For years, the antitrust enforcement agencies have indicated their antipathy toward resolving competition issues in proposed mergers by entering into consent decrees that prohibit certain conduct, rather than stopping the merger entirely or fixing the competition issues through divestitures. Nonetheless, on September 1, 2023, (the Friday before Labor Day), the FTC announced a conduct consent decree to end its challenge to the Amgen-Horizon pharmaceutical merger. The FTC’s theory underlying its challenge has been controversial since it was announced; it looks like rather than risk another loss in its merger enforcement program, the FTC decided that a conduct decree was the better outcome.

The Complaint

Horizon had two monopoly products – Tepezza and Krystexxa – used to treat thyroid eye disease (TED) and chronic refractory gout (CRG), respectively. Amgen had no TED or CRG products on the market or in development. In other words, the parties had no competing products and no likely prospect of future competition.

In May 2023, the FTC, joined by six States, filed a complaint in the U.S. District Court for the Northern District of Illinois to block Amgen’s proposed acquisition of Horizon. In addition to alleging that the transaction would give Amgen the ability and incentive to foreclose rivals to Tepezza and Krystexxa, the complaint stated that the deal also would entrench Tepezza’s and Krystexxa’s monopoly positions in the TED and CRG markets, respectively, by substituting Amgen, with its broad and powerful portfolio of blockbuster drugs, for Horizon with its smaller portfolio, thus raising entry barriers and dissuading smaller firms from competing aggressively. The case was the FTC’s first litigated challenge to a pharmaceutical merger in more than a decade; traditionally, pharma mergers have been resolved by consent decrees with divestitures of overlapping products.[1]

The theory underlying the FTC’s complaint distilled to a hypothetical scenario which the FTC feared Amgen would implement. In the past, Amgen had bundled its products for purposes of formulary placement and rebates. The FTC alleged that Amgen could bundle Tepezza and Krystexxa with its legacy Amgen products, with the resulting anticompetitive effects in the TED and CRG markets. The complaint did not suggest that Amgen actually had such plans—and Amgen had claimed that it would not do so and indicated that it was willing to put that commitment into a consent decree.

The Consent Decree

Amgen’s commitment to refrain from bundling is the centerpiece of the consent decree. Amgen is prohibited from bundling an Amgen product with either Tepezza or Krystexxa.[2] In addition, Amgen may not condition any product rebate or contract terms related to an Amgen product on the sale or positioning either one of these drugs.[3] Amgen also is barred from using any product rebate or contract term to exclude or disadvantage any product that would compete with Tepezza or Krystexxa.[4]

The decree goes farther, however, than this prohibition:

The proposed order also will prohibit Amgen from entering into any agreement or understanding to acquire any products or interest in any business engaged in the manufacturing or sale of any products, biosimilars, or therapeutic equivalents that treat either TED or CRG, unless it receives prior approval from the Commission.

Additionally, Amgen must seek FTC approval if it seeks to acquire any pre-commercial products that have completed FDA clinical trials to treat either thyroid eye disease or chronic refractory gout. Under the terms of the consent order, Amgen is required seek FTC such prior approval through 2032 and notify the states if it is seeking Commission approval.

All other requirements in the consent order will be effective for 15 years (instead of the usual ten) after it is finalized, including a requirement that Amgen submit annual compliance reports to the FTC and states. A monitor will be appointed to oversee Amgen’s compliance, and the monitor’s reports will likewise be submitted to the Commission and to the states.[5]

The FTC’s proposed consent order, among other conditions, also requires that Amgen:[6]

• Submit to the monitor all contracts with payers related to the formulary coverage, placement, or positioning of Krystexxa or Tepezza in the United States within 30 days of entering into such contract.

• Notify the monitor if either Krystexxa or Tepezza meets all three of the following conditions: 1) Krystexxa or Tepezza has been approved by the FDA for patient self-administration; 2) the self-administered version of Krystexxa or Tepezza is available on the market; and 3) the self-administered version of Krystexxa or Tepezza is otherwise eligible to be covered as a pharmacy benefit product.

• Require, annually, that all Amgen employees with direct involvement in contracting or negotiations with payers related to the purchase, coverage, placement, or positioning of Krystexxa or Tepezza in the United States to review the consent order acknowledge in writing (including by email) that they understand and are complying with the obligations of the order.
• The States will independently have access to Amgen’s documents and separate rights to enforce the Order.

Amgen has indicated that none of proposed consent decree’s provisions would affect its business operations.

The Commissioners’ Statement

Notably, the three sitting Commissioners issued a statement that accompanied the proposed consent decree. Written by Chair Khan, the statement is another broadside against pharmaceutical mergers and practices:

Not only was this complaint the Commission’s first challenge to an unconsummated pharmaceutical merger in over fourteen years, but it also represented a significant advancement in the Commission’s pharmaceutical merger enforcement program.

In recent years, the FTC has been examining and updating our approach to pharmaceutical mergers. As a growing number of analysts, researchers, and advocates have increasingly recognized, pharmaceutical mergers can stifle competition and harm patients even where the merging parties do not sell or develop any overlapping drugs. For example, consolidation among pharmaceutical companies can facilitate collusion, distort incentives to research and develop new drugs, increase the bargaining leverage of large incumbents, and reduce potential entrants’ access to capital. Acquisitions by the largest pharmaceutical companies can unlock additional means of profitably exploiting market power, especially where the company has a history of illegal behavior. The Pharmaceutical Merger Task Force—launched by the FTC, DOJ, and state and international competition enforcers during Commissioner Slaughter’s tenure as Acting Chair—worked to better understand the market behavior, incentives, and business decisions of pharmaceutical companies and the full set of mechanisms by which mergers and acquisitions in the pharmaceutical industry can harm patients and competition.[7]

Chair Khan attempted to justify why a conduct decree was appropriate in these circumstances, while warning that it may not be sufficient in other pharma transactions:

The FTC assesses each merger based on the specific facts at hand, and there is no guarantee that the relief achieved in this matter would adequately resolve concerns about crossproduct bundling in any future merger actions. A distinct feature of the conduct at issue here is that it involves bundling across different insurance benefit arrangements, which makes it easier to detect. The conduct also involves orphan drugs for rare diseases, the selection and administration of which involves providers with incentives to resist and report exclusionary behavior. As the Commission evaluates proposals to settle charges in future pharmaceutical mergers, we will continue to learn from past experience and seek to fully protect the public from deals that violate the antitrust laws. The merger guidelines we recently proposed with the U.S. Department of Justice further describe how we will assess transactions to determine if they may lessen competition or tend to create a monopoly.[8]

Our Preliminary Takeaways:

1. 1. The Commission’s complaint faced strong headwinds – after a string of litigation losses the prospect of explaining to a federal judge why the court should enjoin a transaction between parties which did not compete was perhaps less appealing than contradicting its remedy policy and accepting a conduct consent decree.
   2. This result demonstrates the Commission’s focus upon the pharmaceutical industry as an enforcement priority. The Commission will continue to look at the industry—and deals in the industry—from every angle, and more activity can be expected. The Chair’s statement referenced the Pharmaceutical Merger Task Force’s work – merger counselors will take note.
   3. As a consequence, companies, entities financing start-ups, and entities investing in the industry or betting on deals, would all be well-advised to continue to monitor developments and obtain seasoned antitrust input.