In 2020, the Federal Trade Commission narrowly approved AbbVie’s $65 billion takeover of Allergan. It’s unlikely the antitrust enforcer would approve such a deal today.
The commission’s approval was accompanied by a 20-page dissent from then-Commissioner Rohit Chopra, who criticized the FTC’s handling of the merger and others like it. Letting the deal close based on an order that AbbVie divest overlapping products was a “narrow, flawed and ineffective” approach to regulating major pharmaceutical transactions, Chopra argued.
That three-year-old dissent now reads like a herald of a more aggressive FTC that is rolling out new ways of regulating — and attempting to stop — pharmaceutical mergers. The agency, long focused on direct competition between individual products, has broadened its mission to examine how drugmakers can leverage their size against payers and nascent rivals. Showing as much was the agency’s May lawsuit to block Amgen’s $27.8 billion buyout of Horizon Therapeutics.
It’s a high-stakes approach both for the FTC, whose new tactics could backfire, and for drug companies, whose business is heavily powered by acquisitions.
“While it was a surprise to many, the FTC has been saying they’re going to do things differently now for quite a while. It says a lot about the future, too,” said antitrust attorney James Fishkin.
Using leverage
In recent history, the FTC had allowed companies, no matter how large, to proceed with mergers so long as they divested products that would otherwise compete. The AbbVie-Allergan deal was an example. The title of an influential 2021 paper captured the prevailing approach and its arguable shortcomings: “The neglected concern of firm size in pharmaceutical mergers.”
But Chopra’s dissent wasn’t the only signal that the FTC was going to approach large pharma mergers differently. A workshop last year, little noted at the time outside of trade publications and antitrust circles, offered a roadmap for the FTC’s new approach. (Further clarity should come when the FTC and Department of Justice release long-promised merger guidelines.)
During the two-day workshop, outside experts summoned by the FTC argued that larger pharmaceutical companies were leveraging their negotiating power to pressure companies that provide access to medicines, including pharmacy benefit managers. The bigger the companies are, and the bigger their products, the more influence they held, the experts asserted.
“When they have a large portfolio of blockbusters, they have a lot of leverage,” Michael Carrier, an antitrust professor at Rutgers Law School, said during the workshop.
The goal of the meeting was to “explore new approaches to enforcing the antitrust laws.” And not just for the US — also joining were Canadian, UK and European antitrust enforcers, cementing a new era of international antitrust cooperation.
A few months later, Amgen and Horizon announced their deal — and handed the FTC a way to test its new ideas. It helped that there was already criticism of Amgen by a competitor: In 2022, Regeneron had alleged in a lawsuit that Amgen “bundled” its drugs together to incentivize payers to buy a cholesterol drug. Amgen has denied the allegations.
Amgen and Horizon don’t sell competing products. But the FTC said that Amgen could use its portfolio of blockbuster medicines to entice payers to favor two Horizon drugs, thwarting potential competition.
The FTC cited the Regeneron lawsuit in alleging Amgen had deployed similar tactics to win over payers. The workshop had, yet again, foreshadowed the argument when experts urged the FTC to take into account acquirers’ earlier behavior.
Amgen and Horizon called the novel legal thinking “as misguided as it is unprecedented,” and reiterated they’re committed to the deal.
“For all its speculation, the complaint revealingly does not identify a single document produced by Amgen (or Horizon) suggesting any plan to engage in the conduct alleged by the FTC,” Amgen and Horizon stated in response. Amgen, which originally planned for the deal to wrap up by the first half of the year, said it hopes to complete the transaction by mid-December.
More deals at risk
The agency appears poised to try and stop more deals that look like Amgen’s purchase of Horizon. It doesn’t bode well for Pfizer’s planned $43 billion acquisition of Seagen, Stifel analyst Stephen Willey wrote last month.
Pfizer refiled paperwork for the deal last week, which will reportedly allow the drugmaker to provide more information about the transaction to the FTC and avoid a delay. Seagen expects the deal will still close later this year or early next year.
“Realistically it’s going to take a bit of time because it’s probably difficult in this environment for an agency to do something very fast,” Seagen CEO David Epstein told Endpoints News before the refiling.
Experts see a nexus between the fixation on megamergers and the agency deepening its inquiry into pharmacy benefit managers, or PBMs. Probing these intermediaries will give the FTC greater insight into how large pharmaceutical companies leverage their clout.
“The FTC is becoming much more aware of the complexity of this market and they can’t just use traditional models of competition,” said Patricia Danzon, a professor of healthcare management at the Wharton School at the University of Pennsylvania.
Also telling about the workshop was that pharmaceutical trade groups, once influential in the FTC’s halls of power, didn’t get an invite.
“When it comes to our sector, they seem to be having a little bit of preconceived political notions that dictate how they’re thinking,” said Nick Shipley, the chief advocacy officer of Biotechnology Innovation Organization, or BIO.
The biotech industry fears that the FTC’s campaign could ensnare not just pharmaceutical conglomerates but also small, higher-risk companies, whose investors are motivated by the prospect of pharmaceutical takeovers. Danzon and other experts say buyouts involving smaller firms are less likely to trigger antitrust concerns, and that these deals generally increase market efficiencies.
