The wave of Big Pharma mergers and acquisitions across 10 years decreased the number of large international pharmaceutical companies from 60 to 10. They seemed like innocent business moves at first glance, but a closer look revealed a worrying trend for U.S. healthcare.
California Rep. Katie Porter's office published a 16-page report on Jan. 29 detailing the real reasons behind the mergers and acquisitions and recommending steps to minimize such movements in the future.
The report titled "Killer Profits: How Big Pharma Takeovers Destroy Innovation and Harm Patients" called the mergers and acquisitions "just the tip of the iceberg of pharmaceutical companies' anti-competitive, profit-driven behaviors."
"Pharmaceutical company CEOs attempt to frame these deals as simply efforts to improve company structure and diversify product offerings. However, digging a level deeper exposes a troubling industry-wide trend of billions of dollars of corporate resources going toward acquiring other pharmaceutical corporations with patent-protected blockbuster drugs instead of putting those resources toward [the] discovery of new drugs," the report stated.
The prevailing pattern in the pharmaceutical business goes something like this: A small biotech research company would discover a promising new medicine. A major pharmaceutical manufacturer would then acquire that smaller company, along with its intellectual property, and bring the medicine to the market. The big pharmaceutical company would make money on retail sales while the smaller outfit would make money when it's acquired by the former.
According to the report, this pattern has an overall negative effect on investments in research and development (R&D). It cited two studies to prove its claim.
The first is the study by the Düsseldorf Institute for Competition Economics, which found that patenting and R&D of the merged entity and its non-merging rivals declined substantially – indicating that the merger pattern has reduced innovation industry-wide.
The other is the Harvard Business Review study, which found that in mergers of companies perceived as competitors, R&D and patenting within the merged entity declined substantially after a merger. In other words, the less competition that exists in the pharmaceutical industry, the less likely the industry would focus on innovation and new cures that can save lives.
"Research and development" turns into "search and development"
In 2002, pharmaceutical giant Amgen acquired Immunex, a small biotech firm focused on therapies for immune diseases. Amgen initiated the acquisition because of a potential breakthrough drug that Immunex controlled: Enbrel (etanercept), which treats rheumatoid arthritis and other chronic immune-mediated diseases. Once Enbrel was in clinical use, it attained multibillion-per-year sales.
Laurent Galibert, a principal scientist at Immunex, stayed on with the company through the acquisition. He described the shift created by the acquisition as a move from "research and development" to "search and development."
Scientific discovery and innovation were wasted following the acquisition. Immunex had been a leader in immunotherapy, but it was a relatively unknown field at the time so it would be costly to continue the study.
"We had anticipated immunotherapy when everyone else thought it was a dream. It took everyone else 11 years to realize that we were right," Galibert told Porter's office.
To avoid the risk, Amgen killed nearly all programs involving early immunotherapy research. The few projects that were maintained later proved successful.
Galibert said Amgen "prevented the development of drugs that should have reached the patients much earlier."
Pharmaceutical giants like Amgen were always looking for finished products. Research from McKinsey found that the share of revenues coming from innovations "sourced outside of Big Pharma" rose from 25 percent in 2001 to 50 percent in 2016. (Related: There is a war between Big Pharma and the American people ... and the FDA just chose to side with Big Pharma.)
"Competition is central to capitalism," Porter said in a press release introducing the report. "As our report shows, Big Pharma has little incentive to invest in new, critically needed drugs. Instead, pharmaceutical giants are free to devote their resources to acquiring smaller companies that might otherwise force them to compete."
"Lives are on the line. It's clear the federal government needs to reform how it evaluates healthcare mergers and patent abuses," Porter added.
Her report recommended some actions, including removing incentives that prioritize investors over patients; reevaluating the standards used by the Federal Trade Commission (FTC) for healthcare mergers; altering the presumption that most mergers and acquisitions are legal unless contested by an individual or group, and lowering the cost of prescription drugs.
The report also urged Congress to pass legislation that reins in skyrocketing costs, such as the Elijah E. Cummings Lower Drug Costs Now Act, which aims to establish a fair price negotiation program and protect the Medicare program from excessive price increases.
To prevent the anti-competitive abuses of the drug patenting system, the report recommended the passing of legislation such as the Preserve Access to Affordable Generics and Biosimilars Act, which would prevent pay-for-delay tactics where drug companies pay-off competitors to keep lower-cost products off the market; the Affordable Prescriptions for Patients Through Promoting Competition Act, which would stop "product-hopping," the practice where drug corporations make superficial tweaks to pre-existing products to undermine competitors; and the Stop STALLING Act, which would stop abuses of the regulatory process – which include drug companies filing sham petitions to delay approval of competitors.
"It's time we reevaluate the standards for approving these mergers. It's time we pass legislation to lower drug prices. And it's time we rethink the structure of leadership at big pharmaceutical companies. Together, these strategies can help us bring more innovative, and critically needed, cures and treatments to market," the report concluded.
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