The main novelty of our study is the systematic collection, for a large number of deals in the pharmaceutical industry, of factual evidence that could potentially support or dismiss a killer acquisition narrative for specific deals. Existing research mostly provides theoretical or statistical estimates of the overall magnitude of the phenomenon, that cannot be used to pinpoint specific transactions
In the assessment of each of these cases, the following methodology has been adopted:
We first assess the evolution of the overlapping drug R&D projects following the acquisition by examining whether the R&D project has been further developed (e.g. has been moved to a subsequent phase of clinical trials) and/or commercialized. In cases cleared with divestiture, this amounts notably to examining whether the divested asset has been developed and commercialized. When the evidence collected suggests that there has been a discontinuation, the Team first investigates whether the firms’ decision to discontinue the pipeline project is grounded on technical reasons (e.g. safety reasons, poor accrual, poor experimental design). In case the discontinuation can be technically motivated, it can be concluded that it would have happened anyway, and it is unrelated to the merger.When there is not enough or solid evidence suggesting there are technical reasons behind the decision of discontinuing the pipeline project, the Team performs an overall assessment of the Commission’s decision. The key dimensions that typically characterize the Commission’s assessment and that the Team evaluates are: ▪ the definition of the relevant market: are the relevant drugs close substitutes?▪ the assessment of the existing and potential competitors in the relevant market: are there viable and strong competitors to preserve and stimulate the race to innovation? The competitive landscape may also provide useful insights on the chance of success of a pipeline, i.e. the technical and commercial value, regardless of the firms’ incentives.▪ in case of remedies: have the remedies been properly designed to mitigate firms’ incentives to distort competition?
This is an assessment of the suitability of merger and antitrust rules to deal with killer acquisitions that, as such, deserve further scrutiny.Killer acquisitions may fall in one of the following three groups, depending on the modalities of the acquisition and consequently on the available tools to capture them:▪ concentrations that were notified to and examined by the Commission. These cases fall within the scope of the EUMR, and for a sample of such mergers we evaluated if the Commission’s clearance decision (with or without remedies) was followed by a harmful discontinuation, or whether any remedies imposed were effective in impeding competitive distortions;▪ transactions that are structured as concentrations but fall outside the EUMR because they are below its reporting thresholds. For these cases we considered how the Commission or relevant National Competition Authorities (NCAs) could have detected the potential harmful effects of those killer acquisitions;▪ transactions that fall outside the EUMR because they do not constitute concentrations within the meaning of the EUMR (e.g. licensing agreements). The aim with reference to this group of deals has been investigating to what extent the Commission could rely on Articles 101 and 102 TFEU to deal with those killer acquisitions.The report first seeks to find out how well did the Commission’s substantive merger assessment deal with five transactions involving overlapping R&D projects that were notified to the Commission in the period 2014-2019.233 The analysis aims at ascertaining whether the Commission has correctly anticipated the risk of discontinuation, and in case of remedies, whether the remedies have effectively addressed the concern raised.We then turn to a discussion that relates primarily to a different kind of transaction –that is, acquisitions of small innovators whose turnovers may not reflect their competitive importance or trigger review at the time they are acquired. The fundamental question here is not whether the Commission’s substantive assessments are sound, but whether the Commission and other competition regulators have appropriate notice and opportunity to address such transactions ex ante in the first place.We begin our assessment in this area by considering key parameters of the Commission’s competence under the EUMR, and then briefly review various alternatives to the current notification thresholds that have been proposed and some of the challenges they present. We then discuss a different approach to the problem, in the use of referrals under Article 22 EUMR as a corrective mechanism to address cases where regulatory competence otherwise might be lacking or misplaced. We conclude that the referral process is workable in specific situations and has enabled the Commission to address some anticompetitive transactions more effectively. We then conduct two hypothetical case studies, to show how Article 22 EUMR and Articles 101 and 102 TFEU might be applied in practice to deal with potentially harmful transactions. In particular, we start from the facts of two cases that were