The Federal Trade Commission plans to block Amgen's takeover of Horizon Therapeutics, the agency said Tuesday. The agency's move reverberated across the biotech segment, with an HZNP stock crash leading the way, as the FTC continued an aggressive stance toward mergers.
In a news release, the FTC said Amgen's takeover of Horizon would stifle competition for thyroid eye disease and chronic refractory gout treatment. Horizon makes Tepezza and Krystexxa, respectively, to treat these two conditions.
According to the FTC, the deal would "enable Amgen to use rebates on its existing blockbuster drugs to pressure insurance companies and pharmacy benefit managers into favoring Horizon's two monopoly products." Neither treatment has competition in the pharmaceutical space.
The news had a sweeping impact on the biotech space. On today's stock market, HZNP stock toppled 14.1% to close at 96.34. That's far below the $116.50 takeover price Amgen agreed to pay to secure the Horizon deal.
Meanwhile, shares of recent buyouts Seagen and Prometheus Biosciences tumbled a respective 6% and 1%.
HZNP Stock: FTC Action Has Broad Implications
FTC Bureau of Competition Director Holly Vedova referenced "rampant consolidation" in the pharma industry giving "powerful companies a pass to exorbitantly hike prescription drug prices, deny patients access to more affordable generics and hamstring innovation in lifesaving markets."
"The FTC won't hesitate to challenge mergers that enable pharmaceutical conglomerates to entrench their monopolies at the expense of consumers and fair competition," she said in a written statement.
The Biden administration, led by FTC chair Lina Khan, has taken an aggressive approach to challenging mergers. Despite this, the mixed record in the courts may have emboldened companies to pursue deals, even if they expect a legal fight.
In February, a federal court tossed the FTC's challenge to Meta Platforms' purchase of virtual reality fitness startup Within. Last fall, UnitedHealth Group got court approval of its Change Healthcare purchase, rebuffing a Department of Justice challenge.
Yet the FTC is still making waves. In April, the agency ordered Illumina to unwind its $7.1-billion acquisition of Grail, a maker of cancer-detection tests.
Companies Respond To FTC Decision
Amgen says it's disappointed by the FTC's decision and remains committed to closing the deal. The company says it doesn't have any competitive overlaps with Horizon that should raise antitrust issues.
"The FTC's claim that Amgen might 'bundle' these medicines (offer a multiproduct discount) at some point in the future is entirely speculative and does not reflect the real world competitive dynamics behind providing rare-disease medicines to patients," Amgen said in a written statement. "And we committed that we would not bundle the Horizon products raised as issues."
Amgen stock also sank 2.4% to close at 227.88 on the FTC news.
Horizon says the acquisition could accelerate the availability of rare-disease medicines to patients across the globe.
"The FTC's complaint impacts patients and is rooted in a theory about potential future 'bundled' contracts with payers and not competitive overlap concerns," the company said in a written statement. "Horizon does not and has no plans to bundle any of its rare disease medicines."
FTC Move: Biotech And HZNP Stock
Piper Sandler analyst Christopher Raymond says the news could have a chilling impact on biotech mergers and investing. Analysts say the companies are working on treatments for lupus and eczema, but those are earlier-stage efforts. The companies don't have any rival drugs on the market.
"This deal would seem to be a slam dunk under long-established antitrust considerations," he said in a note to clients. "If the reports are true, FTC would be signaling not just a more aggressive enforcement approach, but one that appears punitive and arbitrary, in our view," he said in a note to clients before the FTC confirmed it would block the deal.
Amgen announced the deal in December, which sent HZNP stock skyrocketing. Further, it was among a growing list of takeovers in the biotech segment. Later, Pfizer announced its $43 billion takeover of Seagen, and Merck unveiled the $10.8 billion Prometheus deal.
Now, Piper Sandler's Raymond says the rapid-fire cadence of biotech deals could come to a screeching halt. The timing is tricky for large pharmaceutical companies, many of which are facing patent cliffs and are looking to buy new products to fill revenue gaps, he said.
"While some may argue this new stance will simply drive mergers and acquisitions toward the earlier end of the development spectrum, we think the success penalty exacted on small (caps) and midcaps that ultimately bring a therapy across the goal line is likely to impact investment calculus for even the most early-stage program in the long run," he said.
Tricky News For Horizon
The news also poses a future threat for HZNP stock, analysts said.
The sales trajectory of Horizon's thyroid eye disease treatment, Tepezza, has been underwhelming in recent quarters, UBS analyst Ashwani Verma said in a recent note to clients. Tepezza sales tumbled 18% sequentially in the first quarter.
He views the stand-alone value of HZNP stock in the range of 65-70 per share.
Raymond, the Piper Sandler analyst, says Amgen would have a "very legitimate" cause to appeal the FTC decision, should the agency try to block the Horizon takeover.
"This deal — while not strategically a play we would have called — does transform the growth profile overnight," he said. "A Tepezza-less Amgen commercial portfolio clearly looks less exciting."
UBS' Verma says the FTC has allowed deals to progress when the companies have divested the potential overlapping assets. He has a neutral rating on HZNP stock.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
