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

No deal is completely immune to regulatory intervention. In December, biopharmaceutical company Amgen announced it was acquiring biotech star Horizon Therapeutics for $116.50 per share, or a total of $28 billion. On Tuesday, the U.S. Federal Trade Commission filed a lawsuit seeking to block the deal.

The decision was less of a shock than it was before Lina Khan started running Trustbreaker. Critics complain that the FTC just wants to stop big companies from expanding, because big must mean bad.

However, the move took the market by surprise. Horizon stock traded as high as $113. The 3% implied spread is low, suggesting a deal will close.

Horizon’s two blockbuster eye disease treatments have little overlap with Amgen’s portfolio. However, the FTC’s theory of harm is that acquiring Horizon would allow Ann to exercise unfair market power. This seems very strange. Big pharma always acquires small drug developers to complement their pipelines.

Some emerging health sciences companies aspire to be the next $120 billion Amgen. Most successful or promising treatments are acquired by cash-rich giants who are capital allocators rather than eager innovators.

The FTC’s detailed opposition to the Horizon deal centers 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 get their drugs on these lists.

Amgen is adept at bundling its drugs in PBM negotiations, the FTC said. The FTC claims that joining Horizon would give Amgen too much leverage in this bargain.

Health care spending accounts for about one-fifth of U.S. economic output. Competition authorities want to curb its cost growth. The industry counters that huge profit opportunities drive investment in science.

The impasse begs the question: How big is too big to scale up through acquisitions? Subject to clarification from the FTC, the answer is: more than $120 billion.