On March 16th, a coalition of competition law enforcement agencies in Canada, the U.S. (at the federal and state level), the European Union and the UK announced the launch of a new international working group to develop updated approaches for merger review in the pharmaceutical industry.
In its announcement, the Canadian Competition Bureau stated that the working group will examine a variety of issues "related to mergers in the pharmaceutical industry, including potential updates and expansion of current theories of harm, the evaluation of the full range of effects of a merger on innovation, as well as potential remedies to resolve emerging concerns" (emphasis added).
The U.S. Federal Trade Commission (FTC) issued a press release with additional detail, noting that the working group would consider the following key questions:
- 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? (emphasis added)
In coordination with announcements from the Bureau, the European Commission and the UK Competition and Markets Authority, the FTC, which initiated the working group, held a press conference to announce the multilateral partnership. Acting FTC Chair, Rebecca Slaughter, stated that there is widespread enthusiasm across all canvassed agencies, including the Offices of U.S. State Attorneys General, for a renewed pharma-specific scope of merger review.
Ms. Slaughter also confirmed that so-called "killer acquisitions" (i.e., an incumbent acquiring a nascent competitor in order to pre-empt future competition) will be considered by the working group, including with respect to incentives for new pharma start-ups, whether start-ups can bring innovative products to consumers, and the effects of pharma mergers on those incentives. She also noted that the working group's analysis may lead the FTC to reconsider, and take action against, completed pharma mergers (although this is relatively uncommon, there is no limitation period within which the U.S. antitrust agencies can review consummated mergers; the Canadian Competition Bureau has a one-year limitation period, running from the date of closing, in which to do so). Finally, Ms. Slaughter noted that while the pharmaceutical industry is the group's current focus, this multilateral approach could be applied to other industries in the future.
Industry observers may note with some concern the references from both the FTC and the Canadian Competition Bureau to "expanding" theories of antitrust harm. Additionally, the potential consideration of non-merger-specific factors, such as prior antitrust misconduct or other "regulatory abuses", in merger review would represent a significant departure from existing practice in Canada and the United States.
Although no timetable was given regarding the working group's output, today's announcement appears to signal future changes in how pharmaceutical mergers will be reviewed by competition law agencies in Canada, the U.S., the EU and the UK, and underscores the importance of understanding the merger review process in key jurisdictions. For further information on merger review in the pharmaceutical industry, contact our Competition/Antitrust & Foreign Investment Group.
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Originally Published by McCarthy Tetrault, March 2021
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