Antitrust and Competition Life Sciences Quarterly Update Q2 2024

To date, 2024 has not yet seen the type of mega-merger (Pfizer/Seagen) or level of agency enforcement (Sanofi/Maze or Amgen/Horizon) as 2023. But two notable investigations — one still active — show the Federal Trade Commission (FTC) is continuing to closely examine life sciences transactions for both horizontal and vertical concerns. The agency also continues to put the life sciences industry under the regulatory microscope, including through investigations regarding alleged “junk” patents in the Food and Drug Administration’s (FDA’s) Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the Orange Book) and the release of its interim staff report on pharmacy benefit managers (PBMs).

In the EU, the European Commission (EC) opened its first abuse-of-dominance probe related to the shelving of a novel pipeline therapy in the veterinary medicine space (Zoetis).

That said, deals are still getting done, as evidenced by the flurry of deals in the radiopharmaceutical and obesity/diabetes spaces that were cleared without any publicly known investigations.

Second Requests Show the FTC Is Looking Up and Down the Supply Chain and Deep Into the Pipeline, But Deals Generally Are Clearing in Normal Course

Novo / Catalent

The first notable agency action in 2024 is the FTC’s Second Request in Novo Holding’s proposed $16.5 billion acquisition of Catalent, a life sciences contract manufacturer.¹ The agency’s interest in the transaction is not surprising given Catalent’s role in the broader pharmaceutical supply chain. The FTC is almost certainly focused on vertical theories of harm — i.e., that Novo could disadvantage its competitors that use Catalent’s services, in particular to manufacture prefilled syringes, which may be the container-closure format of choice in many therapeutics areas in which Novo has a significant presence, such as obesity and diabetes. Novo and Lilly have faced very public shortages of their GLP-1 products, resulting in compound pharmacies offering the drugs at lower prices.² Both companies have moved to expand their manufacturing capacity to address the shortage and prevent additional ones in the future.³ Given the already high demand for GLP-1s and that the demand for prefilled syringes is only expected to continue to grow, manufacturing capacity is a material competitive issue in this space. Novo’s proposed acquisition of Catalent is part of this overall effort and has an obvious procompetitive effect of securing the supply chain for Novo and likely increasing the capacity utilization of the Catalent assets.⁴

According to one industry report, the acquisition “raises new concerns for pharma and biotech companies that rely on contractors [such as Catalent] to crank out their clinical- and commercial-stage drugs.”⁵ Eli Lilly, a competitor to Novo in the weight-loss space, publicly stated they had “questions about the transaction.”⁶ In addition to the FTC, the parties are reported to be in pre-notification discussions with the EC; UK clearance was also a condition to closing of the deal, according to publicly-filed documents.⁷

As of publication, the agency’s investigation appears to be ongoing.

Deal Activity in the Metabolic Diseases Space May Have Influenced Agency’s Decision

One factor that may have contributed to the FTC’s decision to issue a second request is the flurry of activity in metabolic diseases based on the success of GLP-1s such as Novo’s Wegovy and Lilly’s Zepbound. Both Novo and Lilly, two of the larger players in the space, have made several acquisitions over the past several years. Specifically, Novo has acquired (or acquired assets from) Inversago Pharma,⁸ EraCal,⁹ Embark Biotech,¹⁰ and KBP Biosciences,¹¹ while Lilly acquired Versanis Bio.¹²

AbbVie / Cerevel and BMS / Karuna

The only other publicly known significant life sciences merger investigation at the time of publication was the FTC’s now-concluded second request regarding AbbVie’s acquisition of Cerevel Therapeutics. The deal was originally announced in December 2023, with AbbVie paying $8.7 billion for the neuroscience biotech. Cerevel’s lead asset (emraclidine) is in Phase 2 trials for schizophrenia, while it has another asset (tavapadon) in Phase 3 for Parkinson’s disease.¹³

