On February 13, 2023, U.S. Senate Majority Whip Dick Durbin (D-IL), Chair of the Senate Judiciary Committee, sent a letter to the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) urging them to do more to combat anticompetitive interlocking directorates in the life sciences industry.1 Durbin expressed concern that the prevalence of interlocking directorates in the life sciences industry may result in pricing coordination and other decisions that harm patients.2

Section 8 of the Clayton Antitrust Act prohibits a "person" from simultaneously serving as an officer or director of two competing corporations where the corporations satisfy certain asset and revenue thresholds.3 The definition of "person" includes both individuals and entities (e.g., a corporation cannot sidestep Section 8 by appointing different individuals as its representatives on competing boards). Interlocking directorates are per se illegal, meaning that the person may not serve on both boards even if the interlock did not actually harm competition. The FTC has further warned that even if the interlocking directorate does not meet the exact terms of the Clayton Act, the practice may still violate Section 5 of the FTC Act.4

Senator Durbin praised recent efforts by the DOJ and FTC to "crack down" on interlocking directorates "after decades of lax enforcement,"5 citing DOJ's recent announcement that seven directors resigned from the boards of five companies in response to DOJ concerns that their positions potentially violated Section 8 (see our Antitrust Alert here). Durbin urged the DOJ and FTC to focus on the life sciences industry due to reportedly significant rates of shared board members. To support his claims, Durbin cited recent research at Stanford University which found that nearly 20 percent of the 2,241 public life sciences firms studied had shared board members in 2020, and the average tripled from 2020 to 2022.6 The study also showed that there were hundreds of instances of companies with common board members pursuing clinical trials to address the same indication.7

To be clear, sitting on the board of two corporations in the same industry, standing alone, is not unlawful. Section 8 only proscribes interlocks between corporations in a horizontal market relationship where they make "competing sales," although the statute does not define how these types of sales are to be determined. Generally, however, courts apply market definition analyses used in the Sherman and Clayton Act, which focus on substitution and "reasonable interchangeability of use."8 This exercise is much more complicated than it may sound, particularly in the prescription drug context where the doctor chooses the drug for the patient but does not bear any of the associated costs. Even then, especially in its enforcement of mergers, the FTC has limited the universe of competition using a range of factors, including or excluding competitors based on, among other things, whether the products are branded or generic,9 whether they share the same mechanism of action,10 or whether they have common methods of administration (e.g., injection vs. oral).11 These differences matter to the FTC in determining the metes and bounds of competition and thus complicate the determination of whether products of two corporations "compete" for Section 8 purposes.

Nevertheless, the letter is consistent with the Biden-Harris administration's increased emphasis on drug pricing and heightened enforcement in life sciences generally, from the implementation of the Inflation Reduction Act, which we have written about here and here, to the recently announced Center for Medicare and Medicaid Innovation (CMMI) models aimed at lowering drug costs.12 Stakeholders should continue to monitor the Biden-Harris administration's coordinated approach across agencies to address drug pricing and further Congressional developments.

Footnotes

1. Letter from U.S. Senator D. Durbin to J. Kanter, Assistant Attorney General for Antitrust, Dep't of Justice, and Lina Khan, Chair, Fed. Trade Comm'n, re Interlocking Directorates in the Life Sciences Industry (Feb. 13, 2023), https://www.durbin.senate.gov/imo/media/doc/letter_from_chair_durbin_to_doj_and_ftc.pdf [hereinafter "Durbin Letter"]..

2. Durbin Letter at 1.

3. 15 U.S.C. § 19. In 2022, this prohibition applied if each corporation had capital, surplus, and undivided profits aggregating more than $1,034,000. See Revised Jurisdictional Thresholds for Section 8 of the Clayton Act, 87 Fed. Reg. 3,540 (Jan. 24, 2022).

4. Fed. Trade Comm'n, Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act (Nov. 10, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/p221202sec5enforcementpolicystatement_002.pdf (identifying interlocking directorates and officers of competing firms "not covered by the literal language of the Clayton Act" as conduct that violates the "spirit of the antitrust laws," and thus may violate Section 5 of the FTC Act).

5. Durbin Letter at 1-2.

6. Anoop Manjunath, et al., Analysis of Over 2,200 Life Science Companies Reveals a Network of Potentially Illegal Interlocked Boards, Stan. L. and Econ., Olin Working Paper No. 578, Oct. 19, 2022), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4253144.

7. Id. at 3-4.

8. Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962).

9. See, e.g., In the Matter of Mylan N.V./Perrigo Company plc, FTC File No. 1510129 (limiting competition to generic, not branded suppliers, of four drugs)

10. See, e.g., In the Matter of Genzyme Corporation/Ilex Oncology, Inc., FTC File No. 0410083 (excluding four suppliers of immunosuppressant drugs as competitors because their products had different mechanisms of action).

11. See, e.g., In the Matter of Hikma Pharmaceuticals PLC/C.H. Boehringersohn AG & Co. KG, FTC File No. 1510044 (defining five product markets around "injectable" pharmaceutical drugs)

12. President Biden issued an Executive Order directing CMMI to submit a report on models to lower prescription drug costs. President Biden, Executive Order on Lowering Prescription Drug Costs for Americans (Oct. 14, 2022), https://www.whitehouse.gov/briefing-room/presidential-actions/2022/10/14/executive-order-on-lowering-prescription-drug-costs-for-americans/. CMMI recently submitted the report, announcing three models for lowering drug prices, on February 14, 2023. See Dep't of Health & Human Servs., A Report in Response to the Executive Order on Lowering Prescription Drug Costs for Americans (Feb. 14, 2023), available at https://innovation.cms.gov/data-and-reports/2023/eo-rx-drug-cost-response-report.

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