United Kingdom: a Key Jurisdiction for Competition Law Compliance
In the United Kingdom, the Competition and Markets Authority (CMA) has had a clear competition law enforcement focus on the life sciences sector in recent years, both from an antitrust and a merger control perspective. This looks set to continue, with the CMA promising to progress investigations into anticompetitive conduct in the pharmaceutical sector. Going forward, companies in the sector will therefore be well advised to carefully consider the UK as a key jurisdiction from a compliance point of view, particularly as the CMA and UK courts can now diverge from EU case law, following the UK’s exit from the EU.
A significant development impacting life sciences in the UK is the introduction of the National Security and Investment Act 2021 (the NSI Act). Due to concerns over the shifts in balance of both global economic and military power, the increasing competition between states and the emergence of powerful non-state actors, the UK government has considered it necessary to modernise its powers to intervene in certain transactions that could threaten the UK’s national security. While the Secretary of State previously held powers to intervene on national security grounds in mergers subject to the regular merger control regime, these were not considered adequate to protect national security and safeguard the economy’s success and the safety of citizens.
The ‘national security’ scope under the NSI Act is wide and could cover areas such as security of supply in life sciences (e.g., potentially, vaccines).
Under the NSI Act, acquirers must notify a transaction (including internal restructuring) pre-completion to the Investment Security Unit within the Department for Business, Energy and Industrial Strategy, if:
- the transaction increases control of the target entity to or above 25 per cent of shares or voting rights (or increases the percentage of shares/votes in the entity to more than 50 per cent or 75 per cent); or an entity acquires voting rights in the target entity that enable it to secure or prevent the passage of any class of resolution governing the target’s affairs; and
- that target carries out activities in the UK or supplies goods or services to persons in the UK within one of 17 identified sectors.
Among the sectors that could capture transactions within life sciences are synthetic biology, artificial intelligence and advanced robotics.
Sanctions for failure to comply with the NSI Act include the risk of transactions being void if completed prior to clearance, fines and imprisonment.
For certain transactions that fall outside the mandatory regime, there is a voluntary notification regime and ‘call-in’ powers. This includes acquisitions of ‘qualifying assets’, which can include acquisitions of intellectual property rights.
During the early stages of the covid-19 pandemic, the CMA warned pharmaceutical suppliers not to abuse the situation but also issued guidance, stating it would not take enforcement action where temporary, necessary measures were taken to coordinate activities to ensure supply of essential products affected by the crisis.
A more indirect impact from the pandemic has been the increased levels of companies’ staff working from home. The government has therefore proposed to give the CMA powers to ‘seize and sift’ evidence when it carries out dawn raids at domestic premises under warrant and to strengthen the CMA’s powers to obtain information stored remotely.
Main merger control matters
CMA jurisdiction and ‘killer acquisitions’
Currently, the CMA has merger control jurisdiction over a transaction if two enterprises cease to be distinct and either:
- the target’s UK turnover is at least £70 million; or
- the transaction creates or strengthens a UK share of supply of 25 per cent or more in the UK or part of it (the share-of-supply test (SOST)).
If there is a realistic prospect of a merger giving rise to a substantial lessening of competition within any market in the UK, the CMA has a duty to refer the transaction for an in-depth Phase 2 investigation. The CMA’s merger control enforcement has arguably become more interventionist, with the share of Phase 2 referrals of total decisions increasing from around 12 per cent in 2013–2018 to over 21 per cent in 2018–2022.
Notification in the UK is voluntary and no penalties can be imposed for not pre-notifying, even where the jurisdictional thresholds are met. However, the CMA is vigilant about identifying un-notified mergers for investigation. Following Brexit, the CMA can now also separately investigate mergers that have been notified to the European Commission (EC) under the EU Merger Regulation, a recent example of which is the AstraZeneca/Alexion case.
Under the SOST, the CMA can consider a very broad or narrow scope to take jurisdiction. However, to date, the CMA has found it challenging to tackle ‘killer acquisitions’ due to the current jurisdictional thresholds, as the SOST requires overlaps of supply. Pending legislative changes (see below), the CMA has applied the SOST expansively, arguing that it was intended to enable the CMA to intervene in any transactions that may be expected to raise competition concerns within the UK.
