Amgen/FTC: deal bar ignores realities of pharma food chain

No deal is fully inoculated against regulatory intervention. In December, biopharmaceutical firm Amgen announced the acquisition of biotech star Horizon Therapeutics for $116.50 per share or $28bn in aggregate. On Tuesday, the US Federal Trade Commission sued to block the deal.

The decision was less shocking than it would have been before Lina Khan began running the trust buster. Critics moan that the FTC simply wants to prevent large companies from expanding because big must mean bad.

The move surprised the market, nevertheless. Horizon shares had traded at up to $113. That implied spread of 3 per cent was low, suggesting the deal would close.

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

Some emerging health science companies aspire to be the next Amgen, which has a market capitalisation of $120bn. Most successful or promising treatments are acquired by cash-rich titans, which are allocators of capital more than keen innovators.

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

The FTC says Amgen is skilled at bundling its drugs in its PBM negotiations. Adding Horizon would give Amgen excessive leverage in such horse-trading, the FTC claims.

Healthcare spending accounts for about a fifth of US economic output. Competition authorities want to restrain its cost growth. The industry counters that big profit opportunities fuel investment in science.

The stand-off prompts a question: how big is too big to get any larger via a takeover? Pending clarification from the FTC, the answer is: anything over $120bn.