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Our Take: FTC sues to stop Amgen’s acquisition of Horizon Therapeutics, using an untested strategy with potential widespread ramifications

May 22, 2023

The Federal Trade Commission has filed for a temporary restraining order and preliminary injunction to prevent Amgen’s proposed $27.8 billion acquisition of Dublin, Ireland-based Horizon Therapeutics, claiming the deal would allow Amgen to use rebates on its blockbuster drugs as leverage to pressure payers and pharmacy benefit managers into “favoring Horizon’s two monopoly products.” 

The two drugs the FTC is concerned about are Tepezza (teprotumumab-trbw), which the FDA approved in 2020 as the first treatment for thyroid eye disease, and Krystexxa (pegloticase), which the FDA originally approved in 2010 as the first treatment for chronic refractory gout. Krystexxa is still the only biologic approved for this indication, and last year the FDA approved Horizon’s supplemental Biologics License Application, expanding the drug’s label to include the co-administration of methotrexate to reduce or prevent anti-drug antibodies. 

“Neither of these treatments have any competition in the pharmaceutical marketplace,” the FTC said Tuesday in a press release

“Given how central protecting and growing Tepezza and Krystexxa monopoly revenues are to the deal valuation Amgen calculated for Horizon, Amgen has strong incentives post-acquisition to raise Tepezza and Krystexxa rivals’ barriers to entry or dissuade them from competing as aggressively if and when they gain FDA approval,” the regulatory agency said. 

Typically, the FTC would raise concerns about an acquisition or merger when the companies involved in the proposed deal have rival drugs. And in most cases, the FTC would allow the transaction to proceed if one of the companies divested its competing drug(s). 

In this instance, though, the FTC is focusing — for the first time — on a practice known as bundling (also called a rebate wall), in which a drug company that has a dominant position in the market provides payers with rebates or discounts on the list price for a multi-product bundle of its drugs in order to gain preferential placement on the payers’ formularies. 

Payers who agree to such bundling arrangements are less likely to purchase individual drugs from rival companies, even if the drugs cost less or are more effective, because then they would lose their discount on all of the bundled drugs.    

Bundling not only can stifle existing competition. It also can discourage other drug companies from developing alternative treatments. 

Amgen said on Tuesday it told the FTC it would not bundle the Horizon products.

The company also said it has cooperated with FTC investigators over the past several months and believes it has “overwhelmingly demonstrated that [the acquisition] poses no legitimate competitive issues.”

The district court judge issued the temporary restraining order late on Wednesday, Reuters reported, after Amgen, Horizon, and the FTC agreed to permit a full briefing and allow the court “less compressed consideration” of the FTC’s request. 

Although Amgen could have attempted to close the acquisition as early as this Monday, the company agreed to hold off until Sept. 15 or the second business day after the court rules on the FTC’s request for a preliminary injunction, whichever comes first. 

Our Take:  The general early consensus among analysts and antitrust experts is that the FTC is facing an uphill battle in its attempt to prevent Amgen’s acquisition of Horizon based on the bundling argument.  

Nonetheless, the agency’s lawsuit could cause other companies in the biopharma sector to rethink any acquisition plans they may have, or at least postpone further discussions until they see what comes of this case — just as it looked like M&A activity in this sector might finally be starting to pick up again. 

The FTC’s announcement of the lawsuit even caused a temporary drop in shares of Pfizer and Seagen, though it’s unlikely this case will have any real impact on that deal. 

Here’s where it could have more of an effect: It will shed more light on Pharma’s use of bundling in payer contracts to avert competition, and the timing couldn’t be more critical. 

If you’ve been a regular reader of Our Take for at least the last several months, then you know that PBMs are in the hot seat. Lawmakers on both sides of the aisle, at both the state and federal level, have proposed legislation to restrict a number of common PBM practices, and the top PBMs are being investigated by the FTC, both chambers of Congress, state attorneys general and probably a few others.

This new FTC lawsuit could very well add bundling to list of practices under scrutiny.   

