With mergers and acquisitions come antitrust reviews. And with the U.S. Federal Trade Commission (FTC) cracking down on pharma deals these days, it’s only natural to ask whether AbbVie’s proposed $63 billion acquisition of Allergan could face anti-competition scrutiny, despite across-board complaint from industry watchers over the lack of similarities between the two firms.
AbbVie’s answer to that question is simple. “We don’t anticipate any significant issues with the FTC approval process,” AbbVie’s Chief Legal Officer Laura Schumacher said during a briefing on Tuesday. But she did say “there are a few small product overlaps that we’ve agreed to divest promptly.”
Where exactly could the ax fall? Credit Suisse analyst Vamil Divan has some ideas.
Based on his review of the two companies’ portfolios, Divan highlighted two Allergan drugs that could be jettisoned: brazikumab and Zenpep.
Brazikumab is an IL-23 inhibitor, which acts on the same target as AbbVie’s blockbuster potential Skyrizi, and it’s in phase 2/3 development for ulcerative colitis and Crohn’s disease, Divan noted in a Wednesday report to clients. While Skyrizi is currently approved in psoriasis, it’s also in phase 3 trials for inflammatory bowel disease. Besides, AbbVie’s megablockbuster Humira also has a strong presence in IBD, controlling over one-third of the gastroenterology market, Divan said.
One company, a GI-focused player that Divan believes could pick up brazikumab, is Ironwood. The company is “somewhat uniquely positioned” based on its ongoing partnership with Allergan on IBD drug Linzess, he said.
Zenpep and AbbVie’s Creon, meanwhile, both contain pancrelipase as an enzyme replacement therapy for patients who cannot digest food normally due to pancreatic deficiencies. Given that Zenpep only sold $237 million in 2018, versus the AbbVie drug’s $938 million, it is also top on the to-go list, Divan figures.
The analyst also pointed to “some overlap” between AbbVie’s Orilissa and Allergan’s Esmya in endometriosis. But he doesn’t see a need for Esmya’s divestment given its limited potential due to some safety problems.
Wells Fargo analyst David Maris interpreted Schumacher’s words to mean that AbbVie has already talked to the FTC and has agreed on a selloff plan. But unexpected scrutiny over two other pharma deals suggests a shift in how the FTC is looking at competition—and analysts are calling for extra caution.
For one, Roche’s proposed $4.3 billion buyout of Spark Therapeutics has already been pushed back several times because of FTC delays. Roche recently unveiled that it has received a “second request” from the antitrust agency for additional information and documents. A “second request” is issued when the initial review raises competition concerns.
Analysts were left scratching their heads, trying to make sense of the FTC’s logic. The most likely scenario, in Jefferies analyst Michael Yee’s view, that hemophilia gene therapy is the problem field. But it’s also “the most competitive and ‘crowded’ field in gene therapy,” he noted a few days ago.
Then there’s Bristol-Myers Squibb, which said this week it would be forced to sell Celgene’s Otezla in exchange for the FTC's blessing of its $74 billion merger. Though the companies had previously flagged an FTC concern related to psoriasis, “it is unusual for FTC to be worried about an unapproved product,” Wolfe Pharma analyst Tim Anderson recently said.
Otezla’s overlap was with BMS’ own TYK-2 inhibitor BMS-986165, which is also in development for psoriasis. “However, given how competitive the psoriasis market is and the drugs’ different mechanisms of action, we did not expect the FTC to have concerns with the overlap,” Credit Suisse’s Divan said in a Monday note. Not to mention the fact that the BMS drug may never reach the market, as it’s still in development.
The FTC's extra caution looks like a relatively new change. Unlike its European counterpart, it didn’t take issue with Takeda’s blockbuster IBD drug Entyvio and Shire’s investigational SHP647 in their recent $62 billion merger.
But now, as Yee put it, the Otezla roadblock “is a potential read-through that the FTC is being tougher on regulating competition,” and it could mean future dealmakers may need to be more careful.