Antitrust & Competition Life Sciences Quarterly Update Q1 2023

Our prior updates covered how FTC enforcement activity largely proceeded “as usual” during 2022 in the life sciences industry, with large pharmaceutical players buying or licensing promising, but still risky, assets from clinical- or preclinical-stage companies. But recent enforcement activity indicates the FTC is prepared to move from rhetoric to action in the life sciences space, at least for the very largest transactions. The agency had previously cleared all life sciences transactions involving therapeutics (with the notable exception of consolidations in generics), but on May 16, 2023, the FTC announced that it had filed a lawsuit to block the Amgen/Horizon transaction. We further cover the recent FTC decision in the Illumina/Grail transaction, which presents vertical issues not as applicable to therapeutics, in our Antitrust & Competition Healthcare Quarterly Update Q1 2023.

While a number of factors suggest that deal activity, including those with material antitrust issues, will increase throughout 2023, recent enforcement activity could potentially chill the largest transactions from moving forward. To the extent some companies shied away from deal-making because of the regulatory uncertainty, it was reasonable to expect that the lack of any meaningful enforcement activity in therapeutics in the past three years, coupled with numerous agency failures to block transactions based on novel theories in other industries (e.g., Meta/Within), alleviated some of those concerns. But FTC’s filing of a complaint to block Amgen/Horizon may signal a revived enforcement push for large transactions. How the case develops, and how the FTC handles the proposed Pfizer/Seagen transaction, will be illustrative of the agency’s enforcement priorities moving forward.  

We examine the impact of these developments, as well as FTC Commissioner Christine Wilson’s resignation from the FTC and the increasing scrutiny on pharmacy benefit managers (PBMs). 

Larger Transactions Dominate the Headlines and Receive Agency Scrutiny

Activity in the first quarter of 2023 suggests that we might see significantly more antitrust issues through the remainder of this year. The industry started the year with not only more deals but also significantly larger ones involving the acquisition of already-commercial assets. In particular, the Pfizer/Seagen, Merck/Prometheus, and Amgen/Horizon transactions are likely to attract scrutiny based on transaction size alone. Agency responses to these transactions, including the length of review and potential enforcement action, will likely shape the life sciences space for the remainder of the year and potentially beyond.

Pfizer/Seagen Represents the Sector’s Largest Deal Since AbbVie/Allergan

Pfizer’s $43 billion proposed acquisition of Seagen, announced on March 13, 2023, is the largest transaction in the life sciences space since AbbVie’s $63 billion acquisition of Allergan in 2019. Seagen, an oncology specialist focusing on antibody drug conjugates (ADCs), first considered a transaction with Merck back in 2019 and again in May 2022 before approaching Pfizer and an additional unnamed bidder. Merck dropped out in September 2022 and talks with Pfizer fizzled in November 2022, but Pfizer reengaged after Seagen had additional regulatory and trial successes, culminating in the March agreement. Pfizer’s CEO referred to the company as “the goose that is laying the golden eggs,” given its four approved oncology therapies already generating $2 billion in sales and its robust pipeline of ADCs.¹ 

Given the size of the deal, we expect the FTC to conduct a lengthy investigation despite the lack of any obvious material overlap with Pfizer’s relatively targeted oncology portfolio.² The parties appear to expect an extended regulatory review, with an initial outside date set for March 2024, automatically extendable to September 2024 if regulatory approval is still outstanding. Notably, the extended period over which the parties considered the transaction may have resulted in more Item 4(c) and 4(d) documents that must be submitted with the initial HSR filing, which could complicate the parties’ efforts to receive regulatory clearance quickly. 

In any event, review of the transaction — in terms of both length and outcome — is likely to provide insight into the agency’s enforcement priorities and theories moving forward, particularly as applied to the pharmaceutical space. 

FTC Sues to Block Amgen/Horizon

Amgen ended 2022 with a bang, announcing its approximately $28.3 billion acquisition of Horizon Therapeutics on December 12, 2022 — the largest life sciences transaction of the year.³  Horizon, a rare-disease specialist, has two approved and fast-growing assets in gout (Krystexxa) and thyroid eye disease (Tepezza) assets, and a pipeline full of other rare-disease assets.

