FTC workshop highlights potential changes to agency’s review of pharmaceutical mergers

Hogan Lovells

Hogan Lovells

On June 14 and 15, 2022 the Federal Trade Commission (FTC) hosted a workshop titled “Future of Pharmaceuticals: Examining the Analysis of Pharmaceutical Mergers.” The workshop was a culmination of the work of the Multi-lateral Pharmaceutical Task Force (MPTF) that convened on a regular basis over the past year. The workshop consisted of four panel presentations exploring various aspects of the merger review process with respect to acquisitions in the pharmaceutical industry.

The panelists who presented at the workshop were uniformly critical of pharmaceutical mergers, and offered a number of suggestions for more effective and aggressive agency review. Topics included reviewing concentration levels in the sector, how (and whether) enforcers should consider prior bad acts, reviewing a transaction’s potential effects on innovation, and the effective-ness of merger remedies in the pharmaceutical industry.

Key takeaways

  • The FTC has clear concerns with mergers in the pharmaceutical industry and is actively looking to expand its analysis of such mergers beyond the traditional approaches in the Horizontal Merger Guidelines.

  • Panelists advocated that the agencies’ review of pharmaceutical mergers consider:

    • prior antitrust allegations against a merging party, even in private litigation;

    • effects on potential innovation, broadly viewed; and

    • how a proposed merger will affect a pharmaceutical company’s leverage to get its products placed on drug formularies.

  • The Commission remains deeply divided between the Democratic and Republican Commissioners on appropriate merger policy.

We provide more detail below on the recommendations made by panelists.

Consideration of prior anticompetitive conduct

Two panelists, Professor Scott Hemphill of NYU School of Law and Gwendolyn Cooley, Assistant Attorney General for the State of Wisconsin, advocated that pharmaceutical merger reviews consider whether either of the merging parties has been a defendant in antitrust actions in the past, including in private actions. AAG Cooley 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. Similarly, Professor Hemphill argued that “prior bad conduct can be informative of [sophisticated firms’] intent and might therefore inform how we think about a subsequent merger.” Both believe merger review should consider such allegations or evidence in assessing the likelihood of either unilateral or coordinated anticompetitive effects from the proposed merger.1

Broader consideration of innovation, R&D and pipeline issues

Assistant Attorney General Kanter, Commissioner Slaughter and a number of panelists addressed the impact of mergers on innovation in the pharmaceutical industry, including whether revised merger guidelines should more broadly consider a merger’s potential effect on innovation.2 Professor Arti Rai, Professor of Law at Duke, cited two anti-innovation effects that can arise in the context of M&A. First, with respect to the merger of a large well-established firm (with an asset that is already on the market) and a firm that has an overlapping pipeline asset, there is a risk that the merged firm has a reduced incentive to continue developing the pipeline product because it would compete with the large firm’s marketed product. Professor Rai explained that divesting the pipeline asset, which in the past has been the typical remedy in such instances, may be insufficient if manufacturing the pipeline product is complex and if it is easier for a divestiture buyer to market an already-developed drug than to successfully bring to market a pipeline drug.

The workshop included panelists representing competition authorities from the European Union (EU) and the United Kingdom (UK). Paul Csiszár, Director of basic industries, manufacturing and agriculture at the European Commission Directorate-General for Competition, said that in addition to assessing overlaps involving late-stage pipelines, the EC also assesses overlaps between early-stage pipeline products. This analysis includes asking whether “the merger could change the incentives of the combined entity to continue to invest in parallel . . . R&D programs,” the theory of harm being the risk of discontinuation, delay or redirection of overlapping pipelines. Eli Yoo, Director of Mergers at the UK Competition and Markets Authority (CMA) advocated for assessing a merger’s effect on “dynamic competition,” specifically pipeline-to-pipeline overlaps and overlaps between pipeline and existing marketed products. Camille Vardon, senior case handler at EC Directorate-General for Competition, explained that her agency looks at several parameters to assess pipeline-to-pipeline overlaps, including how promising an emerging company’s pipeline drug is, and the overall number of competing marketed products and the number of pipeline drugs in development. The EC will review clinical practice guidelines as well as feedback from market participants and medical experts who provide information on the features of emerging parties’ pipeline drugs.

