This text has been revised and up to date from the unique model.
A Federal Commerce Fee lawsuit in search of a preliminary injunction to dam biopharmaceutical big Thousand Oaks-based Amgen Inc. from buying a smaller Irish pharmaceutical firm is using a decades-old antitrust enforcement concept that has observers questioning whether or not biotech and biopharma firms like Amgen might see their progress prospects trimmed sooner or later.
The $27.8 billion deal to accumulate Dublin-based Horizon Therapeutics plc, which was first introduced in December, would allow Amgen so as to add two FDA-designated orphan medication — Tepezza and Krystexxa, that are used to deal with thyroid eye illness and power refractory gout respectively — to its portfolio of greater than 24 authorized medicines.
Each are manufactured completely by Horizon and are every used to deal with situations that have an effect on lower than 200,000 People.
The FTC grievance in opposition to the deal argues that it could enable Amgen, the second largest public firm within the Los Angeles space, to leverage its portfolio of blockbuster medication to cement an unfair market benefit for Horizon’s two monopoly medication amongst pharmacy profit managers, which oversee drug advantages on behalf of medical health insurance firms and different payors.
The FTC grievance additionally alleges the acquisition would place Amgen to curry favor with PBMs by providing rebates on Amgen medication in alternate for the PBMs excluding medication treating these similar situations which may be launched to the market by different firms.
“Rampant consolidation within the pharmaceutical trade has given highly effective firms a move to exorbitantly hike prescription drug costs, deny sufferers entry to extra inexpensive generics, and hamstring innovation in life-saving markets,” Holly Vedova, FTC Bureau of Competitors Director, mentioned in an announcement. “At the moment’s motion — the FTC’s first problem to a pharmaceutical merger in latest reminiscence — sends a transparent sign to the market: The FTC received’t hesitate to problem mergers that allow pharmaceutical conglomerates to entrench their monopolies on the expense of customers and truthful competitors.”
In an announcement, Amgen expressed disappointment by the motion, explaining, “The medicines supplied by Amgen and Horizon usually deal with completely different illnesses and affected person populations, and there aren’t any overlaps of aggressive concern.”
The corporate added that it “wouldn’t bundle the Horizon merchandise raised as points.”
The corporate mentioned it plans to work with the court docket on a schedule that might enable the deal to shut by mid-December.
Amgen in December agreed to accumulate Horizon for $116.50 a share. The day earlier than the FTC introduced the lawsuit, Horizon inventory was value $112 a share. Nevertheless, by Might 26 it had dropped to $99.55.
In the meantime, Amgen’s inventory, which traded within the higher $280s in late December and January sunk to $218.53 final Tuesday, near a two-year low for the corporate, mentioned Gregory Renza, a biotech fairness analysis analyst on the world funding financial institution RBC Capital Markets.
Whereas the lawsuit has impacted its inventory worth, the difficulty goes a lot deeper, mentioned Renza, threatening to have an effect on its progress technique in addition to that of different companies within the biotech and pharmaceutical sectors.
“Companies like Amgen historically broaden in one in every of two methods—by exterior innovation from buying smaller gamers within the trade or from inside analysis and growth,” mentioned Renza. “Whereas Amgen has a strong analysis and growth engine, additionally they have to diversify by acquisition.”
Within the case of Horizon, its two dominant medication are solely used to deal with a small proportion of the inhabitants, making it extra cost-efficient for Amgen to purchase the businesses than develop the medication by itself.
“There’s an inherent threat to drug growth, even when replicating related drug trials and there are much more regulatory hurdles,” Renza mentioned.
There’s additionally the difficulty of patent safety. Remedies that obtain orphan drug designation will also be given seven years of market exclusivity after approval.
With plenty of Amgen’s drug patents set to run out, the 2 Horizon therapies doubtlessly supply a major income stream unencumbered by competitors.
“In 2022, Amgen’s income base was over $26 billion in a number of therapeutic areas, together with hematology, oncology and irritation,” Renza mentioned. “The Horizon medication will give them traction in areas that they don’t at the moment draw income.”
In actual fact, he mentioned whereas Tepezza introduced in $2 billion in income in 2022, analysts are predicting that quantity might attain almost $4 billion by the late 2020s and Krystexxa, which yielded $700 million final yr, might rise to as a lot as $2 billion in the identical time interval.
Departure
Katie Funk, a shareholder at regulation agency Baker Donelson, mentioned the lawsuit represents a departure from latest antitrust actions.
