United States: Antitrust M&A Strategic Path Re-Opened By The Amgen/Horizon Conduct Settlement

A Federal Trade Commission (FTC) settlement filed last week with merging pharmaceutical manufacturers re-opens a seemingly foreclosed antitrust path to clearance for parties pursuing non-horizontal mergers and acquisitions where antitrust considerations play a significant role.

Background

Amgen announced the ~$28 billion acquisition of Horizon on December 11, 2022, and the parties made their HSR filing on December 29. The FTC issued a "second request" on January 30, 2023.

A mere three and a half months later, on May 16, 2023, the FTC sued to block the deal. Specifically, the complaint alleged that the acquisition would "enable Amgen to leverage its portfolio of blockbuster drugs to foreclose actual or potential rivals to Horizon's top-selling medications" giving it the ability and incentive to entrench monopolies over Horizon's drugs, Tepezza and Krystexxa.¹

In a public statement in response to the suit, Amgen noted that it had tried to resolve government concerns without litigation: "[W]e committed that we would not bundle the Horizon products raised as issues[.]"² Notably, Horizon and Amgen do not compete in any drugs and do not distribute their drugs through the same channels – Horizon's drugs are covered under the medical benefit and Amgen's drugs are covered under the pharmacy benefit of health insurance plans. Pharmaceutical manufacturers typically negotiate medical benefits with health plans; in contrast, manufacturers typically negotiate pharmacy benefits with pharmacy benefit managers.

On September 1, 2023, the FTC and six states accepted a conduct remedy, essentially the commitment Horizon and Amgen made prior to the litigation, to resolve the government plaintiffs' cross-market bundled rebate concerns.

Strategic Options Opened Up Following the Amgen/Horizon Settlement

1. Conduct Relief is Possible. The FTC's settlement is a significant acknowledgement that conduct relief can resolve FTC merger concerns. Early in her tenure as Chair of the FTC, Lina Khan signaled in a letter to Senator Warren that such relief might not be available: "I also share your skepticism about the efficacy of behavioral remedies. Indeed, both research and experience suggest that behavioral remedies pose significant administrability problems and have often failed to prevent the merged entity from engaging in anticompetitive tactics enabled by the transaction."³ Chair Khan went on to note concerns with the "efficacy and resource intensity" of relying on "staff working with monitors to guard against order violations[.]"⁴ In Amgen/Horizon, however, Chair Khan recognized that, "an order alone can effectively halt" any "bundling or exclusionary rebating schemes involving Horizon's monopoly drugs."⁵

Until this settlement, merging parties (as well as FTC staff) may have assumed that behavioral remedies were completely off the table and approached FTC reviews with that assumed limitation in mind. Now, parties should consider whether the FTC's approach in Amgen/Horizon opens a reasonable path to merger clearance. One obvious limitation comes immediately to mind and bears emphasis. The FTC's settlement in Amgen/Horizon should not be read as a signal that every merger can be settled through conduct relief. The Amgen/Horizon challenge involved a non-horizontal theory of harm, and the remedy specifically targeted the conduct that the merging parties asserted they did not intend to pursue.

In future vertical and other non-horizontal transactions, however, merging parties can now consider whether the FTC might accept a conduct remedy. They should not assume, of course, that the FTC will be willing to settle every such merger with a conduct decree. Quite to the contrary, in accepting the remedy in Amgen/Horizon, the Chair discussed the matter-specific factors she found persuasive and signaled that in different circumstances the FTC might not accept conduct relief. First, the Chair recognized that different customer groups make the theoretical foreclosure harm in Amgen less likely: "A distinct feature of the conduct at issue here is that it involves bundling across different insurance benefit arrangements . . . ."⁶ Second, she noted the importance of other industry participants—the prescribing physicians—in the decision to purchase Horizon's drugs: "The conduct also involves orphan drugs for rare diseases, the selection and administration of which involves providers with incentives to resist and report exclusionary behavior."⁷ At this juncture, we can take from the fact of the settlement and the Chair's analysis that where the market structure and circumstances are analogous to the factors considered in Amgen/Horizon, the FTC may accept conduct relief.

