Antitrust & Competition Quarterly Updates
Our quarterly series provides analysis and commentary on antitrust developments in technology, life sciences, and healthcare.
The second quarter saw significant enforcement and dealmaking in the life sciences space. The Federal Trade Commission (FTC) announced its attempt to block Amgen/Horizon, the first such challenge to a life science transaction since 2009, and issued a second request in Pfizer’s proposed $43 billion acquisition of Seagen. In contrast, however, several sizable deals announced and closed within the normal waiting period, while the status of others is unknown at the time of publication.
Elsewhere, the FTC and the Department of Justice (DOJ) published a revised set of draft Merger Guidelines, which “describe and guide” the agencies’ evaluation of mergers. Although not specifically aimed at life sciences, the Merger Guidelines embody many of the administration’s policy priorities, as well as novel theories that have not traditionally been the basis for antitrust enforcement. The FTC and DOJ also announced significant proposed changes to the HSR form. If formally enacted, these will likely extend deal timelines given the significantly higher burden of information required, even as they may not impact substantive reviews of life sciences transactions.1
Enforcement Roundup — Focus Looks to Be on Commercial Access; FTC’s Theory of Harm in Amgen/Horizon Attenuated
The FTC’s announcement that it was suing to block Amgen’s $27.8 million acquisition of Horizon Therapeutics was a surprise to industry observers. The challenge to Amgen/Horizon marks the first significant enforcement action in the life sciences space since the divestitures imposed on the AbbVie/Allergan and BMS/Celgene transactions, and the first attempt to block a deal since 2009.2 The case represents a departure from the theories of harm that have traditionally been alleged in merger enforcement action. Specifically, the deal does not present cognizable horizontal or vertical components but instead relies on “conglomerate” theories of harm more often investigated and pursued in the EU and UK.
Regardless of the outcome, the litigation is likely to have a significant impact on merger enforcement going forward. On the one hand, a successful challenge may embolden the FTC to pursue injunctions in other transactions involving commercial or near commercial (i.e., Phase 3) assets. A defeat, on the other hand, would add to the FTC’s recent streak of losses in court (Meta/Within, Microsoft/Activision)3 and may discourage the FTC from bringing cases featuring this or other more novel theories in the future.
In the meantime, however, the FTC continues to be active in life sciences, issuing an expected second request in the Pfizer/Seagen transaction.
Due to the lack of competitive overlaps between Amgen and Horizon, the complaint the FTC filed in federal district court seeking to enjoin the transaction pursues a more novel theory of harm, i.e., that Amgen would have the ability to maintain the monopoly positions of Horizon’s thyroid eye disease and gout drugs more effectively than Horizon. In its complaint, the FTC alleges that post-transaction, “Amgen will possess the ability and incentive to sustain and entrench its dominant position in the markets for FDA-approved [thyroid eye disease] and [gout] drugs by leveraging its portfolio of blockbuster drugs, such as Enbrel, to foreclose or disadvantage future rivals in these [thyroid eye disease and gout] markets, raise their barriers to entry, and dissuade them from competing aggressively.” Importantly, “[b]ecause of its extensive and valuable portfolio of products, Amgen has a much greater ability to offer cross-market bundled rebates than Horizon.” The FTC’s complaint also refers to Amgen’s prior conduct, alleging that “Amgen has deployed this very strategy to extract favorable terms from payers to protect sales of Amgen’s struggling drugs. Specifically, Amgen has engaged in cross-market bundling . . . in exchange for preferred formulary placements for Amgen drugs in other, unrelated product markets.” Ultimately, the FTC alleges that “permitting Amgen . . . to purchase Horizon would likely sustain and entrench [its] monopolies, as the combined firm would possess the ability and incentive to foreclose and disadvantage any future rivals.”
