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Last year the Federal Trade Commission (FTC) set up a Pharma Taskforce (Taskforce) to review and update how pharmaceutical mergers are reviewed.1 Recently, the Taskforce held a workshop and reported its findings based on research, comments from the public, and consideration of the merger review processes in other countries.

The goal of the workshop, according to FTC Chair Khan, was to hear from industry participants what factors the agencies should consider when analyzing pharmaceutical mergers, including non-traditional factors, and how the agencies should approach remedies, innovation and prior bad acts. The workshop made clear that the FTC has every intention of making changes to the way it reviews pharmaceutical mergers. The FTC is facing pressure to reign in drug costs, and has stated it will use every tool at its disposal. One of those tools is taking a more aggressive approach to mergers and acquisitions in the pharmaceutical industry.

Current Pharma Merger Review

Regulators traditionally approach reportable2 pharmaceutical mergers by looking at competition on a drug-by-drug basis to identify overlaps (i.e., both companies have a drug that a physician could prescribe to treat the same condition) in pipeline and/or marketed drugs. When a market overlap is encountered, it is typically remedied through divestiture of one of the overlapping products. By virtue of this practice, pharmaceutical transactions are not often litigated. The effectiveness of the current merger review analysis is being re-thought: “[g]iven the high volume of pharmaceutical mergers in recent years, amid skyrocketing drug prices and ongoing concerns about anticompetitive conduct in the industry, it is imperative that we rethink our approach toward pharmaceutical merger review” according Taskforce leader, FTC Commissioner Slaughter.

Use a Hospital Review Analysis

The panel proposed that regulators consider a company’s influence in negotiations with pharmacy benefit managers (PBMs) (who decide which drugs will be included on a formulary and what preference the drugs will have) before and after the proposed transaction, similar to how hospital mergers are analyzed vis-à-vis health insurers. In the healthcare industry, “[p]atients are largely insensitive to [ ] prices because they utilize insurance, which covers the majority of their healthcare costs.”3 Likewise, drug prices are also largely determined by insurance coverage so panelists recommended that pharma mergers be reviewed like a hospital merger; assessing the impact to two markets – patients and insurance. A significant source of influence of a pharmaceutical company is the possession of a “must have blockbuster drug” – which every formulary must to offer to participants. A company can leverage their blockbuster drug to ensure that additional drugs in their portfolio are also included and/or treated preferentially on a formulary.4 According to panelists, firms can tie or bundle less popular/lesser quality drugs to their blockbuster in PBM negotiations, which can lead to higher priced and/or lesser quality options for patients. Following up on these concerns, the FTC issued an enforcement policy statement concerning illegal agreements between pharmaceutical companies PBMs where, for example, dominant drug companies pay rebates and fees to middlemen to foreclose competition from less expensive generic and biosimilar alternatives.

If this hospital merger-style review analysis is adopted, there would be new areas of concern for parties to a pharmaceutical transaction:

Dominance Generally: Be prepared to address PBM negotiation position before and after the transaction, including agreements that reflect the bundling or tying of products. Be aware that tying two drugs across treatment channels may give rise to a broader relevant market definition and a higher probability that issues are identified.

Expanded Market: Historically, the FTC performs a drug-by-drug analysis to see if the parties to the transaction compete (i.e., each have a drug to treat the same condition). Each drug is viewed as a separate market. For example, the recent merger of two large pharmaceutical companies, Allergan and AbbVie, was allowed to proceed after the divestiture of two drugs; one that treated exocrine pancreatic insufficiency and the other that treated to the treatment of moderate-to-severe Crohn’s disease and moderate-to-severe ulcerative colitis. The Dissenting Statement of Commissioner Rohit Chopra on the Allergan/AbbVie merger is consistent with the discussions at the workshop stating:

“This strategy fails to account for how executives make decisions about their drug product portfolios, how larger portfolios can suppress new entry, and how companies use portfolios to increase bargaining leverage across the supply chain.”

Under the hospital-style analysis, the Agency’s review would not be limited to a drug-by-drug analysis to identify shared markets, but also may include an assessment of company portfolios and a potential increase in overall bargaining power. Therefore, parties should be prepared for an analysis that is not limited to the identification of drug overlaps. This is especially true where a potential increase in PBM bargaining power is identified (like the aforementioned ability to bundle or tie products).

Discontinue Policy of Divestiture

Panelists presented studies showing that a small number of large firms accounted for the bulk of pharmaceutical transactions, which includes not only mergers but also divested asset purchases. Panelists asserted that the divestiture policy has been a substantial factor in the consolidation of the industry and high drug prices, because it has allowed the same firms to expand their influence across several channels by purchasing drugs that the FTC requires be divested. The current divestiture policy disregards the overall influence that a firm has and, in turn, any increase in influence by virtue of expanding their drug portfolio. Panelists further claimed that divestiture is an inadequate remedy and cited to a recent study that showed as an example only 36% divested pipeline products made it to market. If regulators move away from divestiture remedies, the obvious impact would be more challenged transactions and fewer quick settlements, extending companies’ merger timelines and increasing their risks.  

