The Federal Trade Commission, in coordination with the U.S. Department of Justice Antitrust Division, recently released a summary of the Agencies’ June 2022 joint workshop titled “The Future of Pharmaceuticals: Examining the Analysis of Pharmaceutical Mergers.”  The fourteen-page summary reads like a policy roadmap and memorializes discussions among enforcers and academics at the workshop regarding proposed changes to merger analysis in the pharmaceutical industry.  The workshop and the panelists were overwhelmingly pro-enforcement, and advocated for increased antitrust scrutiny in the pharmaceutical industry.  The timing of the summary’s release—a year after the workshop—may be tied to the potentially long-awaited release of new draft merger guidelines.  Certain enforcement proposals in the workshop also appear in the Commission’s recent challenge to the Amgen-Horizon merger.

The summary includes remarks by the Chair of the FTC, Lina Khan, questioning whether additional considerations beyond traditional horizontal overlap theories should be analyzed when evaluating deals in the pharmaceutical context—including more closely examining remedies, potential innovation, and prior bad acts by the parties to a deal. The workshop included four panels and featured speakers ranging from state and federal antitrust enforcers to law school professors and international competition enforcers.

The topics discussed broadly fell into several categories based on Khan’s remarks: concentration in the pharmaceutical industry, remedies in pharmaceutical mergers, and examination of prior bad acts in merger review.

Concentration Levels in the Pharmaceutical Sector

This panel discussed concentration in the pharmaceutical space and potential anticompetitive conduct resulting from the use of market power in the industry.  The panel included recommendations by Patricia Danzon, Professor of Health Care Management at the Wharton School of the University of Pennsylvania, to apply a presumption of harm to M&A activity involving large originator firms producing on-patent branded drugs in the U.S., shifting the burden to the parties to show merger-specific efficiencies that outweigh potential competitive harm resulting from the deal.

Additional recommendations by Danzon included a heightened level of scrutiny for deals where one or more of the parties produces a “must-have” or “blockbuster” product that it could potentially bundle or leverage across markets.  This is in line with the FTC’s recent suit to block Amgen Inc.’s acquisition of Horizon Therapeutics, alleging that the merger would allow the new company to leverage two of Amgen’s existing blockbuster drugs to pressure insurance companies and pharmacy benefit managers (PBMs) to favor two Horizon products.

Other recommendations resulting from this panel included abandoning the use of divestiture agreements in merger challenges and promoting greater transparency in the pharmaceutical supply chain—an area the FTC has shown increased interest in and attempted to accomplish through its issuance of a 6(b) study on PBMs.

Broken Fixes? Remedies in Pharmaceutical Mergers

This panel discussed the effectiveness of structural and behavioral remedies in pharmaceutical mergers and possible alternatives.  Recommendations from the panelists included adopting a second-look approach to monitor and ensure remedies achieve their intended result and developing a “two-part” purchasing analysis to account for the role of PBM intermediaries, something like the two stage analysis the agencies use to evaluate hospital mergers, which accounts for the role of insurers as the direct purchasers of hospital services as well as the impact on patients.  One other panelist suggested a fix to merged firms’ decreased incentive to continue developing pipeline products is to monitor research and development (R&D) levels and patent output post-merger, as well as require commitments by the parties with respect to post-merger R&D and patent output.

Assessment of Innovation Aspects in Pharmaceutical Mergers

This panel focused on potential decreased incentives to innovate resulting from a pharmaceutical merger, both from the perspective of the merging parties and other competitors or potential competitors. The panel included recommendations to examine those incentives as a part of the merger analysis in pharmaceutical cases and to evaluate decreased incentives of firms to continue to invest in R&D or efforts to bring a new drug to market.

Prior Bad Acts as Factors in Pharmaceutical Merger Reviews

This panel included recommendations to factor prior bad conduct by merging firms into merger analysis.  Examples of prior conduct to consider included pay-for-delay schemes, price fixing, territorial allocation, misusing the FDA’s Risk Evaluation and Mitigation Strategy, committing fraud on the patent office, using patent thicket strategies, and restricting access to a drug’s active ingredient.

The panel also included a discussion of the Supreme Court’s recognition in FTC v. Actavis that a large and unjustified payment in a pay-for-delay case may constitute an antitrust violation.  One panelist recommended consideration of vulnerable populations when evaluating a deal and emphasized the importance of understanding whether the merger will potentially harm communities that have historically experienced discrimination.

Michael Carrier, Professor at Rutgers Law School, recommended adopting a presumption against mergers between two large pharmaceutical companies, arguing that firms that have engaged in prior bad acts have an increased incentive and heightened ability to do so again in the future.

Conclusion

The ideas lined out in the workshop summary mimic some of the FTC’s recent positions regarding concentration in the pharmaceutical industry, including its efforts to gain insight into PBMs through the ongoing 6(b) study and its recent suit to block the Amgen-Horizon Therapeutics acquisition.

Additionally, the revised merger guidelines are expected to be released by the antitrust agencies this summer and may well echo many of the additional considerations posed by the panelists in the workshop summary, giving more insight into how the agencies plan to evaluate transactions in this space moving forward.

Mintz continues to monitor developments to the antitrust agencies’ positions on merger review and will release a similar client alert regarding the highly anticipated revised merger guidelines when they are released.