In a courtroom in southern Texas this morning, a judge moved to dismiss Welsh, Carson, Anderson & Stowe (WCAS) as a defendant in the FTC’s case against US Anesthesia Partners (USAP). The complaint, filed by the FTC in September 2023, alleged that USAP and WCAS executed a multi-year anticompetitive scheme to consolidate anesthesia services in Texas, resulting in tens of millions in increased costs annually to patients.
Although the lawsuit will continue against USAP, WCAS’s dismissal has significant implications for the private equity industry nationwide. If WCAS had been held liable for the actions of its portfolio company (of which WCAS maintains only a minority stake), it would set a concerning precedent for investors – i.e. that you are liable for your portfolio companies’ actions regardless of your role in their strategy and operations or level of equity.
If WCAS had been held liable for the actions of its portfolio company, it would set a concerning precedent for investors – i.e. that you are liable for your portfolio companies’ actions regardless of your role in their strategy and operations or level of equity.
Turning the lens towards life sciences, such a precedent could have major negative ripple effects. To be clear, there are stark differences between USAP’s alleged monopolistic behavior and the types of activities in which biotech companies typically engage. Nonetheless, life sciences innovation is fraught with risk, and the FTC already has signaled “a greater willingness to litigate” pharmaceutical developers. History shows us how a small change in one area can have unforeseen impacts on many others, especially when actions and perspectives are open for interpretation. If all providers of private capital were to be held liable for the decisions their portfolio companies make and the risks they take – which in most cases is well out of their hands – as the FTC intended for WCAS, the funding critical to these innovations would likely suffer as well. For an industry that has experienced drastic ups and downs over the last 5+ years, the results here could have had devastating implications on the advancement of innovation.
While we await the southern district of Texas’ final ruling on USAP, we believe that WCAS’s dismissal represents a positive for private sector investors for the continued provision capital to life sciences innovators.