For example, in Roche/Spark, the parties argued that the CMA did not have jurisdiction, as the turnover test was not met and Spark did not generate any turnover in the UK in the year preceding the transaction. However, the CMA considered that firms compete well before products are fully commercialised and considered that Spark’s UK activities overlapped with Roche’s, given the following:
- Spark was currently developing two gene therapy products that could constitute a competitive constraint on certain Roche products;
- Spark had already engaged in marketing in the UK through UK-based employees; and
- Spark intended to have UK patients participating in clinical trials at UK sites.
As the parties’ combined share of supply exceeded 25 per cent, based on full-time equivalent employees engaged in research and development activity relating to the treatments in question, the SOST was considered to be triggered.
The government has recently proposed to amend the jurisdictional thresholds, whereby the CMA would have jurisdiction if:
- the UK turnover of the target exceeds £100 million;
- the merger creates or enhances a 25 per cent share of supply or purchases in the UK (or a substantial part of it) and each party’s UK turnover exceeds £10 million; or
- the acquirer has:
- an existing share of supply of goods or services of 33 per cent in the UK or a substantial part of the UK; and
- a UK turnover of £350 million.
The changes to the current thresholds are, therefore:
- increasing the UK turnover threshold from £70 million to £100 million (point (1));
- introducing a new ‘small merger safe harbour’ under the SOST (point (2)); and
- introducing a new tier of thresholds (point (3)).
If adopted, the new third threshold could enable the CMA to investigate transactions without overlaps, increasing its ability to review killer acquisitions and mergers between non-competitors (e.g., between companies operating at different levels of the supply chain (vertical transactions)), which often fall outside the CMA’s jurisdiction under the current thresholds. While this has been considered particularly relevant in tech acquisitions, the new threshold could also capture life sciences acquisitions (including of small companies) with no overlap.
The proposal also introduces a new ‘small merger safe harbour’ under the SOST, which would allow mergers where the acquirer and target each has a UK turnover of less than £10 million, irrespective of market shares. This could prove particularly relevant for mergers between small and medium-sized enterprises and start-ups in more narrowly defined ‘niche’ markets within life sciences.
Overlaps and substantive assessment
Similar to the EC, the CMA applies the Anatomical Therapeutic Chemical classification (ATC), for defining the product scope of relevant pharmaceutical markets. The CMA considers ATC3 as a starting point for overlap analysis, as ATC3 groups together pharmaceuticals based on therapeutic indications, but typically also assesses overlaps at molecule level and pipeline product stages where a product launch appears likely within a reasonable time frame.
Potential future competition can also be considered in competitive assessments. In Illumina/PacBio, a merger between DNA sequencing system suppliers, the CMA found that PacBio had potential to become the closest alternative supplier to Illumina, particularly after the release of a new instrument that would increase PacBio’s competitive constraint on Illumina. Due to the parties being close competitors, the limited available alternatives for customers and the uncertainty about new market entry, the merger was referred for a Phase 2 investigation and ultimately abandoned.
Main infringement proceedings
The CMA has enforced competition law actively in life sciences sectors, particularly in relation to pharmaceuticals, with 10 cases since 2017. Fines imposed have been at record levels and directors have been disqualified under the Company Directors Disqualification Act 1986.
Many CMA cases have concerned ‘niche generics’ and the type of conduct challenged has often concerned forms of market sharing or exploitation through excessive pricing. Examples include:
- suppliers entering profit sharing arrangements to encourage would-be competitors to stay out of a market;
- agreeing with competitors to share downstream supply to a wholesale level customer;
- exchanging commercially sensitive information; and
- withdrawing supply of a product to force patients to switch to more expensive treatments.
The CMA has issued the following decisions in recent years.
The CMA decided that Alliance Pharma (AP) had infringed competition law by effectively paying two would-be competitors (Lexon and Medreich) not to compete in the supply of prochlorperazine. The CMA found that the arrangements had resulted in prices rising by 700 per cent over a four-year period. Having learned that it was about to face competition from Lexon and Medreich, which had taken steps to launch and had obtained licences to supply prochlorperazine, AP appointed Focus Pharma as a distributor of its own prochlorperazine and agreed a profit-sharing arrangement relating to AP’s product in return for Lexon and Medreich agreeing not to compete.
The CMA fined the firms (AP, Lexon, Medreich and Focus) over £35 million in total. The decision has been appealed to the Competition Appeal Tribunal (CAT).
On 2 September 2022, the CMA also announced that it is issuing proceedings in the High Court to seek competition director disqualification orders against seven directors of the four companies.
