US Challenge to Amgen Deal Threatens Big Pharma Business Model

US trade regulators’ surprise attempt to block a pending drug industry merger is creating alarm that the government will upend a successful business model in the industry.

(Bloomberg) — US trade regulators’ surprise attempt to block a pending drug industry merger is creating alarm that the government will upend a successful business model in the industry. 

Big, rich drugmakers often buy smaller companies or their drugs, using their heft to bring the medicines to lucrative markets. On Tuesday, the Federal Trade Commission filed a lawsuit to stop Amgen Inc. from buying Horizon Therapeutics Plc for $27.8 billion, what would be the company’s largest acquisition, citing the potential for Amgen to pressure buyers to pay high prices for Horizon’s drugs. 

News of the impending suit leaked Monday, and analysts were broadly concerned about how the agency’s actions would affect drug development and deals. Smaller biotech and pharmaceutical companies often lack the money to conduct trials, gain regulatory clearance and get drugs covered by payers, so they pitch their pipeline to larger businesses to get the products across the finish line.

“There would be broad, negative implications for the biotech industry if this deal were ultimately blocked as exiting via acquisition is a standard practice and a common way for larger biopharmas to refresh their pipelines,” said Marc Engelsgjerd, a Bloomberg Intelligence analyst.

Horizon shares fell as much as 19% in New York, the most intraday since August, while Amgen slipped about 2% at noon. 

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The agency is moving to block Amgen’s deal because it’s concerned the company will use its market power to pressure insurers and pharmacy benefit managers to favor Horizon’s drugs, according to a statement. Those include two medicines that currently have little or no competition and cost hundreds of thousands of dollars a year, the FTC said.

“Rampant consolidation in the pharmaceutical industry has given powerful companies a pass to exorbitantly hike prescription drug prices, deny patients access to more affordable generics, and hamstring innovation in life-saving markets,” Holly Vedova, director of FTC’s Bureau of Competition, said in the statement.

Amgen said it’s disappointed in the FTC’s decision and remains committed to the acquisition. The agency’s concerns about pricing are speculative don’t reflect “real world competitive dynamics behind providing rare-disease medicines to patients,” the company said in an emailed statement. 

“We have been working cooperatively over the past several months to address the questions raised by the FTC’s investigative staff and believe we have overwhelmingly demonstrated that this combination poses no legitimate competitive issues,” the drugmaker said.

The government’s stance puts smaller companies in danger of a narrowing exit ramp, analysts at Piper Sandler wrote in a note Tuesday morning before the suit was filed, and larger companies might look for potential earlier-stage acquisitions. “If allowed to stand, we think this new approach is likely to cast a lasting pall over the sector for some time to come,” they wrote.

Strongest Move

The move on Amgen’s acquisition is the agency’s strongest on health-care deals. FTC Chair Lina Khan has said that big pharmaceutical companies develop few drugs but make most of the profits and expressed concern about rising prices of new drugs. The FTC is also conducting a study of the role of pharmacy benefit managers, which negotiate drug prices between manufacturers and insurers.

Deals in the range of $20 billion to $50 billion may be at highest risk from FTC scrutiny, according to a note from Well Fargo analysts. The agency’s stance is casting a pall over another potential acquisition. The FTC is reviewing Pfizer Inc.’s proposed acquisition of cancer-drug maker Seagen Inc., and shares of Seagen were down 5.3% at 11:30 a.m. in New York. Pfizer was little changed.

Pfizer declined to comment directly about the Amgen deal, but pointed to statements by general counsel Doug Lankler. He said in March that Pfizer expects regulators to review the Seagen acquisition closely, “but our technologies and approaches to fighting cancer are really complementary, and we think that regulators are going to be able to see the pro-patient, pro competitive benefit” of combining the two. Seagen declined to comment. 

The stakes have grown as big drugmakers such as Pfizer, GSK Plc, Sanofi and others have thrown even more effort into marketing drugs with greater opportunities for exclusivity, or where patients have few alternatives, such as in cancer and rare diseases. Pfizer, GSK, and Johnson & Johnson have all dropped their consumer divisions to focus on these higher-margin opportunities. 

 

 

–With assistance from Nacha Cattan.

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