On November 28, 2024, the Commission published the results of an extensive ex-post study examining its past enforcement of merger control rules in the pharmaceutical sector (the “Study”).[1] 

The Study assessed transactions (i.e., M&As as well as licensing deals and R&D cooperation agreements) that took place between 2014 to 2018 and were not subject to merger control with a view to evaluating the pervasiveness of so-called ‘killer acquisitions’, whereby large, incumbent companies acquire smaller, innovative competitors “with the primary objective of discontinuing the target’s overlapping innovation projects, to the detriment of future competition.”[2]  The Study also examined five pharmaceutical mergers that have been reported to the Commission to examine how effectively merger review had addressed the risk that the acquirer discontinue overlapping projects to eliminate competition.  The Study concludes by outlining several reforms to better detect and deter ‘killer acquisitions’.

Takeaways of the Study

• Occurrence of ‘killer acquisitions’.  The Study finds that, among the 3,193 pharmaceutical transactions that took place between 2014 to 2018, 240 involved overlapping R&D pipelines.  Of those, 89 (37%) allegedly raised prima facie concerns because drug projects were discontinued post-transaction with no obvious legitimate reasons.  The Study however acknowledges that further information (including access to parties’ internal documents) would be needed to conclude whether any of those genuinely eliminated competition.
• Lack of effectiveness of the current legal framework.  The Study opines that the current regulatory framework fails to effectively address problematic ‘killer acquisition’ deals that “escape” ex-ante review, either because they fall below merger thresholds or are not to be structured as concentrations.[3]  A number of deals fall below the merger control thresholds.  Article 22 EUMR[4] referrals have been useful to capture deals falling below the EU threshold, but limited in scope following the Illumina/Grail judgment[5] (which held that Member States must be competent under their own national merger control rules to refer deals).  Antitrust tools (Articles 101 and 102 TFEU), which can examine deals ex post, are hard to apply effectively without insight into anticompetitive intent or effects.
• Policy recommendations.  The Study outlines several proposals to better detect and defer ‘killer acquisitions’: (i) revising the EUMR to lower the notification threshold and/or granting ‘call-in’ powers to the Commission, allowing it to require the notification of below-threshold mergers that threaten to significantly impede competition; (ii) requiring parties to transactions involving overlapping R&D pipelines (including licensing deals) to notify their deal in a simplified type of form and provide periodic updates on post-deal development and planned discontinuations; (iii) introducing new interim injunction powers to preserve innovation during investigations; and (iv) enhancing remedies to better prevent the risk of post-closing anti-competitive discontinuation of drug projects.

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Scope and methodology of the Study

Based on publicly available data sources,[6] the Study identifies over 6,000 transactions, including M&As and other transactions, such as licensing and R&D agreements, that occurred in the pharmaceutical sector between 2014 and 2018.[7]  Of those for which sufficient information is available according to the authors (i.e., 3,193 transactions), the Study identifies 240 transactions involving overlapping R&D projects.[8]  Of these, the Study finds that 89 transactions (37%) led to the discontinuation of such projects with no obvious legitimate reason.  The Study acknowledges that public information sources alone are insufficient to conclude whether the project was discontinued for a legitimate reason or to eliminate competition.[9]

To identify the total number of transactions that could potentially qualify as ‘killer acquisitions’, the Study employs a two-step methodology:[10]

