US Antitrust Review May Not Pose Threat To Drug Co Mergers

Even if U.S. antitrust regulators are worried about consolidation in the pharmaceutical industry, they may have a tough time making a case against two recently announced mergers: Merck & Co.'s (MRK) purchase of Schering-Plough Corp. (SGP) and Pfizer Inc.'s (PFE) acquisition of Wyeth (WYE).

Neither merger appears to involve significant overlap of drug products - both for drugs being sold and products in development - allowing the companies to potentially skirt around antitrust restrictions that can complicate large corporate mergers.

The U.S. Federal Trade Commission, when analyzing pharmaceutical mergers, traditionally looks at whether the companies have overlapping on-market drugs, pipeline drugs and research and development efforts. Executives involved in the Pfizer-Wyeth and Merck-Schering mergers have said their companies have complementary offerings. Observers largely agree.

"There don't seem to be a lot of overlaps," said Karen Bokat, a Washington partner with Wiley Rein LLP and a former long-time FTC attorney.

Separately, Roche Holding AG (ROG.VX) on Thursday reached an agreement to buy the remaining shares of biotechnology company Genentech Inc. (DNA), the third major drug deal in recent weeks. But because the Swiss drug maker already owns more than half of Genentech and the two companies have collaborated closely, the deal might not raise similar antitrust questions.

In past drug-company mergers, when product overlaps have raised concerns about harms to competition, regulators have required the companies to sell their stakes in some drugs as a condition for merger approval.

"The FTC has often tried to focus on where the overlaps were rather than trying to block a deal," Bokat said. "I can't remember the last time the agency tried to block a drug merger."

Chul Pak, a New York lawyer who worked on merger cases for eight years at the FTC, said a wave of consolidation in the drug industry may "raise red flags" at the commission, but he said the FTC would have difficulty bringing an antitrust challenge based on general competitive concerns about industry consolidation.

"The FTC would have a tough time in court if there weren't substantial overlaps," said Pak, a partner at Wilson Sonsini Goodrich & Rosati. "On a pure antitrust analysis, the courts are going to say that there are eight or nine competitors left."

Even though the mergers will reduce the number of major U.S. drug companies, the pharmaceutical industry is a global market that still has several major international drug makers in the mix, Pak said.

Bokat, meanwhile, also noted that biotechnology companies provide competition in the market for drug innovation. "You still have a lot of innovation bubbling along," she said.

Albert Foer, the president of the American Antitrust Institute, which supports strong antitrust enforcement, said it is important for the FTC to look beyond the traditional way it has examined drug deals to take into account the big-picture concerns about industry consolidation.

"What happens to innovation?" Foer asked. "What happens in the pharmaceutical industry when the number of researchers, the number of projects and the number of decision makers is reduced?

"All of a sudden you have many fewer gateways for new drugs," he said.

Bokat, of Wiley Rein, said adopting this sort of focus would require a new approach by the FTC.

But, referring to President Barack Obama's pledge to reinvigorate antitrust enforcement, she said, "Maybe in a new administration you'll see some new thinking."

-By Brent Kendall, Dow Jones Newswires; 202-862-9222; [e-mail]