Increased Regulatory Scrutiny of Pharma Mergers & Acquisitions Raises Concerns for the Industry

This year has been another significant year for consolidation within the biopharmaceutical industry. There has been an estimated $208 billion in transactions ; including Bristol-Myers’ $74 billion acquisition of Celgene in January to AbbVie’s $63 billion acquisition of Allergan in June which allows large biopharmaceutical companies to dominate the broader deal landscape in the industry. There are emerging signs, however, that the government is beginning to take a closer look at biopharmaceutical consolidation, pushing for divestments or potentially blocking the deals in court.

Signs of greater regulatory scrutiny have been most evident within the pending acquisition by Roche of Spark Therapeutics. Roche entered into an agreement to purchase Spark Therapeutics in February for $4.8 billion. Spark Therapeutics currently markets the only FDA approved gene therapy, Luxturna, which is used to treat certain retinal eye diseases. Roche is hoping to take advantage of other gene therapy treatments developed by Spark, particularly their hemophilia A research which Roche believes will complements their own hemophilia treatment, Hemlibra. Despite being a relatively small transaction in terms of size, both the Federal Trade Commission (FTC) and the Competition and Markets Authority (CMA) in the United Kingdom have taken note of the transaction, with the CMA filing an ‘Initial Enforcement Order’ to temporally block the transaction from being completed. Just this past week, Roche extended the deadline for shareholders of Spark Therapeutics to tender their shares to approve Roche’s acquisition, the seventh time that Roche has pushed back the tender offer deadline for Spark Therapeutics.

There is little official mention of what concerns the FTC and the CMA have with Roche’s acquisition of Spark Therapeutics, but some analysts point to the potential overlap between the two companies’ hemophilia business and may push Roche to divest Hemlibra to obtain approval for the Spark Therapeutics acquisition. Some feel this is an unusual step for the FTC to request, particularly in light of the robust existing market for hemophilia products. Analysts, however, point to the consent degree between Bristol-Myers and the FTC that permit their acquisition of Celgene if Bristol-Myers chose to divest rights to Otezla, a drug to treat psoriasis, to Amgen for $13.4 billion. Otezla was considered one of Celgene’s most profitable products, expected to generate $2.3 billion in annual sales by 2023. Given that Amgen already has a strong psoriasis pipeline, including Enbrel and Amgevita, a biosimilar to AbbVie’s Humira, some were confused as to why the FTC permitted Amgen to acquire Otezla.

AbbVie’s pending acquisition of Allergan did not raise the degree of early scrutiny that the Bristol-Myers-Celgene transaction did, but this trend is starting to move. In September, the FTC sent an additional ‘Request for Additional Information’ letter to AbbVie, delaying the completion of the transaction at least an additional thirty days. AbbVie has kept with the early-2020 date as when the transaction will be finalized. A number of consumer advocacy groups have requested the FTC intervene in the pending transaction. They point specifically to AbbVie’s manufacturing of Humira, which continues to be the best-selling drug in the world. Humira continues to invite scrutiny due to its high price, set at $58,612 in 2017. Allergan also markets Botox, primarily used for cosmetic purposes. These advocacy groups are concerned that another large biopharmaceutical tie-up will raise the prices of a greater drug portfolio, particularly in light of Humira’s expiring patent in 2023.

Increased biopharmaceutical consolidation continues to raise concern among Congress. Last month, Sen. Amy Klobuchar (D-MN) and eight senators sent a letter to FTC Commissioner Joseph Simons requesting the FTC take greater scrutiny of these transactions and ensure that any anti-competitive activities are remedied. Sen. Klobuchar, along with Sens. Cory Booker (D-NJ), Kamala Harris (D-CA), Elizabeth Warren (D-MA) and Bernie Sanders (I-VT)[sk1]  are all competing to be the 2020 Democratic presidential nominee. Given the continued focus on the price of prescription drugs, both in Congress and by President Trump, the FTC may push for larger divestments and more aggressive consent decrees to limit future price increases among acquired companies.