CLE Materials for the conference organized by Concurrences, and Fordham Law School

Antitrust in Life Sciences

Webinar Series

June 30th - July 2nd, 2020

This is the inaugural edition of this joint conference co-organized by Concurrences and Fordham

Competition Law Institute, in partnership with Bates White, Gibson Dunn, NERA, The Brattle Group,

Wilson Sonsini and Mlex. This conference was originally scheduled for March 23rd, 2020 but

transitioned to a webinar series due to the COVID-19 crisis.

Webinar #1: US/EU, A Transatlantic Gap?

June 30th, 2020 - 12:00pm - 2:00pm EST Documents Submitted:

● Interview with Paul Csiszár (EU Commission) by Dr. Lisa Cameron (The BrattleGroup).(view in document)

● Interview with Noah Joshua Phillips (Federal Trade Commission) by Eric Stock (Gibson

Dunn).(view in document)

Webinar #2: Generics Exclusion: What Conduct Crosses the Lines?

July 1st, 2020 - 2:00pm - 4:00pm EST

● Eric Stock, Kristen Limarzi, California Legislation Increases Antitrust Scrutiny Of Patent

Settlements Between Branded And Generic Pharmaceutical Manufacturers, December

2019 (view on web)

● Christian Riis-Madsen and Eric Stock, European Court of Justice Adopts Strict Standard

For Reverse Payment Settlements, January 2020 (view on web)

Documents Submitted:

Webinar #3: Do Pharmaceutical Mergers Harm Consumers?

July 2nd, 2020 - 2:00pm - 4:00pm EST

Documents Submitted:

● Interview with Patricia Danzon (Wharton) by George Rozanski (Bates White).(view in document)

● Interview with Prof. Martin Gaynor (Carnegie Mellon) by Christine Siegwarth Meyer

(NERA). (view in document)

● Interview with Elinor R. Hoffmann (NY Attorney General, Antitrust Bureau) by Jeffrey Bank

(Wilson Sonsini). (view in document)

1. Speaker Bios (view in document)2. CLE Materials

Antitrust in Life Sciences Webinar Series

June 30th - July 2nd, 2020

SPEAKERS’ BIOS

Jeffery BANK

Jeff Bank is a partner at Wilson Sonsini Goodrich & Rosati, where he practices antitrust litigation and counseling, particularly in the pharmaceutical industry. Prior to joining the firm, Jeff practiced at the Federal Trade Commission's Health Care Division, where he focused on competition issues in the pharmaceutical and healthcare industry. In his current practice, he regularly counsels clients on merger clearance issues and business practices, and he has represented a diverse range of clients before the FTC, including companies from the medical device, pharmaceutical, and media sectors.

Loren SMITH Dr. Smith specializes in applying economic and econometric tools to antitrust and competition matters, with a focus on horizontal and vertical mergers. Dr. Smith has been the lead economic expert for both government agencies and private parties in regulatory investigations, federal merger challenges, and private litigations in numerous industries in the US and internationally. These industries include retail, healthcare, lodging, medical devices, and various consumer products and intermediate goods. He frequently advises clients on single-firm conduct investigations and litigations related to pay-for-delay, exclusionary conduct, and vertical restraints, including several healthcare litigations involving anti-steering contract provisions. Prior to joining Brattle, Dr. Smith was an Executive Vice President at an international economics consulting firm, and prior to that worked at the US Federal Trade Commission as a staff economist. While at the FTC, he oversaw several high-profile merger and conduct investigations, supported litigations, and evaluated settlements. He also coauthored a report to Congress and provided technical assistance and training to competition agencies in South Africa, Brazil, and Hungary. Dr. Smith has taught microeconomics and econometrics at the University of Virginia and Johns Hopkins University. His research is published in academic journals including Journal of Applied Econometrics, Economic Inquiry, and Journal of Economics and Management Strategy.

Paul CSISZÁR

Paul CSISZÁR is a member of the Directorate Generale for Competition at the European Commission in Brussels. After graduating from ELTE School of Law of Budapest, Paul Csiszár studied international comparative law and earned a second Juris Doctorate at Loyola Law School in the United States. Following his admission to the Bar in 1986 in California he practiced as a corporate, securities and M&A lawyer in the US and then from 1997 in Central Europe with the international law firm of Squire Sanders until 2003 when he joined the public sector. Currently Mr Csiszár serves

as Director of "Basic Industries, Manufacturing and Agriculture" at the Directorate General for Competition of the European Commission.

Patricia DANZON

Patricia Danzon is the Celia Moh Professor at The Wharton School, University of Pennsylvania. Professor Danzon received a B.A. from Oxford University, England, and a Ph.D. in Economics from the University of Chicago. She has held faculty positions at Duke University and the University of Chicago. Professor Danzon is an internationally recognized expert in the fields of economics of health care, the biopharmaceutical industry, and insurance. She is a member of the Institute of Medicine and the National Academy of Social Insurance, and a Research

Associate at the National Bureau of Economic Research. She has served as a consultant to many governmental agencies, NGOs and private corporations in the US and internationally. Professor Danzon has served on the Board of Directors of Medarex, Inc., the Policy and Global Affairs Board of the National Academy of Sciences, and the Policy Board of the Office of Health Economics in London.

