"Killer acquisitions" study of the EC

On November 29, 2024, the European Commission (EC) made public a report assessing "killer acquisitions" in the pharmaceutical sector. Antitrust authorities around the world have increasingly expressed their concerns about this specific type of transactions, characterized by the take-over of highly innovative corporations, mostly start-ups, by incumbent firms. It has been pointed out in different studies recently that these operations tend to hamper or discourage the innovative potential of the acquired company.

The report focuses specifically on the pharma sector, where innovation is of the utmost importance as a driver for competitiveness. It analyses the application of the EU competition legal framework on concentrations in the pharma sector (as well as other non-concentrative agreements such as licensing agreements or R+D cooperation projects) from 2018 to 2022, while also confronting the killer acquisitions theory with the case-by-case reality.

The study found that out of the 3,193 transactions informing the analysis, 240 brought narrowly overlapping drug projects under the influence of the same company. Out of the 240 cases of overlapping products, 92 were followed by the discontinuation of one of the overlapping drug R&D projects (38%). Considering the nature of the transaction or agreement, these discontinuations are distributed mainly across merger and acquisitions (54%), R&D agreements (42,5%), purchases (33%), and licensing agreements (27%). It is interesting to highlight that, even though machine learning methods were essayed during the investigation, they proved inadequate for the matter. Manual screening played therefore a crucial role in verifying whether the public evidence may support or contradict a killer acquisition theory of harm.

Regarding the discussion upon the EU legal toolbox for addressing the phenomena, the report concludes that the Commission’s substantive assessment is overall effective in detecting possible killer acquisitions. Interestingly, though, it also highlights how the most relevant discontinuations are typically not structured as concentrations, thus making the ex-post antitrust rules (i.e., articles 101 and 102 TFUE) a powerful tool to deal with killer acquisitions. The report can be accessed here.