Analysis: FTC settlement could shelter Amgen from US price cuts, taxes

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05/09/2023 11:00

By Deena Beasley
       Sept 5 (Reuters) - The U.S. Federal Trade Commission's
decision on Friday to allow Amgen's takeover of Horizon
Therapeutics was the latest setback to its stated goal of
stricter antitrust enforcement, and instead paved the way for
Amgen to gain drugs not subject to new price negotiations and
possibly lower the company's tax burden.
    The move signals the FTC's uncertainty that a court would
support its novel theory of future competition being
disadvantaged by Amgen's "bundling" of drugs in negotiations
with insurers.
    "I think there is some skittishness on whether to pursue
this and develop new case law," said Abiel Garcia, a partner at
Kesselman, Brantly & Stockinger and a former deputy attorney
general in California's antitrust department. 
    Until Friday's settlement, the case was scheduled to go
before U.S. District Judge John Kness, who was nominated to the
court by former President Donald Trump.
    Federal antitrust authorities "may be reassessing their
position given the recent slate of judicial decisions," Garcia
said. "They really didn't get the traction they expected." 
    The FTC in July abandoned its bid to block Microsoft's
 MSFT.O  $69 billion deal to buy Activision Blizzard, after
earlier losing a fight to stop Meta Platforms  META.O  from
buying virtual reality content maker Within Unlimited.
    Amgen's acquisition of Horizon was the first biotech deal
challenged since the FTC's 2021 launch of a pharmaceutical
merger task force, which has been followed by workshops designed
to explore concerns over increased industry consolidation.
    The settlement "is likely a win for Amgen," which will avoid
any potential break-up fee payment, said Evan Seigerman, a
senior research analyst at BMO Capital Markets. 
    With Horizon, Amgen acquires drugs that won't be affected by
new U.S. negotiation requirements for blockbuster medications as
well as possible tax advantages stemming from Horizon's
headquarters in Ireland.
    The FTC, led by Lina Khan, a progressive, on Friday dropped
its opposition to the $27.8 billion deal, stipulating settlement
terms that largely reflected Amgen's offer in June not to use
Horizon's rare disease drugs, which are administered by
healthcare professionals, as leverage to secure better sales
terms for products that are dispensed at pharmacies.    
    
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    The deal, now expected to close early in the fourth quarter,
will help Amgen to diversify, adding two commercial products -
thyroid eye disease treatment Tepezza and gout drug Krystexxa -
along with experimental drugs.
    "They are essentially buying an orphan drug portfolio,"
Yaron Werber, an analyst at TD Cowen, told Reuters. Horizon's
drugs, and those Amgen acquired in last year's ChemoCentryx
deal, are not subject to the Inflation Reduction Act (IRA)
enacted by the Biden administration in 2022, he explained.
    Orphan status, which includes an exclusive marketing period
and potentially faster approvals, is granted by the U.S. Food
and Drug Administration to encourage development of drugs for
rare conditions. 
    The IRA requires the U.S. Medicare health program that
covers 66 million people to, for the first time ever, negotiate
prices for drugs it spends the most on. Medications for rare
diseases, however, are exempt.
    The recently released list of the initial 10 prescription
medicines subject to the price negotiations includes Amgen's
arthritis drug Enbrel, which had 2022 sales of $4.1 billion.
    Jefferies analyst Michael Yee, in a recent research note,
said the IRA could encourage more pharmaceutical deals as larger
firms look to avoid exposure to Medicare and instead seek out
smaller companies with rare disease portfolios.
    The pharmaceutical industry has warned that the new law will
have unintended consequences, including incentives for
drugmakers to develop complex biologic treatments rather than
chemically synthesized drugs that are easier to manufacture. 
    Analysts said the Horizon deal could also help Amgen's tax
situation.
    The U.S. Internal Revenue Service has accused Amgen of
underpaying billions in back taxes from 2010 to 2015, mainly by 
attributing what should have been U.S. taxable income to a
Puerto Rico manufacturing unit.
    The United States has largely eliminated once-lucrative
corporate tax benefits for pharmaceutical manufacturing
operations in Puerto Rico, a U.S. territory.
        But if a drug is made in Ireland, one of the world's
largest exporters of medicines, U.S. parent companies can reduce
taxes by shifting profits to an Irish manufacturing subsidiary.
    Horizon offers Amgen "potentially a better tax jurisdiction
related to Irish manufacturing plants ... Amgen has a new
manufacturing process they could potentially move there,"
Cowen's Werber said.

 (Reporting By Deena Beasley; editing by Peter Henderson and
Paul Simao)