What else you need to know
Kaiser Permanente provided details in a regulatory filing about Risant Health, a nonprofit organization Kaiser Foundation Hospitals (KFH) recently created to accelerate the adoption of value-based care in multi-payer, multi-provider, community-based health system environments. If the planned transaction receives regulatory approval, Risant Health will acquire Danville, Pa.-based Geisinger, as announced late last month, with additional health system acquisitions to follow.

The filing states that KFH has designated up to $5 billion to support core Risant Health capabilities, technologies, tools, and future investments. Of that amount, KFH will invest at least $400 million (inclusive of funds generated by Risant Health) in the five years after the Geisinger acquisition closes. Risant Health will make available at least $2 billion (inclusive of Geisinger internally generated and Risant Health funds), as needed through the end of 2028, to support necessary hospital, ambulatory facility, technology, and other strategic and routine capital. Risant Health will also assure minimum funding of $100 million through the end of 2028 to support the expansion of Geisinger’s health plan and care delivery services into surrounding communities, as well as the availability of at least $115 million in annual funding for Geisinger’s research and education enterprises for at least 10 years after the acquisition closes, which Kaiser Permanente expects to occur next year.

Envision Healthcare, a Nashville, Tenn.-based physician staffing firm, filed for Chapter 11 bankruptcy. In the announcement, Envision said it entered into a restructuring support agreement with key stakeholders “supported by more than 60% of the company’s approximately $7.7 billion in debt obligations.” In 2018, private equity firm KKR paid $9.9 billion, including debt, for Envision. The bankruptcy will deleverage approximately $5.6 billion of Envision’s debt and effectively wipe out KKR’s investment in the company. As a result of the restructuring, Envision’s Physician Services unit and its AmSurg ambulatory surgical care unit will become separate businesses “owned by certain of their respective lenders.” AmSurg, which currently has ownership in more than 250 surgery centers across the country, will purchase the surgery centers from Envision for $300 million plus a waiver of intercompany loans. Envision said it will continue to operate as usual during the restructuring.

The Department of Veterans Affairs renegotiated its contract with Oracle Cerner for the problematic Electronic Health Record Modernization program initiated in 2018. The VA halted additional deployments of the new EHR last month, saying it was “resetting” the project — the estimated cost of which has grown from $10 billion to $16 billion. The modified contract includes stronger performance metrics and larger financial penalties, The Spokesman-Review reported, and “dramatically increases” the VA’s ability to hold Oracle Cerner accountable for the system’s performance, responsiveness to end-users, and interoperability with other health systems. The original 10-year contract had a five-year option that expired last week. Instead of another five-year term, the contract will continue for five single-year terms. Congressional committee members said the amended contract is a start but more needs to be done. In separate news, Business Insider reported that Oracle has laid off 3,000 of the 28,000 employees who worked for Cerner when Oracle acquired the company for $28 billion last summer.

A group of labor unions filed an antitrust complaint against UPMC, claiming the 40-hospital health system based in Pittsburgh has used its dominant position in health care markets in some regions of the state to suppress wages and keep its employees from leaving for other jobs. SEIU Healthcare Pennsylvania, which is the state’s largest union for health care workers, and the Strategic Organizing Center, a labor federation, filed the complaint with the Department of Justice last week. They allege that UPMC has used its “monopsony power” to engage in anticompetitive acts and, therefore, may have violated the Sherman Act. UPMC said it is increasing its non-union workforce minimum wage to $18 per hour, starting in 2025, and its average annual salary is over $78,000. “There are no other employers of size and scope in the regions UPMC serves that provide good paying jobs at every level and an average wage of this magnitude,” said Paul Wood, UPMC’s chief communications officer, adding, “there is no policy that prohibits someone who leaves employment at a UPMC facility from being hired by another UPMC facility.”

Nashville, Tenn.-based HCA Healthcare agreed to buy 41 urgent care centers in Texas from FastMed. The acquisition includes 19 FastMed and 22 MedPost centers located in Dallas, Austin, San Antonio, Houston, and El Paso. HCA said in a press release it expects the transaction to close this summer. Financial terms were not provided. FastMed acquired the MedPost clinics two years ago.

What we’re reading 
Integrating Behavioral Health In Primary Care: Overcoming Decades Of Challenges. Health Affairs Forefront, 5.17.23

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