FTC’s Antitrust Intensifies, Where Does Pharmaceutical Innovation Go?

While the anti-corruption storm in the domestic medical field is entering deep waters, the United States across the ocean is not idle either. Recently, after an investigation by the Federal Trade Commission (FTC), Cooper Companies announced the abandonment of the $875 million acquisition of Cook Medical’s reproductive health business.

Regarding the failure of this acquisition, the FTC stated, “The FTC is committed to protecting patients from higher costs and maintaining the drive for innovation. Terminating the acquisition transaction protects the benign competition in the market and is a win-win for patients.”

In fact, the FTC has more than once blocked MNC’s mergers and acquisitions under the name of “antitrust”. So, what impact will this have on the US pharmaceutical ecosystem? What challenges does it pose to domestic innovative drugs going global?

Multiple failed deals, FTC intensifies antitrust efforts

For a long time, the FTC has focused on direct competition between individual products, but now it has expanded its scope of review. At the workshop held by the FTC in 2022, antitrust enforcement agencies from Canada, the UK, and Europe also joined in to explore “new approaches to enforcing antitrust laws.”

On May 16th of this year, the FTC sued Amgen for its acquisition of Horizon Therapeutics, claiming that the acquisition would hinder market competition for Horizon’s two new drugs, Tepezza and Krystexxa.

Going back to the end of 2022, Amgen announced an agreement to acquire Horizon for $27.8 billion. If the deal is completed, Amgen will gain the blockbuster drug Tepezza, as well as the commercialized Krystexxa (for treating chronic gout), Uplizna (for treating optic nerve and spinal inflammation), and Ravicti (for treating rare genetic disorders related to urea cycle disorders).

Among them, Tepezza was approved by the FDA in 2020 and is a fully human monoclonal antibody and insulin-like growth factor-1 receptor (IGF-1R) targeted therapy for the treatment of thyroid eye disease. It is a severe, progressive, vision-threatening rare autoimmune disease associated with bulging eyes (proptosis), double vision, pain, inflammation, and facial disfigurement. Tepezza has shown significant efficacy in treating thyroid eye disease: 82.9% of patients experienced a reduction in eyeball diameter of more than 2mm, compared to only 9.5% in the control group. After 24 weeks of treatment with Tepezza, the average reduction in eyeball diameter for patients was 3.32mm.

After Tepezza was launched, sales quickly surged, achieving $800 million in sales in its first year on the market. In 2022, Tepezza brought Horizon $1.97 billion in revenue. Analysts predict that Tepezza’s peak sales will reach $4 billion.

Krystexxa, another blockbuster product of Horizon, is used to treat uncontrolled gout in adult patients who do not respond to conventional therapies. Gout, one of the most common types of inflammatory arthritis, affects over 55 million people worldwide and primarily affects the joints of the lower extremities (feet, ankles, and knees). It is caused by hyperuricemia, where urate crystals accumulate in the joints, leading to sudden and severe pain, swelling, and more.

Krystexxa is a recombinant uricase (UO) drug. It was approved by the FDA in September 2010, and its annual sales in the past three years were $406 million, $565 million, and $716 million, showing good growth momentum.

SVB Securities analysts believe that it may be due to the lack of competitors in the market for these two drugs that FTC opposes Amgen’s acquisition of Horizon, as it would give Amgen the ability to monopolize the thyroid-related eye disease market and the market for chronic refractory gout.

However, SVB also believes that the FTC does not have sufficient evidence to prove that this merger violates antitrust laws, as there is no overlap between Horizon’s products and Amgen’s products. So, what is the basis for the FTC’s speculation?

One of the main reasons is that Amgen has a history of controlling drug prices. Previously, Regeneron sued Amgen, alleging that Amgen tied the rebates for drugs Otezla (apremilast, for treating psoriasis) and Enbrel (etanercept, for treating rheumatoid arthritis, etc.) to cholesterol-lowering treatment PCSK9 drug Repatha. Therefore, the FTC is also concerned that Amgen may repeat this practice after the completion of this acquisition.

In response to the FTC’s speculation and lawsuit, Amgen also issued a statement. Amgen stated, “The drugs provided by Amgen and Horizon are generally applicable to different disease areas and patient populations, and there is no concern about product overlap. The Federal Trade Commission claims that Amgen may ‘bundle’ these drugs (provide discounts for multiple products) at some point in the future, which is purely speculative, and the commission does not reflect the real-world competitive dynamics behind the orphan drug market. We have promised not to bundle Horizon and Amgen’s products together. However, the commission still opposes this transaction. In addition, to our knowledge, no previous merger has been blocked due to the bundling theory.”

Although Amgen has promised not to bundle Horizon’s products, the FTC still took action to block the deal.

In June of this year, the FTC also targeted Pfizer’s acquisition of Seagen. On March 13th, Pfizer announced its cash acquisition of Seagen for $229 per share, with a total value of approximately $43 billion, creating the largest acquisition record in the ADC field. Seagen claims that both companies have received a “second request” from the FTC for more information to push for further review. Initially, the applications from both companies were withdrawn in June, and then Pfizer and Seagen resubmitted the applications to give the FTC more time for preliminary evaluation.

Impact on pharmaceutical innovation

The initial intention of US antitrust agencies is to maintain free competition, protect consumer interests, and enhance industry innovation and competitiveness. In the United States, deals worth more than $111 million must be notified to the FTC and the Department of Justice (DOJ) for a 30-day antitrust review. To crack down on illegal mergers and acquisitions, the DOJ and FTC reformed the declaration procedure for antitrust rules (also known as the HSR Act) this year. Under the new rules, companies are required to submit more transaction-related information than before, which may not only prolong the completion time of mergers and acquisitions but also directly terminate the deals.

Over the past few decades, the US innovative drug market has formed an ecosystem where small pharmaceutical companies focus on drug research and development, and large pharmaceutical companies continuously acquire small pharmaceutical companies to refresh their pipelines. In this way, small pharmaceutical companies can also start the next round of innovative drug research and development with the funds obtained from acquisitions. This ecosystem model has brought tremendous impetus to the development of innovative drugs in the United States.

With the stricter review of antitrust policies, this model may be broken. How to balance the development of pharmaceutical innovation and accessibility still requires the FTC to continue exploring and refining.

References:

1. Statement regarding termination of CooperCompanies’ attempted acquisition of cook medical’s reproductive health business.

2. The sleeping giant is waking up’: FTC raises the pressure on pharma dealmaking；Endpoints.

3. US Merger Review Revamp Set to Delay Deals by Months；Bloomberg.