Novartis (NVS) in 2015 was required to divest two melanoma treatments it was developing in order to secure Federal Trade Commission approval for the company's $16 billion acquisition of GlaxoSmithKline's (GSK) cancer-treatment portfolio.
Novartis' two melanoma treatments, known as BRAF and MEK inhibitors, were also being developed to treat a variety of other cancers. The market for the two inhibitors was concentrated—Novartis and GSK were two of a small number of companies with either a BRAF or MEK inhibitor on the market or in development, and were two of only three companies marketing or developing a BRAF/MEK combination product to treat melanoma.
The Novartis products, sold to Array BioPharma (ARRY) , were in final trials for a combination product to treat melanoma but also were in various stages of development for other types of cancer. The FTC argued that unless it required Novartis to divest its BRAF and MEK inhibitors, Novartis would likely delay or terminate their development as well as the combination product, ultimately raising prices for cancer treatment and potentially depriving consumers of break-through products.
The episode highlights the concern the FTC has about pharma mergers that could consolidate two drug development pipelines into the hands of one company when the merging firms are working on potentially competing products. The regulators have two main worries when that happens. One is that under a single owner, two possible rivals won't compete with each other anymore and consumers won't enjoy the lower prices that competition brings. The other worry is that the buyer will devote resources to only one of the products and the other will be left on the shelf. If the first one fails to win approval from the Food and Drug Administration, neither drug candidate will make it to market.
But forced sales like the one Novartis made can also deplete a company's stable of drug compounds, leaving them with few fall-backs if their lead prospect fails.
The harm to a pharma firm's pipeline was on the mind of Novartis' main U.S. antitrust lawyer when he recently called for the FTC to stop requiring drug pipeline divestitures unless the products were in the final round of FDA testing, known as Phase 3. Clinical trials during Phase 3 are meant to demonstrate whether a product offers the health benefits the company intends and what the long-term side effects may be. Phase 1 and Phase 2 focus on safety and efficacy of a drug. After successful Phase 3 results a company may submit an application to market the drug to the FDA.
"If you're going to consider potential competition, I don't see how anything before Phase 3 can meet the standard under the case law because you're talking about a low likelihood of getting to market," David Emanuelson, Novartis senior corporate counsel for antitrust in the Americas said last month at the American Bar Association's spring antitrust meeting.
"Phase 3 is where you really are investing significant money to run a controlled trial against a placebo ... to see if it's better than the [current] standard of care."
He noted that statistics tracing clinical trial results show that products in Phase 1 or 2 typically have a 10% to 15% likelihood of winning FDA approval. At Phase 3, the probability jumps to 50%.