Background
Programmatic advertising is automated, instantaneous matching between buyers and sellers of digital advertising space. The primary role of the DSP is to aggregate advertisers’ orders and take them to an exchange platform where the space is traded. In addition, DSPs provide advertisers with various tools and data for better targeting and measurement of the efficacy of advertising campaigns.
Programmatic advertising in healthcare is specific in using two key datasets to target healthcare professionals who prescribe pharmaceuticals to patients and track the targeted individual professional’s changes in prescribing behavior. These two datasets are identity data and prescribing data. The former contains data regarding the individual professionals themselves, such as email addresses, published papers, and demographic data. The latter contains information on the professional’s prescribing behavior, which helps identify, for example, the professional who most frequently prescribes competing drugs.
The combination of the two datasets enables pharmaceutical manufacturers and other companies seeking the promotion of pharmaceuticals to:
- Determine an individual professional’s receptiveness to the advertisement;
- Selectively build the audience of the campaign;
- Assign a digital identity to the selected professionals thanks to which the professional can be reached at places he or she visits most frequently (e.g., websites or apps); and
- Measure the campaign's efficacy by tracking the professional’s prescribing behavior after the exposure and optimizing the campaign as necessary.
Without the identity data, advertisers need to rely on cohorts that group healthcare professionals with similar characteristics, which renders both the campaign and efficacy measuring far less effective and accurate. IQVIA makes all this data available in real time, and its depth and breadth are unmatched by any other rival.
All the processes involved in creating a campaign may take place within a DSP like Lasso or DeepIntent, or some may take place outside a DSP, such as the development of the audience by an advertising agency. The biggest comparative advantage of the healthcare-specialized DSPs over the generalist ones, such as Google Ads, is the expertise and knowledge in products for which the specialists are capable of utilizing the healthcare data and tailoring the solution to a much higher degree. Moreover, generalist DSPs often prohibit targeting individuals in their capacity as healthcare professionals or categorize prescription pharmaceuticals as sensitive, targeting of which is meaningfully restricted.
Currently, there are three major healthcare-specialized DSPs. Referred to as the Big 3, they are Lasso, DeepIntent, and PulsePoint. IQVIA operates in the upstream market and licenses its datasets to various stakeholders in the healthcare industry, including DSPs and advertising agencies. The proposed transaction would have brought the second and third biggest players in the market under one roof.
Anticompetitive Effects
The FTC established its prima facie case by showing that the market share of the new entity would exceed the 30 percent market share, namely 46 percent. The FTC also showed that the merger would increase HHI to 3,635, constituting a 997 increase. Any of these two facts alone could render the transaction presumptively anticompetitive according to the FTC. In addition, the FTC advanced a claim that the proposed transaction would eliminate current head-to-head competition between Lasso and DeepIntent by showing a high diversion rate as “80% of customers who considered but did not choose DeepIntent elected instead to go to Lasso or PulsePoint.” Furthermore, the FTC expressed concern over IQVIA’s position in the upstream market and its control over key inputs. This would incentivize IQVIA to foreclose downstream competitors as the forgone profits from data licensing would be more than offset by a gain in advertising sales captured by Lasso and DeepIntent.
IQVIA mainly disputed the FTC’s market share calculation of 46 percent and asserted a calculation that arrived at a combined market share of 30.6 percent. In its resolution, the court relied heavily on Philadelphia National Bank's 30 percent market share presumption without evaluating whether concentration figures accurately reflected the competitive dynamics in the marketplace as demanded by IQVIA. IQVIA’s argument for lower market share was that the relevant market should include other means of advertising, including social media, endemic websites alongside generalist DSPs. This is because all these channels compete for the same dollars, and all the advertisers usually have one advertising budget, which they allocate in varying proportions among all these channels.
In defining the relevant market, the court relied on Brown Shoe factors, most notably on distinct characteristics of alternative advertising channels and industry recognition of programmatic advertising as distinct. The court held that social media and endemic websites compete with DSPs in a broad sense because advertising agencies have a limited budget, so they must decide how to allocate the advertising funds. But that did not mean those channels were reasonably interchangeable or that the relevant market must include them. It was mostly because the alternative channels such as endemic websites (i.e., medical-related sites) and social media can in no way match the vast inventory of DSPs, meaning that, unlike DSPs, these channels cannot reach the targeted audience virtually anywhere on the internet because their reach is strictly limited to a given website or social media. In addition, the use and control of the data on social media is highly restricted, whereas, at DSPs, advertisers have nearly absolute control over the data and are often free to use them outside the DSPs.
As mentioned above, the barrier to the interchangeability of generalist DSPs is that they are incapable of utilizing the data with the same degree of sophistication as healthcare DSPs and often restrict healthcare-related advertising through their policies. For these reasons, advertising agencies, generalist DSPs, healthcare DSPs, and endemic websites all confirmed that they perceive healthcare DSPs as distinct. Finally, the court verified the conclusion by finding that the candidate market of healthcare DSPs satisfies the hypothetical monopolist test for both 5 percent and 10 percent price increases.
