Antitrust & Competition Life Sciences Year in Review 2023

Despite increasingly aggressive rhetoric from the agencies, 2022 was largely characterized as “business as usual” in the antitrust world. In contrast, 2023 featured a significant step up in enforcement activity, including multiple challenged transactions and lengthy investigations in the life sciences space. As notable, many of these enforcement activities involved more “novel” theories of harm — such as bundling, potential competition, and harm to research, development, and innovation — displaying a willingness by the Federal Trade Commission (FTC) to put its rhetoric into action. At the same time, the novel theories pursued by both the FTC and Department of Justice (DOJ) have generally (though not uniformly) been met by skepticism in federal court.

We expect this trend to continue in 2024. The FTC will closely examine life science transactions — especially those involving commercial assets or with overlaps in indication or mechanism of action — and litigate where it perceives harm.

For this reason, while early engagement of counsel continues to be crucial, merging parties must increasingly think about litigation preparation and strategy to successfully navigate an increasingly thorny regulatory thicket for life science transactions.

2023 Enforcement Roundup

Amgen/Horizon Settled Before Trial, FTC Agrees to Modest Behavioral Remedy

The FTC’s first significant enforcement activity in 2023 was its challenge to Amgen’s $28.3 billion acquisition of rare-disease specialist Horizon Therapeutics.^[1] 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 (specifically bundling and rebating) involving Amgen’s other drugs. This theory of harm (i.e., that Amgen would harm competition through increased bundling and rebating) had not previously found its way into merger challenges and arguably ran counter to case law acknowledging the procompetitive benefits (lower prices for consumers) of those exact practices. For this reason, most industry observers expected the merging parties to prevail in federal court.

Despite this uphill battle for the FTC, it was still surprising when the parties announced a settlement on September 1, 2023, particularly one that did not involve any divestitures (known as “structural relief”).^[2] Instead, the settlement primarily consisted of a prohibition on rebating and bundling of Horizon products with Amgen products, a practice that Amgen stated publicly on several occasions that it had “no reason, ability or intention” to do.^[3]

This “behavioral” remedy marks a departure both from recent FTC practice and stated policy. In September 2022, FTC Chair Lina 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.”^[4] In remarks just a few months prior to the settlement, Chair Khan described “behavioral remedies” as “often [] ineffective and difficult to administer.”^[5]

FTC Challenges Maze/Sanofi, Parties Immediately Abandon Deal

While the FTC’s challenge to Amgen/Horizon represented a shot across the bow at the life sciences industry, the enforcement landscape shifted further when the agency announced on December 13, 2023, that it was moving to block Sanofi’s proposed exclusive license agreement with Maze Therapeutics (discussed further in a previous Goodwin alert).

Sanofi originally announced the $750 million ($150 million upfront) exclusive license of Maze’s glycogen synthase 1 (GYS1) program, focused on Pompe disease, on May 1, 2023.^[6] Pompe, a rare genetic disorder that causes progressive weakness to the heart and skeletal muscles, has limited treatment options. While Sanofi was an “established player”^[7] in the Pompe space, including its recently approved Nexviazyme intravenous treatment, Maze holds a promising Phase 1 asset (MZE001). The FTC soon issued a second request and investigated the deal throughout the summer and fall before issuing the complaint in December.

In both its complaint and press release, the FTC characterized Sanofi as the “monopolist supplier of drugs used to treat Pompe disease”^[8] and alleged that Sanofi was “trying to buy out Maze rather than compete with it,” characterizing the proposed exclusive license as a “monopolist seeking to eliminate a nascent threat to its monopoly.”^[9] As a result, the deal represented (in the FTC’s eyes) a “killer acquisition.”^[10]

While prior enforcement actions in the life sciences space have focused on mega-mergers (e.g., Bristol-Myers Squibb/Celgene) or those involving commercial assets (e.g., Amgen/Horizon), Maze’s primary asset had yet to enter Phase 2 trials (although it was described by the agency as “Phase 2-ready”^[11] ). In this regard, the FTC’s challenge was closer to recent enforcement in the tech space that focused on potential competition, such as the FTC’s failed challenge to the Meta/Within transaction.

