The FTC's Latest Merger Misadventure

When Amgen agreed to acquire Horizon Therapeutics, a much smaller company that manufactures medicines to treat thyroid eye disease and chronic refractory gout, the agreement posed no traditional antitrust concerns. The merger would not decrease competition for the so-called orphan drugs as no other company, including Amgen, has government approval to produce competing drugs for these conditions. In fact, the merger would likely benefit consumers and patients by allowing the combined company to increase production of these drugs and to develop new drugs, and gain regulatory approval for them, more quickly. 

Nevertheless, on May 16, the FTC filed a lawsuit seeking to block the merger. The FTC acknowledged that Horizon has no competitors for the two drugs but speculated that if any competitors eventually manage to receive FDA approval, Amgen might respond by offering bundled discounts and rebates on a suite of drugs to pharmacy benefit managers, and those discounts and rebates could allow the combined company to keep prices high for Horizon’s two drugs.   

This complaint, in short, is based almost entirely on conjecture of what harm might occur in the future and under a very limited set of circumstances. For these reasons, most analysts believe that the FTC’s complaint faces very long odds in court.  

Still, the case shows that the FTC is now willing to challenge virtually any merger, particularly in industries that its current leadership seems to disfavor (like tech and health care), without any economic evidence that shows competitive harm. The FTC’s complaint mirrors, and in some ways exceeds, other aggressive merger challenges, particularly Illumina-Grail and Meta-Within.  

Outside the statute  

Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” In this case, there is quite literally zero evidence that the merger will tend to create a monopoly because Horizon already has a monopoly, via its patents, on its two drugs, as the FTC acknowledges.   

The FTC’s theory, that the merger might allow Amgen to extend profits, depends on a series of speculative future events unsupported by actual evidence: that another drug will obtain FDA approval; that Amgen will respond with a bundling strategy that would offer discounts and rebates on other drugs; that the bundling strategy would, on balance, harm consumers; and that other market participants, including pharmacy benefit managers and competitors, would sit idly by in response to Amgen’s possible future business strategy.  

Furthermore, to the extent that some legitimate competitive concern might exist, the FTC is refusing to accept behavioral remedies that would resolve those concerns.  Amgen and Horizon have both stated that they do not plan to bundle these drugs with other products. At least at first glance, a legally binding commitment not to bundle would appear to resolve the FTC’s competitive concerns in such a manner that the companies could readily comply and the FTC could readily monitor (unlike more complex behavioral remedies). The FTC, however, appears unwilling to accept seemingly reasonable behavioral remedies; similarly, in the Microsoft-Activision matter, the FTC has been unwilling to accept remedies that even the European Commission found reasonable and manageable.   

What’s in store under anticipated merger guidelines  

This complaint, as well as other recent cases brought by the FTC and the Department of Justice, could shed light on the upcoming revised merger guidelines. In short, both agencies are likely to challenge longtime consensus views among courts, practitioners, economists, and the agencies themselves. For instance, this complaint challenges the pro-competitive benefits of bundling and discounting, two practices that firms across the economy use routinely to lower prices as they compete for consumers. 

According to the FTC, such practices now may violate the antitrust laws. Likewise, both the Illumina-Grail and Meta-Within cases challenge the pro-competitive benefits of vertical mergers, when just a few years ago the agencies acknowledged that most vertical mergers promoted competition. Perhaps most concerning, these complaints dispense with the requirement that the agencies provide evidence, rather than speculative theory, of actual harm to consumers before challenging a merger.   

To the extent that the revised guidelines move away from these core principles, the merger review process will lose the predictability and transparency that have characterized the last forty years, to the detriment of consumers, investment, and the economy. 

About the authors

Sean Heather

Sean Heather is Senior Vice President for International Regulatory Affairs and Antitrust.

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