FTC Details Drug Firms’ Alleged Dealings

Four drug wholesalers decided to combine into two companies to eliminate a capacity problem that forced down prices, the Federal Trade Commission contended in a newly released court document.

U.S. antitrust enforcers made the allegations in their bid to block Cardinal Health Inc.’s $3.6-billion purchase of Orange-based Bergen Brunswig Corp. and McKesson Corp.’s $2.5 billion acquisition of AmeriSource Corp. A federal judge will hold a status hearing in the case today.

Though much of the FTC’s filing is under court seal, the public portion provides a glimpse into the evidence amassed by the government.

Among other things, the FTC pointed to company documents indicating that the wholesalers had so many distribution centers that they were forced to cut prices to keep moving products off their shelves. The companies, the FTC charged, seek to eliminate that problem by merging.

“These mergers are defendants’ chosen means to remove their incentives to cut price,” the FTC said. At another point the agency argued that “the defendants hope that consolidation will be the antidote for their capacity-price problem.”

The companies sharply dispute the FTC’s evaluation of their combinations and, if they decide to fight, almost certainly will counter with a slew of documents of their own.

The companies argue consolidation in the industry so far has made them more efficient and allowed them to cut prices. They also say drug purchasers have a bevy of other options for buying drugs, including group purchasing organizations and direct buys from drug makers.

Those other options, the wholesalers say, would prevent them from raising prices after the combinations.

Separately, McKesson and AmeriSource on Tuesday extended their self-imposed deadline for deciding whether to fight the government challenge. The two companies gave themselves until March 18--one day after a similar Cardinal and Bergen deadline.

The extension puts McKesson and AmeriSource in a position to let Cardinal and Bergen move first in a high-stakes waiting game. Neither set of companies wants to be left behind if the other chooses to fight the FTC, analysts and lawyers said.