The Role of Interim Monitors in Divestitures

In a merger or acquisition in the pharmaceutical industry, it is important that there are strong structural remedies available, such as a divestiture of assets from one of the two businesses. Remediation of the perceived anticompetitive impact of a merger through the means of a structural remedy is considered to be “clean” because it involves no oversight or supervision once the divesture has been completed. However, many in the FDA, as well as other professionals in the industry consider this a “black box” approach, and feel that there isn’t enough transparency in these types of divestitures.

During divestitures of significant magnitude both parties go through great lengths to ensure that any kind of divestiture intended to remedy the anti-competitive effects of the merger is sufficient to preserve a post-merger competitive market. In simpler terms, the goal of the divestiture is to ensure that the purchaser or acquirer of the divested assets can actually possess not only the means, but also the incentive to maintain the competitive product(s) in the market of concern. To ensure that the buyer in question will have the proper incentive and means to become a viable competitor, the divestiture must include all the necessary assets, technology, know-how and business information to enable the buyer compete fully following the completion of the transfer of assets and technology.

Because of this “lack of transparency” concern associated with mergers in highly regulated and complex industries, the Federal Trade Commission (FTC) has the power to include special provisions in a Consent Order to appoint an individual, known as an interim monitor, to oversee the operation. The FTC regards the interim monitor as the eyes and ears of the FTC and is required to watch all of areas of the merger or acquisition and identify any issues that may arise which may hinder an independent and effective competitor from being established in the market.

In recent years, the FTC has included an interim monitor provision in those consent orders in which an upfront buyer has been identified and the divestiture will take place shortly after the finalization of the deal. Although it is the FTC’s decision whether to appoint an interim monitor or not, most divestitures in the pharmaceutical or biotechnology industry involving upfront buyers, in recent years, have required the services of an interim monitor. According to many expert pharmaceutical consultants and representatives, this frequent use of interim monitors in these up-front buyer situations, only illustrates the tremendous weight and influence the FTC puts on the protection of divested assets, even for a short period of time until the business is transferred to the buyer.

While many companies may see interim monitors as yet another form of government intrusion in the pharmaceutical industry, many companies and the FTC do not. They believe that not only does transparency promote more accountability in the pharmaceutical industry, but increases their level of credibility with the overall public. As such, the FTC recognizes the critical role of an interim monitor in assuring transparency and accountability that leads to a more successful transfer of ownership.