The biotech rally has been put on pause on news of the FTC lawsuit to block Amgen’s (AMGN) acquisition of Horizon (HZNP). Investors are now worried about other big M&A deals that have been announced so far in 2023. What are the implications of this move by the FTC, if any?
Level Playing Field for Smaller Bios by Slowing Big-Ticket M&A? - Unlikely
To date, 2023 has had $81B in M&A volume, putting it on pace with the 2019 record of $328B. The M&A frenzy has been driven by big ticket acquisitions, led by notable deals such as Pfizer & Seagen for $43B, Merck & Prometheus for $10.8B and Astellas & Iveric for $5.9B.
There has been a focus on acquiring future commercial-stage companies over early, unproven science. This strategy has narrowed the target pool and created “haves and have nots”, as Barbara Ryan puts it in this PharmExec piece.
- The haves being large-cap pharma companies with huge cash hoards, late-stage biotechs with solid data and near commercial assets and companies with already approved products.
- The have nots being earlier-stage, cash-guzzling companies with limited proof-of-concept data and few options to raise capital.
Will the FTC’s stance narrow this gap? We don’t think so.
The FTC’s stance on M&A is not something that is new to 2023. It has been well known for years, with FTC holding a workshop to examine the analysis of pharmaceutical mergers in June 2022 (analysis here).
According to politicians and policy makers, M&A is the cause of high prescription prices due to anti-competitive tactics. Apparently, Amgen acquiring Horizon fell into this category. This specific transaction would enable Amgen to use rebates on its existing blockbuster drugs to pressure insurance companies and pharmacy benefit managers (PBMs) into favoring Horizon’s two monopoly products – Tepezza, used to treat thyroid eye disease, and Krystexxa, used to treat chronic refractory gout.
The FTC’s argument is that consolidation in the industry bundles pipeline products to ensure the whole line of products gains preferred status when selling to hospitals, insurers and pharmacies. In the FTC’s eyes, these moves that come after the completion of an M&A deal lead to lower competition, inflated prices and forced layoffs.
Big Picture: Prioritizing Loss of Exclusivity
Even with this FTC stance in the background, big pharma went on their 2023 shopping spree. From 2023 to 2028 there is an estimated $160B+ of big pharma revenue at risk from loss of exclusivity. As blockbusters like Humira and Keytruda reach their loss of exclusivity dates, it is imperative for names like AbbVie and Merck to replace this revenue.
The fact is that big pharma buyers seek valuable assets that are on strategy for them. They are focused on commercial stage assets and don’t want to take the risk and added time to develop potentially interesting science. Smaller, earlier stage companies do not move the needle for big pharma. They are too early and too far away from commercialization.
Even with today’s Amgen/Horizon news, the have & have not theme will not change. Big pharma will continue the M&A spree once it is all said and done. The FTC can temporarily pause the bio rally, but big pharma has a bigger issue it will prioritize; loss of exclusivity leading to $160B in revenue to replace.
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