Amgen’s $28 Billion Horizon Deal Faces Unexpected FTC Hurdle

Amgen Inc.’s $27.8 billion deal to buy Horizon Therapeutics Plc, the largest in the biotechnology company’s history, will be challenged by federal regulators on the grounds it would hamper innovation and drug development, according to a person familiar with the matter.

The Federal Trade Commission is expected to file a lawsuit to block the purchase on Tuesday, the person said, asking not to be identified discussing private information. A suit would mark the first time in more than a decade that the FTC has sought to stop a pharmaceutical deal outright.

Horizon shares plunged 17% at 9:34 a.m. in New York. Amgen was little changed.

While the agency’s scrutiny isn’t a surprise given its earlier requests, the two companies don’t significantly overlap in their product areas, said Evan Seigerman, an analyst at BMO Capital Markets. The deal was expected to close in the next couple of weeks, and a lawsuit could mark a change in how the FTC views consolidation in the drug industry, he said.

“If this signals FTC’s view around the broader anticompetitive nature of pharmaceutical mergers, then we could see a potential challenge” to larger transactions, he wrote in a note to clients, specifically mentioning Pfizer Inc.’s planned $43 billion purchase of Seagen Inc. “We do not have any data suggesting a lawsuit is imminent, but could see a challenge if FTC applies closer scrutiny to larger biotech/pharma M&A.”

Amgen, which sold a $24 billion investment-grade bond in February to help fund the deal, said it isn’t aware of any decision made by the FTC. The company will provide “appropriate updates” once more information is available, it said. Horizon deferred to Amgen.

The FTC declined to comment. Capitol Forum reported earlier on the expected suit.

Ripple Effect

The news appeared to ripple through the industry. Cancer-drug maker Seagen fell 5% Tuesday, while Pfizer’s shares were little changed.

In recent years, the agency allowed drug industry mergers to move forward so long as the companies divested any overlapping treatments. Even then, it didn’t often demand adjustments. A Bloomberg Law analysis found that the FTC imposed conditions on less than one-third of the 38 pharmaceutical deals valued at $10 billion or more between 2010 and 2021.

But that could be changing. US President Joe Biden’s FTC Chair, Lina Khan, has taken a tougher approach to deals, challenging several major mergers including Microsoft Corp.’s proposed acquisition of Activision Blizzard Inc. and Intercontinental Exchange Inc.’s deal to buy mortgage software rival Black Knight Inc. In 2021, the FTC announced that it would reexamine its approach to drug mergers.

“Relatively few leading drugs have been developed within the largest pharmaceutical companies,” Khan said at a workshop last year on pharma deals. “As antitrust enforcers, it’s our job to promote their competition that will help create the right conditions for the next generation of scientific advances.”

The Horizon acquisition marks Amgen’s largest-ever merger and the FTC’s first major opportunity to test out its altered approach. While they are both working on treatments for eczema and lupus, the companies don’t currently have much overlap in terms of areas of expertise.

That lack of overlap weakens the FTC’s case, according to Jefferies LLC analysts led by Akash Tewari. Possible agency attempts to cast Amgen as a “bad actor” because of its pricing policies would also likely fail, the analysts said.

Khan is “not shy about bringing forth cases...but winning them is another matter,” the analysts wrote in a research note, noting that they believe the Pfizer-Seagen deal “is a more difficult pitch to the FTC.”

Pfizer and Seagen said this week that they have filed for approval of their deal with the FTC and Justice Department. The companies didn’t immediately respond to requests for comment.

Bond Sales

Amgen raised $24 billion in the corporate bond market in February to help fund the acquisition of Horizon, and would have to repurchase some of that debt if the deal doesn’t go through. Meanwhile Pfizer is selling a jumbo bond Tuesday to help fund its purchase of Seagen. The Pfizer deal may be as big as $25 billion to $30 billion.

Amgen is counting on Horizon to help bolster its drug portfolio with treatments for autoimmune, inflammatory and rare diseases, particularly since some of the company’s biggest medicines will face competition as they lose patent protection in the coming years. Michael Yee, another Jefferies analyst, wrote that he expects the deal to eventually close, though there will be at least a three- to five-month delay to get more clarity on the legal situation.

Public comments by some in the FTC suggest the agency may take action to deter deals even if the overlap isn’t clear when the purchaser has a history — or a perception — of anti-competitive behavior, Yee wrote in a note to clients. The agency is likely to point to Amgen’s history of boosting the price of Enbrel, its best-seller, and other medicines, even though the practice is standard and rival companies have taken similar action, he said.

“Whether this is an Amgen-specific or broader big pharma issue of historical behavior to think about is something to consider for biopharma M&A,” Yee wrote. It “may slow deal flow until this plays out a bit,” he added.

(Updates share prices throughout)

--With assistance from Ike Swetlitz and Josyana Joshua.

To contact the reporters on this story:
Leah Nylen in Washington at lnylen2@bloomberg.net;
Michelle Fay Cortez in Hong Kong at mcortez@bloomberg.net;
Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net

To contact the editors responsible for this story:
Angela Moon at hmoon43@bloomberg.net;
Rachel Chang at wchang98@bloomberg.net

Peter Blumberg, John Lauerman

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