A flood of biopharma M&A in recent years has prompted the Biden administration’s Federal Trade Commission to take another look at how the industry’s mergers affect competition. That could mean a higher bar for prospective deals to clear, or longer, more in-depth reviews, one expert said.
The FTC’s move is “broadly reflective of the tougher M&A regulatory environment” the pharma industry, and other industries, can expect during the Biden administration, Jeny Maier, a partner in Axinn, Veltrop & Harkrider's antitrust practice group, said in an interview.
Historically, the FTC has approached pharma mergers by looking at competition on a product-by-product basis, Maier said. FTC acting chairwoman Rebecca Kelly Slaughter and others have voiced concerns with the approach in recent years, so in a sense it’s “not surprising” to see the FTC's new initiative, she added.
Last week, Slaughter said the FTC and its counterparts in other countries—plus the Department of Justice and state attorneys general—would start a working group to examine how recent deals have affected competition in the industry. The deals between Bristol Myers Squibb and Celgene, AbbVie and Allergan, and Pfizer's Upjohn unit and generics giant Mylan raised particular concerns, Slaughter said.
And with dealmaking cash flying lately, it's an appropriate time to look at pharma M&A, the FTC's acting chairwoman said. The industry has completed hundreds of deals over the last decade worth a whopping $1.6 trillion.
For her part, Cantor Fitzgerald analyst Louise Chen doesn’t think the “initiative is a cause for concern," she wrote to clients last week. Still, "headlines from the FTC working group could dampen enthusiasm for M&A deals if the scrutiny increases ... or the working group looks retrospectively at prior deals that have been completed,” Chen wrote.
Aside from product-by-product reviews, moving forward, the FTC could examine topics such as whether deals would harm innovation, Maier said. The FTC might also move to place a spotlight on other anticompetitive conduct attributed to the industry, such as alleged price-fixing by generics manufacturers, “pay-for-delay” settlements, “sham litigation” and “product hopping,” she said.
While the FTC cannot block a merger without convincing a federal judge that it would hurt competition, the new initiative could lead to longer, more in-depth investigations, Maier said.
Meanwhile, competition authorities in other countries have the power to block mergers, she noted. If the FTC and other enforcers reach a consensus that a prospective deal would hurt competition, the FTC “may be able to effectively get their preferred outcome—blocking a deal” without having to go to court by allowing other jurisdictions to block the deal first, Maier said.
The size of M&A deals isn’t the only factor that’ll go into reviews; the agency is primarily concerned about “facts on the ground,” Maier said. But if a small company is being bought for an “outsized price,” the FTC may investigate whether the buyer is seeking to eliminate a competitive threat.
If the FTC tries to crack down on deals it’s already reviewed closely and cleared, as a “practical matter,” it could face some skepticism from a judge. Still, the FTC has successfully challenged completed mergers before, Maier added.
The group will get to work immediately, Slaughter said, noting that the FTC staff is eager to "put ideas into practice." The agency chose pharma as its first industry of focus because drug prices affect everyone, and because innovation in the drug industry often comes from small companies. The FTC wants to ensure that innovation can reach patients at affordable prices, Slaughter said.