2. The FTC May Negotiate Conduct Consent Decrees Short of Litigation. Now that the FTC has clarified that conduct relief is not off the table in all matters, merging parties and FTC staff might well consider whether, as an alternative to litigation and settlement during it, negotiation of a conduct decree is appropriate. Future matters will, of course, tell whether merging parties must wait until the FTC sues before it will consider conduct relief in other, similar matters, or whether the FTC will negotiate such relief during the investigation.

The benefits to both the parties and the FTC of settlement prior to litigation are clear. Such settlements can expedite resolution and avoid the delay and cost of crossing the litigation threshold. The Amgen/Horizon settlement proves the point. It is not unusual that the parties to a merger of the complexity of Amgen/Horizon and the size of Horizon and Amgen would take 18 months to complete the agency antitrust review with additional time in litigation, where like here, the merger raises an issue on which an agency is willing to sue. Horizon and Amgen are completing their transaction, however, 10 months after making their HSR filing – much quicker than if they had taken that longer route.⁸ Based on public documents, it appears that Horizon and Amgen complied with the second request in about two and a half months during which time the agency deposed at least 12 individuals, reviewed second request responses from 74 custodians, drafted a complaint and worked with experts to prepare for litigation. After that time period, despite the lack of pre-litigation discussions of a conduct settlement, the parties were able to negotiate a conduct settlement acceptable to both sides. In short, the agency completed sufficient investigation to determine what was necessary and acceptable to settle the matter.

Going forward, again in appropriate circumstances, a conduct settlement for a non-horizontal merger might be attractive to both the merging parties and the FTC and seemingly, similarly reasonably easy to fashion, now that the parties and the staff know that such a remedy may be acceptable to the Commission. Parties and agency staff that explore a settlement earlier in the investigation may get to resolution without litigation.

Conclusion

It remains to be seen how much of the previously accepted path to resolution of non-horizontal merger concerns has been re-opened at the FTC. In future transactions, parties and the FTC will need to determine whether those transactions are analogous or distinguishable from the circumstances that made the FTC amenable to settlement of Amgen/Horizon. Clearly, merging parties should respond to the developments in Amgen/Horizon by recognizing that there may be the opportunity to settle with a conduct remedy and prepare advocacy in support of that outcome if they want to pursue it. The Commission will, on the other side of the table, have to consider whether it can credibly refuse a settlement in circumstances similar to Amgen/Horizon, and whether to force matters to court that could be resolved with such a settlement short of litigation.

Footnotes

1. Compl. For TRO & Prelim. Inj. Pursuant to Sec. 13(b) of the FTC Act & Sec. 16 of the Clayton Act at ¶ ¶ 1, 6, FTC v. Amgen Inc., No. 23-03053 (N.D. Ill. June 22, 2023).

2. Amgen, Amgen Responds to FTC Action Re: Proposed Acquisition of Horizon Therapeutics, (May 16, 2023), https://www.amgen.com/newsroom/press-releases/2023/05/amgen-responds-to-ftc-action-re-proposed-acquisition-of-horizon-therapeutics.

3. Letter from Lina M. Khan, Chair, FTC, to the Hon. Elizabeth Warren, Senator, 1 (Aug. 6, 2021), available at https://www.warren.senate.gov/imo/media/doc/chair_khan_response_on_behavioral_remedies.pdf (in response to Sen. Warren's letter regarding the proposed Lockheed Martin/Aerojet Rocketdyne vertical merger).

4. Id. at 3.

5. Statement of Chair Lina M. Khan Joined by Comm'r Rebecca Kelly Slaughter and Comm'r Alvaro Bedoya In the Matter of Amgen, Inc. & Horizon Therapeutics plc, at 3 (Sep. 1, 2023).

6. Id. at 4

7. Id.

8. In 2022, the average duration of a significant investigation from initial merger filing to a closing statement or complaint was 11.8 months. Over the last two years, where an agency filed a federal complaint to block the transaction, litigation has lasted an average of just under 10 months between the complaint and decision. Damitt 2022 Annual Report (Jan. 23, 2023), available at https://www.dechert.com/knowledge/publication/2023/1/damitt-2022-annual-report--timing-and-remedy-risks-grow-for-tran.html.

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