But it’s unclear if smaller firms would get a pass as the FTC steps up scrutiny on “killer acquisitions” — when an acquiree’s product is shelved because it would jeopardize another medicine in development by the acquirer. The FTC did not respond to multiple requests for comment.
Spreading the wealth
In 2019, those “killer acquisition” concerns prompted the FTC to examine Roche’s plan to buy Spark Therapeutics for $4.8 billion. Spark’s portfolio included a gene therapy for hemophilia A, a rare blood clotting disorder, while Roche already had a drug on the market to treat the condition.
After 10 months, the FTC cleared the deal by reasoning that Roche would actually have the incentive to accelerate Spark’s overlapping pipeline. It appears to have been the correct prediction.
Roche plans to put Spark’s hemophilia therapy into a Phase III clinical trial after promising data from an earlier study.
“With its extensive experience running global clinical trials, navigating FDA approvals, and deploying international commercial and marketing teams for new products, Roche has been able to let Spark focus on what it does best — develop innovative gene therapies,” Spark said in public comments to the FTC. The company declined an interview request.
The deal underscored that pharmaceutical acquisition can spread the wealth. Spark, a company spun out of the Children’s Hospital of Philadelphia, helped establish Philadelphia and research hospitals as a center for gene therapy research. After a pharmaceutical buys up a small biotech, it’s common for the startup founders to move on to the next big thing.
The FTC has sought to turn this argument on its head. It believes excessive consolidation could reduce the number of potential acquirers of biotech startups. Between 1995 and 2015, the 60 leading pharmaceutical companies merged to only 10, one analysis found.
“Protecting innovation will require us to look at both the incentives of the merging firms, as well as the non-merging firms,” Caroline Holland, an attorney advisor with the agency, said during the workshop.
Excessive consolidation also leaves large firms with less incentive to do in-house research and development, underscoring why the FTC is taking a closer look, argued Robin Feldman, a law professor at the UC College of the Law, San Francisco.
“The sleeping giant is waking up,” Feldman said.
Back to the future
In 1978, the late Robert Bork, a former solicitor general and federal judge, wrote an influential book called “The Antitrust Paradox” that argued antitrust law should be judged on whether it increases efficiency. The FTC is returning to a pre-1980s time of more aggressive antitrust enforcement, which the agency views as a way to fight rising drug prices.
A shift came after months of hearings and a tie-breaking vote from Vice President Kamala Harris. In the end, Alvaro Bedoya was confirmed as the FTC’s fifth commissioner last year.
The vote gave Democrats control of the agency, and it cleared the way for Chair Lina Khan to pursue her more aggressive antitrust agenda. But early legal tests have been mixed at best for the FTC, including an unsuccessful campaign to block social media giant Meta from buying the virtual reality company Within Unlimited.
Khan and others in her sphere have been unswayed by setbacks. Jonathan Kanter, who is leading the Justice Department’s antitrust division, played the Tom Petty song “I Won’t Back Down” for his staff after early defeats.
While losing the Meta case, US District Judge Edward Davila accepted the FTC’s legal theory that buying up a competitor can hurt competition in nascent markets. Putting the theory on the record gave the agency an easier path as it targets pharmaceuticals with the argument that their size could limit future competition.
But analysts are still skeptical that the FTC will prevail against Amgen, in part because the agency’s case relies on past behavior. Jefferies’ Akash Tewari called the litigation “one of the weakest recent cases we’ve seen in recent memory” from the FTC.
Christine Wilson, the only Republican commissioner at the FTC, resigned in February by arguing the agency’s ambitions exceeded its legal authority. Some lawmakers have called for Congress to update antitrust laws and give the FTC more tools.
Leaving a mark
Even if courts roundly rebuke the FTC, the agency can claim victory in making companies think hard about mergers. Last year, 12,000 deals were announced and 142 of them were withdrawn, a 20-year high.
A hostile dealmaking environment, along with high inflation, likely explains why so many acquisitions fell apart.
“Regulatory is probably more in the conversation more than it had been several years ago,” said Jeny Maier, a partner and antitrust attorney with Axinn, Veltrop & Harkrider.
The FTC’s aggressive posture isn’t without risks. It could cripple the agency.
Earlier this month, Illumina argued the FTC’s proceedings were an unconstitutional division of power after the agency rejected the company buying Grail for $7.1 billion. It’s not likely, but the constitutional argument could lead a court to invalidate the FTC’s enforcement power, according to Christine Chabot, a professor at Loyola University Chicago School of Law.
But the FTC has already left its mark on Illumina.
In 2021, the agency, undergoing a shift, used the Illumina-Grail deal as an early test for its argument that a life sciences company has the power to snuff out nascent competition.
Illumina investors, unhappy over the deal ending up in antitrust purgatory, sounded dissent and well-known activist investor Carl Icahn launched a board proxy campaign to change the company’s direction.
Weeks after Icahn notched one seat and the board named a new chair, Illumina CEO Francis deSouza, the biggest defender of the deal, stepped down. Speculation then mounted that Illumina will give up its Grail quest.
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