The CMA found Aspen Pharma had paid its competitors Amilco and Tiofarma to stay out of the market, leaving Aspen as the sole supplier for fludrocortisone, a corticosteroid, thereby breaching competition law.
The case was settled with fines totalling approximately £2.3 million. The CMA also secured a director disqualification undertaking from a director of Amilco not to act as a director of any UK company for five years.
Aspen also agreed to pay an £8 million ex gratia payment to the National Health Service (NHS), to seek to mitigate the risks of a damages claim from the Department of Health. The payment falls outside the formal CMA settlement process and does not preclude the Department of Health from seeking further damages from the businesses involved in the infringement. However, the payments would be offset against any further damages award and would therefore be expected to reduce the risk of damages actions being lodged. This payment was the first of its kind in the UK.
The CMA found that King Pharmaceuticals and Auden Mckenzie, two suppliers of the anti-depressant nortriptyline, had engaged in ‘brand equalising’ (i.e., agreeing to supply a customer at wholesale level at a low price to dissuade it from bringing in parallel imports). The suppliers also agreed to share downstream supply to that customer and fixed the prices of supply, thereby breaching competition law. The CMA characterised this as market sharing, although the ‘sharing’ was limited to dividing supply to one customer with its agreement. The companies also exchanged commercially sensitive information (e.g., on market entry intentions) with each other and with another competitor, Alissa Healthcare Research.
The CMA fined the firms over £3.4 million in total and secured director disqualification undertakings.
Accord-UK (previously Auden Mckenzie/Actavis UK) also agreed to make a £1 million ex gratia payment to the NHS.
The CMA found that Accord-UK (previously Auden Mckenzie/Actavis UK) had effectively paid two would-be competitors, AMCo (now Advanz Pharma) and Waymade, to stay out of the market, thereby breaching competition law. Under the alleged conduct, payments were concealed by an arrangement whereby Auden ‘sold’ hydrocortisone packs to Waymade at discounts of 87 per cent to 97 per cent and then immediately ‘bought back’ these at market prices, without the product leaving Auden’s warehouse.
The CMA fined Accord-UK (and Allergan as the former parent) approximately £66 million, Waymade £2.5 million (for their part in the collusion) and Advanz and the private equity house Cinven (which had exercised decisive influence over the infringing entity for a certain period) a total of approximately £43 million.
The decision has been appealed to the CAT.
Outside the area of pharmaceuticals, the CMA has also demonstrated that it is willing to investigate cases and impose fines where individual healthcare consultants engage in cartels. In Spire, the CMA found that a hospital of the Spire Healthcare Group had instigated and facilitated a price-fixing arrangement with seven consultant ophthalmologists. Under a settlement, the parties all admitted they agreed to fix fees for initial private consultations for self-pay patients and the fines totalled more than £1.2 million, with the consultants being subject to individual fines of up to £3,900.
Pay-for-delay settlements are agreements between originator pharmaceutical companies and generics manufacturers in which the generics manufacturer agrees to delay market entry of its generic in return for payment from the originator. The CMA’s approach to the legality of pay-for-delay settlements is similar to the EC’s.
As regards the view on potential competition in pharmaceutical markets, the CMA considers that if there are ‘real concrete possibilities’ for a generic supplier to enter the market and compete with the originator, they are at least potential competitors. The issue of what constitutes a ‘potential competitor’ in pay-for-delay cases was considered in the CMA’s Paroxetine case and, on appeal, the CAT referred this question to the Court of Justice of the EU (CJEU) in light of the then ongoing Lundbeck case. In its judgment, the CJEU concluded that a generic manufacturer preparing to enter the market is a potential competitor of the originator where:
- the generic manufacturer has a firm intention and inherent ability to enter the market. This will be the case if, when the agreement was concluded, it had taken sufficient preparatory steps to enable it to enter the market concerned within such a period of time as would impose competitive pressure on the originator. These preparatory steps might include:
- obtaining the necessary marketing authorisation (MA) and an adequate stock of generic medicine;
- legal steps undertaken to challenge the originator’s patents; or
- marketing initiatives to market its product; and
- there are no insurmountable barriers to market entry. While this is for the national court to assess, the CJEU found that the existence of a patent, which protects the manufacturing process of an active ingredient in the public domain, cannot of itself lead to a conclusion that there is an insurmountable barrier to entry, as:
- the uncertainty as to the validity of patents covering medicines is a fundamental characteristic of the pharmaceutical sector;
- the presumption of validity of an originator’s patent does not amount to a presumption that a generic version is illegal;
- ‘at risk’ launches of generics and consequent court proceedings commonly take place in the period before or immediately after a generic market entry;
- to obtain an MA for a generic, there is no requirement to prove that the marketing does not infringe any originator’s patents; and
- in the pharmaceutical sector, potential competition may be exerted before the expiry of a compound patent protecting an originator, as generic manufacturers want to be ready to enter the market as soon as that patent expires.