• Automated analysis.  The authors of the Study used statistical models to identify transactions that may warrant further scrutiny based on observed patterns of discontinuation.  They assessed whether there was an ongoing commercialization or new clinical trial of the R&D projects of the parties.[11]  They classified the discontinuations they identified into three types:[12]
  • Type A (No Discontinuation):  No evidence of discontinuation; the drugs are either still under development (i.e., undergoing clinical trials) or the drugs are still on the market.
  • Type B (Inactivity-Based Discontinuation):  No evidence of new clinical trials initiated post-acquisition, and all trials “active” at the time the deal was signed are either completed or suspended for more than 24 months.
  • Type C (Discontinuation based on Termination/Withdrawal):  No evidence of ongoing development of the drugs; at least one clinical trial among those “active” at the time the deal was signed is terminated or withdrawn, suggesting potential strategic motivations.
• Once discontinuations are identified, they are classified as either ‘benign’ or prima facie relevant for further investigation as potential ‘killer acquisitions’.[13]
  • Benign discontinuations are those attributable to technical reasons, such as safety concerns or poor experimental design.[14]  This includes situations where: (i) drugs from both parties are discontinued after the deal; (ii) one drug is discontinued and the other is redirected post-acquisition; or (iii) if the drugs continue to overlap in the same or related MeSH terms,[15] indicating they are still being developed or marketed in the same therapeutic area.[16]  For Type C discontinuations, the Commission review termination reasons.  If the reasons are technical and unrelated to the transaction (due, e.g., to the involvement of regulatory authorities), the discontinuation is considered as benign.[17]
  • When a discontinuation is not classified as benign, it is considered prima facie relevant and flagged for further investigation.
• Manual screening.  A detailed review of these transactions is conducted to assess whether the discontinuation of the R&D project could result in a negative effect on competition.[18]  This entails (i) verifying the findings of the large-scale analysis and (ii) conducting research in public information on the transaction, the substitutability of the overlapping projects, the technical and clinical justifications for termination, the commercial viability of the discontinued R&D projects, and the potential impact on competition and innovation in the relevant market.[19]
• Case Studies.  The Study conducts case studies on five pharmaceutical mergers involving human drug R&D projects that were notified to the Commission between 2014 to 2018.[20]  The cases were selected based on overlapping R&D pipelines, market concentration levels, and potential anticompetitive risks.[21]  These cases were BMS/Celgene,[22] J&J/Actelion,[23] Novartis/GSK Oncology,[24] Novartis/GSK (Ofatumumab),[25] and AbbVie/Allergan.[26]

Effectiveness of competition law tools to address ‘killer acquisitions’

The Study identifies several areas where existing tools allegedly do not allow regulators to review the potential anti-competitive effects of below-threshold mergers ex ante:

• Insufficient public information.  Public sources lack insight into parties’ internal strategies, commercial incentives, and development plans of the parties involved.  The Study argues that without access to confidential company data, it is nearly impossible to assess ex ante whether a transaction may lead to the discontinuation of overlapping drug projects for strategic (anticompetitive) reasons, rather than for legitimate technical or commercial motivations.[27]
• Discontinuation of overlapping projects in concentrated markets.  Transactions involving “narrow overlaps” (i.e., cases where acquired and existing R&D projects “directly compete” in the same therapeutic areas)[28] pose the greatest risk to competition.  The 89 transactions flagged as potential ‘killer acquisitions’ involved the discontinuation of overlapping drug R&D projects where, based on publicly available information, no technical, safety, or clinical justification for halting development could be identified.  In such cases, the Study assumes the overlapping drug R&D projects may have been stopped for strategic motives, including eliminating future competition.[29]  The Study concludes that closer scrutiny is needed for transactions in concentrated markets, especially when they involve overlapping projects in advanced development stages.[30]
• ‘Killer acquisitions’ beyond M&A deals.  The Study finds that ‘killer acquisitions’ are not limited to M&A.  Licensing agreements and R&D collaborations accounted for 77% of the transactions identified as involving drug discontinuations.[31]  However, the Study claims that these deal types are frequently structured in a way to avoid triggering a filing obligation.  Given insufficient access to critical internal documentation, they often escape ex post regulatory scrutiny as well.[32]  The Study suggests that licensing and R&D agreements may also warrant the same level of regulatory review as M&A transactions.[33]
• Evaluating the current legal framework.  The Study formulates the following view on the current legal tools that allow to examine potentially relevant deals:
  • Articles 1 to 3 EUMR:  Most of the 89 transactions identified as potential ‘killer acquisitions’ were not notified to the Commission and involved early-stage, low-revenue targets.  They generally involved high transaction value suggesting strategic value and potential competitive impact.[34]  Turnover-based thresholds (alone) are not sufficiently apt to capture ‘killer acquisitions’, especially in the pharmaceutical industry where competition is driven to a significant extent by the innovations of relatively small firms.[35]
  • Article 22 EUMR:  The Study opines that this tool has been effective in capturing some problematic deals but lacks the scope to address all potentially harmful transactions.  In particular, since Illumina/GRAIL, [36] referrals are only possible when the referring Member State has jurisdiction under its own national rules or no merger control regime of its own.[37]
  • Articles 101 and 102 TFEU:  These provisions capture more relevant deals, because they also apply to non-concentration agreements such as licensing deals and R&D collaborations.  However, their ability to address complex agreements remains limited due to the high evidentiary burden imposed on regulators.  In particular, it is often difficult to prove that such transactions have the object or effect of restricting competition, especially when they involve early-stage innovation, uncertain development outcomes, and limited public visibility into the parties’ strategic intent.

What impact on future competition law enforcement?

