Deal or no deal? That's now the big question for investors concerning Amgen's (AMGN 0.60%) pending $28 billion acquisition of Horizon Therapeutics (HZNP).
The Federal Trade Commission (FTC) announced on Tuesday that it has filed a lawsuit to prevent this buyout from happening. Unsurprisingly, shares of Horizon Therapeutics sank on the news. Amgen's share price dipped slightly. What's next for both biotech stocks after the FTC's move to block the transaction?
Behind the FTC's decision
In the past, the FTC has attempted to intervene when two companies with rival drugs sought to combine. Even in those cases, though, the FTC typically has only demanded that the acquiring company sell one or more products to enable the deal to be finalized.
However, this situation is different. Amgen and Horizon don't have products that compete against each other. So why is the FTC trying to stop the acquisition? The agency stated in a press release that "the deal would allow Amgen to leverage its portfolio of blockbuster drugs to entrench the monopoly position of Horizon medications used to treat two serious conditions, thyroid eye disease and chronic refractory gout."
The FTC believes that Amgen might try to offer rebates to insurers and pharmacy benefits managers on its current products to get them to give preferential treatment to Horizon's thyroid eye disease drug Tepezza and chronic refractory gout drug Krystexxa. This could cause other drugmakers with potential rivals to these drugs to face stiffer competition against them.
Potential impact on the stocks
Horizon has the most to lose if the FTC's attempt to block Amgen's acquisition works. Shares of Horizon skyrocketed in December after the Amgen deal was announced. Even with today's plunge, Horizon's share price remains well above where it was before the transaction announcement.
It could be difficult for Horizon to find another suitor. Sure, Johnson & Johnson and Sanofi were also reportedly interested in buying Horizon last year. But the FTC could raise the same issue with these big drugmakers that it is currently flagging with Amgen. If the agency's lawsuit is successful, Horizon stock seems likely to fall a lot more.
There are a couple of key downsides for Amgen if the FTC blocks the acquisition of Horizon. First, it would have to fork over more than $974 million to Horizon if the transaction isn't finalized. Second, Amgen would probably have to avoid buying a smaller company that has products without solid competition to reduce the chances of another FTC action.
Still, Amgen's prospects aren't nearly as bleak as Horizon's in this scenario. Business should continue as usual for the big biotech. Amgen could also potentially find another acquisition candidate that the FTC wouldn't oppose. Its stock probably won't be impacted all that much if the Horizon deal falls through.
Don't put the cart before the horse
However, it's premature to assume that the FTC will succeed in its effort to block Amgen's acquisition of Horizon. Amgen stated that it plans to "work with the court on a schedule that would allow the transaction to close by mid-December."
The FTC's entire argument is based on the idea that Amgen will try to "bundle" Tepezza and Krystexxa with its other products. But Amgen has already committed to not bundling Horizon's therapies.
Amgen maintains that the FTC's lawsuit "is entirely speculative and does not reflect the real world competitive dynamics behind providing rare-disease medicines to patients." Jefferies analyst Akash Tewari seemed skeptical about the FTC's prospects of winning, stating that the lawsuit against Amgen and Horizon "would be one of the weakest recent cases we've seen" from the agency.
It's quite possible that the FTC's attempt to block Amgen's acquisition of Horizon will fail. If so, look for Horizon stock to again soar -- and for Amgen stock to stay the course.
