Justice Department Opens Ventilator Antitrust Probe Focused on Medtronic
September 30 2020 - 5:02PM
Dow Jones News
By Brent Kendall
The Justice Department is investigating whether acquisitions by
Medtronic PLC limited competition in ventilator manufacturing,
according to people familiar with the matter, an antitrust probe
that emerged from complaints about device shortages during the
coronavirus pandemic.
Medtronic has received a civil subpoena from the Justice
Department formally requesting more information, the people
said.
The probe is centered on two related acquisitions that date to
2012, when Covidien PLC, a device maker that sold ventilators,
bought Newport Medical Instruments, a small California-based
manufacturer of ventilator systems, for $108 million.
Newport had secured a contract with the federal government in
2010 to develop and supply low-cost ventilators, but the project
stalled after Covidien bought Newport, and the two sides eventually
agreed to end the contract before any ventilators were
delivered.
Nearly three years after Covidien bought Newport, Medtronic
bought Covidien in a roughly $50 billion deal, inheriting Newport
in the process. Both deals received antitrust clearance from the
Federal Trade Commission.
"Medtronic is cooperating fully with DOJ's review of the 2012
Covidien-Newport transaction," Medtronic spokesman Ben Petok said,
adding that the deal was appropriately assessed and approved by the
FTC.
Mr. Petok said the ventilator market remains competitive, "with
at least 10 major players in which the top five account for
approximately 50% market share. Indeed, Covidien purchased Newport
to expand its ventilator portfolio in a highly competitive and
fractured market, and, rather than discontinue the Newport family
of ventilators, Medtronic continues to market Newport ventilators
today."
A Justice Department spokeswoman didn't respond to requests for
comment.
Fears of a ventilator shortage in the spring sent states and
hospitals scrambling for whatever supplies they could secure to
treat patients suffering the most severe symptoms of Covid-19. The
demand also threatened to exhaust a federal stockpile of the
lifesaving machines, spurring the Trump administration to sign
contracts with manufacturers, including Medtronic, to ramp up
supplies quickly. Some of the new ventilators came from
nontraditional sources such as auto makers Ford Motor Co. and
General Motors Co., which shifted some of their manufacturing
capabilities to ventilators in the spring.
Medtronic boosted production of new ventilators in response to a
surge in demand from the pandemic, including a partnership to
produce some at a Foxconn Technology Group plant in Wisconsin.
Medtronic said sales of its ventilators more than doubled in the
quarter ended July 31 to meet higher global demand.
The ventilator scramble generated criticism that industry
consolidation was partly to blame for a supply squeeze -- and an
example of federal antitrust enforcers not doing enough to protect
competition. Much of that criticism focused on the Covidien-Newport
transaction.
The FTC shares antitrust enforcement authority with the Justice
Department, and the agencies divide the review of proposed mergers
for potential antitrust problems.
Democrats on a House antitrust subcommittee sent a letter to FTC
Chairman Joseph Simons in April questioning whether the Newport
deal was partly to blame for ventilator scarcity and requesting
more information from the commission.
"Covidien's purchase of a potentially market-disrupting
competitor that threatened to drive prices down has all the
hallmarks of a killer acquisition, where an incumbent firm acquires
and then shuts down a key rival," the lawmakers said.
An FTC spokeswoman said the commission responded to the
congressional inquiry, but she declined to comment on the substance
of that response.
Medtronic earlier this year said that Covidien, after acquiring
Newport, found gaps between what Newport promised the federal
government and its capability to deliver in terms of the cost,
features and performance of ventilators the government was
seeking.
--Peter Loftus contributed to this article.
Write to Brent Kendall at brent.kendall@wsj.com
(END) Dow Jones Newswires
September 30, 2020 16:47 ET (20:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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