As part of Biden’s administration push to lower drug prices, the Federal Trade Commission has taken action against drug companies and middlemen.
The FTC filed a lawsuit on May 16 to stop the merger between drugmakers Amgen, and Horizon Therapeutics. They claimed that the complicated web of deals in the drug industry would allow Amgen to take advantage of the monopoly of two Horizon drugs which have no competitors.
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The FTC stated that, if Amgen was allowed to complete its $27.8 billion acquisition, Amgen would be able to pressure companies that manage prescription drug access — pharmacy benefit managers or PBMs — into boosting the two expensive Horizon products to a level that would hinder any competition.
This suit is the first attempt by the FTC to stop a merger of a pharmaceutical company. It reflects the strong interest that Chair Lina Khan has in antitrust actions. The FTC announced that it was suing to fight monopoly power and to improve patient access to cheaper drugs.
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Robin Feldman is a professor at the University of California College of the Law in San Francisco and a drug industry expert. She said that the FTC’s actions are a “shot across the arrow for the pharmaceutical industry.” David Balto is a former FTC attorney and official who fought against the Bristol-Myers Squibb/Celgene merger in 2019 and the AbbVie/Allergan merger in 2020. He said that FTC’s actions were long overdue.
He said that the Horizon-Amgen merger “would cost consumers more in terms of higher prices, fewer choices, and less innovation.” The merger would have given Amgen more tools to exploit customers and harm competition.
The FTC has expanded an investigation that lasted for a whole year into PBMs. It said it was focusing on two large drug purchasing companies, Ascent Health Services, and Zinc Health Services. Critics say that the PBMs created these companies in order to hide profits.
Amgen’s purchase of Horizon, the largest biopharma transaction of 2022, was announced in December. The company showed particular interest for Horizon’s thyroid eye disease drugs (Tepezza), and severe gout medications (Krystexxa), which were priced at up to $350,000 or $650,000 for an entire year of treatment. The complaint claimed that the merger would be detrimental to biotech competitors who have similar products in advanced testing.
The FTC suggested that Amgen could use “cross-market bundles” to promote its products. This means that Amgen would require PBMs promote Amgen’s lesser-known drugs — Horizon in this case — as a trade for Amgen giving the PBMs huge rebates on its blockbusters. According to the complaint filed by Amgen, nine of its drugs earned over $1 billion each last year. The most popular is Enbrel which treats rheumatoid arthritis and other diseases.
They have enormous bargaining strength because they can negotiate the prices and get access to 80% prescription drugs in America. PBMs can influence what drugs Americans are able to get and at what cost, which allows them to negotiate with drug manufacturers.
The FTC complaint says that the possibility of Amgen using its blockbuster drug portfolio to gain an advantage over competitors is not hypothetical. Amgen has used this exact strategy to get favorable terms from payers in order to protect the sales of Amgen’s struggling drugs.
The complaint stated that biotech, alleging the latter’s rebate strategy hurt Regeneron’s ability to market its competing cholesterol drug Praluent. Amgen’s Repatha had a global revenue of $1.3 billion by 2022.
The complaint claims that it “may be practically impossible” for smaller competitors to “match Amgen’s value of bundle rebates” by leveraging the placement of Horizon drugs on the formularies of health plans.
Analysts were sceptical that the FTC’s action would be successful. The FTC and Department of Justice had not challenged pharmaceutical mergers until now, setting a precedent which will be difficult to overturn.
In drug development, mergers can have a negative impact on research and staffing.
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From 1995 to 2015, waves of consolidation reduced the number of top pharma companies. Feldman noted that the majority of mergers over the past few years involved “big fish” buying up many small fish, such as biotech firms with promising drugs.
Aaron Glick is a mergers analyst at Cowen & Co. He said that the giant Amgen-Horizon merge is an obvious example, and a great opportunity for FTC to demonstrate a “theory harm” around drug industry bundles with PBMs.
The FTC may win, but that does not mean they will.
Glick stated that Amgen could or might not have engaged in anti-competitive behavior, but asked “a separate question, how does this suit fit within current antitrust laws and precedence?” The current law makes it unlikely that it will be upheld in court.
The FTC’s argument regarding Amgen’s conduct with Horizon products is hypothetical. Glick says that the pending Regeneron lawsuit against Amgen and demonstrates that there are rules in place to prevent this type of anti-competitive conduct.
John Kness is the judge who will preside over the case at the U.S. District Court of Illinois. He was appointed by the then-President Donald Trump, and is also a former Federalist Society member, which is known for its antitrust work. The case will likely be resolved by Dec. 12th, the current deadline for the merger.
Amgen tried to undermine the government’s argument by Horizon products during future negotiations with pharmacy benefits managers. Glick suggested that, while the promise was difficult to enforce, it might be heard in court.
Even a loss, however, would allow the FTC the opportunity to shine a light on the problem that exists in the industry, and the deficiencies in antitrust laws it believes Congress should correct.
The FTC announced that, just one day after filing a lawsuit to stop the merger of Express Scripts and CVS Caremark, it would continue its investigation into pharmacy benefit managers. It began this investigation in June. The FTC demanded information from Ascent, Zinc and the so-called rebate aggregaters, which are drug purchasing groups set up by PBMs CVS Caremark and Express Scripts.
Dave Ricks, CEO of Eli Lilly & Co., said at a hearing on May 10, that the majority of the $8 billion worth in rebate checks paid by his company last year were sent to rebate aggregators and not to PBMs. He said that a “big chunk” (8 billion dollars) of this money went overseas. Ascent, a Swiss-based company, and Emisar Pharma Services (an aggregator created by PBM OptumRx) are based in Ireland. Zinc Health Services has its headquarters in the U.S.
The critics say that the aggregators allow PBMs, as intermediaries within the drug industry, to conceal the size and destination rebates and fees they charge.
PBMs claim that their efforts lower prices at the pharmacy counter. In recent years, testimony in Congress and FTC hearings has indicated that they have increased prices in certain instances.
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