Pharma Mergers May Have Tougher Time Clearing FTC Under New Review Scheme
Executive Summary
FTC is working with Canadian and European enforcement agencies to come up with new approach to merger reviews that could look at effects on innovation and companies' past conduct. FTC to review closed mergers to see if corrective action is necessary, FTC acting chair says.
The US Federal Trade Commission may conduct stricter reviews of pharmaceutical mergers that consider the past behavior of the parties (such as price fixing and reverse payments), a merger’s impact on innovation, and new theories of competitive harm.
The FTC announced on 16 March that it has formed a new working group with competition enforcement agencies in Canada and Europe, the US Department of Justice, and offices of state attorneys general to update its approach to analyzing the effects of pharmaceutical mergers.
In a same-day press briefing, Acting FTC Chair Rebecca Kelly Slaughter noted that mergers are taking place amidst skyrocketing drug prices and concerns about anticompetitive conduct in the pharmaceutical industry. She said part of the working group’s goal is to identify concrete and actionable things that it can do in reviewing pharmaceutical mergers, either on a rolling basis or at the end of a review or both.
The FTC listed questions the working group is considering for review of mergers, which mesh with concerns raised by the two Democratic members of the commission (Slaughter and Rohit Chopra) in their opposition to recent pharmaceutical mergers.
Formation of the working group “is a rather clever way” to address concerns raised by the Democratic Commissioners, former FTC general counsel Stephen Calkins said.
The working group is addressing whether current theories of harm can be expanded and refreshed, the full range of a pharmaceutical merger’s effects on innovation, and how pharmaceutical conduct, such as price fixing, reverse payments, and other regulatory abuses, should be considered.
It is also considering what evidence would be needed to challenge a transaction based on any new or expanded theories of harm and what types of remedies would work in cases in which these theories are applied.
“I think it is a rather clever way” to address the concerns of the Democratic Commissioners by means of a working group “because pharma mergers occur all over the world and affect consumers all over the world,” Stephen Calkins, professor of law at Wayne State University and former FTC general counsel, said. The new approach “will have the imprimatur of agencies around the world.”
David Balto, former policy director of the FTC’s Bureau of Competition, said the formation of the working group is “a pretty big deal” and shows there is a lot of potential for change in merger analyses, especially consideration of anticompetitive conduct in the market during the review.
Past Mergers To Get Second Look
During the press call, Slaughter said the FTC would be reviewing past pharma mergers. A reporter asked if the agency might revisit its enforcement actions and perhaps unwind them.
“It is important for us to look back at prior enforcement action, or lack of enforcement action, and understand and think seriously about what did we get right, what did we get wrong. And if we got something wrong, how can we improve our analysis going forward and where is corrective action necessary,” Slaughter replied.
“The law doesn’t limit our ability to take enforcement action ex ante [in advance], although it is much more effective and efficient for us to do so. But where we see the need for ex post action, I want us to be thinking about whether we can take it.”
Calkins said Slaughter seemed to be saying that it is better to challenge a merger before or after a consent order and would consider all options if it later came across illegal behavior. “That’s what any commissioner would say,” he added.
He noted that there is an under-enforced doctrine that merger challenges are available at the time of a lawsuit, so a merger could be challenged long after it is completed. But he said if merging companies have carried out divestments under a consent order it would be an uphill battle to win a case like that.
Michael Carrier, professor at Rutgers Law School, said that once two companies merge it would be “hard to unscramble the egg” but if the FTC finds there is significant antitrust harm it is possible it would try to do so. However, he said he was unaware of any instance in which this has happened in the pharma industry.
Roche-Spark Therapeutics Merger Is Case Study
Slaughter and Chopra dissented from several consent orders allowing pharma mergers to go forward. They voted against Bristol Myers Squibb Company’s acquisition of Celgene Corporation, which got the greenlight with the divestiture of Celgene’s psoriasis drug Otezla (apremilast). They said it was not sufficient to look solely at overlapping products and that high drug prices and other consequences of pharmaceutical mergers should be considered, such as whether they hindered innovation. (Also see "FTC Vote On BMS-Celgene Acquisition Splits Over Drug Pricing" - Pink Sheet, 18 Nov, 2019.)
They made similar comments in objecting to AbbVie Inc.’s acquisition of Allergan plc, which was conditioned on divestiture of three drugs. (Also see "FTC Narrowly Okays AbbVie/Allergan Merger As Dissenter Slams Divestitures To AstraZeneca, Nestlé" - Pink Sheet, 6 May, 2020.)
And in opposing Mylan Pharmaceuticals Inc.’s acquisition of Pfizer Inc.’s Upjohn unit, Slaughter and Chopra said government investigations against Pfizer and Mylan alleging market allocation and price fixing should have been considered. (Also see "Divided FTC Okays Mylan-Upjohn Merger But Election Outcome Could Impede Future Deals" - Pink Sheet, 30 Oct, 2020.)
Slaughter was asked about Roche Holding AG’s acquisition of the gene therapy company Spark Therapeutics, Inc., which the agency okayed following a 10-month investigation. (Also see "Roche/Spark Acquisition: First Gene Therapy Deal Clears FTC With No Divestiture" - Pink Sheet, 17 Dec, 2019.)
“In that case I thought the staff did a really good job running down all of the potential theories of whether Roche would have the incentive and ability to delay or discontinue the acquired company’s products,” she said. “Those are exactly the kinds of questions we need to be asking.”
She said the case also demonstrates that the impact of pharmaceutical mergers is not just about the respective size of the two companies.
“Because pharma is an area that depends so heavily on innovation and entry of new products often developed by small competitors, we need to make sure that we’re not just thinking about the sort of traditional questions of market share. And instead, we’re really looking at these questions about innovation and what’s going to get new treatments and new drugs to market so that consumers have access to them and importantly, have access to them at prices that they can afford,” Slaughter stated.
Two Seats Yet To Be Filled
The working group will include the Canadian Competition Bureau, European Commission Directorate General for Competition, United Kingdom’s Competition and Markets Authority, as well as the US FTC, DOJ and offices of state attorneys general.
Slaughter said the FTC has specifically worked with the AG offices of California, Pennsylvania and Wisconsin, which currently lead the antitrust task force for the National Association of Attorneys General. She said she has talked with a couple of other state AGs who have expressed interest in the working group and would welcome the participation from all of the state AGs.
Andrew Barlow, of Doyle, Barlow & Mazard, said that such a working group is normal. He noted that in the past, the FTC and DOJ have formed working groups with the European Commission on best practices on cooperation on merger investigations.
One striking thing about the formation of this new working group is the timing. The FTC launched it before the two open seats on the commission have been filled and a permanent director named.
One seat was left open upon the resignation of former chair Joseph Simons following Biden’s election and the other is currently held by Chopra, whose term expired last year. Chopra is to remain in the post until someone is nominated and confirmed to replace him. However, he may leave before then since Biden has nominated him to be director of the Consumer Financial Protection Bureau. Chopra testified at a nomination hearing before the Senate Committee on Banking, Housing, and Urban Affairs on 2 March. The vote on Chopra's nomination was tied and his nomination will be considered by the full Senate in accordance with Senate Resolution 27 that addresses procedure with a tie vote.
There have been media reports that Biden plans to nominate Lina Khan, associate professor of law at Columbia Law School, to the Commission. A critic of the technology industry, she may be aligned with Slaughter and Chopra’s views on pharma mergers.
Biden is also to nominate a permanent chair. Balto said the early announcement of the working group is a clear signal Slaughter may be chosen for the post.