Pfizer-Allergan Deal Review Would Hinge on Individual Drugs

Record Deal in the Works? Pfizer and Allergan Enter Talks
  • Antitrust concerns seen in so-called biosimilar drug portfolio
  • Sales possible for companies that make Lyrica and Botox

If Pfizer Inc. and Allergan Plc move ahead with what could be the biggest deal ever in the healthcare industry, antitrust regulators will look more closely at overlaps in their drug portfolios than at the combined company’s market share, antitrust experts say.

European and U.S. antitrust officials are likely to scrutinize the companies’ so-called biosimilar drugs, which copy other medications, and would probably require divestitures of products in which the new company has a monopoly, or even an unfair advantage over its competitors, according to antitrust lawyers and health care analysts. Other areas that could face scrutiny are drugs for ophthalmology, cardiovascular diseases and neurology, according to Pat Treacy, a lawyer at Bristows LLP in London.

While authorities will probably scrutinize the tie-up drug-by-drug as they have in the past, the nascent market for biosimilars, which aren’t likely to be substituted for their branded counterparts as quickly as generics, present new competition issues. The first biosimilar just won U.S. approval in March. Pfizer, for example, has biosimilar drugs to treat such things as arthritis and Crohn’s disease and Allergan has four biosimilar drugs in development.

Competition Issues

“The competition issues with biosimilar drugs are very interesting given how new they are to the market,” said Seth Silber, an antitrust lawyer with Wilson Sonsini Goodrich & Rosati in Washington. “The way a biosimilar drug competes with a branded biologic drug also still isn’t fully understood. This deal tees up a new opportunity for antitrust agencies here and in Europe to think about how to assess competition between these kinds of drugs.”

Through the string of tie-ups in the pharmaceutical industry over the past few years, antitrust agencies on both sides of the Atlantic have etched out a general road map for companies seeking approval, requiring them to divest any drugs where competition would be lost.

Pfizer has played that game before.

In 2009, the European Commission and the U.S. Federal Trade Commission approved the company’s acquisition of Wyeth LLC, after forcing it to sell several types of animal health vaccines. A few months ago, the EC and the FTC approved Pfizer’s $17 billion acquisition of Hospira Inc. after it agreed to sell off some sterile injectable drugs, and its infliximab biosimilar drug, which was under development for treatment of Chrohn’s disease.

‘100 percent overlap’

Allergan’s portfolio of biosimilar copies of biologic drugs has "100 percent overlap" with the biosimilar medicines Pfizer acquired from Hospira in September, according to Sam Fazeli, an analyst at Bloomberg Intelligence in London. That means it’s likely that divestments in this area would again be necessary, he said. 

Representatives for Pfizer and Allergan didn’t immediately respond to calls seeking comment.

While generics are exact copies of drugs with simple chemical structures, biosimilars replicate more complex compounds made from living organisms, and aren’t called generics because no two batches are exactly the same.

Pfizer’s Hospira unit markets a biosimilar version of the arthritis drug Remicade in Europe called Inflectra. The drug hasn’t been approved yet in the U.S. Allergan doesn’t have any biosimilars on the market yet, but has four oncology drugs in development. The first biosimilar approved in the U.S. is a version of Amgen’s cancer drug Neupogen that is made by Novartis AG and is called Zarxio.

Merger Boom

This year has been the busiest for healthcare tie-ups in at least a decade, with announcements of $280 billion in pharma and biotech deals. During the two-year merger boom in the industry, regulators at the European Commission in Brussels and in the U.S. have followed the same pattern of looking at drug overlaps rather than overall size.

"The route for getting clearance for big pharmaceutical deals is clearly mapped out because the commission has so much experience," said Peter Willis, a lawyer at Bird & Bird LLP in London. "They’ll look into the drug overlaps very closely."

‘Friendly Discussions’

Dublin-based Allergan, which is known for its Alzheimer’s drug Namenda and Restasis for chronic dry eye, said Thursday it has held “preliminary friendly discussions" about a deal. A merger would give New York-based Pfizer a way to move to a low-tax legal address abroad and gain valuable specialty drugs like Allergan’s Botox anti-wrinkle treatment. It would also help Pfizer meet its goal to get bigger before splitting into two new companies, one focused on established drugs at the end of their life-cycles, and another, faster-growing business of new brand-name drugs.

Allergan shares rose 5.98 percent to $304.38 in New York, far short of the premium some analysts expect will be needed to cement the transaction and a sign that investors expect a deal would face regulatory and political hurdles.

Pfizer, whose top sellers include Lyrica for pain and rheumatoid arthritis treatment Enbrel, ranks No. 3 among the some 2,000 publicly traded pharma and biotech companies around the world, while Allergan is No. 10. Global revenue of these listed companies amounts to $1.12 trillion.

Comparing Portfolios

Antitrust regulators can comb a list compiled by the World Health Organization called the Anatomical Therapeutic Chemical Classification System that splits drugs into the conditions they treat, allowing for easy comparison of companies’ portfolios.

“The European Commission is using an increasingly granular approach to market definition in relation to pharmaceutical mergers -- often looking at the competitive constraints at the level of single molecules,” Bristows’ Treacy said.

One area Pfizer doesn’t have to worry about is dermatology products, where Allergan boasts the blockbuster wrinkle treatment Botox and where Pfizer doesn’t have a market leading position, said Yogesh Bahl, co-head of business advisory firm AlixPartners’ life science practice in New York.

Antitrust scrutiny won’t be limited to the European Commission and the FTC, however. The largest pharmaceutical deals require clearance in as many as 100 different jurisdictions, Bird & Bird’s Willis said.

"Increasingly, places like China, Korea, Taiwan, Brazil, South Africa and Russia have much more active antitrust regulators," he said. "On larger mergers that have global reach you will often see other authorities taking a bit of a lead from the largest like the U.S. and the EU."

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