A senior official at the European Commission’s Directorate-General for Competition said critics of the enforcer’s decision to require divestiture of research and development assets in the Dow/DuPont merger did not understand it. Pallavi Guniganti at GCR Live in New York
Speaking in his personal capacity yesterday, Paul Csiszár, director of DG Comp’s basic industries, manufacturing and agriculture directorate, said he would recommend to lawyers who had made conclusions without reading the enforcer’s Dow/DuPont decision “not to be too theatrical on public comments on some of these innovation cases”, and noted that the decision has not yet been published.
In March, DG Comp conditioned clearance for the deal between the two US chemical companies on the divestiture of not only overlapping products, but also almost the entirety of DuPont's global R&D organisation.
“Innovation is something which is extremely important for advanced economies. Dynamic competition is almost more important than static price competition,” Csiszár said.
DG Comp had concrete evidence to support the conclusion that the Dow/DuPont deal would lessen innovation in the market for pesticides, he said. Moreover, that market showed very little entry; a “club of five” companies had dominated long-term development and discovery of new active ingredients.
When seeing such internal documents coinciding with an industry trend of less spending on R&D while profits rose, “you start to wonder – without necessarily drawing conclusions on causation,” Csiszár said.
He admitted that there is much greater uncertainty when looking at innovation cases, as in most such cases “often we cannot rely on good economic evidence,” because it is “much more difficult to model [long-term innovation] in a robust way.”
Csiszár compared DG Comp’s thinking in the agrichemical tie-up to its enforcement in pharmaceutical deals, which only in the past few years has begun examining overlaps between drugs that both merging companies have in the development pipeline. For example, in January 2015 the agency cleared a deal between Novartis and GlaxoSmithKline after the companies committed to divest Novartis’ clinical trial programme for certain cancer treatments.
He added that while he was “agnostic” about whether the European Commission should change its merger thresholds to include the value of the acquisition rather than just the acquired company’s revenues, “I personally would like to have jurisdiction on pharma pipeline sales” – which he currently lacks because products still in development have no revenue.
Van Bael & Bellis partner David W Hull, who interviewed Csiszár at GCR Live, asked how a competition authority can know that others do not have rival products in the pipeline. Csiszár said it was easy in pharmaceuticals, where “everyone watches each other like a hawk” and the long regulatory process for safety approval makes leapfrogging competitors unlikely.
Similarly, in Dow/DuPont DG Comp could see where products were in development, Csiszár said, and also could see that a few companies were in “innovation pockets” that specialised in developing new products for specific pests or climates. But unlike drugs to treat human diseases, where the “upside is the sky”, with pesticides the financial benefits of innovation are limited by the quantity of crop being planted, he said.
Companies in the agrichemical business try to avoid undercutting sales of their existing products, Csiszár said, and merging two large companies enhanced the risk of cannibalisation.
He claimed that Dow and DuPont’s internal documents showed they planned post-merger to have fewer total resources for discovery and development than they had before the deal. DuPont had also been “a type of maverick,” he said, producing more active ingredients relative to its overall sales volume than the other four companies active in R&D.
Csiszár denied that the EU and US think differently about innovation as a matter of principle, and reminded the audience of a Department of Justice official’s comments earlier in the day. Patricia Brink, head of civil enforcement for the DOJ’s antitrust division, had said “don’t read too much” into the US reaching a different conclusion in Dow/DuPont, and noted that facts such as market conditions were particular to each jurisdiction.
Conceptually, “I think we applied very similar principles to those laid down in the US guidelines on innovation,” Csiszár said.
GCR Live 5th Annual New York ended yesterday.