FTC’s watchdog role in pharma mergers: Road bumps and the way forward

FTC’s revised merger guidelines

The Federal Trade Commission’s (FTC) revised merger guidelines issued in 2023 signify a substantial alteration in antitrust enforcement, notably impacting industries like pharmaceuticals where consolidation is prevalent.

The updated guidelines provide reduced Herfindahl-Hirschman Index (HHI) and market share requirements, signifying a more stringent method for assessing the anticompetitive nature of mergers. A significant modification is that mergers resulting in a corporation possessing over 30 percent of market share may now be deemed to contravene Section 7 of the Clayton Act, even with minimal competitive overlap. Moreover, the rules abandon the reliance on a 30 percent market share as a conclusive indicator of market dominance, instead prioritizing the assessment of dominance by direct proof or sustained market power.

The revised guidelines notably remove the 30 percent market share barrier as a conclusive indicator of market dominance. The recommendations emphasize evaluating dominance by actual evidence or indicators of sustained market power. They aim to obstruct mergers that may enable a firm dominating in one market to reinforce or expand its influence into other markets, regardless of whether the merger has any current activities in those sectors. These transactions may be considered as infringing upon both Section 2 of the Sherman Act and Section 7 of the Clayton Act. Moreover, the recommendations tackle issues of companies employing a strategy of numerous minor acquisitions to attain anticompetitive results, even if no single transaction would separately violate antitrust regulations.¹

The revised guidelines expand the range of evidence assessed in evaluating anticompetitive risks, incorporating the acquiring firm’s previous M&A strategies—regardless of completion—in various markets or industries, alongside its prospective acquisition intentions and those of other industry participants. The initial draft’s general “catchall” guideline was supplanted with more specific instances, offering clearer and more actionable direction for firms. The modification entailed the elimination of draft Guideline 13, which asserted that “Mergers Should Not Otherwise Substantially Lessen Competition or Tend to Create a Monopoly.” The final guidelines now incorporate a clarification indicating that the enumerated scenarios are not comprehensive, emphasizing particular circumstances that may attract regulatory examination, including mergers intended to evade regulations pertinent solely to one merging entity, distinct procurement conditions that advantage the merging competitor, or mergers in concentrated markets that could diminish competitive incentives. This modification incorporates comments from the notice-and-comment phase and seeks to enhance the coherence and practicality of the guidelines.

The FTC has expanded its competitive analysis to evaluate mergers based on their effects on direct competition as well as their influence on access to vital resources and customers. A significant alteration is the integration of the “ecosystem theory,” enabling regulators to contest acquisitions if a company’s wider ecosystem may inhibit competition. This notion was formerly employed in the United Kingdom. In the US, the concept of “ecosystem competition,” which originated in the EU, is currently implemented to handle situations where a dominant corporation providing a range of products and services may be limited by the combinations of offerings from competing providers. The guidelines also present the notion of a nascent threat, characterized as a firm with the potential to evolve into a significant competitor, bolster the expansion of other rivals, or otherwise undermine the influence of an incumbent. The guidelines emphasize the importance of maintaining incentives for innovation in pharmaceutical research and development, cautioning against mergers that may diminish these incentives or establish significant obstacles to entry for new competitors. Nonetheless, although these guidelines indicate heightened regulatory oversight, they lack legal authority—agencies must still convince federal courts to implement them.²

Watchdog agency’s apprehensions surrounding pharmaceutical mergers

The FTC expresses multiple significant concerns surrounding pharmaceutical mergers. A key concern is market concentration; high levels of concentration may lead to the accumulation of excessive market power, potentially resulting in higher drug prices and a reduction in customer choice. A notable challenge pertains to the possible eradication of rival products. Mergers that eliminate competition among pharmaceutical producers may significantly diminish the number of accessible options for patients. The FTC rigorously assesses the likelihood of price escalations resulting from diminished competition, especially regarding vital pharmaceuticals. The effect on innovation is a significant concern; mergers that inhibit investment in new drug research may have lasting repercussions for medication development and competitive dynamics in the industry. Entry barriers are a serious concern, as mergers that establish considerable obstacles for potential competitors may impede overall market competitiveness. The FTC may ultimately assess the geographic parameters of the pertinent market. If a merger is determined to reduce competition in a certain geographic region, it may provoke antitrust issues, particularly if certain pharmaceutical goods demonstrate regional disparities in demand or pricing.

