Protecting challenges to monopolies

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On January 18, 2017, the Commission settled its recent challenge to the 2013 acquisition by Questcor Pharmaceuticals, Inc. (subsequently acquired by Mallinckrodt plc) of rights to the drug Synacthen from Novartis AG. The Commission alleged that Questcor currently holds a monopoly position over adrenocorticotropic hormone (ACTH) therapies with its drug Acthar, and that through the acquisition Questcor eliminated nascent competition from Synacthen, a synthetic ACTH drug. ACTH is the standard of care for treating Infantile Spasms, a rare but extremely serious seizure disorder afflicting babies. It is also prescribed as a later-line therapy for several other indications.

Acthar, which the FDA first approved in 1952, contains naturally derived ACTH. Questcor acquired the drug in 2001 and increased its price from $40 per vial to over $34,000 per vial by the time of the Commission’s complaint. Acthar sales reached approximately $1.2 billion in 2015. Even though relevant patents are long expired, no generic version of Acthar is available, due to regulatory challenges to establishing bioequivalence. Synacthen, likewise, is a decades-old ACTH drug approved in Europe, Canada, and elsewhere and prescribed for the same indications as Acthar. The high price of Acthar made Synacthen an attractive target for potential acquirers, which saw an opportunity to bring it to the United States and take significant sales from Acthar at a lower price. By acquiring Synacthen, Questcor harmed competition by preventing another bidder from trying to develop the drug and launch it in the United States to challenge Questcor’s monopoly over ACTH drugs.

This enforcement decision is significant because Synacthen has never been marketed in the United States and would still need to undergo a Phase 3 clinical efficacy trial in order to obtain FDA approval, a process that involves challenges and uncertainty. Even without alleging that Synacthen was “likely” to clear all regulatory and other hurdles to reaching the market, the Commission nevertheless alleged that the acquisition violated Section 2 of the Sherman Act.

The Commission’s approach is consistent with the D.C. Circuit’s en banc decision in United States v. Microsoft Corp., 253 F.3d 34, 79 (D.C. Cir. 2001), in which the court concluded that Microsoft’s elimination of “nascent” threats violated Section 2. In their treatise, Areeda and Hovenkamp similarly advocate preventing a monopolist from acquiring any firm that is a “more-than-fanciful possible entrant.” Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 701d.

Section 2 can be an important tool in the antitrust arsenal and may be particularly relevant to protecting competition in the pharmaceutical space, where defendants often argue that FDA approval is so complex, difficult, costly, and time-consuming that plaintiffs cannot demonstrate “likely” entry. The facts in Questcor provide a good example of how Section 2 can protect competition in pharmaceutical markets: the FTC challenged a monopolist for blocking another firm from attempting to bring to market a product that, if approved, would be a significant competitive constraint. That the targeted product was nascent at the time of acquisition did not preclude the Commission from alleging that the acquisition violated the antitrust laws. The Commission (as well as five states that joined the complaint) and Mallinckrodt settled the matter, and the court entered a stipulated order on January 30, 2017.

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