To improve the effectiveness of competition tools and better prevent ‘killer acquisitions’ from happening, the Study identifies various areas of improvement:

• Amending EUMR to expand the scope of the Commission’s jurisdiction.  The Study proposes “targeted” amendments to (i) lower the thresholds set out in Article 1(5) EUMR, (ii) provide that Member States lacking jurisdiction under their own national merger control rules can refer a transaction ex Article 22 EUMR; or (iii) introducing “call-in” powers at EU level allowing the Commission to require the notification of a transaction falling below the threshold in the event the transaction threatens effective competition.[38]
• Registry system.  The Study proposes a new notification system, whether voluntary or mandatory, requiring companies with a turnover above a certain revenue threshold[39] to file notice whenever acquiring an interest in a pharmaceutical pipeline giving rise to market-to-pipeline or pipeline-to-pipeline overlaps.[40]  The reportability requirement would not apply only to acquisitions of “controlling interest (sole or joint)”, but also acquisitions of “greater than 10% in voting shares or other management decision making”, “assets comprising a business to which a market turnover can be attributed”, or some “other” (undefined) interest.[41]  The Study includes a proposed “Notice of interest” draft in Appendix A.5 of the Report, comprising of two forms.
  • Form A would be used to register a new acquisition of interest to be filed prior to or within seven days of closing.  The information required would be data that the registrant would have readily available following the transaction due diligence.  Section 1 requires basic information about the parties, as defined under the EUMR.  Section 2-4 require information about the interest being acquired, the type of transaction, the degree of exclusivity in any licenses, a summary of any collaborative arrangements, and a summary of the drugs in which the acquirer was obtaining an interest.  Section 5-7 require information regarding the transaction value and payment means.  Section 8 requires information on each overlapping product (where overlaps would be identified e.g., according to therapeutic information and mechanism of action), including the most recent three trials at its most advanced stage of development, with summary details regarding its status and reason for any suspension or termination, if applicable.
  • Form B is a single page form linked with Form A by the registrant’s registration number, which is received upon completion of a Form A.  The form is designed to allow the registrant to provide periodic (semi-annual or annual) updates on the status of each overlap product.

The Study finds that this reporting would help track licensing agreements and R&D collaborations in real time.  After filing notice, for a two-year period post-acquisition, registrants would be expected to provide: (i) periodic updates on the development and commercialization of overlapping drugs through the submission of a Form B and (ii) submit a report should they intend to discontinue the drug.  Following each entry and update, the Commission would have a limited time frame (e.g., three or six months) to launch an inquiry,[42] after which any inaction would result in a tacit approval of the most recent activity engaged by the relevant party.[43]

• New injunction powers.  According to the Study, the proposed new registry system for enforcement should be supplemented by new injunction powers, affording the Commission “some of the benefits of ex-ante review.”[44]  The Commission should be able to pursue interim measures (e.g., hold separate and project-maintenance obligations) while it investigates whether actions taken by the company regarding overlapping drugs are aimed towards anticompetitive shelving of the drug in question.
• Enhanced remedies.  The Study also examines the effectiveness of merger remedies in ensuring that R&D projects reach the market.  The Study finds that remedies were “generally well-designed” in the three pharmaceutical mergers examined that were cleared subject to remedies.[45]  However, in all three cases, at least one overlapping molecule was discontinued in the relevant therapeutic indication after the deal.  The Study clarifies that the discontinuation of a divested pipeline does not necessarily mean that the remedies were ill-designed, as development of pipeline drugs is by nature uncertain.[46]  Indeed, in all three cases, the project could have been discontinued due to technical reasons unrelated to the remedies, (e.g., technical drug failure, safety concerns, low accrual, lack of funding or futility).[47]   To overcome the inherent uncertainty to drug development, the Study suggests enhancing remedies to ensure pipeline projects are not discontinued post-closing with a view to eliminating competition but for valid motives.  The Study suggests this could be done (i) conditioning the clearance of a transaction on the divestiture of a pipeline to a Commission-approved buyer, (ii) ensuring the viability of divested assets, and (iii) monitoring post-merger compliance.[48]
• Antitrust enforcement powers.  The Study recommends deploying antitrust enforcement to address also non-M&A deals.  The Study suggests reviewing, for example, exclusivity clauses[49] in licensing agreements or monitoring dominant firms engaging in “buy-and-kill” tactics.[50]  However, the Study recognizes the importance of legal certainty and the issues that might arise if a regulator challenges ex post a transaction under Article 101 or 102 that was previously cleared ex ante under the rules of merger control, as “the legislature intended to exclude such a double assessment in principle.”[51]  “The conduct of a concentration which has been approved under the more specific rules of merger control […] could not as such be qualified (any longer) as an abuse of a dominant position within the meaning of Article 102 TFEU, unless the undertaking concerned has engaged in conduct which goes beyond that and could be found to constitute such an abuse”.[52]