At the time of the acquisition, AbbVie’s CEO stated that his company “looked very carefully at the FTC risk before proceed[ing] forward.” He also claimed the “the acquisition is not anti-competitive”¹⁴ while characterizing the psychiatry landscape as “crowded and fragmented.”¹⁵ That said, AbbVie has had a very successful franchise with Vraylar, which is approved for schizophrenia, major depressive disorder, and bipolar depression and mania. And while Cerevel has no approved therapies and there is no publicly known mechanism of action overlap between the two parties, there were potential indication overlaps in schizophrenia, Parkinson’s disease, and major depressive disorder. Third-party analysts at the time of the deal noted that there was not a “particular reason to be concerned” given the presence of “multiple generic and brand therapies [in the space].”¹⁶ Specifically in schizophrenia (where Cerevel’s lead asset is in trials), notwithstanding Vraylar’s historic success, industry reporting noted there are over “20 available treatments and many companies involved.”¹⁷

But given this potential indication overlap, the announcement by the parties that they received a Second Request in February 2024 was not entirely surprising.¹⁸ The investigation moved fairly quickly, however, with AbbVie’s president on June 11, 2024, stating the parties were “making very good progress” and repeating his claim that there was “really not any significant overlap here.” ¹⁹ He also noted AbbVie’s “very low share in schizophrenia” and that it does not “even promote Vraylar in schizophrenia,” while further arguing the parties’ assets targeted different stages of Parkinson’s disease.²⁰ AbbVie announced it completed the transaction on August 1, 2024, without commenting on the investigation. ²¹

With the investigation concluded without any public statements, it is not clear which theories of harm the FTC explored. It seems unlikely the FTC looked into a “killer acquisition” theory, given the fragmented nature of the space and the presence of other players, such as Karuna (discussed below), developing assets with similar mechanisms of action. The agency may have simply keyed in on the likely horizontal overlap and wanted more information given Cerevel’s assets are in the later stages of development and thus closer to potentially being a competitor with AbbVie’s Vraylar.

By contrast, another contemporaneous deal in the psychiatry space received much less agency scrutiny. BMS’ $14 billion acquisition of Karuna Therapeutics, another player in psychiatry with an asset with a similar mechanism of action to Cerevel, was also first announced in late December 2023. Although the parties did have to “pull-and-refile” to give the FTC more time to examine the transaction,²² they were able to avoid a Second Request and close the transaction in March 2024 despite a larger deal value and an asset closer to commercialization than Cerevel’s.

Flurry of Radiopharma Transactions Shows Deals are Getting Done

While the FTC may be exploring pharmaceutical deals for a range of vertical and horizontal theories of harm, the flurry of recent radiopharma transactions also shows many life sciences deals are still getting done in the ordinary course. In the span of several months, numerous Big Pharma players announced deals with radiopharma start-ups, including Lilly’s $1.4 billion acquisition of POINT Biopharma,²³ BMS’ $4.1 billion acquisition of RazyeBio,²⁴ AstraZeneca’s $2 billion acquisition of Fusion Pharmaceuticals,²⁵ and Novartis’ $1 billion acquisition of Mariana Oncology,²⁶ in addition to other, smaller collaborations and agreements.²⁷ None of these deals had any publicly known detailed investigation by the agencies.

Non-Merger Enforcement and Investigation Reports Show the FTC Remains Focused on Life Sciences and Big Pharma

FTC Continues to Challenge Patent Listings in FDA Orange Book

While the enforcement activity on the merger side has been relatively light in 2024 (at least compared to 2023), the FTC is utilizing other enforcement mechanisms to keep Big Pharma in its crosshairs. On April 30, 2024, the agency announced it was formally disputing more than 300 patent listings in the FDA’s Orange Book and sending warning letters to 10 companies, less than six months after it challenged more than 100 other patents, resulting in companies delisting or instituting price caps on certain products.²⁸ According to the agency, the challenged patents are “junk” patents, or improper or inaccurate patents designed to “delay cheaper generic alternatives from entering the market, keeping brand name drug prices artificially high.” ²⁹ The FTC’s accompanying press release alleges that pharmaceutical companies are “filing bogus patent listings [to] block competition and inflate the cost of prescription drugs.”³⁰

