This article has been revised and updated from the original version.
A Federal Trade Commission lawsuit seeking a preliminary injunction to block biopharmaceutical giant Thousand Oaks-based Amgen Inc. from acquiring a smaller Irish pharmaceutical company is utilizing a decades-old antitrust enforcement theory that has observers questioning whether biotech and biopharma companies like Amgen could see their growth prospects trimmed in the future.
The $27.8 billion deal to acquire Dublin-based Horizon Therapeutics plc, which was first announced in December, would enable Amgen to add two FDA-designated orphan drugs — Tepezza and Krystexxa, which are used to treat thyroid eye disease and chronic refractory gout respectively — to its portfolio of more than 24 approved medications.
Both are manufactured exclusively by Horizon and are each used to treat conditions that affect less than 200,000 Americans.
The FTC complaint against the deal argues that it would allow Amgen, the second largest public company in the Los Angeles area, to leverage its portfolio of blockbuster drugs to cement an unfair market advantage for Horizon’s two monopoly drugs among pharmacy benefit managers, which oversee drug benefits on behalf of health insurance companies and other payors.
The FTC complaint also alleges the acquisition would position Amgen to curry favor with PBMs by offering rebates on Amgen drugs in exchange for the PBMs excluding drugs treating these same conditions that may be introduced to the market by other companies.
“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, FTC Bureau of Competition Director, said in a statement. “Today’s action — the FTC’s first challenge to a pharmaceutical merger in recent memory — sends a clear signal to the market: The FTC won’t hesitate to challenge mergers that enable pharmaceutical conglomerates to entrench their monopolies at the expense of consumers and fair competition.”
In a statement, Amgen expressed disappointment by the action, explaining, “The medicines offered by Amgen and Horizon generally treat different diseases and patient populations, and there are no overlaps of competitive concern.”
The company added that it “would not bundle the Horizon products raised as issues.” Â
The company said it plans to work with the court on a schedule that would allow the deal to close by mid-December.
Larger impact
Amgen in December agreed to acquire Horizon for $116.50 a share. The day before the FTC announced the lawsuit, Horizon stock was worth $112 a share. However, by May 26 it had dropped to $99.55.
Meanwhile, Amgen’s stock, which traded in the upper $280s in late December and January sunk to $218.53 last Tuesday, close to a two-year low for the company, said Gregory Renza, a biotech equity research analyst at the global investment bank RBC Capital Markets.
While the lawsuit has impacted its stock price, the issue goes much deeper, said Renza, threatening to affect its growth strategy as well as that of other businesses in the biotech and pharmaceutical sectors.
“Businesses like Amgen traditionally expand in one of two ways—through external innovation from acquiring smaller players in the industry or from internal research and development,” said Renza. “While Amgen has a robust research and development engine, they also need to diversify through acquisition.”
In the case of Horizon, its two dominant drugs are only used to treat a small percentage of the population, making it more cost-efficient for Amgen to buy the companies than develop the drugs on its own.
“There’s an inherent risk to drug development, even when replicating similar drug trials and there are even more regulatory hurdles,” Renza said.
There’s also the issue of patent protection. Treatments that receive orphan drug designation can also be given seven years of market exclusivity after approval.
With a number of Amgen’s drug patents set to expire, the two Horizon therapies potentially offer a significant revenue stream unencumbered by competition.
“In 2022, Amgen’s revenue base was over $26 billion in several therapeutic areas, including hematology, oncology and inflammation,” Renza said. “The Horizon drugs will give them traction in areas that they do not currently draw revenue.”
In fact, he said while Tepezza brought in $2 billion in revenue in 2022, analysts are predicting that number could reach nearly $4 billion by the late 2020s and Krystexxa, which yielded $700 million last year, could rise to as much as $2 billion in the same time period.
Departure
Katie Funk, a shareholder at law firm Baker Donelson, said the lawsuit represents a departure from recent antitrust actions.