The prevailing landscape for mega-mergers is significantly restricted due to increased antitrust examination by the FTC, making considerable transactions, like Pfizer’s US$43 billion acquisition of Seagen in December 2023, improbable in the immediate future. As of 2024, there have been no significant mega-mergers or comparable agency enforcement actions noted in other high-profile cases such as Sanofi/Maze or Amgen/Horizon. Currently, two major investigations are under progress: one regarding the proposed merger between Novo Nordisk and Catalent, which is ongoing, and another involving AbbVie and Cerevel.

Present: Two core investigations under progress: Proposed merger between Novo Nordisk and Catalent, and another AbbVie and Cerevel

The FTC is reviewing Novo Holdings’ planned US$16.5 billion acquisition of Catalent to determine if it will pursue enforcement actions over vertical mergers. This purchase, among the largest in recent history, could augment Novo Nordisk’s production capacities for its highly sought-after diabetes and weight-loss drugs, Ozempic and Wegovy, due to rising consumer demand. The planned acquisition would grant Novo Holdings access to 50 manufacturing facilities involved in the production of small compounds, biologics, and cell and gene therapies. Novo Holdings intends to dispose three manufacturing facilities owned by Catalent, situated in Indiana, Italy and Belgium, to Novo Nordisk as part of the agreement. Nevertheless, the current enforcement environment poses considerable obstacles to the completion of this deal, since the FTC’s heightened scrutiny may greatly hinder the firms’ objectives. The FTC shares worries about the planned acquisition potentially granting Novo Nordisk an unfair competitive advantage in the weight-loss sector, anticipated to reach US$200 billion by 2030.

Following the news of the acquisition, representatives from Eli Lilly, a producer of rival GLP-1 medications such Mounjaro and Zepbound, expressed considerable concerns about the ramifications of the combination. Eli Lilly has made significant investments in its production capabilities, including plans to construct its inaugural factory in Alzey, Germany, at a cost of US$2.5 billion, as the pharmaceutical sector aims to meet the rising demand for novel diabetes and obesity treatments. The FTC is likely concentrating on vertical theories of harm, particularly the apprehension that Novo Nordisk may disadvantage competitors utilizing Catalent’s services, especially in the manufacturing of prefilled syringes, which are essential container-closure formats in several therapeutic domains where Novo holds a substantial market presence, such as with obesity and diabetes. Acquiring these contract manufacturing facilities would provide Novo Nordisk with a strategic advantage that could negatively impact competition in the pertinent market. The corporation would gain insights into its competitors’ production processes and successfully manage a crucial manufacturing unit, which is particularly significant due to the current capacity limits of these facilities.

The FTC has intensified its enforcement of vertical mergers as pharmaceutical corporations increasingly engage in mega-mergers. Vertical arrangements enable corporations to augment their market power by gaining control over vital inputs or crucial distribution routes, so substantially strengthening their market position. The current situation exemplifies this issue effectively. Furthermore, the FTC may have a diminished propensity to accept concessions or compromises relative to prior practices, as behavioral remedies in vertical mergers have proven to be of low efficacy. This is demonstrated by the widely condemned settlement agreement sanctioned by the US In 2010, the Department of Justice (DOJ) authorized Live Nation’s acquisition of Ticketmaster. This merger allegedly established a monopoly that has resulted in a significant rise in ticket prices across the United States. Consequently, Live Nation is presently confronting an antitrust action filed by the DOJ.

At the time of publishing, the sole publicly acknowledged substantial examination of a life sciences merger undertaken by the FTC pertained to the agency’s finalized second request about AbbVie’s proposed acquisition of Cerevel Therapeutics. The acquisition, disclosed in December 2023, involves AbbVie purchasing the neurological biotechnology company for US$8.7 billion. Cerevel’s primary asset, emraclidine, is presently in Phase 2 trials for schizophrenia treatment, but another asset, tavapadon, is in Phase 3 trials for Parkinson’s disease. Following the announcement of the acquisition, AbbVie’s CEO remarked that the company had “thoroughly assessed the FTC risk prior to moving forward.” He claimed that “the acquisition is not anti-competitive” and described the psychiatry sector as “crowded and fragmented.” It is significant that AbbVie has achieved considerable success with its product Vraylar, which is approved for schizophrenia, major depressive disorder, bipolar depression and mania. Cerevel currently lacks any approved medicines and there is no publicly recognized overlap in mechanisms of action between the two entities; nevertheless, possible indication overlaps exist for the treatment of schizophrenia, Parkinson’s disease and major depressive disorder. Upon the news, third-party analysts suggested that there was no “specific cause for concern,” because to the availability of various generic and branded therapies in the pertinent market.

