United States: Mallinckrodt Pays $100 Million In One Of FTC's Last Antitrust Actions Of The Obama Administration

On January 18, 2017, the U.S. Federal Trade Commission (FTC) and the Attorneys General of Alaska, Maryland, New York, Texas, and Washington filed a complaint in federal district court for the District of Columbia seeking a permanent injunction and other equitable relief against Mallinckrodt ARD Inc. and Mallinckrodt plc (Mallinckrodt) for unfair methods of competition in violation of Section 5 of the FTC Act and monopolization in violation of Section 2 of the Sherman Act, as well as various state antitrust laws.1Specifically, the FTC alleged that Questcor Pharmaceuticals, Inc. (Questcor), now owned by Mallinckrodt,2 harmed competition by acquiring the U.S. rights to Synacthen Depot (Synacthen), a potential competitor to Questcor's H.P. Acthar Gel product (Acthar).3 Mallinckrodt agreed to settle these charges in exchange for relinquishing its rights to Synacthen for certain medical conditions and for a payment of $100 million in equitable relief plus attorneys' fees.4

The case is noteworthy because, although this settlement was one of the last antitrust actions of the Obama Administration, the reaction of the FTC's lone Republican and now-Acting Chairman provides some guidance as to the FTC's likely approach to equitable monetary relief (i.e., disgorgement and restitution) under the Trump Administration. In this matter, the FTC's theory of harm—the elimination of potential competition in the pharmaceutical industry—is not necessarily groundbreaking, but the type and size of the remedy seem a clear attempt by the FTC to make a statement to dissuade such conduct in the future. This monetary settlement is one of the largest ever received by the FTC in an antitrust case.5 It also marks just the third time since withdrawing its Policy Statement on Monetary Equitable Remedies in Competition Cases (Policy Statement) in 20126 that the FTC has sought and obtained such relief. Because the Complaint was supported by all members of the FTC, parties should be mindful of acquisitions of potential competitors in concentrated industries. However, the Acting Chairman's concurring statement7 suggests that, as a result of the transfer of control of the FTC from the Democrats to Republicans, such monetary remedies may not be common in the next few years.

FTC's Complaint

The FTC's Complaint stated that Acthar is the only therapeutic adrenocorticotropic hormone (ACTH) product sold in the U.S. ACTH is the primary drug used to treat infantile spasms (IS), as well nephrotic syndrome (NS), a kidney disorder caused by idiopathic membranous nephropathy (IMN), among other disorders.8 Acthar was acquired by Questcor from Aventis Pharmaceuticals, Inc. for $100,000 in 2001.9 A synthetic ACTH alternative to Acthar, Synacthen, is used in Europe, Canada, and other parts of the world, but it has not yet received approval from the U.S. Food and Drug Administration for sale in the U.S.10

The FTC alleged that Acthar provided Questcor monopoly power as demonstrated by both direct and indirect evidence.11 As direct evidence, the FTC cites Questcor's ability to increase the price of Acthar from $40 to over $34,000 today (equivalent to an 85,000 percent price increase from 2001 to present).12

The FTC also noted that Questcor has been able to maintain that high price for Acthar even as payors restricted it from their formularies.13 Further, the Complaint stated that other bidders for Synacthen projected that that drug would be offered at a lower price than Acthar's current price, suggesting Acthar is priced at a supracompetitive level.14

As indirect evidence, the FTC alleged that Acthar has a 100 percent share of the market for ACTH drugs in the U.S.15 ACTH drugs are considered without substitute for the vast majority of IS patients and as the last line of defense for the treatment of IMN.16 When pricing Acthar, Questcor does not reference any other drugs used to treat these indications.17

In June 2013, Questcor acquired the exclusive rights to develop, market, and sell Synacthen in the U.S and 35 other countries for as much as $300 million (with $135 million guaranteed).18 The FTC contends the purpose of this acquisition was to prevent direct competition to Acthar from Synacthen, because Questcor had conducted only limited due diligence and had only "inchoate plans for Synacthen[.]"19 To achieve this, Questcor offered a significantly higher guaranteed bid than any other potential licensee.20

The Complaint stated that Questcor repeatedly concluded that Synacthen posed a competitive threat to its Acthar monopoly, and that other bidders had business plans and regulatory approval strategies to develop Synacthen to compete with Questcor.21 By acquiring Synacthen, the FTC claimed that Questcor "thwarted a nascent challenge to its Acthar monopoly and thereby harmed competition."22 Questcor claimed that it acquired Synacthen to develop the drug for new, non-Acthar indications, but the FTC suggested this was pretextual and that Questcor could have pursued these new indications using Acthar given the similarities between the drugs.23

The Settlement

To settle these charges, Mallinckrodt agreed to a stipulated order in which it is required to grant a sublicense to Marathon Pharmaceuticals, LLC (Marathon) with all rights necessary to allow Marathon to develop Synacthen for the treatment of IS and NS.24 However, Mallinckrodt will retain the rights to Synacthen to develop the drug for the treatment of another condition, Duchenne Muscular Dystrophy.25 The sublicense will be offered at no minimum price and on terms and conditions approved by the FTC within 120 days after entry of the order by the court.26 Mallinckrodt also agreed to other terms to ensure the successful transfer of the Synacthen rights, as well as to provide prior notification to the FTC if it attempts to develop or acquire rights to a synthetic ACTH product in the future.27

