Dive Brief:

• Novo Nordisk’s offer to buy obesity drug developer Metsera may run afoul of federal law on premarket review of company acquisitions, the Federal Trade Commission told the companies in a Tuesday letter.
• While the FTC said its staff and commissioners “take no position” on the deal’s legality, the letter indicated that the structure of Novo’s proposal could allow the companies to evade a pre-merger review until “after potentially anticompetitive harms have already occurred.” Bloomberg first reported news of the FTC’s letter.
• Pfizer, which is competing with Novo to acquire Metsera, has argued that its rival’s bid would violate federal antitrust law because of Novo’s already dominant position selling obesity drugs. A Delaware court, however, denied Pfizer’s request to block the deal Wednesday and Metsera, in a separate statement, called Pfizer’s legal arguments “nonsense.”

Dive Insight:

On paper, Novo’s offer appears superior to Pfizer’s. Its most recent bid is worth $10 billion, surpassing Pfizer’s latest overture about $2 billion. But should the deal get hung up in a lengthy regulatory review, Novo’s offer could become less attractive to Metsera investors eager to receive their cash. Pfizer’s proposal, by comparison, has already been cleared by the FTC.

Novo, which markets one of the world’s best-selling obesity drugs in Wegovy and has multiple experimental medicines behind it, would gain up to eight more weight loss candidates by acquiring Metsera. That prospect is fundamental to Pfizer’s argument that Novo’s offer constitutes “attempted monopolization and conspiracy to monopolize” in a federal lawsuit. 

The FTC, meanwhile, raised two concerns in its letter. The first is the deal’s unorthodox structure, through which Novo would make a large upfront payment in return for half of the company’s shares — regardless of whether the deal closes — and then dole out the remainder later on. 

“Because Novo Nordisk’s and Metsera’s deal structure transfers significant rights, benefits, and risks to Novo Nordisk prior to the HSR Act review, we have concerns that proceeding with the acquisition without filing for premerger review may violate the HSR Act,” wrote Daniel Guarnera, director of the FTC’s Bureau of Competition, in the letter.

The regulator’s second issue is that constraints placed on Metsera while the deal is pending, such as a cap on capital expenditures or employee retention programs, could limit its ability to compete.

These types of concerns were raised by Metsera’s attorneys in deal talks preceding its decision to accept an initial bid from Pfizer in September, according to a regulatory filing. One unidentified bidder, called “Party 1” in the filing, proposed a nearly identical deal structure to the one Novo has moved forward with.

“We do comprehensive homework in terms of living up to all laws and regulations in order for the deal to close. We always do that, and we did that here, also with the assistance of external experts,” said Novo finance chief Karsten Munk Knudsen on an earnings call with analysts Tuesday. “So we’re confident that this deal can close according to regulations.”