The transaction soon attracted scrutiny from lawmakers. On January 26, 2023, Sen. Elizabeth Warren (D-MA) sent a letter to the Democratic FTC commissioners, urging the agency to “closely scrutinize” both the Amgen/Horizon transaction and Indivior’s proposed acquisition of Opiant.⁴ In her letter, Warren alleged that both Amgen and Horizon engaged in anticompetitive practices and price gouging in the past, specifically noting Horizon’s pricing history of its Krystexxa gout medication. The parties announced the FTC’s second request on January 31, 2023, just days after Warren sent her letter.

On May 16, 2023, the FTC filed a complaint in Illinois district court seeking to block the transaction. While details about the theories of harm are scarce, the FTC’s press release stated that the transaction would “enable Amgen to use rebates on its existing blockbuster drugs to pressure insurance companies and pharmacy benefit managers (PBMs) into favoring Horizon’s two monopoly products.”⁵  Given the relative lack of material horizontal overlaps between the two parties, the FTC’s complaint appears to have its roots in more novel theories of harm that could apply to other transactions that might normally escape significant antitrust scrutiny. For example, the FTC appears to lean heavily on (a) the existing monopoly position of Horizon’s Tepezza and Krystexxa medications combined with (b) Amgen’s “history of leveraging its broad portfolio of blockbuster drugs to gain advantages over potential rivals” and its use of cross-market bundling using conditional rebates. The concern, therefore, is that Amgen can “entrench Tepezza’s and Krystexxa’s monopolies through its multi-product contracting strategies” in ways that Horizon, on a stand-alone basis, could not.⁶

The case could indicate the start of an enforcement push by the agency targeting the largest life sciences transactions. We will continue to monitor the case and the Pfizer/Seagen transaction as they develop.

Agency Update

Commissioner Wilson Resigns

The most notable event at the FTC during the first quarter of 2023 was Republican Commissioner Christine Wilson’s abrupt resignation, effective March 31, 2023. Wilson, the lone Republican commissioner after Noah Philips’ resignation in October 2022, announced her resignation with an op-ed in The Wall Street Journal on February 14, 2023. ⁷ In the op-ed and a subsequent letter to President Biden on March 2, 2023,⁸  Wilson pointedly criticized Chair Lina Khan, accusing her of disregard for the rule of law and due process. Among other factors, Wilson cited Khan’s refusal to recuse herself from the Meta/Within case, alleged abuses of the merger review process, and increased constraints on the commission (and individual commissioners’) ability to disclose key information to the public. 

While Wilson’s departure will likely have little effect on the agency’s decisions moving forward (Democrats already had and will maintain the requisite three-seat majority), her departure nevertheless leaves a void at the agency. Her very public break with Khan was a surprising and somewhat alarming development that stripped some legitimacy from the agency. Her dissents and concurrences had provided a useful balance to the other members of the commission and may lay the groundwork for walking back some of the more aggressive policies enacted under Khan’s leadership. It also remains unclear who will replace the departing commissioner or when. Despite some pressure from conservative groups to fill the seat, there are no rumors of potential candidates at this time.⁹ 

Pharmacy Task Force

Despite significant fanfare around its establishment in 2021, the FTC’s pharmaceutical task force initiative has yet to yield any publicly announced results. What we know so far is limited to sporadic updates only available by reading tea leaves during industry events, which have hinted that the agency may look beyond existing and pipeline products and toward industry consolidation as a whole, but without much further detail. As a result, while the task force should and will remain on our radar, how the agency treats ongoing transactions — specifically Pfizer/Seagen and Amgen/Horizon — will likely provide more information on the FTC’s enforcement priorities and trends moving forward.