highlighted in the fact-finding challenge as deserving further scrutiny, and – after having made some assumptions that allow us to obtain two fictitious cases that clearly support a killer acquisition narrative – we evaluate the available tools to deal with such cases. The first case study includes the assessment under Article 22 EUMR tailored to the specific, hypothetical, facts assumed in that case. The second case study allows to formulate twodistinct hypothetical scenarios: one where the transaction can be seen as a concentration – and hence the Article 22 EUMR assessment is conducted – and one where it can be seen as a license agreement – and hence we assess whether Article 101 and 102 TFEU would have been well suited to deal with it.Finally, we observe that a singular challenge in addressing potential killer transactions is detecting them in the first place, given the many ways they might be structured and their possible execution with respect to small, innovative targets. As discussed in Chapter I, many (particularly licensing) transactions are not publicized in any meaningful fashion, and there appear to be very few features by which competitively benign and killer transactions can be systematically distinguished from each other. We therefore suggest that the Commission might consider establishing an online registry of newly acquired interests in pharmaceutical pipelines (of which we provide a model) for a trial period that would enable it to monitor developments and to determine whether the maintenance of such a registry might be a proportionate and effective supplement to current enforcement tools. Box 13: Facts used in our assessments of transactions and case studiesIt is important to note that in assessing individual transactions and preparing this Report, we have relied solely on publicly available information, and did not have access to the companies involved in the relevant transactions or any confidential business information. We relied, in particular, on the following sources of information: ▪ Springer Nature’s AdisInsight database on drugs in commercial development worldwide;234▪ ClinicalTrials.gov worldwide);235(i.e. the most comprehensive registry of clinical trials ▪ online resources for medical professionals, including journal articles regarding the results of clinical trials and R&D trends/challenges that were accessible free of charge through the PubMed database,236 treatment guidelines of various medical associations (e.g. ESMO) that were in force (and often amended) over the period covered in this study, and information published by the EMA and FDA on their official websites;▪ representations made by transaction parties (in, e.g. their press releases, annual reports, SEC filings, published pipelines, management interviews, and the like), which were assembled from the parties’ websites and other online archives; and news reports and analyses by specialists in the pharmaceuticals sector (e.g. Scrip237 and Fierce Pharma238), as well as more general, business-oriented news publications online.Where these public sources were not sufficiently clear, we drew on the knowledge and experience of pharmaceutical industry experts in the Team to assess, e.g. the scope for competition between different molecules, technical trial results and their commercial ramifications, pipeline prospects for success, and the various incentives that might have shaped firms’ strategic decisions.Our desk research into numerous transactions confirms that it is often impossible to reach definitive conclusions, on the basis of public information alone, regarding the reasons companies discontinued various pipelines or the competitive effects of such discontinuations. Accordingly, all references in this Report (whether express or implied) to facts that are not established as matters of public record must be regarded as hypothetical and a means of facilitating the discussion of points of law. They are neither allegations of wrongdoing nor statements of actual fact, and the authors expressly disclaim any interpretation or use of all or any part(s) of this Report that is inconsistent with the foregoing.
For each case assessed as part of the evaluation challenge in section II.1 of the Final Report, this section reports the overlaps that were found by the Commission and for which no discontinuation took place or those that are not relevant for our ex-post assessment. As the methodology, described in section II.1.1.2 of the Final Report,explains, for those overlaps no further analysis is necessary. A.4.1 J&J/ ActelionThe Commission found an overlap between marketed products of Biogen, Inc. (“Biogen”) distributed by J&J in a number of Central and Eastern European countries and one pipeline product of Actelion for the treatments for multiple sclerosis.Table I.42 below shows the evolution of the Parties’ projects after the merger. As shown, Actelion’s molecule, which was a pipeline at the time of the merger, was marketed in the US and registered in Europe in March 2022. As per Biogen’s drugs, these were all marketed at the time of the merger and they are all still marketed today. Therefore, no discontinuation of the Parties’ molecules for the treatments of multiple sclerosis took place.
