republican administrations. We expect that the new administration will continue to apply similar principles.

  • Ongoing Investigation into Allegations of Collusion

    We also doubt the presidential transition will result in significant changes in criminal antitrust enforcement, which has been a major priority for Republican and Democratic administrations alike. In December 2016, the DOJ announced criminal charges against two senior generic pharmaceutical executives, the first charges to result from “an ongoing federal investigation into price fixing, bid rigging, and other anticompetitive conduct.”2 While the scope of the DOJ’s investigation remains unclear, we do not expect the change in administration will alter the government’s course.

  • Continued Focus on Reverse-Payment Settlements, But Monetary Remedies Disfavored

    We also expect that the FTC will continue to devote considerable resources to investigating and challenging reverse-payment or “pay-for-delay” patent settlements, in which the seller of a branded drug product agrees to compensate a potential generic challenger in exchange for its agreement to drop its patent challenge and stay off the market for a period of time. The FTC’s efforts to end this practice have been supported by both Republican and Democratic commissioners. For example, acting FTC Chairman Maureen Ohlhausen, in outlining her enforcement priorities for the agency, emphasized the continued importance of “clamping down on pay-for-delay agreement that cost consumers billions of dollars.”3 Similarly, former FTC Commissioner Josh Wright, who has advised the Trump administration transition team on antitrust enforcement, has stated that “Identifying and challenging anticompetitive pay-for-delay agreements . . . has been one of the Commission’s top priorities for many years.”4

    While the FTC’s campaign against these agreements will likely continue, we expect the new leadership will be more selective in the enforcement tools it utilizes. Under recent Democratic leadership, the FTC has sought and obtained large monetary remedies in pharmaceutical antitrust cases, including a record-breaking $1.2 billion settlement of its reverse-payment suit against Cephalon.5 Although the two Republican commissioners serving at the time supported the settlement in that case, they cautioned that disgorgement is an “extraordinary remedy” that should be used sparingly.6 In other cases, Republican commissioners have generally opposed the imposition of monetary remedies.7 We expect that, under Republican leadership, the FTC will pursue disgorgement only in extraordinary circumstances.

  • Cautious Approach to Unilateral Conduct by Innovative Companies, Except for Abuses of Government Process

    In general, Republican appointees tend to favor a less interventionist approach to antitrust enforcement, particularly for unilateral conduct by a single firm (as opposed to coordinated conduct between competing firms). In addition, Republican appointees have often advocated for greater deference to patent rights, especially in innovation-driven sectors such as the research-based pharmaceutical industry.8 Given these principles, we expect that the new leadership will be unlikely to push for aggressive antitrust enforcement for pharmaceutical life-cycle management strategies, or “product hopping.” Acting FTC Chairwoman Ohlhausen, for example, has emphasized that antitrust enforcers should “tread very lightly” when it comes to allegations of product hopping and other changes in product designs.9 We note, however, that we may see additional state and private antitrust suits challenging this type of conduct.

    Despite this general reluctance to impose antitrust liability for unilateral conduct,  prominent Republican appointees have advocated for vigilant enforcement against potential anticompetitive abuse of government process, such as efforts to manipulate the FDA regulatory system.10 The FTC recently filed a lawsuit alleging that Shire ViroPharma abused the FDA’s Citizen Petition process to prevent generic competition through a “campaign of serial, repetitive, and unsupported filings.”11 Acting Chairman Ohlhausen has also called for the agency to take a “hard look” at potential abuses of FDA-mandated risk evaluation and mitigation strategies (REMS) that may prevent generic companies from accessing the reference listed drug to conduct bioequivalence testing.12

  • Conclusion

    While the new administration can be expected to scale-back antitrust enforcement in certain areas and shift enforcement priorities, we do not expect a “hands off” approach. Especially for the FTC’s review of pharmaceutical mergers and acquisitions and the DOJ’s investigation of potential criminal antitrust violations, we expect to see continuity as Republican appointees fill key leadership posts. We may see more significant changes in the enforcement approach to unilateral conduct by innovative firms, where we expect the new administration will be more cautious to impose antitrust liability and more deferential to patent rights.

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