The surprise move by U.S. regulators to stop a merger in the drug industry has created alarm among industry insiders that the government is about to disrupt a successful business strategy.
The big, wealthy drugmakers buy smaller companies and their drugs to gain access to lucrative markets. The Federal Trade Commission filed suit on Tuesday to prevent Amgen Inc.’s purchase of Horizon Therapeutics Plc, which would be its largest acquisition. Amgen could use this to force buyers to pay high prices.
The news of the impending lawsuit leaked on Monday. Analysts were concerned with how the actions of the agency would impact drug development and deals. The smaller biotech and pharmaceutical firms often lack the funds to run trials, obtain regulatory approval and have drugs covered by payers. They pitch their pipelines to larger companies to help them get to the finish line.
Marc Engelsgjerd is a Bloomberg Intelligence Analyst. He said that a blockage of this deal would have a negative impact on the biotech sector. Exiting through acquisitions is a common practice for large biopharmas and a way to update their pipelines.
Horizon shares dropped as much as 19% intraday in New York. This is the biggest drop since August. Amgen fell about 2% by noon.
According to a press release, the agency wants to block Amgen’s deal out of concern that Amgen will use its power in the market to influence insurers and pharmacy benefit manager to prefer Horizon’s drugs. The FTC said that two of the medicines have no or little competition, and are expensive.
In a statement, Holly Vedova said that “Rampant merger in the pharmaceutical industry” has allowed powerful companies to hike drug prices exorbitantly, deny patients the access to generics at lower costs, and hamper innovation in markets where lifesaving innovations are needed.
Amgen expressed disappointment at the FTC decision, but remains committed to its acquisition. Amgen said that the FTC’s concerns over pricing are speculative and don’t reflect the “real world competition dynamics” behind providing rare disease medicines to patients.
The drugmaker stated that “we have worked cooperatively for several months in order to answer the questions raised by FTC’s investigators and we believe that we have demonstrated overwhelmingly that this combination does not pose any legitimate competitive issues.”
Analysts at Piper Sandler warned in a note published Tuesday morning, before the lawsuit was filed, that the government’s position puts smaller companies at risk of a narrowing escape route, while larger companies may look to acquire companies earlier in their development. If allowed to continue, this new approach will likely cast a long-lasting pall over the industry for some time.
THE STRONGEST MOVEMENT
Amgen’s purchase is the strongest deal that the agency has ever made in health care. FTC Chair Lina Khan said that large pharmaceutical companies produce few drugs, but they make the most profits. She expressed concern over rising prices for new drugs. The FTC also conducts a study on the role of pharmacy benefits managers who negotiate drug prices with manufacturers and insurers.
According to Well Fargo’s analysts, deals between $20 billion and $50 billion are most likely to be scrutinized by the FTC. This agency’s position is casting a shadow over another possible acquisition. Seagen Inc. shares were down 5.3% by 11:30 am in New York as the FTC reviews Pfizer Inc.’s proposed acquisition. Pfizer’s stock was not much changed.
Pfizer refused to comment on the Amgen deal directly, but pointed out statements made by Doug Lankler, general counsel. In March, he said that Pfizer expected regulators to closely review the Seagen purchase. “But our technologies and approaches in fighting cancer are really complimentary, and we believe that regulators will be able see the pro patient, pro competitive benefits” of combining both. Seagen declined comment.
As big drugmakers like Pfizer and GSK Plc have increased their efforts to market drugs that offer greater exclusivity or have few alternatives for patients, as is the case with cancer and rare diseases, the stakes are higher. Pfizer GSK and Johnson & Johnson all have dropped their consumer divisions in order to focus on the higher-margin opportunities.