Antitrust & Competition Life Sciences Quarterly Update Q3 2023

The third quarter in the life sciences space saw notable developments in significant agency enforcement actions: 

• The FTC abandoned its pursuit of a novel theory and settled its Amgen/Horizon lawsuit 10 days before the scheduled preliminary injunction hearing. As detailed below, the settlement is fairly modest in scope and embraces the sort of behavioral remedy that current agency leadership (as well as recent administrations) has publicly dismissed as insufficient to resolve merger-related concerns.  
• The FTC continues to explore other novel theories in its ongoing investigation of the Pfizer/Seagen transaction.  
• The FTC remains concerned with “killer acquisitions” — transactions where Big Pharma with a commercial or late-stage asset acquire a clinical- or preclinical-stage asset allegedly with the purpose of eliminating or avoiding future competition. Although the agency has not challenged any transaction based on such a theory, it appears to be using the HSR process to screen therapeutics transactions for such a fact pattern.  
• Finally, we also saw the creation of an industry trade group specifically focused on the FTC’s life science antitrust enforcement.

The FTC’s Amgen/Horizon Lawsuit Ends With a Whimper

We covered the FTC’s investigation into (and litigation challenging) Amgen’s $28.3 billion acquisition of rare disease specialist Horizon Therapeutics in our Q1 and Q2 updates. As we noted in our Q2 update, the FTC’s challenge was the most significant enforcement action in the life sciences space since AbbVie/Allergan and BMS/Celgene in 2019, and the first litigation that sought to block a life science transaction since 2009.  

To quickly recap, the FTC alleged Amgen would be able to more effectively maintain the monopoly position of Horizon’s two approved drugs, Krystexxa and Tepezza, by utilizing contracting practices (i.e., bundling and rebating) with Amgen’s other drugs. According to this theory, Amgen could exercise the latent market power these Horizon product already had by, for example, keeping future competitors of these Horizon products off the formularies of some payors through contacting practices. See our Q2 update for more details.  

Given this novel theory of harm, most industry observers expected the merging parties to prevail in federal court. Among other challenges, the FTC’s theory of the case (i.e., that Amgen would harm competition through increased bundling and rebating) arguably ran counter to accepted jurisprudence acknowledging the procompetitive benefits (lower prices for consumers) of those exact practices.

Despite the uphill battle for the FTC, it was still surprising when the FTC moved to suspend its related administrative challenge on August 23 to accommodate settlement negotiations with the merging parties.¹ A few days later, on September 1, the FTC announced the parties had reached a settlement.²   

According to the settlement, Amgen is prevented from conditioning any rebates or contract terms related to Amgen products on the sale or positioning of Krystexxa or Tepezza (or the exclusion or disadvantage of current or future competing products to Krystexxa or Tepezza).³ The consent further requires that Amgen submit all Krystexxa and Tepezza-related contracts with payers to an independent monitor and receive prior approval from the FTC for any Amgen acquisitions in the chronic refractory grout (CRG) and thyroid eye disease (TED) spaces until 2032.  

Overall, the settlement is relatively minor in scope and undoubtedly “behavioral” in nature, i.e., where the merging parties agree to, or refrain from, certain types of conduct, as opposed to “structural,” i.e., where the parties sell certain parts of the business. Amgen was not required to divest any assets. Instead, the primary restraint is a prohibition of rebating and bundling of Horizon products to Amgen products, a practice that Amgen has on several occasions publicly stated it has “no reason, ability or intention” to do.⁴ While the agreement does require FTC prior approval⁵ for certain future Amgen transactions, it applies only until 2032 and is limited to the CRG and TED spaces, where Amgen now has the only approved drugs. The other provisions of the settlement, such as the appointment of an independent monitor and annual compliance acknowledgments by certain Amgen employees, are standard parts of the traditional FTC consent package and certainly do not break any new ground in terms of enforcement. 