Martin GAYNOR

Martin Gaynor is the E.J. Barone University Professor of Economics and Public Policy at Carnegie Mellon University and former Director of the Bureau of Economics at the U.S. Federal Trade Commission. Professor Gaynor's research focuses on competition and incentives in health care, and on antitrust policy. His research focuses on competition and antitrust policy, particularly in health care markets. He has written extensively on this topic, testified before Congress, and advised the governments of the Netherlands, the United Kingdom, and South Africa on competition issues in health care. Gaynor is on the

Pennsylvania Governor’s Health Advisory Board and co-chaired the state’s workgroup on shoppable care. He has won a number of awards for his research, including the American Economic Journal: Economic Policy Best Paper Award, the Victor R. Fuchs Research Award, the National Institute for Health Care Management Foundation Health Care Research Award, the Kenneth J. Arrow Award, the Jerry S. Cohen Award for Antitrust Scholarship (finalist), and a Robert Wood Johnson Foundation Investigator Award in Health Policy Research. Dr. Gaynor received his B.A. from the University of California, San Diego in 1977 and his Ph.D. from Northwestern University in 1983.

Mark GIDLEY J. Mark Gidley chairs the White & Case GlobalAntitrust/Competition practice, which is the only suchpractice to have been named Competition Group ofthe Year for seven years by Law360. In 2019, Markwas named "Competition MVP" by Law360 for thesecond time. Mr. Gidley served as the ActingAssistant Attorney General for the US Department ofJustice (DOJ) Antitrust Division in 1992 – 1993 withresponsibility for all civil, criminal and merger mattersof the Division. Prior to that, he served as DeputyAssistant Attorney General for Regulated Industries

in the Antitrust Division from 1991 – 1992, responsible for civil, criminal and merger matters in the telecommunications, energy, computers, intellectual property, and banking and finance industries. From 1990 to 1991, Mr. Gidley served as Associate Deputy Attorney General under then Deputy Attorney William P. Barr, specializing in antitrust and violent crime issues. During his tenure at the Antitrust Division, he worked on a number

of merger and acquisition investigations, including Bank of America's acquisition of Security Pacific National Bank and worked on the development of the seminal DOJ-FTC 1992 Horizontal Merger Guidelines.

Scott HEMPHILL

Scott Hemphill, Professor of Law at NYU School of Law, teaches and writes about antitrust, intellectual property, and regulation of industry. He holds a JD and PhD in economics from Stanford, an AB from Harvard, and an MS. in economics from the London School of Economics, where he studied as a Fulbright Scholar. He served as Antitrust Bureau Chief for the New York Attorney General and clerked for Judge Richard Posner on the US Court of Appeals for the Seventh Circuit, and Justice Antonin Scalia on the United States Supreme Court. Hemphill joined NYU from Columbia Law School, where he was a professor of

law. Hemphill’s research focuses on the law and economics of competition and innovation. His scholarship ranges broadly, from drug patents to net neutrality to fashion and intellectual property. Recent work examines the antitrust problem of parallel exclusion in concentrated industries and anticompetitive settlements of patent litigation by drug makers. His scholarship has been cited by the United States Supreme Court and California Supreme Court, among others, and formed the basis for congressional testimony on matters of regulatory policy. His writing has appeared in law reviews, peer-reviewed journals, and the popular press, including the Yale Law Journal, Science, and the Wall Street Journal.

Elinor HOFFMAN

Elinor R. Hoffmann is Deputy Chief of the New York Attorney General’s Antitrust Bureau and Special Counsel to the Economic Justice Division. She focuses on antitrust issues under state and federal laws in diverse markets, including health care, pharmaceuticals and financial services. She is also an Adjunct Professor of Law at Brooklyn Law School where she teaches courses in Antitrust and Antitrust Issues in Health Care, and serves on the Advisory Board of the Health Law Fellowship

program. Prior to joining the Office of the Attorney General, she was a partner in the firm of Coudert Brothers LLP for 16 years.

Noah JOSHUA PHILLIPS

Noah Joshua Phillips is a Commissioner on the Federal Trade Commission. Prior to the FTC, Mr. Phillips served as Chief Counsel to Senator John Cornyn of Texas, the Republican Whip. From 2011 to 2018, he advised Senator Cornyn on issues including antitrust, constitutional law, consumer privacy, fraud, and intellectual property. Before entering public service, Mr. Phillips worked as a litigation associate at Cravath, Swaine & Moore LLP, in New York City, and Steptoe & Johnson LLP, in Washington, D.C. He also served as a law clerk for Judge Edward C. Prado of the

United States Court of Appeals for the Fifth Circuit. Mr. Phillips began his career at Wasserstein Perella & Co., an investment bank in New York City. Mr. Phillips received his A.B. from Dartmouth College in 2000 and his J.D. from Stanford Law School in 2005.

