2023 has boasted a transformative regulatory environment across market sectors, and life sciences is the latest industry receiving increased scrutiny from regulators as M&A deals in the space begin to ramp up after hitting pandemic lows. In 2022, we saw two massive M&A deals make headlines in the pharmaceutical industry: Johnson & Johnson’s $16.6B acquisition of Abiomed Inc. and Amgen’s $27.8B proposed acquisition of Horizon Therapeutics. While J&J’s transaction went through without difficulty at the end of last year, Amgen is now headed to the courts to defend its deal after the Federal Trade Commission (FTC) filed to block the proposed merger. The agency is seeking a temporary restraining order and preliminary injunction to prevent the deal from going through, which marks their first attempt at blocking a pharma deal in over a decade.
Despite the FTC’s recent influx of antitrust and M&A action in other verticals, this challenge surprised pharmaceutical players as Amgen was thought to have limited business overlap with Horizon. While the FTC has been threatening to shift its approach to pharmaceutical M&As since 2021, the conflict marks the first time that the regulator has altered their perspective to focus on companies’ past behaviors around drug pricing rather than specific product overlaps. What does this mean for the future of the deal, and how will subsequent M&As in the industry be affected?
The Impact of the Amgen Suit on Biotechnology M&As
The decision to block this deal paired with the FTC’s new approach to antitrust cases is forcing those involved in M&As to reevaluate potential mergers. The regulator claims that they seek to thwart the deal over concerns that Amgen could potentially “bundle” Horizon’s top-selling thyroid eye disease and gout drugs with its products, creating an unfair monopoly and opening the door to price gouging. The deal, which sheds a negative light on pharmaceutical dealmaking as healthcare innovation increases, sends a message to the market that the FTC is closely watching the pharmaceutical and biotech sectors, two industries ripe for consolidation.
Following a slow 2022, this year has already seen an influx of M&As as pharmaceutical patent cliffs approach, and this pattern is not likely to slow down as pharma companies grapple with ways to maintain market dominance. However, in the wake of the new precedent set by the FTC’s challenge, many industry analysts are worried that pharma companies may grow uneasy about the potential downsides, including regulatory action, resulting from M&A activity. Other biotech firms currently involved in acquisitions are already seeing a ripple effect; shares of Seagen Inc, which is set to be acquired by Pfizer, dropped 5% after the challenge was announced. Other small companies engaging in M&As like Prometheus Biosciences, IVERIC Bio Inc, and more posted narrower losses, while some firms that aren’t involved in pending deals at all were hit even harder. BioMarin Pharmaceuticals, Alnylam Pharmaceuticals Inc, and Sarepta Therapeutics saw drops in stock prices ranging from 3 to 7% on account of their acquisition potential, showing just how hard this conflict has hit industry conglomerates in such a short period.
How Experts Can Help Mitigate M&A Litigation Risk
As pharmaceutical companies look for ways to bolster their position in the market and ensure future success amid rapid innovation, they will likely continue looking to M&As to fill looming growth gaps, supplement falling valuations, get ahead technologically, and improve their time to market. Alternatively, many biotechs are attempting to mitigate risk by engaging in smaller collaboration and licensing deals, which ultimately feeds into greater M&A activity in the sector.
Engaging with a strong team of pharmaceutical experts can help biotech companies de-risk operations and assist in the creation of due diligence programs that will ensure impending deals will not be faced with any regulatory roadblocks. Former regulators and pharma executives can offer insight into the ins and outs of the pharmaceutical industry’s legal framework specific to a drug’s IP, collaboration potential, international compliance, and more. Further, engaging with engineers, researchers, and scientists in the space who understand the science and economics behind creating these products will offer a true valuation of the opportunities associated with their release.
Additionally, economists and financial industry analysts will not only help assess the financial risks associated with a specific deal but can also help fulfill firm diligence obligations commonly requested by licensors and sellers. These experts can also help those considering an M&A deal decide which deal structure is right for them and which provisions to include as the regulatory environment around these transactions becomes more complex.
Need help preparing for an influx of M&As in the pharmaceutical space? Learn more about our teams of life sciences experts who are highly credentialed scientists, medical doctors, engineers, industry veterans, and former regulators. Contact us for more information about retaining the best-suited experts to support your needs.