Caroline Holland, Attorney Advisor to FTC Commissioner Slaughter, also argued for the need to assess competition in R&D that could be affected by a merger. Holland said that the incentives of non-merging firms may also be relevant to a merger review if the merger reduces the number of large firms that might later purchase new innovations developed by a pharmaceutical startup, affecting the availability of capital to those startups.

Cross-market bargaining leverage with pharmacy benefit managers

A number of panelists addressed the relationship between pharmacy benefit managers (PBMs) and drug manufacturers, and the extent to which consolidation and the increased size of PBMs and pharmaceutical firms harms competition in the industry.

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 branded drug manufacturers.3 She suggested that the FTC analyze the extent to which the merging parties have engaged in cross-portfolio contracting with PBMs, and noted that a concerning scenario is when large pharmaceutical firms create cross-market arrangements with PBMs by tying access to their portfolio to preferred status for all their products. Professor Danzon argued that companies with large portfolios that have the potential to tie rebates on “must-have” products to preferred position with other drugs in their portfolio can harm competition by excluding competitors and preventing consumer access to new products.4

Professor Hemphill raised a similar concern, suggesting that the FTC look at whether, after a merger, bargaining leverage increased from the standpoint of the PBMs. Professor Hemphill also recommended that the revised merger guidelines should address bargaining leverage, and explicitly recognize that increasing such leverage is a type of competitive harm.

Professor Robin Feldman, Professor of Law and Director of the UC Hastings Center for Innovation, cautioned that the current merger review process focuses too much on individual transactions in individual markets without considering interactive effects. She warned that when a firm acquires small shares of different markets, acquisitions will not raise traditional antitrust concerns despite combined market effects. Therefore “pharmaceutical companies can amass volume and breadth of products and the power that comes with that without ringing any antitrust alarm bells.” Professor Feldman advocated for adjusting merger review to consider the power of volume across different markets, as well as the impact of repeated small mergers, because “when we focus atomistically on individual purchases and individual markets, we risk missing the forest for the trees.”

There was consensus among a number panelists that the FTC should be concerned about the competitive effects a concentrated PBM market has on smaller pharmaceutical manufacturers that do not enjoy cross-market bargaining leverage. This takeaway is likely to fuel the efforts of FTC enforcers to investigate potential anticompetitive conduct related to PBMs. In fact, the day after the workshop concluded, the FTC issued an enforcement policy statement5 to put “drug companies and prescription drug middlemen on notice that paying rebates and fees to exclude competitors offering lower-cost drug alternatives can violate competition and consumer protection laws.”6 This policy statement—in conjunction with the agency’s ongoing 6(b) study on PBMs—demonstrates that the FTC sees the relationship between large drug manufacturers and PBMs as a potential threat to competition in the pharmaceutical industry.7

Republican Commissioners continue to criticize FTC leadership for promoting uniformly negative views of M&A

Notably, the workshop did not offer any alternative perspectives to those discussed above or that of any academics or experts who view the traditional merger analysis employed by the FTC in pharmaceutical cases to be appropriate. Indeed, just last month, Republican FTC Commissioner Noah Phillips criticized FTC leadership for not consulting with the entire Commission when selecting speakers for agency events focused on merger enforcement policy.8

