Antitrust & Competition Life Sciences Quarterly Update Q3 2022

The third quarter in the life sciences space showed that business is generally proceeding as usual, with large pharma players successfully acquiring or licensing in clinical stage assets without running into antitrust delays. That said, even these inherently procompetitive deals appear to be receiving at least some attention from the agencies. As such, being ready for scrutiny should help avoid extensive and costly reviews. Indeed, a recent trio of mergers within the sickle cell disease space shows the importance of adequate preparation and engagement. 

Antitrust agency activity in other sectors is also instructive. The FTC’s challenge to the Meta/Within merger could portend difficulties for the life sciences space, but recent court defeats could temper the agencies’ appetite for challenges based on novel and/or more aggressive theories, including potential competition.

Business (Largely) As Usual

As noted, business is largely proceeding as usual in the life sciences space. Over the third quarter, several large pharma players closed acquisitions of clinical stage or otherwise smaller commercial players, with lower-risk deals closing relatively quickly and a higher-risk deal receiving expected scrutiny. BMS, Pfizer, and GSK all completed relatively lower risk deals in a timely manner, while Vertex is likely encountering an extended review for a higher-risk deal.

GSK/Sierra

First is GSK’s $1.9 billion acquisition of Sierra Oncology, announced on April 12, with the deal closing on July 1. Sierra’s only asset is momelotinib, a promising JAK inhibitor for the treatment of the blood cancer myelofibrosis currently undergoing FDA review. GSK does have a home-made hematology asset, Blenrep, but it is an antibody-drug conjugate inhibiting BCMA to kill myeloma cells (and is indicated for multiple myeloma). The two assets likely were properly considered to be complementary rather than competitive. In any event, both JAK inhibition and BCMA inhibition are relatively crowded spaces. 

Pfizer/Biohaven

Pfizer announced its $11.6 billion all-cash acquisition of Biohaven on May 10. Biohaven’s core asset is Nurtec ODT (rimegepant), a calcitonin gene-related peptide (CGRP) inhibitor approved for acute migraines in February 2020 and episodic migraine in June 2021. Given Pfizer’s divestiture of a significant portion of its own neuroscience division in 2018,[1] Nurtec’s relatively low share in oral migraine (5% in 2021),[2] and the presence of other large players like Eli Lilly in the space, the antitrust risk of the transaction was relatively low. As a result, Pfizer appeared to have little trouble clearing its transaction, reporting in a late July 8-K that it received all required antitrust clearances to close the transaction before closing on October 3.

BMS/Turning Point

Third, Bristol Myers Squibb (BMS) announced its $4.1 billion all-cash acquisition of Turning Point Therapeutics (Turning Point) on June 3, with the transaction closing on August 15. Turning Point’s primary asset is repotrectinib, a mid-stage candidate as a treatment for non-small cell lung cancer (NSCLC) that targets the ROS1 and NTRK gene mutations. Although BMS does have several therapies that are either approved or in development for NSCLC, none of its assets target the ROS1 gene.  With the parties making their HSR filings at the end of July and closing in mid-August, the transaction appears to have encountered little agency resistance, although the gap between announcement and filing may indicate pre-filing agency engagement.

Vertex/ViaCyte

The most recent deal, Vertex’s $320 million proposed acquisition of ViaCyte announced on July 11, is also likely the riskiest and one potentially facing significant agency scrutiny. The transaction centers around ViaCyte’s stem-cell based treatment for type 1 diabetes, known as PEC-01. PEC-01 is a form of islet therapy, where stem-cells are grown into pancreatic cells outside of the body. These cells are then implanted into patients, where they mature into beta and other islet cells in order to monitor glucose and produce insulin, eliminating the need for daily insulin injections. But unlike the previous three deals, the parties are direct and close competitors. Vertex has a rival islet therapy asset in development (VX-880), and one of ViaCyte’s ongoing trials would remove the need for immunosuppression, a key downside of islet therapies in development. Third-party reactions reflect how this deal is riskier, with one analysis stating Vertex is “clearing out the [] competition” as the two companies’ type 1 diabetes treatments are “neck-and-neck [in] clinical development.”[3] Vertex appears to acknowledge this reality, with the company’s August 4 8-K filing stating it believed the transaction would close “later this year [2022],” despite an early July announcement.

These four transactions show how business is largely proceeding as usual. Deals with minimal technology and/or mechanistic overlap are still clearing with relative ease, while deals involving more direct horizontal competition are likely facing standard scrutiny from the agencies.