But since the April announcement, at least one challenged patent holder has allegedly refused to withdraw or amend its listed patents.³¹ According to one third-party report, the FTC sent Teva a civil investigative demand (essentially a subpoena) related to several of the challenged patents after it refused to withdraw or amend.³² As the agency becomes increasingly aggressive in this space, it seems possible that more drugmakers may push back against the FTC’s challenges, especially if they believe the agency is improperly challenging legitimate patents.

FTC Releases Interim Staff Report on PBMs

In addition to the FTC’s action against patents in the Orange Book, the agency also released its interim staff report on PBMs.³³ The report, which refers to PBMs as “the powerful middlemen inflating drug costs and squeezing main street pharmacies,”³⁴ is the result of an inquiry the agency launched in 2022. As we have discussed in prior updates, PBMs increasingly find themselves in the crosshairs of regulators and legislators.

One of the core findings of the report is that the PBM industry “has become highly concentrated” and that the “largest PBMs are now vertically integrated with the nation’s largest health insurers and specialty and retail pharmacies.”³⁵ According to the agency’s data, the “top three PBMs processed nearly 80%” of US prescriptions in 2023, while the “top six processed more than 90%.”³⁶ This concentration, according to the FTC, means the “dominant PBMs can often exercise significant control over which drugs are available, at what price, and which pharmacies patients can use.”³⁷ The agency also complained about a lack of compliance from several PBMs that hindered the investigation, with threats the FTC could “take them to court to compel compliance.”³⁸

Notably, the report was accompanied by a dissenting statement from Republican Commissioner Melissa Holyoak.³⁹ Commissioner Holyoak stated the report was “plagued by process irregularities and concerns over the substance” and accused Chair Lina Khan of using the report to “score cheap points for transient political favor” fit for “social media posts and television interviews.”⁴⁰ The Commissioner also raised concerns about the report’s disregard for the FTC’s previous study on PBMs from 2005 (which found that “PBMs, including vertically integrated PBMs, generated cost savings for consumers”⁴¹ ) and the absence of “economic rigor.”⁴² What Commissioner Holyoak found “most troubling,” however, was the report’s failure to examine how PBM practices affect consumer prices.”⁴³

The Commissioner’s dissent appears more rooted in traditional antitrust concerns and the consumer welfare standard, which focuses on lower prices for end-consumers. At bottom, the Commissioner found the report “simply describes the high-level nature of the healthcare system in the U.S., which is generally characterized with problems of coordination and misalignment of incentives,” as opposed to any empirical findings on the state of competition in the prescription drug market.⁴⁴

Overall, while the report has generated significant press, its immediate impact is unclear. Although there are rumors of targeted FTC litigation against PBMs (including related to the price of insulin),⁴⁵ it is the legislative arena that seems more likely to drive changes to the PBM space.⁴⁶

European Commission Opens Abuse of Dominance Probe for Shelving of a Novel Pipeline Therapy

The EC opened a formal investigation under its abuse-of-dominance rules into US life sciences company Zoetis in the area of novel veterinary medicines.⁴⁷ The case focuses on Zoetis’s conduct after it acquired late-stage asset ranevetmab, a novel monoclonal antibody (mAb) indicated for chronic osteoarthritis pain in dogs. Ranevetmab targeted the same indication as Zoetis’s own late-stage pipeline product, bedinvetmab (under the brand name Librela). When acquired, ranevetmab was subject to a preexisting license agreement that granted exclusive commercialization rights to Virbac. About two years after the acquisition, Zoetis terminated the development of ranevetmab. Librela then became the first injectable mAb authorized in this indication when it obtained marketing authorization in 2020. The EC is investigating Zoetis’ conduct post-merger, specifically the discontinuation by Zoetis of the advanced pipeline product, ranevetmab, and refusal to transfer the product upon request of the third-party-right holder, Virbac. The probe signals the EC’s willingness to pursue theories involving the “killing” of nascent competition through the exercise of its antitrust powers based on conduct post-merger, even if transactions did not meet the thresholds for review under merger control rules (or were cleared on review at the time of the acquisition).

