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Amgen’s Horizon acquisition and pharma dealmakers’ caution on EC Article 22

The European Commission’s (EC) novel approach to sub-threshold merger referrals under Article 22 is prompting extra caution in deal risk assessment in the pharmaceutical sector, competition lawyers familiar with the industry told this news service.

On 12 December, Amgen [NASDAQ:AMGN] announced the acquisition of Horizon Therapeutics [NASDAQ:HZNP] in a USD 28.3bn deal. The deal’s timetable and Amgen’s CEO comments suggested a speedy regulatory clearance process is anticipated. However, lawyers in Europe have flagged that the EC’s Article 22 policy has prompted extra caution in deal and jurisdiction risk assessment.

In Europe the tie-up will require merger control clearance in Austria and Germany, according to the deal announcement.

Under Article 22, EU member states can refer a deal for Brussels review if it meets certain criteria, regardless of filing thresholds.

The deal does not immediately appear to be an Article 22 candidate, two lawyers said.

If the deal requires antitrust clearance in one or multiple European jurisdictions, it means that it’s not flying under the radar, commented Annamaria Mangiaracina, a partner at Linklaters, who said that an ideal candidate for Article 22 would rather be a deal which does not qualify for review in any country.

According to recent figures shared publicly by the EC, the agency has so far looked at approximately 30 cases that weren’t reportable anywhere in Europe, said Mangiaracina. Around half of them were reviewed/monitored by the EC on the EC’s own initiative and it only decided to examine one of these – the acquisition of GRAIL by Illumina [NASDAQ:ILMN].

However, Article 22 does not preclude the upward referral of a deal to Brussels by one or more member states where a transaction has been notified.

An innovative target and high deal value are the key red flags for Article 22 referrals, three competition lawyers agreed. The existence of competitors or other companies actively complaining to regulators about the deal is also an essential element to take into account in an Article 22 risk assessment, one of them said.

With sectors such as pharma, where innovation is an important part of competition, the likelihood of Article 22 is substantial if the company is involved in innovative therapies, one lawyer said. Authorities would look for targets with a very innovative technology or product, or something that in the future will make a difference, and whose innovation is potentially at risk of being “killed” by an acquisition, said Mangiaracina.

Amgen announced a tight timeline of 1H 2023 for closing, with its CEO bullish on regulatory clearances. “We continue to feel very confident that the transaction will close in 1H23. We don’t see any overlaps that should be of concern to regulators,” he said during a conference call presenting the deal.

Company comments on regulatory clearances in a deal announcement are typically backed by preliminary legal analysis, both in terms of potential jurisdictions triggering a filing but also substance, commented Salomé Cisnal de Ugarte, a partner at King & Spalding in Brussels.

Transaction documents, deal rationale and value of the consideration are all factors that build into the Article 22 risk assessment, said de Ugarte. Those cases where the value of the transaction significantly exceeds the turnover of the target at the time of the transaction, need particular attention, as it could be an indication that the turnover of the target does not reflect its actual or future competitive potential, she said.

In 2020, Illumina had offered USD 8bn for GRAIL, which it described as a startup. GRAIL’s multi-cancer early detection test was due to launch commercially the following year.

Amgen secured the deal for Horizon after a competitive bidding process that included Sanofi [EPA:SAN] and Janssen Global Services, the pharmaceutical arm of Johnson & Johnson [NYSE:JNJ]. Its offer represents a premium of around 47.9% to Horizon’s last closing price prior to announcement of a possible deal. Horizon reported net sales of USD 3.2bn for its 2021 financial year, according to its annual report.

Beyond horizontal overlaps, into the future

In announcing the deal, Amgen’s CEO stressed the lack of obvious horizontal overlaps between the parties’ offering as a pathway to smooth clearances. However, horizontal overlaps do not tell the whole story on a pharma deal review, two of the lawyers said.    

With these pharma deals, a lot depends on the pipeline, whether they directly overlap and what the alternatives for treatments are, the first lawyer said. He was echoed by Ugarte, who noted that in pharma, as in other sectors where innovation is an important parameter of competition, you also need to take a forward-looking approach, and take a close look at pipeline products, R&D plans, essential assets such as patents or data etc to assess the potential risk of referral under Article 22.

In autoimmune/inflammatory diseases, Horizon is niched into rare diseases. However, both companies are developing a drug for atopic dermatitis; Amgen with its monoclonal antibody Rocatinlimab (formerly AMG 451 / KHK4083) and Horizon with ADX-914, a fully human anti-IL-7Rα, which is partnered with US-based Q32 Bio. Furthermore, both are targeting the arthritis population; Horizon’s drug Dazodalibep is in Phase II development for rheumatoid arthritis, while Amgen’s Otezla is in Phase III studies for Juvenile Psoriatic Arthritis.

Both companies have exposure to biologics, with Amgen’s portfolio including Aranesp (darbepoetin alfa) for anemia; KYPROLIS (carfilzomib) for relapsed or refractory multiple myeloma, and Sensipar/Mimpara (cinacalcet) administered for hyperparathyroidism, parathyroid carcinoma, and primary hyperparathyroidism.

One of the main reasons Amgen is acquiring Horizon is for its rare disease drug Tepezza (teprotumumab) for thyroid eye disease (TED).

On its call explaining the acquisition, Amgen’s management team mentioned that they will leverage their biologics expertise to manage Tepezza’s product life cycle, including potential subcutaneous formulations that Horizon is already working on. This includes the USD 190m partnership Horizon forged with Halozyme Therapeutics in 2020 which gives it exclusive use of the ENHANZE technology for subcutaneous formulations of medicines targeting IGF-1R. In November, Horizon also sealed an agreement with Xeris Biopharma [NASDAQ:XERS] to develop an ultra-concentrated, ready-to-use, subcutaneous injection of Tepezza.

Horizon’s UPLIZNA (inebilizumab-cdon) drug is expected to generate more than USD 1bn in annual peak sales, as reported, as a treatment for neuromyelitis optica spectrum disorder (NMOSD) and two additional indications in late-stage development, namely generalized myasthenia gravis and IgG4-related disease.

Horizon’s Krystexxa (pegloticase) which is indicated to treat a severe, debilitating form of chronic gout, has generated USD 500m in net sales YTD 2022 and is expected to generate more than USD 1.5bn in annual peak sales, as reported. In the same disease area, Amgen last undertook a pilot study with its autoimmune drug Etanercept (triamcinolone acetonide) in acute gout in 2021, according to the US FDA’s Clinicaltrials.gov.

With its acquisition of Viela Bio for USD 3.05bn last year, Horizon said that the combined annual peak sales potential of its existing product portfolio and the pipeline is more than USD 10bn.

Aside from Amgen, among the top players in biologics are Abbvie [NYSE:ABBV], Roche [SWX: ROG], Sanofi and Pfizer [NYSE:PFE].

Amgen declined to comment beyond the 2.7 announcement. Horizon did not respond to a request for comment.