Concerns Mount About AbbVie-Allergan Merger

October 14, 2019

Senators, prescription drug experts, and other advocates are expressing more concerns about AbbVie's $63 billion acquisition of Allergan and its impacts on competition and consumers. Both drug companies are notorious for their anticompetitive behavior and attempts to prevent competition from other drugs.

 

At a Senate Judiciary Committee hearing on September 17th, Senator Richard Blumenthal (D-Ct) asked Chairman of the Federal Trade Commission (FTC) Joseph Simons a couple of questions about the AbbVie-Allergan merger and rebate walls/traps (one of the anticompetitive practices that AbbVie and Allergan are known for). He stated he was very concerned about mergers in the pharmaceutical sector and rebate walls, and asked, "What is the FTC doing to address rebate traps?"

 

Simons responded that rebate walls are one of the issues that the FTC's healthcare shop is thinking about. Blumenthal pressed him and asked if the FTC had an active investigation on rebate walls, and if he was familiar with the letter that consumer groups sent expressing concerns about the AbbVie-Allergan merger. Simons said he was not familiar with the letter but would take a careful look at it, and that he would get back to the Senator on the FTC's investigation of rebate walls.

 

Rebate walls occur when a drug manufacturer that has established a dominant position in the market, say with a best selling drug, provides to payers (pharmacy benefit managers, health insurers, and providers) conditional rebates and discounts off the list price for a multi-product bundle of drugs or indications. The drug manufacturer uses the bundled rebate to protect its already established position with the payers. These payers pocket the rebates in an effort to maximize revenue streams without passing all of the discounts they receive on to consumers. And this creates a rebate wall because if the payer was to purchase a competing drug, it would lose its discounts on the entire portfolio of drugs.

 

This practice has the unfortunate effect of discouraging competition from other drugs, even ones that are more effective and more affordable. Allergan used a rebate wall to protect its drug Restasis from competition, bundling the Restasis rebates with a broader portfolio of drugs so Medicare plans didn't purchase its more effective rival Xiidra.

 

Furthermore, in early October Professor Michael Carriers of Rutgers University sent a letter to the FTC pointing out further problems with the AbbVie-Allergan merger. He wrote that "the acquisition will reduce Allergan’s incentive to act like generic companies are supposed to in challenging invalid patents...the acquisition is likely to transform Allergan from a company that represents a “mixed” brand and generic firm to one that is more of a brand company. We have found that such a transformation reduces the likelihood that the combined company will challenge invalid patents, a vital goal given high drug prices today."

 

Allergan's anticompetitive behavior has grown worse over the past several years, as it begins to behave more like a branded drug company. Carrier noted that "it has filed repetitive citizen petitions to delay generic competition on its dry-eye-disease-treating Restasis." The FDA rejected these petitions and complained that the later petitions simply repeated assertions that it had already dismissed in the earlier ones. And a couple of years ago Allergan to avoid inter partes review of its patents by transferring patents to a Native American tribe to exploit tribal immunity. Fortunately the courts rejected this attempt.

 

If regulators approve the AbbVie-Allergan merger, the combined company would have increased power and feel emboldened to pursue more anticompetitive actions. More people are becoming aware of the deal and its competitive problems. We hope the FTC will take notice.

 

 

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