Amgen strikes out for the Horizon

Two weeks after takeover rumours surfaced, biopharma’s biggest buyout for two years is done. Amgen, the world’s biggest biotechnology company, will buy Horizon Therapeutics for $28bn, adding a clutch of marketed products for rare and autoimmune conditions and a pipeline that could benefit from deeper pockets.

Of the three interested parties Amgen was arguably in most need of a top-line boost, though Johnson & Johnson and Sanofi are now prime contenders for keeping the M&A wheels rolling next year. Both apparently baulked at the price that Amgen was prepared to pay, with Horizon finally going for a healthy 48% premium over its unaffected share price.

News of the all-cash deal, which will be funded partly through debt, sent Amgen’s shares down 1.5% in early trade, with investors concerned the company could be overstretching itself. On a call executives went to great lengths to deny this, stressing that buying Horizon would support “continued dividend growth” and ongoing investment in R&D.

Amgen’s chief finance officer ruled out an equity raise to help pay for the move, and said the “very robust free cash flow” that the Horizon business generates would see debt levels back to pre-deal levels by 2025. Share buybacks were not explicitly protected, however, and this this will be a focus when Amgen releases 2023 guidance early next year, alongside annual results. 

Tight-lipped

Irish takeover rules – Horizon is domiciled in Dublin – prevented Amgen from speaking about its expectations for Horizon’s products in any useful detail. The three brands it is acquiring – Tepezza for thyroid eye disease, Krystexxa for severe gout and Uplizna for Neuromyelitis Optica Spectrum Disorder – are forecast by the sellside to have $6.5bn in peak sales; Amgen’s internal predictions for the business will also be keenly awaited.

Neither could Amgen speak about its hopes for Horizon’s pipeline, other than in broadly positive terms. Considering the amount of money being deployed here, this lack of detail could leave many investors feeling sceptical – particularly when considering the group's recent commitments to its internal cardiovascular disease and obesity projects, which will be expensive developmental forays.

But Amgen’s arguments in favour of the move make sense. The group has substantial experience with biologics, in terms of development, manufacturing, reformulation and managing a product lifecycle. It is also better equipped than Horizon to exploit ex-US opportunities.  

Amgen already has a big presence in autoimmune and inflammatory conditions, and has made a success of products for other “low prevalence” conditions, as executives termed thyroid eye disease. Tepezza could possibly be sold by the same workforce that might soon be selling an Eylea biosimilar, Murdo Gordon, Amgen’s head of commercial operations, pointed out. The group’s move on Chemocentryx earlier this year also fits with Horizon’s pipeline.

None of which matters if Amgen has paid too much, of course. Answering that question will take time. Investors can perhaps take comfort from the fact that the premium is similar to the sector’s last takeout in this size range: Astrazeneca’s move on Alexion.

Pricey or not, Amgen is expected to have a big top-line hole to fill towards the end of this decade. Patents on several of its big sellers – Prolia, Xgeva, Otezla and Kyprolis – will start lapsing from 2025. And the group’s anti-TNF mega blockbuster Enbrel and oral psoriasis agent Otezla are being pressured by Bristol Myers Squibb’s new oral agent Sotyktu on one side and Humira biosimilars, which are arriving in the US in a matter of weeks, on the other.

Amgen is not the only major biopharma group in this predicament. Executive teams who missed out here must ask themselves what is worse: the punishment for overpaying or for being too cautious?