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

In recent years, concerns about transactions in the pharmaceutical sector harming innovation and competition through the discontinuation of overlapping drug R&D projects, so-called “killer acquisitions”, have prompted regulatory action and research. The objective of this study is twofold. First, the “fact-finding” challenge aims at assessing the pervasiveness and characteristics of the phenomenon of killer acquisitions. Second, the “evaluation” challenge aims to examine the Commission’s past efforts to address potential killer acquisitions, and the legal framework guiding the Commission’s actions.

Under the fact-finding challenge, the study collects publicly available evidence on a large sample of transactions occurring in the period 2014-2018, seeking to determine whether any may have led to a potential killer acquisition. The study is novel in that it assesses not only mergers and acquisitions, but also other types of transactions such as licensing deals and R&D cooperation agreements.  In addition, the fact finding assessment goes beyond a statistical assessment of the probability of killer acquisitions by applying an approach whereby an initial large-scale and automated analysis is followed by a qualitative, case-by-case examination.

Out of a total of 6,315 transactions that were identified in the pharmaceutical sector in the period 2014-2018, information on the remit of the deal was available for 3,193 transactions. Out of these, 240 transactions involved the acquisition of potentially substitutable drug R&D projects, conservatively based on a narrow definition of competitive overlap. A significant proportion thereof (89 out of 240, or 37% of transactions) were followed by the discontinuation of one of the overlapping drug R&D projects and warranting further scrutiny, in the sense that – based on publicly available data – there was no clearly identifiable technical or safety reason explaining the discontinuation in question.

Under the evaluation challenge, the study first analyses how well the Commission’s substantive merger assessment dealt with five notified concentrations in the pharmaceutical sector. It finds that the Commission correctly assessed the killer acquisition theories of harm in these cases, with a suggestion for potential improvement in the remedy design. Then, it analyses the suitability of the merger and antitrust tools to deal with killer acquisitions which are not notified to the Commission, by simulating Art. 22 EUMR and Art. 101/102 TFEU assessments in two case studies. Past experience and a legal assessment suggest that Art. 22 EUMR (for concentrations) and Art. 101/102 TFEU (for non-concentrations) are valuable tools (albeit with limitations) to address such killer acquisitions.

Leniency and Damages: Where Is the Conflict?

Damage actions may reduce leniency programs’ attractiveness for cartel participants if their cooperation with the competition authority increases the chance that the cartel’s victims will sue them. This apparent conflict between public and private antitrust enforcement led to calls for a legal compromise. We show that the conflict is due to the legislation, and a compromise is not required: limiting the victims’ ability to recover their losses is not necessary to preserve the effectiveness of leniency programs and may be counterproductive. We show that damage actions will improve their effectiveness if the civil liability of the immunity recipient is minimized and full access to all evidence collected by the competition authority is granted to claimants. Our results help compare the EU and US damage systems and directly question the 2014 EU directive that tries to protect leniency programs’ effectiveness by restricting access to leniency statements in subsequent damage actions.