Regarding schizophrenia, where Cerevel’s primary asset is in clinical trials, despite Vraylar’s previous efficacy, industry reports indicate the presence of over 20 available medicines and other firms engaged in this therapeutic domain. Nevertheless, considering the possible overlap in indications, the disclosure by the parties in February 2024 regarding the receipt of a Second Request from the FTC was not wholly unforeseen. The inquiry advanced expeditiously and on June 11, 2024, AbbVie’s president remarked that the parties were “making very good progress” and reaffirmed his claim that there was “really not any significant overlap here.” He further highlighted AbbVie’s “very low share in schizophrenia” and clarified that the company does not “even promote Vraylar in schizophrenia,” contending that the parties’ assets address distinct stages of Parkinson’s disease. AbbVie announced the conclusion of the acquisition on August 1, 2024, without more remarks regarding the probe.

Conversely, the simultaneous transaction concerning BMS’ US$14 billion acquisition of Karuna Therapeutics, another organization within the psychiatry industry, received significantly less scrutiny from regulatory bodies. This transaction, disclosed in late December 2023, involves an asset having a mode of action akin to that of Cerevel. Despite the necessity for the parties to “pull-and-refile” the merger to grant the FTC extra time for examination, they adeptly evaded a Second Request and finalized the transaction in March 2024, even considering the greater deal value and the asset’s proximity to commercialization compared to those linked with Cerevel. The FTC seems to be examining pharmaceutical transactions under both vertical and horizontal harm theories; nonetheless, a recent increase in activity within the radiopharmaceutical sector suggests that numerous life sciences transactions are continuing as usual.

In recent months, several prominent pharmaceutical companies have disclosed acquisitions of radiopharmaceutical start-ups, including Eli Lilly’s US$1.4 billion acquisition of POINT Biopharma, BMS’s US$4.1 billion acquisition of RazyeBio, AstraZeneca’s US$2 billion acquisition of Fusion Pharmaceuticals and Novartis’s US$1 billion acquisition of Mariana Oncology, along with various additional minor collaborations and agreements. Significantly, none of these transactions have been publicly disclosed as undergoing thorough scrutiny by the pertinent regulatory authorities. The European Commission (EC) has initiated a formal inquiry into BMS’ US$14 billion acquisition of Karuna Therapeutics, unlike the increased attention seen in previous transactions within the psychiatry industry. The deal, disclosed in late December 2023, pertains to an asset with a mode of action akin to that of Cerevel. The parties were mandated to “pull-and-refile” the merger to grant the FTC extra time for its review; however, they adeptly avoided a Second Request and finalized the transaction in March 2024, notwithstanding the greater deal value and the asset’s proximity to commercialization compared to those linked with Cerevel.

EC’s Competition Policy Brief: The intent to investigate theories regarding the suppression of emerging competition through the application of its antitrust authority, centered on post-merger behavior

The EC has initiated a formal investigation over the US life sciences firm Zoetis under its abuse-of-dominance regulations, particularly related to innovative veterinary pharmaceuticals. The EC is examining Zoetis for possible abuse of market dominance subsequent to its acquisition of ranevetmab from Virbac. The EC is apprehensive that Zoetis’ choice to cease the development of ranevetmab may have been aimed at removing a competitor and protecting its own medication, bedinvetmab. This case highlights the EC’s dedication to scrutinizing Zoetis’s actions following the merger, namely concerning the cessation of the advanced pipeline product, ranevetmab, and the denial to transfer the product at the behest of the third-party rights holder, Virbac. The probe indicates the EC’s intent to investigate theories regarding the suppression of emerging competition through the application of its antitrust authority, predicated on post-merger behavior, regardless of whether the transactions satisfied the criteria for scrutiny under merger control regulations or were approved during the acquisition assessment process.

