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10 key themes

Antitrust in innovative sectors — new opportunities and risks for businesses in the regulatory spotlight

Innovation-driven industries, such as the life sciences, digital and tech sectors, have been high on antitrust authorities’ enforcement agendas for a number of years.

In Europe, the intervention rate (i.e., clearance subject to remedies or prohibition) in the life sciences sector in the last five years has been 28 percent — four times the intervention rate across all industries. President Biden’s Executive Order on Promoting Competition in the American Economy signaled a focus on antitrust enforcement in the healthcare and tech sectors. This trend of intense scrutiny on innovative industries shows no sign of abating in 2022.

At the same time, funding in these innovation-driven segments, such as digital health, continues its upwards trajectory. The degree of antitrust scrutiny means that companies and investors active in these segments should plan for longer and more complex regulatory processes with less predictable outcomes and should conduct targeted due diligence of existing commercial practices as a routine part of investment decisions.


Be prepared for more complex transaction reviews

The European Commission and UK CMA have been intensifying scrutiny of sectors where innovation plays a key role. With the agencies pushing both jurisdictional and substantive boundaries, deal makers need to come armed with a compelling pro-customer deal rationale and evidence that stands up to a range of possible counterfactuals.

Simon Priddis
Antritrust Partner,

Intervention by at least the US, EU and UK antitrust authorities in deals in innovation-driven sectors is increasingly unpredictable. The authorities are actively engaging with each other — not just in respect of individual cases, but on broader policy development (for example, through the recently announced Multilateral Pharmaceutical Merger Task Force, initiated by the US FTC and including the Canadian Competition Bureau, the EC, the CMA, the US DOJ, and Offices of State Attorneys General, a working group aimed at updating the enforcement agencies’ approach to analyzing the effects of pharmaceutical mergers). Companies must be ready to engage on complex theories of harm as agencies push the established bounds of substantive and jurisdictional assessments (see theme 2):

  • Loss of innovation competition has become a mainstream theory of harm. In the US, the Biden Administration has signaled that it is likely to increase its scrutiny of the effects of a merger on innovation - looking not just at direct overlaps, but also at broader innovation competition concerns that do not relate to specific pipeline products. While it remains to be seen whether this will result in different outcomes for individual cases in the US, companies can expect more thorough investigations into innovation strategy, pipeline and investment, resulting in longer and more complex merger reviews. EU and UK antitrust authorities also continue to scrutinize whether transactions may lead to a reduction in innovation across an entire market or field of innovation (including in areas where the parties may not yet be active).

In merger investigations, competition regulators are looking further back into the innovation pipeline, focusing not just on late-stage products that are close to market, but also at early-stage projects and overall R&D strategies. This can dramatically increase the scope of an investigation and the time needed to eliminate competition concerns, leading to longer review timelines, more expense, and more uncertainty for businesses.

Jenn Mellott
Antritrust Partner,
Brussels and Washington, DC

  • Antitrust authorities are increasingly focused on vertical and conglomerate aspects of mergers, looking for in particular the potential for reduction in competition through reduced post-merger access to key upstream inputs, such as active pharmaceutical ingredients, data inputs, IP and interoperability. In recent cases, the EC has raised concerns around how reduced access to inputs could create a downstream loss of innovation and product development. These theories of harm are particularly relevant in life sciences and tech sectors where companies often aim to be ubiquitous partners for all types of clients (e.g., pharma companies, biotechs, start-ups, research institutes and academia). As a result, there tends to be a high degree of cross-supply in these sectors and merging parties can often be both a key supplier and a downstream competitor.
  • Nascent and dynamic competition is a particular focus for the UK CMA, with recent cases highlighting the authority’s desire to consider competitive effects beyond current competitive conditions. The CMA’s new merger assessment guidelines give it a high level of flexibility and discretion regarding the assessment of likely and possible entrants and the overall direction of future competition and innovation. This leads to less predictable outcomes for companies, especially as the CMA has already shown that it will chart its own course in pursuing these concerns. Likewise, it is telling that the EC has chosen a high-profile and US-centric life sciences deal (Illumina/Grail) as the test case for its revamped approach to the use of Article 22 EUMR, asserting jurisdiction following referral of a transaction that would not otherwise have been notifiable at either Member State or EU level (see theme 2).
  • Mixing of merger review and other policy objectives particularly impacts life sciences and tech deals (including concerns around national security, technological leadership, critical supply chains and data privacy/security) (see theme 3), and we have seen more of this during the pandemic. Politicians and regulators continue to tread the fine line between promoting innovation and choice, and not dampening investment and growth in strategically important industries.

Companies need to be prepared to present robust evidence in response to these complex concerns, including on a multitude of possible (hypothetical) markets. The current landscape presents opportunities for those who are able to substantiate a compelling, pro-customer and pro-innovation deal rationale. More than ever, companies in innovative industries need a truly global and well-planned approach to their regulatory clearance strategy, even for prima facie national or regional deals.

