The merger of Amgen and Horizon makes strategic sense


Pharma investors are finally getting the M&A they crave. Amgen Inc. will pay $27.8 billion in cash for Horizon Therapeutics Plc, adding a portfolio of drugs for rare autoimmune diseases.

It’s expensive, but makes strategic sense. Horizon will help offset significant revenue losses at Amgen over the coming years as key products lose patent protection. The merger also leverages Amgen’s strengths in developing, manufacturing and commercializing biologic drugs.

Today’s deal comes after brief but fierce competition for Horizon. Sanofi SA and Johnson & Johnson also applied publicly for the Dublin-based biotech company, but have dropped out in the past few days. The price, Sanofi said, had become too high.

That’s likely not just because of competition, but also because of increased expectations of Horizon’s portfolio. Last month, Horizon raised sales forecasts for its two main products. Tepezza, which received US approval in 2020 to treat a vision-threatening autoimmune disease called thyroid eye disease, is expected to peak in annual sales of more than $4 billion based on higher-than-expected demand outside the US. And peak sales of gout drug Krystexxa, approved in July, are forecast to exceed $1.5 billion.

Amgen’s expertise in biomanufacturing and lifecycle management could help the company reach those higher numbers, and potentially scale them up. All of Horizon’s products have been approved in the US for the past three years, Amgen executives noted during a call to analysts this morning. That means Amgen can help shape their long-term development, a factor that has heavily influenced their interest in Horizon. Tepezza, for example, is currently infused every three weeks over a five-month period, but has the potential to be converted to a more convenient subcutaneous treatment — an approach that could benefit from Amgen’s deep expertise in product development, manufacturing, and marketing.

Maximizing this opportunity is critical for Amgen, as the company will lose patent protection for some of its key products by 2030. These include Enbrel and Otezla, both of which treat arthritis and psoriasis, and osteoporosis drug Prolia. Mizuho Securities analyst Salim Syed estimates that Amgen could lose up to 40% of its 2022 sales — or $10 billion — by 2030. The Horizon deal could fill about $5 billion to $6 billion of that gap. Investors are hoping that a drug for early-stage obesity could help with some of the remaining funds.

Amgen’s purchase comes amid tremendous pressure on big pharma and biotech companies to do more mergers and acquisitions. The industry’s biggest companies are sitting on a gigantic pile of cash: by the end of 2021, 18 of the top companies would have over $500 billion in cash by the end of this year, according to estimates by SVB Leerink analyst Geoffrey Porges. Meanwhile, many companies are having to find ways to offset expected sales losses as key products lose patent protection and new laws that allow Medicare to negotiate drug prices threaten prospects for other drugs.

Still, the industry has seen little activity beyond bolt-on acquisitions. Some rumored big deals have fallen apart — Merck & Co., for example, never settled with Seagen Inc. — and biotech companies rumored to be in the game appear to have fallen out of favor, at least for now.

Drug companies’ reluctance to spend signals some discipline in making deals, and Amgen’s purchase of Horizon fits into that pattern.

More by this author at Bloomberg Opinion:

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• Dynamic planning fails companies and workers: Leticia Miranda

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Lisa Jarvis is a columnist for Bloomberg Opinion, covering biotechnology, healthcare and the pharmaceutical industry. Previously, she was Editor-in-Chief of Chemical & Engineering News.

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