The Federal Trade Commission (FTC) and Department of Justice (DOJ)’s approach toward mergers and acquisitions (M&A) is obstructing a critical exit point for innovative early-stage companies, according to Vanderbilt University Law School professor Brian Broughman and Cardozo School of Law professors Matthew Wansley and Samuel Weinstein in their recent New York University Law Review article, “No Exit.”
M&A is often a necessary and anticipated exit point for early-stage life sciences companies that allows them to attract investment and, ultimately, to “pass the baton” and connect promising medical breakthroughs with the resources, expertise and scale needed to bring them to patients. Unfortunately, the uncertainty created by the Agencies’ approach risks deterring these pro-competitive partnerships and could chill the investment and innovation that fuel America’s global leadership in the life sciences.
Key excerpts from the article are included below:
- “[The FTC and DOJ] also made changes to the merger review process that increased the burden on merging parties, making it lengthier, more expensive, and more uncertain… The chilling effect spread…putting would-be acquirers, founders, and VCs on notice that acquisitions by large incumbents were risky.”
- “…challenges to startup deals spiked in 2020, both in absolute terms and as a percentage of overall enforcement activity… However, other challenges—or the perceived threat of a challenge—have led parties to startup acquisitions to abandon their deals.”
- “…revisions to the merger review process that make acquisitions more expensive, time-consuming, and uncertain for merging parties also reduce the appeal of exiting by acquisition. And that in turn affects whether the next entrepreneurial engineer decides to found a startup and whether a VC decides to invest in it.”
- “This broader chilling of merger activity is not costless. In addition to the lost deals, it might mean a reduction in capital flowing into the startup sector…”
M&A remains a vital catalyst for innovation in the life sciences industry, where the stakes in bringing a new medicine to market are high and collaboration is essential. Rather than pursue enforcement policies that jeopardize innovation, policymakers must prioritize these pro-competitive partnerships and the breakthrough therapies they seek to advance.