On December 11 of last year, the Federal Trade Commission filed suit to block a partnership between Sanofi and Maze Pharmaceuticals to develop a drug for Pompe disease, a partnership that the government said “threaten[ed] to deprive patients of a new, innovative treatment.”
In fact, it is the FTC that is threatening to block the development of “ life-saving, essential care.” The Commission’s approach to antitrust regulation reflects a profound misunderstanding of the pharmaceutical industry and the market for innovation.
Currently there are only two injectable drugs for the disease. Sanofi owns them both. Maze, a small biotech, has completed early testing of an oral medication for the disease. The FTC claims that ”the proposed deal would have allowed Sanofi to maintain its monopoly power [and] …continue charging…over $750,000 [annually] for…its Pompe therapies.”
The Commission fails to realize that the high prices that they seek to prevent are the product of the patent system, not a monopoly. An oral medication would likely replace the older medications. Regardless of who owns the new drug, it will be expensive because patents prevent competitors from copying it. High prices are the reason that a company would attempt to develop a new medicine for a market of 1,000 patients. Competitive pricing will begin without FTC intervention when patents expire, and generic competition enters the market at discounts of as much as 90%.
The response to the suit was immediate. To quote an FTC press release: “Within hours after the Commission issued the complaint, Sanofi announced that it would terminate the agreement.” FTC Chair Lina M. Khan called the result a “successful effort by the Commission to protect competition in the pharmaceutical industry.”
In her statement, Ms Kahn pointed out that “The complaint also broke new ground by charging that an acquisition of a product in the pipeline with no sales can still constitute illegal monopolization.” In case anyone failed to grasp that the intent of its policy is “to arrest anticompetitive tendencies in their incipiency,” the following week the Commission issued “Merger Guidelines” that spelled out its plans in detail. If the FTC pursues this policy broadly in the life-sciences community, it will have a chilling effect on the supply of new drugs.
In focusing on molecules in clinical trials that haven’t yet—and may never—become products, the commission fails to understand that the relevant market is not that of the drugs people take, but of innovation. In that arena, the FTC’s antitrust tactics will have the opposite effect, reducing competition and preventing new medicines from reaching patients.
More than half of new drugs originate in small biotech companies. By targeting Sanofi-Maze, the FTC broke up a research collaboration, not a cartel. Clinical testing takes a decade or more and has a 90% failure rate. The cost of development is so great, the process takes so long and the probability of failure is so high that few startups can take a product from discovery to approval without help. Through a collaboration, a small biotech can access infrastructure and expertise that a large partner has spent decades and hundreds of millions of dollars building. To reduce risk and attract investors, startups must have the option of seeking support from pharma. The companies best suited and most likely to be interested are those already in the therapeutic area.
The Commission claimed that “If Sanofi did not acquire MZE001, MZE001 would continue development as part of Maze…, either independently or partnered with another firm.” That may be true in this case. However, not all small companies would be so fortunate, particularly when interest rates are high, as they have been lately, and financial markets are closed to them.
Rare-disease niche markets support few players—in the case of Pompe disease—a single company. By taking the market leader out of the market for drugs in development, antitrust policy limits the field of potential bidders for molecules or companies. Reduced competition means buyers can dictate lower prices that don’t reflect the true value the small companies have built. When returns for investment in innovation suffer, entrepreneurs struggle to raise money; some fail and molecules do not get developed.
The Commission expects that by publishing their Guidelines and highlighting their “important victory” over a small research partnership, they can discourage such arrangements before they happen. If a would-be buyer like Sanofi of a product or company suspects that the Commission will object, they will not waste their time considering a collaboration. Should the molecule ever come to market, they can buy it then, when it might be worth a court battle.
The importance of unfettered M&A in the research market is reflected in the opening lines of a January 11 Wall Street Journal article: “Recent acquisitions of small drugmakers are giving biotechnology venture capitalists hope for stabilization in their industry following two years of declining investment.”
Antitrust policy that discourages research partnerships will limit investment in new molecules. Lawsuits will go unchallenged in court. Ideas and inventions that never get to market will not be missed. The goal of the Commission should be promoting—not disrupting—collaborations if the FTC wants to help bring “new innovative treatment(s)” to patients.