The EC has released a Competition Policy Brief outlining its framework for assessing the potential effects on innovative competition resulting from pharmaceutical acquisitions. The EC will evaluate potential competition issues with overlaps between marketed pharmaceuticals and those in development, as well as overlaps between products in advanced clinical trials (Phase 3 and beyond). The EC will also evaluate the impact on competitive innovation that may arise from the cessation, postponement, or alteration of overlapping pipelines, including early-stage assets. The agency will assess the consequences for “innovation spaces,” indicating the decrease in competitiveness resulting from a structural decline in the total innovation within a certain therapeutic domain. The EC is expected to employ a more expansive market definition for novel therapies, pipeline assets, and innovation sectors, focusing on the indication or mechanism of action of the drugs rather than limiting its analysis to the Anatomical Therapeutic Chemical (ATC) classification system at the ATC3 level. The Brief emphasizes that “killer” acquisitions continue to be a primary concern of the EC’s enforcement strategy. The EC acknowledges that remedies concerning pre-commercial assets entail specific complexity. In this regard, the agency will be particularly focused on ensuring that any divestment of a pipeline asset includes all essential elements needed to support ongoing development and future market entry of the medicine. Under specific conditions, this obligation may surpass the provisions of the initial licensing agreement.

Role of fraudulent patents and PBMs in M&A pharma

On April 30, 2024, the FTC publicly declared its formal challenge of more than 300 patent entries in the FDA’s Orange Book and dispatched warning letters to ten corporations. This announcement follows the agency’s previous challenge of over 100 patents in the last six months, leading to some businesses either delisting or implementing price controls on specific medicinal items. The FTC labeled the contested patents as “junk” patents, claiming that these erroneous listings aim to “prolong the introduction of lower-cost generic alternatives into the market, thus maintaining artificially inflated prices for brand-name pharmaceuticals.” The FTC’s press statement additionally asserted that pharmaceutical businesses are submitting fraudulent patent listings to obstruct competition and escalate the prices of prescription drugs. Since the April announcement, at least one patent holder has reportedly declined to retract or modify its patent listings. A third-party report indicates that the FTC has issued a civil investigation demand, effectively a subpoena, to Teva Pharmaceuticals about many contested patents, subsequent to Teva’s failure to modify or retract its listings. As the agency escalates its examination in this domain, it seems certain that more pharmaceutical manufacturers may dispute the FTC’s challenges, especially if they perceive the agency as unjustly targeting valid patents.

On April 30, 2024, the FTC officially declared its intention to contest over 300 patent entries in the FDA’s Orange Book, along with warning letters sent to ten pharmaceutical corporations. This action ensues from a prior challenge to over 100 patents, leading certain corporations to either delist patents or impose price ceilings on specific products. The FTC described the patents in question as “junk” patents—improper or erroneous listings intended to hinder the introduction of lower-cost generic alternatives into the market, therefore sustaining artificially inflated brand-name medicine prices. The FTC’s news release claims that pharmaceutical corporations are submitting “bogus” patent listings to obstruct competition and escalate prescription medicine prices.

Following the April statement, at least one patent holder has allegedly declined to modify or rescind its contested patents. A third-party report reveals that the FTC has issued a civil investigation demand to Teva Pharmaceuticals, essentially a subpoena, due to its noncompliance in this matter. With the FTC amplifying its enforcement efforts in this sector, it seems certain that more pharmaceutical companies would dispute the agency’s challenges, especially if they claim that the FTC is unjustly contesting valid patents. The FTC published an interim staff report on Pharmacy Benefit Managers (PBMs), characterizing them as “powerful intermediaries inflating drug costs and exerting pressure on community pharmacies.” This study resulted from an investigation initiated by the agency in 2022. The report’s primary conclusion highlights the substantial concentration in the PBM business, as the leading PBMs have vertically integrated with prominent health insurers and specialty and retail pharmacies. Agency data indicates that the leading three PBMs managed about 80 percent of US prescriptions in 2023, and the top six encompassed over 90 percent.