European Commission Issues Policy Briefing on Pharma Mergers

The EC also issued a Competition Policy Brief (the Brief) summarizing the EC’s framework for assessing potential impacts on innovation competition arising from pharma mergers.⁴⁸ The EC assesses potential competition concerns arising from overlaps between marketed drugs and pipeline drugs, as well as pipeline-to-pipeline overlaps where drugs are in advanced clinical trials (Phase 3 and beyond). The EC will also consider the impacts on innovation competition in the pipeline, resulting from discontinuation, delay or redirection of overlapping pipelines (including early-stage assets). Finally, the agency will look at impacts on “innovation spaces”, — i.e., a loss of competition arising from a structural reduction in the overall level of innovation in a certain area. The EC is likely to apply a broader approach to market definition for novel therapies, pipeline assets and innovation spaces, such as focusing on the indication or mechanism of action, and will not necessarily limit itself to the ATC3 class of the therapy. The Brief emphasizes that “killer” acquisitions remain on the EC’s agenda. The EC considers that remedies in the case of pre-commercial assets are not straightforward, and the EC will be concerned that any divestment of a pipeline asset includes everything needed to continue development and bring the drug to market – in some cases this can go beyond what is covered by the original license.

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^[1] Fierce Pharma, “Another Day, Another Delay for Novo’s Catalent Acquisition as FTC Imposes ‘Second Request,’” May 3, 2024.
^[2] CBS News, “Hims & Hers Says It’s Selling a GLP-1 Weight Loss Drug for 85% Less than Wegovy. Here’s the Price,” May 21, 2024.
^[3] Fierce Pharma, “Novo Nordisk Reveals Plan to Build Mammoth $4.1B Plant in North Carolina to Help Produce Ozempic, Wegovy,” June 24, 2024; see also Lilly, “Lilly Increases Manufacturing Investment to $9 Billion at Newest Indiana Site to Boost API Production for Tirzepatide and Pipeline Medicines,” May 24, 2024.
^[4] Pharmaceutical Technology, “GLP-1 Receptor Agonists Sales Expected to Reach $125bn By 2033,” May 15, 2024.
^[5] Fierce Pharma, “UPDATED: In Refiling $16.5B Catalent Buyout Pitch, Novo Gives FTC More Time for Review,” April 8, 2024.
^[6] Id.
^[7]MLex, “Novo-Catalent Deal to Seek US, UK Clearance,” Feb. 5, 2024. The deal was cleared in Turkey (MLex, “Novo Holding-Catalent Deal Receives Antitrust Clearance in Turkey,” May 8, 2024) and was notified in Brazil (Mlex, “Novo Holding / Catalent Deal Notified in Brazil” Aug. 8, 2024).
^[8] Fierce Biotech, “Novo Nordisk Bets $1.1B on Canadian Biotech Buyout, Adding an Old Approach to Obesity Pipeline,” August 10, 2023.
^[9] Fierce Biotech, “Novo Nordisk Puts $255M On The Line to Bag Another Obesity Asset, Turning to EraCal for Novel Approach,” Jan. 23, 2024.
^[10] Fierce Biotech, “Novo Nordisk Swallows Another Obesity Biotech, Paying $16M Upfront for its Preclinical Partner,” Aug. 30, 2023.
^[11] BioSpace, “Novo in $1.3B Deal Buys Late-Stage Hypertension Drug from Singapore Biotech,” Oct. 16, 2023.
^[12]Fierce Biotech, “Hungry for More, Lilly Tops off Weight Loss Pipeline with $1.9B Deal to Acquire Versanis,” July 14, 2023.