In addition, Mallinckrodt is required to pay $100 million in equitable relief, as well as $2 million in attorneys' fees to the state attorney general plaintiffs.28 Since the FTC withdrew its Policy Statement in 2012, it has settled only two other antitrust matters with large sums of equitable monetary relief.29 That statement previously required that to seek disgorgement, the FTC must: (1) find a clear violation of the antitrust laws, (2) have a reasonable basis for calculating a monetary equitable remedy, and (3) find that other remedies are likely to fail to accomplish fully the purposes of the antitrust laws or when such a monetary remedy otherwise may provide important additional benefits to non-monetary relief.30

Concurring Statement of Acting Chairman Maureen K. Ohlhausen

The Commission voted 3-0 in favor of issuing the Complaint and accepting the Settlement, but Acting Chairman Maureen K. Ohlhausen, the only Republican currently on the Commission, authored a concurring statement.31 In that statement, Acting Chairman Ohlhausen noted that she agreed Questcor's conduct was unlawful, and the licensing remedy was necessary to restore competition, but she expressed concerns about the equitable monetary relief obtained here.32

Acting Chairman Ohlhausen's concerns stemmed from the fact this action did not meet the standard for disgorgement set forth in the FTC's now-withdrawn Policy Statement, the withdrawal of which she opposed in 2012.33 Acting Chairman Ohlhausen did not provide details as to why this action failed to meet that standard, but did say she would have preferred to settle this case in the FTC's administrative process instead (where monetary equitable relief would not have been available).34

Takeaways

The FTC's action should be a reminder that the agency is particularly focused on competition issues in the pharmaceutical industry. Given the FTC's focus in this action on Questcor's price increases, pharmaceutical companies must be careful when pricing their products. If a product is faced with few competitive alternatives, parties should be particularly mindful of acquisitions that could be construed to eliminate either current or future competition. Further, the bipartisan support for the FTC's Complaint suggests that parties will need to be cautious of this type of behavior in the future.

However, the Acting Chairman's opposition to the equitable monetary relief suggests that the FTC is unlikely to seek such remedies in competition cases under the Trump administration. Her consistent opposition to monetary relief—both in her initial opposition to the 2012 withdrawal of the FTC's Policy Statement and her continued opposition in this matter—suggests these disgorgement actions may be less common under the new Administration.

Footnotes

1. Complaint, FTC, et al. v. Mallinckrodt ARD Inc. and Mallinckrodt plc, No. 1:17-cv-00120 (D.D.C. Jan. 18, 2017) (hereinafter, "Complaint").

2. Questcor is now known as Mallinckrodt ARD Inc.

3. Complaint at 3.

4. Proposed Stipulated Order for Permanent Injunction and Equitable Monetary Relief, FTC, et al. v. Mallinckrodt ARD Inc. and Mallinckrodt plc, No. 1:17-cv-00120 (D.D.C. Jan. 18, 2017) (hereinafter, the "Settlement").

5. It ties the FTC's 2000 settlement with Mylan Laboratories, Inc. as the FTC's second largest monetary relief received in an antitrust case. See Order and Stipulated Permanent Injunction, FTC v. Mylan Laboratories, Inc., et al., No. 1:98-cv-03114 (TFH) (D.D.C. Nov. 29, 2000). The largest antitrust case settlement is the FTC's $1.2 billion settlement with Cephalon, Inc. and Teva Pharmaceutical Industries, Ltd. in 2015. Stipulated Order for Permanent Injunction and Equitable Monetary Relief, FTC v. Cephalon, Inc., No. 2:08-cv-2141 (E.D. Pa. Jun. 17, 2015).

6. See Statement of the Commission, Withdrawal of the Commission's Policy Statement on Monetary Equitable Remedies in Competition Cases (Jul. 31, 2012).

7. Concurring Statement of Commissioner Maureen K. Ohlhausen, In the Matter of Mallinckrodt ARD Inc., File No. 131-0172 (Jan. 18, 2017) ("Ohlhausen Statement"). President Donald J. Trump designated Maureen K. Ohlhausen as Acting Chairman of the FTC on January 25, 2017.

8. Complaint at 2.

9. Id.

10. Id. at 2-3.

11. Id. at 5.

12. Id. at 5-6.

13. Id. at 6.

14. Id.

15. Id. at 8.

16. Id. at 6-7.

17. Id. at 6.

18. Id. at 11.

19. Id.

20. Id. at 8.

21. Id. at 9-10.

22. Id. at 12.

23. Id.

24. Joint Motion for Entry of Stipulated Order for Permanent Injunction and Equitable Monetary Relief, No. 1:17-cv-00120, at 3 (D.D.C. Jan. 18, 2017) (hereinafter, "Joint Motion").

25. Id.

26. Settlement at 10-11.

27. Id. at 11-16.

28. Id. at 16-18.

29. The first was a $26.8 million settlement with Cardinal Health, Inc. in 2015, which settled charges that Cardinal Health, Inc. monopolized 25 local markets for the sale and distribution of low-energy radiopharmaceuticals. Final Order and Stipulated Permanent Injunction, FTC v. Cardinal Health Inc., No. 15-cv-3031 (ER) (Apr. 23, 2015). The second was the $1.2 billion Cephalon settlement, also in 2015, relating to allegations Cephalon, Inc. monopolized the market for the sale of its sleep-disorder drug, Provigil. See Statement of the Federal Trade Commission, FTC v. Cephalon, Inc. (May 28, 2015).

30. See Fed. Trade Comm'n, Policy Statement on Monetary Equitable Remedies in Competition Cases, 68 Fed. Reg. 45820 (Aug. 4, 2003).

31. See Ohlhausen Statement.

32. Id. at 1.

33. Id.; see Statement of Commissioner Maureen K. Ohlhausen Dissenting from the Commission's Decision to Withdraw its Policy Statement on Monetary Equitable Remedies in Competition Cases (Jul. 31, 2012).

34. Ohlhausen Statement at 2.

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