The definition of a ‘potential competitor’ in pay-for-delay cases is therefore likely to continue to follow that established on an EU level, despite the UK’s exit from the EU. In its Paroxetine decision, the CMA took a similar view to the EC’s in considering that patent challenges in themselves were part of the competitive process.
‘By object’ infringement
Another crucial issue in recent pay-for-delay cases has been whether these agreements give rise to an infringement ‘by object’. In the UK, the definition of ‘by object’ restrictions closely mirror that of the European Courts (e.g., in the Paroxetine case, the CAT referred to the Cartes Bancaires case and stated that there needs to be an appreciable effect on trade for an infringement to have been properly demonstrated). For there to be a restriction by object, that assessment ‘focusses on determining the potential effect of the agreement, having regard to its nature and its context, rather than on establishing on the facts what are, or were, its likely effects . . . that potential must be realistic and not fanciful and it must be clear that the potential effects would materially harm competition’.
In considering what constitutes by object restrictions in pay-for-delay cases, the CAT included questions on this in its referral to the CJEU in Paroxetine. In its judgment the CJEU held that a settlement agreement between potential competitors, whereby a manufacturer of generic medicines undertakes not to enter the market or challenge a patent in return for transfers of value, has the object of restricting competition if the net gain from the value transfers can have no other explanation than the commercial interest of the parties not to engage in competition on the merits unless the settlement agreement has proven pro-competitive effects capable of giving rise to a reasonable doubt that it causes a sufficient degree of harm to competition.
The CMA is thus likely to regard a patent litigation settlement as a by object breach if:
- there is a delay to generic entry (e.g., any agreed entry after patent expiry will almost certainly be regarded as a delay); and
- there is any significant value transfer to the generic supplier, particularly if the originator’s patent appears to be weak. Any payments by the originator to the generic supplier beyond litigation costs or anticipated damages are likely to be seen as a payment to stay out of the market.
Abuse of dominance
Recent CMA cases regarding abuse of dominance in the life sciences sector have mainly concerned excessive pricing. The definition of excessive pricing as an abuse of dominance under competition law remains largely that outlined in the United Brands case (i.e., the price bore ‘no reasonable relation to the economic value of the product’, which is assessed through a two-limb test of demonstrating that the difference between the cost incurred and the price charged was excessive (excessiveness limb) and the price was unfair either in itself or when compared to competing products (unfairness limb)).
In Hydrocortisone, the CMA found that Auden Mckenzie/Actavis UK (later acquired by Accord-UK) had charged the NHS excessive prices for hydrocortisone tablets by increasing prices by over 10,000 per cent compared to the original branded version, thereby breaching competition law, and imposed a record fine of £155 million on Accord-UK.
In Phenytoin, the CMA applied the ‘Cost+’ method to determine ‘excessiveness’ and compared the price to a Cost+ maximum of 6 per cent of ‘reasonable return’, which is the Pharmaceutical Price Regulation Scheme target rate return on sales. The CMA recognised that a return on sales of 6 per cent would not necessarily be a reasonable rate of return for a Cost+ assessment for other generic products and could be greater.
The use of Cost+ was challenged on appeal and the CAT found that the CMA had been too strict in restricting the excessiveness limb to Cost+ and excluding other methodologies. The CMA appealed to the Court of Appeal and won on the ground of the existence of a duty to use a hypothetical benchmark price (as the CAT indicated), with the Court of Appeal stating that while there needs to be ‘a’ benchmark against which to measure excess or fairness, that choice of benchmark is for the CMA to choose. However, if the CMA chooses one method (e.g., Cost+) and the defendant relies upon other well-reasoned methods and evidence, the CMA must then fairly evaluate it and cannot easily dismiss it.
