The Federal Trade Commission (“FTC”) recently approved the merger of Fresenius Medical Care AG & KGaA (“Fresenius”) and NxStage Medical, Inc. (“NxStage”). In a split decision, the FTC approved the merger subject to the divestiture of NxStage’s bloodline tubing set business. All five Commissioners agreed that the merger would substantially reduce competition in the horizontally overlapping market for hemodialysis bloodlines and that the divestiture remedies this overlap. However, the Commissioners split on whether the vertical aspects of the merger would result in competitive harm.
One point of contention was whether the merger would result in vertical foreclosure – specifically, whether the merger would reduce innovation and entry for in-home hemodialysis machines. NxStage is the largest supplier of in-home hemodialysis machines in the United States. Fresenius is one of the two largest suppliers of dialysis treatments in the United States, for both in-clinic and in-home dialysis, and thus one of the largest purchasers of in-home hemodialysis machines. The majority Commissioners found that the merger would not make entry more difficult, because the evidence indicated that one large corporation, CVS Health, announced its intention to enter the in-home hemodialysis machine market. They also indicated another firm was likely to enter as well. In his dissent, Commissioner Chopra questioned whether entry by just one or two large firms would result in vigorous competition and whether the merger significantly reduces the customers available to and negotiating ability of smaller potential entrants in the in-home hemodialysis machine market.
The split decision in this case raises questions concerning sufficient entry and how to evaluate foreclosure issues in vertical mergers. In the Department of Justice’s (“DOJ”) recent review of the CVS/Aetna merger, DOJ’s conclusion that foreclosure was unlikely to occur considered the competition faced by CVS for both its PBM and retail pharmacy services as well as the competition faced by Aetna for commercial health insurance. In this case, there was only one other large competitor to Fresenius, but the majority Commissioners looked to announced intention of entry to conclude that foreclosure was unlikely. Additionally, in this case, the majority Commissioners found that the merger potentially would expand the in-home hemodialysis market and lead to more sales opportunities for potential entrants. In sum, vertical mergers continue to be examined by both the FTC and DOJ, and different case-specific facts may determine whether foreclosure will be a competitive concern.