James KEYTE

As the Director of Global Development, Mr. Keyte plays a lead role in growing Brattle’s antitrust practice and defining a new level of quality for economic consulting. His extensive practical experience, along with his deep antitrust expertise, gives Brattle a competitive advantage in producing top quality expert work product across all competition subject areas. Mr. Keyte is directly engaged in marketing, training, and quality review across all of Brattle’s competition and antitrust engagements both in the U.S. and globally. Mr. Keyte previously spent more than twenty years as

a partner at Skadden, where he handled a wide variety of antitrust litigation, transactions, and advisory matters across numerous industries. He led high-profile antitrust cases involving alleged price-fixing, monopolization, mergers, intellectual property licensing, and sports-related matters, including class actions. He was also involved in a number of high-profile mergers, several of which involved litigation challenges by the DOJ and FTC. Mr. Keyte is the Director of the Fordham Competition Law Institute (FCLI), which he will continue to lead, and has published more than 50 articles related to antitrust across a wide range of topics, including on the subject of expert testimony. He is an adjunct

professor at Fordham Law School, a former editor of Antitrust Law Journal, and currently serves as editor of Antitrust Magazine. He holds a J.D. from Loyola Law School (Law Review) and a B.A. from Harvard University (cum laude).

Max MILLER

Max Miller is an assistant attorney general with the Iowa Attorney General's Office. He enforces Iowa and federal competition laws. Prior to joining the Iowa Attorney General, Max was a litigation associate in the Chicago and London offices of Skadden, Arps, Slate, Meagher & Flom.

George ROZANSKI George Rozanski has more than 25 years of experience in antitrust analysis. He consults on the competitive effects of mergers and acquisitions and provides antitrust analysis of alleged anticompetitive conduct, including vertical restraints, IP licensing practices, and price-fixing. Dr. Rozanski′s expertise includes the use of econometrics for demand estimation and merger simulation. He has substantial experience analyzing candidate theories of

competitive effects in a wide range of industries, both in civil litigation and before US antitrust agencies. Prior to joining Bates White, Dr. Rozanski served as Chief of the Economic Regulatory Section of the Antitrust Division of the US Department of Justice. In that role, Dr. Rozanski analyzed proposed mergers and acquisitions, single-firm conduct, and proposed changes in economic regulations and legislation that could affect competition and market outcomes. He had responsibility for conducting, supervising, and presenting the agency’s economic analysis in numerous investigations and litigations involving a wide variety of industries, including telecommunications, banking and financial services, intermediate capital goods, differentiated consumer products, Internet music and video distribution services, financial trading platforms, pharmaceuticals, medical

devices, steel, defense, and homogeneous manufactured goods. Dr. Rozanski earned his SB in economics from the Massachusetts Institute of Technology prior to obtaining his MA and PhD in economics from Harvard.

Christine SIEGWARTH MEYER

Dr. Christine Meyer is a Managing Director and Chair of NERA’s Intellectual Property Practice, and founding member of the firm’s Life Sciences Industry Group. Dr. Meyer is considered one of the foremost testifying economists in the areas of complex commercial litigation involving intellectual property, antitrust claims, and commercial damages in the United States and Canada. Dr. Meyer has analyzed economic issues in a wide range of industries, with much of her recent work involving pharmaceuticals. She has been retained on behalf of both branded and generic firms in matters that have included small molecule as well

as biologic products. Her work has also included the valuation of patents, licenses, and potential business acquisitions. Dr. Meyer earned her PhD in economics from the Massachusetts Institute of Technology, and a BS in economics from the United States Military Academy at West Point.

Eric STOCK

Eric J. Stock is a partner in the New York office of Gibson, Dunn & Crutcher. Mr. Stock’s practice focuses on antitrust litigation and investigations, especially for clients in the pharmaceutical, financial services, high tech, and health care industries. He is a member of Gibson Dunn’s Antitrust and Competition and Litigation Practice Groups. Mr. Stock’s practice involves all aspects of antitrust enforcement, including civil and criminal government investigations, merger clearance, and working with international regulators. He frequently is responsible for

coordinating a client’s response to antitrust investigations and civil litigation in multiple jurisdictions and proceedings. He has extensive experience litigating class actions and other civil antitrust cases in federal court, including defending clients accused of unlawful monopolization, collusion, and anticompetitive transactions. Mr. Stock has particular

experience counseling and litigating matters where a client faces antitrust scrutiny as a result of its defense of its intellectual property rights. In 2014, Mr. Stock served as the lead trial lawyer in a pharmaceutical monopolization case in the Southern District of New York. Mr. Stock’s success at trial was affirmed by the U.S. Court of Appeals for the Second Circuit. Mr. Stock served for three years as Chief of the Antitrust Bureau at the New York Attorney General’s Office (“NYAG”). In that role, he was responsible for overseeing the enforcement of New York State’s antitrust laws and representing the interests of New York and its consumers in national antitrust matters.

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Pharmaceutical Pricing and Markets: A European Union Enforcer’s Perspective. Webinar, 30 June 2020 Interview with Paul Csiszar (EU Commission) by Dr. Lisa Cameron (The Brattle Group)*

Paul Csiszar (Director General, European Commission), has been interviewed by Dr. Lisa Cameron (Principal, The Brattle Group) in anticipation of the Antitrust in Life Sciences webinar, to be held on 30 June 2020. This webinar was originally a conference that would take place on 23 March 2020. However, due to the COVID-19 outbreak, it has been transformed into a webinar. Register for free here. Dr. Lisa Cameron: In the past few years, we have seen a lot of media coverage on increasing prices of pharmaceutical markets, with significant public backlash both in