The FTC asserts that this concentration allows strong PBMs to wield significant influence over medicine accessibility, cost, and the choice of pharmacies for customers. The government also identified noncompliance issues from multiple PBMs that hindered its inquiry, cautioning that it may seek judicial remedies to ensure compliance. The report featured a dissenting statement from Republican Commissioner Melissa Holyoak. Commissioner Holyoak condemned the report for alleged procedural flaws and substantive issues, highlighting its omission of the FTC’s 2005 research on PBMs, which determined that PBMs, particularly vertically integrated ones, produce cost savings for consumers. She articulated specific apprehension about the report’s deficiency in “economic rigor” and its inability to examine the impact of PBM practices on consumer costs.

In the Amgen case,³ the FTC concentrated on cross-market bundling, a practice where pharmaceutical makers provide discounts on important goods to get favored placement of additional drugs on insurers’ and PBMs’ formularies. The FTC initiated a federal lawsuit to prevent Amgen’s acquisition of Horizon Therapeutics, claiming that the merger would allow Amgen to utilize rebates from its successful drugs to coerce insurance companies and PBMs into prioritizing Horizon’s two monopolistic products—Tepezza, for thyroid eye disease, and Krystexxa, for chronic refractory gout. Amgen, a California-based biotechnology company, declared its plan to acquire Horizon for roughly US$28 billion. In the announcement, Amgen stated that Horizon would enhance its research and development portfolio with complimentary medications, emphasizing that none of Amgen’s current drugs directly compete with Horizon’s offerings. The FTC’s complaint asserted that the acquisition would enable Amgen to leverage its portfolio of blockbuster treatments to eliminate existing or potential competitors to Horizon’s main medications, thereby solidifying monopolistic dominance over Horizon’s drugs inside PBM formularies. The FTC said that the merged entity might implement exclusionary rebating strategies and cross-product bundling in collusion with PBMs, who may collect rebates in return for favoring Amgen’s goods over those of its rivals. The FTC’s review examined PBM practices concerning fee and rebate talks with drug makers, which may influence formularies and result in higher costs for consumers. The government also examined the “complex and unclear” reimbursement procedures utilized by pharmacists, the charges imposed on independent pharmacies, and the practice of steering patients towards pharmacies operated by PBMs.

The FTC authorized the transaction to advance following a consent decree with Amgen in September 2023. Although the FTC could not prevent the merger, its legal actions reportedly caused significant economic detriment, with analysts observing a 25 percent decrease in venture capital investment in biotechnology companies during the final quarter of 2023, primarily due to apprehensions about FTC involvement. ⁴

As a result, pharmaceutical corporations may seek strategic alliances, similar to the cooperation between Pfizer and BioNTech for the COVID-19 vaccine or Merck and Moderna for a cancer vaccine, to reduce antitrust concerns. Pharmaceutical companies are increasingly seeking acquisitions or mergers with smaller biotechnology firms that concentrate on fulfilling unmet medical needs, especially in oncology and rare disease treatments. The procurement of treatments for uncommon diseases is notably attractive because of their potential for significant profits. Manufacturers may impose high pricing for single doses of pharmaceuticals for rare diseases, exemplified by Novartis’s spinal muscular atrophy treatment, Zolgensma, which is priced at nearly US$2.1 million for a one-time administration. Moreover, there is considerable interest in the market for glucagon-like peptide-1 (GLP-1) receptor agonists.

On February 5, Novo Holdings, the parent company of Novo Nordisk, declared its plan to purchase the biotechnology firm Catalent for US$16.5 billion, with the objective of enhancing its supply of the Wegovy GLP-1 medicine and competing with Eli Lilly’s Mounjaro. The oncology industry has become a significant catalyst for mergers and acquisitions (M&A), with GlobalData indicating that oncology is the foremost therapeutic area for M&A transactions, totaling a cumulative deal value of US$29 billion. Other therapeutic domains attracting considerable M&A interest encompass the advancement of antibody-drug conjugates (ADCs) and radiopharmaceuticals, as demonstrated by notable transactions including Johnson & Johnson’s US$2 billion acquisition of Ambrx Biopharma and AstraZeneca’s US$2 billion purchase of Fusion Pharmaceuticals. Industry experts anticipate that mergers and acquisitions in the pharmaceutical sector will persist in gaining traction. The impending expiration of patents for several blockbuster pharmaceuticals is encouraging major pharmaceutical companies to acquire smaller biotech firms to offset expected revenue declines. ⁵

