Amgen/FTC: Deal Bar Ignores Pharmaceutical Food Chain Realities

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No agreement is completely inoculated against regulatory intervention. In December, biopharmaceutical company Amgen announced the acquisition of biotech star Horizon Therapeutics for $116.50 per share or $28 billion total. The US Federal Trade Commission sued on Tuesday to block the deal.

The decision was less of a shock than it would have been before Lina Khan started running the trust buster. Critics complain that the FTC simply wants to stop big companies from expanding because big must mean bad.

However, the move surprised the market. Horizon shares had traded as high as $113. That implied 3% spread was low, suggesting the deal would close.

Horizon’s two blockbuster eye disease treatments have little overlap with Amgen’s portfolio. However, the FTC’s theory of harm is that the Horizon acquisition will allow Amgen to exercise unfair market power. This seems strange. Big Pharma has always bought small drug developers to supply its pipelines.

Some emerging health science companies aspire to be the next Amgen, which has a market cap of $120 billion. The most successful or promising treatments are acquired by cash-heavy titans, who are capital allocators rather than keen innovators.

The FTC’s detailed opposition to the Horizon Agreement focuses on so-called pharmaceutical benefit managers. These companies determine which drug prescriptions are eligible for health insurance reimbursement. The game for drug makers is to get PBMs to put their drugs on these lists.

The FTC says Amgen is adept at bundling its drugs in PBM negotiations. Adding Horizon would give Amgen too much leverage in that horse business, the FTC says.

Health care spending accounts for about one-fifth of US economic output. The competition authorities want to limit the growth of costs. Industry counters that big profit opportunities fuel investment in science.

The deadlock begs a question: How big is too big to get even bigger via an acquisition? Pending clarification from the FTC, the answer is: anything over $120 billion.