The settlement has several implications for life sciences transactions moving forward. First, the FTC may be starting to feel the political heat from its string of recent court losses in which it failed to convince judges of the validity of novel theories of harm. While the agency is likely to continue pursuing novel theories of harm, it may be more guided by practical (rather than ideological) considerations. Second, behavioral remedies, which the agency publicly disclaimed for much of the Biden administration,⁶ may be back on the table. While the merging parties’ willingness to litigate may have played a role in getting to this result, similarly situated practitioners should take note of the ultimate outcome — the FTC departing from aggressive public rhetoric to accept something more akin to a traditional settlement. Lastly, we cannot discount the role that capacity constraints may have played in the FTC’s decision as it manages several ongoing investigations and litigations, including the recently filed lawsuit against Amazon.

We expect the FTC to continue investigating life sciences transactions, particularly large, commercial deals like the Amgen/Horizon transaction. The agency will also likely continue to consider a buyer’s past conduct in determining whether to ultimately challenge a deal. As discussed in the next section, the Pfizer/Seagen transaction will provide yet another meaningful data point for charting the FTC’s priorities.

Pfizer/Seagen: FTC’s Next Litmus Test; Pfizer CEO Provides Second Request Update With Questions Around Innovation and Past Acquisitions

We also covered Pfizer’s $43 billion acquisition of Seagen in our Q1 and Q2 Updates. We noted that after delaying their initial HSR filing and then restarting the HSR waiting period (with a “pull and refile”) on June 14, 2023, Seagen announced that the parties received a second request on July 14, 2023. Given the lack of horizontal overlaps, we expected the FTC to focus on a more novel theory of harm in its investigation.

On September 26, speaking at the Cantor Fitzgerald Global Healthcare Conference, Pfizer’s CEO Albert Bourla gave an update on the second request and confirmed that the FTC was exploring a nontraditional theory of harm. Mr. Bourla stated that unlike in Amgen/Horizon, the agency has “asked us a lot of questions, not about bundling because there is no bundling, but if innovation is maintained.”⁷ He further stated that the FTC is “not a typical [antitrust] agency nowadays” and that “they are very vague and broad in the way that they try to interpret the law.”⁸ 

Other reporting from the Capitol Forum confirmed that the FTC has requested documents and information related to Pfizer’s $68 billion acquisition of Wyeth in 2009, including documents related to Pfizer’s $60 billion acquisition of Pharmacia in 2003.⁹ These requests are reportedly intended to examine evidence of R&D spending cuts in the wake of the Wyeth and Pharmacia deals, which could serve as a basis to allege similar reductions (broadly characterized as a reduction in innovation) arising out of the Seagen acquisition.¹⁰ The FTC’s apparent focus on innovation in Pfizer/Seagen despite any obvious structural reason Pfizer would slow down any ADC innovation suggests that the FTC is treating Big Pharma transactions involving commercial assets with a high level of skepticism, similar to the treatment of Big Tech transactions.

What About Transactions Involving Clinical Stage Assets? FTC is Still Worried About “Killer Acquisitions”

In life sciences, the highest-profile FTC investigations in the past few years have been acquisitions involving commercial assets. Indeed, as we have reported previously, for the archetypal acquisition or license transactions involving clinical-stage assets, transactions appear to close without a second request even where there is some apparent overlap between the Big Pharma pipeline and the target asset.  

Nevertheless, based on anecdotal observations, it is palpable that the agency is genuinely worried about “killer acquisitions” in life sciences. The staff tends to explore the factual issues relevant for such a theory even in transactions involving high-risk assets or where the buyer already faces competition (i.e., even in competitive dynamics where it would be irrational to spend hundreds of millions of dollars on a defensive strategy with additional antitrust risk). It is reasonable to expect that the FTC will try to send a message if, and when, it comes across the right case.  

