On May 16, 2023, the Federal Trade Commission sued to block Amgen Inc.’s purchase of Horizon Therapeutics plc, showing that the agency aims to make good on its promise to police mergers in the pharmaceutical sector more aggressively than it has in the past. The FTC’s complaint alleges that the transaction would allow Amgen to leverage its portfolio of blockbuster drugs in negotiations with insurance companies and pharmacy benefit managers (“PBMs”) to insulate Horizon products from competition. This “portfolio-effects” theory of harm marks a significant departure from the FTC’s traditional approach of evaluating whether a pharmaceutical merger reduces competition between competing products and underscores the Commission’s willingness to pursue novel theories of harm.
Transaction Background: In-Depth Examination
On December 12, 2022, Amgen announced an agreement to acquire Horizon for $27.8 billion — the largest US pharmaceutical transaction announced in 2022. Neither of Horizon’s lead products — Tepezza, for treatment of thyroid eye disease, and Krystexxa, for treatment of chronic refractory gout – face significant competition today. Although Amgen and Horizon do not compete in these treatment areas or share a supply relationship, the FTC conducted an in-depth review of the transaction.
The FTC’s Diagnosis: Anticompetitive Portfolio-Effects
The FTC alleges that the acquisition would allow Amgen to offer rebates on its existing blockbuster drugs, including Enbrel, Otezla, and Prolia, to pressure insurance companies and PBMs to favor Horizon’s Tepezza and Krystexxa products, raising rivals’ barriers to entry, and insulating Tepezza and Krystexxa from competition. In support of its theory, the FTC cites (1) the Parties’ internal documents and (2) Amgen’s prior practice of conditioning rebates on blockbuster products on priority placement for other Amgen drugs on insurers’ and PBMs’ list of covered medications. In particular, the FTC focuses on a pending suit filed against Amgen that alleges an anticompetitive bundled rebate scheme to foreclose competitors to Amgen’s Repatha product.
Unclear Remedy: FTC May Face Hurdles in Court
The FTC’s portfolio-effects concerns represent a novel theory of harm that could receive an icy reception in court. The Parties are not significant competitors in any relevant market, which may make it difficult for the FTC to demonstrate that the transaction is likely to “substantially lessen competition” or “tend to create a monopoly” as required under the Clayton Act. Additionally, at the center of the challenged conduct are price rebates (i.e., price reductions) that arguably have a procompetitive benefit for payers and patients.
Moreover, Amgen’s press release responding to the FTC’s suit indicates that Amgen has committed not to bundle Tepezza and Krystexxa with its other products. Recent courts have declined to block transactions where acquiring parties have offered unilateral commercial “fixes” to concerns regarding potential post-closing behavior (See U.S. et al. v. UnitedHealth Group Inc. (D.C. Cir. 2022); United States v. AT&T, Inc. (D.C. Cir. 2019)). As a result, the FTC may well face an uphill battle in court. Indeed, Amgen’s press release affirms that it “believe[s] in the benefits of the acquisition and intend[s] to work with the court on a schedule that would allow the transaction to close by mid-December.”
Prognosis for Future Transactions: Enhanced Scrutiny for Big Pharma Acquisitions, But Strong Defenses May Be Available
The FTC’s lawsuit to block Amgen’s acquisition of Horizon is consistent with its past rhetoric signaling an enhanced scrutiny of pharmaceutical mergers. This case shows that the FTC is not afraid to challenge a merger based on novel portfolio-effects concerns. Pharmaceutical companies with large and successful product portfolios should expect the FTC to scrutinize their transactions closely, including by assessing the potential for portfolio-effects – especially if the FTC succeeds in blocking Amgen’s purchase of Horizon.
Large pharmaceutical companies with expansive portfolios will need to account for potential portfolio effects when evaluating and determining the regulatory strategy for a potential acquisition and cannot limit the risk assessment to garden variety horizontal and vertical overlap concerns. In particular:
- Buyers with a history of implementing portfolio rebate strategies should be prepared to defend why a potential acquisition is procompetitive, including with regard to portfolio expansion;
- Buyers should be prepared to demonstrate the procompetitive, output enhancing nature of any portfolio rebate practices (e.g., lower prescription drug costs for payers and patients, and ultimately lower premium costs for consumers and employers); and
- Buyers should consider their willingness to address portfolio theories of harm via litigation, if necessary.