“For the previous 30 years, the FTC has reviewed transactions between pharmaceutical firms for horizontal overlaps, which means they each had a product available on the market or below growth that handled the identical situation,” mentioned Funk, a former FTC lawyer who relies out of the agency’s D.C. workplace.
“What makes this case completely different is that they don’t supply competing merchandise,” Funk added. “In actual fact, Horizon is at the moment the one firm providing medication that deal with these two situations, and so, for now, it already has a authorized monopoly.”
As a substitute, the FTC’s strategy follows a concept used within the Sixties by the company and upheld by the U.S. Supreme Courtroom below Chief Justice Earl Warren to dam a conglomerate merger between Procter & Gamble and Clorox.
“In contrast to the current day, the Sixties Warren court docket was a really liberal court docket, which took an expansive view of antitrust regulation,” mentioned College of the Pacific McGeorge College of Legislation Professor Frank Gevurtz. “The attitudes held by the excessive court docket have been a lot completely different than they’re now, however below Biden Administration appointee FTC Chair Lina Kahn they’re being revived.
“The speculation within the Amgen case is basically that the mega big would use its bundled arsenal to provide packaged discounting or rebates to insurance coverage firms to provide Horizon’s two monopoly medication a extra favorable place, thereby damaging competitors within the adjoining market, very similar to Procter & Gamble would use its promoting benefit to additional entrench the monopoly place of Clorox bleach,” Gevurtz added.
USC Marshall College of Enterprise Professor of Administration and Group Peer Fiss mentioned the staunch antitrust stance is a part of an general pattern that started as a response to the rising energy of tech giants like Fb and Google.
“It has been pushed by FTC Chair Lina Khan, a rising star within the antitrust house who has pushed for extra scrutiny of main tech gamers and has pursued a way more aggressive coverage agenda,” mentioned Fiss.
“The tech trade has been mobilizing in opposition to these insurance policies for some time, lawyering up and lobbying lawmakers to struggle in opposition to the rising tide to dismantle their energy,” Fiss added. “I believe that with this motion by the FTC, we are going to see related strikes among the many biotech and pharmaceutical industries.”
What’s subsequent?
Whereas an Amgen spokesperson has expressed confidence the deal will shut, proper now its destiny stays in limbo.
A listening to on whether or not to grant the FTC’s request for a preliminary injunction is ready for Sept. 11 earlier than U.S. District Choose John F. Kness in Chicago. The decide has mentioned it could doubtless be 4 weeks earlier than he decides.
Amgen has agreed to not shut the deal earlier than Oct. 31 or the second enterprise day after the court docket guidelines on the matter.
If the FTC prevails and the events proceed their struggle, the matter would transfer to a trial on the deserves earlier than an administrative decide on the FTC.
Ought to the FTC lose its bid for a preliminary injunction, it might file an enchantment with the seventh Circuit. In both case, an enchantment might drag the case out till subsequent yr or past.
The deal did have an preliminary termination date, which has robotically been prolonged.
“The drop-dead or exterior date is Dec. 12,” mentioned Funk. “The date might be prolonged, however it could require an modification to the settlement, and will imply extra negotiations between the events.”
The settlement between the businesses requires Horizon to obtain a payment of $974,415,054 or about 3.5% of the transaction worth if the deal doesn’t shut as a result of antitrust causes, mentioned Funk.
Whereas Gevurtz and different specialists don’t imagine the FTC will prevail ultimately, he mentioned if the speculation is profitable, it may very well be used to attempt to block acquisitions involving companies exterior the biotech and pharmaceutical industries.
“This concept supplies the potential to attempt to cease different offers down the highway every time giant firms attempt to merge with smaller corporations having slender monopolies and the result’s to offer the smaller firm with some additional advertising and marketing benefit,” mentioned Gevurtz.
Though Horizon’s revolutionary therapeutics proved enticing to Amgen, ought to the deal crumble, Renza mentioned the corporate would doubtless set its sights on one other enterprise that might enable it to enrich its present drug arsenal, nevertheless it might have a chilling impact on the present method by which it does enterprise.
“Amgen’s urge for food to develop received’t go away, nevertheless it would possibly search to take action by single smaller transactions that don’t entice the identical consideration as this one has gotten from the FTC,” mentioned Renza. “This technique would make it harder for Amgen to broaden its drug portfolio since it could have to take action one small transaction at a time.”
With the influence already sending shockwaves by the biotech and pharmaceutical industries, analysts are paying shut consideration to different proposed acquisitions.
“The FTC case, even when most see it as unlikely to succeed, will maintain traders on the fringe of their seats this yr given how essential M&A offers are to biotech,” mentioned Renza.
