The Role of Interim Monitors in Divestitures

In a merger or acquisition in the pharmaceutical industry, it is essential 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 method of a structural remedy is regarded as "clean" since it involves no oversight or supervision after the divesture has been completed. However, many in the FDA, in addition to other professionals in the industry think about this a "black box" approach, and believe that there isn't enough transparency in these types of divestitures.

During divestitures of significant magnitude both parties undergo great lengths to ensure that any type of divestiture designed to remedy the anti-competitive aftereffects of the merger is enough to preserve a post-merger competitive market. In simpler terms, the goal of the divestiture is to make sure that the purchaser or acquirer of the divested assets can possess not only the means, but in addition the incentive to steadfastly keep up the competitive product(s) in the market of concern. To ensure that the buyer under consideration can have the appropriate incentive and means to become a viable competitor, the divestiture must include all the required assets, technology, know-how and business information to enable the customer compete fully after the completion of the transfer of assets and technology.

Because of this "lack of transparency" concern connected with mergers in highly regulated and complex industries, the Federal Trade Commission (FTC) has the ability to include special provisions in a Consent Order to appoint a person, known as an interim monitor, to oversee the operation. The FTC regards the interim monitor since the eyes and ears of the FTC and must watch every one of areas of the merger or acquisition and identify any conditions that may arise which might hinder an unbiased and effective competitor from being established in the market.

Lately, the FTC has included an interim monitor provision in those consent orders where an upfront buyer has been identified and the divestiture will need place shortly after the finalization of the deal. Although it could be the FTC's decision whether to appoint an interim monitor or not, most divestitures in the pharmaceutical or biotechnology industry involving upfront buyers, recently, have required the services of an interim monitor. According to numerous 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 time period before the business is used in the buyer.

While many companies often see interim monitors as just one more kind of government intrusion in the pharmaceutical industry, many companies and the FTC do not. They feel that not merely 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 results in an even more successful transfer of ownership.

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