It started with an innocuous press release. Roche announced in April that it would extend the tender offer for gene therapy leader Spark Therapeutics thanks to a longer-than-expected Federal Trade Commission review of the $4.8 billion acquisition. 

As 2019 progressed, however, it became clear to investors and antitrust attorneys that something had changed in how the FTC viewed biopharma buyouts, disrupting an ecosystem that usually features big pharma scooping up smaller drug developers for their clinical-stage projects. 

In 2018, $198 billion worth of acquisitions took place in the life sciences sector, which includes pharma and biotech, up by $20 billion over 2017 but well below big years between 2014 and 2016, according to theconsulting company Ernst & Young. 

The FTC's close scrutiny of potential antitrust violations in biopharma acquisitions seems to have cast a shadow over transactions large and small, from megamergers like Bristol-Myers Squibb-Celgene andAbbVie-Allergan to comparatively small plays like Alexion-Achillion andUCB-Ra. 

At its root is the regulators' concern that big pharma wants to hold onto overlapping projects to hedge against the risk of failure or market competition, which could have a detrimental effect if enough promising medicines don't get developed. 

Regulators' newfound interest in buyouts of pre-commercial companies has been a trigger for head-scratching among investors and analysts as to why transactions that might have barely registered a year or two ago are now under the microscope. 

Most significantly, it may have slowed discussions about buying gene therapy players like BioMarin, UniQure and Sarepta, as potential buyers awaited the outcome of the FTC's review of Roche-Spark. 

The disruption was seen as a major factor in the declining valuations of gene therapy companies in particular — 26 companies amassed a combined $18 billion worth of paper losses between October 2018 and October 2019. 

A $3 billion bid earlier this month by Japanese drugmaker Astellas forAudentes Therapeutics appeared to revive some hopes that regulatory review won't entirely paralyze acquirers, with valuations for a number of those companies boosted in the weeks following the announcement. 

Many, however, are still worth less than they were a year ago. 

Neither Roche nor the FTC has said much about the review of the Spark acquisition, which has progressed to the uncommon "second request" stage, a phase of review that only about 5% of acquisitions undergo. 

But antitrust attorneys and biopharma analysts believe the scrutiny centers on overlapping products in hemophilia, as Roche sells Hemlibra for patients with hemophilia A and Spark is developing two gene therapy treatments for the same condition.

It's incrementally bad news for all of biotech that what used to be a routine deal as Roche / Spark has turned into such a complicated mess.

— Brad Loncar (@bradloncar) July 8, 2019

If the FTC rules that Roche would have too much market power and is barred from buying Spark, or would have to make major divestments in order to satisfy regulators, biopharma attorneys will have to redraw their assumptions about what constitutes monopolistic behaviors, which could have a chilling effect across the sector. 

It isn't just bolt-on acquisitions like Roche-Spark that are in the spotlight, though. 

In order to pass antitrust muster, Bristol-Myers Squibb and Celgene needed to pledge to sell off Celgene's marketed psoriasis drug Otezla because Bristol-Myers had another drug for the condition, Orencia, as well as an experimental drug in late-stage study. 

Otezla's $13.4 billion sale to Amgen caused some to wonder why it was acceptable to antitrust enforcers since the California-based company has another psoriasis drug in its top-selling Enbrel.

In the wake of that news, AbbVie pre-emptively pledged to divestAllergan's experimental drug brazikumab — which has the same mechanism of action as AbbVie's new psoriasis drug Skyrizi — in order to satisfy antitrust regulators reviewing the $63 billion merger. 

Investors now appear to fear sector-wide scrutiny. UCB's bid for Ra Pharmaceuticals raised questions over whether the combined company would have too many generalized myasthenia gravis drugs. And Alexion's takeout of Achillion spurred analyst debate over whether the FTC would rule the deal gives Achillion too much market power in the rare diseases paroxysmal nocturnal hemoglobinuria and C3 glomerulopathy. 

It's part of an evolving FTC view about pharma acquisitions that involve overlapping products. In 2018, the head of the agency's competition bureau, Bruce Hoffman, said the usual practice of divesting a pipeline product to clear antitrust review shifts the risk of failure onto the public, rather than on the corporate entities merging. 

"It is entirely proper that the risk of failure be placed on the parties to the merger," he said. 

Thus AbbVie's offer to divest brazikumab may not be the end of the story with the Allergan acquisition, especially with the Otezla precedent already set. A group of consumer groups and unions cited Hoffman's words when objecting to the deal, which has now entered the second request stage. 

Alexis Gilman, an antitrust attorney with Crowell & Mooring, said company attorneys reviewing proposed deals will probably need to look deeply into the pipelines of target companies to identify possible overlaps, even early stage candidates, to judge the risk that FTC will ask for divestiture of marketed products. 

"You'd have to prepare them for the possibility that the agency may ask that you do that as a remedy," he said.