In Pfizer-Seagen review, FTC has chance to set new pharma precedent

Pfizer’s planned $43 billion acquisition of Seagen will be a major test for the Federal Trade Commission since the monopoly-regulating agency revised its views of what constitutes anti-competitive behavior in the pharmaceutical industry.

The buyout, which the companies expect to close later this year or early next, will substantially expand Pfizer’s presence in cancer treatment, where it already has 16 targeted drugs along with older chemotherapies. With Seagen, it will gain four more marketed cancer drugs, and add an additional 12 experimental medicines that are in human testing.

Moreover, Pfizer would have a leading position in the field of “antibody-drug conjugates,” a type of treatment Seagen pioneered and specializes in. These drugs pair synthetic antibodies with potent toxic chemicals that can target tumor cells, allowing for higher doses of the chemotherapies without the same level of side effects. Pfizer already markets a drug of this type, a leukemia treatment called Besponsa.

The transaction could therefore raise concerns about both the combined companies’ power to negotiate with insurers for its marketed drugs, as well as the effect on continuing innovation in the Seagen pipeline. Along with the FTC’s review of Amgen’s $28 billion takeout of Horizon, which is undergoing additional scrutiny, the agency’s opinion of the Pfizer-Seagen deal could help executives learn what new theories might be applied in future acquisitions.

“So far, we haven’t seen any real changes or divergence from their historical way of looking at pharmaceutical mergers, [which is] more on a product-by-product overlap basis,” said Jeny Maier, a partner and antitrust attorney with Axinn, Veltrop & Harkrider. “I think everybody’s curious as to whether there will be a test case.”

Under Chairwoman Lina Khan, the agency has signaled an interest in looking at newer theories of consumer harm and going beyond the product-overlap approach that has guided its past reviews. At a June agency meeting, antitrust experts raised concerns that combined companies could use the breadth of their product lines, led by must-have drugs like the cancer medicines Ibrance or Xtandi, to demand preferred or exclusive positions on formularies for other medicines in their portfolios.

Research and development, meanwhile, could be slowed if a buyer decides to kill a drug that competes with one of its own, or if other drug developers in the field aren’t able to raise funds because investors decide they won’t be able to challenge the merged companies.

In the past, the FTC has required companies to divest products when it has raised competitive concerns. For example, when Bristol Myers Squibb bought Celgene, the company had to sell its inflammatory disease drug Otezla to Amgen to avoid an overlap with a medicine Bristol Myers was developing. Allergan, meanwhile, divested an experimental digestive drug called brazikumab so regulators would approve its $63 billion takeout by AbbVie, which marketed the competing therapy Humira.

The FTC’s June meeting suggested that, in the future, the agency should require merging companies divest the marketed product rather than the one in development, as they would in theory have more resources to invest in R&D.

On the marketed drugs side, some industry analysts already are anticipating the transaction will require a divestiture of a bladder cancer drug, where Pfizer’s immunotherapy Bavencio is used in an early treatment line and Seagen’s Padcev is approved for patients who have progressed on Bavencio and similar drugs. A trial of Padcev in combination with Merck & Co’s immunotherapy Keytruda is underway in earlier-stage patients, however.

“Given both Padcev and Bavencio are likely to emerge (if they haven’t already) as the two largest branded products in this indication, we believe any … transaction may require [Pfizer’s] divestiture of Bavencio,” Stifel analyst Stephen Willey wrote in a Feb. 27 note emailed to clients after reports of Pfizer’s interest in Seagen emerged. 

Raymond James analyst Dane Leone believes the FTC won’t object, sharing Pfizer executives’ view that the two drugs together are “pro-competitive” and the situation “is most likely not going to require remediation.”

After reading the merger agreement, Maier said Pfizer stated it is under no obligation to divest products or business units, a sign that it is prepared to “go the distance and fight and litigate if it comes to that.”

During a call with analysts, Pfizer executives said they expect an FTC review because of the size of the transaction but didn’t express concerns when asked about the threat of intervention during a call with analysts.

“Our technologies and approaches to fighting cancer are complementary and we think regulators are going to see the pro-patient and pro-competitive benefits of combining Seagen’s ADC technology and expertise with Pfizer’s broader experience with other types of oncology in a way that’s fairly advantageous to patients,” said Doug Lankler, the company’s general counsel.

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