Pfizer’s executive warns that the M&A crackdown is a disaster for the pharma industry

Pfizer’s senior executive warned that antitrust regulators cracking down on mergers and purchases would be “a disaster” for the innovation system that supports the pharmaceutical industry.

William Pao said that M&A was an important component of the funding system which supports the development by scientists of innovative therapies.

When asked on Wednesday what effect a tightening antitrust regime on the sector would have, he replied: “I think it’ll be a catastrophe for the system.”

Pao, the Pfizer head of clinical development and new therapy pipelines, said: “If you cannot get these M&A [deals] then it will stifle innovation.”

His comments come after the US Federal Trade Commission sued on Tuesday to stopAmgen’s $28bn acquisition of Horizon Therapeutics. The US Competition Commission sought to stop a pharmaceutical deal for the first time since more than 10 years.

Analysts warn that the FTC’s action could upset a business model used by large pharmaceutical firms for decades. These companies rely heavily on purchasing small and midsize groups of biotechs to replenish their drug pipelines.

The FTC’s filing of a lawsuit against this deal is likely to dampen M&A excitement across the biotech industry, especially given that Amgen and Horizon do not have overlapping portfolios. This was stated by Matt Phipps at William Blair Investment Bank.

Analysts have suggested that the proposed purchase by Pfizer of Seagen for $43bn, announced in march, could be threatened by the FTC.

Pao said that he is confident that the FTC will approve the Seagen acquisition. He was speaking at the US Pharma and Biotech Summit held in New York. Pfizer raised $31bn on Tuesday in a large-sized bond issue that will fund the takeover.

Robert Bradway, Amgen’s chief executive officer, had earlier expressed his confidence that the company would be able to close its Horizon acquisition despite the FTC’s opposition.

Amgen and Horizon both stated that they would fight the FTC at court to complete the deal.

The FTC claimed that Amgen would use rebates on its “blockbuster drugs” to pressure insurance companies and pharmacy benefits managers into paying for Horizon’s two medicines: Tepezza, for an autoimmune disease that affects the eye and Krystexxa, for a rare form of gout.

The FTC stated that if Amgen owned these drugs and used its market power to convince payers of their coverage, it would discourage other companies from developing rival medicines, which could eventually lower the price. According to the agency, Tepezza is priced at approximately $350,000 per six-month treatment course, and Krystexxa is priced at $650,000 for an annual supply.

Dealogic’s numbers show that Pfizer’s bond deal was the fourth largest of its kind. According to sources familiar with the details, the order book was around $85bn.

The eight-part loan, with maturities ranging from two to forty years, was more than Amgen’s $24bn infusion of February. Pfizer will redeem the majority of bonds and refund investors if the Seagen agreement is not completed on time or at all. Two of the bonds, which mature in 10 years and 30 years respectively, will not be required to meet these requirements.

Dan Mead is the head of Bank of America’s investment-grade syndicate, and was the lead bookrunner for the Pfizer bond issue. He said that it wasn’t uncommon to see financings like this.

Mead explained that “issuers often have additional financing needs, beyond M&A funding, and may wish to keep the debt outstanding in the event the merger or acquisition does not go through for any reason.”

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