Conclusion

The Study yields the following key conclusions:

• The methodology followed to identify so-called ‘killer acquisitions’ has several important limitations that make it difficult to conclude on the reality and magnitude of such ‘killer acquisitions’.
• While the Study finds that a number of transactions in the period 2024 to 2018 have been followed by discontinuation of overlapping projects, the Study does not assess—due to lack of information on the parties and the business concerns—whether those took place because of the merger and with a view to eliminating competition, or for other legitimate reasons (e.g., technical or safety concerns, lack of funding, legitimate changes in strategic priorities).
• The Study outlines a menu of tools that could be introduced or enhanced to better detect alleged ‘killer acquisitions’.  It, however, does not provide an assessment on the costs and benefits of each proposed measure and, as such, provides limited insights as to the most effective tools available to address the perceived risk.

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[1] Commission, ‘Ex-post evaluation, EU Competition Enforcement and Acquisitions of Innovative Competitors in the Pharma Sector Leading to the Discontinuation of Overlapping Drug Research and Development Projects,’ November 28, 2024, available here.

[2] Study, pp. 4 and 79.

[3] Study, pp. 14 and 292.

[4] Council Regulation 139/2004, on the Control of Concentrations Between Undertakings (EC Merger Regulation), OJ 2004 L 24 1, (“EUMR”), available here.

[5] See Illumina and GRAIL v. Commission (Joined Cases C-622/11 P and C-625/22 P) ECLI:EU:C:2023:227, paras. 150, 185, 201, and 205–218.

[6] The Commission’s analysis was based on the following publicly available data sources: Springer Nature’s AdisInsight Database for pharmaceutical deals and drug information; clinical trial data from ClinicalTrials.gov and the EU Clinical Trials Register; data on marketed drugs from the FDA’s Orange and Purple Books, as well as the European Medicines Agency’s (“EMA”) European Public Assessment Reports (“EPARs”) and lists of approved generic and biosimilar drugs; and medical journals published online in PubMed Central.  See Study, p. 84.

[7] Ibid., pp.81 and 138.

[8] The Study’s findings are constrained by certain limitations.  Of the 6,315 transactions of interest, 4,616 lacked sufficient information on deal value.  Additionally, nearly half of the transactions did not provide information on the object of the deal, limiting the scope of analysis.  Publicly available sources were the primary data inputs, which may not fully capture commercial incentives, internal business strategies, or the true competitive dynamics of the transactions assessed; Ibid, p. 300–306.

[9] Ibid., pp. 12 and 149.

[10] Ibid., p. 140.

[11] Ibid.,p. 110.

[12] Ibid.,p. 112.

[13] Ibid.,p. 113.

[14] Ibid.,p. 115.

[15] Medical Subject Headings (MeSH) terms are used to categorize and organize information in clinical trials registered on ClinicalTrials.gov, an online database of clinical trials in the United States.  These terms provide a numerical and hierarchical structure that clarifies the relationships between different pharmaceutical products or molecules, helping to identify whether they belong to the same therapeutic class, target similar diseases, or share other relevant characteristics.  Ibid., p. 6.

[16] Ibid., p. 117.

[17] Ibid.,p. 114.

[18] Ibid., p. 7.

[19] Ibid., pp. 132–135.

[20] Although BMS/Celgene and AbbVie/Allergan were notified to the Commission in 2019, the authors of the Study considered they would offer valuable insights and included them in the Study.  Ibid.,pp. 16 and 163.

[21] In selecting these cases, the Commission considered amongst the following factors: (i) the development stage of overlapping products, as late-stage projects tend to pose a greater competitive threat; (ii) the market structure, focusing on high levels of market concentration and limited competitors; (iii) the transaction value in relation to the turnover of the entities involved, which often signals strategic intent to acquire innovative but smaller competitors; and (iv) the presence of exclusivity clauses in licensing agreements which may limit competitive dynamics.  Ibid.,pp. 125 and 165.

[22] Bristol-Myers Squibb/Celgene (Case COMP/M.9294), Commission decision of July 29, 2019 (“BMS/Celgene“), available here.  The Commission assessed overlapping oncology pipelines and cleared the deal with divestment remedies; see also, Ibid., pp. 206–230.

