Pharma mergers: International working group formed to review how pharma deals are reviewed on competition grounds

Some mergers and acquisitions in the pharma sector have proved challenging and controversial. Given the impact of COVID-19, it is likely that pharma deals will be scrutinised even more thoroughly now and in the future by the various national and international competition agencies.

On 16 March 2021, the US, EU, Canadian and the UK competition agencies announced that they were going to coordinate more on pharma mergers.  They will share experience and expertise through a new working group.  It will not be a one-stop shop for clearances – filings will continue to each agency - but it will be a think tank on how such deals are reviewed.

The agencies involved are:

• the European Commission (particularly its Directorate General for Competition (DG COMP))
• the US Federal Trade Commission (FTC)
• the US Department of Justice
• the Canadian Competition Bureau
• the UK Competition and Markets Authority
• the Office of Attorney General in some US States (e.g. California, Pennsylvania, Virginia and Wisconsin but this number could grow).

The purpose of the working group is to identify concrete and specific steps to update the analysis of pharma deals.  It was a FTC initiative.  It is apparently outside the International Competition Network (ICN) but one would anticipate that ICN member agencies around the world will take note of the activity and output of this working group.

EU Competition Commissioner Vestager said that the working group would "take stock of the lessons learned in recent years and explore new ways to foster vibrant competition to the benefit of citizens".

The Acting Chair of the US' FTC, Rebecca Kelly Slaughter, said "given the high volume of pharmaceutical mergers in recent years, amid skyrocketing drug prices and ongoing concerns about anti-competitive conduct in the industry, it is imperative that we rethink our approach toward pharmaceutical merger review."  The US FTC saw the initiative as updating the approach to analysing the effects of pharma deals.

Matthew Boswell, Commissioner of Competition at the Canadian Bureau of Competition said that the "pharmaceutical industry is a vital part of Canada’s health sector, and we will continue to collaborate closely with our international partners to ensure we are staying on top of emerging issues – with respect to mergers as well as any type of potentially anticompetitive conduct.”

The CEO of the UK's CMA, Andrea Coscelli, said: "when large pharmaceutical companies decide to merge or to acquire innovative rivals, it is essential that competition authorities work together to protect consumers from any anti-competitive deals".

What will the group be looking out for?  Each agency has its own test (e.g. the UK looks for "substantial lessening of competition" while the EU looks for "significant impediment to effective competition") but they are seeking some common lessons for reviewing pharma deals generally. Fundamentally, all the countries will be scrutinising deals to find whether they would lead to higher prices, reduced innovation, poorer service, less availability or other anti-competitive conduct.  The working group will have a lot to consider – the UK's CMA identified issues such as "current theories of harm and whether they should be expanded, the full impact of pharmaceutical mergers on innovation and the types of remedies needed to address any competition concerns."  The FTC has already set out a set of questions for the working group to consider:

• how can current theories of harm be expanded and refreshed?
• what is the full range of a pharmaceutical merger’s effects on innovation?
• in merger review, how should we consider pharmaceutical conduct such as price fixing, reverse payments, and other regulatory abuses?
• what evidence would be needed to challenge a transaction based on any new or expanded theories of harm?
• what types of remedies would work in the cases to which those theories are applied?
• what have we learned about the scope of assets and characteristics of firms that make successful divestiture buyers?

An insight into the work of the working group is clear from the US' FTC statement: "this joint project taps expertise from competition authorities with whom the FTC cooperates frequently, as well as others with relevant experience, to ensure the most effective enforcement in these crucial markets. The goal of this initiative is to identify concrete and actionable steps to review and update the analysis of pharmaceutical mergers. This project will ensure that FTC investigations include fresh approaches that fully analyse and address the varied competitive concerns that these mergers and acquisitions raise."

There are limitations to the group and therefore expectations should be managed.  The UK's CMA cautioned that the "project is in its early stages; any outputs would be determined by what the working group finds."  The European Commission stated, quite rightly, "the vast majority of notified mergers do not pose competition problems and are cleared after a routine review."

This is not a one-stop shop.  Deals will still have to be notified to the relevant competition agency which pharma businesses may benefit from a greater consistency in terms of the analysis deployed by agencies which should lead to somewhat more predictable and quicker reviews of transactions in the sector.

For more information on this topic please contact Dr Vincent Power, Partner or any member of A&L Goodbody's EU, Competition & Procurement team.

Date published: 18 March 2021