The stock market was mixed at midday on Tuesday, as investors tried to reach a comfort level with the state of the global economy and the combination of near-term and longer-term factors affecting businesses and their strategic vision. Although the Nasdaq Composite managed to post modest gains, the Dow Jones Industrial Average and S&P 500 were both lower.
Dragging on market sentiment were a couple of well-known large-cap stocks that posted double-digit percentage declines in their share prices. Sea Limited (SE -0.67%) raised some concerns about the strength of consumers in the Asia-Pacific region, while shareholders in Horizon Therapeutics (HZNP) had to deal with a threat that could bring hopes for a lucrative acquisition to a grinding halt.
Sea Limited sees rough waters ahead
Shares of Sea Limited dropped 15% on Tuesday morning following the release of the Southeast Asian e-commerce and video game specialist's latest financial results. Investors weren't pleased to see signs that Sea's turnaround efforts haven't gained as much momentum as they had hoped.
Sea's financial numbers from the first quarter of 2023 didn't look bad on their face. Revenue climbed 5% year over year to $3.04 billion. The company reversed year-ago losses with net income of $87.3 million, which worked out to $0.15 per share.
However, there was a lot of disparity among Sea's various business segments. The e-commerce and financial services segments did well, with e-commerce sales climbing 36% and digital financial services revenue rising at a 75% rate. However, the digital entertainment division suffered a 43% plunge in segment sales, and while active user counts rose slightly over the past three months, the percentage of those customers willing to pay for services dropped from 9% to 7.7%.
Some investors came into Sea's report with a note of optimism, as news that the company had given workers a pay raise suggested that cost-cutting efforts might finally have run their course. Yet the damage to the video game-reliant digital entertainment business shows that Sea has further to go before it can declare victory in its turnaround efforts.
Could the Horizon deal be in jeopardy?
Shares of Horizon Therapeutics dropped even more sharply, falling 16%. The move came amid a new threat to Amgen's (AMGN 1.71%) efforts to acquire the rare disease specialist.
Horizon and Amgen announced in December that they had agreed to a merger. The terms of the agreement gave Horizon an overall value of $27.8 billion, with shareholders set to receive $116.50 per share in cash for their Horizon stock. At the time, Amgen and Horizon thought they could get a deal completed by midyear.
However, the Federal Trade Commission announced Tuesday that it had filed a lawsuit in federal court to block the transaction. The FTC is arguing that Amgen would have sufficient power to force insurance companies and pharmacy benefit managers to use Horizon's thyroid eye disease treatment Tepezza and chronic refractory gout drug Krystexxa.
The news came as a shock to many investors, in large part because it's the first challenge from the FTC to a pharmaceutical merger in recent memory, according to Bureau of Competition Director Holly Vedova. The agency has clearly sought a way to attack the complex financial relationships between drugmakers and intermediaries, and this merger seems to have been the right opportunity.
Horizon has been able to charge high prices for its treatments, in part because of lack of competition. Investors haven't given up on the merger entirely, but the steep drop shows significant concern about what the results of the FTC action could be.