Although the FTC has publicly espoused the killer acquisition theory before, it is nevertheless surprising to see the agency actually challenge a narrow deal involving such early-stage assets, which inevitably carry a significant stand-alone risk of failure (e.g., a lack of sufficiently positive clinical data in future trials to support an NDA). The FTC’s theory as applied to this transaction also relies on several highly questionable assumptions. In particular, the FTC inherently assumes that Maze, a clinical-stage startup without a sales team, has or would acquire the financial resources and ability to not only continue the increasingly expensive and complicated development of a rare-disease asset but also eventually successfully commercialize MZE001 and compete with Sanofi.

While the parties announced their intention to abandon the transaction soon after the FTC’s complaint was filed, we were largely skeptical of the FTC’s theory of harm for the reasons articulated above — the agency assumes a clinical-stage life science company with limited resources will be able successfully develop a speculative rare-disease Phase 1 asset through commercialization and compete with Sanofi, likely several years (or more) in the future. This ignores industry realities. The FTC also appears to have discounted competition from other players pursing similar mechanisms of action in the Pompe space.

Whether the Sanofi/Maze challenge is a harbinger of additional challenges to acquisitions of clinical-stage assets remains to be seen. But the decision signals that the FTC is willing to apply potential competition and other more novel theories of harm to the life science space and is willing to reach deep (early) into the pipeline of transacting parties to identify substantive concerns. The FTC’s action here is further proof that a more careful assessment of deal execution risk is required in life sciences transactions, along with careful consideration of antitrust risk allocation and management in transactional documents. Similarly, parties need to consider the reactions by key opinion leaders and other stakeholders in the disease state as part of any regulatory risk assessment.

Pfizer/Seagen Cleared With Minimal Commitment

The last significant agency action of the year the FTC’s decision to decline to challenge Pfizer’s $43 billion acquisition of Seagen, a cancer specialist focusing on antibody drug conjugates (ADCs), originally announced in March 2023. The deal was the largest life science deal since AbbVie’s $63 billion acquisition of Allergan in 2019. Given the high profile of this deal, it was unsurprising that Seagen announced that the parties received a second request in July 2023. At the time, due to the lack of horizontal overlaps, we expected the FTC to focus on a more novel theory of harm in its investigation.^[12]

Subsequent reporting (and public comments from Pfizer’s CEO) indicated that the FTC requested documents and information related to Pfizer’s $68 billion acquisition of Wyeth in 2009 and even documents related to Pfizer’s $60 billion acquisition of Pharmacia in 2003. These requests were reportedly intended to examine evidence of R&D spending cuts in the wake of those prior deals, which could serve as a basis to allege that similar reductions would occur (broadly characterized as a reduction in innovation) following the Seagen acquisition.

Ultimately, however, the FTC declined to challenge the transaction. According to a December 2023 Pfizer press release,^[13] the agency apparently had some concerns about a more traditional horizontal overlap between Seagen’s portfolio of cancer-focused ADCs and Pfizer’s stake in the cancer drug Bavencio, jointly developed with Merck KGaA. To preempt this concern, Pfizer irrevocably donated all royalties from Bavencio to the American Association for Cancer Research. Pfizer then closed the transaction on December 14, 2023.^[14]

The FTC’s investigation and theories of harm suggest the agency will treat any Big Pharma transaction with a high level of skepticism, similar to their treatment of Big Tech transactions. The effort to find a more novel theory of harm around innovation is tenuous, given that Pfizer likely has a strong incentive to continue research and development in ADCs, with Pfizer’s CEO referring to Seagen as the “goose that is laying the golden eggs”^[15] at the time of acquisition. And the minimal horizontal indication — but not mechanism of action — overlap in the crowded cancer treatment landscape seemed unlikely to cause any significant competitive harm.

Looking Ahead: More Deals and Enforcement Likely, but the FTC’s Theories Are Largely Untested and at Odds With Industry Realities

Looking ahead to the rest of 2024, with a “healthy”^[16] deal activity outlook for life sciences, we expect the FTC to continue closely scrutinizing pharma transactions. Large and/or significant transactions should expect heavy scrutiny from the agency, which will likely explore any conceivable theory of harm, even if novel or tenuous, to serve as a basis for a challenge. Transactions involving early-stage assets should also be prepared for agency questions, especially if there is an indication or mechanism of action overlap.