PBMs Increasingly in Regulator and Lawmaker Crosshairs

One of the few areas of bipartisan agreement these days is scorn for pharmacy benefit managers (PBMs). PBMs largely exist as middlemen between insurance companies, pharmacies, and drug manufacturers. While PBMs in theory are designed to negotiate on behalf of insurance companies with pharmacies and drug manufacturers for lower rates, their role in drug pricing has been under increasing scrutiny in recent years.

In a recent hearing on PBMs, senators from both parties suggested “blow[ing] up the whole model” and “start[ing] over” given the ongoing “PBM mess.”¹⁰ The hearing dovetails with the Senate’s consideration of what was previously known as the Pharmacy Benefit Manager Transparency Act of 2023, which would place various prohibitions on PBM conduct. For example, it would prevent PBMs from engaging in spread pricing, protect whistleblowers, increase transparency requirements, and direct the FTC to report to Congress its PBM enforcement activities and whether PBMs are engaged in unfair or deceptive practices.¹¹  On April 25, 2023, Sens. Bernie Sanders (I-VT) and Bill Cassidy (R-LA) announced the bipartisan Pharmacy Benefit Manger Reform Act, which would increase overall transparency, force PBMs to give 100% of rebates, fees, alternative discounts, and other remuneration from drugmakers back to health plans, and subject PBMs to penalties for failure to provide timely information or for providing false information.¹² 

At the same time, the FTC is also in the midst of its own investigation into PBMs, issuing subpoenas to the six largest PBMs for information.¹³ Although there is no set timeline for the FTC’s review, Congress’ growing agitation with the industry could speed up the inquiry. At bottom, though, the PBM industry seems set for a regulatory reckoning. 

 

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^[1] Fierce Pharma, “With $43B Buyout, Pfizer Sees Cancer Specialist Seagen as a ‘Goose’ Laying ‘Golden Eggs’” (Mar. 13, 2023).
^[2] For purposes of comparison, the FTC’s review of AbbVie/Allergan took 10 months and ultimately resulted in the divestiture of a promising late-stage IL-23 inhibitor and two pancreatic replacement enzyme assets. For purposes of comparison, the FTC’s review of AbbVie/Allergan took 10 months, and ultimately resulted in the divestiture of a promising late-stage IL-23 inhibitor and two pancreatic replacement enzyme assets.  Fierce Pharma, “AbbVie, Allergan Score FTC Approval for $63B Merger With One Final Hurdle Left to Go” (May 5, 2020); Federal Trade Commission, “Statement of Chairman Joseph J. Simons, Commissioner Noah Joshua Phillips, and Commissioner Christine S. Wilson Concerning the Proposed Acquisition of Allergan plc by AbbVie Inc.” (May 5, 2020).
^[3] CNBC, “Amgen to Buy Horizon Therapeutics in $26.4 Billion Deal” (Dec. 12, 2022).
^[4] Sen. Warren likely referenced the Indivior transaction despite its small size at $145 million because Opiant was the original owner of Narcan, a medication that reverses opioid overdoses.
^[5] Federal Trade Commission, “FTC Sues to Block Biopharmaceutical Giant Amgen from Acquisition That Would Entrench Monopoly Drugs Used to Treat Two Serious Illnesses” (May 16, 2023).
^[6] Id.
^[7] The Wall Street Journal, “Why I’m Resigning as an FTC Commissioner” (Feb. 14, 2023).
^[8] Federal Trade Commission, “Letter from Christine Wilson to President Biden” (Mar. 2, 2023).
^[9] Axios, “Conservatives Push McConnell to Fill FTC Seats” (Mar. 7, 2023).
^[10] Fierce Healthcare, “Capital RX Exec to Senators: Here’s How to Fix the PBM Industry” (Mar. 30, 2023).
^[11] US Senate Committee on Commerce, Science, & Transportation, “Pharmacy Benefit Manager Transparency Act” (2023).
^[12] Law360, “Senators Targe PBMs In Deal On 4 Drug Pricing Bills” (Apr. 25, 2023).
^[13] Federal Trade Commission, FTC Launches Inquiry Into Prescription Drug Middlemen Industry (June 7, 2022).