Although the latest Novo-Catalent transaction constitutes one of the largest purchases in the industry, the general trend in Big Pharma megadeals has diminished over the previous decades. For instance, Pfizer’s procurement of Warner-Lambert in 1999 for US$90.2 billion would equate to almost US$146 billion when accounting for inflation. The 1999 combination of Astra and Zeneca, originally valued at US$67 billion, would equate to around US$111.4 billion now when adjusted for inflation. It is significant that the 2010s experienced three major transactions, two of which pertained to Allergan: Actavis’s acquisition of Allergan in 2015 for US$80.6 billion, Takeda’s purchase of Shire plc in 2018 for US$69.4 billion, and AbbVie’s acquisition of Allergan in 2019 for US$66.8 billion, all amounts adjusted for inflation. Throughout the years, the pharmaceutical industry has experienced a succession of notable deals. Recent significant purchases comprise Pfizer’s US$43 billion purchase of Seagen in 2023, Amgen’s US$27.8 billion acquisition of Horizon Therapeutics in 2022, and AstraZeneca’s US$39 billion acquisition of Alexion Pharmaceuticals in 2020. These significant mergers illustrate the tendency of large pharmaceutical companies to broaden their product offerings and establish a presence in rapidly growing therapeutic niches. M&A activity has seen a comeback in 2022 and 2023; yet, the amount of these transactions remains below the peaks recorded in 2011, 2014 and 2015. M&A continues to be a crucial component of the biopharmaceutical sector, however acquirers demonstrate discernment in targeting particular therapeutic domains. Recent purchases have primarily focused on oncology, immunology and obesity/cardiometabolic treatments. The trend demonstrates a preference for de-risked targets, especially those in Phase 3 clinical trials or already commercialized, indicating a risk-averse strategy among acquirers.⁶

Notwithstanding the obstacles presented by increasing interest rates and intensified oversight from the FTC, biopharmaceutical mergers and acquisitions exhibit ongoing resiliency. The biotechnology sector has faced considerable challenges in recent years, marked by rising layoffs, decreasing stock prices and corporate closures, therefore providing acquirers with an advantageous stance in negotiations. The readiness of investors to finance early-stage assets depends on their individual risk tolerances. A significant number of major pharmaceutical firms have created venture capital divisions focused on investing in early-stage enterprises, acknowledging that external pipeline development may provide higher efficiencies than internal efforts. This strategy is not exclusively based on the objective to purchase these firms but seeks to foster overall market expansion, following the notion that “a rising tide lifts all boats.”

Given the prevailing difficult funding conditions and the limited availability of initial public offering (IPO) prospects in the biotechnology sector, M&A have become the predominant exit strategy for numerous biotech companies with late-stage assets. Moreover, leading pharmaceutical corporations are contending with imminent patent expirations. In this scenario, companies with significant liquidity have two primary options: to return capital to shareholders or to reinvest to strengthen their market position. Numerous companies are choosing the latter method, leveraging their substantial financial resources to purchase biotechnology startups possessing late-stage assets in competitive sectors. In October, Roche finalized an agreement to buy Telavant, a biotechnology firm specializing in medicines for inflammatory and fibrotic disorders. Telavant’s primary investigational product, RVT-3101, is a completely human monoclonal antibody that targets TL1A, influencing the intensity and site of inflammation and fibrosis, with prospective uses for ulcerative colitis and Crohn’s disease. In October, Eli Lilly announced its intention to buy POINT Biopharma, a radiopharmaceutical company focused on clinical and preclinical radioligand treatments for cancer treatment, for US$1.4 billion. In a previous statement in March, Pfizer expressed its desire to acquire Seagen, a biotechnology company specializing in cancer medicines, for US$43 billion.

