Antitrust Gone Wild Against Amgen
No theory is too strange for Lina Khan’s FTC to block a merger.
Try though she has, Lina Khan hasn’t been able to stop every corporate merger. The frustration must be getting to her because the Federal Trade Commission Chair is resorting to ever more bizarre theories of antitrust to block business tie-ups.
On Tuesday the FTC sued to block Amgen’s acquisition of Horizon Therapeutics, which the agency boasts is the first pharmaceutical deal in “recent memory” that it has challenged. This is not an achievement to celebrate. Historically, the agency has raised competition concerns only when a drug maker has sought to buy a company with rival products. Then it has required discrete product divestments and approved the deals.
In this case, Amgen and Horizon don’t make drugs that directly compete. The FTC’s strained argument is that Amgen will use its negotiating clout with pharmaceutical benefit managers (PBMs) to protect Horizon’s successful drugs Tepezza and Krystexxa from competition. The drugs treat thyroid eye disease and chronic refractory gout, respectively.
The two drugs currently don’t have competition, and they may never get any. The Food and Drug Administration designated both “orphan drugs” because they treat rare diseases. This status confers regulatory benefits that are intended to provide an incentive to develop drugs for rare diseases for which there may be little financial return.
The FTC lawsuit concedes all this. “The preclinical and clinical trials can cost hundreds of millions of dollars to complete, all without a guarantee of success,” the lawsuit says. “The Department of Health and Human Services estimates that it can take $300-500 million and 14 years on average to develop and bring a drug to market.”
Yet the FTC claims that if a smaller company were to someday gain approval for a competing drug, Amgen might then offer PBMs larger rebates for its other drugs in return for giving Horizon’s treatments preferred placement on insurer formularies. It says this potential scenario might discourage potential competition.
The Khan FTC has been seeking to revive the ancient antitrust theory of “potential competition,” which was long ago shown to be flawed by antitrust legal scholars and has been discounted in the courts. In the Amgen case, the agency is taking an even greater logical leap in extending what qualifies as a potential antitrust violation.
The FTC doesn’t even attempt to show consumer harm, which is the modern standard for blocking mergers. If the scenario the FTC describes did occur, patients would probably benefit because PBMs use drug maker rebates to reduce insurance premiums.
To boost its weak case, the agency offers misdirection about how consolidation between insurers and PBMs in recent years could make its speculative case more likely. The FTC is investigating drugmaker rebates but hasn’t shown them to be illegal. So Ms. Khan is using the Amgen-Horizon lawsuit to discourage both rebates and acquisitions.
The lawsuit “sends a clear signal to the market: The FTC won’t hesitate to challenge mergers that enable pharmaceutical conglomerates to entrench their monopolies at the expense of consumers and fair competition,” the agency’s Bureau of Competition Director Holly Vedova said.
The FTC also says Amgen has built its drug portfolio by acquisition, which mimics Ms. Khan’s criticism of Big Tech. But this is how drug development in the U.S. works: Start-ups develop drugs because they are more nimble and have expertise in niche areas. Large drug makers then buy them because they are better at commercializing products and navigating the drug-approval obstacle course.
Investors fund start-ups on the expectation they will be acquired. Ms. Khan’s lawsuit will disrupt their calculations and hamper investment and innovation, especially in treatments for rare diseases. The Amgen-Horizon lawsuit may be Ms. Khan’s biggest and most destructive legal overreach so far, and apparently she thinks this is a compliment.