The Dark Side of the Moon: Detecting and Scrutinizing Life Sciences M&A Remains Top of Mind at EC Expert Workshop

In November 2024, the European Commission (EC) published an extensive study on so-called ‘killer acquisitions’ in the pharma sector, carried out by economic consultancy firm Lear. The Lear study seeks to assess the prevalence of deals involving innovative competitors with potentially overlapping pipeline R&D projects – particularly where, post-transaction, there is an unexplained discontinuation of one of the overlapping projects.

No conclusive evidence, but close scrutiny expected to continue

The Lear study is significant in that it looks not only at M&A but also at other common life sciences deal structures – including licensing arrangements, R&D agreements, asset purchases, and other strategic collaborations.

Out of a total of 6,315 transactions analysed in the pharma sector in the period 2014-2018, public information was available for 3,193 transactions. Out of these, Lear identified that 240 transactions involved potentially overlapping R&D projects and that 37% of these transactions (i.e., 89 out of 240) were followed by the discontinuation of a pipeline where it was not possible to clearly identify a technical or safety reason for the discontinuation. In other words, in 37% of all analysed cases with an overlap, Lear identified that there was a possible ‘killer M&A’ motive, but was unable to find conclusive evidence based on public information alone – as such, these deals were identified as deserving closer scrutiny.

Further, and notwithstanding the caveats and limitations of the analysis, the study considered that a possible ‘killer M&A’ motive could not be excluded in as much as 54% of ‘traditional’ M&A deals, 43% of R&D agreements and 27% of licensing deals – prompting Lear to highlight non-M&A structures as an area for further research. These findings are notable given the recent updates to the R&D block exemption regulation (on which the EC consulted extensively) which recognize the largely pro-competitive and innovation-enhancing nature of such agreements.

Where next for enforcers?

Last week, the EC held an online expert workshop to discuss the findings of the Lear study in more detail. The workshop covered an academic assessment of the study’s strengths and weaknesses, the detectability of potential ‘killer acquisitions’ under antitrust rules, as well as avenues for further research.

EC officials conceded that, while the study did not find actual evidence of ‘killer acquisitions’, their view nevertheless remains that detecting ‘killer acquisitions’ should continue to be an enforcement priority.

While it is not yet clear how the EC’s current and future thinking around ‘killer acquisitions’ will translate into policy or legislative changes, businesses active in the life sciences space can expect:

1. ‘Killer acquisitions’ to remain an enforcement priority across Europe. The EC’s investment in, and continued focus on, the Lear study highlights that ‘killer acquisitions’ remain top of mind. This is not a surprise: Competition Commissioner Ribera’s statements during this year’s ABA Antitrust Spring Meeting made clear that ‘killer acquisitions’ – and finding ways to scrutinize those deals that fall below the existing thresholds for review – remain a priority. After the Court’s judgment in Illumina/Grail, the EC now has to rely on Member State authorities which have jurisdiction to review a deal under national merger control rules to review a deal via the Article 22 referral mechanism. This has prompted Member States to seek to broaden their authorities’ jurisdiction, e.g., by granting powers to call in below-threshold deals.

2. Non-M&A deal structures are not immune to scrutiny. Given the study’s focus on the presence of potential ‘killer M&A’ motives beyond classic acquisitions of control (i.e., as captured by merger control rules), we expect further policy debate around the possible use of Articles 101/102 TFEU to scrutinize non-M&A structures and below-threshold deals. The study observes that the lack of publicly available information on deal terms – such as the allocation of marketing and distribution rights and other financial incentives – makes it even harder to assess how these transactions may alter parties’ innovation incentives. This could therefore be an area for closer scrutiny in the future, especially where parties remain active in similar fields of research outside the collaboration. The EC’s ongoing investigation into Zoetis’ alleged termination of an alternative pipeline product that it acquired in 2017 is a live example of the use of Article 102 TFEU in relation to a non-reportable deal resulting in a subsequent pipeline termination.

3. Even earlier stage pipeline reviews (‘the dark side of the moon’). The examination of competitive overlaps where at least one asset is in the early stages of development (including pre-clinical assets), and transactions involving incumbents with successful marketed products, is also expected to increase. Parties should expect closer scrutiny of early-stage pipelines notwithstanding the practical challenges in identifying what the likely therapeutic areas and/or modalities will be for such (very) early-stage assets (if, indeed, they succeed through to late-stage trials at all).

4. Documents, documents, documents. Finally, a consistent theme arising from the workshop is the strong evidentiary value attributed to ordinary course internal documents, and what they might say about the factors leading to a decision to discontinue (or redirect) certain pipeline assets. It is critically important to document in an accurate, contemporaneous and detailed way the technical and safety risks relating to specific pipeline assets, information gathered from clinical trial read-outs, and any other scientific evidence that has formed the basis for commercial decision-making. This applies not only to transaction documents, but any documents discussing discontinuation decisions following a transaction, given the potential for such decisions to be subject to antitrust scrutiny several years down the line.

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