Recent Legal Developments at the FTC Related to Pharmaceuticals

In this flash update, Adam Acosta, Partner, White & Case LLP, provides an overview of recent developments at the FTC on antitrust enforcement in the pharmaceuticals sector. He discusses the FTC’s focus on pharmaceutical pricing, developments related to pharmaceutical mergers, and updates related to the FTC’s enforcement activity. From AHLA’s Antitrust Practice Group.

Watch Adam’s commentary here.

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Transcript

Speaker 1: 0:07

This episode of ALA, speaking of health law is brought to you by HLA members and donors like you. For more information, visit American health law.org.

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Welcome to the latest flash video update brought to you by the American health law Association's antitrust practice group. I'm Adam Acosta, a partner in waiting cases, antitrust and competition practice. And today I'll be discussing recent legal developments at the federal trade commission related to pharmaceuticals. There are three key areas that I'll cover first. The FTCs focus on pharmaceutical pricing. Second developments related to pharmaceutical mergers, and third updates related to the FTCs enforcement activity. Starting with pricing issues. The FTC appears to be following direction from the Biden administration to be more aggressive on combating what it perceives to be high drug prices. For example, the FTC statement of regulatory priorities for 2022 reflects the Biden administration's priorities and pledges to establish regulatory rules targeting certain unfair methods of competition, such as so-called reverse payment or pay for delay agreements in which brand manufacturers allegedly settle patent litigation by making a large and unexplained payment to generic challengers. And more generally the 2022 FTC statement emphasizes that in their view case by case antitrust enforcement has proven insufficient leaving behind a hyper concentrated economy whose harms to American workers, consumers, and small businesses demand new approaches, but FTC rule making for pharmaceuticals, if pursued would be unprecedented and trigger various legal challenges. And if ultimately permitted would lead to increased uncertainty and significant compliance challenges for the industry, while we have not seen any concrete rulemaking steps taken by the FTC so far, the FTC may have been hampered by the absence of a working democratic majority on the FTC commission with the fairly recent confirmation of Alva Bedoya as the fifth FTC commissioner, the FTC now has a democratic majority to potentially move forward with rule making. In addition, another area related to pricing scrutiny is the FTCs re focus on the role of pharmacy benefit managers or PBMs for short and their effect on drug pricing in June, 2022, the FTC announced a section six B inquiry into the PBM industry. The study will analyze vertically integrated PBMs and their impact on access to and affordability of prescription drugs, including the effect of manufacturer rebates on formulary design and drug costs. An issue that the FTC is described as a top priority. The FTCs policy statement focuses on rebates and fees paid by pharma manufacturers to PBMs allegedly in exchange for excluding lower cost drug products from coverage. And the policy statement also asserts that formulary agreements that exclude less expensive alternatives in a manner that shifts costs to payers and patients may similarly be unlawful FTC chair. Lena con has stated that the new enforcement policy was meant to put the entire prescription drug industry will notice. And according to her, the FTC will not hesitate to bring its full authorities to bear in this area. But so far we have not seen any FTC enforcement actions from the FTC, at least not yet still pharma manufacturers and PBMs should be on alert for the FTCs changing enforcement goals in this area. And periodically assessing potential antitrust risks. The second area in which the FTC has also focused is pharma mergers in June, 2022. The FTC along with the DOJs antitrust division, hold a workshop, focusing on the agency's concerns about consolidation and the pharma industry based on comments from the FTC and DOJ and their officials. It is clear that the agencies are looking for new approaches to evaluate former mergers, some speakers at the workshop, including FTC officials discussed harm related to the alleged ability to do cross portfolio contracting in which former companies could potentially secure, preferred access to formularies for their entire portfolios. Other participants at the workshop even went as far as to suggest creating a presumption of competitive harm based on the size of the merging pharma entities, which would then need to be rebutted and several speakers, including FTC officials, advocated for a retrospective review of past former merger remedies, observing that the FTC last did a study on this issue in 2015, and even suggested that we may see revised merger guidelines related to past remedies. This heightened scrutiny is consistent with previous statements made by FTC and DOJ officials that they believe many past remedies have been inadequate, and that more mergers should be challenged in court. Finally, despite the heavy focus on the pharma industry and adopting new enforcement priorities, we have not actually seen any recent pharma enforcement actions filed by the FTC. On one hand, there was not a full FTC commission in place until May, 2022. And there is likely a number of non-public investigations ongoing right now, which may lead to potential enforcement actions down the line. But the FTC and state enforcers have also seen the ripple effects of the Supreme court's 2021 decision and the AMG case, which held that the permanent injunction remedy available to the FTC and federal court under section 13 B of the FTC act does not permitable monetary relief, such as dis discouragement. For example, following the, the AMG decision, the FTC in July, 2021 dropped its reverse payment claim against AbbVie ending that federal court litigation and in the, in Ray generic pharmaceuticals pricing antitrust litigation, the federal court relied on AMG to dis to dismiss price, fixing claims, seeking dis discouragement under section 16 of the Clayton act brought by state attorneys, general reasoning that the injunctive relief provision in section 16 of the Clayton act invoked by the states is similar to section 13 B of the FTC act. However, the FTC did find success in its suit against Martinelli for allegedly using exclusive supply agreements and other restrictive covenants to block generic competition to its prim product. While the FTC dropped its claims for monetary relief, following AMG and the state attorney generals agreed not to seek civil penalties or forfeitures the court permitted permitted the state attorney generals to pursue equitable claims for disc discouragement under state antitrust and unfair competition laws. Following a bench trial win for the enforcers. The court ordered Mr. SCR to pay 64 million in disc discouragement and issued an unprecedented lifelong ban from participating in the pharmaceutical industry in any capacity. Overall, the FTC is taking a much more aggressive and broader approach to pharmaceutical antitrust enforcement and companies in this space should not only be carefully tracking these developments, but also proactively assessing risk and implementing updated compliance policies and training to minimize those risks. Thank you again for joining the American health law association. My name is Adam Costa, and I hope you'll stay tuned for further updates.

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