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the US and in Europe (e.g., Pharma-Bro Shkreli or the price hikes in Epi-Pens). In Europe, these issues are often tackled in a competition framework of excessive pricing, with varying degrees of success. US competition law does not allow for this. Is it time for a change (both to the EU’s existing method and maybe a US introduction of some way to deal with this)? Paul Csiszar: In the EU, like in most other OECD countries, there are competition law provisions that aim to tackle “excessive pricing”, which after closer examination presents a number of complex legal and economic issues. In Europe, legal guidance in this field can be obtained from the judgments of the European Courts (eg, United Brands and AKKA-LAA judgments) and from the Commission’s own infringement (Deutsche Post) and commitment decisions (Gazprom, Rambus, Standard & Poor's) provide guidance. These cases reveal that the competition agencies and courts in Europe often faced very different fact patterns in a variety of industries in dealing with “excessive prices” issues. With respect to pharmaceutical markets specifically, which are national given the national pricing and reimbursement systems that are in place in the European Union, the national competition authorities in Italy, the UK and Denmark have recently rendered several decisions finding excessive pricing in violation of competition law. These decisions, not surprisingly, all have all been appealed, and further guidance from the courts can be expected in this regard. Of course, after the conclusion of the Commission’s own Aspen investigation will also provide additional guidance to the market. Given these pending cases, it would appear premature at this point in time to consider changing the EU's existing method and its approach to the issue. Article 102(a) TFEU gives us a clear mandate to tackle "unfair prices"; therefore, the question is not “whether” but “when” to tackle an allegedly excessive price. In other words, it is about balancing enforcement priorities and the analysis of the underlying facts and circumstances should determine whether enforcement action is warranted in a specific case. For instance, (i) is a timely and appropriate regulatory action still possible? (ii) can the market self-regulate? or (iii) would incentives to innovate and to invest be significantly stifled (notably in view of the high R&D failure rates in pharma). Only after considering these and other factors together can ensure sound and proportionate enforcement of excessive pricing cases in the pharmaceutical markets, such as, for example, tackling price gouging practices with off-patent niche pharmaceuticals. In the US, I understand that many believe that charging excessive pricing for pharmaceutical products cannot be by itself a violation of US antitrust law. However, lasting high prices in cases of off-patent drugs may be indicative of anti-competitive conducts as well. We follow with great interest the recent litigation initiated by the FTC in this regard and the attempts of several US States that enacted legislation prohibiting price gouging and imposing financial penalties on drug manufacturers that significantly increase prices over a specified period of time.

The practice of parallel trade—in which medicines are purchased in low price countries for resale in high price countries—has been the subject of much debate in the EU. What

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are your views on balancing the goals of facilitating free movement of these medicines throughout a single market with the risk of access limitations being imposed on low price countries?

Parallel trade within the European single market also raises many complex legal and economic issues in the pharmaceutical sector. It affects the interests of many stakeholders in a unique regulatory context. Notwithstanding the overarching policy objective to foster trade and free movement of goods within the EU, and the corresponding general legal prohibition to hinder parallel trade within the single market, one can reasonably point to some legitimate reasons to limit parallel trade of pharmaceutical products to some degree between Member States.

There could be lawful measures by Member States to channel parallel trade with a view toward preventing shortages of essential medicines if those measures fall under the protection of the public health exception of Art 36 TFEU, provided they are necessary, proportionate and effective. There could be steps taken also by pharmaceutical companies to channel parallel trade in furtherance of this objective. Those measures can be brought in line with EU law even by dominant companies protecting their own commercial interests [see, eg, ECJ judgment in Lelos (2009)]. The case law of the EU courts is firmly established on parallel trade for many years now. In addition, some Commission guidelines (eg, the Vertical Guidelines) also provide additional guidance to companies and the legal community in this field.

Last year, the EC issued a report analyzing pharmaceutical industry competitions between 2008 and 2017. The report’s executive summary noted competition enforcement in the pharmaceutical sector remains a high priority but also noted that there was a clear limit to what could be achieved through competition law alone and that fostering and maintaining access to affordably priced medicines would require the combined efforts of various stakeholders. Can you provide further insight into the efforts by other stakeholders that the EC may have been envisioning?

The Commission’s report you referring to is indeed an excellent overview of the European competition enforcement history in the sector in the past decade, and I can only recommend everybody with interest in the topic to read it. As I pointed out in the past, in my view the existence of lasting “excessive pricing” of off-patent drugs for example can be the sign not only of anticompetitive behaviour of private firms but a market and/or regulatory failure as well. More precisely, firms - and not only the pharma sector - sometimes take advantage of certain regulatory conditions to foreclose their rivals and increase their market power. A good example of this is the second offence set out in the AstraZeneca case (see the 2012 ECJ decision), where Europe’s highest court cited with the Commission and ruled that AstraZeneca abused its dominant position through its misuse of the pharmaceutical regulatory system by selective withdrawal of certain marketing authorisations. In such cases, whether or not competition law tools are used first, often the more effective way to address the problem is to improve the regulatory landscape, as it was done in Europe after Commission decided to prosecute the AstraZeneca case.

Here I would mention the Commission’s recent Regulation [2019/933] amending a Regulation [469/2009] concerning Supplementary Protection Certificate (SPC) for medicinal

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products. This amendment concerns SPC manufacturing waivers whereby EU-based companies may manufacture a generic or biosimilar version of an SPC-protected medicine during the term of the SPC certificate, if done either for the purpose of exporting to a non-EU market, or for stock-piling during the final 6 months of the SPC ahead of entry in to the EU market. This new amendment removes a competitive disadvantage for EU-based manufacturers compared to manufacturers based in non-EU countries (where there is no SPC-type protection available or enforceable).