Applying a narrow Cost+ as a method in future cases therefore remains a possibility, but these judgments suggest the CMA could be challenged when it does. Following the Court of Appeal’s judgment, the CMA decided to reinvestigate matters on abuse that had been remitted to it by the CAT, and issued a new infringement decision on 21 July 2022. As in its original decision, the CMA found that the firms de-branded the drug, meaning it was no longer subject to price regulation and that Pfizer charged prices 780 per cent to 1,600 per cent higher than previously and supplied the drug to Flynn, which then sold it on to wholesalers and pharmacies at a price up to 2,600 per cent higher than previously charged by Pfizer. According to the CMA, this led to the NHS’s annual costs for phenytoin increasing from £2 million to approximately £50 million in a year. The CMA has fined Pfizer £63.3 million (previously £84.2 million) and Flynn approximately £6.7 million (previously £5.2 million). Pfizer and Flynn have confirmed they will appeal the decision.
In its Hydrocortisone decision of July 2021, which followed the remittals to the CMA of the Phenytoin case, the CMA continued its approach of a narrow Cost+ reasonable rate of return. It used the return on capital employed as its primary measure of the rate of return (as opposed to a return on sales measure, as applied in Phenytoin), concluding that a return of between 5 per cent and 15 per cent was reasonable. The CMA put the Cost+ for 10mg tablets at between £2.70 and £4.45 per pack and for 20mg, between £2.91 and £5.20 per pack. However, in assessing whether the prices were excessive, the CMA stated that it had decided to exercise its ‘discretion to determine its administrative priorities’, not prioritising investigating prices below £20 per pack.
The CMA considered that its calculation of Cost+ was a ‘generous measure’ and maintained that prices above Cost+, but below £20 per pack, could still be excessive and unfair. However, it limited itself to finding that prices were excessive and unfair when they exceeded £20 per pack, stressing that this meant the lowest price at which prices were found to be excessive and unfair (£20) still exceeded the upper bound of Cost+ ‘by 285%’ (or around £15). Presumably this was to seek to reduce the risks of a successful appeal to its decision. Nevertheless, the Hydrocortisone decision has been appealed to the CAT.
In parallel with Hydrocortisone, the CMA also pursued an abuse of dominance case against Advanz Pharma for excessive pricing in relation to liothyronine, at the time a niche generic, and found that Advanz had charged excessive and unfair prices. Advanz was considered to have increased prices by 1,110 per cent from £20 in 2009 to £248 in 2017 and the CMA imposed fines totalling over £100 million, including on two private equity firms that previously owned the businesses now forming part of Advanz.
In recent cases, the CMA has not concluded that any loyalty rebates infringed UK competition law. In Remicade, the CMA closed an investigation in which MSD’s discount scheme with the NHS was thought to have been aimed at foreclosing biosimilars. However, the scheme was found to have been unlikely to limit competition in practice.
In another case closure decision, the CMA also provided some guidance, confirming that its approach as regards loyalty rebates as an abuse is largely similar to the EC’s, as outlined in its Article 102 enforcement priorities guidance. The CMA stated that even where rebates are not conditional on the customer obtaining most of its requirements from a dominant company, rebates or discounts may be capable of restricting competition by having a loyalty-inducing or fidelity-building effect. These schemes may raise competition concerns due to their potential to limit competing firms’ ability to operate in the market.
In the UK, the CMA’s position as regards ‘product hopping’ (or ‘evergreening’) is that it can constitute an abuse of dominance. For example, in Reckitt Benckiser, the CMA held that the firm had infringed competition law by replacing its original product with a new version after the original patent had expired, but prior to generic names for the original product being published. The conduct meant that prescriptions could only be issued for the new branded product, and the CMA considered it would have been irrational to withdraw the original product had it not been for the benefits of delaying generic competition.
Similarly, in Priadel, the CMA took an initial view that Essential Pharma had planned to withdraw supply in the UK of Priadel, a bipolar medication, which would have meant patients had to switch to more expensive similar treatments and then impose higher prices for supply of medication in that product’s class. It should be noted that this case concerned a strategy that had not yet been implemented, and there was no CMA infringement decision. Instead, the case was resolved through commitments whereby Priadel would continue to be supplied on terms agreed with the Department of Health, meaning Priadel could not be withdrawn to obtain any allegedly unjustified price increase.
