FTC settlement could shelter Amgen from US price cuts, taxes
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[September 06, 2023]
By Deena Beasley
(Reuters) - The U.S. Federal Trade Commission's decision on Friday to
allow Amgen's takeover of Horizon Therapeutics was the latest setback to
its stated goal of stricter antitrust enforcement, and instead paved the
way for Amgen to gain drugs not subject to new price negotiations and
possibly lower the company's tax burden.
The move signals the FTC's uncertainty that a court would support its
novel theory of future competition being disadvantaged by Amgen's
"bundling" of drugs in negotiations with insurers.
"I think there is some skittishness on whether to pursue this and
develop new case law," said Abiel Garcia, a partner at Kesselman,
Brantly & Stockinger and a former deputy attorney general in
California's antitrust department.
Until Friday's settlement, the case was scheduled to go before U.S.
District Judge John Kness, who was nominated to the court by former
President Donald Trump.
Federal antitrust authorities "may be reassessing their position given
the recent slate of judicial decisions," Garcia said. "They really
didn't get the traction they expected."
The FTC in July abandoned its bid to block Microsoft's $69 billion deal
to buy Activision Blizzard, after earlier losing a fight to stop Meta
Platforms from buying virtual reality content maker Within Unlimited.
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Amgen's acquisition of Horizon was the first biotech deal challenged
since the FTC's 2021 launch of a pharmaceutical merger task force, which
has been followed by workshops designed to explore concerns over
increased industry consolidation.
The settlement "is likely a win for Amgen," which will avoid any
potential break-up fee payment, said Evan Seigerman, a senior research
analyst at BMO Capital Markets.
With Horizon, Amgen acquires drugs that won't be affected by new U.S.
negotiation requirements for blockbuster medications as well as possible
tax advantages stemming from Horizon's headquarters in Ireland.
The FTC, led by Lina Khan, a progressive, on Friday dropped its
opposition to the $27.8 billion deal, stipulating settlement terms that
largely reflected Amgen's offer in June not to use Horizon's rare
disease drugs, which are administered by healthcare professionals, as
leverage to secure better sales terms for products that are dispensed at
pharmacies.
TAX SITUATION
The deal, now expected to close early in the fourth quarter, will help
Amgen to diversify, adding two commercial products - thyroid eye disease
treatment Tepezza and gout drug Krystexxa - along with experimental
drugs.
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![](../images/090623PIX/health37.jpg)
An Amgen sign is seen at the company's
office in South San Francisco, California October 21, 2013.
REUTERS/Robert Galbraith/File Photo
![](http://archives.lincolndailynews.com/2023/Sep/06/images/ads/current/chicagostreet_quarter_FAIR_2023.png) "They are essentially buying an
orphan drug portfolio," Yaron Werber, an analyst at TD Cowen, told
Reuters. Horizon's drugs, and those Amgen acquired in last year's
ChemoCentryx deal, are not subject to the Inflation Reduction Act
(IRA) enacted by the Biden administration in 2022, he explained.
Orphan status, which includes an exclusive marketing period and
potentially faster approvals, is granted by the U.S. Food and Drug
Administration to encourage development of drugs for rare
conditions.
The IRA requires the U.S. Medicare health program that covers 66
million people to, for the first time ever, negotiate prices for
drugs it spends the most on. Medications for rare diseases, however,
are exempt.
The recently released list of the initial 10 prescription medicines
subject to the price negotiations includes Amgen's arthritis drug
Enbrel, which had 2022 sales of $4.1 billion.
Jefferies analyst Michael Yee, in a recent research note, said the
IRA could encourage more pharmaceutical deals as larger firms look
to avoid exposure to Medicare and instead seek out smaller companies
with rare disease portfolios.
The pharmaceutical industry has warned that the new law will have
unintended consequences, including incentives for drugmakers to
develop complex biologic treatments rather than chemically
synthesized drugs that are easier to manufacture.
Analysts said the Horizon deal could also help Amgen's tax
situation.
The U.S. Internal Revenue Service has accused Amgen of underpaying
billions in back taxes from 2010 to 2015, mainly by attributing what
should have been U.S. taxable income to a Puerto Rico manufacturing
unit.
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The United States has largely eliminated once-lucrative corporate
tax benefits for pharmaceutical manufacturing operations in Puerto
Rico, a U.S. territory.
But if a drug is made in Ireland, one of the world's largest
exporters of medicines, U.S. parent companies can reduce taxes by
shifting profits to an Irish manufacturing subsidiary.
Horizon offers Amgen "potentially a better tax jurisdiction related
to Irish manufacturing plants ... Amgen has a new manufacturing
process they could potentially move there," Cowen's Werber said.
(Reporting By Deena Beasley; editing by Peter Henderson and Paul
Simao)
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