Dive Insight:

Merck’s rumored acquisition of Seagen would be the first big test the Federal Trade Commission has faced since it signaled plans to take a tougher line on large life sciences transactions.

The deal, because of its size, would already likely require a monthslong review. But a Merck-Seagen tie-up may raise several other issues that could require the companies to spin off business lines or shed drug programs.

In past buyouts, the agency has looked particularly closely at overlapping products, like the similar autoimmune drugs involved in Bristol Myers Squibb’s acquisition of Celgene and AbbVie’s takeout of Allergan. The FTC ordered some products to be divested before approving each deal.

Those transactions each took place in 2019, however. The FTC’s scrutiny of pharmaceutical deals has grown since then, with commissioner Rebecca Kelly Slaughter last year initiating a broad review of M&A in the sector.

“This is the first deal of its kind in the biopharma space under this new FTC and we’ve seen them be a lot more aggressive,” said former Food and Drug Administration commissioner Scott Gottlieb, a Pfizer board member, on CNBC Thursday. “The question is, what are they going to force the two companies to divest to get this deal done?”

Merck and Seagen do have one clear overlap: Merck’s blockbuster cancer immunotherapy Keytruda and Seagen’s biggest seller, Adcetris, are both used to treat Hodgkin lymphoma. But the Seattle biotech’s wider portfolio could garner attention from the FTC as well, enabling the agency to drill down on some of the issues raised by experts in a meeting the agency held last month. Seagen’s marketed and experimental medicines are all cancer drugs, for instance. If Merck were to acquire them, it might have more power in negotiations with insurers through its ability to “bundle” all the products together.

Another potential competitive concern is Seagen’s existing collaboration with Merck competitor Bristol Myers. Seagen and Bristol Myers are evaluating Keytruda rival Opdivo alongside Adcetris in patients with lymphoma.

Additionally, should combinations involving Seagen drugs and Keytruda go on to win regulatory approval, Merck could expand the patents covering Keytruda and possibly extend its market exclusivity. U.S. patents on Keytruda, which generated more than $17 billion last year, expire in 2028. New patents that stretch its exclusivity could mean tens of billions of dollars in future revenue.

Such “patent thickets” are increasingly drawing criticism from U.S. policymakers. However, an antitrust expert consulted by investment bank SVB Securities said the FTC generally doesn’t look more than two years in the future when it considers the effects acquisitions have on drug prices.