The CMA will likely continue to regard life sciences sectors as an enforcement priority. In its Annual Plan 2022/23, it stated that it will continue to progress ‘investigations into anticompetitive conduct in the pharmaceutical sector, with a view to ensuring that the NHS, and ultimately the taxpayer, does not pay more than they should for essential medicines and treatments’. In that respect, the CAT’s Hydrocortisone judgment will be eagerly awaited in determining what ‘more than they should’ might entail.
It is also possible that the CMA’s enforcement could increase as a result of the UK’s departure from the EU, as the CMA is now able to investigate cases in parallel with or subsequent to EC investigations. In that context, it is worth noting that the government has proposed to amend the Competition Act 1998 so that it can apply to concerted practices or agreements implemented outside the UK if they have an effect within the UK. Further anticipated Brexit-related legislative changes that will have an impact in life sciences sectors include the UK’s new public subsidy regime, replacing EU State aid rules as regards the UK, and changes to the UK’s public procurement laws. It will also be interesting to see how the UK’s new laws in relation to the internal market (effectively replicating EU measures at a national level to ensure no unlawful discrimination between Member States) will develop.
In parallel with the new EU Vertical Block Exemption Regulation (VBER) being adopted, the UK has adopted its own vertical block exemption, contained in the Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022 (VABEO). This came into force on 1 June 2022, replacing the previous block exemption. While the UK and EU approaches are currently largely similar, they may well diverge further over time. As with the new VBER, among the key changes in the VABEO are more guidance on what constitutes ‘active’ and ‘passive’ sales, particularly in the context of online sales, and some increased flexibility to allow certain restrictions on distributors in relation to online sales. In a life sciences context, these types of changes may prove to be more relevant for non-prescription pharmaceuticals and healthcare products.
1 Robert Eriksson is a managing associate and Gustaf Duhs is a partner at Stevens & Bolton LLP.
3 These 17 sectors are: advanced materials; advanced robotics; artificial intelligence; civil nuclear; communications; computing hardware; critical suppliers to government; cryptographic authentication; data infrastructure; defence; energy; military and dual-use; quantum technologies; satellite and space technologies; suppliers to the emergency services; synthetic biology; and transport. These are all further defined in the NSI Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021.
4 Asset acquisitions will more likely be called in where the assets are linked to any of the 17 specified sectors. In fact, the first transaction to be blocked to date under the NSI Act concerned an asset acquisition relating to a licence agreement that had been voluntarily notified to the Investment Security Unit; see Beijing Infinite Vision Technology Company Ltd (BIVTC)/University of Manchester, 20 July 2022, where the licence agreement in question would have enabled BIVTC to use intellectual property relating to technology that the UK Department for Business, Energy and Industrial Strategy considered had dual-use applications and could be used in military drones or missiles.
5 Competition and Markets Authority (CMA) open letter to the pharmaceutical and food and drink industries, 20 March 2020.
6 This coordination had to be in the public interest, benefit consumers and deal with critical issues arising from covid-19 (see the ‘CMA approach to business cooperation in response to coronavirus (covid-19)’, 25 March 2020); this temporary guidance was withdrawn on 24 June 2022. Due to the covid-19 impact on businesses, the government also implemented orders to exclude the application of the UK Competition Act 1998 in relation to certain types of cooperation (e.g., in the health services sectors) but the Health Services Order was revoked with effect from 29 July 2021.
7 Up to 31 July 2022.
8 AstraZeneca plc/Alexion Pharmaceuticals, Inc. (ME/6926/21), 14 July 2021. The merger was cleared by the CMA and by the European Commission (EC) on 5 July 2021 (Case M.10165, AstraZeneca/Alexion Pharmaceuticals).
9 ‘Killer acquisitions’ are transactions in which an incumbent acquires an innovative target firm (often a start-up or nascent firm) to remove a competitive threat (e.g., by discontinuing its research and development projects) and in a merger control context, the theory of harm will generally be around the loss of potential competition from the target business.
10 Roche Holdings/Spark Therapeutics (ME/6831/19), 16 December 2019.
11 id., paragraphs 82–83: ‘Markets can be characterised by a variety of different business models and . . . the ways in which firms interact (with each other and other market participants) to win business over time can vary significantly. In practice, this means that competitive interactions between firms may not be reduced to overlaps in directly-marketed products or services (as they may in more traditional markets) but can result from overlaps involving pipeline products or services. In the present case, the available evidence shows that significant competition exists between firms well before their products are fully commercialised (i.e., a firm with a currently-marketed product will alter its commercial strategy to compete against a product that is still in clinical development and vice versa).’