The Commission is also evaluating the legislation on medicines for children and rare diseases (Orphan Drugs Regulation). Given the lack or insufficient level of R&D by the pharmaceutical industry for diseases with low patient population, the Commission is assessing to which extent the current EU legislation is efficient and effective and it will consider whether it is fit for purpose in the light of developments in this area of pharmaceuticals. The Commission will look in particular into the impact of the incentives introduced by the legislation for research, development and marketing, for these specific medicines.

* The views and opinions expressed in this document do not necessarily represent those of the speakers’ institution or clients.

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Pharmaceutical Pricing and Markets: A United States Enforcer’s Perspective. Webinar, 30 June 2020 Interview with Noah Joshua Phillips (Federal Trade Commission) by Eric Stock (Gibson Dunn)*

Noah Joshua Phillips (Commissioner, Federal Trade Commission), has been interviewed by Eric Stock (Partner, Gibson Dunn) in anticipation of the Antitrust in Life Sciences webinar, to be held on 30 June 2020. This webinar was originally a conference that would take place on 23 March 2020. However, due to the COVID-19 outbreak, it has been transformed into a webinar. Register for free here.

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Eric Stock: The FTC recently entered into a settlement with Reckitt Benckiser that constituted its first enforcement action relating to alleged product hopping. What did you find notable about the conduct that occurred in that case and how does that fit into the commission’s theory of liability for product hopping? Noah Joshua Phillips: The Reckitt settlement is an example of the FTC’s dedication to attacking anticompetitive conduct in the health care industry, including the Commission’s pioneering work on pay-for-delay settlements, the latest chapter of which being our unanimous decision in Impax Laboratories. Like the payment at issue in Impax, the anticompetitive conduct by Reckitt was directed at thwarting generic entry and extending the branded drug’s monopoly. That remains an ongoing problem in pharmaceutical markets, on which we’re focused. The Reckitt scheme is noteworthy for involving two anticompetitive strategies based on unsupported safety claims. First, the “product hop”, in which Reckitt introduced a new oral film version of the branded drug and worked to shift patients to this product, based on false assertions about safety, before it faced generic competition in the older tablet version. Second, Reckitt presented the same unfounded safety claims to the FDA in a citizen petition requesting that the agency reject any generic applications for the tablet. Again, the purpose was to forestall generic competition and preserve Reckitt’s monopoly. Product hopping is a practice the FTC will continue to scrutinize, and you also see it getting bipartisan attention from lawmakers, like Senators Cornyn and Blumenthal. Watch this space. The pricing of pharmaceuticals has been a hot button political issue for several years now. Is the Commission’s merger enforcement policy influenced by these concerns? Has there been any recent change in the Commission’s views or priorities in connection with the review of horizontal mergers in the pharmaceutical industry? Americans are rightfully concerned about the rising costs of health care, including—but not limited to—the price of pharmaceutical drugs. The story behind this trend is a complex one, but anticompetitive mergers and conduct are part of the puzzle. Our enforcement work in the healthcare industry, which has reshaped the law and continues unabated, helps maintain competitive markets for pharmaceuticals, as well as other critical products and services. One recent change is how we approach divestiture remedies when a firm with a drug on the market seeks to merge with a firm that has a competing drug in the pipeline. Although we have always placed the burden of ensuring an effective remedy on the merging firms, based on our studies of the efficacy of remedies we’ve moved generally to requiring divestiture of the on-market drug, rather than the pipeline drug. We’re also watching carefully the very interesting academic work on “killer acquisitions”, the phenomenon of pharmaceutical companies acquiring and discontinuing pipeline drugs that would have competed against the acquirer’s products. Protecting potential and nascent competition, in general, has long been one of our aims, and we take it seriously.

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Recently, we sued to block the acquisition of PacBio, an innovative and nascent competitor in gene sequencing, by Illumina, the monopolist whose dominance PacBio threatened. Having said that, we need to keep in mind that the antitrust laws require us, the enforcers, to prove that mergers lessen competition. To do that, we have to (and should have to) prove that the facts of the case violate the law. While Americans are understandably concerned about high drug prices, it is not enough to block a merger based only on speculation about vaguely articulated harms, without reference to any evidence that a merger is likely to bring them about. Trying to do so—or pretending we can—is not a recipe either for good policy or a viable antitrust case. The Commission recently released its first new Vertical Merger Guidelines in decades, and they include at least one example where the Commission suggests that enforcement may be appropriate in connection with a vertical merger in the pharmaceutical industry. Does the Commission frequently see vertical competitive issues arising in the pharmaceutical industry and, if so, in what contexts?

There is broad consensus that the old Vertical Merger Guidelines are outdated and of little use, so I approve of this effort by the FTC and DOJ to update and improve them, and I look forward to reviewing the public comments and thinking through the issues they raise.

