The antitrust landscape has changed significantly over the course of President Joe Biden's presidency and top antitrust regulators show no signs of easing up on enforcement across industries.
The life sciences industry is no exception, as Federal Trade Commission (FTC) Chair Lina Khan and Department of Justice (DOJ) antitrust head Jonathan Kanter continue to set their sights on drug company mergers and acquisitions they believe would damage consumers and the U.S. economy. These two regulators have also signaled intentions to expand their use of antitrust laws in more instances, including everything from unfair competition to wages and labor.
Khan and Kanter are responding to President Biden's 2021 executive order on "promoting competition in the American economy" that encourages the DOJ and FTC "to enforce the antitrust laws fairly and vigorously," as well as carrying out their own philosophies that antitrust enforcement has been lax. Government agencies are also facing growing public pressure from Congress, media outlets, and consumer groups calling for strengthened efforts to even the competitive landscape after many years of consolidation for consumers and workers.
Khan and Kanter have engaged in a flurry of activity throughout their tenures and continue to indicate that future action is on the way. As their attention on the pharmaceutical and life sciences industries continues to grow, here are three key changes the industry should keep its eye on:
1. Philosophy shift to focus on consumer harm
Traditionally, antitrust regulators have enacted policies aimed at ensuring that there is sufficient competition across the industry. While this remains a focus, regulators today are beginning to shift their priorities to protect consumers from any reduction in competition that could potentially increase prices or reduce access to pharmaceutical drugs. Considering the importance of these products to the American people, antitrust regulators have increased their attention on ensuring that no merger, acquisition, or partnership will even moderately impact consumers' ability to access and purchase these life-saving drugs.
2. A new approach to M&A
Antitrust regulators are also rethinking their approach to how they evaluate M&A transactions. In the past, regulators conducted an analysis of any overlapping drugs between the combining organizations and required the divestiture of any competing drugs before a merger was finalized. Today, antitrust regulators are considering how much additional leverage the acquired drugs will give the purchasing pharmaceutical company, taking the pharmaceutical company's entire portfolio into account. If the FTC or DOJ determine the purchaser will acquire too much of a competitive edge as compared to PBMs, insurers or other purchasers, they are beginning to indicate that they will block the transaction. The healthcare industry is no stranger to this approach, having seen a similar analysis used in hospital mergers. While this approach hasn't been put to practice yet in life sciences, it is worth keeping an eye on as more large-scale mergers come to light. Moreover, the FTC and DOJ recently issued new proposed Merger Guidelines, which track their aggressive stance against consolidation.
3. Changing non-compete rules
In January, the FTC proposed a new rule that would ban employers from imposing post-employment noncompete clauses on their workers. This sweeping rule would include nearly all employment relationship types. Since its announcement, the FTC has received over 26,000 comments with varying levels of support. Many individuals and small businesses favor the rule, while some large businesses and trade groups oppose it. If enacted, this new rule will require life sciences companies that use noncompete clauses to revisit and amend their contracts for all employees, both going forward and retroactively. Additionally, this move is particularly noteworthy because it serves as the clearest example of the FTC trying to expand the reach of antitrust into employment practices as a method of unfair competition. Should the FTC be successful, the life sciences industry should keep a close watch on more ways the commission may seek to extend its regulatory scope.
How Life Sciences Companies Can Protect Themselves
With oversight and enforcement actions ramping up, life sciences companies should consider brushing up on their compliance efforts. A little preparation can go a long way. Life sciences businesses should revisit their antitrust policies and training to ensure all employees understand today's evolving rules. They should also review any exclusive arrangements and analyze all dealings and collaborations with competitors for antitrust violations. A full assessment of product lifecycle antitrust risks should also be considered to address any potential areas of liability. Finally, life sciences companies should build in a longer timeline for any major merger or acquisition.
The Importance of Experienced Counsel
As new rules come to light and the FTC and DOJ continue to look for ways to expand their purview, life sciences companies today cannot afford to ignore new antitrust developments emerging around the corner. The FTC and DOJ are actively changing their philosophies and approaches to antitrust, and the pharmaceutical industry needs to be aware of these changes and get ahead of them. Our attorneys and government relations professionals at Buchanan are well-connected to both of these agencies and have our ear to the ground on all antitrust matters. Our team can keep your business in the know and develop proactive strategies to protect your interests.
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