13 As developed by the European Pharmaceutical Market Research Association.
14 The CMA is more likely to consider it an overlap the more advanced stage the pipeline product is at (if products are at an early stage in development and entry is highly speculative or a product has failed stability tests, it is less likely to consider it an overlap). Conversely, the CMA is more likely to consider it an overlap if: a party has already taken steps towards commercialisation; internal documents demonstrate intentions to commercialise products in the UK; or relatively advanced pipeline products in practice are operating as a constraint on existing suppliers; see Roche Holdings/Spark Therapeutics (ME/6831/19), 16 December 2019; and Actavis UK/Auden Mckenzie (ME/6513/15), 21 May 2015. Market definitions for veterinary pharmaceuticals are similarly assessed on a narrow basis, based on use and treatment (e.g., in the CMA’s decision in Dechra Pharmaceuticals/Osurnia business of Elanco Animal Health (Case ME/6878/20), 9 June 2020, the CMA assessed overlaps for the supply of first-line antibiotic otitis treatments in the UK and the supply of prescription non-antibiotic otitis treatments in the UK, as well as assessing pipeline overlaps). Note that, as life sciences markets can be defined narrowly, the total value of the UK market may also be low as a result, in which case the de minimis exception could be applied. Under the de minimis exception, where the total UK market value is below £5 million, the CMA will generally not consider an in-depth Phase 2 investigation to be justified unless a clear-cut undertaking in lieu of reference is available. Where the value is between £5 million and £15 million, the CMA will consider whether the expected customer harm resulting from the merger is materially greater than the average public cost of a Phase 2 reference. The application of this exception is rare but has been applied in some life science mergers; see, e.g., the Integra LifeSciences/Codman neurosurgery case where the estimated total size in aggregate of the four relevant markets concerned was approximately £6.6 million (Integra LifeSciences Holdings/Codman neurosurgery business (ME/6682/17), 6 July 2017); and the GLO Dutch Bidco/Mallinckrodt Nuclear Medicine case, where the size of the relevant market in the UK was approximately £4.6 million (GLO Dutch Bidco/Mallinckrodt Nuclear Medicine/Mallinckrodt Netherlands Holdings (ME/6689/17), 26 June 2017).
15 Illumina/Pacific Biosciences of California (ME/6795/18), 18 June 2019.
16 While prices normally fall when generics enter a market, for some generics this does not happen due to market features (e.g., high barriers to entry or low volumes can result in markets being too small to attract further entry). These products have been referred to as ‘niche generics’, where the market ends up being concentrated and sometimes results in significant price increases, thus attracting CMA scrutiny.
17 Case 50511-2, Prochlorperazine, 3 February 2022.
18 Case 50455, Fludrocortisone acetate 0.1mg tablets, 9 July 2020.
19 Case 50507.2, Nortriptyline, 4 March 2020.
20 A King director (disqualified for seven years), an Auden Mckenzie director (disqualified for five years) and an Alissa director (disqualified for two years). The Alissa director was later granted leave to act under strict conditions, partly due to the covid-19 pandemic and the fact that Alissa was effectively a one-man company. Following Lexon’s failed appeal to the Competition Appeal Tribunal (CAT), a Lexon director failed in challenging a director disqualification order before the High Court and was disqualified for four years.
21 Case 50277, Hydrocortisone, 15 July 2021.
22 Case 50782-1, Privately funded ophthalmology services, 1 July 2020.
23 Case AT.39226, Lundbeck, 19 June 2013.
24 Case C-307/18, Generics (UK) Ltd and Others v. CMA, 30 January 2020.
25 id., paragraph 51; and Paroxetine  CAT 9, 10 May 2021, paragraphs 16, 74.
26 For example, the CMA’s definition in this regard is very similar to that of the CJEU’s; see Case CE-9531/11, Paroxetine, 12 February 2016, Annex D (in particular, paragraphs D43–D47).