Novartis/ GSK Oncology: MEK inhibitors for ovarian cancer:
The Commission found an overlap between Novartis’ and GSK’s MEK inhibitors for lowgrade serous carcinoma (“LGSC”), a rare type of ovarian cancer. In particular, Novartis’ and GSK’s MEK inhibitors (MEK162 and Mekinist respectively) were both in phase III clinical trials for LGSC at the time of the Decision. Table I.43 below shows the evolution of the Parties’ projects after the merger. As shown, a new trial for MEK162 in ovarian cancer is due to start in December 2022, implying that this molecule was not discontinued. As per GSK’s drug, Mekinist, the Phase III study identified by the Commission in the Decision is still “active”. The results, published in February 2022, are positive, and suggest that “Mekinist should be considered a new standard of care for LGSC”.617 Therefore, no discontinuation of the Parties’ moleculesfor the treatments of LGSC took place.
MEK inhibitors for uveal melanoma:
The Decision reports that at the time of the Transaction Novartis had an on-going Phase III clinical trial for the use of its MEK inhibitor (MEK162) in uveal melanoma, while GSK was not developing its MEK inhibitor (Mekinist) for uveal melanoma. The Commission was concerned that, given the more advanced stage of development of GSK’s molecules in other indications (such as advanced melanoma), it was unlikely that the merged entity would have the incentives to pursue MEK162 only for uveal melanoma. The EC cleared the merger subject to remedies, which involved the divestiture of MEK162 and another of Novartis’ molecules (LGX818) to Array.In our ex-post assessment, we noticed that Novartis’ Phase III study referred to by the Commission couldn’t be found. Array was conducting a Phase I/II trial of MEK162 during the Commission’s review. The study622 was begun in August 2013 and terminated for technical reasons in May 2015. The Commission’s reference to a Phase III study may come from there (as uveal melanoma was a minor detail in the Commission’s review, “I/II” may have been transcribed as “III” and the study then erroneously attributed to Novartis). Pfizer, which acquired Array in 2019, is currently trialling MEK162 for uveal melanoma (its most recent study started in December 2021 and is recruiting).623As per GSK’s activity in uveal melanoma, The EC did not mention it in the Decision, but ClinicalTrials.gov reports that GSK also conducted two Phase II trials of Mekinist for uveal melanoma before the merger: one begun in October 2013 and completed in September 2017624, the other begun in 2010 and was then cancelled before any patients were enrolled.625Thus, if our intuition regarding the Array Phase I/II trial having been mistakenly attributed to Novartis is correct, then Novartis would have had no trials for MEK162 in uveal melanoma at the time of the Transaction, and the EC concerns that MEK162 could be discontinued in uveal melanoma would not stand.MEK and B-Raf inhibitors for melanoma brain metastasesThe evolution of the overlapping projects after the mergerTable I.44 details the evolution of Novartis’ combination therapy of MEK162 and LGX818 for the treatment of melanoma brain metastases after the Transaction. As shown, we found that no progression to a later phase was reached for the combination therapy, but new trials are ongoing. Thus, the combination therapy was not discontinued.
Table I.45 details the evolution of GSK’s Mekinist and Tafinlar for melanoma brain metastases after the Transaction. We found that both GSK’s monotherapy of Tafinlar and its combination therapy were discontinued. Since Novartis after the Transaction is not able to influence Array, the discontinuation of GSK’s projects (which were, through the Transaction, acquired by Novartis) is not of interest for our ex-post evaluation.