^[13] Fierce Pharma, “AbbVie CEO Gonzalez Brushes Off FTC Concerns for Cerevel Buy: ‘This Acquisition is Not Anti-Competitive,’” Dec. 7, 2023.
^[14]Id.
^[15] Id.
^[16] Fierce Pharma, “AbbVie CEO Gonzalez Brushes Off FTC Concerns for Cerevel Buy: ‘This Acquisition is Not Anti-Competitive,’” Dec. 7, 2023.
^[17] Id.
^[18] Biopharma Drive, “AbbVie’s Cerevel Deals Hits an Uncommon Roadblock,” Feb. 20, 2024.
^[19] Seeking Alpha, “Cerevel Therapeutics Gains After AbbVie Says Making Good Progress with FTC,” June 12, 2024.
^[20] Id.
^[21] AbbVie, “AbbVie Completes Acquisition of Cerevel Therapeutics,” Aug. 1, 2024.
^[22] LexisNexis, “Karuna Plan to Refile US Antitrust paperwork for Deal Focused on Neuroscience Drug,” Feb. 6, 2024.
^[23] Lilly, “Lilly Completes Acquisition of POINT Biopharma,” Dec. 27, 2023.
^[24] Fierce Biotech, “BMS Enters Radiopharma Race with $4.1B Acquisition of RayzeBio Just 3 Months After Biotech Went Public,” Dec. 27, 2023.
^[25] Fierce Biotech, “AstraZeneca Melds with Fusion in $2B Radiopharma Buyout,” March 19, 2024. Goodwin Procter represented Fusion in this transaction.
^[26] Fierce Biotech, “Novartis Further Entrenches Into Radiopharma with $1B Mariana Buy,” May 2, 2024. Goodwin Represented Mariana Oncology in this transaction.
^[27] See, e.g., Fierce Pharma, “BMS-Backed Radiopharma Specialist Ratio Expands Manufacturing Deal with CDMO PharmaLogic,” March 18, 2024.
^[28] FTC, “FTC Expands Patent Listing Challenges, Targeting More than 300 Junk Listing for Diabetes, Weight Loss, Asthma and COPD Drugs,” April 30, 2024; FTC, “FTC Challenges More than 100 Patents as Improperly Listed in the FDA’s Orange Book,” Nov. 7, 2023.
^[29]Id.
^[30] Id.
^[31] BioSpace, “FTC Investigates Teva Over Refusal to Remove Improperly Listed Patents From Orange Book,” July 2, 2024.
^[32]Id.
^[33] FTC, “FTC Releases Interim Staff Report on Prescription Drug Middlemen,” July 9, 2024.
^[34] FTC, “Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drugs Costs and Squeezing Main Street Pharmacies,” July 9, 2024.
^[35] Id. at 2.
^[36] Id.
^[37] Id.
^[38] Id.
^[39] FTC, “Dissenting Statement of Commissioner Melissa Holyoak,” July 9, 2024, at p. 2.
^[40] Id. at pp. 4, 6.
^[41] Id.
^[42] Id. at p. 4.
^[43] Id.
^[44] Id. at pp. 5-6.
^[45] The Capitol Forum, “PBM Units of CVS, Cigna, UnitedHealth Targeted in Insulin-Related Lawsuit FTC Preparing to File,” April 22, 2024.
^[46] The Capitol Forum, “House Proposes Overhaul of PBM Payment Model; End-of-Year Package Could Include PBM Legislation,” Aug. 6, 2024. According to the Capitol Forum report, “there may be enough support in Congress for some form of PBM legislation to be included in a lame duck spending bill” but that as of now, it “would likely be a mashup of various PBMs proposals floated in congress” and “[i]t’s not yet clear which pieces of the act and other proposed PBM legislation will survive budgetary review and industry opposition.”
^[47] EU Commission, “Commission opens investigation into possible anticompetitive conduct by Zoetis over novel pain medicine for dogs”, March 26, 2024.
^[48] Competition Policy Brief, Issue 1, April 2024.

 

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