Under the leadership of an aggressive opponent of anti-competitive business practices, the Federal Trade Commission is moving against drug companies and industry middlemen as part of the Biden administration’s push to lower over-the-counter drug prices.
On May 16, the FTC sued to block a merger between drugmakers Amgen and Horizon Therapeutics, saying the drug industry’s tangled web of deals would allow Amgen to wield monopoly power over two flagship Horizon drugs that have no competitors.
In its filing, the FTC said that if it were to allow Amgen’s $27.8 billion purchase, Amgen could pressure companies that manage access to prescription drugs — pharmacy benefit managers, or PBMs — to promote Horizon. )’s two extremely expensive products in a way that would prevent any competition.
The suit, which marks the first time since 2009 that the FTC has tried to block a drug company merger, reflects Chairman Lina Khan’s strong interest in antitrust action. In announcing the lawsuit, the agency said it aimed to moderate prices and improve patient access to cheaper products by fighting monopoly power.
The FTC’s action is “a shot in the arm for the pharmaceutical industry,” said Robin Feldman, a professor and pharmaceutical industry expert at the University of California, San Francisco College of Law. David Balto, a former FTC official and attorney who fought the 2019 Bristol-Myers Squibb-Celgene and 2020 AbbVie-Allergan mergers, said the FTC’s action was long overdue.
The Horizon-Amgen merger “will cost consumers higher prices, less choice and less innovation,” he said. “The merger would give Amgen more tools to exploit consumers and hurt competition.”
The FTC also announced an expansion of its year-long investigation into PBMs, saying it is looking into two giant drug-buying companies, Ascent Health Services and Zinc Health Services. Critics argue that PBMs created these companies to hide profits.
In December, when Amgen announced its acquisition of Horizon, the biggest biopharma deal of 2022, it showed particular interest in Horizon’s drugs for thyroid eye disease (Tepezza) and severe gout (Krystexxa), for which the company charged up to $350,000, respectively. and $650,000. , for one year of treatment. The complaint alleges that the merger would harm biotech competitors that have similar products in advanced clinical trials.
Amgen could promote Horizon drugs through “intermarket packaging,” the FTC said. That means PBMs are required to promote Amgen’s lesser-known drugs—in this case, the Horizon product—in exchange for Amgen offering PBMs deep discounts on its blockbusters. Amgen has nine drugs that each earned more than $1 billion last year, according to the complaint, the most popular being Enbrel, which treats rheumatoid arthritis and other conditions.
The three largest PBMs negotiate prices and access to 80% of prescription drugs in the US, giving them enormous bargaining power. Their ability to influence which drugs Americans can get and at what price gives PBMs the ability to extract billions in rebates from drugmakers.
“The prospect that Amgen could use its portfolio of blockbuster drugs to gain an advantage over potential competitors is not hypothetical,” the FTC’s complaint said. “Amgen has employed this very strategy to get favorable terms from payers to protect sales of Amgen’s struggling drugs.”
The complaint noted that biotech Regeneron sued Amgen last year, alleging that the latter’s discounting strategy hurt Regeneron’s ability to sell its rival cholesterol drug, Praluent. Amgen’s Repatha is set to generate $1.3 billion in global revenue by 2022.
It is “virtually impossible” for smaller competitors to “match the value of the bundled discounts that Amgen will be able to offer” because it uses Horizon’s drug placement on health plans’ formularies, the complaint said.
Business analysts were skeptical that the FTC action would succeed. Until now, the commission and the Justice Department have shied away from challenging pharmaceutical mergers, a precedent that will be hard to break.
Research on the impact of mergers has shown that they often benefit shareholders by boosting stock prices, but hurt innovation in drug development by cutting research projects and staff.
Consolidation waves reduced the field of leading pharmaceutical companies from 60 to 10 between 1995 and 2015. Most mergers in recent years have involved “big fish buying very small fish,” such as biotech companies with promising drugs, Feldman said.
The giant Amgen-Horizon merger is an obvious exception, and therefore a good opportunity for the FTC to demonstrate a “damage theory” around the pharmaceutical industry’s merger maneuvers with PBMs, said Aaron Glick, a merger analyst at Cowen & Co.
But that doesn’t mean the FTC will win.
Amgen may or may not have engaged in anticompetitive practices, but “how this suit fits under applicable antitrust laws and precedent is a separate question.” Glick said: “As the law stands today, it seems unlikely that it will hold up in court.”
The FTC’s argument about Amgen’s conduct with the Horizon product is hypothetical. Regeneron’s pending lawsuit against Amgen, as well as other successful lawsuits, show that there are rules to crack down on such anti-competitive behavior when it occurs, Glick said.
The judge presiding over the case in the U.S. District Court of Illinois is John Kness, an appointee of then-President Donald Trump and a former member of the Federalist Society, whose membership tends to be skeptical of antitrust efforts. The case is likely to be settled by Dec. 12, the merger deadline under current terms.
Amgen sought to cut the government’s case by agreeing not to include Horizon’s products in future negotiations with pharmacy benefit managers. That promise, while difficult to fulfill, could get a sympathetic hearing in court, Glick said.
Still, even a loss would give the FTC a chance to shine a light on an industry problem and what it sees as a flaw in antitrust laws that it wants Congress to fix, he said.
The day after filing a lawsuit to block the merger, the FTC announced it was continuing an investigation into pharmacy benefit managers that began last June. The agency requested information from Ascent and Zinc, two so-called rebate aggregators, drug purchasing organizations created by PBMs Express Scripts and CVS Caremark.
At a May 10 hearing, Eli Lilly & Co. CEO Dave Ricks said most of the $8 billion in checks his company paid last year went to rebate aggregators, not directly to PBMs. He said “most” of the $8 billion went overseas. Ascent is based in Switzerland, while Emisar Pharma Services, an aggregator created by PBM OptumRx, is headquartered in Ireland. Zinc Health Services is registered in the USA
Critics say aggregators allow PBMs to hide the size and purpose of rebates and other fees they charge as middlemen in the drug business.
PBMs report that their efforts are driving down prices at the pharmacy counter. Testimony in Congress and in FTC hearings over the past year suggests that, at least in some cases, they actually increase them.
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