But Sickle Cell Disease Case Study Shows Importance of Preparation

But three other recent acquisitions by different players in the sickle-cell disease (SCD) space show the importance of preparation and agency engagement for completing a transaction in a timely manner. CSL, Pfizer, and Novo Nordisk, all large pharma players, each acquired companies in SCD. Normally, when multiple transactions occur in the same space within the same year, the antitrust agencies would increase scrutiny in-line with the increasing consolidation. In SCD, however, only in the CSL transaction (the first in the series) did the FTC engage in a lengthy investigation.

CSL first announced its $11.7 billion acquisition of Vifor Pharma on December 14, 2021. The FTC’s investigation delayed closing until August 9, 2022, nearly nine months. The FTC focused in on the existing horizontal overlap in the parties’ SCD pipeline and a general horizontal overlap between Vifor’s iron-deficiency hematology franchise and CSL’s blood-plasma portfolio. The FTC conducted initiated an investigation into the SCD overlap despite the facts that both companies’ SCD assets were very early stage, there have been recent FDA approvals of several new SCD treatments over the past five years, and there is a fairly robust pipeline of other novel therapies (ranging from small-molecule to gene therapy) by a number of players in development. 

By contrast, Pfizer’s $5.4 billion acquisition of Global Blood Therapeutics (GBT) and Novo Nordisk’s  $1.1 billion acquisition of Forma Therapeutics cleared HSR after their respective HSR waiting periods (30 and 15 days, respectively) despite the fact that both combinations involved commercial or later stage clinical assets compared to the CSL transaction. Indeed, GBT is considered one of the leaders in the SCD space, with Oxbryta approved in 2019 and several other promising therapies in various stages of its pipeline. Pfizer had Phase 1 assets at the time of acquisition. 

Similarly, the core asset of Forma Therapeutics[4] is etavopivat, which is an oral PKR activator in Phase 2/3 trials indicated for SCD. At the time of acquisition, Novo (like Pfizer) also had an early stage SCD asset in its pipeline. 

Thus, despite three deals occurring in SCD within a matter of months, only the first received was delayed by a lengthy agency investigation. While the industry may be more consolidated, the FTC did not see a reason to do a deeper investigation during the initial waiting periods of the latter two transactions. 

The Specter of Meta/Within Still Looms, But No Life Sciences Action Yet

On July 27, 2022, the FTC filed a complaint seeking to block Meta’s acquisition of the virtual reality (VR) app maker, Within. In its complaint, the agency relied on two horizontal theories of harm. First, that Meta is a potential entrant into the VR dedicated fitness space due to its size, resources, and capabilities (even if it did not have an ongoing pipeline project for this purpose). Second, the FTC alleged the transaction would eliminate competition between Meta and Within in the VR fitness app market.[5]

Theories regarding potential competition would be broadly applicable to the life sciences space given the significant resources of the major players. Under the FTC’s Meta/Within theory of potential harm, any large life science company would likely be considered a potential entrant into a particular market simply by virtue of their size, resources, and very likely the capability to develop a competitor to the relevant start-up’s asset.

Notably, however, the agencies’ more aggressive antitrust theories have so far met a frosty reception in court, in particular as those theories bump up against real-world evidence. In UnitedHealth/Change, the DOJ failed to convince the court that, post-acquisition, UnitedHealth would materially divert from its pre-deal (and longstanding) course of conduct with respect to third-party customers, with the court specifically finding that the agencies must do more than allege “things may change.”[6] The FTC ran into a similar issue in Illumina, where the administrative law judge found the FTC’s arguments about post-merger conduct to rely on “unwarranted leaps of logic.”[7] At bottom, the string of court defeats may temper the agencies’ appetite to bring cases based on more speculative future conduct, or at least be more discerning in the cases they ultimately choose to litigate.

How about BIG Pharma Mergers? Would the BMS/Celgene Acquisition Happen Today?

We have not seen any mega mergers in the pharmaceutical space since 2019. There could be many causes for that but one may be that the parties are aware of the challenging enforcement environment. A thought experiment with a hypothetical is instructive. Given the agencies’ recent focus on future conduct and potential competition, it is fair to question whether today’s FTC would let BMS close its 2019 $74 billion acquisition of rival Celgene without litigation or a significant divestment beyond the infamous Otezla divestiture. At the time of the merger, BMS had two leading drugs for the treatment of solid tumors (led by its blockbuster Opdivo therapy), while Celgene had leading treatments for hematological cancers (Revlimid and Pomalyst). Although not directly overlapping in terms of cancer types, it is easy to imagine today’s FTC challenging the transaction based on BMS’ resources and related oncology expertise. Stated differently, could the FTC have alleged, as it has done in Meta/Within, that BMS was extremely well-positioned to enter de novo and/or was presumed by others to be a likely entrant such that its decision to buy into the hematological cancer treatment space deprives the market of its own entry and the disciplining effect that its perceived potential entry had on current participants. Whether this argument succeeds in court, however, remains to be seen.