The Federal Trade Commission (FTC) has been taking a much more adversarial approach to mergers and acquisitions lately. For instance, it recently said it plans to block the pending deal between pharmaceutical companies Horizon Therapeutics (NASDAQ: HZNP) and Amgen (NASDAQ: AMGN). It has also slowed down the merger between Sanofi and Provention Bio to ensure that it will not unfairly harm other businesses or consumers.
Does the FTC’s recent tough stance on big deals increase the chances that Pfizer‘s (NYSE: PFE) acquisition of Seagen (NASDAQ: SGEN) will also run into problems?
Concerns about the FTC’s attempt to block the Horizons-Amgen deal
Late last year, Amgen announced it was planning to acquire biopharmaceutical company Horizon Therapeutics for more than $26 billion. For Amgen, it presented an opportunity to build out its rare-disease portfolio. In the first quarter of 2023, Horizon brought in $832 million in revenue, with nearly half of that coming from Tepezza, a treatment for thyroid eye disease.
It’s concerning that the FTC is looking to block the deal, claiming it will “stifle competition” in the pharmaceutical industry. But Amgen’s top five drugs are Prolia, Enbrel, Xgeva, Otezla, and Repatha, which are all focused on different areas. They wouldn’t overlap with Tepezza, which is by far the most appealing drug in the deal for Amgen.
Amgen’s management responded to the FTC’s concerns, stating the following: “We have been working cooperatively over the past several months to address the questions raised by the FTC’s investigative staff and believe we have overwhelmingly demonstrated that this combination poses no legitimate competitive issues.”
Is the Pfizer-Seagen deal in doubt, as well?
In Pfizer’s case, the healthcare giant has a much broader scope of drugs in its portfolio. It even has a whole segment related to oncology — which Seagen focuses on. At the time Pfizer announced the deal, it noted that it had 24 “approved innovative cancer medicines” and that by combining with Seagen, its early-stage oncology pipeline would double.
This deal, at $43 billion, is a more massive acquisition than Amgen’s deal. Last year, Seagen reported $1.7 billion in product revenue — all of which came from cancer treatments.
If the FTC sees an issue with Amgen merging with Horizons, it seems probable there will be some concerns relating to the Seagen-Pfizer deal, as well. There is considerable overlap between these two businesses. Seagen and Pfizer started submitting paperwork relating to their merger earlier this month. Within the next week, investors might learn of any FTC objections.
Should investors hold off on buying shares of Seagen or Pfizer?
If the deal fails to go through, it will likely have a much more drastic impact on Seagen than on Pfizer. Seagen may not find another buyer willing to pay as much for its business, which could lead to a lower valuation. Pfizer, however, may simply look for other businesses to acquire or potentially use the money to invest in its own pipeline.
Given the risks, Seagen wouldn’t make for an attractive buy at this stage as the upside is limited, and that’s in a best-case scenario where the deal goes through. Pfizer, however, still can be a good stock to buy right now as it’s trading near its 52-week low at an estimated earnings multiple of only 11. The healthcare average is now over 17.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer and Seagen. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.