Last month, Novartis completed its $11 billion acquisition of Avidity Biosciences—the latest in a string of major pharmaceutical mergers including Merck’s acquisition of Verona Pharma and GSK’s acquisition of RAPT Therapeutics. Given the critical importance of the industry, the Federal Trade Commission (FTC) wields powerful tools to ensure such mergers don’t harm consumers or reduce competition.

Yet new data from UC Berkeley Haas and UC Law shows the FTC’s historic remedy—requiring merging companies to divest pipeline drugs to third parties—appears to have backfired. The study, co-authored by Haas Associate Professor Yaniv Konchitchki and Robin Feldman, Gideon Schor, and Tanziuzzaman Sakib of UC Law, looked at 75 pipeline drugs divested over 13 years and found:

• 81% failed to achieve FDA approval, market entry, and at least a 1% market share.
• 50% never received FDA approval.
• 30% were approved but discontinued for reasons other than safety or efficacy.
• 20% reached the market but never broke 1% market share—with shares ranging from zero to roughly half of one percent. Even the survivors that made it to market failed to achieve even a minuscule foothold.

The researchers found that the consequences of the FTC’s strategy have fallen hardest on consumers. Generic drugs—which drive down prices—made up 70 of the 75 divested drugs, yet only 14% had a successful market entry. Meanwhile, the brand-name drugs had a 75%–80% success rate.

Konchitchki says the findings provide important insights for both researchers and policymakers.

“Our research found that only 19% of divested pipeline drugs ultimately survive, where brand-name drugs and those held by larger companies have significantly higher survival rates,” Konchitchki said. “The FTC’s mission is to protect consumers and promote competition, but our evidence suggests its pipeline drug divestiture policy may actually be working against that goal—reinforcing the advantages of already-dominant companies while putting smaller competitors at a disadvantage. The net effect is less competition, not more.”

“The FTC’s mission is to protect consumers and promote competition, but our evidence suggests its pipeline drug divestiture policy may actually be working against that goal—reinforcing the advantages of already-dominant companies while putting smaller competitors at a disadvantage. The net effect is less competition, not more.”

—Yaniv Konchitchki

The pharmaceutical industry is particularly sensitive to competition issues, given the limited number of competitors and the inflexibility of demand for prescription drugs. The researchers suggest the study may aid the FTC in seeking appropriate remedies.

They propose two alternative remedies:

• “Crown Jewel Divestiture”: The on-market product is sold instead of the pipeline product.
• “Skin in the Game Divestiture”: If the divested product fails to produce significant competition, the merged company must divest the on-market product.