While an FTC challenge to a large life sciences transaction is not itself surprising, the theory of harm presented in the Amgen/Horizon case is notable. Specifically, the FTC is pursuing the functional equivalent of a conglomerate theory of harm, which relates to potential anticompetitive effects arising when a merging party uses its position in one market to exert market power in another (by acquiring a company with one or more products that are in adjacent but not competitive markets). This theory had fallen out of favor in the United States since the rise of the Chicago School approach to antitrust enforcement and the emphasis on a consumer welfare standard. Indeed, neither US antitrust agency has attempted to block a merger based on this theory of harm in over 40 years. Moreover, the FTC’s allegations that Amgen will bundle Horizon’s drugs with its current portfolio have in the past been recognized as often leading to lower prices – a key tenet of the traditional consumer welfare standard. As a result, the FTC’s challenge to this deal will be closely followed to see how the agency’s theories of harm are received by the court when the preliminary injunction proceeding begins on September 11, 2023.
Pfizer/Seagen Investigation Proceeds to the Second Request Stage
At the time of our Q1 Update, we expected the FTC to conduct a thorough investigation given the size and high-profile nature of the deal, which included comments from Pfizer’s CEO that Seagen is “the goose that is laying the golden eggs.”4 Seagen has since disclosed that it received a second request from the FTC5 and that the parties now expect to close the transaction in late 2023 or early 2024 (with an outside date that can run to September 2024).
Although the investigation is ongoing, the FTC may be testing a number of theories of harm, such as whether (i) Pfizer, given its significant resources and expertise, is a potential entrant into the oncology indications in which Seagen has approved Antibody-Drug Conjugate (ADC) assets (notably, Pfizer brought the first ADC to market over 20 years ago); (ii) Seagen is a maverick in the pharmaceutical and oncology space, i.e., a highly successful player bringing innovative new therapies to market that is not controlled by one of the traditional big pharma players, in which case an acquisition by Pfizer would deprive the marketplace of current and future innovation and disruptive technologies; or (iii) the acquisition is furthering a trend toward concentration, or acting as a “tipping point” acquisition, forcing other independent ADC biotech companies to merge or exit the market. Although the FTC might face long odds in court with any of these theories given limited supporting case law, an enforcement action could be used to send a message to the life sciences space and have a chilling effect on similar deals in the future.
Along with the FTC’s investigation and challenge to Amgen/Horizon, the FTC’s second request investigation here suggests that big pharma transactions may expect the same treatment as big tech deals — i.e., extended regulatory reviews even in the absence of traditional competitive overlaps, with instead a focus on “portfolio” or “conglomerate” effects or potential competition theories of harm.
Big Pharma Dealmaking Seems to Heat Up Despite FTC Enforcement in Amgen/Horizon; Level of Enforcement Remains to Be Seen
Despite the FTC’s challenge to the Amgen/Horizon transaction, merger activity in the life sciences space was fairly robust in the second quarter of 2023, with several transactions exceeding $2 billion in value. While we expect the open transactions listed below to clear without significant agency action, the specter of Amgen/Horizon looms over transactions with any approved or Phase 3 assets.
Sanofi Closes $2.9 Billion Acquisition of Provention Bio
Sanofi closed its $2.9 billion acquisition of Provention Bio in late April, one of the larger transaction of the second quarter.6 Provention, a type 1 diabetes specialist, sponsors Tzield, a first-in-class therapy to delay the onset of Stage 3 type 1 diabetes that was approved in 2022. Sanofi, one of the established players in the diabetes space, had “limited direct overlap” with Provention and Tzield.
Despite closing relatively quickly after signing, the parties were forced to pull and refile their HSR filing,7 indicating that the agency may have had preliminary questions about the transaction. That said, as the acquisition was a cash tender, the waiting period was 15 days (instead of the standard 30). And, given Sanofi’s position in the politically charged diabetes space, the FTC may have felt pressure to ensure that it fully understood the ramifications of the transaction, which would be difficult in the shortened waiting period. Nevertheless, as Sanofi already had a co-promotion pact with Provention,8 it seems unlikely the deal materially altered the competitive landscape.
Bausch & Lomb (B&L) Expands Its Eyecare Franchise With Xiidra Acquisition
B&L had an active second quarter in 2023, acquiring the dry eye disease medication Xiidra and other ophthalmology assets from Novartis for $2.5 billion on June 30. While a fairly successful drug, Xiidra has failed to live up to its original expectations (including a failure to obtain approval in the EU)9 and lagged behind the market-leading Restasis and its generic versions. B&L likely plans to pair Xiidra with its recently approved Miebo dry eye drops to present a comprehensive dry eye treatment. Given the comparatively limited sales of Xiidra, it remains to be seen whether the FTC would conduct a significant investigation of the transaction.
