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On 30 April 2026, the EU Commission published its draft revised EU merger guidelines (Guidelines) which could come into effect by the end of 2026. Whilst in draft form, the Guidelines reflect the direction of travel for the regime, and the Commission has already started to adopt an approach aligned with them. It is therefore important to understand now what this means for deals.
This blog provides a brief overview of some of the key takeaways for companies in the pharma sector (and, for further details, please see our Competition Notes blog).
Pro-competitive factors – adapting to a changing geopolitical environment
In part, driven by the geopolitical environment, the Guideline's Guiding Principles signify a change of tone with more emphasis on pro-competitive factors, noting that weight should be given to scale, innovation, investment and resilience as factors that can benefit from a degree of consolidation. They acknowledge that scale enhancing mergers can contribute to European competitiveness, particularly where they:
- drive innovation and technological progress;
- help European companies to compete globally; and
- enhance Europe's security and resilience.
Whilst the Guidelines show more openness to the potential pro-competitiveness of a merger, they do not abandon rigorous analysis – for example, the Guidelines introduce additional theories of harm which are discussed further below.
Market power and dynamic competition
The Guidelines note that market power goes beyond market share and is assessed using a combination of factors, none of which is individually decisive. They also recognise that in some industries / markets - with the pharmaceutical sector being a prime example - a static assessment of market power does not fully capture a business' competitive strengths and weaknesses – e.g. where innovation or investment in new products or processes is an important parameter of competition.
In such cases, the Commission will consider the ‘dynamic competitive potential’ on the competitive process a company may have, including factors such as R&D expenditure, patent portfolios, pipeline products and access to competitively significant inputs (e.g. data and technology).
Theories of harm – loss of innovation competition
Existing theories of harm have been expanded and updated and, as noted above, new theories of harm have been added, reflecting the Commission’s approach in recent decisions.
Of particular relevance to the pharma industry is loss of innovation competition. Assessment is not focused on any specific future outcome but on whether a merger significantly impedes the innovation rivalry (for example, by eliminating competition between the merging parties, impeding overall innovation capabilities and efforts in the industry; or altering the parameters of competition in future product markets (particularly by reducing incentives to initiate or continue R&D projects that would otherwise compete with each other).
The Guidelines specifically note that in industries like the pharmaceutical sector which are characterised by a structured product development process, innovation competition may arise through competitive overlaps at different stages of the innovation and product life cycle, for example, between existing products and R&D projects, between R&D projects, as well as within R&D efforts (such as discovery targets and lines of research). In such industries, competitive interaction may be examined at specific innovation stages instead of a given product market, and the final indication, mode of action or commercial application may remain uncertain.
The Guidelines also go on to distinguish two sub-theories of harm:
- Loss of specific innovation competition: arising from overlaps between R&D projects or between R&D projects and existing products, which may lead to discontinuation, delay or redirection of one or both parties' projects (killer/reverse killer acquisitions).
- Loss of general innovation competition: where a merger between firms with overlapping innovation capabilities may significantly impede early-stage innovation competition, ultimately reducing the likelihood that consumers benefit from new or improved products.
New ‘innovation shield’ for small innovative companies
The Guidelines introduce a new ‘innovation shield’. Under this, transactions involving small innovative companies, including start-ups and R&D projects, with a dynamic competitive potential will not give rise to a finding of a significant impediment to effective competition in a number of scenarios, depending on the nature of the overlap created by the transaction and factors such as the parties’ combined market shares and the number of businesses with similar competitive potential remaining on the market.
Conclusion
As ever, it will be important for deal makers to engage in a thorough competition analysis upfront and take into account possible (and now expanded) theories of harm as well as any pro-competitive benefits (it now being open to parties to show the pro-competitive rationale of a deal). Merging parties should carefully consider the new Guidelines and frame their strategy accordingly to maximise chances of a successful regulatory outcome.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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