The biopharmaceutical sector is expected to maintain its momentum as corporations increasingly engage in mergers and acquisitions (M&A) to boost short-term revenue. IQVIA indicated that over 83 percent of M&A transactions in the first half of 2023 focused on assets either in Phase 3 clinical trials or already on the market. Moreover, acquirers have demonstrated a distinct inclination for strategic bolt-on acquisitions, generally priced below US$6.5 billion, which constituted 83 percent of all M&A transactions in the past five years. As acquirers enhance their M&A strategies, taking a more prudent and methodical approach, companies with strategic acumen are poised to secure a competitive edge in a swiftly evolving market. Established pharmaceutical firms with extensive experience in product commercialization are especially positioned to exploit these prospects. Industry expert Guzman observes a common adage: “purchase the endorsement, market the debut.” By concentrating on de-risked assets in Phase 3 or those now present in the market, major pharmaceutical companies can secure a more accelerated pathway to income generation, thus alleviating the inherent risks linked to early-stage product development.

Strategies by different academics for pharmaceutical entities to skirt antitrust issues under heightened FTC oversight

Patricia Danzon, a Professor of Health Care Management at the Wharton School of the University of Pennsylvania, has examined the ramifications of business size in relation to pharmaceutical merger evaluations. Danzon has noted that traditional merger assessments often determine if a merger increases dominance in particular product areas, with the divestment of overlapping products serving as the customary remedial action. Danzon argues that conventional models frequently neglect the complex consumer dynamics present in pharmaceutical markets and the inter-market effects resulting from firm scale. She underscores the importance of portfolio-wide effects in engagements with payers and physician clients within the pharmaceutical sector, contending that the attributes of payer and provider organizations, along with reimbursement policies, dictate the competitive advantages of pharmaceutical suppliers.

Danzon contends that the benefits associated with company size are most significant for originator firms manufacturing on-patent branded pharmaceuticals in the United States, especially in contrast to comparable firms in European markets or the generic pharmaceutical industry. She believes that merger and acquisition operations, rather than research and development capabilities, are responsible for the continued presence of numerous corporations inside the top twenty pharmaceutical companies. She observes that a considerable share of new activity arises from diminutive enterprises, suggesting that size, enhanced by merger and acquisition activities, may provide advantages in contracting, marketing, financing, and regulatory pursuits. Nevertheless, her study demonstrates that the acquisition of one huge corporation by another does not produce merger-specific efficiencies.

Danzon asserts that large pharmaceutical companies with comprehensive product portfolios, including essential or blockbuster medications, exert significant influence over pharmaceutical benefit managers (PBMs) and may implement cross-market strategies that leverage key products to obtain preferred status for their entire range of offerings. This bundling technique can effectively restrict access to smaller competitors’ products, so favoring incumbents and potentially disadvantaging customers and competition without necessarily leading to higher pricing. Danzon recognizes the presence of authentic economies of scale or scope linked to the marketing of extensive medication portfolios; however, she asserts that the resultant savings are predominantly seized by pharmaceutical companies and healthcare professionals, rather than by consumers. She further observes that the function of insurance in the healthcare market lessens consumers’ price sensitivity, thereby diminishing the motivation for enterprises to engage in price competition.

Danzon advocates for the establishment of a presumption of damage to alleviate any anticompetitive consequences linked to merger and acquisition transactions involving two major originator firms (i.e., enterprises inside the top decile of US sales). This would transfer the responsibility to the merging entities to prove that any efficiencies specific to the merger surpass the possible competitive detriments. Furthermore, she promotes increased examination in instances involving mergers of large and mid-sized firms or two mid-sized firms (i.e., firms in the second decile of US sales), especially when either entity has a crucial or blockbuster product that elevates the risk of anticompetitive bundling or cross-market leverage. Danzon contends that, whereas conventional market study is adequate for smaller enterprises, heightened examination is necessary for must-have or blockbuster products. She asserts that proactive strategies to avert potentially detrimental major mergers should enhance current remedies designed to directly tackle anticompetitive conduct, which may be ineffectual in pharmaceutical settings marked by confidential contracts. Furthermore, she advocates for the stipulation that merging entities must provide proof of authentic merger-specific efficiency enhancements and that regulators should examine their past behavior concerning agreements with PBMs.

