Recently, Federal Trade Commission (FTC) Chair Lina Khan appeared before the House Appropriations Committee Subcommittee on Financial Services and General Government to discuss the Agency’s proposed budget for the upcoming fiscal year. During her testimony, Chair Khan continued to articulate an aggressive new approach toward mergers and acquisitions (M&A). Unfortunately, in the U.S. life sciences ecosystem – where M&A plays a fundamental and unique role in advancing innovation – this approach is particularly misguided.
Key takeaways from the hearing are included below:
Policymakers continue to express concern about the impact of the FTC’s approach to M&A
Touting the FTC’s record number of merger challenges in recent years, Chair Khan lauded the Agency’s sweeping attempts to deter M&A deals before they even get off the ground. However, as she conceded to the committee, more than 98% of proposed mergers are so plainly pro-competitive that they pass through the Agency’s review process without a second glance.
Nonetheless, the proposed changes to the premerger notification requirements under the Hart-Scott-Rodino (HSR) Act proposed by the FTC, in collaboration with the Antitrust Division at the Department of Justice (DOJ), ignore this reality and create a considerable burden that could potentially deter competitive, pro-innovation mergers altogether. As Subcommittee Chair Rep. Dave Joyce (R-OH) pointed out, if finalized, these changes would have a substantial impact on small, early-stage companies.
“Last summer, the FTC proposed changes to the premerger filing forms and notifications…I’m concerned about the burden that this new proposal this will have on businesses. By the Commission’s own estimates, under the new rules, the time required for each filing will rise from an average of 37 hours to an average of 144 hours…It is inevitable that some of the increased burden will also apply to small businesses and start-ups.”
– Rep. Dave Joyce (R –OH)
This hearing comes as policymakers on both sides of the aisle have increasingly expressed concern about the potential effects of the proposed HSR rule changes. Recently, Rep. Lou Correa (D-CA), chair of the House Judiciary Committee Subcommittee on Antitrust, issued a statement highlighting the impact that the rule could have on early-stage companies – including those in the life sciences. Rep. Correa urged the FTC and DOJ to move forward with signaled revisions to the rule that would ease the burden on merging parties and eliminate unnecessary costs.
“I welcome the reported decision by the Federal Trade Commission and the Department of Justice’s Antitrust Division to release more reasonable and balanced Hart-Scott-Rodino Act pre-merger notification form requirements that will not create undue burdens on American companies, especially small businesses…I applaud the agency’s willingness to recognize the potentially grave impacts on serial entrepreneurship, jobs, and innovation, including the stifling of life-saving drugs and technologies, the proposed rule would have rendered. This is a step in the right direction, and I look forward to seeing final rules that I can enthusiastically support.”
– Rep. Lou Correa (D-CA)
The FTC’s particular focus on the life sciences industry clashes with long-established notions of competition
In addition to doubling down on the FTC’s aggressive enforcement approach, Chair Khan’s written testimony also singled out life sciences M&A. This narrow focus not only reflects a fundamental misunderstanding of the unique market dynamics in the life sciences industry by the FTC, but also risks obstructing a vital path for companies to be able to advance new innovations to patients.
Pro-innovation M&A allows life sciences companies of all sizes to secure the resources, expertise and investment needed to weather the long and costly journey to bring new medicines to patients. Indeed, the Congressional Budget Office acknowledges this fact, asserting that M&A allows life sciences companies to unlock complementary resources and ultimately discover, develop and deliver new treatments and cures more efficiently.
“Small companies—with relatively fewer administrative staff, less expertise in conducting clinical trials, and less physical and financial capital to manage—can concentrate primarily on research. For their part, large drug companies are much better capitalized and can more easily finance and manage clinical trials. They also have readier access to markets through established drug distribution networks and relationships with buyers.”
– Congressional Budget Office, 2021
The FTC should take a balanced and bipartisan approach to merger enforcement
In the year ahead, and as they work to finalize their proposed revisions to the premerger notification rule, the FTC, along with the DOJ, must consider the unique and differentiated role that M&A plays in allowing early-stage life sciences companies to bring new treatments and cures to patients. Instead of doubling down on their current enforcement approach, the Agencies must reverse course, and return to a balanced and bipartisan approach to M&A.