The pharmaceutical sector is preparing for more antitrust litigation after a pivot by US regulators to lawsuits that prioritize clarifying the law over successfully blocking deals.
Recent actions by the Federal Trade Commission under Chair Lina Khan that include a review of
The FTC announced Thursday it would engage in data sharing with the Justice Department and the Department of Health and Human Services. The plan will help antitrust enforcers identify potentially anticompetitive acquisitions that may otherwise go under the radar, according to a senior administration official.
“You’re going to see a greater willingness to litigate, not based on whether they’re going to win or not, but based on the need to clarify law,” said David Balto, a lawyer and former FTC Assistant Director of Policy and Evaluation who now practices in Chevy Chase, Md.
Business groups are already taking countermeasures: Most recently, the US Chamber of Commerce and more than two dozen other trade associations urged Congress to stop one phase of the regulator’s pivot—an overhaul of the FTC and Justice Department’s merger and acquisition review process. The proposed changes to pre-merger notification rules reject the established Hart-Scott-Rodino Act standards and would generate more than $2 billion in new costs for businesses, they said.
Companies are right to be wary of the tone the current FTC has set, Balto said.
“This has been, for the last 30 years, simply a regulatory process,” he said. “But the commissioners don’t like that. They want something permanent to establish precedents that will govern conduct into the future.”
More Waves
Meanwhile, a “third wave” of consolidation in the pharmaceutical industry since 2010 has significantly reduced competition across the sector, says Robin Feldman, a law professor at University of California Law, San Francisco. New merger activity is focused on large companies buying startups, while those pharmaceutical giants have become less productive in terms of research, outsourcing those tasks to smaller companies, she says.
Pharmaceutical companies, lawyers, and courts all have room to grow and adapt to the changing environment, Balto said. For the acquiring entities, avoiding FTC scrutiny or merger related shareholder litigation could require more than the “piecemeal divestitures” of intellectual property that characterized antitrust efforts by the regulator in past administrations, he said.
Read more: Lina Khan Is Upending Wall Street’s Merger-Arbitrage Playbook
A previous FTC administration run by
More recently the regulator has turned to litigation, seeking to block acquisitions like
The FTC also announced plans to conduct an in-depth antitrust review of Pfizer’s proposed takeover of Seagen, but hasn’t filed any lawsuit to block the $43 billion deal, which is expected to close by year-end or early next year. European Union regulators greenlit the acquisition, finding last month that the deal wouldn’t hamper competition for cancer treatments.
“Deals happen in the shadow of the law,” said Feldman. “The current FTC has signaled its willingness to move more aggressively against mergers and acquisitions in the pharmaceutical space.”
Dealmaking among US-listed drugmakers is picking up. The sector has announced more than $172 billion of mergers and acquisitions this year, a 23% increase from 2022 and the biggest year since before the pandemic, according to data compiled by Bloomberg.
For those pharmaceutical giants looking to buy up a small biotechnology startup or other small company, the goal should be avoiding the appearance of a “killer acquisition,” in which a company buys a competing product to bury it, Feldman says.
In addition to the FTC’s scrutiny of the Amgen deal, during a conversation about killer acquisitions the agency’s Associate Director for Litigation Shaoul Sussman mentioned the proposed changes to the required filings companies must submit for merger review at a conference earlier this year.
Khan has also pointed to empirical reports that killer acquisitions may be relatively common in the sector.
“Relatively few leading drugs have been developed within the largest pharmaceutical companies, which are the companies that ultimately enjoy the vast majority of profits,” she said during a Commission panel on the future of pharmaceuticals in June 2022.
Divesting overlapping drugs before buying a company that could be seen as a competitor is another proactive step to avoid antitrust scrutiny, according to Michael Carrier, a professor at Rutgers Law School.
“In a ‘vertical’ merger, if a downstream company agrees to make the upstream input available to rivals rather than keeping it just for itself, that could help,” he said. “Other than that, perhaps promises to address potentially anticompetitive conduct ahead of time.”