The authors discuss the historical and likely future treatment of pharmaceutical mergers from a regulatory and merger control perspective.
Pfizer’s recent reported approach to Actavis is the latest in an extremely busy period of corporate transaction activity in the pharmaceutical industry, amounting to $317.4 billion in transaction value in the first half of 2014 according to Thomson Reuters. This activity includes the purchase by Actavis of Allergan (which was pursued by Valeant for most of the year), AbbVie’s aborted acquisition of Shire, Pfizer’s abandoned offer for AstraZeneca, the purchase by Novartis of GSK’s oncology business, the purchase by GSK of the vaccines business of Novartis, the purchase of Novartis Animal Health by Eli Lilly, the purchase by Bayer of Merck’s consumer care business, and the sale of KY brand of lubricants by Johnson and Johnson to Reckitt Benckiser.
The stated reasons behind consolidation in this sector are varied but if there are any trends one can identify, these are:
Any industry consolidation has the potential to give rise to complications from a regulatory perspective. Transactions might be subject to regulatory intervention in a number of ways:
Each of these interventions are considered in turn.
There is a plethora of examples of merger control intervention in the life-sciences sector. Broadly, the exercise carried out by the merger control authorities is to compare the degree of competition prior to the transaction with the degree of competition that might be anticipated once the parties have merged. In carrying out this analysis, the authorities focus on the portfolio of merging parties’ products to see whether any overlap or synergies created by the merger might lead to competition problems.
The traditional view is that the pharmaceutical sector might be less likely than others to give rise to problems from a merger control perspective. Reasons for this include the following:
However, there are a number of reasons why the pharmaceutical sector may anticipate greater regulatory intervention going forward:
Public interest intervention
The aborted Pfizer/AstraZeneca transaction led to some controversial suggestions of intervention by government on public interest grounds in order to protect UK interests, and specifically UK jobs at AstraZeneca.
However, in the UK, there is no basis for public interest intervention in mergers in the life-sciences arena. Currently, the scope for public interest intervention in the UK is limited to the grounds of national security, stability of the financial system and media plurality, and has only been used rarely; for example, the UK government allowing Lloyds bank to buy Halifax Bank of Scotland (HBOS) to prevent the latter’s potential collapse, and the intervention in Newscorp’s acquisition of BskyB on media plurality grounds.
It would appear arguable that any public interest type intervention by government in a life sciences merger would be seen by the European Commission as a breach of European Union law; for example, because it might constitute interference with the exclusive competence of the European Commission to review and decide on mergers notified to it.
The Takeover Code
One interesting development arising from the abandoned bid by Pfizer for Astra Zeneca has been a proposed amendment to the Takeover Code to seek to ensure that pre-completion assurances made by companies in the context of bids are binding on them once the bid is accepted. This stemmed from a concern at the time of the Pfizer bid for AstraZeneca that Pfizer might renege on a promise to invest in a UK-based AstraZeneca research facility after any acquisition had been completed. A consultation on the proposed new powers closed on 24 October 2014, and the amendments will take effect on 12 January 2015. This amendment clearly shows an intention by the UK government to seek to protect UK interests, albeit indirectly and in a way that is more likely to be legal from an EU law perspective.
It follows that regulatory intervention in the pharmaceutical sector as a result of the greater number of transactions is set to increase. There are a number of merger decisions currently outstanding, and it will be interesting to see what precedent arises from these. We can certainly expect closer regulatory scrutiny and intervention, both from a merger control and possibly a public interest perspective.
About the authors
Gustaf Duhs is a partner and heads the Competition and Regulatory team at Stevens & Bolton.
Maliha Mahmood is a senior associate in the Competition and Regulatory team.
Both Gustaf Duh and Maliha Mahmood are members of Stevens & Bolton’s Life Sciences Sector Group.
Article DetailsPharmaceutical Technology Europe
Vol. 27, Issue 1
Citation: When referring to this article, please cite as G. Duhs and M. Mahmood, “Pharmaceutical Mergers: Changes in the Regulatory Landscape,” Pharmaceutical Technology Europe 27 (1) 2015.