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Suggested Changes for FTC Pharma M&A Review


Workshop on pharma M&A review and enforcement focuses on what’s not working and what should be on the chopping block.

One month in advance of the Federal Trade Commission’s (FTC) announced intentions to block Amgen’s $28 billion acquisition of Horizon Therapeutics, the Commission released the summary of a workshop held in June 2022 on this exact topic: to explore new approaches in the enforcement of antitrust laws that involve M&As in the pharmaceutical industry.

In the May 16, 2023 statement regarding Amgen/Horizon, FTC Bureau of Competition Director, Holly Vedova, said, “Today’s action—the FTC’s first challenge to a pharmaceutical merger in recent memory—sends a clear signal to the market: The FTC won't hesitate to challenge mergers that enable pharmaceutical conglomerates to entrench their monopolies at the expense of consumers and fair competition.”1

It is true that FTC’s antitrust arm (the Bureau of Competition) has rarely yielded its authority in the past to challenge “unfair methods of competition” by pharmaceutical companies. Specifically, since 1994, that number is 67. Of these, they were settled for the most part through divestitures.2

The goal of the joint workshop in June 2022, held by FTC and the U.S. Department of Justice (DOJ), Antitrust Division, was the culmination of the Multilateral Pharmaceutical Merger Task Force, an effort to rethink the approaches to pharmaceutical merger review launched in March 2021.3 Specifically, the Task Force sought to identify concrete and actionable steps to review and update the analysis of pharmaceutical mergers, which would address the varied competitive concerns that these M&A raise.4 Those concerns would inform investigators to fully capture an M&A’s impact on prices, quality, access, drug supply chain resilience, capital market investment, and innovation for new drugs.

The workshop’s insights clearly came to bear in the FTC’s comments on the Amgen/Horizon intent to merge. In the statement, FTC said, “This action dovetails with other ongoing work at the Commission in response to widespread complaints about rebates and fees paid by drug manufacturers to PBMs and other intermediaries to favor high-cost drugs at the expense of lower cost drugs.”1

The workshop, which included participants from FTC and DOJ staff, members from the offices of state attorneys general, international enforcement partners, academics, and other experts, was held over two days.5 Experts presented their views of both current practices and future considerations FTC should use to evaluate and/or investigate pharma M&A, with an eye on the larger ecosystem at play.

Divestiture settlements

One of the major concerns that came out of the discussion was around the use of divestiture settlements as the FTC's primary tool to adjudicate a merger challenge.

This is not working out as far as the FTC’s original intent, which is to enforce antitrust law, according to Diana L. Moss, president of the American Antitrust Institute, who researched this topic extensively in a white paper released in May 2020. The premise of the white paper “examines a major root of this problem—the [FTC’s] policy of settling virtually all challenged horizontal pharmaceutical mergers with consent orders requiring divestitures. This stands in contrast to agency decisions to seek injunctions to stop highly concentrative, harmful mergers—arguably the most effective remedy for fully restoring competition.” Further, she maintains that this practice of merger control “has unduly involved it in shaping the industry” and is a form of “industrial planning” rather than antitrust law enforcement.2

Patricia Danzon, professor of health care management at the Wharton School of the University of Pennsylvania, concurred with Moss, saying that current merger review by the FTC is to determine if the M&A would increase dominance in individual product markets, with divestiture of overlapping products as the standard remedy. However, Danzon found this practice ignores the complexity of customers in the pharmaceutical supply chain, and cross-market effects due to company size. These customers and factors include payers, physicians, drug supply firms and reimbursement rules.5

Robin Feldman, professor of law at UC Hastings Law, examined 17 FTC pharmaceutical merger enforcement cases between 2008 to 2018 involving 56 pipeline product divestitures. Her preliminary results found that 36% of those—only 20 products—have an active marketing license today. She suggested that regulators adopt a “second look” policy of post-merger review to ensure that their past decisions had the intended results and to improve future evaluations.5

Arti Rai, professor of law at Duke University School of Law, suggested in the case of divestiture as a remedy occurring in mergers with early-stage assets, which includes the manufacturing of complex drugs [much discussed in the CGT space], can be viewed as an anti-competitive barrier to entry for less-established firms or divestiture buyers.5

