Author Archives: Matthew Thomas

Does a New Round of Pharmaceutical Deal-Making Invite Regulatory Scrutiny?

On January 3rd, Bristol-Myers Squibb Co. agreed to purchase Celgene Corp. for approximately $74 billion. Once the deal closes, it will be the largest pharmaceutical acquisition in history. The acquisition is driven by Bristol-Myers’ expansion into immuno-oncology drug manufacturing and the potential to leverage Celgene’s research pipeline to boost Bristol-Myer’s pipeline in the future. It is expected with this deal that other drug makers will begin looking at larger style acquisitions to remain competitive in the evolving drug market. Such business pickup, however, may draw increased government scrutiny, as concerns about corporate consolidation and its impact on drug pricing may push the government to intervene in some of these acquisitions.

With this acquisition, Bristol-Myers will acquire Revlimid, a drug that treats multiple myeloma. Revlimid currently accounts for a majority of Celgene’s profits, grossing approximately $5.8 billion in 2015. Although Revlimid continues to increase in sales each year, it has had to contend with a number of patent challenges. While Revlimid is set to expire in 2024 in Europe and 2027 in the United States, Celgene has agreed to allow India’s Natco Pharma Ltd. capped sales in the United States in 2022 and lifts that cap in 2026. Bristol-Myers’ acquisition of Celgene would make the new company less dependent on a single drug and would also enable Bristol-Myers to take advantage of Celgene’s immuno-oncology research. Bristol-Myers currently markets Opdivo, a drug used to treat metastatic melanoma and non-small cell lung cancer. Bristol-Myers has been working with smaller drug makers in several combination studies to expand Opdivo’s use, and the acquisition of Celgene could allow greater research opportunities.

The last five years have seen a great deal of consolidation within the pharmaceutical industry, as larger firms have been acquiring smaller firms to take advantage of certain “blockbuster” drugs these firms have created. For instance, in 2018, the French drug maker Sanofi purchased the hemophilia spinoff of Biogen Inc., Bioverativ Inc., for approximately $11 billion. With this deal, Sanofi attempted to improve its rare disease portfolio by acquiring a promising research pipeline. Larger scale acquisitions have been less popular than small scale acquisitions mostly due to Pfizer Inc.’s failure to acquire generic drug maker Allergan PLC in 2016.

In 2015, Pfizer announced a deal to merge with Allergan for approximately $160 billion. The deal would have allowed Pfizer to re-domicile for tax purposes in Ireland, commonly known as a tax inversion, and take advantage of Allergan’s generic drug pipeline to build synergies within Pfizer’s lagging production pipeline. Under the Obama Administration, the Department of the Treasury issued new guidance on structural requirements for tax inversions that were explicitly written to block the Pfizer-Allergan merger. Pfizer ultimately ended discussions with Allergan and has not made any new major acquisitions after both this, and the attempted acquisition of British drug maker AstraZeneca PLC in 2014, failed due to opposition by the British government. More recent large scale pharmaceutical consolidation has continued with primarily European firms taking the lead, such as Irish drug maker Actavis’ acquisition of Allergan in 2015 for $70.5 billion and Japan’s Takeda Pharmaceutical Co.’s acquisition of Irish drug maker Shire PLC for $62 billion in 2018.

If other pharmaceutical firms begin large scale acquisitions, as many pharmaceutical executives have spoken positively of, there is likely to be increased regulatory pressure on these deals. The Trump Administration has sought to lower the price of drugs on the market, specifically pointing to Celgene’s Revlimid, which currently costs $719.82 per dose. In 2017, Opdivo cost approximately $13,100 for a monthly dosage. There has already been some congressional scrutiny of the proposed deal, as many congressional representatives have petitioned the Federal Trade Commission and the Department of Justice to examine the acquisition, and whether the transaction will lead to higher drug prices. Neither agency has responded to the proposed deal as of yet, but either agency may intervene before the deal is expected to close later in 2019. Whether any potential antitrust concerns will be raised is still unknown as the Department of Justice declined to block CVS Health’s 2018 acquisition of the insurance company, Aetna. The government will likely look to the price increases that occur after the Celgene acquisition and whether further consolidation follows before they take a more definitive step in regulating pharmaceutical acquisitions.

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Developments in Drug Pricing and Anti-Kickback Laws

On Wednesday, President Trump signed the Patient Right to Know Drug Prices Act. The bill tackles a number of issues that stand in the way of lowering high drug prices, particularly the discussion over the ‘gag rule’ in interactions between insurers and pharmacists. Under the current provisions of the gag rule, insurers are forbidden from disclosing whether the cash price for a drug is in fact cheaper than the price offered under the patient’s insurance plan. The new law will rescind that prohibition. However, it will only apply to name-brand prescriptions and not generics, but many are hopeful that it will raise an overall awareness for consumers about the actual prices they are paying for their prescriptions.

The Trump Administration is also working to lower drug prices by examining some of the specifics of federal anti-kickback laws that relate to prescription pricing. Under current law, pharmaceutical and insurance companies are not allowed to offer any benefit to physicians to prescribe one particular drug versus another. There is a significant exception in these regulations, however, known as ‘safe harbor rules.’ Under these exceptions, pharmaceutical companies and prescription benefit managers (PBMs), the companies that administer pharmaceutical plans on behalf of insurers, are allowed to negotiate the prices of a particular drug by discussing the different prices the manager will offer the drug for.

This once again has put the spotlight on drug rebates offered by pharmaceutical companies. With rebates, firms offer monetary incentives to encourage insurers to carry their drug, lessening the overall cost for insurers to carry the drug. These rebates are meant to be administered to the consumer, but in many instances are taken by the PBMs to boost their profits. Pharmaceutical companies have recently attempted to combat these strategies, partially in an attempt to deflect some of the criticism towards them on drug pricing, by offering generics with lower prices, so that the PBMs will receive lower rebates on the negotiated drugs. The FDA is currently examining the administration of rebate plans and is considering ending the exceptions they have under anti-kickback statutes.

Ultimately, any of these steps to reduce drug pricing will not be broadly impactful, as expansive steps to allow Medicare to directly negotiate the price of drugs with producers have failed to gather sufficient bipartisan support. Further, much of the controversy surrounding high drug prices have been focused on some of the more infamous instances, such as Sarepta Therapeutics’ $300,000 per year muscular dystrophy treatment . Until successful generics reach the market, these specialized treatments will be under no pressure to lower their prices.

It is unlikely that there will be any unified support to take more aggressive steps to lower drug prices, but pharmaceutical companies seem to recognize to some degree the public backlash to these prices and have taken steps to cap drug prices, most notably beginning with Allergan’s promise to increase drug prices by no more than 10% year-to-year.

In his statement at the bill signing, President Trump spoke of the bipartisan nature of lowering prescription drug prices. He also spoke generally about upcoming steps the Department of Health and Human Services will begin to take to further bring down prices. It remains to be seen what further steps will be taken, but is likely both Congress and the Trump Administration will continue to evaluate how they can change many of the regulations on drug prices that keep them so high.

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