The Federal Trade Commission (FTC) is scrutinizing mergers more carefully than in the past. The federal agency is currently trying to block a merger between Amgen and Horizon Therapeutics.
In its lawsuit, the FTC said that if it allowed Amgen’s $27.8 billion purchase to go through, Amgen could pressure the companies that manage access to prescription drugs — pharmacy benefit managers, or PBMs — to boost the two extremely expensive Horizon products in a way that would inhibit any competition.
The FTC is right to worry. Earlier this Spring it came to light that when an expensive, popular drug Humira faced generic competition, drug maker Amgen produced two different versions of the generic drug that were identical except for price. One cost $1,600 for a two-week supply, while the other cost $3,300. It seemed Amgen knew some Pharmaceutical Benefit Mangers (PBMs) would want the higher-priced version so they could retain a bigger cut of the price while passing the higher prices on to clients and consumers. This is possible because the PBM industry was allowed to consolidate. PBMs stand accused of being partly responsible for high drug prices by demanding a bigger cut (rebate) of the list price, driving prices higher to accommodate. If this is accurate (the economics are a little questionable) it is only because the top three PBMs control 80% of the market for drug distribution.
And OptumRx, one of three powerhouse brokers that determine which drugs Americans get, recommended option No. 2: the more expensive version.
As Murdo Gordon, an Amgen executive vice president, explained in an earnings call, the higher price enabled his company to give bigger rebates, or post-sale discounts, to Optum and other intermediaries. Most of that money would be passed on to insurers, and patients, he said. Gordon did not mention that the higher-priced option would leave some patients paying much more out-of-pocket, undermining the whole rationale for generic drugs
If you ask the public relations arms of merging companies, they will likely say mergers are beneficial due to synergies, efficiencies, economies of scale. These are not trivial words that have no meaning. That doesn’t mean those are the primary reasons, however. It’s not an impulse buy. Anyone considering investing nearly $28 billion to buy a rival has run the numbers and knows the product lines. Amgen undoubtedly has a strategy which may not be in consumers’ best interests.
When Amgen announced its purchase of Horizon in December — the biggest biopharma transaction in 2022 — it showed particular interest in Horizon’s drugs for thyroid eye disease (Tepezza) and severe gout (Krystexxa), for which the company was charging up to $350,000 and $650,000, respectively, for a year of treatment. The complaint said the merger would disadvantage biotech rivals that have similar products in advanced clinical testing.
Amgen could promote the Horizon drugs through “cross-market bundling,” the FTC said. That means requiring PBMs to promote some of Amgen’s less popular drugs — the Horizon products, in this case — in exchange for Amgen offering the PBMs large rebates for its blockbusters. Amgen has nine drugs that each earned more than $1 billion last year, according to the complaint, the most popular being Enbrel, which treats rheumatoid arthritis and other diseases.
Is that possible? Sadly yes. Years ago, I met with the CEO of a firm that manufactured safety syringes. His product was far more advanced, cheaper and safer than what was on the market. Yet, he could not sell his products to the vast majority of U.S. hospitals because they all used group purchasing organizations (GPOs). The GPOs (which are highly consolidated) already had exclusive deals with a much larger, competing manufacturer of syringes, that had signed a sole source contract. To say this was a battle between David and Goliath would be an understatement. It was more like David against an army of Goliaths. GPOs also pay rebates to hospitals based on the value of products they buy. A more expensive product allows for bigger rebates, albeit at the expense of competition. Sole source contracts also hurt small competitors trying to break into the market. Offering a better product at a lower price isn’t enough to break through.
“The prospect that Amgen could leverage its portfolio of blockbuster drugs to gain advantages over potential rivals is not hypothetical,” the FTC complaint states. “Amgen has deployed this very strategy to extract favorable terms from payers to protect sales of Amgen’s struggling drugs.”
We can already see the results of excessive consolidation. In most major cities two or three hospital systems control the market. Hospitals are local. They don’t really face competition from hospitals miles away. PBMs are consolidated enough to demand a larger share of the pie than if they were all competing against each other. Drug companies too have been consolidated for the past 30 years. That hasn’t been necessarily good for consumers.