Over the past few months, the FTC and DOJ have held four “listening forums” to hear public concerns about the effects of mergers in the tech, health care, media, and agriculture sectors.9 Following public critique from Commissioner Phillips that FTC leadership included only speakers who had “uniformly negative things to say [about M&A],” the FTC held a fifth session on 21 June. That fifth session was the only one to include remarks from both Republican and Democratic Commissioners—a fact that Commissioner Phillips pointed out in his opening statement. Commissioner Wilson touted the benefits of M&A, such as allowing companies to expand to new geographies, drive down costs, and increase innovation. Commissioner Wilson also stressed the need for the revised merger guidelines to provide transparency and predictability to the market, while Commissioner Phillips advocated for the guidelines to be coherent, reflective of agency experience and practice, grounded in well-established economics, and consistent with the current state of the law. The session also included testimony from business leaders and entrepreneurs on the benefits of M&A such as lower prices for consumers, increased innovation, and job security for employees. Speakers also argued that the merger guidelines should not be revised based on the assumption that combinations are inherently bad for competition.10 However, there were no such alternative views presented at the pharmaceutical workshop.


Merger review at the antitrust agencies has progressively become broader, longer, and involves more expansive Second Requests under the current administration. In many ways, some of the views of Commissioner Slaughter’s Multi-lateral Pharmaceutical Task Force are already being reflected in current pharmaceutical merger reviews. The forthcoming revised merger guidelines, expected in the coming months, are likely to reflect many of the views expressed at the workshop as well. There will be an opportunity for public input and comment once the draft guidelines are issued.


1 Currently, the Merger Guidelines’ consideration of prior conduct is more limited. See Horizontal Merger Guidelines, § 7.2 (express collusion relevant to the likelihood of coordinated effects post-merger).

2 The Merger Guidelines currently address innovation effects in Section 6.4.

3 Professor Danzon considers a “large” firm as one that ranks among the top ten pharmaceutical firms measured by U.S. sales.

4 Professor Danzon praised the FTC’s recently announced 6(b) study into the “impact of PBM practices on competing pharmacies, payers, doctors and patients.”4 She believes the study will help the FTC better understand “how the competitive dynamics in pharmaceutical mergers relate to competitive dynamics in other markets in the supply chain, especially [the] relationship between drug makers and PBMs, and PBMs and health insurers.”

5 Federal Trade Commission, Policy Statement of the Federal Trade Commission on Rebates and Fees in Exchange for Excluding Lower Cost Drug Products (16 June 2022). The Commission noted in the Statement that exclusionary rebates that foreclose competition from less expensive alternatives may violate Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act. The Commission also noted that inducing PBMs or other intermediaries to place higher-cost drugs on formularies instead of less expensive alternatives in a manner that shifts costs to payers and patients may violate Section 5 of the FTC Act and that paying or accepting rebates or fees in exchange for excluding lower-cost drugs may violate Section 2(c) of the Robinson-Patman Act.

6 FTC Press Release, FTC to Ramp Up Enforcement Against Any Illegal Rebate Schemes, Bribes to Prescription Drug Middleman That Block Cheaper Drugs (16 June 2022).

7 As described in the FTC’s press release, the PBM study “is aimed at shedding light on several practices that have drawn scrutiny in recent years including: [1] fees and clawbacks charged to unaffiliated pharmacies; [2] methods to steer patients towards pharmacy benefit manager-owned pharmacies; [3] potentially unfair audits of independent pharmacies; [4] complicated and opaque methods to determine pharmacy reimbursement; [5] the prevalence of prior authorizations and other administrative restrictions; [6] the use of specialty drug lists and surrounding specialty drug policies; and [7] the impact of rebates and fees from drug manufacturers on formulary design and the costs of prescription drugs to payers and patients.” FTC Press Release, FTC Launches Inquiry into Prescription Drug Middlemen Industry (7 June 2022).

8 Prepared remarks by FTC Commissioner Noah Joshua Phillips, Disparate Impact: Winners and Losers from the New M&A Policyv, Eighth Annual Berkeley Spring Forum on M&A and the Boardroom, San Francisco, CA (27 April 2022).

9 Hogan Lovells, FTC and DOJ Hear from Public on Effects of Mergers in Agriculture, Health Care, Media and Technology Sectors (19 May 2022).

10 FTC Merger Guidelines Listening Forum (21 June 2022).

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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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