Pharmaceutical Mergers Stifle Innovation Instead of Rewarding It

August 12, 2019

 Large mergers are usually harmful for consumers and competition. Instead of lower prices and increased innovation, consumers get higher prices, less access to goods and services, and reduced innovation and research. Mergers in the pharmaceutical industry are no exception. Last month, Katy Milani of the Roosevelt Institute wrote about drug company mergers and how (despite company claims) they stifle research and development instead of promoting it.

 

In late June, the drug company AbbVie announced it would be acquiring the company Allergan in a huge $63 billion merger. AbbVie's CEO Richard Gonzalez told the New York Times that "this is a transformational transaction for both companies and achieves unique and complementary strategic objectives." He also claimed that the merger would create "compelling value" for shareholders and customers, although he did not specify what that value was.

 

But Mr. Gonzalez is almost certainly lying. Mergers of gigantic drug companies lead to less innovation and less consumer choice, and the resulting firms possess more market power that they use to increase prices and thwart competition. Ms. Milani writes that "Megamergers, like the AbbVie and Allergan deal, deserve greater scrutiny not just from politicians but from the regulators who have the tools to do something about today’s increasingly concentrated, high-cost pharmaceutical industry. The FTC can self-correct by applying tougher scrutiny on these mergers." We could not agree more.

 

And the AbbVie-Allergan merger is a perfect example of a company seeking to buy additional drugs instead of conducting research to create new medicines. AbbVie wants to stay profitable after the patents on its blockbuster drug Humira run out, and acquiring Allergan's drugs Botox and Restasis is one way to do that without having to spend money on R&D.

 

The $63 billion AbbVie Allergan merger will hurt competition and consumers. But it is not the only instance of this problem. The drug industry is growing increasingly consolidated, and from 1995 to 2015, sixty drug companies merged and acquired each other until only ten were left. Milani notes there are even "killer acquisitions," where a drug company buys another company to suppress research and the development of rival drugs. These killer acquisitions make up 6% of all the mergers and acquisitions in the drug industry, and if they didn't happen, drug development would increase by 4% a year.

 

If antitrust regulators adopt a tougher stance toward pharmaceutical mergers, consumers will have more choices, more research and development leading to more innovation, and lower drug prices. The Federal Trade Commission should more aggressively scrutinize drug industry mergers and not hesitate to block them.

Please reload

Featured Posts

United States-Mexico-Canada Agreement (USMCA)

October 5, 2018

1/4
Please reload

Recent Posts
Please reload

Archive