Eli Lilly Continues Diabetes Focus with $2.4 Billion Acquisition of Dice Therapeutics
Eli Lilly announced its $2.4 billion acquisition of Dice Therapeutics on June 20. Dice, an oral IL-17 inhibitor specialist, has its primary asset (DC-806) in the early stages of a Phase 2 trial for psoriasis, with the potential for best-in-class results.10 Given the competitive nature of the autoimmune space and earlier-stage nature of Dice’s assets, it seems unlikely that the FTC will conduct an in-depth investigation. The acquisition has not closed at the time of publication.
Novartis Looks to Kidney Disease with Chinook Therapeutics for $2.4 Billion
Novartis announced its $3.2 billion acquisition of the rare kidney disease specialist Chinook Therapeutics on June 12.11 Chinook sponsors two later-stage assets in IgA nephropathy, a rare and progressive kidney disease. Chinook’s primary asset, atrasentan, is a legacy AbbVie asset that failed Phase 3 trials for chronic kidney disease in 2013 before it was acquired by Chinook in 2019. The IgA space is considered “competiti[ve],”12 with two other late-stage assets in development by Calliditas Therapeutics and Travere Therapeutics, among others.
That said, we cannot rule out that the FTC would have questions about the transaction given that both Novartis and Chinook have IgA nephropathy assets. At the time of publication, the parties had not announced the transaction closed.
Agency Update: New Draft Merger Guidelines & Proposed Change to the HSR Form
On July 19, 2023, FTC and the Antitrust Division of the DOJ released a long-awaited draft version of revised Merger Guidelines (the Draft Guidelines), a set of public principles designed to provide information about how the FTC and DOJ may review mergers.13 An in-depth breakdown of the Draft Guidelines and implications for the business community are covered here. Notably, while the Draft Guidelines devote significant attention to private equity (i.e., serial or roll-up acquisitions) and tech (i.e., platform transactions), the life sciences industry as a whole does not appear to have been the specific target of any changes, nor do the Draft Guidelines appear to incorporate output from the Multilateral Pharmaceutical Merger Task Force (discussed here). As discussed in previous editions, it is very much an open question as to how more novel theories of harm, including potential competition as well as market access and entrenchment, will be applied to the life sciences space, with Amgen/Horizon representing an early test.
On June 27, 2023,14 the FTC announced a series of proposed changes to the HSR form after the claimed first “top-to-bottom review” of the HSR form in 45 years.15 If the FTC’s proposed changes are implemented, HSR filings will require significantly more information and both transaction-related and ordinary-course documents (thus placing an even greater emphasis on document creation “discipline” by merging parties in the lead-up to their deal). The specific changes are covered by our colleagues here.
The new rules will impose significant procedural costs and increase the time to file for reportable transactions. While a simple HSR filing can be drafted and submitted in a few days under ideal conditions, the future form will likely take weeks, if not longer, to gather and draft the required information. As a result, if the proposed rules are enacted, we expect longer deal timelines for even low-risk transactions. Despite this increased burden, we do not expect these changes to result in different substantive outcomes for most life sciences transactions. Instead, the proposed rules will likely have the largest impact on private equity, with the agencies seeking more information about investment vehicles, the structure of the private equity investors and other relationships, and past acquisitions.
The proposed changes are unlikely to come into effect before the end of 2023 and may be delayed further depending on the comments submitted to the agency.
 We provide more in-depth analysis on the changes to the Merger Guidelines here and HSR Form here.
 Our colleagues covered the Meta/Within decision in the Q1 Update and Microsoft/Activision will be covered in the Q2 Update.
 Sanofi's Provention buy hit with FTC delay (fiercepharma.com)
 Bausch + Lomb scoops up Novartis' dry eye med Xiidra for $2.5 billion (fiercepharma.com)