A Profile of Bio-Pharma Consolidation Activity

Posted by Social Science Research Network

A Profile of Bio-Pharma Consolidation Activity

Jordan Paradise (Loyola University)

Abstract:     The bio-pharmaceutical sector is no stranger to consolidation. Over the last three decades, over 110 companies have consolidated to approximately thirty. Notably, the rate and extent of bio-pharmaceutical consolidation has measurably accelerated in recent years with projections of a similar pace into the near future. Ernst & Young reports that bio-pharmaceutical deals reached a ten-year high in 2014, when twenty-seven biotech companies were acquired by pharmaceutical companies – a 46% increase over 2013 numbers. Deloitte’s 2015 outlook reveals “life sciences companies are expected to continue expanding their presence in emerging markets through acquisitions and joint ventures.” While the form, terms, and size of these deals – whether they are mergers, acquisitions, or joint ventures – vary widely, they share the overarching characteristic of changing the make-up of the entire industry. Research and development priorities and product ownership will inevitably shift as companies restructure, having an ultimate effect on consumers and on the delivery of health care.

With increasing bio-pharmaceutical consolidation come questions about whether and why the business model has changed for bio-pharma, and how such a change impacts access, cost, quality, and innovation in the health and medical realm. Particularly timely is the question of whether bio-pharmaceutical consolidation is enabling massive hikes in cost of both prescription and generic drugs for health care consumers, health payors, and the federal and state governments alike. Since 2008, prices for brand drugs have increased a whopping 127% as compared to an 11% consumer price index increase. Rapidly escalating prices for prescription drugs such as Turing Pharmaceuticals’ toxoplasmosis drug Daraprim (pyrimethamine) and Valeant Pharmaceuticals heart drugs Isuprel (isoproterenol hydrochloride) and Nitropress (nitroprusside sodium) have prompted widespread concern that mergers and acquisitions are facilitating such rent-seeking behaviors in the marketplace. Congress is currently investigating these drug pricing scenarios, and the industry players involved, as many policymakers and Presidential candidates call for changes in the laws to address the problem.

Aside from the direct impact on medicine and health care, and drug costs specifically, there are also important related questions about oversight of this consolidation, and the level of control held by the federal government over the scope and terms of these business deals. In an effort to examine the role of the federal government, and specifically the Federal Trade Commission (FTC), in such oversight, this article will explore bio-pharmaceutical consolidation by reviewing select FTC actions and characterizing the features and outcomes of the resulting mergers and acquisitions. The article first briefly discusses several underlying drivers for bio-pharmaceutical consolidation identified in the literature, as well as the associated impacts. It utilizes the real-time drug pricing controversy involving Turing Pharmaceuticals and Valeant Pharmaceuticals as examples of the impact on cost associated with bio-pharma acquisitions. Next, the article explains the FTC’s role in premerger assessments and the basic requirements on industry imposed by federal legislation and FTC policy. The article then offers review and analysis of over fifty FTC actions involving mergers and acquisitions in the bio-pharmaceutical realm, drawing from three FTC publications. It characterizes core requirements and conditions set forth in the consent orders, and synthesizes the legal landscape gleaned from the FTC publications. The article then discusses implications for the future.