In March 2021, the Federal Trade Commission (FTC) announced a review of its approach to biopharmaceutical mergers and acquisitions. FTC acting Chair Rebecca Kelly Slaughter referenced the high number of mergers in the industry in recent years, “skyrocketing” drug costs, and allegations of anti-competitive conduct as reasons for the review, noting that it is “imperative that we rethink our approach,” and is planning a more “aggressive” approach toward anti-competitive deals.
Throughout the review, the FTC will work with the Department of Justice (DOJ), state attorneys general, and competition authorities in other countries (i.e., the Canadian Competition Bureau and the European Commission Directorate General for Competition) to review the results of recent mergers after they closed. It’s also possible that the FTC will take action on some of those closed mergers, with Slaughter saying, “where we see the need for ex-post action, I [would] like to see us use the opportunity to take it.”
Slaughter also noted that new pharmaceutical technology has been reliably coming from small companies and the FTC wants to make sure it is not just thinking about traditional questions (such as market share) in merger reviews to ensure new drugs can reach the market at prices patients can afford.
Slaughter also referenced the $1.6 trillion in M&A deals over the last decade, which spans hundreds of takeovers in the biopharmaceutical industry.
Some of the questions the FTC plans to review include:
· How can current theories of harm be expanded and refreshed?
· What is the full range of a pharmaceutical merger’s effects on innovation?
· How should we consider conduct such as price fixing, reverse payments, and other regulatory abuses in merger review?
· What evidence would be needed to challenge a transaction based on new or expanded theories of harm?
· What have we learned about the scope of assets and characteristics of firms that make successful divestiture buyers?
It is possible that this announcement will have an impact on AstraZeneca’s $39 billion planned takeover of Alexion. Following the announcement, Alexion made a new filing with the Securities and Exchange Commission (SEC), saying it would withdraw a merger application and refile at a later date, to give the agency more time to review. Alexion said AstraZeneca would also refile.
Louise Chen, analyst at Cantor Fitzgerald, doesn’t think there will be a huge impact on the industry with this announcement, saying, “We do not think the initiative is a cause for concern, but headlines from the FTC working group could dampen enthusiasm for M&A deals if the scrutiny increases … or the working group looks retrospectively at prior deals that have been completed.”
It will be interesting to watch when AstraZeneca and Alexion refile their merger paperwork, and what revisions – if any – are made.