Increased Antitrust Enforcement and Draft Merger Guidelines Spur the Creation of Life Science Industry Coalition

Spurred by the increased level of antitrust scrutiny on life science transactions and the release of the Draft Revised Merger Guidelines, AbbVie, Amgen, Gilead, Merck, and Novartis helped form a 31-member industry coalition, the Partnership for the U.S. Life Science Ecosystem (PULSE). In an October 4 press release announcing its formation, PULSE characterized the Draft Merger Guidelines¹¹ as a “new approach to antitrust enforcement [that] runs counter to long-standing precedent that has guided pro-innovation M&A for decades. If continued, the FTC’s flawed approach to M&A review and enforcement would undermine the dynamic ecosystem responsible for many of the world’s most innovative and important treatments. Deterring pro-innovation M&A would obstruct the many complementary relationships across the life sciences ecosystem, stalling treatments and cures for patients while risking jobs, wages and economic growth in every state.”¹² 

While it seems unlikely that PULSE will have a significant impact on the FTC’s standard of review and whether it would challenge a transaction, its formation demonstrates that the life sciences industry is taking antitrust risk seriously. The FTC has thus far focused its attention on deals with commercial assets, but the principles articulated in the Draft Merger Guidelines (and questions surrounding innovation in the Pfizer/Seagen investigation) could disrupt the decades-old system of big pharma players acquiring pipeline from VC-backed innovators that are ill equipped for late-stage development or commercialization.  

 

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^[1] FTC, August 23, 2023, https://www.ftc.gov/system/files/ftc_gov/pdf/608452_-_efile0002598_-2023.08.23_motion_to_withdraw_from_adjudication_public.pdf.
^[2] FTC, “Biopharmaceutical Giant Amgen to Settle FTC and State Challenges to its Horizon Therapeutics Acquisition,” September 1, 2023, https://www.ftc.gov/news-events/news/press-releases/2023/09/biopharmaceutical-giant-amgen-settle-ftc-state-challenges-its-horizon-therapeutics-acquisition.
^[3] FTC, File No. DO9414, https://www.ftc.gov/system/files/ftc_gov/pdf/d09414amgenhorizonacco.pdf.
^[4] Amgen, “Amgen and Horizon Therapeutics plc resolve FTC lawsuit, clearing path to close acquisition,” September 1, 2023, https://www.amgen.com/newsroom/press-releases/2023/09/amgen-and-horizon-therapeutics-plc-resolve-ftc-lawsuit-clearing-path-to-close-acquisition.
^[5] Prior consent, or prior approval, is an enforcement mechanism employed by the FTC that requires a covered firm to submit any acquisitions in a particular relevant market, even if it not HSR reportable, to the agency for approval before closing. The practice had largely been halted after a 1995 policy statement, but the FTC announced its intent to revive the mechanism in October 2021. FTC, “FTC to Restrict Future Acquisitions for Firms that Pursue Anticompetitive Mergers,” October 25, 2021, https://www.ftc.gov/news-events/news/press-releases/2021/10/ftc-restrict-future-acquisitions-firms-pursue-anticompetitive-mergers.
^[6] Indeed, a little over a year ago, FTC Chair Lina M. Khan testified before the Senate Subcommittee on Antitrust that the FTC “now strongly disfavor[s] behavioral remedies and will not hesitate to reject proposed divestitures that cannot fully cure the underlying harm.” FTC, “Prepared Statement of the Federal Trade Commission Before the United States Senate Committee on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights ‘Oversight of the Enforcement of the Antitrust Laws,’” September 20, 2022, https://www.ftc.gov/system/files/ftc_gov/pdf/P210100SenateAntitrustTestimony09202022.pdf.
^[7] Pfizer Inc at Cantor Fitzgerald Global Healthcare Conference on September 26, 2023 / 7:30PM (q4cdn.com).
^[8] Id.
^[9] Pfizer/Seagen: FTC Explores Innovation Theory of Harm It Examined In 2 - TCF Library (thecapitolforum.com).
^[10] Id.
^[11] Id.
^[12] Partnership for the U.S. Life Science Ecosystem (PULSE), “Life Sciences Leaders, Advocates Launch New Partnership to Promote Benefits of Pro-Innovation Mergers & Acquisitions,” October 4, 2023, https://pulseforinnovation.org/life-sciences-leaders-advocates-launch-new-partnership-to-promote-benefits-of-pro-innovation-mergers-acquisitions/