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The FTC’s Competition Crackdown: Are Big Pharma Mergers and Acquisitions a Credible Threat?

Published onJan 30, 2024
The FTC’s Competition Crackdown: Are Big Pharma Mergers and Acquisitions a Credible Threat?

In May of 2023, the Federal Trade Commission (FTC) filed a complaint seeking to enjoin pharma giant Amgen Inc. from acquiring Horizon Therapeutics pursuant to Section 13(b) of the Federal Trade Commission Act (FTCA) and Section 16 of the Clayton Act. Taken together, these acts permit the FTC and the states to issue temporary restraining orders and preliminary injunctions against entities that threaten to violate antitrust laws enforced by the FTC. The FTC’s opposition stems from concerns that Amgen would leverage its successful drug portfolio by bundling with two of Horizon’s popular drugs, Tepezza and Krystexxa, which currently dominate market share in thyroid eye disease and gout treatment respectively.

In filing this suit, the FTC strayed from its usual procedure in safeguarding against industry monopolies, which entails permitting pharmaceutical mergers and acquisitions, contingent on the acquiring company’s divesture of one of the assets creating a treatment overlap. However, the FTC’s stance in promoting competition and cracking down on big pharma mergers was short-lived.  As of early September, the FTC and the attorneys general from states who joined the original suit reached a settlement agreement with Amgen permitting its $29 billion acquisition of Horizon Therapeutics. The Consent Agreement proposed by the FTC and the accompanying Decision and Order entered into by Amgen and Horizon contains several limiting provisions, namely, for fifteen years Amgen may not:

“Bundle an Amgen product with either Tepezza or Krystexxa; Condition any product rebate or contract terms related to an Amgen product on the sale or positioning either drug; Use any product rebate or contract term to exclude or disadvantage any product that would compete with Tepezza or Krystexxa; [or] Enter into any agreement or understanding to acquire any products or interest in any business engaged in the manufacturing or sale of any products, biosimilars, or therapeutic equivalents that treat either of the two diseases without FTC approval.”

Additionally, Amgen must receive FTC approval to acquire any drugs emerging from the clinical pipeline that treat thyroid eye disease or chronic refractory gout, and requests for such acquisitions must be provided to the FTC and the states until 2032.

Critics of the FTC’s decision to settle note the potential lack of efficacy of the Consent Agreement’s provisions.  For instance, the bundling provision prohibits activity that would likely violate Section 2 of the Sherman Act; and the prohibition on acquiring competing drugs would likely violate Section 7 of the Clayton Act, rendering the settlement toothless, as its restrictions are already prohibited by existing law.

The proposition that existing legislation hedges the competitive and innovative concerns raised by the FTC in opposing Amgen’s acquisition is supported by empirical data. For instance, the FTC’s effort to block the acquisition was partly fueled by fears that continued mergers would concentrate the market in a damaging way.  However, the Hirschman Herfindahl Index (HHI), often used to measure market concentration, indicates that the pharmaceutical industry has remained in the 500-700 range since 1998, not nearly eclipsing the 1500 HHI mark, above which the market would be considered concentrated.

Further, large, established pharmaceutical companies do not dominate the market in a way that creates barriers to entry or success for newer or smaller biotechnology entities. For instance, approximately, “200 biopharmaceutical initial public offerings . . . valued at $50 million or more have taken place in the United States between 2018 and May 2021.”  Moreover, while biotech companies continue to emerge, from 2006 to 2021, the percentage of global industry sales by the top ten international pharmaceutical companies has decreased from 56% to 43% of worldwide sales.

Several metrics also indicate that innovation in the pharmaceutical industry is alive and thriving. For example, venture capital funding, a hallmark proponent of pharmaceutical innovation, has increased from $4.9 billion in 2009 to $18.4 billion in 2018. Additionally, between 2013 and 2018, the number of late-stage pipeline products in development increased by 39%, and the number of clinical trials started by pharmaceutical and biotech companies grew by 35%.  Correspondingly, new drug approval by the Food and Drug Administration (FDA) shows 60% growth comparing 2010-2019 against 2000-2009. Research and development (R&D) spending in the industry can indicate innovation.  According to data from the Congressional Budget Office, in 2019, the industry spent $83 billion on R&D, an amount “about 10 times what the industry spent per year in the 1980s, after adjusting for the effects of inflation.”

A synthesis of the data indicates that existing statutory and regulatory authority are functioning to limit market concentration and support innovation in the pharmaceutical industry, despite the frequency of mergers and acquisitions.

In fact, the acquisition of emerging and start-up biotech companies by larger entities, which have become a major functional aspect of the pharmaceutical industry, fosters innovation. Seeking FDA approval and commercializing a drug requires extensive upfront costs for R&D, which companies undertake along with the risk that the drug will not make it past the tall barrier of early clinical stages. The anticipation of an acquisition safety net supplied by a company with the resources to push the drug through end clinical stages incentivizes front-end investment in therapeutics by smaller companies.  This industry custom facilitates approved distribution of drugs to patients who need them.

Market competition as a facilitator of lowering prices and increasing accessibility of goods is pillar of the American economy, which the government has an important interest in protecting.  However, citizens and the government alike must take a critical approach in evaluating the appropriate threshold of constraints on business activities to effectively balance economic and public policy interests.

Fiona Aromando is a second-year law student at Wake Forest University School of Law who recently joined the editorial staff of the Journal of Business and Intellectual Property Law. She graduated summa cum laude from Gettysburg College with a Bachelor of Arts in Political Science.  Upon graduation, Fiona plans to practice corporate transactional law.

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Email: [email protected]


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