With agencies in the US, UK and Europe increasingly coordinating on investigations, tech and life sciences companies need to develop and execute strategies for engaging consistently with regulators around the world. The need for a joined-up defense is greater now than ever before, especially for mergers receiving close scrutiny in multiple jurisdictions.

Andrew Ewalt
Antritrust Partner,
Washington, DC

Investment, licensing and collaboration - plan for success

The investment focus on innovation-intensive industries is understandably driving a wide variety of deal structures that can be used to pursue joint research and innovation objectives, including data and/or asset pooling, or partnering with early-stage start-ups. 

If the parties are, or could become, actual or potential competitors during a collaborative venture, they will need to consider appropriate safeguards, including around information exchange and possible “spillover” risks between the collaboration project and their own businesses. This may also impact the ease with which option rights can be exercised in the future, which in turn needs to be reflected in appropriate risk allocation mechanisms and exit options. For example, option deals may, depending on their structuring, not be notifiable at the time of signing, but could become notifiable once the rights are exercised (and could face in-depth reviews depending on how the parties’ own pipelines evolved in the period between signing and notification). There is also the risk that agreed option rights cannot be exercised by the expected buyer because another deal concluded in the meantime creates a product or innovation overlap which makes it difficult to exercise the underlying option.  We are seeing ongoing litigation around these issues in the US.

In addition, licensing, collaboration and option agreements may impact medium-term M&A strategy. Antitrust authorities analyze minority stakes and other investments as if they are part of the overall portfolio of the merging parties. This means that without holistic planning, relatively small collaborations or option deals could complicate or delay future acquisitions.

Life sciences and tech companies need to be prepared for more complex and lengthy antitrust reviews. This needs to be reflected in appropriate closing periods and risk allocation mechanisms. Careful deal structuring will be key to maximizing commercial objectives, especially in innovation-driven industries where clients have to plan for a range of possible outcomes and exit strategies.

Adam Golden
Global Transactions Partner,
New York

Continued investigation of commercial practices

Outside of merger control, life sciences and tech companies can expect continued close scrutiny of business practices that sit at the intersection of competition, consumer, data privacy and IP/patent laws, as well as other political sensitivities (such as the protection of national health services). For example: 

  • Significant unexplained price increases continue to attract regulatory scrutiny, with further excessive pricing fines being imposed on pharma companies in the EU and UK. The US agencies continue to investigate a string of generic drug price-fixing allegations, which may have resulted in inflated prices for federal health care programs and end customers. These cases highlight that the protection of national health care programs is high on the enforcement agenda on both sides of the Atlantic.
  • Non-pricing behaviors, such as misuse of patent processes and the instigation of marketing campaigns that seek to unlawfully restrict the use of competing products, are also in the spotlight. Potentially narrow market definitions in connection with innovative products, especially in pharma, can result in abuse of dominance findings in connection with pricing and non-pricing behaviors.
  • Territorial restrictions aimed at preventing parallel trade remain an enforcement priority in the EU. The position on EU/UK trade restrictions is both uncertain and complex following Brexit.
  • Consumer rights investigations, including the UK CMA’s consumer investigation into PCR testing, and the US government’s investigations and actions against various “big tech” players are ongoing. We are increasingly seeing consumer class action suits in both jurisdictions following regulatory infringement decisions.

These investigations can result not only in substantial fines, but also, in some cases, in individual sanctions, such as director disqualifications in the UK.

Agencies in the US, UK and EU have doubled down on enforcement action in innovative industries - especially life sciences and tech. The agencies in the US, UK and EU are looking not only at M&A deals, but also pricing, anticompetitive agreements and other commercial practices.

Alan Ryan
Antitrust Partner,
Silicon Valley

With thanks to Marta Janek and Jenny Leahy for their contributions to this theme.

Looking ahead in 2022:

  • Be ready to engage on complex theories of harm. Companies should be able to present compelling evidence for their deal on a number of different hypothetical market scenarios. If data and/or innovation-driven concerns are likely to arise, parties should think proactively about global remedy packages. Vertical and conglomerate concerns may require creative structural or behavioral solutions.
  • Assess the risk of a transaction being reviewed even if thresholds are not met. As mentioned in theme 2, businesses need to look beyond revenue-based thresholds in order to assess the risk of investigation by the EC pursuant to an Article 22 referral by the CMA under its share of supply threshold even for transactions that are not reportable. This is particularly relevant for deals in innovation-driven sectors.
  • Anticipate future regulatory requirements when designing alternative deal structures, such as option deals, licensing and collaboration agreements. Companies and investors should analyze at the outset whether meaningful overlaps or other competition concerns are likely to arise in the future if the project succeeds. Build in appropriate contractual mechanisms to address these points upfront.
  • View regulatory risk and compliance holistically. Companies in innovative industries need to take particular care to ensure that business models and commercial strategies are compatible with competition, consumer, data privacy and IP/patent laws. Have a pro-consumer, pro-innovation and pro-transparency narrative that is well-understood across the business.

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