As for the example you mentioned, I would not read it as singling out pharmaceutical markets, because we see vertical integration occurring across the healthcare industry, and in many other industries as well. The key competitive concern with vertical mergers is that they may allow the combined firm to weaken or remove the competitive constraints it faces by raising its rivals’ costs or foreclosing its rivals entirely. At the same time, economic theory and empirical evidence indicate that vertical mergers often generate procompetitive benefits that factor into the antitrust analysis, for example the elimination of double-marginalization. The lower prices that may result can “hurt” rivals in the downstream market, but ultimately work to benefit consumers. Any new guidance on vertical mergers should acknowledge the procompetitive potential and distinguish situations where competition and consumers are harmed from ones where only rivals suffer.

* The views and opinions expressed in this document do not necessarily represent those of the speakers’ institution or clients.

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Do Pharmaceutical Mergers Harm Consumers? Webinar, 1 July 2020 Interview with Patricia Danzon (Wharton) by George Rozanski (Bates White)*

Prof. Patricia Danzon (Professor of Health Care Management, The Wharton School, University of Pennsylvania), has been interviewed by Dr. George Rozanski (Partner, Bates White Economic Consulting) in anticipation of the Antitrust in Life Sciences webinar, to be held on 1 July 2020. This webinar was originally a conference that would take place on 23 March 2020. However, due to the COVID-19 outbreak, it has been transformed into a webinar. Register for free here.

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Dr. George Rozanski: Market definition: Antitrust agencies and plaintiffs typically assess effects on competition by first defining markets. In the case of pharmaceuticals, the FTC has defined markets for generic drugs quite narrowly – based on the molecule, form, and strength. In the case of drugs that are still on patent, drugs intended to treat the same condition and with similar indications may be considered to be in the same market, even though they may be differentiated in terms of side effects or in other ways that are significant for some patients. When this is the case, what methods and types of evidence are available to assess the extent of substitution between two different drugs, especially given that consumers and their doctors may not respond to prices or even be faced with prices? Should market definition rely on evidence of substitution or steering by agents for payers, such as insurance companies and PBMs? Prof. Patricia Danzon: Market definition for pharmaceuticals is not easy. For generic drugs, the narrow definition using molecule, form and strength makes sense, at least for the short run, because this defines the scope within which pharmacies can substitute bioequivalent generics without seeking permission from the prescribing physician. For drugs that are still on patent, a starting point for market definition is drugs that are indicated (FDA-approved or potentially approvable) to treat the same medical condition(s). In some cases it may be appropriate to also consider other factors that limit substitutability e.g. drugs that have very different mechanisms of action or different routes of administration (injection vs. oral) may differ systematically in side effects, convenience etc. However, reliance on actual substitution data is problematic for several reasons. First, substitution is typically greater for new patients than for established patients who may be reluctant to switch from a drug that is familiar and working for them, so substitutability increases with time but this varies across therapeutic categories; second, to the extent that patients face prices, these are usually co-payments that are a small fraction of the full price and depend on the formulary decisions of their PBMs or insurers, which may only be revised annually; third, these formulary decisions made by PBMs are influenced by their own financial incentives, in terms of rebates and other margin payments. These financial incentives or “prices” faced by payers are generally unobservable to analysts. Thus structuring an empirical analysis to measure substitution is conceptually complex (which decision-makers and which prices) and empirically problematic (unobservability of prices, controlling for promotion and other non-price influences on demand ). If one or more of the potential competitors has not yet been approved, empirical measurement is not even a possibility.

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Innovation markets: Concerns about pharma mergers sometimes extend to possible effects on R&D competition. When they do, an important issue is to identify the participants in the market and to assess their competitive significance, in order to determine if a proposed merger is likely to have a “substantial” or “significant” effect on competition. Competitors may be identified on the basis of R&D assets, patents, or experience in a particular therapeutic category. What do we know about the specificity of R&D assets, and hence our ability to identify which firms are important competitors to innovate a new drug in a therapeutic class, especially in early stages of the R&D process? Has the task of identifying possible sources of innovation become more difficult with the advent of new technologies that may allow startup firms to compete effectively, e.g gene editing technology? I do not know of any research that identifies particular assets or experience that predisposes particular firms to be consistently important R&D innovators over time. It is certainly true that there has been remarkable stability over time in the identity of the top ten pharma-biopharma firms in terms of sales, and persistence in their dominance in particular therapeutic categories, despite some shifting of rankings over time. However, this dominance of sales is not associated with dominance in R&D innovation. Small firms are now estimated to account for roughly 70 percent of new drug approvals at the FDA. The technologies underlying these new drugs often originate in academic research labs and are then out-licensed to small companies that develop them further, with funding from venture capital, private equity, licensing deals with larger companies, IPOs and follow-on public funding. Once these small companies have established proof of concept of the new drug or technology, they are usually acquired by mid-size or larger companies. The largest companies thus maintain their dominance by success in acquisition. The evidence suggests that most companies tend to grow initially around one or two “blockbuster” drugs, but then have great difficulty maintaining innovation from their own inhouse labs. Those that continue to survive and grow do so primarily through in-licensing and acquisitions. More research is needed to understand why the same firms persist as market leaders in terms of acquisitions and sales, despite the declining share of new drugs that originate in their labs. Efficiencies: It has been reported that drug development has become slower and much more costly in the last couple of decades. There might sometimes be a concern that a merger of firms that are competitors in R&D could have adverse effects on the development of new drugs by limiting firms’ incentives to innovate, but a merger might also have procompetitive effects by reducing the cost of R&D. What has research shown about the effects of mergers on R&D productivity?