The FTC’s more novel theories of harm, however, have been largely rejected by courts in other industries and are untested in the life sciences space. Indeed, one of the most surprising parts of the challenge to Sanofi/Maze was the implicit assertion by the FTC that Maze would be able to continue developing a Phase 1 asset to approval and into commercialization. And as noted above, the FTC’s theory of harm in Amgen/Horizon around bundling often results in lower prices — a key tenet of the judicially-recognized consumer welfare standard.

As a result, while the agency is likely to continue pursuing novel theories of harm and challenging transactions, it may ultimately be guided by practical (rather than ideological) considerations. In Amgen/Horizon, the FTC accepted a behavioral remedy, an approach the agency has publicly disclaimed for much of the Biden administration. The agency also allowed Pfizer/Seagen to close with a minimal (and proactive) structural remedy based on a traditional theory of harm. In other words, the FTC is showing some willingness to depart from public rhetoric and be pragmatic in some cases.

^[1] See Goodwin’s Q1 and Q2 updates.

^[2] FTC, “Biopharmaceutical Giant Amgen to Settle FTC and State Challenges to its Horizon Therapeutics Acquisition,” September 1, 2023.

^[3] Goodwin’s Q3 update; Amgen, “Amgen and Horizon Therapeutics PLC Resolve FTC Lawsuit, Clearing Path to Close Acquisition,” September 1, 2023.

^[4]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.

^[5]Lina Khan, “Q&A with Lina Khan, Chair of the U.S. Federal Trade Commission and Mark Glick, Professor of Economics at the University of Utah,” Utah Law Review, 2023.

^[6] Max Bayer, “Sanofi Bets $750M to Enter Glycogen-Lined Maze Deal With Lead Asset Waiting in the Middle,” Fierce Biotech, May 1, 2023.

^[7]Tristan Manalac, “Sanofi Deepens Pompe Disease Focus with $150M Maze Partnership,” BioSpace, May 2, 2023.

^[8] FTC, “FTC Seeks to Block Sanofi’s Acquisition of Rare Disease Drug that Threatens Sanofi’s Monopoly,” December 11, 2023 (hereafter referred to as “FTC Press Release”); In re Sanofi and Maze Therapeutics, Federal Trade Commission v. Sanofi, Genyzme Corporation and Maze Therapeutics, Complaint for Preliminary Injunction Pursuant to Federal Trade Commission Act § 13(b), Case 1:23-cv-13046 (D. Mass.) (hereafter referred to as “Complaint”).

^[9] Complaint.

^[10] See DOJ and FTC, “The Future of Pharmaceuticals: Examining the Analysis of Pharmaceutical Mergers (FTC-DOJ Workshop Summary),” May 31, 2023: “FTC Chair Khan emphasized the life and death stakes of creating the right competitive conditions in the pharmaceutical sector. Chair Khan noted the importance of ensuring that companies are incentivized to innovate and to make their pharmaceutical products available at affordable prices. She expressed concern that the median list price for new drugs has been increasing in recent years, that ‘killer’ acquisitions shut down potential competitors, and that lawsuits have been alleging illegal bundling and tying practices in the industry”; see also DOJ and FTC, “2023 Merger Guidelines,” December 18, 2023 (hereafter referred to as “Merger Guidelines”): “A merger may involve a dominant firm acquiring a nascent competitive threat – namely, a firm that could grow into a significant rival, facilitate other rivals’ growth, or otherwise lead to a reduction in its power. In some cases, the nascent threat may be a firm that provides a product or service similar to the acquiring firm that does not substantially constrain the acquiring firm at the time of the merger but has the potential to grow into a more significant rival in the future . . . a firm that may challenge a monopolist may be characterized as a ‘nascent threat’ even if the impending threat is uncertain and may take several years to materialize.”

^[11] FTC Press Release.

^[12] See our Q2 update.

^[13] Pfizer, “Pfizer Receives All Required Regulatory Approvals to Complete the Acquisition of Seagen,” December 12, 2023.

^[14] Pfizer, “Pfizer Completes Acquisition of Seagen,” December 14, 2023.

^[15] Kevin Dunleavy, “With $43 Buyout, Pfizer Sees Cancer Specialist Seagen as a ‘Goose’ Laying ‘Golden Eggs,’” Fierce Pharma, March 13, 2023.

^[16] PwC, “Pharmaceutical and Life Sciences: US Deals 2024 Outlook,” December 2024.

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