In recent years, Democratic commissioners at the U.S. Federal Trade Commission (FTC) have clashed with their Republican counterparts over the agency’s standards for large biopharma transactions. Now that they’ve come into power under the Biden administration, the Democrats have launched a sweeping review that threatens to clamp down on industry deal-making.
One influential biopharma analyst disagrees with the FTC’s stated reasoning for implementing tougher reviews. In fact, the new stance could be counterproductive, he argued.
Large pharma consolidation can hurt R&D and lead to higher drug prices, Democratic commissioners have said. But those concerns are unfounded, SVB Leerink analyst Geoffrey Porges countered in a recent note to clients.
“[I]n fact, many of their arguments, if turned into industrial or FTC policy, would result in less innovation, less competition, and less choice for consumers,” Porges wrote.
Does M&A bring higher prices?
There’s simply no evidence that larger companies raise drug prices faster than small companies do, Porges wrote. Instead, small companies often have few options in their toolbox and therefore tend to resort to price increases to invigorate performance. Large firms have more “skin in the game” in the overall healthcare system and have been more careful, he argued.
In her dissenting opinion opposing Bristol Myers Squibb’s $74 billion acquisition of Celgene, FTC acting chair Rebecca Kelly Slaughter noted that “branded drug prices have increased substantially in recent years, and pharmaceutical merger activity persists at a high pace.”
Still, the question is, does M&A lead to faster drug price increases? After digging into recent buyouts, Porges found a range of possible outcomes.
Drugs he examined include blood cancer drugs Revlimid and Pomalyst from Bristol’s acquisition of Celgene; Otezla, which Amgen bought from Celgene; PARP inhibitor Zejula, the centerpiece of GlaxoSmithKline’s purchase of Tesaro; cancer combo drugs Braftovi and Mektovi as part of Pfizer’s purchase of Array BioPharma; and pulmonary arterial hypertension drugs Opsumit and Tracleer, which Johnson & Johnson picked up with Actelion.
Among them, Amgen’s Otezla’s 2021 price increase came in higher than the med’s prior-year price hike. Pfizer’s first list price increases for Braftovi and Tracleer ticked up, but the magnitudes have since trended down. For the other meds, new owners didn’t raise prices as much as prior owners.
Large firms feed innovation
Ultimately, clamping down on drug prices does more to stifle innovation than M&A, Porges said. The analyst criticized the “shallowness” of the regulators’ view as serving a political objective—namely, lowering drug prices—rather than trying to protect competition.
“The recent flowering of innovation in the biopharmaceutical industry in the U.S. is mainly based on an assumption of free pricing and open market access, thus providing a (somewhat) predictable return for investing in innovation,” Porges said.
Larger companies can be more efficient on the R&D front because their efforts are spread across multiple products and candidates, Porges said. When a company’s cost structure is based around just one product, prices either need to be higher or R&D investment lower to support commercialization, he said.
Overall, Porges believes Slaughter’s view of the negative effects from pharma M&As won’t prevail in the courts and therefore won’t likely become the FTC’s standard in the long run. In the short term? Companies will be more cautious about transactions “mainly because of the cost, time and ultimately reputational risk of dealing with extended review and litigation against the FTC,” he wrote.