On January 11, 2019, Congressman Peter Welch and Francis Rooney, members of Congress, wrote a letter to the Federal Trade Commission (“FTC”), urging the Commission to investigate Bristol-Myers Squibb’s (“BMS”) acquisition of Celgene.
The letter asks the FTC to examine how the transaction may harm competition with respect to horizontal overlaps and even complementary drugs. Specifically, the letter points out that the acquisition allows BMS to increase its drug portfolio and leverage over pharmacy benefit managers (“PBMs”) when negotiating preferred drug placement on formularies and bundled discounts that can create “rebate walls”.
The transaction gives the FTC an opportunity to investigate a questionable contracting practice in the pharmaceutical drug industry known as a “rebate wall” or “rebate trap”. Payors such as PBMs and health insurers obtain rebates on prescription drugs from pharmaceutical manufacturers that have actually inflated the price of drugs and stifled the ability of rival drug manufacturers to effectively compete. This practice is recognized by both the administration and industry players as anticompetitive. Department of Health and Human Services Secretary Alex Azar has noted that rebate walls can prevent competition and new entrants into the system. Moreover, major drug manufacturers such as Pfizer and Shire have filed antitrust suits challenging rebate walls as antitrust violations. In theory, rebates could have a positive impact on the prescription drug market if they led to lower prices and benefit consumers. But, in practice, this is simply not the case. Rebate walls distort the workings of the free market, result in higher drug prices, and reduce patients’ access to affordable branded drugs.
Given the competitive risks that rebate walls pose, Congressmen Welch and Rooney have asked the FTC to investigate how this transaction may make the situation related to this suspect contracting practice worse. Competition works when new rival drugs are allowed open and fair access to the market and consumers have access to cost saving treatments. The FTC has not publicly acknowledged to examining mergers between drug manufacturers under this type of theory before, but the issue is now in front of the staff. Rebate walls may be anticompetitive in certain circumstances, but it will be interesting to see if the FTC focuses on this issue in a Second Request investigation. The FTC is now on the clock.