Reasons for discontinuation:
We found that GSK’s monotherapy of Tafinlar, as well as GSK’s combination therapy were discontinued. Our analysis suggests that these discontinuations were grounded in technical reasons. The ESMO guidelines633 report that there are a number of therapies (or modalities) that can be applied for melanoma brain metastases depending on the individuals’ needs, including targeted therapy with B-Raf/MEK combination (dabrafenib + trametinib). However, they also note that “the optimal sequence or combination of these modalities has not been fully determined, but recent results [including the COMBI-MB trial of dabrafenib + trametinib] can help with decision making until ongoing clinical trials bring more definitive answers.” Therefore, the guidelines seem to flag the importance of new clinical trials to determine the optimal therapeutic approach in this indication.Interpretation of the trial results and feedback from the pharmaceutical experts in the Team suggest that the discontinuation of GSK’s molecules for melanoma brain metastases is due to lack of sufficient efficacy. In fact, our experts advise that the language “it is active” and “there is evidence of clinical benefit” (see the results of the COMBI-MB trial reported in Table I.45) is entirely consistent with when a study doesn’t produce compelling data. Limited enrolment, which as highlighted in Table I.45 brought two trials to termination, is likely to be a secondary effect that demonstrates lack of investigator buy-in to the treatment. Moreover, our pharmaceutical experts suggest that an indication for metastatic melanoma will cover the use in brain metastases, unless it is contra-indicated. The actual use/uptake of the product in brain metastases (an underserved and difficult to treat population) would be driven by evidence and that data if positive could be added to the Summary of Product Characteristics (SPC) to support prescribing. The performed trials show that there has been an attempt to generate this evidence but the data does not seem to be compelling enough to take it further.Therefore, it appears that GSK’s molecules were discontinued for technical reasons, and therefore these discontinuations were unrelated to the merger
BMS/CelgeneIdiopathic Pulmonary Fibrosis (IPF):
In the market for IPF treatments, the Transaction gave rise to pipeline-to-pipeline overlaps between Celgene’s CC-90001 (JNK inhibitor, Phase I at the time of the Decision) on the one hand, and BMS ND-L02-s0201634 (HSP74 inhibitor, Phase II) and BMS-986278 (LPA(1) antagonist, Phase I) on the other. The relevant product market was defined as IPF treatments, with further subsegmentation left open as even in the narrowest possible market delineation (e.g., oral treatments for IPF), no competitive concerns arose due to the Transaction. The relevant geographic market was defined as global or at least EEA wide. Based on the available information, the Commission considered that the Transaction did not raise serious doubts as to its compatibility with the internal market. Firstly, Celgene’s CC-90001 and BMS’ pipeline products are very differentiated in terms of MoA that affect different inflammatory pathways. It was also likely that these drugs would serve different patient groups and would likely have different efficacy and safety profiles. Secondly, postTransaction, the combined entity would continue facing competitive constraints from a large number of actual and potential competitors. Moreover, the Commission found that, given the absence of cure or disease-modifying treatment available on the market, there was high unmet demand for IPF therapies. As such, it was unlikely that the combined entity would have had incentives to discontinue, delay or reorient any of its pipeline products, especially as they were differentiated. In view of the above, no commitments were proposed.Our investigation of the evolution of the IPF programmes post-Transaction can be seen in Table I.46 below. As shown, no discontinuations were detected.
BET inhibitors:
In the market for pipeline BET inhibitor drugs, the Commission found overlaps between Celgene’s CC-90010 and CC-95775 on the one hand, and BMS’ BMS-986158 on the other. The relevant geographic market was defined as global or at least EEA-wide. The Commission excluded serious doubts as to the compatibility of the Transaction with the internal market regarding BET inhibitor drugs. According to the assessment, postTransaction, the combined entity would continue facing competitive constraints from a large number of actual and potential competitors in BET inhibitor drugs. Thus, no commitments were proposed. An overview of our investigation regarding the evolution of the projects post-Transaction can be seen in Table I.47 below. As shown, no discontinuations were detected.
