What it means for other pharma deals

The Federal Trade Commission last week allowed Amgen to maneuver forward with its $27.8 billion acquisition of Horizon Therapeutics under a settlement agreement –  a move that would have ramifications for a string of other pharmaceutical industry buyouts.

Some Wall Street analysts said the FTC’s decision to settle allows the sector to breathe a sigh of relief, because it suggests that other large pending deals could proceed relatively unscathed after reviews. That features the agency’s examination of Pfizer‘s proposed $43 billion purchase of cancer drug developer Seagen. 

“The settlement materially mitigates regulatory headwinds” for the Pfizer-Seagen deal, William Blair analyst Matt Phipps said in a research note Friday. He added that the firm expects the acquisition to shut at the tip of the yr or early 2024. 

More broadly, the settlement is “a positive for the M&An area within the sector,” Truist analyst Robyn Karnauskas said in a research note Friday.

But some analysts and mergers and acquisitions experts said the settlement agreement may not stop the FTC from baring its teeth at other large buyouts within the industry. Some also speculated that the restrictions imposed on Amgen as a part of the settlement could have implications for other deals. 

“I feel that in a positive way, this hopefully helps other firms as they get evaluated. But I also think we’re just hearing that there is more of an appetite to be energetic by the FTC,”  said Nathan Ray, a partner at digital consulting firm West Monroe who oversees health-care M&A.

The Biden administration has moved to dam a spread of acquisitions across industries after many years of a light-touch approach by the federal government. The FTC’s lawsuit against Amgen in May was the agency’s first legal challenge to a pharmaceutical buyout in 14 years. 

The suit also got here amid a rebound in M&A activity within the industry: Pharmaceutical firms spent greater than $80 billion on M&A in the primary half of this yr, in keeping with data from Evaluate Pharma, putting 2023 on target to be the liveliest yr for deals since 2019.

The settlement agreement prohibits Amgen from bundling any of its products with two of Horizon’s blockbuster drugs, amongst other restrictions. That practice involves offering rebates or discounts on its existing products to pressure insurers and pharmacy profit managers into favoring the Horizon products.

BMO Capital Markets analyst Evan Seigerman said those conditions on the deal are likely a “non-factor” for Amgen, which has stated that it doesn’t intend to bundle products. 

Still, some analysts said the restrictions suggest the FTC could apply similar rules to other buyouts in the longer term.

“We also consider this might be a theme in future M&A wherein such restrictions … will apply to all future transactions,” Truist’s Karnauskas said in a note.

It’s unclear whether future limits imposed on other firms could have a more meaningful effect on their businesses. But analysts from Wells Fargo, in a research note Friday, said the restrictions imposed on Amgen “could pose a challenge for future deals.” 

West Monroe’s Ray added that the settlement agreement could “open up other pharma deals for some kind of review” by the FTC.

That is since the agency appears to be comfortable finding “fairly narrow reasons for why they could have issues” with deals, even ones that do not seem like creating anti-competitive situations, he said. Ray contends that the Amgen-Horizon deal doesn’t reduce competition for the reason that two firms have vastly different drug portfolios that do not compete – a view shared by many analysts. 

Even so, the settlement agreement could make the pharmaceutical industry “think more” before pursuing M&A, in keeping with the Wells Fargo analysts. 

“We’re of the view that FTC is scrutinizing larger deals more,” the analysts wrote. They added that they consider pharmaceutical firms “would need to stay under the radar with sub $10-15B deals.”

In a statement Friday, FTC Chair Lina Khan signaled that the agency is not going to let up on its antitrust scrutiny within the pharmaceutical industry. 

The FTC will “proceed to challenge illegal practices that raise drug prices, inhibit access, stifle innovation, or otherwise hurt patients,” Khan said.

Correction: Nathan Ray is a partner at digital consulting firm West Monroe who oversees health-care M&A. An earlier version mistakenly described the firm.