Diana Moss, President of the American Antitrust Institute, calls for a reassessment of merger remedies that include divestitures. Moss observes that multiple studies have demonstrated a significant association between elevated market concentration and rising medicine prices. She underscores the importance of examining drugs within the wider framework of the supply chain, which frequently includes dominant entities and oligopolies that wield considerable bargaining power. Moss contends that the quest for negotiating power in the supply chain motivates merger and acquisition endeavors to build larger, more powerful bargaining organizations, leading to a highly concentrated pharmaceutical supply chain.⁷

Moss elucidates that FTC merger problems generally emerge in markets with high concentration, where the merger-induced concentration is substantial, despite the commonality of acquisitions intended to eliminate smaller competitors through asset purchases by serial acquirers. This tendency results in a declining number of influential pharmaceutical firms. Moss advocates for the cessation of divestiture settlements in merger disputes, promoting enhanced examination of divestiture proposals and the establishment of prior approval mandates. Companies with a record of antitrust violations, especially criminal offenses, should not be considered appropriate candidates for purchasing divested assets. Moss additionally advocates for the discouragement of subsequent mergers and acquisitions by pharmaceutical companies with a history of extensive merger activity and previous acquisitions of divested assets, especially if they are defendants in antitrust proceedings.

Robin Feldman, a Professor of Law at UC Hastings Law, articulated her viewpoint on merger remedies amid the growing concentration in the pharmaceutical industry. Feldman characterized the prevailing trend of consolidation since 2010 as larger corporations purchasing smaller enterprises to augment their innovation portfolios, then undertaking responsibility for advanced clinical trials and regulatory approval processes. Her analysis of 17 FTC enforcement cases related to pharmaceutical mergers from 2008 to 2018, encompassing 56 pipeline product divestitures, indicated that merely 36 percent of those products currently possess an active marketing license. She urges regulators to implement a comprehensive “second look” program for post-merger evaluations to determine if previous choices achieved the desired results and to improve future assessments. Feldman urges regulators to evaluate the aggregate impacts of successive minor mergers and acquisitions involving startup companies and emphasizes apprehensions related to evergreening tactics, such as product hopping, which aim to redirect the market towards existing pharmaceuticals with negligible alterations. She advocates for the implementation of conduct remedies to prevent evergreening activities and advises authorities to prioritize divestitures of current drug items rather than pipeline products.

Barak Richman, a Professor of Law at Duke University School of Law, emphasizes the significance of acknowledging the function of PBMs as middlemen in the pharmaceutical distribution system. Richman asserts that manufacturers primarily vie for placement within PBM formularies, rather than directly competing for consumer market share. He suggests creating a bifurcated purchasing analysis to consider the impact of intermediaries, similar to the methodology employed by the FTC in assessing hospital mergers and the intermediary function of insurance carriers. A deeper comprehension of the marketplace and its institutional intricacies would enhance the evaluation of a merger’s potential competitive detriment and the efficacy of specific corrective actions.

Arti Rai, a Professor of Law at Duke University School of Law, has identified two possible anti-innovation consequences that may arise in the setting of mergers and acquisitions. An issue arises when a major, established corporation acquires another firm with a similar pipeline asset, as the incentive for the combined entity to further develop the pipeline product decreases due to competition with an existing marketed product. Rai asserts that divestiture as a cure has various challenges, including the intricacies of producing advanced pharmaceuticals, which may pose entrance barriers for less-established companies or less proficient divestiture acquirers. Moreover, Rai cautions that there could be diminished motivation for research and development, especially concerning precarious early-stage projects, even without direct product overlap. She articulates apprehension that cuts in research and development initiatives may be inaccurately portrayed as enhancements in efficiency.

To mitigate these anti-innovation impacts, Rai suggests that regulatory measures may involve continuous oversight of research and development endeavors and patent production subsequent to a merger. Furthermore, she proposes that agreements to uphold specific levels of research and development and patent production following the merger could be advantageous. She recognizes that tracking particular quantitative parameters about inputs may be beneficial, although she warns that these inputs do not inherently correlate with product outputs.

Youenn Beaudouin, a Case Handler at the European Commission’s Directorate-General for Competition, stated that roughly six percent of mergers evaluated by the Commission required adherence to remedies, a statistic that has remained consistent over time, particularly in the pharmaceutical industry. Beaudouin asserted that the EC exclusively accepts remedies based on market realities that thoroughly and efficiently address competition issues and can be executed promptly. He observed that the EC demonstrates a pronounced inclination towards structural remedies, predominantly endorsing divestitures that satisfy these criteria for all markets exhibiting competition concerns. Remedies are subjected to market testing, encompassing engagement with customers and competition. ⁸