US antitrust spotlight on pharma: Is 2021 a year of change?
While just last year, former FTC Commissioner Rohit Chopra commented that he was “unable to identify any time in the agency’s history where the FTC has filed a lawsuit to block an unconsummated drug company merger,” FTC Acting Chair Rebecca Slaughter announced in March 2021 that she was already forming a working group to “revamp” the FTC’s approach to reviewing pharmaceutical mergers going forward. The message is clear: The FTC has its sights trained on the pharmaceutical industry.
The enumerated goals of the FTC’s working group tasked with analyzing the agency’s approach to pharmaceutical mergers signals an increased FTC focus on mergers that could impact several key areas: innovation, potential competition and potential collusion. Acting Chair Slaughter has emphasized concerns that the FTC’s lack of enforcement in the pharmaceutical sector over the past decades led to higher drug prices and diminished innovation, signaling an intent to change the agency’s approach.
What does it mean for you?
First, pharmaceutical companies seeking antitrust merger clearance from the FTC should now expect increased scrutiny. This means more frequent Second Requests (asking for additional documents and data about the companies' products, services and market conditions) and Second Requests that are even broader in scope. The FTC will be looking closely not only at where companies have overlapping competing products but also at potential impacts on innovation and areas of potential competition. In addition—and equally important for merging pharmaceutical companies—is what is not changing: the law that courts will apply in deciding whether to block a merger. No US court has ever blocked a merger on a “harm to innovation” theory alone, and the “harm to potential competition” theory is stale, since the US Supreme Court last addressed it more than 40 years ago. Until legislation changes or a new legal precedent is set, US courts are likely to continue evaluating mergers just as they have for years. This means that pharmaceutical companies seeking to merge should make sure to take litigation into account both when setting deal timelines and when drafting key terms, such as what constitutes “reasonable best efforts.”