FTC and DOJ outline potential changes to agencies’ review of pharmaceutical mergers

Hogan Lovells

Hogan Lovells

On June 1, 2023, the Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ) released a summary of a workshop jointly held by the agencies in June 2022 titled “Future of Pharmaceuticals: Examining the Analysis of Pharmaceutical Mergers.”  The workshop consisted of four panel presentations during which panelists were uniformly critical of pharmaceutical mergers, and offered a number of suggestions—outlined in the FTC/DOJ summary— for implementing a heightened and aggressive merger review process. 

Prior bad acts as factors in pharmaceutical merger reviews

In its summary, the agencies identify as a “key takeaway” from the workshop1 “that looking back at a firm’s past practices and those of the antitrust enforcers can help to improve merger analysis going forward.”  Scott Hemphill, Professor at New York University School of Law, suggested that, in evaluating the role of past conduct in merger reviews, the agency examine “how prior bad conduct and intent relate to effects.” Panelist Gwendolyn Cooley, Assistant Attorney General for the State of Wisconsin, noted that 55% of companies involved in pharmaceutical mergers are also defendants in antitrust conduct cases brought by the states, DOJ, FTC, or private litigants, and argued that evidence of prior coordination in a market should be “effective and persuasive for a judge evaluating a merger.”    

Assessment of innovation effects in pharmaceutical mergers

Assistant Attorney General Jonathan Kanter, FTC Commissioner Rebecca Slaughter and a number of panelists specifically addressed the impact of mergers on innovation in the pharmaceutical industry. Among other things, these speakers expressed support for the idea that the DOJ and FTC’s forthcoming revised merger guidelines should more broadly consider a merger’s potential effect on innovation.  This would include scrutinizing competition at all stages of innovation, including analyzing the potential loss of innovation competition separately from any specific product or pipeline overlaps.  Commissioner Slaughter specifically suggested that competition to innovate is broad enough to also encompass “how clinical trials are conducted or how drugs are delivered.” Professor Arti Rai, Professor of Law at Duke University, asserted that in the case of mergers involving marketed-to-pipeline competitive overlaps (i.e., a large well-established firm with a marketed asset and a firm that has an overlapping pipeline asset), the merged firm will have a reduced incentive to continue developing the pipeline product because it would compete with (and cannibalize sales from) the large firm’s marketed product.  Professor Rai further asserted that in these circumstances divesting the pipeline asset, which in the past has been the typical remedy in such instances, may be insufficient because it is easier for a divestiture buyer to market an already-developed drug than to successfully bring to market a pipeline drug, particularly if manufacturing the pipeline product is complex. 

Caroline Holland, Attorney Advisor to FTC Commissioner Slaughter, argued that the agencies should also assess competition in research and development that could be affected by a merger. Going even beyond R&D capability overlaps between the merging parties, Holland suggested that the incentives of non-merging firms may also be relevant to merger review if the merger reduces the incentives to continue to invest in R&D or commercialization. It may also be relevant to assess the number of large firms that might later purchase new innovations developed by pharmaceutical startups, affecting the availability of capital to those startups. 

Shifting presumptions and consideration of PBM relationships

Professor Patricia Danzon, Professor of Health Care Management at the Wharton School at the University of Pennsylvania, supported imposing a presumption of competitive harm for mergers involving two large (based on U.S. sales) branded drug manufacturers. Danzon asserted that standard merger review “ignore[s] complex customers” and cross-market effects due to firm size. Therefore, her proposed approach would shift the burden to firms to show merger-specific efficiency gains that outweigh potential competitive harms. This would include heightened scrutiny of combinations involving large- and mid-size firms or two mid-size firms, especially if either firm has a “blockbuster” product. In her view, these types of transactions give the combined firm greater leverage to create cross-market arrangements with pharmacy benefit managers (PBMs) to condition access to the company’s larger portfolio on having preferred status for all (or more) of their products.  Barak Richman, Professor of Law at Duke University echoed the importance of understanding the role of PBMs as intermediaries in the pharmaceutical distribution system, and recommended that the FTC develop a “two-part purchasing analysis to account for the rule of intermediaries” similar to the agency’s consideration of the intermediary role of insurance in its evaluation of hospital mergers.

Enhanced remedies

Panelists at the workshop recommended that the agency update its approach to remedies generally, and the effectiveness of those remedies specifically. In addition, panelists offered potential alternatives to traditional divestiture remedies for pharmaceutical mergers.  These include:

  • Developing structural models to predict which firms might be incentivized to engage in anticompetitive conduct post-merger;
  • Monitoring research and development levels and patent output post-merger; and
  • Requiring a commitment to maintaining certain levels of research and development and patent output post-merger.

In addition, Robin Feldman, Professor of Law at UC Hastings Law, suggested that the competition agencies adopt a robust “second look” policy and implement post-merger review studies “to ensure that past decisions had the intended result, and to improve future evaluations.”  Professor Feldman also suggested that regulators seek divestiture of existing drug products, rather than pipeline drug products—a policy that FTC Bureau of Competition Director Bruce Hoffman announced in 2018 would be implemented by the agency with respect to inhalant and injectable drug markets.


In publishing a summary of the 2022 pharmaceutical merger workshop nearly a year after the event took place, the FTC is re-emphasizing its commitment to exploring what it considers to be the benefits of a heightened merger review process “beyond traditional concerns around horizontal overlaps” for pharmaceutical deals.  While it is still unclear when the FTC and DOJ intend to publish a draft of their long-promised revised merger guidelines, it is apparent that mergers in the pharmaceutical industry remain top-of-mind for the FTC.  It would therefore be unsurprising if some of the policy recommendations offered by panelists at the “Future of Pharmaceuticals” workshop find a place in the revised guidelines when a draft is finally released for public comment. 


1 Hogan Lovells’ June 2022 coverage of the workshop can be found here.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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