Last Friday, November 15th, the Federal Trade Commission (FTC) announced its approval of the merger of the two drug companies Bristol-Myers Squibb and Celgene, on the condition that they sell Celgene's drug Otelza, which is used to treat psoriasis, a chronic skin disease caused by an overactive immune system. However, two FTC Commissioner strongly dissented from this decision and criticized the merger.
In January 2019, Bristol-Myers Squibb announced it would buy Celgene for $74 billion, the largest ever pharmaceutical merger, and one which will combine two of the world's largest cancer drug companies. The FTC voted 3-2 along party lines to approve the acquisition. The sale of Otzela is worth $13.4 billion and is the largest divestiture ever required in a merger enforcement matter.
In its complaint, the FTC majority acknowledged that the merger would likely reduce competition and tend to create a monopoly by eliminating future competition between Bristol-Myers Squibb and Celgene in developing, manufacturing and selling oral drugs. But they approved the merger anyway. In response, Commissioners Rohit Chopra and Rebecca Slaughter wrote and published dissents, arguing that the FTC's view of the merger was too narrow and that it should adopt a broader view of the deal.
Slaughter began by pointing out that the FTC "has a long history of reviewing mergers between pharmaceutical manufacturers using an analytical framework that identifies specific product overlaps between the merging parties, including of drugs in development, and requiring divestitures of one of those products...but I am concerned that it does not fully capture all the competitive consequences of the transaction." She wrote that the FTC only considered concerns about drug overlaps and that this approach was too narrow. "The Commission should more broadly consider whether any pharmaceutical merger is likely to exacerbate anticompetitive conduct by the merged firm or to hinder innovation."
In recent years brand drug prices have increased and there has been a frenzy of pharmaceutical mergers. Research strongly implies that these mergers can actually inhibit research and development of new drugs, as well as reducing competition. Slaughter concluded that "going forward, I hope the Commission will take a more expansive approach to analyzing the full range of competitive consequences of pharmaceutical mergers... we should unleash the full scope of our authority under Section 5 to combat high drug prices."
Chopra made similar arguments in his dissent. He noted that drug prices are far too high and not necessary for funding innovation; he further criticized the FTC's strategy regarding mergers. "Our approach to pharmaceutical mergers, however, has focused primarily on reaching settlements, rather than litigation or in-depth merger studies," he wrote. Chopra argued that this strategy is not working. "In my view, this transaction [the merger of Bristol-Myers Squibb and Celgene] appears to be heavily motivated by financial engineering and tax considerations (as opposed to a genuine drive for greater discovery of life- saving medications), without clear benefits to patients or the public." Chopra called for an expansive investigation of this merger in order to unearth potential harm to consumers.
We are disappointed with the FTC's decision to approve the Bristol-Myers Squibb and Celgene merger. But the dissents by Commissioners Chopra and Slaughter offer a powerful critique and a way forward for consumer advocates and antitrust enforcers.