Mulling biopharma’s Minority Report moment
Amgen might yet prevail in its attempt to buy Horizon, but the FTC shockwaves will still be felt.
The FTC made it crystal clear last year that certain drug pricing practices were in its sights, but few expected the watchdog to crack down on offences yet to happen. True, Amgen has previously been accused of the sort of bundling and rebate schemes that the agency highlighted in its surprise statement yesterday, but many believe that the FTC's action represents overreach.
Amgen insists that it remains committed to buying Horizon and there are reasons to believe that it could eventually succeed. But in the meantime the sector is left wondering what this means for transactions under way or in the works. If M&A really is the lifeblood of biopharma, has the antitrust watchdog just inflicted a damaging wound?
As analysts at Stifel pointed out, buyouts are a vital mechanism for investors to make returns and recycle capital into earlier-stage companies, but also for developers to grow. Large groups could struggle to do this quickly and efficiently if big-scale M&A is off the table, or at least much harder to execute.
Perhaps this FTC move means that smaller bolt-ons become preferable – a trend that was arguably already happening – or prompt an uptick in licensing transactions. In another potential knock-on effect, it could eliminate the takeout premium at which successful developers trade.
“We believe this broader perception of biotech M&A (i.e. smaller is better, bigger is hard) creates disincentives which parallel what we’ve seen with IRA legislation – i.e. becoming too successful will result in increased regulatory scrutiny,” Stifel analysts wrote.
Whether the more dire repercussions unfold depends a lot on whether the agency is successful in scuppering the deal. The basis of its complaint is that Amgen has used its power in the market with pharmacy benefit managers before, and it is likely to do so again, this time with Horizon's monopoly products, the thyroid eye drug Tepezza and chronic gout treatment Krystexxa.
It is true for now that these two agents have little competition, with few potential challengers in the pipeline. Viridian is poised to release late-stage data in the eye disease, while Selecta and Sobi hope to file a competitor to Krystexxa for approval next year.
Either way, there is no guarantee that the judge who hears the case will agree with this new theory of anticompetitive harm that the watchdog is pursuing. It is almost inevitable that the FTC will meet less hawkish regulatory stances throughout the judiciary. The agency currently has no Republican appointees on its committee, which is chaired by “a 34-year old progressive”, as Stifel described Lina Khan.
SVB Securities consider the watchdog’s position to be weak, relying on the theoretical possibility that Amgen will bundle Horizon’s products, something that the developer had apparently already committed to not doing. They believe that the action is based on a general frustration with US pharmaceutical pricing and rebating, and that the FTC will struggle to prove that this deal specifically will be anticompetitive.
For their part, Amgen and Horizon said they still hope to close the transaction by the end of the year.
Another point to consider here is that Amgen is a deft legal operator, having been described as a law firm with bioreactor. For this first test of a new theory of harm, the FTC has chosen a heavyweight opponent.
And if the agency loses? Perhaps large developers will be emboldened to make sizeable moves, safe in the knowledge that the FTC will need to find a new argument to stop them.
Still, it is also worth noting that the watchdog's 2022 statement, warning drug companies and PBMs that it was prepared to use its “full authority” to challenge conduct around drug pricing, was put out when the agency had a full set of five commissioners. This included two Republican appointees, who voted in favour of the policy.
The lofty bills that American people face for their medicines is a bipartisan issue. Schemes like bundling and patent thickets are hugely unpopular. This particular action against Amgen might not succeed but the biopharma sector should be under no illusion about what it signifies. The FTC has sharpened its teeth on drug prices, and is prepared to bite.