On June 14-15, 2022, the Antitrust Division of the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) hosted a virtual workshop to discuss antitrust analysis of pharmaceutical mergers and planned focal points for agencies in the future. Workshop participants discussed the effects of concentration, prior remedies in pharma mergers and expected changes in the future, damages to innovation, and stricter review of pharma mergers involving misconduct anterior. The workshop highlights that this is a priority area for agencies; Parties in the pharma sector considering potential mergers should keep a close eye on future merger-related challenges and anticipate more stringent agency scrutiny in the future.
In their opening remarks, DOJ Assistant Attorney General Jonathan Kanter and FTC Chairwoman Lina Khan noted that the workshop comes at a critical time as pharmaceutical prices rise in the market. Chairman Khan noted that the median price of new drugs has increased by 20% per year and highlighted the frequency of acquisitions of potential or nascent competitors. AAG Kanter spoke on the DOJ’s directive to ensure that medicines are available to Americans at affordable prices and that access to care must include both quality and innovative care.
FTC Commissioner Rebecca Slaughter gave the keynote address, in which she stressed that antitrust agencies should go beyond the traditional pharmaceutical merger analysis of “existing products and products in development.” to further examine damage to innovation and loss of research and development. Commissioner Slaughter noted that the pharmaceutical industry has a “seamless heritage” or anti-competitive behavior, and that the FTC and DOJ would work together in the future to address competition issues in the pharmaceutical industry.
Concentration levels in the pharmaceutical industry: Panelists discussed the potential anti-competitive effects of consolidation in the pharmaceutical space that sees the same companies operating as market leaders over the past decade. Some panelists felt that company size has significant advantages in negotiating with health insurance payers and pharmaceutical benefit managers (“PBMs”) for drug prices, while pointing to the limited evidence that the firm size increases research and development productivity. Panelists discussed the harms of vertical concentration within the industry, noting the increased prevalence of vertical integration between PBMs and health insurance payers and the corresponding effect on the overall supply chain. The FTC is already taking a closer look at the role of PBMs on drug pricing following the commissioning of a study under Section 6(b) of the FTC Act.
Remedies in Pharmaceutical Mergers: Panelists discussed the effectiveness of remedies for previous pharmaceutical mergers and offered alternatives for the future. Panelists noted that remedies involving the divestiture of certain drugs, particularly “in-development” drugs, have had mixed returns due to the fact that divestiture buyers have difficulty bringing an in-development drug to market compared to to a drug already developed; looking at 56 pending drug divestments, only 36% of those products have an active marketing license today, suggesting that divestiture may not be as effective in protecting innovation as previously thought previously. Panelists also discussed the challenges for agencies to examine the overall competitive effect of a large company acquiring multiple small companies through separate transactions. Youenn Beaudouin, Case Handler at the European Commission (“EC”), provided his perspective, noting that the EC only accepts solutions based on market reality, with a strong preference for structural solutions such as disposals. Synda Mark, Acting Deputy Assistant Director of the FTC’s Office of Policy and Coordination, outlined the FTC’s plans for a “holistic overhaul” of many policies which could include a formal update to their recourse policies. , especially given the number of settlements since the agency’s previous review in 2015.
Innovation assessment: While innovation competition was discussed throughout the workshop, including, as noted above, by Commissioner Slaughter, the third panel focused exclusively on innovation competition. innovation and pharmaceutical mergers. Caroline Holland, legal adviser to Commissioner Slaughter, said she was concerned about killer acquisitions – especially deals that are not public and fly off the radar of agencies – and their effect on innovation competition. She suggested the Commission look for solutions such as pre-approval and notice in consent decrees to capture more of these potential acquisitions. Some panelists also argued that the uncertainty surrounding pipeline products and overlaps should not necessarily mean that anti-competitive mergers involving pipeline overlaps should be eliminated. According to panelists, agencies should look closely at business plans and evidence surrounding entry and expansion to better understand pipeline overlaps.
Previous wrongdoings: During the final panel of the workshop, panelists debated how to account for past misconduct in merger reviews. Professor Scott Hemphill of NYU Law opined that a company’s past misconduct could be informative about the company’s intent for the merger under consideration. Gwendolyn Cooley, assistant attorney general for antitrust, Wisconsin attorney general’s office, agreed, saying past misconduct could be seen as a positive – the merger creates competitive harm, but evidence of wrongdoing anterior puts it above the line. For example, if a company has a history of sham litigation or price fixing, the FTC/DOJ should consider that history and be more skeptical of the merger. Finally, the panelists discussed how their advice could apply to revisions to the merger guidelines. Several panelists agreed that the revised guidelines should include: (1) increased attention to emerging competition; (2) attention to buy secondary prejudices and sell secondary prejudices; and (3) attention to bargaining power.
Discussions throughout the two-day workshop highlighted that the DOJ and FTC will prioritize competitive harms in the pharmaceutical industry in the context of merger review. Going forward, we can expect the agencies to focus more on the effects of concentration and harm to innovation, as well as potential new policies around claims and mergers by parties that are already engaged in anti-competitive behavior.
Indeed, a day after the workshop, on June 16, the FTC announced that it would strengthen its enforcement of PBMs and their rebate structures. Specifically, the Commission announced in an enforcement policy statement that it would strengthen the enforcement of fees and rebate schemes paid by drug manufacturers to PBMs, which could incentivize PBMs and other intermediaries to prefer expensive drugs. Discount structures were discussed during the second panel of the workshop, with some panelists noting that large drugmakers can leverage the discount system to disadvantage smaller competitors.