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A Fresh Take

Insights on M&A, litigation, and corporate governance in the US.

| 4 minutes read

Life Sciences Under the US Antitrust Microscope

Under the Biden Administration, the US Federal Trade Commission (FTC) has prioritized aggressive antitrust enforcement, including in the life sciences sector. Over the past weeks, the FTC:

The Pharmaceutical Merger Workshop marked the culmination of work by the multilateral working group formed in March 2021 by then-Acting FTC Chair Rebecca Kelly Slaughter to “build a new approach to pharmaceutical mergers.”

The Pharmaceutical Merger Workshop shed light on enforcement priorities, providing valuable insights into potential theories of harm relevant to prospective pharmaceutical merger reviews. It will be important for pharmaceutical companies contemplating transactions to account for wide ranging potential theories of harm and to be prepared to address a broad range of questions in relation to any potential mergers in the pharmaceutical sector – and the life sciences space more broadly – going forward.

Price Increases Prompt a Pharmaceutical Industry Check-Up

Rising pharmaceutical prices continue to concern regulators who believe mergers are partly to blame. In her opening remarks of the Pharmaceutical Merger Workshop, FTC Chair Lina Khan indicated that “reports on the state of competition in the pharmaceutical markets in recent years have been troubling and underscored just how much work there is to be done.” In particular, “the median list price for new drugs have soared from around $2,000 in 2008 to over $180,000 in 2021.”

Concerns about the affordability of pharmaceuticals pervaded the workshop, motivating panelists to advocate for aggressive enforcement, including pursuit of novel theories of harm, in relation to pharmaceutical transactions. Rising drug prices linked to behavioral antitrust violations also prompted participants to urge consideration of prior bad acts, which could be indicative of anticompetitive intent, in merger reviews. Participants called for the FTC to consider how rising prices affect vulnerable and marginalized communities noting that historically disadvantaged groups are more likely to feel the effects of pharmaceutical price increases.

Weighing In: Pharma Mergers that Tip the Scales

US regulators have historically considered mergers based on product-level overlaps between the merging parties’ portfolios. Conference participants advocated factoring in potential effects of pharmaceutical mergers related to firm size. Participants expressed concern about consolidation in the pharmaceutical sector, observing that the strength of the largest firms stems from scale advantages in contracting, marketing, and financing.  Panelists also noted that product portfolio breadth – along with potential bundling or cross-selling of products – confers bargaining leverage in negotiations with PBMs.

In light of the perceived scale advantages and increased bargaining leverage associated with large mergers, which could disadvantage smaller rivals and harm competition, workshop participants recommended that US agencies take a tougher approach to pharmaceutical mergers. Some panelists advocated for a presumption of competitive harm when large pharmaceutical firms (in the top decile) seek to merge and heightened scrutiny for mergers between midsized firms.

Keeping Innovation Competition Healthy

US regulators appear to be aligning with the EU and UK competition agencies in prioritizing innovation-based theories of harm. Participants saw innovation as the key to competition in pharmaceutical markets and suggested that the risk of harm to innovation competition from underenforcement likely outweighs the risk of overenforcement chilling innovation.

Panelists were skeptical that large firms are more innovative. Conference participants suggested that consolidation in the pharmaceutical industry often correlates with decreased patent output, departures of scientists, reduced R&D budgets, and, especially in killer acquisitions, the cessation of pipeline product development. In addition to evaluating overlaps between pipeline assets, US, EU, and UK antitrust agencies expressed a need to consider innovation competition more broadly to preserve the innovation that drives the industry.

In her remarks, Commissioner Slaughter referenced innovation competition in relation to clinical trial design, drug delivery, and platform technologies as examples. She also explained that “[e]ven the awareness of efforts by other firms to innovate—information that is often in the public domain—pushes the pace car of research and development faster and faster.”

Early Detection of “Killer” Acquisitions

Panelists expressed concern over a large volume of small, non-reportable transactions that may be “killer” acquisitions used to eliminate nascent rivals, and they supported lowering US Hart-Scott-Rodino (HSR) thresholds to require firms to notify the agencies of more transactions.  Panelists also noted that the FTC’s renewed use of prior approval provisions in consent decrees could facilitate review of potential “killer” acquisitions that might otherwise not be reportable.  

Remedies: US Enforcers Encouraged to Up the Dose 

Panelists encouraged the US agencies to reconsider their standard remedy prescriptions, advocating for more expansive remedies. In light of perceived failures in prior remedies, participants recommended that the FTC abandon its prior practice of using product-level divestitures to settle mergers, and instead challenge certain problematic transactions outright. Speakers considered divestiture of overlapping pipeline assets as an ineffective remedy, noting that divested pipeline assets are not often brought to market, with only 36 percent of such products having an active license today.

Prognosis for Pharmaceutical Mergers

As life sciences firms chart paths forward, they should expect transactions to continue to receive heightened scrutiny from US and foreign antitrust agencies, with growing attention to innovation competition (broadly defined) and “novel” theories of harm.  Going forward, we can expect more in-depth, lengthier reviews, including for large transactions with little product-level overlap.  Merger defense strategies should account for this enforcement environment, and parties should be prepared to address wide ranging potential theories of harm – including via litigation, if necessary.

This article was written with the help of summer associates: John Chappell, Taylor Land, and Harriet Van Metre. 


life sciences, antitrust and competition