The recent attempt by US trade regulators to block a merger between Amgen Inc. and Horizon Therapeutics Plc has raised concerns about the potential disruption of a successful business model in the pharmaceutical industry. Larger drug companies often purchase smaller firms or their drugs to gain access to lucrative markets. The Federal Trade Commission (FTC) filed a lawsuit to stop Amgen's $27.8 billion acquisition of Horizon Therapeutics Plc, citing concerns that Amgen may pressure buyers to pay high prices for Horizon’s drugs. News of the impending lawsuit caused alarm among analysts, who worried that the FTC's actions could affect drug development and deals. Smaller biotech and pharmaceutical companies often lack the resources to fund trials, gain regulatory approval, and get drugs covered by payers. Therefore, they pitch their pipeline to larger businesses to get their products across the finish line.
The potential blockage of the Amgen deal could have negative implications for the biotech industry, as exiting via acquisition is a common practice, and a way for larger biopharmaceutical companies to refresh their pipelines. The news caused Horizon's shares to fall up to 19% in New York, the most intraday since August, while Amgen slipped about 2% at noon. The FTC is concerned that Amgen will use its market power to pressure insurers and pharmacy benefit managers to favor Horizon’s drugs, which include two medicines that currently have little or no competition and cost hundreds of thousands of dollars a year. "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," said Holly Vedova, director of FTC’s Bureau of Competition.
Amgen expressed disappointment in the FTC's decision and remains committed to the acquisition. The company believes that the agency's concerns about pricing are speculative and do not reflect the real-world competitive dynamics behind providing rare-disease medicines to patients. The government's stance puts smaller companies in danger of a narrowing exit ramp, and larger companies may look for potential earlier-stage acquisitions. The move on Amgen's acquisition is the FTC's strongest on health-care deals. FTC Chair Lina Khan has expressed concern about rising prices of new drugs and the fact that big pharmaceutical companies develop few drugs but make most of the profits. 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 the highest risk from FTC scrutiny, according to a note from Wells Fargo analysts. The agency's stance is casting a pall over another potential acquisition, as the FTC is reviewing Pfizer Inc.'s proposed acquisition of cancer-drug maker Seagen Inc. The stakes have grown as big drugmakers such as Pfizer, GSK Plc, and Sanofi 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.