IQVIA’s Affirmative Defenses
Since the FTC established its prima facie case on the HHI and market share presumptions, to prevail, IQVIA needed to rebut it by showing that traditional economic theories of competitive effects are not an accurate indicator of the merger’s probable effect or that the procompetitive effects are likely to outweigh any potential anticompetitive effects. However, this exercise was largely academic.
IQVIA asserted that the market is emergent and expected to grow significantly, meaning that the market shares are too unstable to be relied on. The court rejected this assertion by concluding that over the years 2022 and 2023, a relatively short period, the revenues and market share of the Big 3 remained relatively stable, and smaller healthcare DSPs continually significantly lagged behind them. Thus, consistent with Illumina/Grail and Meta/Within, the nascency of the market alone was not enough to rebut the presumption of the transaction’s unlawfulness.
IQVIA also contended that the market is easy to enter. However, the court identified many significant entry barriers that rendered any market entry insufficiently timely, likely, and insufficient in its magnitude, character, and scope. Namely, the technical and regulatory complexity of integrating healthcare data within advertising prevents generalist DSPs from entering, as does talent scarcity at the intersection of healthcare and programmatic advertising. In addition, the market is characteristic for deep agency and client integrations and individual contracts; current market players hold patents to the technology used in programmatic advertising, and the necessary infrastructure takes years and millions of dollars to build.
In addition, IQVIA claimed that DSPs’ customers are sophisticated, large pharmaceutical companies, which, in combination with the fact that the prices are individually negotiated, are capable of disciplining IQVIA from raising prices. The court briefly overcame this argument by noting that the mere presence of these customers is insufficient because their disciplining power depends on the availability of alternatives, which the acquisition practically eliminates.
Lastly, IQVIA claimed that the acquisition would bring efficiencies in the form of reduced costs. The court rejected this defense as well. The claimed efficiencies consisted of Lasso’s replacement of Xandr, an outsourced solution, with DeepIntent’s technology and the elimination of DeepIntent’s costs of licensing IQVIA’s data. However, the court found it unlikely that these savings would translate into lower prices due to the high diversion ratio of 79 percent between the parties, which would create a strong upward pricing pressure, which would eventually translate into an incentive to increase prices by 11-13 percent. IQVIA failed to provide any indication that their internal estimates of these savings were independently verified. Neither IQVIA’s argument that DeepIntent needed to combine forces with Lasso to be able to face potential competition was sufficient.
Future Implications
In many ways, the IQVIA decision reflects a straightforward merger case brought under traditional HHI presumptions. The case reflects the new merger guidelines inclusion of market share presumptions and vertical effects. Per the former, the FTC successfully parried IQVIA’s attempt to claim the 30 percent was no longer good law. The court, consistently with the Guideline 1 of the new merger guidelines, upheld the Philadelphia Bank presumption that a merger creating a firm with a share over 30 percent substantially lessens competition or tends to create a monopoly. Relying on Philadelphia Bank, the court also took account of the market trends showing that the Big 3 companies are cementing their position while other competitors experience revenue declines or stagnation even though the programmatic advertising segment had been rapidly growing.
As per the latter, the court did not rule on the vertical theory of harm because the FTC’s horizontal claims succeeded in showing a reasonable probability that the challenged transaction would substantially impair competition. The significance of the vertical theory to the FTC is obvious from the FTC’s complaint, in which thirteen pages of an eighteen-page discussion of anticompetitive effects were dedicated to the vertical ones. This case seems to follow the FTC’s attempts to block mergers on vertical concerns in Meta/Within, Illumina/Grail, and Microsoft/Activision but the Court declined the FTC’s invitation to rule on this basis.
In addition, the FTC’s intervention in IQVIA is similar to the Google Ad Stack case. In the Google case, the market progressed several steps further and enforcers are now seeking a break-up of Google across the programmatic advertising ecosystem, where Google positioned itself as one of the biggest data collector, advertiser, publisher, DSP, supply-side side and exchange platform operator. One can imagine that if IQVIA’s acquisition went unchallenged, it would have been on a path to replicate Google’s path in the healthcare segment. This is implicated by the series of IQVIA’s acquisitions. In 2019, IQVIA acquired MedData, an operator of detailed data on healthcare professionals; in 2021, DMD Marketing Solutions, an operator of contact details of healthcare professionals; and in 2022, Lasso. Before acquiring Lasso to enter the downstream market of programmatic advertising, IQVIA targeted both Lasso and DeepIntent.
The actions against Google’s ad stack and IQVIA reflect broader concerns of the legislators who proposed the AMERICA Act bill and a growing recognition in enforcement that vertical mergers and integration may be more likely to have significant anticompetitive effects than previously believed. The AMERICA Act seeks to impose significant limitations on and, in some cases, even prohibit vertical integration in digital advertising altogether. These and other signals reflect a potentially increased vigilance when it comes to vertical integration, although IQVIA does not reflect a successful litigated challenge to a vertical merger.