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Is there any research that would help us identify mergers that are most likely to lead to benefits? How should we think about mergers between new startups focused on new research technologies (biotechnology, gene sequencing, gene editing) with larger, established firms with complementary skills and assets related to the “D” side of R&D, i.e. regulatory process and marketing? The evidence that R&D has become more costly over the last decade is based on limited, biased data that draws solely on the experience of large firms, whose share of new drugs originated has declined to about 25% in 2018. Although we lack representative data on R&D costs, including the growing role of smaller companies, available data do show a decline in the average number of patient-years required for drug approval, which implies a decline in a major component of R&D cost. This decline is unsurprising, given the shift to orphan and other specialty drugs, as well as significant changes in FDA requirements. Empirical studies of biopharma mergers do not show evidence of consistent effects of mergers on R&D, positive or negative. Although large-scale mergers are often rationalized in part by the potential for cost savings, those savings derive mostly from overhead functions, marketing and sales, rather than R&D. Difficulties in post-merger integration and loss of top talent are often cited as offsets to any potential efficiency gains in R&D from economies of scale or scope. One possible exception is mergers where a larger firm acquires a smaller firm with which it already has a licensing agreement on a lead product. In such cases, the merger can reduce costs of coordination, monitoring and effort duplication, and reduce financing costs for developing the shared product, because the large firm has access to retained earnings. The small firm also has few other potential suitors, if its lead product is already partnered with its would-be acquiror. Although there is clearly some potential efficiency gain from putting together complementary skills and assets of small and larger firms, there may be other ways to achieve such gains e.g. small firms can and do hire personnel who bring experience from larger firms and use outside consultants to fill their skill gaps. To the extent that the main force driving outright acquisitions is the lower cost of capital enjoyed by larger firms with retained earnings, it may be worth considering whether there are social costs to allowing such advantages to drive the persistent pattern of acquisition of smaller firms by larger firms in this industry.

* The views and opinions expressed in this document do not necessarily represent those of the speakers’ institution or clients.

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How Should Policymakers Address Price Transparency and Generic Substitution in the New Decade? Webinar, 1 July 2020 Interview with Prof. Martin Gaynor (Carnegie Mellon) by Dr. Christine Siegwarth Meyer (NERA)*

Prof. Martin Gaynor (Professor of Economics and Health Policy, Heinz College, Carnegie Mellon University), has been interviewed by Dr. Christine Siegwarth Meyer (Managing Director, NERA Economic Consulting) in anticipation of the Antitrust in Life Sciences webinar, to be held on 1 July 2020. This webinar was originally a conference that would take place on 23 March 2020. However, due to the COVID-19 outbreak, it has been transformed into a webinar. Register for free here.

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Dr. Christine Siegwarth Meyer: You have published studies speaking to the usefulness of transparency in health care spending and health insurance. In the past few years, many policymakers have been floating ideas regarding transparency of pharmaceutical pricing, such as including drug list prices in television advertisements. What do you see as the economic pros and cons of such policy proposals? Prof. Martin Gaynor: List prices aren’t very informative, and can even be misleading. I don’t think providing list prices is a good idea. If we want consumers to be informed, they have to know how much they will pay. That’s going to depend on the specific details of their insurance policy. As a consequence, that information really can’t be provided via television advertising. Most insurers do have price transparency tools where enrollees can log into a secure website and obtain information that’s specific to themselves. However, most people don’t use these tools, either because they don’t know about them, they’re too cumbersome to use, the information they provide isn’t very helpful, or they don’t have a strong incentive to care about prices. This doesn’t mean that transparency can’t work, but at this point we don’t seem to have figured out how to make it effective.

As economists, we tend to think of innovation as a positive force, driving economic growth and prosperity. However, some have suggested that pharmaceutical firms use the illusion of innovation, particularly through the patent system, to reduce rather than enhance consumer welfare. In particular, some have focused on instances in which new versions of drugs are allegedly not any more effective or safe than the previous version but only serve to extend exclusivity and market power. Should we be asking whether a product change is “innovative enough” and, if so, what economic framework should be used to answer that question?

On the one hand, we don’t want to have antitrust enforcers deciding what’s an innovation. That’s best left to the market. However, some pharmaceutical firms have tried to take advantage of the limits of automatic generic substitution to extend exclusivity and market power via changes to their products that invalidate automatic generic substitution, but don’t amount to true innovation. This is a problem for markets and competition, and antitrust enforcers have to be prepared to evaluate these situations and step in where necessary. Avoiding all intervention on the grounds that any change is an innovation unfortunately opens the door to incumbent companies making all kinds of non-substantive changes to their products to prevent automatic generic substitution. Alternatively, lawmakers can change the laws regarding automatic generic substitution to close this loophole that pharmaceutical manufacturers have been exploiting.

As you look to the future, in 2020 and throughout the next decade, what do you see as the most pressing issues regarding the availability and affordability of pharmaceuticals in the U.S. and how is that tied in with healthcare reform?

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There is a big push to “control” pharmaceutical prices. Applying a “one size fits all” policy to pharmaceutical pricing is likely to cause problems. What’s needed is for policymakers to craft policies that are narrowly targeted towards problems, and realize that there are a variety of issues, and hence there are multiple policy approaches that are needed. The other key point of course, is that impacts on innovation need to be considered in formulating policy (where relevant).

