Pharma under the microscope as the FTC considers new ways to review acquisitions

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Acquisitions by drugmakers of all sizes could face greater scrutiny in the future if the Federal Trade Commission follows the advice of experts who spoke at a two-day agency meeting. days on market concentration and anti-competitive behavior.

Experts, mostly economists and other antitrust regulators, have warned that some drugmakers have gained unfair market power due to the breadth of their product portfolios, allowing them to trade for privileged status or even exclusive on insurers’ coverage lists and thus crowd out their competitors.

Coupled with FTC plans to investigate practices of drug benefit managers, meeting signals Biden administration may take a tougher line on monopolistic practices in an effort to spur competition and target drug pricing .

“Pharmaceutical mergers matter because pharmaceuticals matter,” said FTC Commissioner Rebecca Kelly Slaughter, who launched the agency’s sweeping review more than a year ago, in a speech. at the opening of the meeting on Tuesday. “Access to medicines is already jeopardized by unsustainable costs. When mergers reduce competition in pharmaceutical markets, higher prices result. »

Pharmaceutical company executives did not speak at the meeting. But in public comments submitted to the FTC, Pharmaceutical Research and Manufacturers of America argued that the pharmaceutical industry had not become more focused, continued to innovate and increased research and development spending.

Any “additional processes and theories of harm will have a significant and profound impact not only on the ability of experienced pharmaceutical companies to partner with promising science, but it could also fundamentally alter the ecosystem in which science is discovered and developed in the United States,” the group said in its letter.

The meeting covered a wide range of topics, from assessing the market power of the pharmaceutical industry to the effects of mergers and acquisitions on innovation. But its most immediate impact may come from expert scrutiny of how the FTC and other global authorities analyze and address market concentration in large M&A deals.

Regulators have tended to consider only product overlaps between buyers and their targets, and have resolved them by forcing the merging companies to sell certain products.

For example, Celgene had to sell the psoriasis drug Otezla to Amgen to get the FTC to clear its $74 billion acquisition by Bristol Myers Squibb because of a competing treatment Bristol Myers was developing. Allergan, meanwhile, sold a digestive drug called brazikumab in order to get regulators to approve its $63 billion withdrawal by AbbVie.

Even Roche’s takeover of gene therapy biotech Spark Therapeutics was slowed by FTC concerns that Swiss drugmaker Hemlibra’s hemophilia drug overlapped with an experimental gene therapy that Spark was testing.

Experts have argued that to protect innovation, merging companies should be required to divest the product already on the market. Robin Feldman, a law professor at the University of California, San Francisco and director of its Center for Innovation, noted that of 56 pipeline products sold under FTC merger settlements, only 36 have been approved and fewer made significant sales.

Divesting an experimental drug to a biotech or turning it into a separate entity increases the risk of failure, as those companies might be less experienced in manufacturing or marketing R&D, experts noted. “It’s easier for a merged company to continue developing a pipeline product,” said Arti Rai, a law professor at Duke University and director of its Center for Innovation Policy.

Single-product divestitures also fail to take into account the broader drugmaker businesses and the market power that can be gained by having a large number of drugs when negotiating with Pharmacy Benefit Managers, or PBMs. .

“It really becomes more important to assess the potential increase in market power from the size and breadth of the overall portfolio,” said Patricia Danzon, professor of healthcare management at the Wharton School of Medicine. ‘University of Pennsylvania. “These are already big companies with big wallets, and they already have the potential to tie discounts on their must-have products and access to certain drugs in their portfolio to the ‘preferred’ position” in PBM formularies.

Even serial acquisitions of small, single-product biotechnologies, which typically entail less scrutiny from regulators, can allow a drugmaker to gain market power. “If a monopoly buys 100 startups, chances are competition has been restricted,” Feldman said.

How to predict whether consolidation will hinder competition in the future is a more difficult question, experts said. Still, Barak Richman, a law and business administration professor at Duke, said regulators have been able to make similar predictions with hospital mergers based on economic models that have been accepted by the courts.

Experts and regulators at the meeting also expressed concern about protecting innovation as drugmakers acquire small biotechs. While the value of these drugmakers is boosted by the potential for a takeover or licensing deal, such deals can become “kill acquisitions” if the acquiring companies decide to shelve the product of a biotech, because it would also jeopardize another drug that they are also developing.

The agreements may also impact other companies working on the same types of diseases or drugs.

“Innovation protection will require us to examine both the incentives of companies that merge, as well as those of companies that do not merge,” said Caroline Holland, legal counsel with the FTC. “For example, incentives for companies that don’t merge may be relevant if a merger reduces the number of large companies that are the sales target audience for a new innovation developed by a pharmaceutical startup.”

“This may affect the availability of capital for these startups,” she added.

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