Lack of transparency in the drug supply chain

Rena Conti, associate professor at Boston University Questrom School of Business, maintained that “simple competitor counting” isn’t a reliable method to assess competition in product markets. She stressed the need for increased transparency into the U.S. prescription drug supply chain, including the relationship between PBMs and generics, to support competitive and resilient general drug markets.5

The role of PBMs again came to the fore when Barak Richman, professor of law at Duke University School of Law, emphasized understanding the role of PBMs as intermediaries in the pharmaceutical distribution system when evaluating pharma M&A and potential competitive harm.5

Anti-innovation effects

Rai suggested two potential anti-innovation effects that could occur. The first is company mergers that have an overlapping pipeline asset. In this case, the merged entity might have a reduced incentive to continue developing the pipeline product because it will compete with the existing marketed product. And, the effects of divesture of same was noted above.

The second negative effect on innovation is the reduced incentive to do research and development, which is particularly risky in early-stage R&D. These R&D reductions are sometimes categorized as a claimed efficiency, which she said should be examined more closely. The potential post-merger solutions she offered were to either to perform ongoing monitoring of R&D levels and patent output or require a commitment to maintain certain levels of R&D and patent output post-merger.5

Carmine Ornaghi, PhD, professor of economics at the University of Southampton, cited a 2009 study he conducted that found that M&A transactions lead to reduced R&D expenditures, patent output, and research productivity. According to Ornaghi, suggestive evidence also indicates that M&As in the pharmaceutical industry fail to produce large dynamic efficiencies that can offset possible anticompetitive effects. Further, since only a fraction of pharma transactions are examined by antitrust authorities—many do not meet the threshold criteria that typically trigger antitrust scrutiny—some stifling of innovation may be flying under the radar, so to speak.5

Prior bad acts

In regard to using the “Fool Me Once, Shame on You; Fool Me Twice, Shame on Me” idea toward review by the FTC on pharma M&As, experts suggested that prior engagement in anticompetitive conduct or previous willingness to engage in bad conduct should be a consideration. Three lawyers, Gwendolyn Cooley, assistant attorney general for antitrust for the state of Wisconsin; Scott Hemphill, professor at New York University School of Law, and Michael Carrier, professor at Rutgers Law School, made the case for red-flagging prior offenders, which could “reveal a firm’s incentive and ability to engage in future anticompetitive conduct.”5

One final note in regard to deciding which mergers FTC should pursue, Raksha Kopparam, senior research assistant at the Washington Center for Equitable Growth, emphasized that enforcers should consider the implications for economic inequality and vulnerable communities.5


  1. FTC Sues to Block Biopharmaceutical Giant Amgen from Acquisition That Would Entrench Monopoly Drugs Used to Treat Two Serious Illnesses.” May 16, 2023, Federal Trade Commission, Office of Public Affairs releasehttps://www.ftc.gov/news-events/news/press-releases/2023/05/ftc-sues-block-biopharmaceutical-giant-amgen-acquisition-would-entrench-monopoly-drugs-used-treat
  2. Diana L. Moss, “From Competition to Conspiracy: Assessing the Federal Trade Commission’s Merger Policy in the Pharmaceutical Sector.” Sept. 3, 2020. American Antitrust Institute White Paper. https://www.antitrustinstitute.org/wp-content/uploads/2020/09/AAI_PharmaReport2020_9-11-20.pdf
  3. FTC, DOJ Issue Summary on Joint Pharmaceutical Merger Analysis Workshop, June 1, 2023. Federal Trade Commission, Office of Public Affairs release.https://www.ftc.gov/news-events/news/press-releases/2023/06/ftc-doj-issue-summary-joint-pharmaceutical-merger-analysis-workshop
  4. Multilateral Pharmaceutical Merger Task Force Seeks Public Input. May 11, 2021. Federal Trade Commission, Office of Public Affairs release. https://www.ftc.gov/news-events/news/press-releases/2021/05/multilateral-pharmaceutical-merger-task-force-seeks-public-input
  5. “The Future of Pharmaceuticals: Examining the Analysis of Pharmaceutical Mergers FTC-DOJ Workshop Summary.” June 1, 2023. FTC website. https://www.ftc.gov/system/files/ftc_gov/pdf/Future%20of%20Pharma%20Workshop%20--%20Summary.pdf
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