Analysis: Amgen's antitrust woes spur wider pharmaceutical deal fears

Prometheus Biosciences

17/05/2023 11:00

By David  Carnevali
       NEW YORK, May 17 (Reuters) - Investors are scrambling to
assess the fallout of a U.S. regulatory challenge against Amgen
Inc's  AMGN.O  proposed $27.8 billion acquisition of Horizon
Therapeutics Plc  HZNP.O , with some fearing a spillover to
other big deals in the drug sector.
    While investors are accustomed to regulators under U.S.
President Joe Biden citing potential harm to consumers in
objecting to many large mergers, the U.S. Federal Trade
Commission's (FTC) lawsuit filed on Tuesday surprised those who
had brushed off the antitrust risk in Amgen's deal because of
its limited business overlap with Horizon.    
    Shares of Seagen Inc  SGEN.O , which Pfizer Inc  PFE.N 
agreed to acquire for $43 billion in March, dropped 6% to
$187.64, a big discount to the $229 per share all-cash deal
price, on concerns that U.S. regulators could challenge this
combination as well.
    Smaller biotech firms that are waiting for deals to be
completed, including Prometheus Biosciences Inc  RXDX.O  which
agreed to sell itself to Merck & Co Inc  MRK.N  for $10.8
billion, and IVERIC bio Inc  ISEE.O , which clinched a $5.9
billion sale to Astellas Pharma Inc  4503.T , posted narrower
stock losses of between 1% and 2%.
    Even shares of drug companies that do not have pending deals
but are seen by analysts and investors as potential acquisition
targets were hit. BioMarin Pharmaceuticals Inc  BMRN.O , Alnylam
Pharmaceuticals Inc  ALNY.O  and Sarepta Therapeutics  SRPT.O ,
which are all worth more than $10 billion, saw their shares drop
between 3% and 7%.
    Spokespeople for all of the companies either declined to
comment or did not respond to requests for comment. FTC
officials did not respond to a request for comment on whether
they planned to challenge any other pharmaceutical acquisitions.
    "The FTC filing a lawsuit to block (the Amgen) deal will
dampen M&A enthusiasm across the biotech sector, particularly
given the lack of direct portfolio overlap between Amgen and
Horizon," William Blair analysts wrote in a note. 
    
    FOCUS ON 'BUNDLING'
    The FTC said it opposed the deal because it was concerned
that Amgen could use rebates to pharmacy benefit managers -
middlemen who oversee drug benefits for employers and insurers -
in exchange for promoting Horizon's two key products, to the
detriment of rivals seeking to compete on price. 
    The products are fast-growing thyroid eye disease treatment
Tepezza and gout drug Krystexxa.
    Seeking to thwart a deal based on the potential for this
"bundling" practice is a novel approach that regulators had not
previously deployed in antitrust cases, analysts and legal
experts said. 
    Amgen has said that neither it nor Horizon plan to bundle,
and the experts said this line of attack stood a strong chance
of being shot down in court. 
    "I don't think (the FTC lawsuit) changes anything long
term," said one of several Jefferies analysts on a conference
call the brokerage hosted for clients on Tuesday to discuss the
implications of the regulators' move. 
    Nonetheless, the prospect of other deals facing regulatory
challenges spooked investors. Their focus is on Seagen, a major
cancer drug developer, whose acquirer, Pfizer, already has some
overlap in its product portfolio and pipeline.
        While Pfizer does not possess the drugs that Seagen
specializes in, which combine synthetic antibodies with potent
chemicals, the drug giant has a robust portfolio of more than 20
approved cancer medications. 
    "We could see similar challenges to the Pfizer/Seagen deal"
BMO analysts wrote in a note, arguing that the FTC could target
other major drug companies with the resources to engage in
bundling.
    
    UNDER THE RADAR
    Conversely, investors and analysts are hoping that smaller
pharmaceutical acquisitions will continue to fly under the radar
of regulators. This is why the shares of such companies that
have pending deals dropped much less on Tuesday. 
    Of the 11 acquisitions of publicly listed biotech companies
announced since the start of the year, only Pfizer's acquisition
of Seagen was worth well in excess of $10 billion. 
    "Thawing of interest in mega-deals would invariably shift
consolidation focus to smaller and earlier-stage biotech
companies – and more of them," Evercore analysts said in a note.

 (Reporting by David Carnevali in New York; Editing by Greg
Roumeliotis and Jamie Freed)
 ((David.Carnevali@thomsonreuters.com;))