* The views and opinions expressed in this document do not necessarily represent those of the speakers’ institution or clients.

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What Conduct Crosses the Lines? Product Hoping, Patent Settlement, Class Certification. Webinar, 1 July 2020 Interview with Elinor R. Hoffmann (NY Attorney General, Antitrust Bureau) by Jeffrey Bank (Wilson Sonsini)*

Elinor R. Hoffmann (Deputy Chief, New York Attorney General, Antitrust Bureau), has been interviewed by Jeffrey Bank (Partner, Wilson Sonsini) in anticipation of the Antitrust in Life Sciences webinar, to be held on 1 July 2020. This webinar was originally a conference that would take place on 23 March 2020. However, due to the COVID-19 outbreak, it has been transformed into a webinar. Register for free here.

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Jeffrey Bank: The life sciences industry has long been a focus for many state attorney general offices (including New York), federal enforcers, and private plaintiffs. What factors have made the industry ripe for antitrust enforcement from your perspective, and do you see that trend continuing? Elinor R. Hoffmann: The pricing and availability of pharmaceuticals, including life-saving pharmaceuticals, continue to threaten the health and well-being of consumers throughout the United States. The Kaiser Family Foundation and JAMA published data last fall that indicated that over the past 20 years, US drug spending has increased by 330% compared with a 208% increase in total US health expenditures. And three in ten people surveyed reported they have not taken medications as prescribed in the past year because of the cost. Although these issues have bi-partisan attention, and there are some legislative proposals that have been adopted on the state and federal levels, we have long been concerned about potentially illegal conduct being at the root of at least some of the problems we see in the market. So we’ve brought cases like the litigation alleging generic drug pricefixing, pay for delay (like the Tricor case and the amicus brief we authored in FTC v. Actavis), and monopoly maintenance (like NY v. Actavis and Suboxone.) We recognize the importance of innovation, and the high cost of developing innovative drugs and bringing them to market. Nevertheless, competition is the best way to promote innovation while protecting consumers and other payors from artificially high pricing. We intend to continue to be vigilant and we are not afraid of bringing cutting edge cases in this sector, as we did in NY v. Actavis. The stakes are high. Over the last twenty years, some pharmaceutical manufacturers have routinely engaged in conduct that courts have found, in certain circumstances, to be anticompetitive. This includes so-called reverse payments, product hopping, restricted distribution systems, sham petitions and litigation, exclusive dealing, and more. Do you think these issues should be addressed through legislation rather than enforcement or private litigation, and why do you think state legislatures and Congress have generally been slow to pass such legislation? It seems pretty clear that both legislation and enforcement should have a role. For example, in 1984 Congress enacted the Hatch Waxman Act creating a quicker approval path for lower cost generic drugs. And at the same time, it extended the patent life for patents relating to innovator pharmaceuticals. The Hatch Waxman Act benefited consumers because in fact, it facilitated the launch of many lower cost generic drugs. But over time, we saw firms engaging in conduct that undermined the objectives of that law, gaming with pay for delay schemes, product hopping and sometimes blatant price-fixing. So while thoughtful and enforceable legislation is critical, so is active enforcement to prevent and punish anticompetitive conduct and anticompetitive mergers. Scholars and antitrust practitioners have written extensively about how some of the same conduct undertaken to exclude or delay generic pharmaceuticals could be used to exclude or delay biosimilar products. Given that biosimilar competition has progressed

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slower than anticipated in the U.S., why do you think there has not been the same pace of enforcement actions and private litigation brought in the biologic-biosimilar context as there has been in the small molecule-generic context?

The reasons for the slow development of biosimilar competition are unclear. Right now, biologics, or drugs made from living organisms, comprise close to 40% of prescription drug spend, but we are talking about a far smaller universe in volume than traditional chemically synthesized pharmaceuticals—biosimilars are about 2% of total prescription volume. So the dollars are clearly huge. On the other hand, it apparently costs far more to develop and launch a biosimilar than a traditional generic I don’t know how accurate the numbers are, but there does appear to be a significant difference.

And there are regulatory issues that affect biologics differently than traditional drugs. For example, the Hatch Waxman Act does not generally apply to biologics, and state substitution laws are more restrictive with regard to biologics than with regard to traditional drugs, in the sense that there is less opportunity for automatic substitution. Regardless, according to the FTC and FDA, biosimilars marketed in the United States typically launched with initial list prices 15 to 35 percent lower than the list prices of the reference products, so there is reason to try to insure that biosimilars are not facing anticompetitive impediments.

Just recently, the FDA and FTC issued a joint statement promoting competition in markets for biologics, referring to the 2010 Biologics Price Competition and Innovation Act and noting that it was intended to foster competition for biologics, including biosimilars. The BPCI Act created an abbreviated pathway for biological products demonstrated to be biosimilar to or interchangeable with an FDA-licensed reference product, similar to what the HWA did with regard to traditional brand drugs and generics.

The FDA/FTC statement indicates that these agencies are watching the biologics area carefully. And certainly the states, too, are watching this space and will take appropriate action if we have reason to believe a firm is engaging in anticompetitive conduct.

* The views and opinions expressed in this document do not necessarily represent those of the speakers’ institution or clients.