The FTC Should Keep Its Hands Off Innovative Biopharma Mergers

O ur nation’s biopharmaceutical companies are a great American success story. They are the world leaders in discovering the drugs and vaccines that are generating the cures and treatments for diseases that plague humanity. Strong U.S. government protection for patents and less-intrusive regulation than is found overseas have sparked the massive volume of R&D that has brought forth this bounty. What’s more, the biopharma sector is responsible for more than 4 million good American jobs and contributes over $1.1 trillion annually to the U.S. economy.

The “warp speed” development in 2020 of Covid-19 vaccines and the imminent release of effective Covid antiviral drugs are just two of the many path-finding achievements by American biopharma firms. But a government crackdown on biopharma mergers led by the Federal Trade Commission (FTC) could undermine future accomplishments, harming the American economy and American (and foreign) patients alike.

Biopharma Merger Review in a Nutshell
While the FTC and the Department of Justice share authority over antitrust enforcement, the FTC is primarily responsible for overseeing pharma-industry business practices, including mergers. It reviews all biopharma merger proposals with an eye on preventing acquisitions that would substantially reduce competition among drugmakers.

Biopharma mergers are particularly good at facilitating new-product introductions that advance medical science. They do this in two ways:

First, they allow for the scaling up of remedies that are developed by small biotechnology and research firms. Small entities that specialize in the initial R&D that yields innovative cures cannot scale up efficiently. Larger acquiring firms have the capabilities to undertake the trials, regulatory work, and marketing that speed up the release and broad dissemination of innovative drugs.

Second, they create synergies. Proprietary data and intellectual property brought together by a merger give the new entity access to greater pools of technically important information, laying the groundwork for innovations without spending increases. This new information resource may improve the quality of product-related research, thereby raising the probability of new-product breakthroughs without increasing risk.

Until very recently, the FTC invoked general merger guidelines applicable to all industries (jointly issued with DOJ) in assessing biopharma consolidations. Reviews of Biopharma mergers proceeded in a manner that was well understood by the private sector. But recent FTC policy changes may threaten these socially desirable mergers.

The FTC Is Jettisoning Sound Merger Policy
Last March, the FTC set up an interagency working group (including the DOJ and foreign and state antitrust agencies) to “build a new approach” to biopharma mergers. The FTC’s press release stressed an interest in “going beyond” traditional merger analysis and exploring “new or expanded theories of [merger-related] harm.” And a recent FTC challenge to a vertical merger shows that the risks these changes pose to good biopharma acquisitions are real, not just theoretical.

Illumina is a leader in “next generation sequencing” (NGS) platforms used to support genetic-testing programs that it and other companies develop. In 2015, it established and then later spun off Grail, a small firm dedicated to developing a blood test for the very early detection of cancer. The spinoff helped Grail attract capital and great management, a key to its successful creation of a unique “liquid biopsy” test that detects up to 50 cancers before symptoms appear.

In September 2020, Illumina sought to reacquire Grail. This would allow rapid scaling up and distribution of the new test and cost reductions in marketing it. These undoubted efficiencies echo the benefits of biopharma mergers that involve the acquisition of small R&D-specialist firms.

But in March 2021, the FTC sued to block the merger, claiming a theoretical threat to competition in some future market for “multi-cancer early detection tests.” Such purely speculative concern about a market that does not yet even exist is at odds with accepted antitrust norms, which focus on likely harm in actual markets. It also gives short shrift to the clear benefits of the transaction.

A former FTC chair and chief economist together condemned this lawsuit. They explained that “it would be tragic if the FTC’s misapplication of the appropriate standards for evaluating a vertical merger were to delay the American people[’s] access to such an important lifesaving breakthrough in cancer treatment for the benefit of a hypothetical future competition.” Their words serve as a dire warning applicable to future biopharma mergers.

Conclusion
Uncertainty generated by the FTC’s new threat to beneficial mergers threatens to reduce U.S. biopharma R&D, slowing the creation of breakthrough drugs and vaccines. This will undermine American leadership in producing the cures of the future, which is vital to our nation and to millions of people around the world.

The solution is simple. The FTC should back off its recent threats against innovative biopharma mergers by publicly and explicitly restoring pre-2021 merger policies. If it does not, Congress should consider stepping in.