Immunotherapies for NSCLC:
In the market for immunotherapies for NSCLC, the Transaction gave rise to overlaps between Celgene’s pipeline MSC-1 on one hand, and BMS’ marketed Opdivo monotherapy, as well as pipelines of Opdivo combination therapy and Yervoy on the other. The market investigation did not reveal any concrete elements supporting the existence of serious doubts regarding anticompetitive outcomes of the Transaction. Firstly, it was concluded that the MoA of Celgene’s pipeline is very different from BMS’ marketed and pipeline immunotherapies for NSCLC. This meant that if the Parties’ pipelines were to reach the market, there was no indication that the drugs’ efficacy and safety profiles would be similar. Secondly, the development of MSC-1 was at a very early stage (Phase I). At this stage, prospective indications remain uncertain and subject to change especially with respect to immunotherapies. Finally, the combined entity would face competition from at least three marketed products, and several pipeline programmes. In view of the above, no commitments were proposed. Our investigation revealed no discontinuations,
Immunotherapies for ovarian cancer:
In the immunotherapies for ovarian cancer market, the Commission found that the Transaction gave rise to overlaps between Celgene’s pipeline MSC-1 (Phase I), and BMS Yervoy pipelines (Phase II). The market investigation did not reveal any concrete elements supporting the existence of serious doubts regarding anticompetitive outcomes of the Transaction. Firstly, Celgene’s and BMS’ pipelines have very different MoA, implying that in case the Parties’ pipelines reached the market, there was no indication that the drugs’ efficacy and safety profiles would be similar. Secondly, the development of MSC-1 was at a very early stage. At this stage, prospective indications remain uncertain and subject to change especially with respect to immunotherapies. Finally, the combined entity would face competition from several pipeline programmes, including three Phase III pipelines. In view of the above, no commitments were proposed.Our investigation of the evolution of the overlapping programmes revealed no discontinuations,
Immunotherapies for pancreatic cancer:
In the market for pancreatic cancer immunotherapies, the Transaction gave rise to overlaps between Celgene’s pipeline MSC-1 (Phase I) on one hand, and BMS Opdivo (combination, Phase I/II and III), BMS-813160 (Phase II) and Cabiralizumab (Phase II) on the other661. The Commission’s market investigation did not reveal any concrete elements supporting the existence of serious doubts regarding anticompetitive outcomes of the Transaction. Firstly, the Parties’ pipelines are differentiated products, with distinct MoA and thus likely different efficacy and safety profiles. Secondly, the development of MSC-1 was at a very early stage. At this stage, prospective indications remain uncertain and subject to change especially with respect to immunotherapies. Finally, the combined entity would face competition from several pipeline programmes, including pipelines which are at an advanced stage of development. In view of the above, no commitments were proposed
The overlap revealed by the fact-finding challenge in non-small cell lung cancer (NSCLC), gastric cancer and pancreatic cancerThe fact-finding challenge revealed two discontinued overlaps that do not appear in the Commission decision. The first one is described in section II.1.4.5 of the Final Report, while the second one is covered in this section, since the Team’s assessment revealed that it does not appear to be related to the BMS/ Celgene deal. This overlap is between BMS’ BMS 986148 and Celgene’s Paclitaxel in several indications: non-small cell lung cancer (NSCLC), gastric cancer and pancreatic cancer.669It should be noted that this overlap was identified in a therapeutic indication proxied by MeSH codes and in a MoA proxied by PMC correlation. Such an approach is used in the fact-finding challenge when perfect overlaps between therapeutic indications and MoAs cannot be established, and implies that it is not clear cut whether there is indeed substitutability between compounds. Further manual scrutiny in order to ascertain the relationship between the drugs is required.670 At the time of the deal, BMS’ compound was in a Phase I study in advanced solid tumors, among which the above-mentioned narrower indications, whereas Celgene’s compound was marketed in all those indications. After the deal, BMS’ compound’s Phase I study was terminated “for business reasons not related to safety”.671With regard to this discontinued overlap, the Team’s experts advised that: i) even though the large-scale analysis established a close relationship between the drugs’ mechanisms of action based on PMC, BMS 986148 is an Antibody Drug Conjugate, and Paclitaxel a chemotherapy agent, and as such they are not substitute with each other in the commercial reality, ii) in 2019, Paclitaxel was already nearing the end of its life cycle (3-4 years until US generic entry and a European generic already present in 2019), thus a targeted agent like BMS’ compound would have been a good way to extend the franchise, implying that if possible the acquirer would have avoided the discontinuation, and iii) there were a lot of other BMS’ compounds competing with BMS 986148 to be used in combination with another of its drugs, nivolumab, and possibly some of them had more compelling results. In summary, the drugs weren’t directly substitutable, so the discontinuation of BMS’ compound wouldn’t have had an impact on the market positioning of Paclitaxel. Furthermore, the Team and its experts deem that the discontinuation was most likely due to commercial reasons related to BMS having other better performing compounds.