27 ibid.; see, for example, paragraph 1.10: ‘It is particularly important to prevent patentees (the incumbents) and challengers from entering into anti-competitive settlement agreements in the pharmaceutical sector. That is because patent challenges, often by companies manufacturing generic versions of drugs, are an important means by which the validity of a “legal monopoly” in an important economic area can be tested. As such, patent challenges in this field can in themselves be viewed as an important aspect of the competitive process’. A similar approach was taken by the EC in Lundbeck, upheld by the European courts: ‘Patent litigation, which is very common when new generic products become available through expiry of exclusivity on originator medicines, is in fact an expression of the independent efforts of generic undertakings to enter the market and therefore a form of competition in the pharmaceutical sector. Likewise, patent litigation is also an expression of competition from the side of the originator undertaking, which in this way is trying to defend its market position against generic competition. In the pharmaceutical sector, patent challenges are an essential part of the competitive process between generic companies seeking market entry for compounds that are no longer patent-protected and originator companies that invoke process patents or other process patents against such market entry’ (emphasis added) (see EC decision AT.39226, 19 June 2013, paragraphs 625–626).
28 See Paroxetine  CAT 4, 8 March 2018, paragraph 170; see Case C-67/13P, Groupement des Cartes Bancaires v Commission, 11 September 2014, paragraphs 52–58.
29 Case C-307/18, Generics (UK) Ltd and Others v. CMA, 30 January 2020.
30 For example, higher payments calculated on basis of the generic supplier’s forecast profits or turnover, post-launch.
31 See Case T-460/13, Ranbaxy v. Commission (Lundbeck), 8 September 2016, paragraph 242: ‘reverse payments, were not always problematic from a competition law perspective, provided that such payments were linked to the strength of the patent concerned, as perceived by each of the parties, and were not accompanied by restrictions intended to delay the market entry of generics.’ See, also, the EC’s Lundbeck decision, in which the EC noted that Lundbeck’s internal documents considered they had a 60 per cent chance of failing in a patent invalidity action and that was seen as significant uncertainty that they replaced with certainty by concluding the agreements.
32 For example, when an originator first obtained an interim injunction against the generic but later feared to lose the main case and settled, the generic supplier could claim damages for lost sales whilst having been prevented from marketing its product.
33 Case C-27/76, United Brands, 14 February 1978.
34 A public version of the decision is not yet available.
35 The exact figure is redacted due to confidentiality.
36 The hearing is listed for the week commencing 21 November 2022.
37 Case 50395, Liothyronine tablets, 29 July 2021.
38 HgCapital (fined £8.6 million) and Cinven (fined £51.9 million).
39 By linking the level of discount offered on Remicade to the total amount of the drug purchased, the scheme – when coupled with caution in the National Health Service (NHS) over moving away from tried and tested drugs – was designed to dissuade the NHS from trialling biosimilars, regardless of potential savings.
40 Case 50236, Remicade, 14 March 2019.
41 Communication from the Commission, ‘Guidance on the Commission’s enforcement priorities in applying Article  of the [Treaty on the Functioning of the EU] to abusive exclusionary conduct by dominant undertakings’, OJ 2009 C45/7.
42 Case CE/9855-14, Suspected breach of competition law in relation to the pharmaceutical sector, 26 June 2015. When considering such rebates or discounts, the CMA is likely to consider ‘all the circumstances, particularly the criteria and rules governing the grant of the rebate, and to investigate whether, in providing an advantage not based on any economic service justifying it, the rebates tend to remove or restrict the buyer’s freedom to choose his sources of supply, to bar competitors from access to the market . . . or to strengthen the dominant position by distorting competition’ (see Case T-203/01, Michelin II, paragraph 60).
43 Case CE/8931/08, Reckitt Benckiser/Gaviscon, 12 April 2011 (case resolved through an early resolution agreement). In the UK, where a branded medicine’s patent has expired and a ‘generic name’ has been assigned to it, doctors can use prescribing software to search for the brand and provide patients with an ‘open’ prescription that lists its generic name. Pharmacies that receive these prescriptions can then choose whether to dispense the relevant brand or equivalent cheaper generic medicines. Pharmacies that receive prescriptions for a branded product, as opposed to the generic name, must dispense that branded product, as it is patent protected with no generic equivalents.
44 Case 50951, Decision to accept commitments offered by Essential Pharma in relation to the supply of Priadel, 18 December 2020. The CMA also noted that switching bipolar medication can be difficult for patients and cause health issues.
45 CMA Annual Plan 2022/23, CMA155 (CMA/2022/01), 24 March 2022, paragraph 2.21.
46 Commission Regulation (EU) 2022/720 of 10 May 2022 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.