Presumption of Anticompetitive Effects

A suggestion that regulators institute a “presumption standard” for pharmaceutical mergers had significant support. The presumption proposal has the potential to set parties’ expectations for enhanced merger scrutiny. The presumptions proposed were:

  • Presumption against any merger between any two of the top ten pharmaceutical firms (based on total sales -not individual drug market). The burden would then be on the parties to prove pro-competitive effects
  • Heightened scrutiny between any two mid-sized firms (11-20 in total sales)
  • Heightened scrutiny if the transaction concerns a blockbuster drug based on the assumption that a blockbuster drug per se increases market power
  • No proposed change to review standard on mergers with smaller firms

Consideration of Prior Bad Acts

FTC Chair Khan, Commissioner Slaughter and DOJ Assistant Attorney General Kanter highlighted the long history of anticompetitive conduct in the pharma industry. According to research presented, 55% of recent asset purchasers (including firms purchasing divested assets) were thereafter defendants in antitrust litigations.5 Given the propensity of anticompetitive conduct, the pharma taskforce advised that a party’s prior bad acts be considered in a merger analysis. It is likely that any prior bad acts would be used as a plus factor and not a standalone basis to reject a merger. In the event prior bad acts are used in a merger analysis, the impact will be likely only be felt in transactions that already have some discernable competition issues and will allow a regulator to put a finger on the scale to weigh against the merger.  


Innovation is key to the pharmaceutical industry. Similar to the tech industry, the panelists presented statistics to show that larger companies have a tendency to consume innovators, rather than innovate themselves. Commissioner Slaughter suggested that harm to innovation may be sufficient to challenge a merger, indicating that the FTC has already “alleged harm to innovation in a number of different cases.” Parties should be prepared to treat innovation as more than a plus factor. For example in a transaction where a large company is purchasing a small innovating firm (as opposed to a drug), the company should have a strategy around how to maintain the firm’s current record of innovation.

Small Mergers

After indicating that regulators are entitled under law to review any merger regardless of size, the panel recommended that the regulators expand their merger examination to address mergers where a large pharmaceutical is acquiring a small innovating company to prevent that company from becoming a competitor (so-called “killer deals”), similar to the FTC’s ongoing discussions concerning the tech industry.6 An example, presented by a panelist, of the sort of transaction that regulators should investigate is where a small company is being bought for an “outsized price” because it suggests that the buyer is seeking to eliminate a competitive threat – akin to a pay-for-delay analysis. While the FTC has both the authority and interest in examining these transactions, it has not yet implemented this practice, likely because doing so would be a significant break with past practice and would likely face headwinds from judicial precedent.


The Taskforce workshop discussions were wide-ranging, and the Taskforce itself is continuing to examine the pharmaceutical industry. Thus, the magnitude of the changes to merger analysis in the pharmaceutical industry that will ultimately be adopted by the FTC remains to be seen.  In the meantime, firms considering transaction should anticipate a broader scope of review in lieu of the traditional drug-by-drug review, and make adjustments as necessary, which is perhaps a win for the Taskforce in and of itself:

  • Be prepared to address PBM agreements and potential changes to negotiation power.
  • Be aware that Regulators may be expanding their market definitions when assessing overlaps or concentration.
  • Understand that any claims of efficiency, scalability and innovation may be undermined by prior bad acts.
  • Be proactive in demonstrating how any new acquired firms’ research and development team will be supported such that they continue to be innovative.
  • Be aware that firms with existing must-have blockbuster drugs will likely be subject to a heightened scrutiny.
  • Do not plan to rely solely on divestitures to cure competitive overlaps.
  • Be aware that these reforms are not limited to federal merger review, but may be employed at the state level as well.
  1. The taskforce is led by FTC Commissioner Rebecca Kelly Slaughter and comprised of staff from both the FTC and DOJ, State Attorneys General, international competition enforcers, and industry experts and economists. It is focused on prescribed and physician administered treatments; not over-the-counter medications.
  2. Mergers that meet Hart-Scott-Rodino value thresholds. Based on the panel discussions, there would not be a different analysis in the event that a non-reportable merger is reviewed by FTC (as discussed infra).
  3. FTC v. Penn State Hershey Med. Ctr., 838 F.3d 327, 342 (3d Cir. 2016).
  4. FTC is currently engaged in a 6(b) study into PBMs. See June 8, 2022, Statement of Chair Lina M. Khan Regarding 6(b) Study of Pharmacy Benefit Managers Commission File No. P221200.
  5. Litigation concerning price fixing, conspiracy, pay for delay, monopoly, product hopping, and sham petitioning.
  6. The FTC has already taken steps to address killer acquisitions in the tech industry. Last year the FTC completed a 6(b) study of almost a decade worth of non-reportable tech acquisitions which will likely be used to support an FTC intervention in a non-reportable tech transaction. (available at