“For the past 30 years, the FTC has reviewed transactions between pharmaceutical companies for horizontal overlaps, meaning they both had a product on the market or under development that treated the same condition,” said Funk, a former FTC attorney who is based out of the firm’s D.C. office.
“What makes this case different is that they don’t offer competing products,” Funk added. “In fact, Horizon is currently the only company offering drugs that treat these two conditions, and so, for now, it already has a legal monopoly.”
Instead, the FTC’s approach follows a theory used in the 1960s by the agency and upheld by the U.S. Supreme Court under Chief Justice Earl Warren to block a conglomerate merger between Procter & Gamble and Clorox.
“Unlike the present day, the 1960s Warren court was a very liberal court, which took an expansive view of antitrust law,” said University of the Pacific McGeorge School of Law Professor Frank Gevurtz. “The attitudes held by the high court were much different than they are now, but under Biden Administration appointee FTC Chair Lina Kahn they are being revived.
“The theory in the Amgen case is essentially that the mega giant would use its bundled arsenal to give packaged discounting or rebates to insurance companies to give Horizon’s two monopoly drugs a more favorable position, thereby damaging competition in the adjacent market, much like Procter & Gamble would use its advertising advantage to further entrench the monopoly position of Clorox bleach,” Gevurtz added.
USC Marshall School of Business Professor of Management and Organization Peer Fiss said the staunch antitrust stance is part of an overall trend that began as a reaction to the growing power of tech giants like Facebook and Google.
“It has been driven by FTC Chair Lina Khan, a rising star in the antitrust space who has pushed for more scrutiny of major tech players and has pursued a much more aggressive policy agenda,” said Fiss.
“The tech industry has been mobilizing against these policies for a while, lawyering up and lobbying lawmakers to fight against the growing tide to dismantle their power,” Fiss added. “I suspect that with this action by the FTC, we will see similar moves among the biotech and pharmaceutical industries.”
What’s next?
While an Amgen spokesperson has expressed confidence the deal will close, right now its fate remains in limbo.
A hearing on whether to grant the FTC’s request for a preliminary injunction is set for Sept. 11 before U.S. District Judge John F. Kness in Chicago. The judge has said it would likely be four weeks before he makes a decision.
Amgen has agreed not to close the deal before Oct. 31 or the second business day after the court rules on the matter.
If the FTC prevails and the parties continue their fight, the matter would move to a trial on the merits before an administrative judge at the FTC.
Should the FTC lose its bid for a preliminary injunction, it could file an appeal with the 7th Circuit. In either case, an appeal could drag the case out until next year or beyond.
The deal did have an initial termination date, which has automatically been extended.
“The drop-dead or outside date is Dec. 12,” said Funk. “The date can be extended, but it would require an amendment to the agreement, and could mean additional negotiations between the parties.”
The agreement between the companies calls for Horizon to receive a fee of $974,415,054 or about 3.5% of the transaction value if the deal does not close due to antitrust reasons, said Funk.
While Gevurtz and other experts don’t believe the FTC will prevail in the end, he said if the theory is successful, it could be used to try and block acquisitions involving businesses outside the biotech and pharmaceutical industries.
“This theory provides the potential to try and stop other deals down the road whenever large companies try to merge with smaller firms having narrow monopolies and the result is to provide the smaller company with some further marketing advantage,” said Gevurtz.
Although Horizon’s innovative therapeutics proved attractive to Amgen, should the deal fall apart, Renza said the company would likely set its sights on another business that would allow it to complement its current drug arsenal, but it could have a chilling effect on the current way in which it does business.
“Amgen’s appetite to grow won’t go away, but it might seek to do so through single smaller transactions that do not attract the same attention as this one has gotten from the FTC,” said Renza. “This strategy would make it more difficult for Amgen to expand its drug portfolio since it would have to do so one small transaction at a time.”
With the impact already sending shockwaves through the biotech and pharmaceutical industries, analysts are paying close attention to other proposed acquisitions.
“The FTC case, even if most see it as unlikely to succeed, will keep investors at the edge of their seats this year given how important M&A deals are to biotech,” said Renza.