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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Global | Publication | March 2021
On March 16, the US Federal Trade Commission, US Department of Justice, offices of US state Attorneys General, the Canadian Competition Bureau, the European Commission's Directorate General of Competition and the United Kingdom's Competition and Markets Authority announced the formation of an international working group to assess and update the agencies' approach to analyzing the effects of pharmaceutical mergers. This initiative follows increased scrutiny of pharmaceutical mergers in recent years by competition agencies around the world, particularly of their potential effects on drug prices and innovation.
Historically, antitrust agencies have considered narrow product markets consisting of the merging parties' products that compete directly with one another, and "innovation markets" for pharmaceutical products in sufficiently advanced stages of development—traditionally, at least Phase 3 of clinical trials.
However, in recent years, competition authorities have expressed concerns that this traditional narrow approach to pharmaceutical mergers does not properly account for potential harms to innovation or the potential for the merged firm to engage in anticompetitive conduct. This has led to a broader assessment of innovation, with agencies analyzing products at earlier development stages, and consideration of even more hypothetical effects such as "pipeline to pipeline" competition and the potential closure of R&D facilities or programs, in line with the current interest of competition agencies in so-called "killer acquisitions."
But even this broader approach has raised concerns that pharmaceutical mergers may hinder effective innovation. Then-FTC Commissioner Slaughter dissented in the FTC's acceptance of two pharmaceutical consent decrees, expressing concerns that the divestitures required in AbbVie / Allergan and Bristol-Myers-Squibb / Celgene would harm innovation competition and failed properly to account for anticompetitive conduct by the merged firm, respectively. This echoes industry's concerns that the historic, narrow approach may not take into account the economic reality of product development, and the uncertainty pipeline products are always subject to, particularly for new products such as biosimilars.
Specifically, the working group intends to consider:
Although the specific changes to the assessment of pharmaceutical mergers from this new working group remain to be seen, the creation of this multinational working group strongly suggests that antitrust enforcers in North America and Europe intend to tighten reviews of mergers and acquisitions involving healthcare and pharmaceutical companies. Where permitted, as in the United States, authorities may even re-open the review of already consummated transactions (as the FTC has recently done in the digital sector). Equally, in Europe, ex-post review of consummated transactions may arise from the new trend of competition authorities to make more extensive use of referrals to the European Commission even where the transactions did not meet any filing thresholds, should they risk adversely affecting competition. Acquisitions of rising innovative biotech companies, like start-up players in the digital sector, are at the forefront of these new areas of concerns.
FTC Acting Chair Rebecca Kelly Slaughter said that the FTC "intend[s] to take an aggressive approach to tackling anticompetitive pharmaceutical mergers," including reexamining the FTC's prior pharmaceutical merger reviews. While the Canadian Commissioner of Competition has not made such direct statements, he has identified the promotion of competition and innovation in Canada's health sector, including the pharmaceutical industry, as a strategic priority for the Competition Bureau. European Commission Executive Vice-President Margrethe Vestager commented, "An innovative and well-functioning pharmaceutical sector is essential for meeting the needs of our citizens. . .. I therefore warmly welcome this initiative, which brings together some of our closest partners worldwide to take stock of the lessons learned in recent years and explore new ways to foster vibrant competition to the benefit of citizens."
Moreover, the CMA's participation likely signals a higher post-Brexit profile for that agency in international antitrust cooperation efforts. The CMA has expressed a strong interest in the pharmaceutical sector and has carried out a number of investigations (notably into "excessive pricing"), which would suggest a cautious approach to pharmaceutical mergers in the United Kingdom.
While the working group is focused on mergers, one can expect the authorities to discuss other antitrust matters in the healthcare and pharmaceutical industries, including limits on competitor collaboration and pay for delay. While it is not clear if the working group will consult the industry, it will likely be important for individual companies or industry associations to provide input at some point. The progress of the working group should therefore be monitored and consideration should be given to how and whether to engage with the working group, either proactively or in response to proposed guidelines on pharmaceutical mergers.
Norton Rose Fulbright has significant experience in healthcare and pharmaceutical antitrust matters in the US, Canada, the EU and the UK. We would be pleased to assist healthcare and pharmaceutical companies in monitoring the working group's activities and developing possible response strategies.
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