[23] Johnson & Johnson/Actelion (Case COMP/M.8401), Commission decision of June 9, 2017 (“J&J/Actelion“), available here.  The Commission focused on ensuring competition in pulmonary arterial hypertension treatments, ultimately clearing the deal with behavioral remedies to prevent competition loss in the development of insomnia medication; see also, Ibid., pp. 166–179.

[24] Novartis/GlaxoSmithKline Oncology (Case COMP/M.7275), Commission decision of January 28, 2015 (“Novartis/GSK Oncology“), available here.  The Commission investigated overlapping cancer treatment pipelines and cleared the deal without remedies; see also, Ibid., pp. 199–207.

[25] Novartis/GlaxoSmithKline (Ofatumumab) (Case COMP/M.7872), Commission decision of December 22, 2015 (“Novartis/GSK (Ofatumumab)“), available here.  The Commission cleared the deal with divestment remedies to prevent competition loss in autoimmune treatments; see also, Ibid., pp. 179–199.

[26] AbbVie/Allergan (Case COMP/M.9461), Commission decision of May 5, 2020 (“AbbVie/Allergan“), available here.  The Commission approved the deal with divestment remedies to maintain competition in immunology and gastrointestinal treatments; see also, Ibid., pp. 230–239.

[27] Ibid., pp. 135–141.

[28] The Study defines a “narrow overlap” as the presence of two drug R&D projects that share both a therapeutic indication (TI)—the specific condition a drug is intended to treat—and a mechanism of action (MoA)—how the drug exerts its effect—indicating potential substitutability.  In contrast, “broad overlaps” refer to projects that share only a TI or therapeutic area, without sufficient similarity in approach to support a direct competition assessment; Ibid., pp. 96–97.

[29] Ibid., pp. 114; 148–149.

[30] Ibid., pp. 145–149.

[31] Out of 83 transactions identified as having at least one prima facie relevant product discontinuation post-closing, 64 were identified as either stemming from a licensing agreement (27) or R&D collaboration (37).  See further Ibid., p. 138.

[32] Ibid.,pp. 14.

[33] Ibid., p. 285; see further Ibid., pp. 163–164.

[34] Ibid., pp. 161–162.

[35] Ibid., pp. 258–260.

[36] See Illumina and GRAIL v. Commission (Joined Cases C-622/11 P and C-625/22 P) ECLI:EU:C:2023:227.

[37] Study, p. 259.

[38] Ibid.,p. 260.

[39] Ibid., p 286.  The Study does not propose a specific threshold but notes “a certain threshold” that would ensure the given company’s nexus with the EU and likely competitive significance.

[40] Ibid.,p 286. Potential competition between pipeline products and currently marketed products is often referred to as “pipeline-to-market” competition, while potential competition solely between pipeline products is referred to as “pipeline-to-pipeline” competition.  Novartis/GSK Oncology,para. 47.

[41] Study, p. 286,  Appendix A.5 ‘Notice of interest: Forms A and B’ under section II. ‘The Acquisition’.

[42] Ibid.,p. 286.  The Study does not provide the basis on which the Commission would open an inquiry but refers to a possible feature of the registry being suspensions for short periods of steps taken or proposed in a company’s latest entry in the registry regarding the transaction.  This could afford some benefits of ex ante review by allowing the Commission to pursue interim measures (e.g., hold separate and project-maintenance obligations) during the investigation period if the reported discontinuation raises concerns.

[43] Ibid., pp. 286–288.

[44] Ibid., p. 286.

[45] Ibid., p. 292; see further J&J/Actelion, Novartis/GSK Oncology,and AbbVie/Allergan.

[46] Study,pp. 292–293.

[47] However, the Study concluded in J&J/Actelion that the remedies could have been better designed to increase the likelihood that the relevant pipeline would reach the market.  Specifically, the remedies were overly reliant on the active participation of J&J’s partner (Minerva), which ultimately ended the collaboration.  They were not effective in preventing Minerva from withdrawing from its co-developing role, nor were they successful in ensuring that J&J continued developing the overlapping indication.  Ibid., pp. 174–179.

[48] Ibid., pp. 177–179.

[49] The authors of the Study hereby refer to exclusive licenses that ensure that no party other than the named licensee can exploit the relevant intellectual property rights (in general or in, e.g., a geographic region or field of use), thereby limiting the number of firms that can make use of the product; Ibid.,pp. 123.

[50] Ibid., pp. 269–271; see also, pp. 271–278.

[51] Ibid.,p. 268.

[52] Ibid.; Towercast (Case C-449/21), opinion of Advocate General Kokott, EU:C:2022:777, paras. 59–60.