Amgen, Takeda Acquisition Targets Involve Limited Exposure To Medicare – And Price Controls
Executive Summary
Prospect of Medicare price setting under the Inflation Reduction Act was factored into the rationale for two recent and notable deals for products with limited exposure to the government insurance program.
Amgen, Inc.’s megadeal to acquire Horizon Therapeutics plc and Takeda Pharmaceutical Co. Ltd.’s agreement to purchase a promising investigational drug for psoriasis from Nimbus Therapeutics, Inc. are two recent examples of transactions involving products that can avoid the Medicare price controls established by the Inflation Reduction Act.
The IRA’s impact on the pharma industry’s business model will be profound, but that does not mean drug development or M&A will stop. They will just need to adjust.
Amgen’s agreement to acquire Irish rare disease drug developer Horizon Therapeutics for $27.8bn was not driven by the IRA. But Horizon’s product portfolio has features that would help ameliorate the impact of pricing constraints posed by the law, including the fact that the lead products have a relatively low exposure to the Medicare market.
The purchase, which would be Amgen’s biggest ever, will deepen the company’s focus on rare disease. It follows the company’s recently completed $3.7bn acquisition of ChemoCentryx, Inc., which has a portfolio of drugs for rare autoimmune conditions.
Horizon’s leading brands include Tepezza (teprotumumab) for thyroid eye disease, Krystexxa (pegloticase) for refractory chronic gout and Uplizna (inibilizumab) for neuromyelitis optica spectrum disorder. Uplizna is also being studied in the additional rare diseases myasthenia gravis and IG4-related disease.
All three drugs are biologics, which could be subject to Medicare-negotiated prices 13 years after approval under the IRA. Small molecule drugs could face negotiated prices just nine years after approval, leading to expectations that industry may focus drug development efforts more on biologics going forward. (Also see "Don’t Look Up? Congress Can’t Ignore Risk To Small Molecule Drugs In Pricing Bill, Investors Warn" - Pink Sheet, 3 Aug, 2022.)
The three also have orphan designations, which can exempt them altogether from being eligible for Medicare price negotiation. However, the law's exemption only applies to drugs with a single orphan indication. (Also see "IRA Effect: Alnylam Acting ‘Rationally’ In Halting Second Orphan Indication For Amvuttra – Analysts" - Pink Sheet, 7 Nov, 2022.)
Purchase Price For Nimbus Drug Totals $6bn, Including Milestones
Announced on 13 December, Takeda’s agreement to buy Nimbus’ oral drug for psoriasis for $4bn upfront and $2bn in milestone payments may seem risky given concerns that the government could dictate the drug’s price in Medicare before it is a decade old.
The deal is one of the biggest single-asset purchases in recent years and demonstrates Takeda’s high hopes for the drug. The milestone payments are contingent on the drug achieving annual net sales of $4bn and $5bn. Takeda plans to take the drug into Phase III in psoriasis next year and development plans include autoimmune indications beyond psoriasis.
Known as NDI-034858, the drug is expected to have enough sales in the commercial insurance market to offset any losses in Medicare. “In regards to [the] announcement on the acquisition of NDI-034858, we are confident in our projections” about market prospects for the drug, “which do incorporate the expected impact of the IRA,” a Takeda spokesperson told the Pink Sheet.
“Nimbus is focused on a younger non-Medicare population and therefore the impact of the IRA is limited in this case,” RA Capital Management managing partner Peter Kolchinsky pointed out. RA Capital is among the investors in Nimbus.
“This acquisition shows that when acquirers do take an interest in small molecules, it will be those with minimal exposure to Medicare, at least until the IRA’s price-setting timer for small molecules is adjusted upward from nine years to the 13 years that the IRA permits biologics,” Kolchinsky maintained.
The difference in revenue expectations for small molecule agents could be significant. Alkermes plc CEO Richard Pops said in a recent call with analysts “it’s been reckoned that the difference between 13 and nine years is about 50% of the total cash on cash from a revenue perspective.”
Alkermes announced a strategic divestiture aimed at taking advantage of the way the IRA favors biologics in November. (Also see "Cancer Drugs And Medicare: Range Of Impacts Expected From IRA Price Reforms" - Pink Sheet, 8 Nov, 2022.)